The focus of my discussion is the digital transformation of the capital markets. So I'm going to talk about the concept of digital capital, digital credit, digital money, and digital yield. Collectively, all of these asset classes are forming from the crypto economy and they're all targeting the three to four hundred trillion dollar capital market that right now is substantially invested in traditional credit instruments and equity instruments. So, it's logical to think that there'll be a digital transformation of that $400 trillion. And if it's 10%, that means there'll be $40 trillion that will flow into these instruments. And whether it's 1% or 10% or 20%, that is yet to be determined. But whatever it is, it's trillions and trillions of dollars. And so without further ado, let's just start with a basic fundamental concept: digital capital. Capital, economic wealth, economic energy. What is digital capital? It's Bitcoin. Bitcoin is digital capital. It is a way to store economic value digitally, to move it through time and through space without any physical instantiation. It's competing with metallic capital, that's gold. Property capital, that's New York City real estate. It's competing with cultural capital like your Monet painting. It's competing with fiat capital like your sovereign debt. Why is Bitcoin digital capital? Well, because the most powerful man in the world thinks it's digital capital. We have a Bitcoin president. He believes in Bitcoin. We have a Bitcoin cabinet. The top four financial regulators in the world—the head of the Treasury, the head of the Fed, the head of the SEC, the head of the CFTC—they all believe in Bitcoin. The Vice President of the United States believes in Bitcoin. Lots of non-financial regulators, they all believe in Bitcoin. So, the acknowledgment that Bitcoin is a legitimate capital asset is an extraordinary development. Capitol Hill has embraced Bitcoin. Banks have embraced Bitcoin. We see very positive movements by Morgan Stanley last week to roll out a Bitcoin ETF. We see Citi is going to roll out Bitcoin custody. We see very bullish moves by Charles Schwab. Here you can see on this chart most of the major financial actors in the United States right now all have a Bitcoin strategy and they're going to start to trade it, issue credit against it, custody it, build derivatives on it. Fintech and TradFi have embraced Bitcoin. You can see the explosion in the number of native accounts, hundreds of millions. You can see the neobanks are embracing this asset. You can see the brokerages and wealth managers are starting to embrace this asset. ETFs have embraced the asset. 125 right now. 1.4 million in Bitcoin in those exchange-traded funds. Public companies, we're now up to 194 public companies holding 1.1 million in Bitcoin. What are the key things to keep in mind? This is the most stable, most well-supported, most secure, most politically powerful, economically powerful, technically powerful crypto network in the world. If you just take the market cap of all of the non-stablecoin tokens in the crypto ecosystem, 66% of that is Bitcoin. Bitcoin is the dominant crypto network. It is the dominant global digital capital network. You can see it reflected in the liquidity. You can see it reflected in the market cap. So now you have a basis for a digital economy. Digital capital. What's the killer app for digital capital? It's credit. That's what our company does. We convert capital into credit. What is capital? It's like, so I own a million dollars of real estate for the next 30 years. There are no cash flows. What do I want? I want cash flow every month. So, how do I get $10,000 a month? I have to create—I have to do a real estate development project. I have to build a building, lease the building, convert it into cash flows. So, the world is built on capital. The world runs on credit. Our company takes that digital capital, we convert it into a currency, we strip away the risk, we damp the volatility, we distill the yield, we compress the duration. Instead of waiting 30 years to get rich, I'm going to get rich progressively every month with guaranteed cash without the volatility. The world's full of credit investors. They simply want to maintain their money and they want more capital or more cash to live their life. But the world's full of capital investors. They actually want to swing for the fence and they want to make more. So we're straddling capital to credit. Here's a picture. Bitcoin is digital capital. Right now it's got a 50 vol. So over the next 20 years, you're probably looking at 30% ARR, but you're looking at 30 to 40 volatility. If you can actually get on that roller coaster, then you're going to make a lot of money. You're going to have to live for that time frame without any cash flow. What's digital credit? Well, in the form of STRC, we have stripped and extracted the first 11.5% of that capital return. We've taken the volatility off the principal and we pass through the first 11% of the return to a credit