I'm very famous for saying never sell you Bitcoin. And that's why the internet went crazy when we said we might sell it. Trolls on the internet continually complained that this is a Ponzi scheme because we sell equity in order to fund a preferred dividend.
Whenever we say we will never do something, we always regret it. Whatever it is, we bought more Bitcoin than anybody that I know of. >> Has your thesis on Bitcoin changed a bit?
>> We have bought $200 million of Bitcoin an hour or 300 million an hour and stopped. Price goes up. So for anyone that thinks that they have enough power, >> a lot of investors believe this never sell your Bitcoin religiously, right?
And do you think they should still follow that suggestion? We're very pleased to be co-hosting this exciting interview with executive chairman of Strategy, Michael Sailor. Co-hosting with me is >> Bonnie Chang.
>> And we're going to kick it off with some recent news coming out of Strategy's own announcement and Michael Sailor's announcement on social media. Take it away, Bonnie. >> Something happened 19 hours ago and that shocked the internet.
What was it? Uh we probably uh probably you're referring to our earnings call where we announced that we're prepared to sell Bitcoin to fund our uh stretch dividends if need be >> and I'm sure that was a very wellthought through uh pivot. What is the idea behind it?
>> The most important thing is we want the market to understand that Bitcoin capital gains fund stretch credit dividends. So when we sell STRC credit, we sell a million dollars of it. We turn around, we buy a million dollars of Bitcoin.
We expect Bitcoin to appreciate about 30% a year. It's been appreciating almost 40% a year. We stripped the first 11% of that uh of that capital gain and we pay that as a credit dividend.
But there's been a bit of confusion in the market about where the dividends come from, you know, how do we pay the dividend? And for most of the history of the instrument, we sold common equity, MSTR equity, to pay the dividend. Um, MSTR equity is a derivative of Bitcoin.
It normally trades at a premium to Bitcoin. And so, we were selling a Bitcoin derivative. But some people worried that we wouldn't be able to sell the equity in the future.
And then there are short narratives that that we have to sell the equity. And then there are other narratives that the company won't sell its Bitcoin. And that kind of metastasized to well if they're not going to sell their Bitcoin it must not have any value and they can never sell it.
And if they can't sell it then we can't count the Bitcoin as an asset on the balance sheet. So if you had $65 billion worth of something and people wanted to value it at zero it's not very good. Right?
The we don't want the credit rating agencies to think the company has zero dollars of assets. We want the credit rating agencies to think we have $65 billion of assets. And uh you know there are also trolls on the internet that that continually complain that this is a Ponzi scheme because we sell equity in order to fund a preferred dividend.
Well, what we want to do is we want to reinforce the business model is we sell credit to make a capital investment in an asset Bitcoin digital capital. The capital investment accretes over time faster than the dividend. We then monetize the capital gain and we pay the dividend.
We think that the best way to punctuate this to make it very clear is to to make the point that the company doesn't have to sell common stock ever. We can simply sell highly appreciated Bitcoin in order to pay uh dividend. And if we do that, you're uh capturing a capital gain to pay a credit dividend.
I think uh the analogy is like uh a real estate development company uh raises capital by issuing a credit instrument, buys land at $10,000 an acre, develops it, it's worth $100,000 an acre, and then they monetize that capital appreciation. You could sell the land at $100,000 an acre. You could rent the land after you fully developed it.
You could refinance the land. But nobody questions a real estate development company that makes a capital investment with a a credit income. What we're doing is the same thing with Bitcoin.
And we want to make sure that the market understands that. I'm very famous for saying never sell your Bitcoin. And that's why the internet went crazy when we said we might sell it.
But uh if I was being more precise, I say never be a net seller of Bitcoin. it just wouldn't have been so viral or so catchy to say never be a net seller of Bitcoin. I think that in these periods, even if we were to sell one Bitcoin, we'd be buying 10 to 20 more Bitcoin.
