Well, thank you so much. Thank you also, Michael, for joining us for DC Fintech Week. Besides all the natural attention you generate, to be able to come to this particular crowd—a very global crowd, but also a very policy-oriented crowd—is very unique and special for us. Maybe we'll just sort of jump right in, given the fact that you have a bunch of central bankers, lawyers, lobbyists, folks from the Hill, etc. Yeah, MicroStrategy is arguably really one of the most imitated but also analyzed companies in finance. Do you think that it is a misunderstood company, and if so, what do you think are the most common misperceptions about MicroStrategy?
Yeah, I think tremendously misunderstood. I think the company is basically a reserve institution built on a new capital asset. So digital capital is misunderstood, digital credit is misunderstood, digital equity is misunderstood, and the digital treasury model is misunderstood. So you have to go to first principles and start with the idea that capital is an economic store of value or wealth, and I can store my wealth in paintings or gold or land or equities or credit instruments. Bitcoin is digital gold, which makes it digital capital. And what we've done is basically reinvented the entire financial system on digital gold that was built 400 years ago on gold. So if you go back to the Bank of England, you know, 1700-ish, 1694, a company raises capital to buy gold and then issues credit.
Okay, so MicroStrategy is a company that raises capital to buy digital gold and issues credit. If you thought that the money supply was going to expand at 5% a year versus gold, then the credit on the gold could pay 5% yield. I just described the British console. So the French had the rente. The British had the console. The console was a perpetual bond that paid 3 or 5%. It's outstanding for hundreds of years. What we did is reinvent the console. We issued a perpetual security called STRC, actually a number of them, and it pays a dividend perpetually. So, like STRF pays 10% at par forever. Its underlying capital asset is Bitcoin. Bitcoin's been going up 38% for the past six years, 60% beyond. If you thought the capital asset was going to appreciate more than 10%, you're just doing a swap. So what we're doing is we're swapping a credit dividend that might be 10% in return for the return of Bitcoin in perpetuity, which we expect to be more than 10%.
So once you get that idea, the big innovation for our company is a public company that creates its own reserve bank. Okay, a private central bank. We are the central bank of the crypto economy. A public company can do it. The second big innovation is creating a digital asset that is capital, that is a commodity. Now, it turns out that the king of all commodities before digital assets was gold, because gold was the scarcest. And so the entire world financial system was built on gold for hundreds of years, and all credit products were indirectly gold-backed credit products until we went off the gold standard. What we are doing now is we're using a new commodity. Now the king of commodities is Bitcoin. Why? Because gold has a 2% inflation rate a year, and Bitcoin has a 0% inflation rate a year. So digital gold is better than gold because it's capped at 21 million. If God said it's illegal to make any more gold and we'll cap the gold supply at 21 million coins forever for all of eternity and teleport them at the speed of light and vibrate them on a computer, then you'd have Bitcoin. So, Bitcoin is perfected, perfected capital, and because it's a commodity, it turns out that the Investment Company Act of 1940 prohibits any publicly traded company from capitalizing on a portfolio of securities. So, you can capitalize a public company on real estate or gold, soybeans, barrels of oil, or Bitcoin.
But of course, all of those commodities are weaker than Bitcoin because Bitcoin is a 40 vol asset with 40% ARR. If you think about the amount of energy in a barrel of that commodity, I can then create a security where I strip the 40 vol down to eight and strip the 40% performance down to 10, and I can sell that to the credit markets. And then I swap out the excess volatility, the excess performance, and I sell that to the equity markets and the derivative market. So in a nutshell, what we're doing is we're manufacturing volatility and performance for equity in the options market, which means we have the most volatile stock in the S&P 500 universe.
And then we're creating the highest performance credit, the highest yielding credit for the credit markets. And the company sits in the middle of that. And we just manage the capital structure in order to feed both of those markets. And the reason that we can do it is because Bitcoin is a commodity. If Bitcoin was a security, this entire business model trips over the Investment Company Act of 1940. You can't scale it.
