Even if we were to sell one Bitcoin, we'd be buying 10 to 20 more Bitcoin. I'm very famous for saying never sell your Bitcoin. And that's why the internet went crazy when we said we might sell it. Peter thinks Bitcoin's a Ponzi scheme. Peter is not really a lover of anything in this space.
We're very pleased to be co-hosting this exciting interview with executive chairman of Strategy Michael Saylor. Co-hosting with me is Bonnie Chang. And we're going to kick it off with some recent news coming out of Strategy's own announcement and Michael Saylor's announcement on social media. Take it away, Bonnie.
Something happened 19 hours ago and that shocked the internet. What was it?
We probably, you're referring to our earnings call where we announced that we're prepared to sell Bitcoin to fund our stretch dividends if need be.
I'm sure that was a very well-thought-through pivot. What is the idea behind it?
The most important thing is we want the market to understand that Bitcoin capital gains fund stretch credit dividends. So when we sell STRC credit, we sell a million dollars of it. We turn around, we buy a million dollars of Bitcoin. We expect Bitcoin to appreciate about 30% a year. It's been appreciating almost 40% a year. We strip the first 11% of that capital gain and we pay that as a credit dividend. But there's been a bit of confusion in the market about where did the dividends come from? You know, how do we pay the dividend? And for most of the history of the instrument, we sold common equity, MSTR equity, to pay the dividend. MSTR equity is a derivative of Bitcoin and it normally trades at a premium to Bitcoin. And so we were selling a Bitcoin derivative, but some people worried that we wouldn't be able to sell the equity in the future. And then there are short narratives that we have to sell the equity. And then there are other narratives that the company won't sell its Bitcoin. And that kind of metastasized to, well, if they're not going to sell their Bitcoin, it must not have any value, and they can never sell it. And if they can't sell it, then we can't count the Bitcoin as an asset on the balance sheet. So if you had $65 billion worth of something and people wanted to value it at zero, it's not very good, right? We don't want the credit rating agencies to think the company has zero dollars of assets. We want the credit rating agencies to think we have $65 billion of assets. And you know, there are also trolls on the internet that continually complain that this is a Ponzi scheme because we sell equity in order to fund a preferred dividend. Well, what we want to do is we want to reinforce the business model is we sell credit to make a capital investment in an asset, Bitcoin digital capital. The capital investment creates over time faster than the dividend. We then monetize the capital gain and we pay the dividend. We think that the best way to punctuate this to make it very clear is to make the point that the company doesn't have to sell common stock ever. We can simply sell highly appreciated Bitcoin in order to pay a dividend. And if we do that, you're capturing a capital gain to pay a credit dividend. I think the analogy is like a real estate development company raises capital by issuing a credit instrument, buys land at $10,000 an acre, develops it, it's worth $100,000 an acre, and then they monetize that capital appreciation. You could sell the land at $100,000 an acre. You could rent the land after you fully developed it. You could refinance the land. But nobody questions a real estate development company that makes a capital investment with a credit income. What we're doing is the same thing with Bitcoin, and we want to make sure that the market understands that. I'm very famous for saying never sell your Bitcoin. And that's why the internet went crazy when we said we might sell it. But if I was being more precise, I'd say never be a net seller of Bitcoin. It just wouldn't have been so viral or so catchy to say never be a net seller of Bitcoin. I think that in these periods, even if we were to sell one Bitcoin, we'd be buying 10 to 20 more Bitcoin. So, you're really talking about a situation where we buy 10 Bitcoin, sell one Bitcoin, buy nine net Bitcoin, and continue to create Bitcoin. It should be a non-issue after people understand it, but right now it's a colorful area of commentary.
Is it possible for you to comment how do you sell one Bitcoin and buy 10?
Yeah. So, the number one Bitcoin accretion engine is Stretch. We sold $3.2 billion of STRC in April. So, we bought $3.2 billion of Bitcoin. The dividend is about 80 to 90 million. So in the month when we're raising three billion, we need to come up with 80 or 90 million to pay the dividend. So you would be in essence, you would be buying 30 Bitcoin, selling one Bitcoin. Our break-even rate is 2.3%. So what that means is that if we sell Stretch, if we issue stretch credit equal to 2.3% of our Bitcoin holdings, then that means we will be a net buyer of Bitcoin forever, even if we sell Bitcoin to pay the dividend. Another point is that if Bitcoin appreciates 2.3% a year, we can pay the dividends forever, and continue to grow value, and we can do it without selling any common equity. So the break-even is 2.3. Right now we've sold about $5 billion of STRC in the first four months of the year. So we're running on a pace to have an issuance rate of 15 or 20% this year. 2.3% is the break-even. So you buy 20, you sell two, you net 18, right? The company as long as it grows is going to buy more Bitcoin than it sells. I expect we'll be a net buyer of Bitcoin in every month and every quarter going on forever.
One last question before I pass it on to David. Please go ahead.
A lot of investors believe this 'never sell your Bitcoin' religiously, right? And do you think they should still follow that suggestion?
