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Michael Saylor Responds to 'Sell-off Controversy': Not a Betrayal, But a Move to Buy More Bitcoin

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If Bitcoin is the best-performing asset, then a credit instrument like STRC would become the top-performing preferred stock.

Original Video Title: Michael Saylor: 'We're Prepared To Sell Bitcoin' - What's Next Is Historic

Original Video Source: David Lin
Original Translation: Azuma, Odaily

Editor's Note: During last Monday's earnings call, Strategy first mentioned being "prepared to sell Bitcoin when necessary to pay dividends," sparking intense debate in the market about its "faith abandonment."

In response, Strategy's CEO Michael Saylor recently delved deep into the underlying logic behind this decision during an appearance on David Lin's podcast, emphasizing that merely saying they "will sell" does not mean they will "net sell."

Saylor also mentioned that Strategy is leveraging Bitcoin's highly appreciating nature as "digital capital," using digital credit instruments (such as STRC) for arbitrage to ensure the continuous net growth of their holdings. The following is the full content of the podcast (with some omissions), translated by Odaily.

Podcast Interview

David Lin (Host A): I am very honored to have Strategy's CEO Michael Saylor with us today, along with co-host Bonnie Chang. We will start with Strategy's recent announcement and Michael Saylor's social media posts. Bonnie, let's begin.

Bonnie Chang (Host B): Last week, you made an announcement that shocked the entire internet.

Michael Saylor: Uh, I think you are referring to our statement during the earnings call — that we are prepared to sell Bitcoin when necessary to pay STRC dividends.

Bonnie Chang: I believe it was a carefully considered decision. What was the idea behind it?

Michael Saylor: The most important point is that we want the market to understand that Bitcoin's capital gains can be used to fund credit dividends. When we sell $1 million of STRC credit products, we immediately buy $1 million of Bitcoin. Our expectation for Bitcoin is an annual appreciation of about 30%, while in reality, its appreciation rate is close to 40% per year. We can carve out the initial 11% of this capital gain and use it to pay dividends.

The market has been wondering what we will use to pay the dividend. For most of our history, we have paid our dividends by selling common stock (MSTR equity). MSTR's equity is a derivative of Bitcoin and typically trades at a premium to Bitcoin. So, at that time, we were selling Bitcoin derivatives, but some people were concerned that we would not be able to sell the equity in the future.

Then came some short arguments saying that we must sell the equity; and then there were arguments saying the company would never sell its Bitcoin. These arguments degenerated into, "Well, if they do not intend to sell the Bitcoin, then Bitcoin must be worthless, and they will never be able to sell. If they can't sell, then we can't mark the Bitcoin to the balance sheet."

If you own something worth $650 billion and people want to value it at zero, that's not great, right? We don't want credit rating agencies to think the company's assets are worth nothing. We want them to think we have $650 billion in assets. Additionally, there are some "Bitcoin Maximalists" online who keep complaining that this is a Ponzi scheme because we are funding preferred stock dividends by selling equity.

What we want to do is reinforce a business model where we sell corporate debt to invest in Bitcoin; over time, the appreciation of this investment outpaces the cumulative dividends; then we realize capital gains and pay dividends.

We believe the best way to articulate this is to be clear that "the company will never need to sell common stock"; we will simply sell significantly appreciated Bitcoin to pay dividends, effectively using capital gains to fund debt dividends.

I think of this akin to a real estate development company that raises funds through debt instruments to purchase land at $10,000 per acre, develops it to a value of $100,000 per acre, and then realizes this capital appreciation.

You can sell the land at $100,000 per acre, lease it fully developed, or refinance. No one questions a real estate development company that capitalizes on income through debt for capital investment, and what we are doing with Bitcoin is akin to that, and we want to ensure the market understands this.

I became famous for saying "never sell your Bitcoin," which is why the internet exploded when they heard we were going to sell, but to be more precise, it should be "never be a net seller of Bitcoin," it's just that "never be a net seller" doesn't sound as good or roll off the tongue as easily.

I believe that during these times, even if we were to sell 1 bitcoin, we would buy another 10 to 20. So, what you are actually talking about is a "buy 10, sell 1, net buy 9" situation. Once people understand this, it should no longer be a controversial issue, but currently, it remains a topic of debate.

Bonnie Chang: Could you explain how it is possible to sell 1 bitcoin while buying 10?

