Michael Saylor: "Twitter Trolls Have a 10-Second Attention Span"

I got very famous for saying you do not sell your Bitcoin to the plebs. And on X, the Twitter trolls thought it's pretty easy to say the most famous guy in the world for saying don't sell your Bitcoin just sold some Bitcoin. They're like, "Oh my god, the company lost $10 billion in the past two weeks." Well, actually, Bitcoin traded down $20,000 in the past two weeks, right? We have become the biggest holder of Bitcoin in the world and we're the biggest buyer of Bitcoin in the world and that will continue as long as we act rationally. So if you want it to 500x, if you want $20 million Bitcoin, then...

Yeah, nice to see you.

I actually think this is the most exciting year in the history of Bitcoin. What we're seeing is Bitcoin has emerged as global digital capital. There's consensus and Bitcoin dominance continues to advance. So the Bitcoin picture in the crypto world and in the global world at large has never been clearer to me. We've seen the evolution of digital credit. The birth of digital credit. It didn't exist a year ago and now it exists. Both SATA and STRF are the two most liquid preferred stocks in the world, I think certainly in the US capital markets. And so the success of digital credit is another area that I find very exciting. And I think the third area that I'm very excited about is the formation of digital money and digital yield. People are starting to create the equivalent of Bitcoin-backed stablecoins. Instead of a stablecoin that offers nothing that's backed by fiat currency, some sort of stable token that pays you 8% yield that's backed by Bitcoin that starts to circulate. The creation of digital money markets that offer zero volatility, 6, 7, 8% yield. I think that's a revolutionary product. Digital credit is revolutionary and of course digital capital is revolutionary. So I think that's a very exciting development, maybe the most important development in the last 17 years of Bitcoin.

We didn't really see any negative reaction from our investors. There's no credit investor or equity investor that's recoiling in horror at this. We've been talking about this for more than a year and for many years with a lot of our investors. I think that I got very famous for saying you do not sell your Bitcoin to the plebs. And on X, the Twitter trolls thought it's pretty easy to say the guy that got the most famous guy in the world for saying don't sell your Bitcoin just sold some Bitcoin. Now, they don't really put together the fact that that's advice to individual retail investors and that is not the way you would run a Bitcoin finance company that actually exists to buy, sell, and pay dividends on Bitcoin. So I think the Twitter trolls like to put together a couplet and everybody's got attention span of about 10 seconds. So if you can find someone that said don't eat meat and then you can catch them eating meat, then it's always going to run very hard. I think that's why that went viral.

Our company is like a Bitcoin reserve bank. So the idea of the company is you have a tower of equity. You have $50 billion or more of equity capital. You own Bitcoin with that equity capital and then you issue credit against it. And we've tried lots of types of credit. We've tried bonds, senior bonds, we did asset-backed loans, we did convertible bonds, then we did perpetual preferred stocks. And our most successful credit instrument is STRC, which is a variable monthly now semi-monthly preferred stock. So the company's entire existence, the whole point of the company is to create Bitcoin-backed credit. If we weren't creating the credit, we would just be a holding company and we would look like an ETF holding Bitcoin. That's what ETFs do. ETFs just have a bunch of Bitcoin. They're pure equity and they trade at the price of the Bitcoin. We're an operating company. So the question is what's an operating company going to do? And what we choose to do is create Bitcoin-backed credit. And then through the process of elimination, we have determined that the greatest form of Bitcoin-backed credit is short-dated treasury credit like STRC. And so for the company to create good credit, we actually need to assure the credit investors that we're backing the credit with some collateral and that we can generate the cash flows to pay the dividends. So the way the company's business model works is we convert a capital gain in Bitcoin into a credit dividend. Now that being the case, the obvious simple business model is we sell a billion dollars of credit, we buy a billion dollars of Bitcoin, Bitcoin appreciates, and then we sell a hundred million of the Bitcoin to pay the dividend. It's a very simple business model. So if people believe that we were unwilling to sell the Bitcoin, then what follows is if you're not willing to sell the Bitcoin, you can't pay the dividend. And if you can't pay the dividend, I can't buy the credit. And the business model is broken. So the most important thing that we've been communicating to the market, which is well understood by our investors, it's just not always well understood by Twitter trolls and by pundits on X, is the company makes a capital investment in digital capital and then it converts an unrealized capital gain into a credit dividend. And so that means that you would like to get credit rating agencies to rate your credit. It also means you would like the credit investors to be comfortable that they've got good collateral and that you're going to pay the dividend. It also means that you would like the equity investors to be comfortable that the business of reserve banking, the business of creating credit, is a profitable business and that the equity is going to have value. So it's not a complicated idea but it's a novel idea. The idea is very simply: we sell a dollar of credit, we buy a dollar of Bitcoin. Bitcoin appreciates in value over time. We pay a portion of the capital appreciation back as a credit dividend. And all of the technique and the artistry in that is being economically efficient and efficient in a tax format. So if we sell a derivative of the Bitcoin, we can generate cash flow that's tax deferred and then we don't generate an earning or a profit. So then we pay a dividend which is return of capital dividend. So the idea is to have tax deferred capital appreciation and then monetize it to pay tax deferred dividends. What we have done in the past is we sell the equity to pay the dividend but critics say you have to sell the equity and therefore you will sell the equity and that's created a bit of confusion and criticism. So it's important for us to point out that now we don't have to sell the equity. We can actually sell the capital asset. The capital asset is the Bitcoin.

