Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Another success story in terms of the stock that just
Speaker 2: climbs and climbs and climes is Strategy. The company bought
Speaker 2: recently one thousand and forty five more bitcoin, bringing its
Speaker 2: total supply to five hundred and eighty two thousand, worth
Speaker 2: more than sixty billion dollars. Bloomberg News took a look
Speaker 2: at Strategy and it's seventy separate Bitcoin purchases since Michael
Speaker 2: Sailor began to invest cash from the company's balance sheet
Speaker 2: into the token in the middle of twenty twenty, and
Speaker 2: every purchase over the last four years plus is now
Speaker 2: a profitable purchase well.
Speaker 1: And pleased to say that joining us now is Strategy
Speaker 1: Executive Chairman Michael Sailor himself. Michael, it's great to have
Speaker 1: you with us. We have a lot to talk about,
Speaker 1: and one of those things is a recent call from
Speaker 1: Jim Chenos. Of course, he's a legendary short seller. He
Speaker 1: came out recently and said basically, buy bitcoin short Strategy shares,
Speaker 1: and just to set the scene here, I'm curious what
Speaker 1: you make of that.
Speaker 3: You know, I don't think he understands what our business
Speaker 3: model is we're actually the largest issuer of bitcoin back
Speaker 3: credit instruments in the world. So last week we just
Speaker 3: raised a billion dollars by selling a preferred stock non
Speaker 3: cumulative called Stride. That means we basically borrowed money that
Speaker 3: we never have to pay back, that we pay a
Speaker 3: dividend on, but we could suspend the dividend if we
Speaker 3: needed to. So Jim has been thinking that we somehow
Speaker 3: needed to sell the equity. We now are in a
Speaker 3: situation where we have Strike, Stride and Strife, three publicly
Speaker 3: floating preferred stocks that are not deluded to the equity.
Speaker 3: They all meet a different market requirement. Right that one
Speaker 3: hundred and ten million dollars a bitcoin we bought last
Speaker 3: week that was acquired without issuing any common stock. So
Speaker 3: what's going on here is that we're using our sixty
Speaker 3: billion dollars a bitcoin collateral to issue credit instruments. They
Speaker 3: never come due. There's no liquidation risk, there's not even
Speaker 3: an interest rate risk. Right, It's a noncumulative preferred and
Speaker 3: we could suspend the dividends. So at the end of
Speaker 3: the day, if he's lucky enough to short the stock
Speaker 3: below one time's nab we're going to issue the preferreds,
Speaker 3: buy back the stock and make money for our shareholders.
Speaker 3: If the stock trades at a week premium, we're just
Speaker 3: going to sell the preferreds, and if the stock rallies up,
Speaker 3: he's going to get liquidated and wiped out.
Speaker 1: Well, let's talk about that premium, because that is the
Speaker 1: heart of his short call on Strategy, as you point
Speaker 1: out here. So he said recently on a podcast that
Speaker 1: shareholders are paying around two hundred and twenty thousand dollars
Speaker 1: for bitcoin that trades at one hundred and ten thousand dollars.
Speaker 1: But the company is doing everything it can to close
Speaker 1: that spread, which is great, there's a catalyst. So he's
Speaker 1: referring to the fact that you are selling your own
Speaker 1: shares and buying bitcoin. But when it comes to the
Speaker 1: premium that Strategy shares enjoy over the price of bitcoin itself,
Speaker 1: do you think that that's sustainable? The fact that he
Speaker 1: points out that basically you're the value of your company
Speaker 1: is treating at twice that of bitcoin itself.
Speaker 3: What he still doesn't understand is we're not a holding
Speaker 3: company or a closed and trust. We're an operating company.
Speaker 3: So when we issue trust, can't leverage the bitcoin. They
Speaker 3: can't issue preferred shares, they can't issue permanent shares of
Speaker 3: equity out of premium. We can. Our companies generated a
Speaker 3: BTC dollar gain equal to about eight point four billion
Speaker 3: dollars in the first two quarters of this year. That's
Speaker 3: the equivalent of earnings for a bitcoin treasury company. Our
Speaker 3: target for the year is fifteen billion dollars. And so
Speaker 3: he's valuing the business that's generating eight point four billion
Speaker 3: dollars of shareholder of value at zero, and he's hoping
Speaker 3: that somehow the equity will trade to NAB. But what
Speaker 3: he's what he's not paying attention to, is if we
Speaker 3: can issue preferred shares that yield ten percent and invested
Speaker 3: in bitcoin, which has been going up fifty fifty seven
Speaker 3: percent for the past four and a half years, we're
Speaker 3: capturing the forty seven percent arbitrage effectively risk free for
Speaker 3: our common stock shareholders. And if you want to value
Speaker 3: the company, you have to value the company's ability to
Speaker 3: generate bitcoin yield or bitcoin games over and above the
Speaker 3: actual holdings of the bitcoin the company has.