investor. Well, why would you take 11 instead of 30? You take 11 because you just don't want the volatility and you want the guarantee. It's a very simple idea. What's unique is the way we've done it. We've done it with a public company strategy with a publicly listed preferred stock, STRC, with a digital capital asset, Bitcoin, with a preferred equity which means it never comes due, and then we've used that preferred equity to create a set of programs that strip the volatility out of it. We have a dynamic shelf registration that allows us to sell the volatility above $100, above par. We can manage the dividend. We can increase the dividend. We can decrease the dividend. We can change the collateral backing. And so if you actively manage these things, you can create a very stable credit instrument. And of course, the idea of that credit instrument is let's give the equity investors double-digit returns and tax efficiency. You don't pay tax. You defer the tax on your gain. That's the advantage of equity. The advantage of credit is there's low volatility and you preserve your principle. But can you put the two together and give people double-digit returns, tax deferrals, low volatility, and principal protection in a single instrument? That's what digital credit is. It's the best of both worlds. And how do we show that? Well, a lot of different ways to review, and I'll show you some stats in a second. But before I do that, I'll make a point about digital credit versus private credit. Normally when somebody wants 10 or 11% return in a credit instrument, they go to private credit. It's illiquid. It's opaque. It's heterogeneous. It's discreet. It's restricted. And they charge you a high fee. And that's a challenge. When you're investing in a thousand different real estate projects or a thousand different private companies and giving them five-year loans, it's very difficult to see how you make that liquid. But there's $3.7 trillion in the private credit market right now. You can see that's struggling. There have been a lot of redemptions. They're getting a quasi run on the bank because people decided that maybe it wasn't as liquid and it wasn't as transparent as they'd like it to be. Digital credit is everything private credit wanted to be but isn't. Digital credit is liquid. It is transparent. It's homogeneous, scalable. It's accessible. There's no fees. So in essence, we know there's a $3.7 trillion demand for double-digit credit instruments. We also know that the Achilles heel is the heterogeneity and the illiquidity. We've solved both of those in a novel way using Bitcoin as the back and collateral. So what is digital credit for? Well, it's good for a retail investor. It's good for an institutional investor. It's good for a corporate CFO or a treasurer. It's interesting for a hybrid investor or it's good for a digital investor and you can build all sorts of digital monetary instruments on top of it. It turns out that 80% of STRC—and this is $5 billion outstanding—80% of it is in retail accounts, which is an extraordinary achievement because normally the hardest thing in the world to do is to sell a new credit instrument to a retail investor. I can't be sure, but I suspect that this is probably going to end up being the most successful retail credit instrument anybody's ever created in the market. What appeals to them? Not just a double-digit yield. But the other appeal is that these are return of capital dividends, which means you don't pay New York City tax, you don't pay state tax, you don't pay federal tax until you've received all of your principle back in dividends. So, you might go nine years and not pay tax on the dividends from a return of capital instrument. Nobody's ever created an infinitely scalable way to generate return of capital dividends before Bitcoin came on the scene. But Bitcoin is the way you can do it. If you have a digital treasury company with a digital capital asset, then all of your dividends become return of capital, which means effective zero tax rate when you receive the dividend. So, who wants a bank account that pays them 11% that's not taxed or tax-free at least now? Everybody. Like, who doesn't want 10% from their bank and not getting taxed on it, right? Why wouldn't you? The natural reaction is what's the catch and does it work? And the truth is it didn't exist 12 months ago. It's totally new and it doesn't work unless you have digital capital. And if Bitcoin isn't digital capital, you'd have a challenge. But when the world agrees that Bitcoin is digital capital, you can create these sort of things. So how do they perform? Well, this is the performance of Bitcoin since the all-time high, October 6. If you're a capital investor and you bought Bitcoin, you're down 43%. If you bought the digital credit, you're up 1% and you've collected 5.5% in dividends. So, you know what kind of investor you are. The truth is, I'm the capital investor. I'd rather hold the Bitcoin because I think it's going up 30% a year for the next