Exclusive Interview with Michael Saylor: I said I would sell coins, but it will never be a net sell

This article is from: David Lin

Compiled by｜Odaily Planet Daily Azuma

Editor's note: During last Monday's earnings call, Strategy mentioned for the first time, "ready to sell Bitcoin if necessary to pay dividends," which immediately sparked intense market discussions about its "abandonment of faith."

In response, Strategy's Executive Chairman Michael Saylor recently provided an in-depth analysis of the underlying logic behind this decision during his appearance on David Lin's podcast, emphasizing that he only said "will sell," which does not mean they will "net sell." Saylor also mentioned that Strategy is leveraging Bitcoin's high appreciation attributes as "digital capital" to achieve arbitrage through issuing digital credit instruments (such as STRC), thereby ensuring a continuous net growth in holdings. Below is the full content of the podcast (with edits), compiled by Odaily Planet Daily.

Podcast Interview

David Lin (Host A): I am very honored to co-host this exciting interview with Strategy's Executive Chairman Michael Saylor, alongside Bonnie Chang. Let's start with the announcement recently released by Strategy and Michael Saylor's updates on social media. Bonnie, let's get started.

Bonnie Chang (Host B): Last week, you announced something that shocked the entire text.

Michael Saylor: Uh, you are probably referring to our statement during the earnings call ------ that we are prepared to sell Bitcoin to pay STRC dividends if necessary.

Bonnie Chang: I believe that was a well-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 of STRC credit products, we will immediately buy $1 million of Bitcoin. Our expectation for Bitcoin is an appreciation of about 30% per year, and in reality, its appreciation is closer to 40% per year. We can strip away the initial 11% of this capital gain to pay as dividends.

The market has been confused about what we would use to pay dividends. Historically, we have paid dividends by selling common stock (MSTR equity). MSTR equity is a derivative of Bitcoin and typically trades at a premium compared to Bitcoin. Therefore, what we sold at that time was Bitcoin derivatives, but some people worried that we would not be able to sell the equity in the future.

Then came some bearish comments saying we must sell equity; others said the company would never sell its Bitcoin. These comments escalated to ------ "Well, if they don't intend to sell Bitcoin, then Bitcoin must have no value, and they will never be able to sell it. 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 good, 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 some "haters" online constantly complaining that this is a Ponzi scheme because we fund preferred stock dividends by selling equity.

What we want to do is reinforce this business model ------ selling credit to invest in Bitcoin; over time, the appreciation of this investment outpaces the accumulation of dividends; then we realize capital gains and pay dividends.

We believe the best way to clarify this is to make it clear that "the company never needs to sell common stock," we only need to sell significantly appreciated Bitcoin to pay dividends, which is essentially using capital gains to pay credit dividends.

I think of it like a real estate development company that raises funds by issuing credit instruments to buy land at $10,000 per acre, develop it to a value of $100,000 per acre, and then realize that capital appreciation. You can sell the land for $100,000 per acre, rent it out after full development, or refinance it. No one would question a real estate development company that makes capital investments through credit income, and we are doing the same with Bitcoin; we want to ensure the market understands this.

I became known for saying "never sell your Bitcoin," which is why when people heard we were going to sell, the internet exploded. But if I were to be more precise, I should say "never become a net seller of Bitcoin," but "never become a net seller" doesn't sound as catchy or spread as well.

I believe during these times, even if we sell 1 Bitcoin, we will buy 10 to 20 more. So what you are actually talking about is a situation of "buying 10, selling 1, net buying 9." Once people understand this, it should no longer be a problem, but for now, it remains a controversial topic.

Bonnie Chang: Can you explain how to sell 1 Bitcoin while buying 10?

Michael Saylor: Sure. Strategy's main 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 dividends are about $80 million to $90 million. So, in that month where we financed $3 billion, we only need to take out $80 million or $90 million to pay dividends ------ essentially, you are buying 30 Bitcoins while selling 1.

