Original Video Source: David Lin
Compiled by: Azuma, Odaily Planet Daily
Editor's Note: During last Monday's earnings call, MicroStrategy first mentioned 'preparing to sell Bitcoin if necessary to pay dividends', a statement that immediately sparked intense market debate about its 'betrayal of faith'.
In response, MicroStrategy Executive Chairman Michael Saylor recently joined David Lin's podcast to delve deeply into the underlying logic behind this decision, emphasizing that he only said 'would sell', not that he would be a 'net seller'.
Saylor also mentioned that MicroStrategy is leveraging Bitcoin's extremely high appreciation properties as 'digital capital' to achieve arbitrage by issuing digital credit instruments (like STRC), thereby ensuring the continuous net growth of its holdings. Below is the full content of the podcast (abridged), compiled by Odaily Planet Daily.
Podcast Interview
David Lin (Host A): It is my great honor to have MicroStrategy Executive Chairman Michael Saylor join us. Co-hosting with me is Bonnie Chang. We will begin with MicroStrategy's recent announcement and Michael Saylor's posts on social media. Bonnie, let's start.
Bonnie Chang (Host B): Last week you announced something that shocked the entire internet.
Michael Saylor: Uh, you're probably referring to our statement on the earnings call—that we are prepared to sell Bitcoin if necessary to pay STRC dividends.
Bonnie Chang: I believe that was a very considered decision. What is the thinking behind it?
Michael Saylor: The most important point is that we want 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 products, we turn around and buy $1 million worth of Bitcoin. Our expectation for Bitcoin is that it appreciates about 30% annually, and in reality, its appreciation is closer to 40% per year. We can peel off the initial 11% of those capital gains and pay it out as dividends.
The market has been confused about what we would use to pay the dividends? For most of history, we have paid dividends by selling common stock (MSTR equity). MSTR equity is a derivative of Bitcoin and usually trades at a premium to Bitcoin. So we were selling a Bitcoin derivative, but some people worried we might not be able to sell equity in the future.
Then some bearish narratives emerged, saying we had to sell equity; others said the company would never sell its Bitcoin. These narratives morphed into—'Well, if they don't plan to sell Bitcoin, then Bitcoin must have no value, they can never sell it. If they can't sell it, then we can't count Bitcoin as an asset on the balance sheet.'
If you own $65 billion worth of something and people want to value it at zero, that's not great, right? We don't want credit rating agencies to think the company's assets are zero. We want them to believe we have $65 billion in assets. Additionally, there are online 'haters' constantly complaining it's a Ponzi scheme because we fund the preferred stock dividends by selling equity.
What we want to do is reinforce this business model—sell credit to invest in Bitcoin; over time, this investment appreciates faster than the dividends accrue; then we realize the capital gains and pay the dividends.
We believe the best way to clarify this is to state clearly that 'the company never needs to sell common stock', we only need to sell the significantly appreciated Bitcoin 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 at $10,000 per acre, develop it to a value of $100,000 per acre, and then realize that capital appreciation.
You could sell the land at $100,000 per acre, or rent it out after full development, or remortgage it. No one questions a real estate development company that uses credit proceeds for capital investment. We are doing the same thing with Bitcoin, and we want to make sure the market understands this.
I became famous for saying 'never sell your Bitcoin', which is why the internet exploded when they heard we might sell. But if I were more precise, it should be 'never be a net seller of Bitcoin'. However, 'never be a net seller' just doesn't sound as catchy or spread as easily.
I believe in these times, even if we were to sell 1 Bitcoin, we would buy 10 to 20 back. So, you're actually talking about a scenario of 'buy 10, sell 1, net buy 9'. Once people understand that, it shouldn't be an issue, but for now, it remains a controversial topic.
Bonnie Chang: Could you explain how you can sell 1 Bitcoin while buying 10?
Michael Saylor: Sure. MicroStrategy'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. And the dividend is about $80 to $90 million.
So, in this month where we raised $3 billion, we only need to take out $80 or $90 million to pay the dividend—essentially, you're buying 30 Bitcoin while selling 1.
