Original video source: David Lin

Translation: Azuma, Odaily Planet Daily

Editor's Note: During last Monday's earnings call, Strategy first mentioned "prepared to sell Bitcoin to pay dividends if necessary," which immediately sparked intense market discussions about their "abandonment of faith."

In response, Strategy's Executive Chairman Michael Saylor recently provided an in-depth analysis of the underlying logic behind this decision while participating in David Lin's podcast, emphasizing that he only said "would sell," which does not mean they would "net sell."

Saylor also mentioned that Strategy is utilizing Bitcoin's high appreciation characteristics as "digital capital" to achieve arbitrage by issuing digital credit tools (such as STRC), thus ensuring continued net growth in their holdings. Below is the full content of the podcast (with some edits) translated by Odaily Planet Daily.

Podcast Interview

David Lin (Host A): I am very honored to invite Strategy Executive Chairman Michael Saylor, and co-hosting with me is Bonnie Chang. We will 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 internet.

Michael Saylor: Uh, you're probably referring to our statement during the earnings call—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 the capital gains from Bitcoin can be used to fund credit dividends. When we sell $1 million of STRC credit products, we will turn around and buy $1 million of Bitcoin. Our expectation for Bitcoin is an annual appreciation of about 30%, and in fact, its appreciation is close to 40% annually. We can strip out the initial 11% from this capital gain and use it to pay dividends.

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

This led to some bearish comments, saying we must sell equity; others claimed the company would never sell its Bitcoins. These comments escalated to—"Well, if they don't plan to sell Bitcoins, 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 account for Bitcoin as an asset on the balance sheet."

If you own something worth $65 billion, but 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 worth 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 are funding preferred 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 the capital gains and pay dividends.

We believe the best way to clarify this is to state clearly that "the company never needs to sell common stock"; we just need to sell significantly appreciated Bitcoin to pay dividends, which essentially uses capital gains to fund credit dividends.

I think it’s like a real estate development company, which raises funds by issuing credit tools to buy land at $10,000 per acre, develop it to a value of $100,000 per acre, and then realize this capital appreciation.

You can sell the land for $100,000 an acre, rent it out after full development, or refinance it. No one questions a real estate development company that makes capital investments through credit income, and what we are doing with Bitcoin is the same. We need to ensure the market understands this.

I was known for saying "never sell your Bitcoins," which is why when I heard we were going to sell, the internet exploded, but if I had said it more precisely, it should have been "never become a net seller of Bitcoin"; however, just saying "never become a net seller" doesn’t sound as catchy or spreadable.

I think during these times, even if we were to sell 1 Bitcoin, we would buy 10 to 20 more. So what you are really discussing is a situation of "buying 10, selling 1, net buying 9." Once people understand this, it should no longer be an issue, but currently, it remains a contentious topic.

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

Michael Saylor: Sure. Strategy’s primary Bitcoin accumulation engine is STRC. We sold $3.2 billion of STRC in April, so we bought $3.2 billion of Bitcoin. The dividends were about $80 million to $90 million.

So in that month where we financed $3 billion, we only needed to use $80 million or $90 million to pay dividends—essentially, you are buying 30 Bitcoins while selling 1.

Our "break-even rate" is around 2.3%. This means that if the credit debt we issue equals 2.3% of our Bitcoin holdings, even if we sell Bitcoin to pay dividends, we will always be net buyers of Bitcoin. Another point is that if Bitcoin appreciates 2.3% annually, we can pay dividends indefinitely and continue to create value without having to sell any common stock.

In the first four months of this year, we have sold approximately $5 billion of STRC. At this speed, the issuance rate for this year will reach 15% to 20%. As long as the company is growing, the amount of Bitcoin purchased will exceed the amount sold. I expect that in every month and quarter ahead, we will be net buyers of Bitcoin.

Bonnie Chang: I have one more question. Many investors have a near-religious belief in "never selling Bitcoin." Do you think they should continue to follow this advice?

Michael Saylor: Yes, I think you should become 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 replenish it as you spend it.

There are many cryptocurrency or Bitcoin believers who say they want to buy things with Bitcoin; I would say, then fill the gap after consumption. Don’t become a net seller of Bitcoin, because Bitcoin is capital. Every year-end, you should have more Bitcoin than you did at the beginning of the year.

For example, if Google invests $1 billion in building data centers and makes $10 billion, they net $9 billion. This doesn’t lead to a collapse of the dollar market, right? No one will shout "Google sold dollars to buy data centers."

The dollar will be just fine, and it will not shake Google’s business model. They spent $1 billion on business investment, 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 for the company... when the liquidity of the equity capital market is not as strong as the Bitcoin market, we want to utilize this market.

Whenever a company restricts its options by saying "we will never do something," regardless of what it is, the outcome will inevitably be regret. For example, if we say we "will never repurchase our own stock, only sell stocks," then the bears will frantically sell our shares until they push it down to $1. When the stock price trades at a significant discount to net asset value (NAV), if we can buy it back, those bears have lost out. By taking advantage of their irrationality, we can make a lot of money.

So what we are really expressing during the earnings call is— we will swap STRC for MSTR, we will swap BTC for MSTR, and we will use BTC or MSTR to pay dividends. We will do whatever serves the company's best interests. But over time, we expect to be a net accumulator of Bitcoin. This will not change how we trade our daily assets. As for whether we sell credit debt, equity, or Bitcoin capital, that will depend on market conditions and pricing errors.

Another thing we mentioned yesterday is that we are ready to repurchase our bonds. Currently, our corporate bonds are trading cheaply and undervalued, so it makes sense to buy them back, 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; ultimately, it is our fiduciary responsibility.

