Open your banking app and look at what your savings earned last month. For most Americans, it's close to nothing. The FDIC's national average savings rate sat at 0.38% in its August data, and consumer prices rose 3.7% in the year to September. Leave $10,000 in that average account for a year, and you collect about $38 in interest, while inflation takes roughly $370 of what the money can buy. That gap is the opening Michael Saylor is driving a truck through. His company, Strategy, owned 848,250 Bitcoin as of October 11th, the largest corporate stack on the planet. Two days later, he sat down with Georgetown law professor Chris Brummer at DC Fintech Week in Washington, and explained what he's building on top of those coins. His timing runs against the mood. Bitcoin spent mid-October trading in the low 80,000s, about 35% under its $126,080 record, and plenty of investors have written this cycle off. Saylor is building as if this is the setup, and he told the room exactly what he sees forming. In this video, we're going to break down what Strategy has turned itself into, why the yield it pays has income investors paying attention, what happens to Bitcoin's supply when the big banks start lending against it, where Ethereum fits as Wall Street moves securities on chain, and how worried you should be about quantum computers. Now, let's begin.
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 that, 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 and 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 and the options market, which they, 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.
Start with the size of what Saylor has built. Strategy paid about $64 billion for its 848,250 coins, an average of roughly $75,444 each. At mid-October prices, that stack was worth around $70 billion. So, even after a 35% drawdown from the peak, the company sits above its cost. When it made its first purchase in August 2020, 21,454 coins, it was a mid-sized software company looking for something better to do with its spare cash. Now, quick one for everyone watching from the US because this is actually big. You can finally trade crypto perpetuals legally in the United States. No VPN, no offshore exchange, legally. It's on Kalshi. Most of you know them as a prediction market, but they now have perpetuals, too, on a regulated US exchange. You can go long, you can go short. If you use the regular mode, it's up or down. And if you switch to Kalshi Pro, it's long or short. Same thing. Now, you can't go full degen here. There's no 50x. It's more responsible leverage, around 6x on Bitcoin and a bit lower on Ethereum and a range of other coins. That's the trade-off for being fully regulated in the US. And honestly, for most people, that's plenty of leverage. If you sign up using the link at the top of the description and trade $50, you get $25. That offer is only for US traders. So, if you're outside the US, it's not open to you. But, if you're in the US, finally, you can trade perps in normal mode or pro mode completely legally. Now, let's get back to the video. Holding that much of one asset inside a public company runs straight into the Investment Company Act of 1940. Under that law, a business with more than 40% of its assets, not counting cash and government bonds, in investment securities can be classed as a fund. Funds face tight limits on borrowing and on issuing the kind of preferred stock Strategy sells to raise money. So, how does one company hold around $70 billion of a single asset, keep raising billions against it, and stay outside that rule book?
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, like, the ideal alloy is like 25% dollars, 75% Bitcoin. And that means we have 3 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 that'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're generating, 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%.
The product at the center of the machine is called Stretch, ticker STRC. It's a preferred stock with a variable dividend. In a September 30th filing, Strategy said it would hold that dividend at 12% a year on a $100 face value. That's more than double what the 10-year Treasury paid when its yield touched about 5.35% in early October, the highest since 2002. The yield is high for a reason, and you should know the catch. Between October 5th and 11th, Strategy spent $192.4 million buying back 1,932,145 Stretch shares, and management says it will keep the rate at 12% until the shares show sustained healthy trading near $100. The company also ended that week with a US dollar reserve of $4.88 billion, cash set aside to cover dividends and interest if Bitcoin falls hard. So, why would anyone lend to a Bitcoin company instead of a bank? If you want to see where the big Bitcoin buyers and the banks are moving before the headlines catch up, I break it down every day in the Crypto Nutshell, my free 5-minute daily email. No spin, just the signals that matter. Click the first link in the description, enter your email, and you're in.
