Source: Natalie Brunell Podcast

Compiled by: Felix, PANews

Strategy founder Michael Saylor was recently a guest on Bitcoin educator Natalie Brunell's YouTube podcast, lasting nearly two hours, covering topics including why Bitcoin hasn't reached new highs; whether price suppression truly exists; quantum computing; and Strategy's holding costs. PANews has compiled highlights from the conversation, and here are the details.

Major retracements and downturns are an inevitable path for any tech investment

Natalie Brunell: Great to see you. You are one of the few Bitcoin bulls, and I believe there are many more bulls; they are just waiting for the opportunity. With Bitcoin's price decline today, market sentiment is quite pessimistic, and critics argue that the theory of Bitcoin is collapsing. What do you think?

Michael Saylor: It's been just over 4 months (137 days) since the last historical high, with a retracement of about 45%. However, no successful tech investment case has ever avoided a 45% decline and downturn. Major tech companies have always been the most dazzling success stories. But in all these cases, you can find examples where traditional markets underestimated them. Take Apple, for instance; between 2012-2013, Apple's stock also fell 45%, and its P/E ratio dropped to 10, with the market seeing it as a weak cash cow with no technology and no future. It took Apple a full 7 years (2013-2020) to recover to a P/E ratio of 30. Likewise, Amazon faced significant skepticism from traditional investors for a decade.

Currently, the traditional market's bearish view on Bitcoin is very similar to how they underestimated Apple and Amazon back in the day. Bitcoin has, in fact, achieved global consensus; entities like the U.S. government cabinet, the Federal Reserve, Middle Eastern sovereign wealth funds, BlackRock, and others are telling you that Bitcoin is global digital capital.

Why didn't Bitcoin reach the predicted high of $126,000?

Natalie Brunell: For those who are disappointed with the bull market, thinking we couldn't break through $126,000, what do you have to say? What do you think are the reasons we haven't reached the price targets many expected?

Michael Saylor: I think the market is continuously evolving. The entire ecosystem is maturing, and the derivatives market is shifting from offshore to onshore, becoming increasingly sophisticated. With the growth of U.S. regulation on derivatives, Bitcoin's volatility and upside potential will be reduced, thus suppressing its upward potential. At the same time, the downward space will also shrink. What could have seen an 80% drop and 80% volatility may now only see a 40% or 50% drop and 50% volatility. Therefore, as the market matures, Bitcoin's volatility is being suppressed on both the upside and downside.

At the same time, the banking industry's adoption of Bitcoin is steadily progressing, but it is much slower than what those with short attention spans hoped for. It takes banks four to five, or even six years, to adopt this entirely new asset class, but people expect Bitcoin to gain recognition in four months.

Yet, if banks take four years to start accepting Bitcoin, issuing credit, recognizing and processing, trading, and custodial services, it means the peak value of Bitcoin in the market reaches $2 trillion, with about $1.8 trillion potentially held by retail investors or offshore investors who cannot obtain low-interest loans against their Apple stocks at traditional banks (like JPMorgan). This forces people to rely on shadow banks or crypto exchanges, leading them to face extremely high interests or margin risk—where your Bitcoin is collateralized and borrowed multiple times by institutions to short. This underdeveloped credit system and re-mortgaging mechanism create immense selling pressure, suppressing Bitcoin's price.

Expectations for long-term returns and views on volatility

Natalie Brunell: You always say that volatility is where the vitality lies. So, what are your expectations for the next 10 to 15 years?

Michael Saylor: Looking ahead to the next 21 years, Bitcoin’s ARR is estimated to be around 29%, and will be accompanied by wave-like increases and retracements. Many people panic sell because of news like the situation in the Middle East over the weekend, but this also means Bitcoin is the only asset that is traded 24/7 globally. Bitcoin has the highest volatility because it has the broadest applications. Bitcoin represents the global capital market, with some people using this asset to do things you can’t do, things you could do but won’t do, and things you don’t want to do, and that's what creates the volatility, while also generating an attractive field or magnetic field that draws in all the energy worldwide, including financial, political, and digital energies into this realm, all because of Bitcoin's utility. If you are a long-term investor with a four-year investment cycle, short-term sharp fluctuations are of no concern; you just need to let those crazy traders who like to go 50x leveraged on weekends provide liquidity.