Our "break-even rate" is about 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 net buyers of Bitcoin. Another point is that if Bitcoin appreciates by 2.3% per year, we can pay dividends indefinitely 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, and at this rate, the issuance rate for this year will reach 15% to 20%. As long as the company is growing, the Bitcoin it buys will exceed what it sells. I expect that in every month and every quarter in the future, we will be net buyers of Bitcoin.

Bonnie Chang: I have one more question. Many investors almost religiously believe in "never selling Bitcoin." Do you think they should still follow this 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 also replenish it while spending.

Many cryptocurrency or Bitcoin believers say they want to use Bitcoin to buy things, and I would say, then replenish the gap after spending. Don't become a net seller of Bitcoin because Bitcoin is capital. At the end of each year, your Bitcoin should be more than it was at the beginning.

For example, if Google invests $1 billion to build a data center and earns $10 billion, then they net $9 billion. This does not cause the dollar market to collapse, right? No one would exclaim, "Google sold dollars to buy a data center." The dollar would be fine, and this would not shake Google's business model. They spent $1 billion to invest in the business, which is normal and rational. Sometimes you spend money to make more money.

So, if you spend 1 Bitcoin to earn 10 Bitcoins, I think that is beneficial for Bitcoin and beneficial for the company… when the liquidity in the equity capital market is not as good as in the Bitcoin market, we want to be able to leverage this market.

Whenever a company deprives itself of options, like saying "we will never do something," whatever that is, the end result will always be regret. For example, if we say we "will never buy back our stock, only sell stock," then the bears will frantically sell our stock down to $1. When the stock price is at a huge discount to net asset value (NAV), if we can buy back, those bears will have losses. By leveraging their irrationality, we can make a lot of money.

So, what we really expressed during the earnings call is ------ we will exchange STRC for MSTR, we will exchange BTC for MSTR, and 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 net accumulators of Bitcoin. This will not change the way we trade daily assets. As for whether we sell credit debt, sell equity, or sell Bitcoin capital, it will depend on market conditions and pricing errors.

Another thing we mentioned yesterday is that we are ready to buy back our bonds. Currently, our corporate bonds are trading at a cheap price and are undervalued, so buying them back makes sense, while selling them does not. We will not sell undervalued assets; we will buy undervalued assets and arbitrage any opaque efficiencies. If the market knows we will do this, it will give all these assets a fair valuation. This benefits all investors in these tools, and ultimately, this is our fiduciary duty.

David Lin: One of your biggest critics, Peter Schiff, wrote this morning: "Yesterday, Saylor admitted that MSTR (MicroStrategy) would sell Bitcoin to pay STRC dividends if needed. I think this commitment is to keep the so-called Ponzi scheme going longer. But I guess when that moment comes, he will choose to suspend dividends and let STRC collapse rather than let Bitcoin collapse." What is your response to this?

Michael Saylor: Peter thinks Bitcoin is a Ponzi scheme. Peter actually doesn't like anything in this space. Bitcoin is "digital capital," and we create a digital finance company by buying this capital through selling equity and credit instruments. I believe Bitcoin will endure because it represents global economic wealth that exists in tokenized form with full ownership rights.

We have built a credit instrument STRC on top of this, which simply strips away volatility, reduces risk, and extracts or "distills" returns from digital capital. If you do not acknowledge Bitcoin as legitimate, you will never acknowledge any derivatives built 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 adopts an over-collateralization model, selling $1 of credit debt for every $5 of Bitcoin, and this $1 of credit debt has a clear yield. There are many who believe Bitcoin is a legitimate asset; they just can't stand its volatility. They don't want to invest the money they need to pay for their children's tuition in Bitcoin because they have to pay it in 12 weeks. So for them, digital credit makes a lot of sense because the principal is protected and more stable. Additionally, they can earn 3 to 4 times the yield of money markets through STRC, which is precisely the characteristic that makes Bitcoin superior to other capital assets, allowing us to pay such high dividend yields.

