"Bitcoin Will Be $10 Million!” The Future Of Capital Markets w/ Michael Saylor

No force on earth can stop an idea whose time has come. I think we created in Strategy the world's most tax-efficient scalable generator of fixed income. I mean the truth is obviously I'm biased, but I think most of this credit is garbage. The worst thing we sell is five times over-collateralized and it's been unrated. The best investment grade bond in the world isn't three times over-collateralized. So the worst thing we sell is better than the best thing of the conventional finance establishment.

I think the last 12 months we've had a lot of clarity with regard to that. The digital assets industry is kind of bifurcated into two segments. There's digital capital and then there's digital finance. And Bitcoin has emerged as digital gold, but a store of value. Capital is a store of value. And that started with the SEC approving the ETFs about a year and a half ago. But really the catalytic event was in March at the crypto summit at the White House. And at the end of that day, David Sacks said, you know, Bitcoin is digital gold. And he said it publicly. That's the policy of the administration. So from that point forward, you had kind of this rippling viral go-global consensus and everything kind of just locked into place. Okay, that's digital gold. What's the killer app for gold? It's gold-backed credit. For 300 years, the Western world ran on currencies and credit instruments that were backed by gold all the way up until Nixon took us off the gold standard in '71. So half the industry is digital capital, which is Bitcoin, and then digital credit, the credit instruments built above it. And we've just laser-like focused upon building out that stack. The other half of the industry which has really exploded in vitality over the past 12 months with the new administration is digital finance and it's basically the tokenization of currencies, the tokenization of stocks, of bonds, of real world assets, of brands, every type of tokenized application. And that has been a massive tailwind and source of energy for all of the proof-of-stake networks. These are not new narratives to people who have been in the Bitcoin space for quite a while, but we're finally seeing it catch fire as you mentioned.

I think for Bitcoin and the entire crypto industry for it to 10x from here, the major catalyst is the embrace and adoption by the major banks. So the actions of JP Morgan, Bank of America, Wells Fargo, BNY Mellon, PNC Bank, the support that's coming from Schwab, from boutique banks like Texas Capital, all of those are big actors. The actions of Morgan Stanley in the space, they led our IPO of STRC which was the biggest IPO of the year and it's basically a Bitcoin-backed credit instrument. So I think probably the most auspicious thing is to see, I didn't mention Citi, but the support that's coming from Citi, from JP Morgan, from Wells Fargo, from Bank of America, all of those banks are revising their crypto policies which were very restrictive and blanket as of a year ago and they've changed their view toward the entire industry and toward crypto assets as collateral in some cases in the past four weeks. So this is a very important month.

You know, I give them the benefit of a doubt. If you roll back to the crypto winter, the regulators shut down, you know, and I would say almost assassinated Silvergate and Signature Bank. Those were two good banks that were put out of business by the previous administration on a Sunday. And that traumatized the entire banking establishment, right? If you combine that with the guidance that came from the Fed and the regulators, I think they were all traumatized and their view is like, 'Hey, the bank's been around for a hundred years. I'm not going to blow it up on my watch.' And so they all took very conservative, extremely paranoid policies and maybe the paranoia was injected into them by the administration. I think after November 5th, we knew there was going to be a new view toward digital assets, but I don't think people realized how constructive and positive it would be until you got 12 pro-crypto, 12 pro-Bitcoin cabinet members. And then Scott Bessent went out of his way as the Secretary of the Treasury to make sure that Treasury and the OCC and the FDIC and even the Federal Reserve provided very positive constructive guidance to those banks that now it's safe. It's safe for them to start the custody. It's safe for them to start to issue credit and it's safe for them to trade and handle this asset. And so if you look at it from a pragmatic point of view, these are the largest most risk-averse organizations in the country and from the point that it's safe to do something to expect, I would think, oh it might take four years. And so the fact that it's happening, we're not even in the first anniversary of the election, right, the fact that they're actually moving in the 11th month when it was a death sentence to move 12 months ago. I think that's very auspicious and I think you got to take your hat off and applaud the people that are running these trillion-dollar organizations that are able to start to lead their organizations to a better place. Now, having said it, they're not crypto-native. They're not tech companies. They're going to move methodically. They've got a lot of people, a lot of moving parts, a lot of constituencies to please. So, I think it'll be four years of progression before, you know, maybe the 10% tech leaders have the kind of stack of services that they want. Vanguard came out and said, 'Never. We will never offer these products.' That changed in the last month. And now, to your point, CFTC looks like we're getting a pro-Bitcoin chairman. And Fed Governor Waller last week said that crypto is woven into the fabric of the American financial system. These are things that would have been absolutely mind-blowing even a few months ago, much less 12 months ago, the over-under would have been outrageous. And you know, and the irony though is Vanguard was very explicitly anti-crypto, anti-Bitcoin. And you know, Scott, who is my biggest shareholder? Vanguard. So, you know, no force on earth can stop an idea whose time has come. And right now you have 750 million people in the crypto ecosystem. You have something that I think when I got into the space 5 years ago, it was a $200 billion to $250 billion industry. It was $2 trillion 12 months ago. It's $4.5 trillion right now. There's an avalanche of capital, an avalanche of people, armies of people. And their view is this is an idea whose time has come. And even Vanguard got big because they invented equity capital. The Vanguard 500, the idea that you just want to buy a chunk of equity without taking any counterparty risk, you buy a mixture of 500 companies. And that was their big thing, equity is capital. And now we've got digital capital. And of course, it's a new paradigm. They'll be a bit slow, but they can't help but invest in it because money is indexed to invest in credit and is an index to invest in equity. And once you've got 250 companies that are holding digital assets and once you start having credit instruments backed by digital assets, the people that run those funds have to own those things. They can't not.