So, you're really talking about a situation where we buy 10 Bitcoin, sell one Bitcoin, buy nine net Bitcoin, and continue to create Bitcoin. It's it it should be a non-issue after people understand it. But right now, it's a colorful area of commentary.
Is it possible for you to comment how do you sell on Bitcoin and buy 10? >> Yeah, so the number one Bitcoin accretion engine is Stretch. Uh we sold $3.
2 billion of STRC in uh April. So we bought $3. 2 billion of Bitcoin.
The dividend is about 80 to 90 million. So in the month when we're raising three billion, we're we need to come up with uh 80 or 90 million to pay the dividend. So you would be in essence you would be buying 30 bitcoin selling one bitcoin, >> right?
Our um our break even rate is 2. 3%. So what that means is that if we sell Stretch, if we issue stretch credit uh equal to 2.
3% of our Bitcoin holdings, then that means we will be a net buyer of Bitcoin forever, even if we sell Bitcoin to pay the dividend. Another point is that if Bitcoin appreciates 2. 3% a year, we can pay the dividends forever, right?
And and continue to grow value, right? and we can do it without selling any any common equity. So the break even is 2.
3. Right now we're we've um sold about $5 billion of STRC in the first four months of the year. So we're running on a pace uh to have an issuance rate of 15 or 20% this year.
2. 3% is the break even. So you buy 20, you sell two, you net 18, right?
The company as long as it grows is going to buy more Bitcoin that it sells. I expect we'll be a net buyer of uh Bitcoin in every month and every quarter going on forever. >> One last question before I pass it on to David.
Please go ahead. >> A lot of investors believe this never sell your Bitcoin religiously. Right.
And do you think they should still follow that suggestion? >> Yeah, I think that you should be a net accumulator of Bitcoin. Like when I say never sell your Bitcoin, I mean make sure that if you were to spend it on something, you replenish it in the time you spend it.
So there there are also a lot of crypto people or a lot of Bitcoin people that say they want to spend Bitcoin to buy things. And if you were to spend Bitcoin, I would say just replenish the Bitcoin. So you don't want to be a net seller of Bitcoin because Bitcoin is capital.
You want to you want to end every year with more Bitcoin than you started the year. And the analogy I'd give you is is if Google spent a billion dollars to invest in data centers so that they could make10 billion. They're making net $9 billion.
>> It wouldn't crash the dollar market, right? Oh, Google spent dollars. Google sold dollars to buy data centers.
The dollar would be fine. It wouldn't undermine the Google business model. Oh, they spent a billion dollars to invest in their business.
That's fine, right? And so it would be fine for Google. It's a rational thing to do.
Sometimes you spend money to make more money. So if you're spending one bitcoin to make 10 bitcoin, I think it's fine for Bitcoin. I think it's fine for the company.
I think it strengthens our company because if our company has the ability to tap the crypto liquidity market, if we can raise liquidity uh by selling spot Bitcoin, that's a $20 billion spot market and a $50 billion derivative market every day. That's a powerful energy source. So, we want to be able to to tap that market when the equity capital markets aren't as liquid as the uh as the commodity market for Bitcoin.
And and so whenever a company strips its options, whenever we say we will never do something, we always regret it, whatever it is. Give you another example, right? If we say we would never ever buy our stock, we would always sell our stock.
Then short sellers would sell our stock and they would sell it down to a dollar. The stock trades at a a big discount to NAV. We would buy it back.
Then the short sellers have something to lose. Then we would make a lot of money by them being irrational. And so what we did say in our earnings call yesterday is we're prepared to trade stretch for the common stock.
We'll trade STRC for MSTR. will trade BTC for MSTR. We will fund our obligations with BTC or MSTR.
We'll do whatever is in the best interest of the company. But, you know, over time, we expect to be a net Bitcoin accumulator. It that doesn't change.
The way that we trade our assets daytoday, whether we sell credit or sell equity or sell capital assets, that will be a function of of the market. and mispricings. And if you know the other thing we said yesterday is we're ready to buy our bonds back.
So our our corporate bonds trade cheap. They're undervalued and so it makes sense for us to buy them. It doesn't make sense to sell them.