Our 'break-even rate' is roughly 2.3%. This means if the credit debt we issue equals 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 that if Bitcoin appreciates 2.3% annually, we can pay dividends permanently and continue to create value without selling any common stock.
In the first four months of this year, we have sold about $5 billion worth of STRC. At this 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 future month and quarter, we will be a net buyer of Bitcoin.
Bonnie Chang: I have another question. Many investors almost religiously believe in 'never sell 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 said 'never sell your Bitcoin', I meant if you're going to spend it on something, make sure you replenish it as you spend it.
Many crypto or Bitcoin believers say they want to buy things with Bitcoin. I would say, then fill the hole 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 you started with.
For analogy, if Google spends $1 billion building a data center and makes $10 billion from it, they net $9 billion. That doesn't crash the dollar market, right? No one exclaims 'Google sold dollars to buy a data center'.
The dollar will be fine, and it doesn't undermine Google's business model. They spent $1 billion investing 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 Bitcoin, I think it's good for Bitcoin and good for the company... When the equity capital market is less liquid than the Bitcoin market, we want to be able to utilize this market.
Whenever a company removes an option from itself, saying 'we will never ever do something', no matter what it is, the result is often regret. For example, if we said we 'would never, ever buy back our own stock, only sell stock', then shorts would dump our stock all the way down to $1. When the price has a huge discount to Net Asset Value (NAV), if we could buy back, those shorts would get hurt. By exploiting their irrationality, we could make a lot of money.
So, what we really expressed on the earnings call is—we will exchange STRC for MSTR, we will exchange BTC for MSTR, we will use BTC or MSTR to pay dividends, we will do whatever is in the best interest of the company. But over time, we expect to be a net accumulator 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 mispricings.
Another thing we said yesterday is that we are prepared to buy back our bonds. Currently, our corporate debt trades cheaply, undervalued, so it makes sense to buy it back, but not to sell it. We won't sell undervalued assets; we will buy undervalued assets and arbitrage any opaque inefficiencies. If the market knows we will do this, the market will give a fair valuation to all these assets. That benefits investors in all these instruments, and ultimately, that is 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 supposed Ponzi scheme going a bit longer. But I suspect when that moment comes, he will choose to suspend the dividend and let STRC collapse rather than let Bitcoin collapse.' What is your response to that?
Michael Saylor: Peter thinks Bitcoin is a Ponzi scheme. Peter doesn't really like anything in this space. Bitcoin is 'digital capital', and we purchase this capital by selling equity and credit instruments, thereby creating a digital finance company. I believe Bitcoin will endure because it represents global economic wealth in tokenized form with full property rights.
We have built a credit instrument, STRC, on top of it, 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 will never acknowledge any derivative on it as legitimate. But for those who believe Bitcoin can store economic wealth in tokenized form, what we are doing is very straightforward.
STRC employs an over-collateralized model: for every $5 worth of Bitcoin, we sell $1 worth of credit debt, and this $1 of credit debt has a clear yield. There are many people who believe Bitcoin is a legitimate asset but just can't stomach 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. So for them, digital credit makes a lot of sense because the principal is protected, it's more stable. Plus, they can get 3 to 4 times the yield of the money market through STRC, which is exactly the characteristic of Bitcoin being superior to other capital assets, allowing us to pay such high dividend yields.
David Lin: Here's a theory I'd like 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 MicroStrategy goes to buy Bitcoin. So, they start 'front-running' by buying Bitcoin before STRC reaches par, betting that you and MicroStrategy 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. Therefore, billions, tens of billions of dollars worth of STRC trade 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 people 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 calculus. That's fine, and it's good for us because it creates liquidity and engagement; this situation 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'. The factors driving the Bitcoin market are trade wars, hot wars, foreign policy, national situations, and the Iranian situation in the Strait of Hormuz, 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 are in a fairly tight monetary environment now, so these macro factors are the primary 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 have bought $200 million worth of Bitcoin in an hour, and it didn't move the price; we have bought $200 or $300 million and then stopped, and the price actually went up.
So, no one has enough power to push Bitcoin's price performance... Well, if you were planning to put $30 billion into the market in an afternoon, maybe. But I've spent a lot of money; we've bought more Bitcoin than anyone I know, we've probably bought $62 billion worth of Bitcoin. I believe it's a global market with its own momentum.
