Michael Saylor: We Are Prepared to Sell Bitcoin. Here’s Why

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. Trolls on the internet continually complained that this is a Ponzi scheme because we sell equity in order to fund a preferred dividend. Whenever we say we will never do something, we always regret it. Whatever it is, we bought more Bitcoin than anybody that I know of.

We have bought $200 million of Bitcoin an hour or 300 million an hour and stopped. Price goes up. So for anyone that thinks that they have enough power...

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.

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 stripped 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 the dividends come from, 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. 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 accretes 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.

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, right? 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 that it sells. I expect we'll be a net buyer of Bitcoin in every month and every quarter going on forever.

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.

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.