Article Source: David Lin
Compiled by | Odaily Planet Daily (@OdailyChina); Translator | Azuma(@azuma_eth)
Editor's Note: During last Monday's earnings call, MicroStrategy first mentioned being "prepared to sell Bitcoin if necessary to pay dividends," a statement that immediately sparked intense market debate about its "abandonment of faith."
In response, MicroStrategy Executive Chairman Michael Saylor recently provided an in-depth analysis of the underlying logic behind this decision while appearing on David Lin's podcast, emphasizing that he only said "will sell," not "will be a net seller." Saylor also mentioned that MicroStrategy is leveraging Bitcoin's exceptional appreciation property 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 (edited) of the podcast, compiled by Odaily Planet Daily.
Podcast Interview
David Lin (Host A): It is my great honor to co-host this exciting interview with MicroStrategy Executive Chairman Michael Saylor, and my co-host is Bonnie Chang. We'll start with MicroStrategy's recent announcement 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 world.
Michael Saylor: Uh, you're probably referring to our statement on the earnings call — we are prepared to sell Bitcoin if 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 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 about 30% annual appreciation, and in reality, it's closer to 40% per year. We can strip out roughly the initial 11% of those capital gains and pay that out as dividends.
The market was confused about what we would use to pay dividends. For most of history, we paid dividends by selling common stock (MSTR equity). MSTR equity is a derivative of Bitcoin and typically 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 there were bearish arguments saying we would have to sell equity; others said the company would never sell its Bitcoin. These arguments devolved into — 'Well, if they don't intend to sell Bitcoin, then Bitcoin must have no value, they can never sell it. And if they can't sell it, then we can't count Bitcoin as an asset on the balance sheet.'
If you own something worth $65 billion 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 think we have $65 billion in assets. Also, online there were these 'haters' constantly complaining it's a Ponzi scheme because we funded the preferred stock dividends by selling equity.
What we want to do is reinforce this business model — selling credit to invest in Bitcoin; over time, that investment appreciates faster than the dividends accumulate; then we realize those capital gains and pay the dividends.
We thought the best way to clarify this was to state clearly that 'the company will never need to sell common stock,' we can just sell Bitcoin, which has appreciated significantly, to pay dividends. That is essentially using capital gains to pay credit dividends.
I think it's like a real estate development company that raises money by issuing credit instruments, buys land at $10,000 an acre, develops it, making it worth $100,000 an acre, then realizes that capital appreciation. You could sell the land at $100,000 an acre, lease it after full development, or refinance it. No one questions a real estate development company that makes capital investments with credit proceeds, and we are doing the same thing with Bitcoin. We need to ensure 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.' It's just that 'never be a net seller' isn't as catchy or easy to spread.
I think in these times, even if we were to sell 1 Bitcoin, we would buy 10 to 20 more. So, you're talking about a situation of 'buy 10, sell 1, net buy 9.' Once people understand, it shouldn't be an issue anymore, but for now, it's a controversial topic.
Bonnie Chang: Can you explain how you can sell 1 Bitcoin while buying 10?
Michael Saylor: Yes. 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. The dividend is around $80 to $90 million. So, in this month where we raised $3 billion, we only need $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 that 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, if Bitcoin appreciates 2.3% annually, we can pay dividends permanently and continuously create value, all without selling any common stock.
In the first four months of this year, we've already sold about $5 billion worth 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 anticipate that in every month and quarter going forward, we will be a net buyer of Bitcoin.
Bonnie Chang: I have another question. Many investors adhere almost religiously to the advice '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 after spending.
Many crypto or Bitcoin believers say they want to buy things with Bitcoin. I'd say, 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 you started with.
To draw an 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 gasps 'Google sold dollars to buy a data center.' The dollar will be fine; it doesn't undermine Google's business model. They spent $1 billion investing in the 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 that's good for Bitcoin and good for the company... When 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, saying 'we will never ever do something,' whatever it is, regret is often the result. For example, if we said we 'absolutely will never repurchase our own stock, we will only sell stock,' then short sellers would hammer our stock down to $1. When the stock price is at a huge discount to net asset value (NAV), if we can buy it back, those short sellers would lose a lot. By exploiting their irrationality, we can make a lot of money.
So, what we were really saying on the earnings call is — we'll trade STRC for MSTR, we'll trade BTC for MSTR, we'll use BTC or MSTR to pay dividends, we'll do whatever is in the company's best interest. 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 mispricing.
The other thing we said yesterday is that we are prepared to repurchase our bonds. Currently, our corporate debt is trading cheap, undervalued, so it makes sense to buy it back, 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 assign a fair value to all these assets. That benefits investors in all these instruments and, 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 that pledge is meant to keep the so-called Ponzi scheme going a bit longer. But I'm guessing when push comes to shove, he'll opt 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've created a digital finance company by selling equity and credit instruments to buy that capital. I think Bitcoin will persist because it represents tokenized global economic wealth with full property rights.