So, those claims about us being able to influence the price are actually flattering us, but I don't believe that's the case.
Bonnie Chang: Why do you say the price doesn't budge when you've bought so much Bitcoin?
Michael Saylor: Because the market liquidity is extremely deep. Suppose I were to buy $1 billion today, even that is only 1/50th of a $50 billion trading volume.
If you ask traders, they'll say spot market daily volume is sometimes $20 billion, and the derivatives market sometimes reaches $80 billion. In such a deep, liquid market, what is $100 million? That's what's special about it. On a weekend, if you want to put on a $1 billion position with 20x leverage, you can absolutely do it in the Bitcoin market; if you want $1 billion in credit within an hour, you can do it in the Bitcoin market.
I do believe macro factors drive Bitcoin, and sometimes Bitcoin has its own life force. Micro factors also drive it, I mean industry factors, like the formation of digital credit, bank credit, and investor sentiment towards Bitcoin assets—these all 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 hold it back.
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 are trapped by high inflation. So, what ultimately happens to liquidity? If the Fed remains trapped, what happens to Bitcoin?
Michael Saylor: I think when you face tight monetary policy, high global trade tensions, and high geopolitical tensions due to foreign policy or war, all of these are somewhat binding; they are headwinds. I think when these factors reverse, they become tailwinds.
But regardless, Bitcoin will grind up slowly, because the organic supply from miners is only about $10-12 billion per year, only 450 Bitcoin per day. You can do the math yourself.
Then, every time we raise another $10 billion in capital, we are buying up 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 in STRC digital credit, that's 'a second turn of the axle'; when $10 billion flows into IBIT (BlackRock's Bitcoin spot ETF), that's 'a third turn of the axle'.
So, capital flows, digital credit, digital capital wrapping tools, and bank credit—all of these are driving the market fundamentals, and they are all positive. No matter the macro factors, you will see continuous adoption. The role of macro headwinds or tailwinds is simply that, when we should be grinding up 30%, a tailwind might make us surge 50%, while a headwind would slow us down somewhat.
David Lin: Has your logic for Bitcoin changed?
Michael Saylor: No change. But I would 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, outperforming the S&P 500 by two to three times, it logically 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 is the most liquid preferred stock in the entire market and the largest preferred stock in the market. It has the highest Sharpe ratio. We have successfully created an instrument with a Sharpe ratio of 3 and a payout rate of 11% to 12%.
The stock with the highest Sharpe ratio is Nvidia, around 1.7; the S&P 500 is about 0.9... None exceed 1, and even the top hedge funds you can find have Sharpe ratios that can't exceed 2.2.
So, digital credit actually has 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 holds—if Bitcoin is the best-performing capital, then convertible bonds backed by Bitcoin become the best-performing convertibles, and credit instruments like STRC 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'd guess over 70%?
Michael Saylor: 60% of all preferred stock in the US this year was issued by us. Last year and this year, we are the largest credit issuer in the country. We have revitalized the preferred stock market; STRC has grown explosively.
So, I think the novelty is the idea that 'digital capital drives digital credit'. As you see on the show, digital credit is a stepping stone to digital currency. Because now a whole host of stable coins/tokens pegged to the US dollar and paying 8% or 9% yield have emerged; 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 been an explosion of innovation in digital assets, cryptocurrency, and traditional finance, driven by digital credit. And Bitcoin is the foundational asset that makes digital credit possible. This might be the most exciting thing this year.
Bonnie Chang: One last question. Was it 'Have Space Suit—Will Travel' that inspired you to go to MIT? Let's go back before MIT, 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 would give me 10 cents for every book I read. I had a comic book addiction; 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 would go to the library, check out 10 books 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 would 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 space suit, gets picked up by a ship, travels the universe, and saves humanity from 'worm-eyed monsters'.
What is the reward for saving humanity? He gets a full scholarship to MIT. I thought, if MIT is good enough for that hero who saved humanity, it's probably good enough for me. So, come hell or high water, I was going there.
David Lin: If Elon Musk invited you to Mars, would you accept?
Michael Saylor: That depends on what kind of vehicle he offers to take me there.