Why haven’t many retail investors participated in this bull market?

Natalie Brunell: Bitcoin is still primarily held by individuals. However, I just had Lynn Alden on, and she said retail investors haven’t truly participated in the last bull market. Why do you think that is? What can bring everyday retail investors to the best savings technologies?

Michael Saylor: I think early retail investors are already in. Those retail investors who are passionate and committed to digital capital, especially Bitcoin, have had ten years to buy in. If you were looking for a non-sovereign store of value digital asset at some point between 2010 and 2015, you would spot Bitcoin in a continuous wave and buy as much as you could.

The next batch of retail investors does not want an asset that offers a 40% annualized return but with enormous volatility risks; they prefer an asset with a 10% or 0% annualized return that allows for tax deferral. That’s why I have been focusing on this for the past year. Can we reduce the volatility of an asset like Bitcoin, which can swing 45%, by 80% to 90%? Then offer retail investors four to five times the over-collateralization, creating double-digit yields and doing this in a way that provides capital returns. In this way, you can enjoy tax-deferred or tax-deferral treatment. You can gain from stock gains and performance, along with principal protection from credit or bonds, and enjoy fixed yields while receiving monthly cash dividends.

If you want to reinvest, simply reinvest the dividends into the principal, and it turns into a continuously growing tax-deferred asset with an annual yield of 11%. When you need funds to pay for your child's tuition or taxes, you can simply withdraw the funds or sell. To achieve this, you can't afford the volatility and downturns of stocks. You can't handle the volatility and downturns of Bitcoin. You need some kind of credit tool, a provider willing to offer over-collateralization. And you need to actively manage that credit tool to maintain stable pricing. So in my view, STRC or digital credit is our way to attract the next batch of retail investors into the space.

Is quantum computing a survival threat to Bitcoin?

Natalie Brunell: I want to discuss a very important topic: quantum computing. There’s a saying in the crypto market: "Do not trust blindly, but verify." However, many people lack sufficient expertise to determine whether quantum computing truly poses a survival threat. You recently released a strategy on quantum computing and future developments aimed at ensuring Bitcoin can withstand quantum attacks. Can you explain why you believe the risks of quantum computing have not been absorbed by the market?

Michael Saylor: The general consensus in the cybersecurity field is that the threat of quantum computing is at least 10 years away, and whether it will indeed become a threat is still undecided. If the quantum threat does materialize, then the global banking system, the global internet, consumer devices, all crypto networks, the Bitcoin network, all digital systems, AI networks, and all networks we rely on today—whether governmental, financial, consumer, or defense-related—will undergo upgrades. All stakeholders, whether Google, Microsoft, Apple, Coinbase, BlackRock, Strategy, or the U.S., Russian, E.U. governments, JPMorgan or Morgan Stanley, they all must face the same issue.

All our digital systems will be at risk if there is indeed a credible quantum threat. When it really happens, we anticipate some software or hardware, or both, would respond accordingly. The crypto community is actually the most mature community in the cybersecurity field. I believe the crypto security community will perceive and respond to this threat first. We have announced a Bitcoin security plan, and Coinbase clearly has its own security plan too. In fact, much of the significant funding I provided to the Bitcoin core development team was used for Bitcoin security projects, such as MIT's Bitcoin security project. So, I believe we Bitcoin holders or users, as well as industry insiders, all understand that cybersecurity is vital. However, I do not think quantum computing is the biggest security threat facing Bitcoin right now, nor has it ever been.

People joke that they have been discussing this issue every two years for the past 15 years. In reality, I think there are many factors that might pose security threats, at least hundreds of them. For example, are there bandwidth issues? Are there avenues for national-level attacks? Is its functionality sufficient? Is there too much functionality? Is the pace of development too fast? Is it too slow? Is the degree of decentralization sufficient, etc. These debates will continue, and quantum technology is just one of them.