Speaker 2: So, as you said, you have about sixty billion, sixty
Speaker 2: three sixty four billion dollars orth the bitcoin your company
Speaker 2: is worth about twice that at one hundred and six
Speaker 2: hundred and seven billion dollars in market cap, and you
Speaker 2: also have obviously in enterprise analytics software business. How do
Speaker 2: you break down the value of the rest of your
Speaker 2: company x bitcoin holdings.
Speaker 3: If the company generates ten billion dollars of bitcoin gains
Speaker 3: this year, you've got to put a ten or twenty
Speaker 3: multiple on it. Right, So the bitcoin treasury company operation
Speaker 3: is worth a multiple of ten, twenty, thirty or forty
Speaker 3: times the BTC yield we're generating. That's the number one
Speaker 3: source of value for the operating business. And then the
Speaker 3: company also has sixty billion dollars plus worth of bitcoin,
Speaker 3: and I would I would say to investors look at
Speaker 3: it that way. A BTC dollar gain is like our
Speaker 3: earnings equivalent, and then the bitcoin nav is the assets
Speaker 3: on the balance sheet, and you should just look at
Speaker 3: the earnings equivalent and put the multiple do you think
Speaker 3: is appropriate on it. To come to an opinion about
Speaker 3: the value of entire enterprise.
Speaker 2: Michael Nobody has to explain the rapid rise and bitcoin
Speaker 2: to me. I started buying bitcoins at eight hundred dollars.
Speaker 2: I bought one as low as six hundred, but I
Speaker 2: spent them. Unfortunately, How how do you expect the asset
Speaker 2: to continue a price increase at these levels that we've seen,
Speaker 2: I mean, can it keep that up over the next
Speaker 2: five years, over the next ten years? And at what
Speaker 2: point do we see, you know, winter coming again? Because
Speaker 2: that's been a permanent fixture of this asset class. Right,
Speaker 2: It's gone from zero or ony to twenty and then
Speaker 2: back down to three or four, and then up to fifty,
Speaker 2: and then back down to fifteen and now up to
Speaker 2: one ten, Like, when does it drop again?
Speaker 3: Winter is not coming back. We're past that. We're past
Speaker 3: that phase. If bitcoin's not going to zero, it's going
Speaker 3: to a million dollars, and you have all the evidence
Speaker 3: you need to determine that. Right. The President of the
Speaker 3: United States is determined he supports bitcoin, The Cabinet supports bitcoin.
Speaker 3: Scott Peasant supports bitcoin. Paul Atkins has shown himself to
Speaker 3: be an enthusiastic believer of bitcoin and digital assets. Ken
Speaker 3: Tez a CFTC feels the same ray the banks are
Speaker 3: going to custody bitcoin. Bitcoin has gotten through its riskiest period,
Speaker 3: the accounting has been corrected. There's now only four or
Speaker 3: fifty bitcoin a day available for sale by natural sellers,
Speaker 3: that's the miners. At this level, that works out to
Speaker 3: about fifty million dollars a bitcoin available for sale every day.
Speaker 3: If that fifty million dollars is spot, then the price
Speaker 3: has got to move up to find any natural any
Speaker 3: seller that's priced sensitive. Now, if you do the math,
Speaker 3: you'll actually see the Bitcoin Treasury companies by themselves or
Speaker 3: buying the entire natural supply. Black Rock and the ETFs
Speaker 3: are buying another measure of that. And we've got nation
Speaker 3: state actors coming into the space. So I think when
Speaker 3: bitcoin rallies, if it surges to five hundred thousand or
Speaker 3: a million dollars, then maybe we could talk about it
Speaker 3: crashing down by two hundred thousand dollars a coin. But
Speaker 3: at the current price levels, it only takes fifty million
Speaker 3: dollars to turn the entire drive shaft of the crypto
Speaker 3: economy one turn, and you've got the Trump Media Organization
Speaker 3: announcing two and a half billion, you've got Game Stop
Speaker 3: announcing five hundred million, You've got my company that's raising
Speaker 3: billions and billions of dollars. So the writing is on
Speaker 3: the wall. Bitcoin's moving higher.