Michael Saylor: Certainly. The primary Bitcoin acquisition engine for Strategy is STRC. In April, we sold $3.2 billion worth of STRC, and as a result, we bought $3.2 billion worth of bitcoin. The dividend is about $80 to $90 million.

So, in this month where we raised $3 billion, we only need to set aside $80 to $90 million for the dividend—essentially, you are buying 30 bitcoins while selling 1.

Our "break-even rate" is approximately 2.3%. This means that if our issued debt is equal to 2.3% of our bitcoin holdings, then even if we sell bitcoin to pay dividends, we will always be net buyers of bitcoin. Another point is that if bitcoin appreciates by 2.3% annually, we can perpetually pay dividends and continue to create value without selling any common stock.

In the first four months of this year, we have sold about $5 billion worth of STRC. At this rate, the issuance rate for this year will reach 15% to 20%. As long as the company is growing, it will buy more bitcoin than it sells. I anticipate that every month and every quarter in the future, we will be net buyers of bitcoin.

Bonnie Chang: I have one more question. Many investors almost religiously believe in "never selling bitcoin." Do you think they should still follow this advice?

Michael Saylor: Yes, I think you should become a "net accumulator" of bitcoin. When I say "never sell your bitcoin," I mean that if you are going to spend it to buy something, make sure to replenish it at the same time.

Many cryptocurrency or Bitcoin enthusiasts say they want to use Bitcoin to buy things. I would say, then fill in the spending gap. Don't be a net seller of Bitcoin, because Bitcoin is capital. At the end of each year, your Bitcoin should be worth more than at the beginning.

For example, if Google invests $1 billion in building a data center, earning $10 billion in return, they have a net gain of $9 billion. This doesn't cause the USD market to collapse, right? No one would exclaim, "Google sold USD to buy a data center."

The USD will be fine, and this won't shake Google's business model. They spent $1 billion on a business investment, which is normal and rational. Sometimes you spend money to make more money.

So, if you spend 1 Bitcoin to earn 10 Bitcoins, I believe it's beneficial for Bitcoin, beneficial for the company... When the liquidity of the equity capital market is not as good as the Bitcoin market, we hope to utilize this market.

Whenever a company deprives itself of choices, like saying "we will never do something," whatever it may be, the end result is always regret. For example, if we say, "we will never ever buy back our own stock, only sell stock," then short sellers will aggressively sell our stock, driving it down to $1. When the stock price is at a huge discount to net asset value (NAV), if we can buy back, those short sellers will suffer losses. By exploiting their irrationality, we can make a lot of money.

So, what we truly express in our earnings conference calls is — we will exchange STRC for MSTR, we will exchange BTC for MSTR, and we will use BTC or MSTR to pay dividends. We will do anything that is in the best interest of the company. But over time, we expect ourselves to be a net accumulator of Bitcoin. This won't change the way we transact our everyday assets. As for whether we sell credit, sell equity, or sell Bitcoin capital, it will depend on market conditions and pricing errors.

Another thing we mentioned yesterday is that we are ready to buy back our bonds. Currently, our corporate bonds are trading at a very cheap price, undervalued, so buying them back makes sense, while selling them does not. We won't sell undervalued assets; we will buy undervalued assets and then arbitrage any opaque efficiencies. If the market knows we will do this, it will give all these assets a fair valuation. This benefits all investors in these instruments, ultimately, this is our fiduciary duty.

David Lin: One of your biggest critics, Peter Schiff, wrote this morning: "Yesterday, Saylor admitted that MSTR (MicroStrategy) will sell Bitcoin if needed to pay STRC's dividend. I think this commitment is designed to prolong the so-called Ponzi scheme. But I guess when that moment comes, he will choose to suspend the dividend and let STRC collapse, rather than let Bitcoin collapse." What is your response to this?

Michael Saylor: Peter considers Bitcoin a Ponzi scheme. Peter actually doesn't like anything in this field. Bitcoin is "digital capital," and we have created a digital financial company by selling equity and debt instruments to acquire this capital. I believe Bitcoin will persist because it represents global economic wealth in tokenized form with complete property rights.

We have built a credit instrument, STRC, on top of this, which simply strips away volatility, reduces risk, and distills returns from digital capital. If you don't recognize Bitcoin as legitimate, you will never recognize any derivatives above it as legitimate, but for those who believe Bitcoin can store economic wealth in tokenized form, what we are doing is very straightforward.