decade. But you can see there's a world of people that just would rather have the flat principle zero and collect the 5.5% in dividends. We have engineered this volatility. The organic volatility of Bitcoin in the last 30 days is 52. You can see it compared to—it's 3x the NASDAQ. It's, you know, getting close to 4x S&P. The organic volatility of our equity, MSTR, is 71. And we have stripped all of that volatility off of STRC to make it two, sometimes one. And so you see we're straddling both sides of the V curve. Some people want the one, some people want the 71. Depends on what kind of investor you are. But you can see this is a very straightforward engineering exercise. If you can strip the volatility to less than two and you can pay someone a double-digit return, you've created perhaps the highest Sharpe ratio of any publicly traded instrument. Like STRC's got a Sharpe ratio in the three, four, even five range. The Sharpe ratio of the S&P index is .6, right? NASDAQ .7, right? Nvidia is one. Google is a two. That's the strongest performer in the world. And yet we've created something which is leaving them all in the dust. Right? This is going to become the story for portfolio managers. What if we can create something with a Sharpe ratio of 10? Right? This is the lightsaber of money, right? No one's ever even conceived you could do this with a liquid instrument. You couldn't without digital credit. So, big highlights: Stretch has got $224 million a day of liquidity right now. That is 200 times more than a normal liquid pref. It's 400 times more than the average, right? And that's in the first nine months, right? Our target is to take that to a billion dollars a day, right? And in theory, the demand for something like this with a low volume, a high Sharpe ratio, a double-digit yield, right? The demand for this pretty much should scale with the liquidity on a daily basis after people decide whether they think it's creditworthy. How does it compare to other credit instruments? Well, if you're a taxpayer, it's 11.5% versus 8.4 for private credit, 3.7 for T-bills. Of course, that's if you're not a taxpayer. If you're a taxpayer in Miami Beach, the tax equivalent yield is 18%. If you're a taxpayer in New York City, the tax equivalent yield is like 23%. It's like a bank account that pays you 23%. I'm sure you guys don't pay taxes. Maybe you do pay taxes. You can see that it's off the charts. And the only question is again, how have you created this? Why haven't I heard of this? What's the catch? How long will this go on? This is what STRC looks like against other money markets around the world. And you can see clearly what have we created? We've created the risk-free rate in the crypto economy. So the free market risk-free rate is 11.5%. The risk-free rate in dollars is 3.7. The risk-free rate in yen is 70 basis points. Right? That's the arbitrage. That's what happens if you let capital move freely everywhere in the world. The velocity of Stretch is accelerating. We sold 377 million of it in one week and then the next week we sold nearly 1.2 billion. No one's ever issued 1.2—we did 1.2 billion in four days. No one's ever sold $1.2 billion of a credit instrument via a shelf registration maybe ever and we did it in four days but we're really just getting going as you can see here. So the AUM is growing. We've now doubled since the IPO. We just announced a $21 billion shelf registration. We think we'll sell 21 billion and when we do we'll double it and double it and double it again. I don't know why we'd ever stop. All that money is flowing into Bitcoin. I put this on a scale versus every other shelf registration in the credit market. And what you can see is that, you know, nobody ever had a reason to sell credit instruments into the public market before digital capital and digital credit came along. So, you know, it's really kind of just off the charts. Now, what's that do to Bitcoin? Well, we're buying all of it. Okay. In the week from March 2nd to March 8th, there were 221 million of bitcoin produced by all the miners in the world and we bought 1.7x that much. And the following week we bought 5.3 bitcoin for every bitcoin created by a miner. So we're in essence—we've created a synthetic miner. We're mining all of the bitcoin in the world. When we're doing it with a credit instrument we're doing it for free. Okay? All you got to do is believe that Bitcoin is going to appreciate 11% a year or more. And what we've done is we've acquired $1.1 billion worth of Bitcoin at no cost to our shareholders. Right? If you're a Bitcoin maxi, this is a pretty good business. A very good business. What's it do for the equity? Well, you can see we strip the volatility and the performance off of the capital asset to get to 11%. Where does the energy go? The excess performance, the excess volatility goes to the common equity. So in essence, Bitcoin's going up 30-35% a year. We're doing 50% a year. We have actually been performing about 55% a year for the past five years. You just