Yeah. Well, say Bitcoin is like a 45 VIX asset and you can't hold money that you need in two weeks in Bitcoin because you might have a lot or not as much. So, Bitcoin is a long-duration asset. You want to hold it for 10 years, 120 months, and you're going to be on a 45 volatility roller coaster and you're going to make a lot of money and you got to believe in it. You get on the street and you ask a hundred people, do you want that? Most of them don't want that. Your retirees, your father, your retirees, fixed income, they don't want that. So, what do they want? Well, some people think, I want to have my cake and eat it too. Can I just have 75% of the upside, no downside, and just give me the rest as a fat dividend, like 8% dividend. And that's kind of interesting to people and we created that, that's a convertible preferred stock called STRK. That was the first digital credit instrument we created, like upside, 80% of the upside, 10% of the downside and a fat dividend while you wait. And then the next thing we created was a 10% dividend forever. How do you pay a 10% dividend forever? You won't find Apple or Microsoft. If the CFO of Microsoft walked into the boardroom and said, 'I want to pay a 10% dividend forever,' he'd get fired. Okay? So, we created that because the reason we wanted it is we intend to invest the money forever. We're going to take the billion dollars and we're going to buy a billion of Bitcoin. And my forecast is Bitcoin goes up 30% for the next 20 years. It goes up 20% forever after that. So our long-term forecast is we know we're going to do double maybe triple that and we want the money forever. So if you have the best use of proceeds or the best collateral then you can offer the highest yield. And so we did that and that was the next deal and that was more successful than STRK. And then we created a third deal, a third instrument called STRD, Stride. And there we stripped, this is a joke, we stripped the investor protections off it. We said STRF was a cumulative preferred with penalties if we missed the dividend. And STRD was a non-cumulative preferred, no penalties if we missed the dividend. And you're like, well, why would anybody want to buy that one? It's because the STRF product traded above par and it was yielding 9% and we sold STRD below par and it yields 12.5%. And so if you actually believe in Bitcoin and you like the company, you're getting paid 350 basis points extra. And if you just want the extra three paragraphs, you give up 3.5% dividend forever. And so we created a junk instrument on purpose. And along the way we realized that what people really want is they just want a high-yield bank account. They want a money market that pays them triple. And so the fourth exercise was STRC, Stretch. And it's the one I wish I did first, but I couldn't have done it first without doing the other three to figure out what people wanted. So the idea of STRC is you pay a monthly dividend that's cash. Right now it's 10.25%. When we took the thing public it was 9%. But we pay a dividend. We target par value. So we target the instrument to trade between 99 and 101. And it's trading about 98.7 or almost 99 right now. And the idea was we're going to strip away the delta. There's no upside from Bitcoin. We're going to strip away the risk. We're going to 7x or 10x over-collateralize it. We're going to strip away the volatility. The VIX of Bitcoin was 50. STRK got to 30. STRF got to 20. STRD got to 15. And this got to like five to seven. So we stripped the volatility away and then we stripped the duration away. Instead of you holding it for 120 months. Like, how many people want to buy a 20-year bond? Not many. How many people want to buy a 20-year crypto bond? Not many, but how many people want a money market that pays them 10% instead of 4%? A lot of people want that. So, we just kind of created something that looks like a money market instrument. A one-month Bitcoin bond that right now pays about 10%. And while we did it, in order to do it, we created a variable dividend where the company can change the dividend every month. And so if it's trading weak, we raise the dividend. If it's trading too strong, we lower the dividend. So we kind of created our own currency, Scott, like the pound or the euro. But if you wanted a Bitcoin-backed or a crypto dollar, we created that instrument with the risk-free rate or the rate of 10.25%. Now, that's the one we're most excited about because that's the highest degree of financial engineering we've done. It's like extracting kerosene from a barrel of crude oil. It's like pure jet fuel or rocket fuel. Now, along the way, so we ended up creating instruments that yield 9 to 12%, which is like double or triple most credit. But then we tripped over this very interesting magical thing. We didn't expect it. What we realized is if you sell equity to pay the dividend, the dividend becomes tax-free. So the dividends are return of capital dividends, ROC dividends we call them. So what you're doing is you're returning the capital to the shareholder or the creditor. So STRC is not a bank account that pays 10.25%. The tax-equivalent yield is 17% if you live in Florida and it's 20% if you're a New Yorker. So, we created a bank account that pays 17 to 20% by combining digital capital with a digital credit instrument with a digital treasury company that issues securities to pay the dividend. And I'd love to tell you that I had figured it all out before we started, but we really tripped over digital capital and then we developed digital credit out of desperation to avoid credit risk and then we used the ATM to fund the dividend. Then we discovered it was all going to be return of capital dividend and the punchline is I think we created in Strategy the world's most tax-efficient scalable generator of fixed income.