So we don't sell assets that are undervalued. We buy assets that are undervalued and then we arbitrage whatever the inefficiency is. And if the market knows we're going to do that, then the market's going to actually fairly value all those assets.
And that's to the benefit of all the investors and all those instruments. And ultimately, that's our fiduciary obligation. >> To the skeptics and as you would call trolls out there who call this a Ponzi scheme.
They're not here to address you. Let me just read one of your tweets so you can address them directly. One of your biggest critics, Peter Schiff, wrote this morning.
Yesterday, Sailor admitted MSTR would sell Bitcoin if needed to pay the dividend on STCRC. I think that type of commitment is needed to keep the so-called Ponzi going longer, but my guess is when the time comes, he's he would suspend the dividend and crash STRC rather than crash Bitcoin. Your response?
>> Peter thinks Bitcoin's a Ponzi scheme. Peter is not really a lover of anything in this space. Bitcoin is digital capital and uh and we've created a digital treasury company by selling equity and credit instruments to buy capital.
Uh I think that Bitcoin is going to continue because it represents uh economic wealth to and tokenized form with full property rights for the world. And we have built a credit instrument STRC on top of it which simply strips the volatility, reduces the risk and extracts or distills a yield from digital capital. If you don't acknowledge Bitcoin as legitimate, you'll never acknowledge any derivative on top of it as legitimate.
But for those people that believe that Bitcoin is digital capital as a as a a store of economic wealth in tokenized form, then what we're doing is very straightforward. We overcolateralize it and for every $5 of Bitcoin, we sell a dollar of credit and the dollar of credit has a defined yield. And there are a lot of people that they believe Bitcoin is a legitimate asset.
They just can't stand the volatility. it they they don't want to take money they need for their kids tuition in the fall and invest it in Bitcoin because they need to pay a bill in 12 weeks. And so for them digital credit makes a lot of sense because the principle is protected.
It's stable and then they're getting paid three or four times a money market. And it's the superior aspects of Bitcoin over other capital assets which allow us to pay that superior dividend yield. This is a theory that I'd like to run by you and I'll pass it back to Bonnie.
So, some traders have noted that whenever STERC issues a dividend, the X dividend price trades below par for some period of time, maybe a day or two. And then once it reaches par, that's when m that's when strategy goes and buys Bitcoin. So, they started front running that pattern by buying Bitcoin right before SDRC reaches par, believing you and strategy would buy Bitcoin at par.
Can you comment on this? >> What happens as we approach the dividend date is there's a massive demand to buy STRC because there's like a 90 cent dividend after that record date. So there are billions and billions of dollars of trading in STRC leading up to it and then the day after that record date it trades down 60 cents or 70 cents and then it gradually recovers back to par over the next week or two.
So that's normal. Those are arbitrageers. Their idea is I want to commit a million dollars of capital for one day.
>> Yeah. >> And I'm effectively I'm capturing 42% annual yield a year by having my capital tied up 12 days a year or something. And they've got their math.
That's fine. It's good for us because it creates it creates liquidity and engagement and that will continue. Um as for the second idea, can you front run that in the Bitcoin market?
Well, the Bitcoin derivatives market's $50 billion a day. And so, do I think someone has enough capital to move that market? Not really.
My my opinion there is uh Bitcoin is is kind of like tech capital squared. And so the things that drive the Bitcoin market are trade wars, for hot wars, foreign policy, the state the state in the straight of and the Iran situation, and then uh currency wars, you know, whether or not we're expecting sofur to fall to 200 basis points and or or whether the yield curve is is being bent. And you can see right now we're in a a fairly restrictive monetary environment.
So those macro factors are the primary driver of Bitcoin. I can tell you for a fact, for example, we bought $100 million of Bitcoin an hour. It doesn't move the price.
>> We bought $200 million of Bitcoin an hour. It doesn't move the price. We have bought $200 million of Bitcoin an hour or 300 million in an hour and stopped, the price goes up.