So, in the event that the equity capital markets value our equity at a premium of Bitcoin, it makes sense to sell the equity. In the event that the equity capital markets value our equity at a discount, it's important to demonstrate to the market that you would sell the capital. If you took the position you would never sell the capital, in theory, a short seller could short your stock down to a dollar a share with a 99% discount to the capital. And then if you insisted on selling your equity, you would be selling it at a 99% discount, which is foolish. So no equity investor would endorse that. They would say, why don't you just sell the capital? Okay. So we've just demonstrated that we can sell the capital. We've told the market it definitely makes economic sense to buy the Bitcoin and then sell the Bitcoin in order to pay the dividend. Especially if we can do it without generating a taxable event when we sell the Bitcoin. In fact, we actually generate a tax credit if we sell the Bitcoin that's got a higher basis than the current market price. So if you're running the company, what you want to do is sell Bitcoin when it generates a tax credit and when it is beneficial to the shareholders and you want to sell the equity when that is the most beneficial to the shareholders. And in either case, you use it to pay the credit. And if your equity shareholders believe you'll be rational, then the equity will trade up. If the equity shareholders think you're irrational, the equity will trade down. If the credit investors believe that you will never sell the Bitcoin, if you have a hundred billion dollars of Bitcoin and the credit investors believe you would never sell it, then you have zero dollars in assets and you have zero dollars in collateral and they're under-collateralized, which means the credit rating would be distressed junk. So the challenge we had with the credit rating agencies is conventional credit rating agencies deemed Bitcoin to be an illegitimate asset and so they value it at zero. Of course it's not zero but the only way that the Bitcoin is a tangible asset is if you're willing to sell it. And so what's important for the credit investors is for us to show that we have tangible capital assets that we can monetize if we need to. What's important to the equity investors is show them that we sell the equity when it's advantageous for them to do it, but we sell the capital, the Bitcoin when it's advantageous for them for us to do it. Now, a simplistic troll would say selling Bitcoin is bad. But the truth is if the selling of the Bitcoin creates equity value and improves creditworthiness then that allows us to sell billions of dollars of credit and that causes the equity to trade up by billions of dollars and that allows us to raise billions in the equity market and then allows us to buy billions of Bitcoin. So in fact the machine working properly and rationally is good for Bitcoin. It's good for the credit STRC and it's good for the equity. This is not really controversial amongst equity analysts, credit analysts or equity investors. It's only controversial on Twitter and X because most of the people that want to tweet, they will say, well, you told us not to sell it and you sold it and that haha, that's a good gotcha point. Most will not actually read a 100-page financial filing and they won't really think through the dynamics and the relationship between creditworthiness and equity premium and growth of the business and rational operations and then all the game theory that comes into play with short sellers and derivative traders. So the bottom line is what's best for the company is to be rational. What's best for Bitcoin is for the company to grow and raise capital. And if the company's going to raise capital, it has to raise capital in the credit markets and the equity markets, right? We're not raising capital by selling Bitcoin. We're raising capital by selling STRC and selling MSTR. So, if I tell the STRC shareholders, I'll never sell Bitcoin to pay your dividend, they're not going to buy STRC. And if I sell the MSTR shareholders, I'll never sell Bitcoin to defend the stock against short sellers, they're not going to buy MSTR. So, what we do as a management team is rational for all of our shareholders. And by being successful, we have become the biggest holder of Bitcoin in the world. And we're the biggest buyer of Bitcoin in the world. That will continue as long as we act rationally. So we occasionally respond to the Twitter trolls because it drives engagement or we have to maybe there's a crazy idea that's just wrong that's trending. And so sometimes we'll respond to clarify a misconception. But we run the company based upon very thoughtful multi-varied dynamic computer models that take into account the derivatives market, the equity markets, the credit markets, and the capital markets, all of them dynamically evolving every day.