Yeah, I think that you should be a net accumulator of Bitcoin. Like when I say never sell your Bitcoin, I mean make sure that if you were to spend it on something, you replenish it in the time you spend it. So there are also a lot of crypto people or a lot of Bitcoin people that say they want to spend Bitcoin to buy things. And if you were to spend Bitcoin, I would say just replenish the Bitcoin. So you don't want to be a net seller of Bitcoin because Bitcoin is capital. You want to end every year with more Bitcoin than you started the year. And the analogy I'd give you is if Google spent a billion dollars to invest in data centers so that they could make 10 billion, they're making net $9 billion. It wouldn't crash the dollar market, right? Oh, Google spent dollars. Google sold dollars to buy data centers. The dollar would be fine. It wouldn't undermine the Google business model. Oh, they spent a billion dollars to invest in their business. That's fine, right? And so it would be fine for Google. It's a rational thing to do. Sometimes you spend money to make more money. So if you're spending one Bitcoin to make 10 Bitcoin, I think it's fine for Bitcoin. I think it's fine for the company. I think it strengthens our company because if our company has the ability to tap the crypto liquidity market, if we can raise liquidity by selling spot Bitcoin, that's a $20 billion spot market and a $50 billion derivative market every day, that's a powerful energy source. So, we want to be able to tap that market when the equity capital markets aren't as liquid as the commodity market for Bitcoin. And so whenever a company strips its options, whenever we say we will never do something, we always regret it, whatever it is. Give you another example, right? If we say we would never ever buy our stock, we would always sell our stock. Then short sellers would sell our stock and they would sell it down to a dollar. The stock trades at a big discount to NAV. We would buy it back. Then the short sellers have something to lose. Then we would make a lot of money by them being irrational. And so what we did say in our earnings call yesterday is we're prepared to trade stretch for the common stock. We'll trade STRC for MSTR. We'll trade BTC for MSTR. We will fund our obligations with BTC or MSTR. We'll do whatever is in the best interest of the company. But, you know, over time, we expect to be a net Bitcoin accumulator. That doesn't change the way that we trade our assets day-to-day. Whether we sell credit or sell equity or sell capital assets, that will be a function of the market and mispricings. And if you know, the other thing we said yesterday is we're ready to buy our bonds back. So our corporate bonds trade cheap. They're undervalued and so it makes sense for us to buy them. It doesn't make sense to sell them. So we don't sell assets that are undervalued. We buy assets that are undervalued and then we arbitrage whatever the inefficiency is. And if the market knows we're going to do that, then the market's going to actually fairly value all those assets. And that's to the benefit of all the investors and all those instruments. And ultimately, that's our fiduciary obligation.
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Peter thinks Bitcoin's a Ponzi scheme. Peter is not really a lover of anything in this space. Bitcoin is digital capital and we've created a digital treasury company by selling equity and credit instruments to buy capital. I think that Bitcoin is going to continue because it represents economic wealth in tokenized form with full property rights for the world. And we have built a credit instrument, STRC, on top of it which simply strips the volatility, reduces the risk and extracts or distills a yield from digital capital. If you don't acknowledge Bitcoin as legitimate, you'll never acknowledge any derivative on top of it as legitimate. But for those people that believe that Bitcoin is digital capital as a store of economic wealth in tokenized form, then what we're doing is very straightforward. We overcollateralize it and for every $5 of Bitcoin, we sell a dollar of credit and the dollar of credit has a defined yield. And there are a lot of people that they believe Bitcoin is a legitimate asset. They just can't stand the volatility. They don't want to take money they need for their kids' tuition in the fall and invest it in Bitcoin because they need to pay a bill in 12 weeks. And so for them, digital credit makes a lot of sense because the principal is protected. It's stable. And then they're getting paid three or four times a money market. And it's the superior aspects of Bitcoin over other capital assets which allow us to pay that superior dividend yield.
This is a theory that I like to run by you and I'll pass it back to Bonnie. So, some traders have noted that whenever STRC issues a dividend, the ex-dividend price trades below par for some period of time, maybe a day or two. And then once it reaches par, that's when Strategy goes and buys Bitcoin. So, they started front-running that pattern by buying Bitcoin right before STRC reaches par believing you and Strategy would buy Bitcoin at par. Can you comment on this?
What happens as we approach the dividend date is there's a massive demand to buy STRC because there's like a 90 cent dividend after that record date. So there are billions and billions of dollars of trading in STRC leading up to it and then the day after that record date it trades down 60 cents or 70 cents and then it gradually recovers back to par over the next week or two. So that's normal. Those are arbitrageurs. Their idea is I want to commit a million dollars of capital for one day and I'm effectively capturing 42% annual yield a year by having my capital tied up 12 days a year or something. And they've got their math. That's fine. It's good for us because it creates liquidity and engagement and that will continue. As for the second idea, can you front-run that in the Bitcoin market? Well, the Bitcoin derivatives market's $50 billion a day. And so, do I think someone has enough capital to move that market? Not really. My opinion there is Bitcoin is kind of like tech capital squared. And so the things that drive the Bitcoin market are trade wars, hot wars, foreign policy, the Strait of Hormuz, Iran situation, and then currency wars, you know, whether or not we're expecting the Fed to fall to 200 basis points or whether the yield curve is being bent. And you can see right now we're in a fairly restrictive monetary environment. So those macro factors are the primary driver of Bitcoin. I can tell you for a fact, for example, we bought $100 million of Bitcoin an hour. It doesn't move the price. We bought $200 million of Bitcoin an hour. It doesn't move the price. We have bought $200 million of Bitcoin an hour or 300 million in an hour and stopped, the price goes up. Okay. So for anyone that thinks that they have enough power, well, you know, maybe if you're going to bring $30 billion to the market in one afternoon, maybe. But I have spent lots of money. We bought more Bitcoin than anybody that I know of. We think, I think we probably acquired 62 billion dollars of Bitcoin. What I believe is that it's a global market. It's got dynamics, you know, all its own. It's driven by foreign policy. And if the Chinese government has a certain announcement that drives the price of Bitcoin and so it's flattering to suggest that we're systemically important. I don't think so.