David Lin: This is a theory I want to ask you about, and then I will hand it back to Bonnie. Some traders have noticed that whenever STRC pays dividends, the ex-dividend price tends to be below par for a period (possibly a day or two). Once it reaches par, that's when Strategy buys Bitcoin. So, they start "front-running" by buying Bitcoin before STRC reaches par, betting that you and Strategy will buy Bitcoin at par. Can you comment on this?

Michael Saylor: What happens as the dividend date approaches is that there is tremendous demand for STRC because there will be about 90 cents in dividends after the record date. Therefore, there are billions, hundreds of billions of dollars in STRC trading before the record date, and the day after the record date, its trading price will drop by 60 or 70 cents, then gradually recover to par over the next week or two.

So that is normal. Those people are arbitrageurs, and their thinking is that they can capture about a 42% annualized return by having their funds tied up for about 12 days each year. They have their own calculations. This is good for us as well because it creates liquidity and participation, and this situation will continue.

As for the second idea, can you "front-run" in the Bitcoin market? The Bitcoin derivatives market has a daily trading volume of $50 billion. So, I don't think anyone has enough capital to shake that market.

My view is that Bitcoin is somewhat like "the square of tech capital," and the factors driving the Bitcoin market are trade wars, hot wars, diplomatic policies, national situations, and the Iranian situation in the Strait of Hormuz, followed by currency wars ------ such as whether we expect SOFR to drop to 200 basis points or whether the yield curve is being distorted. You can see that we are currently in a fairly tight monetary environment, so these macro factors are the main drivers of Bitcoin.

I can tell you a fact: we once bought $100 million of Bitcoin in an hour, and it did not move the price; we bought $200 million of Bitcoin in an hour, and it also did not move the price; we bought $200 or $300 million in an hour and then stopped, and the price actually went up.

So, no one has enough power to drive Bitcoin's price performance… well, if you plan to inject $30 billion into the market in one afternoon, maybe you could. But I have spent a lot of money, and we have bought more Bitcoin than anyone I know; we may have purchased $62 billion worth of Bitcoin. I believe this is a global market with its own dynamics.

So, those claims about our ability to influence prices are actually elevating us, but I don't see it that way.

Bonnie Chang: Why do you buy so much Bitcoin but say the price remains unchanged?

Michael Saylor: Because market liquidity is extremely abundant. Suppose I want to buy $1 billion today; even then, that is just 1/50 of a $50 billion trading volume.

If you ask those traders, they would say the daily trading volume in the spot market is sometimes $20 billion, and in the derivatives market, it can reach $80 billion. In such a liquid market, what is $100 million? That is what makes it special. On weekends, if you want to take a $1 billion position with 20x leverage, you can do that in the Bitcoin market; if you want to get $1 billion in credit in an hour, you can also do that in the Bitcoin market.

I do believe macro factors are driving Bitcoin, and sometimes Bitcoin has its own vitality. Micro factors are also driving it, and I mean industry factors like the formation of digital credit, the formation of bank credit, and investor sentiment towards Bitcoin assets, all of which are driving the market. But I think Bitcoin is stronger than all of us, and that is why we have confidence in it ------ because no single participant can support or hinder it.

David Lin: If the Strait of Hormuz remains closed in the foreseeable future, several forces will intertwine. First, some say inflationary pressures will persist; second, the Federal Reserve may ultimately need to cut interest rates because they are trapped by high inflation. So, what will happen to liquidity in the end? If the Federal Reserve remains trapped, what will happen to Bitcoin?

Michael Saylor: I think when you face tight monetary policy, high tensions in global trade, and high geopolitical tensions caused by diplomatic policies or wars (whether in Ukraine or Iran), all of these factors are somewhat constraining; they are headwinds. I believe when these factors reverse, they will become tailwinds.