So if you think about the company, we've got a lot of assets, $60 billion of Bitcoin and a billion of cash or more in any given day. And then we have some liabilities. One set of liabilities are debt instruments. There are six debt instruments about $6.5 billion of debt that actually has to be repaid. It's convertible debt. It's probably got a duration of 3 to 4 years. Doesn't cost much in interest. We don't pay that much, but it comes with a warrant attached, a conversion rate. So although people will say, "Well, that's really cheap because it's like 40 basis points." It's not really 40 basis points of cost because the warrants make it cost us 10. It could be 10% or 15% or 20% cost of capital. And then it's a short duration liability. So in 2 years or 3 years or 4 years we have to pay the money back. So that is the debt liability and it's not that much. Net leverage 11% 10%, it's far less than most companies. Bitcoin could fall 80% we would still have a lot more assets than our liability there. We have a second class of liabilities. These are more complicated. These are preferred equity instruments. So preferred equities are credit instruments, but they're not debt. So all debt is credit, but all credit is not debt. So they're part equity and they're actually equity, but they come with liabilities that are more than common equity. So they're hybrid. They're between equity and debt. And there's about $15 billion of those credit instruments on the balance sheet. Now, when we sell the credit, like we've got $10 billion of STRC outstanding, the $10 billion never comes due. And so the liability is not that we pay it back. We're never going to pay back the 15 billion. That's why it's equity. The liability is there's a dividend obligation that comes with it. And the dividend is either cumulative or non-cumulative. Cumulative means you agree to pay the dividend but you have the option to suspend it. And if you do, then the dividend obligation accumulates until you can pay it. Non-cumulative means you agree to pay the dividend, but you have the option to suspend it. And if you suspend it, the dividend obligation does not accumulate. Okay? And to make it even more complicated, some of these instruments like STRF, they have penalties if you suspend the dividend that accumulate. Other of the instruments like STRC, they have options. The company has the option to adjust the dividend rate down if the SOFR falls. And the company has the option to compress the credit spread. So reduce the dividend at its election by 25 basis points a month. And the company of course has the option to suspend any of these dividends. So there's a lot of optionality in these instruments sometimes. With debt instruments, debt instruments often have options that benefit the creditor where they can put the debt back and they can demand redemption in cash. With these preferred equities, the options normally benefit the issuer where the issuer has the option to adjust the dividend or the issuer has the option to stagger when it pays the dividends. So that being the case, some people are confused about what's credit and whether these are credit. Well they are credit. Credit is a preferred stock that pays a dividend yield is credit. They have a liquidation preference. So in liquidation they've got a value and all of that makes them credit. Sometimes people make the mistake of thinking they're like debt. They're like oh my god they in liquidation they have to pay 15 billion for this and six billion for that. Well the problem with that is that you can never be liquidated by a preferred equity instrument. So you're not. So yes, there's a liquidation preference, but if all you had was preferred equity, you would never be liquidated because when you get to the point where you might be rendered insolvent, you're required to stop paying the dividend. And since the principal doesn't come due and since you can't pay the dividend, there's no technical way for the company to get into a liquidation. Therefore, the liquidation preference doesn't have the same impact. Whereas with a debt instrument, the creditor can demand that you pay them the principal back and they can put you in liquidation.