Yeah, that was very helpful. You know, and I think that part of the challenge conceptually, both legally and otherwise, is understanding that it sits in between both that credit part, because a lot of people will ask, okay, well, we're seeing the perpetual preferred stock. You know, what's the credit function or feature in the instrument vis-à-vis the equity feature? Just to go one last layer in before we get into the Bitcoin economics question. Just to take a step back, there's the 12-month dollar reserve, the repurchase authority, and then you have the Bitcoin monetization programs. Given the structure that you've just sort of laid out to us, where does that fit?
Yeah. So the company's job is to manufacture the best credit in the world. So the idea is I create a credit instrument that trades in the public market, highly liquid, low volatile, generate a stream of cash flows. We started with quarterly cash flows, then we went to monthly cash flows, then we went to semi-monthly cash flows. Now we're going to daily dividends and even dividends that you accrue on the weekend. So we're creating a stream of cash flows, tying it to a liquidation preference, and we're backing it with a combination of dollars and BTC. And what we've done is iterated. We've realized that the ideal alloy is like 25% dollars, 75% Bitcoin. And that means we have three years of dividends in cash in US dollars, and then we have 45 years of dividends in Bitcoin. So about 50 years of capital against this instrument that we sell to the public. And the big innovation here is, I mean, private credit pays a yield. It's illiquid. So we take the idea of private credit, we make it public so it trades every day in the market. And the other innovation is if you fund a credit dividend by monetizing an unrealized capital gain on a capital investment, then the credit dividends become return of capital, which means they're tax deferred, which means you don't pay state tax, city tax, federal tax until you sell the instrument. So we've created probably the most scalable generator of fixed income in the world, right? So if you're a New York City resident, let me break this down. That means it's like getting a bank account that pays you 24%.
Okay, instead of your current bank account that pays you either 0% or a money market that pays you 4%, we're paying you 24%. So it's a very innovative approach to credit. And the reason it works is you're taking a long-duration investment in Bitcoin, holding it a hundred years. You're selling an equity that trades at a premium to Bitcoin. So the equity monetizes the unrealized capital gain. The cash flows from the equity flow to the credit investors. The equity investors get amplification. They're getting leverage. So we're generating more Bitcoin per share. And it's really just a banking model. If you know how banks work, a bank sells mezzanine equity. It sells preferred stock in order to amplify earnings per share on the common. We sell preferred stock to amplify Bitcoin per share on the common. So we've copied that part of a banking model, but we've applied it to digital capital. So the equity investor is generating more Bitcoin per share by selling credit. The credit investor is getting paid a dividend, 10 to 13%, a dividend that's twice as much as normal credit that is tax deferred. And you know, is there a market for a 12% dividend that you don't have to pay tax on if you're a retiree? Sure. I mean, you can retire 20 years early or 10 years, right? It's the difference between getting paid 12% tax deferred versus getting paid 4% taxable is the difference between working between the ages 50 and 65.
Right, so it's interesting to one group of investors, but on the other hand, you know, Bitcoin's up 38, 39% for the last six years. Our common stock's up 52%. So we're outperforming every Mag 7 stock, most stocks in the S&P. The only one that's beating us right now is Nvidia. And at points we're beating Nvidia. So you could think of it as a new business model, a new kind of structured finance company built on digital assets for equity investors, a new kind of credit for credit investors, and then a new kind of capital for capital investors. And who wants that? Well, if you live in Africa, how do you get a million dollars of gold through an airport? Right? If you live in Africa, Asia, South America, anywhere in the world, if you want to capitalize a company in an area where the banking system is rickety, how do you do it? And the answer is you capitalize it with Bitcoin because Bitcoin is digital capital. You're not subject to the whims of the local government, the local banking system. Like, how do you capitalize something in a country where the currency is collapsing? Right? So Bitcoin is an exit for people that are suffering under currency debasement regimes.
So let's hop into that a little bit as Bitcoin as a product. I mean, there is lots of volatility historically in Bitcoin prices, even with this performance. I guess, you know, if we're going to make a comparison between that and other ways in which countries are thinking about their hedging. I mean, sometimes it's with US-backed stablecoins, sometimes it's with Bitcoin. But just sticking with Bitcoin for the moment, what do you view as the primary sort of headwinds and tailwinds for Bitcoin immediately and in the medium term?