We 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'll never acknowledge any derivative on it as legitimate. But for those who believe Bitcoin can store economic wealth in tokenized form, what we're doing is very straightforward.
STRC employs an overcollateralization model: for every $5 of Bitcoin, sell $1 of credit debt, and that $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 fall tuition into Bitcoin because they have to pay in 12 weeks. So, for them, digital credit makes a lot of sense because the principal is protected, more stable. Plus, they can get 3 to 4 times the yield of money markets through STRC, which is a trait of Bitcoin being superior to other capital assets, allowing us to pay this high dividend yield.
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've started '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 huge because there's about a 90-cent dividend after the record date. 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 people are arbitrageurs. Their idea is that by tying up capital for about 12 days a year, they can capture roughly a 42% annualized yield. They have their own calculations. That's fine; it's good for us too because it creates liquidity and engagement, and it will continue.
As for the second idea, can you front-run the Bitcoin market? The Bitcoin derivatives market has $50 billion in daily volume. So, I don't think anyone has enough capital to move that market.
My view is that Bitcoin is a bit like 'the square of tech capital.' The factors driving the Bitcoin market are trade wars, hot wars, foreign policy, national situations, 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 that right now we are in a fairly tight monetary environment, so these macro factors are the main drivers of Bitcoin.
I can tell you as 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 actually went up.
So, no one has enough power to move the price of Bitcoin... Well, if you're going to throw $30 billion at 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. I believe it's a global market with its own momentum.
So, statements about us being able to influence the price are flattering, but I don't think so.
Bonnie Chang: Why do you say the price doesn't budge when you buy 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 volume.
If you ask traders, they'll say spot market daily volume is sometimes $20 billion, and derivatives sometimes hit $80 billion. In a market with such deep liquidity, what is $100 million? That's the beauty of it. On the weekend, if you want to put on a $1 billion position with 20x leverage, you can do it in the Bitcoin market; if you want a $1 billion credit line within an hour, you can get it in the Bitcoin market.
I do think macro factors drive Bitcoin, and sometimes Bitcoin has a life of its own. Micro factors also drive it — I mean industry factors, like the formation of digital credit, the formation of bank credit, and investor sentiment towards Bitcoin assets. 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 eventually need to cut rates because they are trapped by high inflation. So, what ultimately happens to liquidity? What happens to Bitcoin if the Fed remains trapped?
Michael Saylor: I think when you're facing tight monetary policy, high global trade tensions, and high geopolitical tensions due to foreign policy or war (whether in Ukraine or Iran), all of these are somewhat constraining; they are headwinds. I think when these reverse, they become tailwinds.
But regardless, Bitcoin will grind up. This is because the organic supply from miners is only about $10 to $12 billion per year, only 450 Bitcoin per day. Do the math yourself. Then, whenever we raise another $10 billion in capital, we've bought 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 wrapper tools, and bank credit — all of these are driving the market's fundamentals, and they are all positive. Regardless of macro factors, you'll see continued adoption. The role of macro winds is just that, when we should grind up 30%, tailwinds make us surge to 50%, while headwinds somewhat slow us down.
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 have wondered, what is the killer app for a $1.5 trillion asset class with hundreds of billions in daily trading volume? The answer is: 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, then it follows that we can create the best-performing credit assets on top of this capital asset.
What we've seen over 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've successfully created an instrument with a Sharpe ratio of 3 and a dividend yield of 11% to 12%.
The highest Sharpe ratio in stocks is Nvidia, around 1.7; the S&P 500 is about 0.9... nothing exceeds 1. Even the top hedge funds you can find can't exceed a Sharpe ratio of 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 works — if Bitcoin is the best-performing capital, then convertible bonds backed by Bitcoin 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'd guess over 70%?
Michael Saylor: 60% of all preferred stock issued in the United States this year was issued by us. Last year and this year, we are the largest credit issuer in the US. We revived the preferred stock market; STRC has grown explosively.
So, I think what's novel is the idea of 'digital capital drives digital credit.' As you see on the show, digital credit is a stepping stone to digital currency. Because now there's a whole host of stable yield coins/tokens pegged to the dollar paying 8% or 9% yields. 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, crypto, and traditional finance driven by digital credit. And Bitcoin is the foundational rock that makes digital credit possible. That might be the most exciting thing this year.
Bonnie Chang: One last question. Did 'Have Space Suit—Will Travel' inspire you to go to MIT? Let's go back before MIT, before this book and Bitcoin. Say something 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 at the time, and I remember comic books cost 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 devoured them all.
I'd say reading those science fiction books drove my intellectual development. Grade school boys are very 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 '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 Elon Musk invited you to Mars, would you accept?
Michael Saylor: That would depend on what kind of vehicle he offers to take me there.