Okay. So for anyone that thinks that they have enough power, well, you know, maybe if you're going to bring $30 billion to the market in one afternoon, maybe. But I have spent lots of money.
We bought more Bitcoin than anybody that I know of. We think I think we probably acquired 62 billion dollars of Bitcoin. What I believe is that it's a global market.
It's got dynamics, you know, all its own. is driven by foreign policy and if the Chinese government has a certain announcement that drives the price of Bitcoin and so it's flattering uh to suggest that we're that systemically important. I don't think so.
>> Why is it that you buy so much Bitcoin and you said the price doesn't move? >> The market is very liquid. It's extremely liquid, you know, again.
So, let's say I had a big day and I bought a billion dollars. Well, a billion dollars is 150th of 50 billion. If you if you talk to the traders, they'll say that the spot market's 20 billion, but the derivatives is 80 billion sometimes.
>> So, what's a hund00 million in a 40, 50, 60 billion bucket? It's like it's a very deep liquid market. It's the world's deepest, most liquid capital market, right?
That's what makes it special. on the weekend, you want to put a billion dollar trade on with 20x leverage, you can do it in Bitcoin. You want a billion dollars of credit in an hour, you could do it in Bitcoin.
It's a very deep market. Uh, and I do think macro factors drive it and sometimes it's got a life of its own. I think micro factors drive it.
I mean, the the industry factors like the formation of digital credit, the formation of bank credit and and uh investor sentiment with regard to digital assets and those drive it as well. But I think that it's greater than all of us and that's actually why we have confidence in it because there is no one actor that's either supporting it or holding it back. If the straight of horm remains closed for the foreseeable future, a few forces will be at play.
First, inflationary forces some say will will remain. Second, the Fed um will probably need to lower interest rates at some point, but they're stuck by higher inflation. So, what happens to liquidity ultimately?
What happens to uh Bitcoin if the Fed remains stuck? I think when you have a when you have tight monetary policy uh high tensions in in uh global trading and and high geopolitical tensions due to foreign policy or wars whether in the Ukraine or Iran all those are somewhat constrictive and they're headwinds and I think when they reverse they become tailwinds but Bitcoin will grind up regardless and that's because there's about 10 to 12 billion ion dollar a year in organic supply from the miners, 450 Bitcoin a day. So figure it out.
And then every every time we come up with another 10 billion of capital, we buy the entire year supply. And so if a bank creates $10 billion of credit, that's one turn on the axle. If we sell $10 billion of STRC of digital credit, that's a second turn on the axle.
When $10 billion flows into IBIT, that's a third turn on the axle. So the capital flows and digital credit and uh you know in digital capital rappers and bank credit all of those things are the driving the fundamentals of the market and those are all positive and you're going to see continued adoption there regardless of the macro factors. Just the macro winds they you know when we're grinding up 30% we surge to 50% and when there's a headwind it'll somewhat slow us down.
Has your thesis on Bitcoin changed a bit? >> It hasn't changed. Um, but I will say this, it's clear that Bitcoin is digital capital.
And one thing that's become clear over the last 12 months is that at least one of the killer apps of Bitcoin is digital credit. So people are wondering, you know, what is the killer app of a$1. 5 trillion dollar asset class that trades tens of billions a day?
And the answer is as collateral for credit. So if the digital capital is the highest performing capital asset and it is right. It's outperforming the S&P by a factor of two to three then it stands to reason that we can create the highest performing credit asset on top of that capital asset.
And what we've seen uh in the last year is stretch is the most liquid credit instrument. It's the most liquid preferred stock in the entire market. It's the biggest preferred stock in the market.
It has the highest sharp ratio. So, we've managed to create an instrument with a ball of three with performance of 11. 5% dividend yield.
A sharp ratio of 2 and a half to three. The highest credit instrument sharp ratio is. 5.
The highest sharp ratio on an equity is Nvidia. It's like 1. 7.
The highest sharp ratio you would get with any other asset is like 0. 9 on the S&P or 0 85 on Bitcoin. None of them beat one.