The reason we are discussing quantum computing now is that all other risks didn't emerge ten years ago. Over the past 15 years, various "Bitcoin doomsday theories," such as block size disputes (insufficient bandwidth), energy consumption boiling the oceans, mining bans, etc. In the end, none of these destroyed Bitcoin; they were all solved by the free market. Ultimately, this alarmist rhetoric is amplified politically and economically, as it benefits politicians, entrepreneurs, and those seeking money or power.

What is the strongest argument against Bitcoin currently?

Natalie Brunell: I have an interesting question for you. What do you think is the strongest argument against Bitcoin right now?

Michael Saylor: The most reasonable argument people have against Bitcoin currently is simply that it hasn't existed long enough. Bitcoin is only 17 years old. Just like how, 17 years after the invention of the airplane, most people still wouldn't dare to fly on one. It takes decades for a disruptive technology to go from invention to becoming a consumer product used by everyone.

Is Strategy's Bitcoin holding cost important?

Natalie Brunell: I'm a bit curious; you seem to be completely unconcerned about cost. Many are trying to find the price bottom, analyzing technical charts, but you appear indifferent. Can you explain why? Especially for those who think the price might drop, why not buy in at a lower cost?

Michael Saylor: You can view us as practicing dollar-cost averaging, the key is: we are using equity, not purchased with borrowed money.

When we buy Bitcoin, if we raise funds by selling stock (equity) to buy in, regardless of whether we buy at $100,000 or $200,000, we are essentially engaging in a permanent, risk-free asset swap. We are exchanging equity for Bitcoin.

When should one swap equity for Bitcoin? As long as that action is value-adding. If Bitcoin's price goes up by 10% while our stock price goes up by 25%, then swapping equity for Bitcoin is profitable.

Now, if after buying, Bitcoin subsequently drops by 20%, would you regret it? Of course not. Because if you hadn't done it, you couldn't have had those Bitcoins at all. Moreover, when Bitcoin drops 10% and your equity value drops by 20%, you actually reduced the risk of equity by swapping into Bitcoin. If you use a stable asset to back stocks, the risk of stocks will be reduced, especially in cases where you are swapping at a premium.

So the core issue is not the price, but whether this swap is profitable for the shareholders.

If you exchange Bitcoin using common stock, then the future performance of Bitcoin is actually not that important since this operation doesn’t have ongoing liabilities; you don’t owe anything for the next thousand years.

Of course, if you use digital credit (like preferred stock) to exchange for Bitcoin, the calculations become a bit more complicated. For example, if I pay a 10% dividend on preferred stock while Bitcoin only offers a 5% return over a hundred years, then over that century, this swap could dilute the common stockholders.

If you exchange for Bitcoin via debt, such as a 10-year bond at a cost of 5%, then you need Bitcoin to increase more than 5% over the next ten years to avoid dilution.

If you are buying through margin loans, like using $100 million in collateral but leveraging it to buy $1 billion in Bitcoin, the risk is enormous. Because the term of such loans may be only a minute. If Bitcoin drops 10%, you could be forced to liquidate and lose $100 million.

So the real difference lies in the duration. If you borrowed instant credit to buy, the purchase price relative to the current price is extremely important. If you borrowed money for ten years, the relevance shows itself in ten years' time. If you borrowed perpetually (like through equity, which never needs to be repaid)? Then the importance of price becomes blurred.

The vast majority of retail investors do not understand that their only credit available is margin credit, which is temporary credit; if you make a wrong judgment, you'll be liquidated over the weekend. Meanwhile, the credit we use is not an issue even if we are wrong for 30 years.

I can say this: if we pay 10% interest while Bitcoin only returns 8%, even if we are wrong for 30 years, due to some secondary, tertiary, or even quaternary dynamic factors, this could still be a good deal for common stock. But the fact is, if we have a 10 to 30-year time window to prove ourselves right, then our average purchase price has no substantial impact.

Further reading: Conversation with Michael Saylor: Bitcoin Welcomes a Fundamental Victory, Strategy Aims to Become Digital Credit

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