But in any case, Bitcoin will slowly grind up because the organic supply from miners each year is only about $10 billion to $12 billion, with only 450 Bitcoins per day. You can do the math yourself. Then, whenever we raise another $10 billion in capital, we buy the entire year's supply. So, if a bank creates $10 billion in credit, that is "the axle turned once"; if we sell $10 billion of STRC digital credit, that is "the axle turned a second time"; when $10 billion flows into IBIT (BlackRock's Bitcoin spot ETF), that is "the axle turned a third time."

So, capital flows, digital credit, digital capital packaging tools, and bank credit, all of these are driving the fundamentals of the market, and all of these are positive. Regardless of macro factors, you will see continued adoption. The effect of macro winds is simply that when we should be climbing 30%, tailwinds will push us up to 50%, while headwinds will slow us down to some extent.

David Lin: Has your logic about Bitcoin changed?

Michael Saylor: No change. But I would say it is now very 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 are wondering, what is the killer application of an asset class worth $15 trillion, with daily trading volumes in the hundreds of billions? The answer is as collateral for credit. Since digital capital is the best-performing capital asset (and it indeed is), outperforming the S&P 500 by two to three times, it follows that we can create the best-performing credit asset on top of this capital asset.

What we have seen over 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 successfully created a tool with a Sharpe ratio of 3 and a dividend yield of 11% to 12%.

The stock with the highest Sharpe ratio is Nvidia, at about 1.7; the S&P 500 is about 0.9… none exceed 1, even the top hedge funds you can find cannot 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 public capital markets. I couldn't tell you this 12 months ago. But now the logic is clear ------ if Bitcoin is the best-performing capital, then convertible bonds backed by Bitcoin will be the best-performing convertible bonds, and credit instruments like STRCh will become the best-performing preferred stocks.

By the way, do you know what percentage of the preferred stock market we occupy this year?

Bonnie Chang: I guess over 70%?

Michael Saylor: This year, 60% of preferred stock in the United States is issued by us.** Last year and this year, we are the largest credit issuer in the United States. We have revitalized the preferred stock market, and STRC has achieved explosive growth.

So, I think the novelty lies in the idea that "digital capital drives digital credit." As you saw in the show, digital credit is the stepping stone to digital currency. Because now there is a large number of stablecoins (Yield coins/tokens) pegged to the dollar that can pay yields of 8% or 9%, Apex created one that grew from 0 to $300 million in 8 weeks; Saturn created another that grew from 0 to $110 million in 6 weeks.

In the fields of digital assets, cryptocurrencies, and traditional finance, there has been an explosive wave of innovation driven by digital credit. And Bitcoin is the cornerstone that makes digital credit possible, which may 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 to before MIT, back to this book and before Bitcoin. Say something to your younger self.

Michael Saylor: You know, when I was in first grade, my parents wanted to motivate me, so they told me they would give me 10 cents for every book I read. I was addicted to comics at the time, and I remember comic books were 25 cents each. So the calculation was that I had to read two and a half "serious books" to exchange for one comic book, and I was highly motivated.

That summer, I read about 100 books; I would go to the library and borrow 10 at a time. Later, I discovered science fiction, found Heinlein, Clark, and Asimov, and before third grade, I had read "The Moon is a Harsh Mistress" and "Have Space Suit---Will Travel," and by third or fourth grade, I had gone through them all.

I would say reading those science fiction novels drove my intellectual development. Boys in elementary school are very easily influenced. I remember in "Have Space Suit---Will Travel," the protagonist is an alpha male. He repairs a spacesuit, gets picked up by a spaceship, travels through the universe, and saves humanity from the "bug-eyed monsters." What is the reward for saving humanity? He gets a full scholarship to MIT. I thought to myself, if MIT is good enough for that hero who saved humanity, then it must be good enough for me. So, come hell or high water, I had to go there.

David Lin: If Musk invites you to Mars, would you accept?

Michael Saylor: That depends on what kind of vehicle he offers to take me there.