And then the best hedge funds you find can't do a sharp ratio of more than 2. 2. So digital credit is actually got a better risk adjusted return than every other financial strategy and every every publicly trading instrument in the public capital markets.
12 months ago, I couldn't tell you that. But uh it's it makes sense that if uh Bitcoin is the highest performing capital, then convertible bonds backed by Bitcoin become the best performing convertible bonds and credit instruments like Stretch become the best performing preferred stocks. By the way, do you know what percentage of the preferred stock market we are this year?
>> I would assume over 70. We issued 60% of all the preferred stock in the United States. >> Wow.
>> This year and we are the largest issuer of credit >> in the entire United States last year and this year we have revitalized the preferred stock market. Right? It's exploded.
So I think what's new is the idea that digital capital drives digital credit. And what you'll see as this show is that digital credit is the stepping stone for for digital currency or digital money because there's an explosion of yield coins. Tokens that are stable pegged to the dollar that pay you 8% or 9% yield.
Apex has created one. It's gone from 0 to $300 million in like eight weeks. Uh Saturn has created another one.
It's gone from 0 to$110 million in six weeks. There's an explosion of innovation in the digital asset space and the crypto space and the trady space. Uh that's all being driven by digital credit and Bitcoin is the thing that makes digital credit possible and and that is probably the most exciting thing happening this year.
My final question I'll pass upon it to close off. Several Bitcoin miners have already started pivoting that AI data center to power data centers. Are you considering joining this so-called AI pivot movement if you want to call it a movement?
And if so, how would you participate? >> I think it's great that uh Bitcoin miners now are able to to benefit from investment in high performance, high-powered compute. We created digital credit with digital intelligence, right?
So, how does AI affect our business? We never could have created stretch without AI. I I used AI to to create strike, strife, stride, and stretch.
When we created this digital credit, what did we do? We took a block of digital capital. That's what Bitcoin is.
It's just pure financial energy. We use digital intelligence to machine a digital credit with a certain risk profile, a certain volatility profile, a certain yield, a certain currency profile, and we took that public in the market. And I I think that if you're a Bitcoin treasury or a digital treasury company, the smartest thing you can use is use digital intelligence to carve out digital credit from digital capital.
And that is the stepping stone. It's like the financial fuel to create digital money and digital yield. And the marketplace for digital money and digital yield is hundred trillion dollars and it's spreading virally right now.
>> Last question. uh have a space suit. Will travel inspired you to go to MIT?
Let's go back to before MIT, before this book, before Bitcoin. >> Tell something to your younger self. >> You know, uh when I was in first grade, my parents uh wanted to motivate me and they told me they give me 10 cents for every book I read.
>> And I had this comic book addiction and they and comic books cost 25 cents as I recall. So the calculus was I had to read two and a half real books to get one comic book. And I was very motivated.
So I read about 100 books that summer and then I and you know I'd go to the library and I'd check out 10 books at a time and I would take them back when we had libraries you know and I would go read them and then I discovered science fiction and I I discovered Heinland and Clark and Azimov and you know I I read uh the moon is a harsh mistress and I read have space will travel and that was all by by third grade I'd you know I'd rifle through them all third or fourth grade and I would I would uh say that reading all this science fiction drove my intellectual development. Kids in elementary school, boys in elementary school are quite impressionable. And what I do recall in h have space at will travel is it's a alpha male.
He fixes up a spaceshoot. He gets picked up by a spaceship. He gallivants across the universe.
He saves the human race from bugeyed monsters. You know, he returns back to the United States or to the earth. And the reward for having saved the human race from bugeyed monsters, he gets a full tuition scholarship to MIT.
And I figured if MIT was good enough for the guy that saved the human race, it was probably good enough for me. And so gosh darn it, I was going to go there. >> If Elon Musk invited you to go to Mars, would you would you accept?
>> It depends upon the vehicle he was offering to take me in. >> Thank you, Michael. >> Thank you very much.
I appreciate your time.