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

Michael Saylor: Peter believes Bitcoin is a Ponzi scheme. He really doesn't like anything in this space. Bitcoin is "digital capital," and we are buying this capital by selling equity and credit tools, thereby creating a digital finance company. I believe Bitcoin will persist because it represents global economic wealth that exists in tokenized form with complete property rights.

We have built a credit tool, STRC, on top of this, which simply strips volatility, lowers risk, and extracts or "distills" income from digital capital. If you do not recognize Bitcoin as legitimate, you will never recognize any derivatives atop it as legitimate. But for those who believe Bitcoin can store economic wealth in tokenized form, what we are doing is very straightforward.

STRC uses an over-collateralized model, selling $1 of credit bond for every $5 of Bitcoin, and this $1 credit bond has a clear yield. There are many who believe Bitcoin is a legitimate asset but cannot tolerate its volatility. They do not want to throw the money they need to pay for their children's tuition in the fall into Bitcoin because they need to pay in 12 weeks. So for them, digital credit makes a lot of sense because the principal is protected and more stable. In addition, they can earn 3 to 4 times the yield of the money market through STRC, which is precisely the characteristic that enables 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 every time STRC pays dividends, the ex-dividend price is below par (par value) for a period (perhaps one or two days). 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 that?

Michael Saylor: What happens as the dividend date approaches is that there is tremendous demand for STRC because there will be about $0.90 in dividends after the record date. Therefore, there are billions, hundreds of billions of dollars in STRC trading before the record date, and the trading price will drop by 60 or 70 cents the day after the record date, then gradually recover to par over the ensuing week or two.

So that’s normal. Those people are arbitrageurs, and their thought is just to let money be immobilized for about 12 days each year to capture around a 42% annualized return. They have their own logic. That’s good for us as well because it creates liquidity and participation, and that situation will continue.

As for the second thought, can you "front-run" in the Bitcoin market? The Bitcoin derivative market has daily trading volume of $50 billion. 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 technology capital," and the factors driving the Bitcoin market are trade wars, hot wars, diplomatic policies, national situations, and the situation in Iran in the Strait of Hormuz, followed by currency wars—like whether we expect SOFR to drop to 200 basis points or whether the yield curve is being distorted.

You can see that we are in quite a tightening monetary environment now, so these macro factors are somewhat constraining and present headwinds. I think when these factors reverse, they will turn into tailwinds.

But in any case, Bitcoin will slowly grind up because the organic annual supply from miners is only about $10 billion to $12 billion, with just 450 Bitcoins each day. Do the math yourself, and you will understand.

Then, every time we raise another $10 billion in capital, we buy the entire year's supply. So if a bank creates $10 billion in credit, that’s "the axle turned once"; if we sell $10 billion of STRC digital credit, that’s "the axle turned a second time"; when $10 billion flows into IBIT (BlackRock's Bitcoin spot ETF), that’s "the axle turned a third time."

So capital movements, digital credit, digital capital packaging tools, and bank credit are all driving the fundamentals of the market, and all these are positive. No matter the macro factors, you will see continued adoption. The influence of macro winds is only that when we should be climbing 30%, the tailwinds may boost us to 50%, while the headwinds might somewhat slow our pace.

David Lin: Has your logic regarding Bitcoin changed?

Michael Saylor: It has not changed. But I would say it is 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 are wondering, what is the killer application of an asset class valued at $15 trillion that trades hundreds of billions of dollars daily? The answer is it acts as collateral for credit. Since digital capital is the best-performing capital asset, outperforming the S&P 500 index by two to three times, it follows that we can create the best-performing credit assets on top of this capital asset.

What we have seen over the past year is that STRC is the most liquid credit tool; it is the most liquid preferred stock in the entire market and also the largest preferred stock by size on the market. It has the highest Sharpe ratio. We successfully created a tool with a Sharpe ratio of 3 and a dividend rate of 11% to 12%.

The highest Sharpe ratio in stocks is Nvidia, at about 1.7; the S&P 500 is about 0.9... none exceeds 1, even the top hedge funds cannot achieve a Sharpe ratio exceeding 2.2.

So digital credit actually has better risk-adjusted returns than all other financial strategies in public capital markets and all publicly traded tools. I couldn't have told 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 become the best-performing convertible bonds, and credit tools like STRC will become the best-performing preferred stocks.

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

Bonnie Chang: I guess over 70%?

Michael Saylor: This year, over 60% of the preferred stock in the U.S. has been issued by us. Last year and this year, we are the largest credit issuer in the U.S. We revitalized the preferred stock market, and STRC has seen 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 currencies. Because now there is a batch of stablecoins (Yield coins/tokens) pegged to the dollar that can pay 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.

In the realms of digital assets, cryptocurrencies, and traditional finance, there has been an explosion driven by digital credit innovation. And Bitcoin is the cornerstone that makes digital credit possible, which may be the most exciting thing this year.

Bonnie Chang: 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, in my first grade, my parents wanted to motivate me, and they told me they would give me 10 cents for every book I read. I was addicted to comics back then, and I remember comic books were 25 cents each. So the calculation was that I had to read two and a half "real books" to trade 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 and encountered Heinlein, Clarke, and Asimov. Before third grade, I had read "The Moon is a Harsh Mistress" and "Have Space Suit—Will Travel," and by third and 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 in space, and saves humanity from "bug-eyed monsters."

What is the reward for saving humanity? He gets a full scholarship to MIT. At that time, I thought if MIT was good enough for that hero who saved humanity, then it was probably good enough for me. So no matter what, 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.

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