have to be willing to get on the volatility roller coaster. If you're a Bitcoin maxi and you want to outperform Bitcoin and you believe in it, then you buy the equity. If you don't want to trust anybody, you buy Bitcoin. And if you simply want a very comfortable ride and you want to get paid four times more than the bank would pay you or a money market would pay you, buy the credit. And so it's really an exercise in aligning your duration, right? Are you a long-term capital investor with and you want no counterparty risk, you buy BTC. Are you a hardcore equity investor? Then you buy MSTR. Are you a credit investor? If you need the money in a month or a year or two years, you probably should own the credit. Now, STRC is the basis for creating the mythical Bitcoin-backed stablecoin, right? You want to create something that looks like, feels like a stablecoin, call it a savings coin that pays you 8% or 10% backed by Bitcoin. Well, what we discovered is you need to do it with an intermediate step. You take Bitcoin, you create Stretch, and then you put Stretch into that next layer. So there's an explosion of people coming in the ecosystem. We've got corporate treasuries that are adopting Stretch in lieu of a money market. But you've also got a lot of crypto entrepreneurs that are creating Stretch-backed savings coins or tokens, you know, that will pay you 8% with no volatility. And that takes us to this topic of digital money, digital yield. What is digital money? Well, digital money is 0% volatility daily liquidity instruments built on digital credit. Digital yield would be maybe non-zero volatility or illiquid instruments, but you just crank it up so it's massive yield. If you want to take Stretch and step it down, you could leverage it 20 to 80% and then you could create something with a performance of 5 to 10% yield with zero vol. Right? And if you wanted to step it up, you could create something that pays you 15 to 25% and you could attempt to make it zero vol or you could let it have two, three, four, five, six vol. These are all exercises for our partners. Right now as I stand here, we're delivering two vol, 11.5% yield. The real opportunity though, if you're interested in creating something cool in the digital asset space, in my opinion, is you take digital credit and you can tokenize it. You can put it in a private fund, a public fund. You can put it into a bank account, a crypto account. You know, why not your crypto exchange pays you 8% on your cash balances? Why not create an ETF that pays 10%? You can decide how much volatility to pass through. We're paying a monthly dividend, but you could turn it into a daily dividend or stream it hourly. Or you could also gate the liquidity. You could create a private fund that's 3x levered that gives people a redemption once a month or once a quarter if you wanted to do that. And then of course you can change it to any currency. Like what's the market for someone that wants to give you 8% in Japanese yen? You would think it'd be pretty big. You can create yen yield, euro yield, Aussie yield, pound yield, whatever you like. And so digital money can be created in various forms. You decide if you want to make it a coin, make it a fund, or make it an account. What do we see? Well, we see a hundred trillion dollars of equity investors that want double-digit yields that are getting beat up by volatility. And if they could keep the yield and get rid of the volatility, maybe they would buy this. And we see $300 trillion of credit investors that are either getting SOFR or SOFR plus a credit spread. And investment grade spreads are 80 basis points and junk spreads are 280 basis points. And it's all return-free risk, right? There's nothing compelling about any of it. So people are reaching for yield and they're taking on massive duration risk and credit risk in order to get more than nothing. Well, we think that a much better alternative is you go to digital credit and you get double-digit returns and it's possible to create stuff that looks investment grade in its credit quality that pays you double-digit returns that is highly liquid. The world doesn't perceive that yet, right? You're seeing it for the first time. It's literally coming to life in the last few weeks, but you're at the digital asset summit and presumably all of you are focused on digital assets. So my advice is if I was starting a company today, if I wanted to make a billion dollars, I would create something on top of digital credit, I would step it up, step it down, lever it, or I put it in a new container because the market opportunity is to grab one, two, 3% of a hundred trillion dollars, you know, and you could keep a 100 basis points of it or 200 basis points or 300 basis points and pass through the rest. And then the customers and the investors would feel like they've got the best thing in the world. And so that's really the opportunity for financial innovation right now. And so thank you for your time and your attention and I appreciate it.