STRC follows an over-collateralization model, selling $1 of credit debt for every $5 of Bitcoin, and this $1 credit debt has a clear yield. There are many who believe Bitcoin is a legitimate asset, they just can't handle the volatility. They don't want to put the money they need to pay their child's tuition in the fall into Bitcoin because the bill is due in 12 weeks. So for them, digital credit makes a lot of sense, as the principal is protected and more stable. Additionally, they can earn 3 to 4 times the money market return through STRC, which is precisely the feature that makes Bitcoin superior to other capital assets, enabling us to pay such high dividends.

David Lin: This is a theory I would like to ask you about, and then I will hand it back to Bonnie. Some traders have noticed that whenever STRC pays a dividend, the ex-dividend price is below par for a period of time (possibly a day or two). Once it reaches par, that's when the Strategy buys Bitcoin. So, they start "front-running" by buying Bitcoin before STRC reaches par, betting that you and the Strategy will buy Bitcoin at par. Can you comment on this?

Michael Saylor: So what happened approaching the ex-dividend date was, there was a massive demand for STRC because there was about a $0.90 dividend coming after that record date. So, you had tens of billions or hundreds of billions of dollars of STRC trading before the record date, and then on the day after the record date, the price would drop by $0.60 or $0.70, and then gradually recover to parity over the next week or two.

So that's normal. Those people are all arbers, and their idea is, if they can just tie up the capital for about 12 days a year, they can capture about a 42% annualized yield. They have their own little calculus. It's fine, and it's been good for us because it creates liquidity and engagement, and that condition will persist.

Now, as for the second idea, can you "front-run" the Bitcoin market? The Bitcoin derivatives market is doing $50 billion a day in trading volume. So, I don't think anybody has enough capital to push that market around.

My view is, Bitcoin is kind of like the "tech square." What's driving the Bitcoin market is things like trade wars, cold wars, foreign policy, national situations, the Iran situation in the Strait of Hormuz, and then the currency wars—like are we expecting SOFR to go to 200 basis points, or is the yield curve getting twisted.

You can see, right now, we are in quite a tight money environment, so these macro factors are the primary driver of Bitcoin.

I can tell you a fact; we bought $100 million of Bitcoin in an hour, and the price didn't move; we bought $200 million of Bitcoin in an hour, and the price didn't move; we bought $200 or $300 million in an hour, and then we stopped, and the price went up.

So, nobody has the power to really drive the price action of Bitcoin… well, if you were to step into the market with $30 billion in an afternoon, maybe. But I spent a lot of money, we bought more Bitcoin than anybody I know, we probably bought $62 billion worth of Bitcoin. I think it's a global market, it has its own drivers.

So, all this talk about us moving the price is actually talking us up, but I don't think so.

Bonnie Chang: Why did you buy so much Bitcoin, yet the price didn't move?

Michael Saylor: Because the market liquidity is extremely abundant. Let's say I want to buy $1 billion today, but even then, this is only 1/50 of a $50 billion trading volume.

If you were to ask those traders, they would say that the spot market's daily trading volume is sometimes $20 billion, and the derivatives market sometimes reaches up to $80 billion. In such a deep liquidity market, what is $100 million? That's the uniqueness of it. On the weekend, if you want to take a $10 billion position with 20x leverage, you can easily do it in the Bitcoin market; if you want to get a $1 billion credit line within an hour, you can also do it in the Bitcoin market.

I do believe that macro factors are driving Bitcoin, and sometimes Bitcoin has a life of its own. Micro factors are also driving it, I'm talking about industry factors, such as the formation of digital credit, the formation of bank credit, and investor sentiment towards Bitcoin assets, all of which are driving the market. But I think Bitcoin is more powerful than any of us, and that's why we have confidence in it—because no single participant can support it or stop it.

David Lin: If the Strait of Hormuz remains closed in the foreseeable future, several forces will converge. First, some say that inflationary pressures will persist; second, the Fed may ultimately need to cut rates as they are stuck with high inflation. So, what will happen to liquidity in the end? If the Fed remains stuck, what will happen to Bitcoin?

Michael Saylor: I think when you are faced with tight monetary policy, high global trade tensions, and high geopolitical tensions due to foreign policy or war, all of these are somewhat constraining, they are headwinds. I think when these factors reverse, they will become tailwinds.

But in any case, Bitcoin will slowly grind up, because the miners' annual organic supply is only about $10 billion to $12 billion, equivalent to only 450 Bitcoins per day. You can do the math yourself.

Then, every time we raise an additional $10 billion in capital, we buy up the entire year's supply. So, if a bank creates $10 billion in credit, that is "the wheel turned once"; if we sell $10 billion in STRC digital credit, that is "the wheel turned a second time"; when $10 billion flows into IBIT (BlackRock's Bitcoin spot ETF), that is "the wheel turned a third time".

So, capital flows, digital credit, digital capital structure tools, and bank credit, all are driving the market fundamentals, and all of these are positive. Regardless of macro factors, you will see continued adoption. The role of the macro trend is simply that when we were supposed to climb 30%, a tailwind will propel us to surge by 50%, while a headwind will somewhat moderate our pace.

David Lin: Has your logic on Bitcoin changed?

Michael Saylor: No, it hasn't. But I would say, it's become quite apparent now that Bitcoin is "digital capital," and over the past 12 months, one thing has become very clear—one of Bitcoin's killer apps is digital credit.

Many people are wondering, what is the killer app of an asset class worth $1.5 trillion, with a daily trading volume of hundreds of billion dollars? The answer is as collateral for credit. Since digital capital is the best-performing capital asset, outperforming the S&P 500 Index by two to three times, it is only natural that we can build the best-performing credit assets on top of this capital asset.

What we have seen in the past year is that STRC is the most liquid credit tool, the most liquid preferred stock in the entire market, and the largest preferred stock in the market. It has the highest Sharpe ratio. We have successfully created a tool with a Sharpe ratio of 3 and a dividend rate of 11% to 12%.

The stock with the highest Sharpe ratio is Nvidia, at around 1.7; the S&P 500 is about 0.9... none surpasses 1, even the top hedge funds you can find cannot exceed 2.2.

So, digital credit actually has a better risk-adjusted return than any other financial strategy in the public capital markets and all publicly traded tools. 12 months ago, I couldn't tell you these things. But now the logic is clear—if Bitcoin is the best-performing capital, then Bitcoin-backed convertible bonds will become the best-performing convertible bonds, and credit tools like STRC will become the best-performing preferred stock.

By the way, do you know what percentage of the preferred stock market we have taken this year?

Bonnie Chang: I guess over 70%?

Michael Saylor: This year, 60% of all preferred shares in the U.S. were issued by us. Last year and this year, we were the largest credit issuer in America. We revitalized the preferred share market, and STRC experienced explosive growth.

So, I think the novelty lies in the concept of "digital capital driving digital credit." As you saw in the show, digital credit is the stepping stone to digital currency. With a plethora of stablecoins pegged to the dollar now offering 8% or 9% yield, Apex created one that grew from 0 to $300 million in 8 weeks; Saturn created another that grew from 0 to $110 million in 6 weeks.

In the digital asset, cryptocurrency, and traditional finance space, we are witnessing an innovation explosion driven by digital credit. And Bitcoin is the cornerstone that makes digital credit possible, which may be the most exciting thing this year.

Bonnie Chang: One last question. Did "Have Space Suit—Will Travel" inspire you to go to MIT? Let's go back to MIT before we go back to this book and before Bitcoin. Say something to your younger self.

Michael Saylor: You know, when I was in the first grade, my parents wanted to motivate me, so they told me they would give me 10 cents for every "serious" book I read. At that time, I was addicted to comic books, which were 25 cents each. So, I had to read two and a half "serious" books to get one comic book, which really motivated me.

That summer, I read about 100 books. I would go to the library and borrow 10 books at a time. Then I discovered science fiction, found Heinlein, Clarke, and Asimov, and had read "The Moon is a Harsh Mistress" and "Have Space Suit—Will Travel" before the third grade. By the time I was in the third or fourth grade, I had gone through them all.

I would say that reading these science fiction novels drove my intellectual development. Boys in elementary school are very impressionable. I remember in "Have Space Suit—Will Travel," the protagonist is an alpha male. He fixes a spacesuit, gets picked up by a spaceship, travels through space, and saves humanity from the "wormface monster."

The reward for saving humanity, what is it? He received a full scholarship from MIT. I thought at the time, if MIT is good enough for that hero who saved humanity, then it's probably good enough for me too. So, even if the sky falls, I will go there.

David Lin: If Musk invites you to Mars, would you accept?

Michael Saylor: That depends on what kind of vehicle he offers to take me there.