Speaker 1: Okay, so there's a few things to dig into there.
Speaker 1: One that, in your words, Bitcoin Winter is not coming back.
Speaker 1: I'm rereading Game of Thrones right now, so that statement
Speaker 1: gives me the shivers. But I did want to go
Speaker 1: to the competitive landscape if you can freeze it that way,
Speaker 1: and you went there, naturally, you think about the ets
Speaker 1: suites out there. Bit for example, already up to seventy
Speaker 1: two billion dollars in assets. There's a lot of bitcoin
Speaker 1: treasury companies that have come to the scene, as you mentioned.
Speaker 1: Twenty one Capital comes to mind, started by Jack Mallers,
Speaker 1: and they all have the intention of just accumulating bitcoin.
Speaker 1: That would be good for the price. Michael, as you say,
Speaker 1: but do you worry about the competition out there to
Speaker 1: buy bitcoin? It's going to become more and more expensive,
Speaker 1: and everyone's competing for a shrinking pie, if you will.
Speaker 3: I think we're in a digital gold rush, and you've
Speaker 3: got ten years to acquire all your bitcoin before there's
Speaker 3: no bitcoin left for you. The competition is a virtuous competition.
Speaker 3: Metaplanet's the hottest company in Japan right now. They went
Speaker 3: from ten million to a billion dollar market cap to
Speaker 3: a five billion dollar market cap. They're going to raise
Speaker 3: billions of dollars. They're going they're going to pull the
Speaker 3: liquidity out of the Japanese market, so they'll be right
Speaker 3: in capital and Tokyo and the Tokyo Stock Exchange. Obviously,
Speaker 3: none of the rest of us are trading or selling
Speaker 3: equity in the Tokyo Stock Exchange, so it's not competitive,
Speaker 3: it's cooperative. There are companies coming public in Brazil right now,
Speaker 3: like Orange BTC that'll come public in some timeframe and Meluse.
Speaker 3: They're actually supporting equity capital markets in Brazil. You know,
Speaker 3: the game stops. They already had six billion dollars a
Speaker 3: capital and so for them to start to take some
Speaker 3: of that capital and funnel into bitcoin, it's good for
Speaker 3: all of us. Knakamoto in twenty one, they'll bring their
Speaker 3: own particular twist. Our company is a very particular business model.
Speaker 3: It's to issue bitcoin back credit instruments like bitcoin back
Speaker 3: bonds and especially bitcoin back preferred stocks. We're the only
Speaker 3: company in the world that's ever been able to issue
Speaker 3: a preferred stock back by bitcoin. We've done three of
Speaker 3: them in the past five months. We're not competing against
Speaker 3: the bitcoin treasury companies. We're competing against ETFs like PFF
Speaker 3: that have portfolios of preferred stocks or corporate bond portfolios
Speaker 3: that are trading as ETFs in the public market, and
Speaker 3: the way we compete is we offer foreigner basis points
Speaker 3: more yield on an instrument that is much more heavily
Speaker 3: collateralized and more transparent. And that's we're not going to
Speaker 3: saturate that market anytime soon. That's one hundred trillion dollars
Speaker 3: or more of capital in those markets.
Speaker 2: It sounds like, you know, when you talk about what
Speaker 2: you're doing in terms of financial engineering in terms of
Speaker 2: financial markets with bitcoin, clearly it's I mean, you're doing
Speaker 2: a lot more than just holding the bitcoin. So it's
Speaker 2: I think unfair to compare you to an ETF, But
Speaker 2: it sounds like you may be inviting competition from a
Speaker 2: JP Morgan for example, which then makes me wonder, when
Speaker 2: does this asset start to convince the naysayers? You know,
Speaker 2: Jamie Diamond has famously said it's worthless, Warren Buffett has
Speaker 2: called it probably rat poison squared. When when does it
Speaker 2: win those people over?
Speaker 3: People called the electricity worthless and aircraft worthless too when
Speaker 3: they didn't understand them. So I welcome the competition from
Speaker 3: JP Morgan, I hope to enter the space. Our advantage
Speaker 3: is that we're one hundred percent bitcoin, so whenever we
Speaker 3: create a preferred stock, it has the Bitcoin performance, and
Speaker 3: it has a measure of Bitcoin performance and a fraction
Speaker 3: of Bitcoin volatility. That allows us to issue the most
Speaker 3: liquid preferred stocks in the world. The highest performance Strike
Speaker 3: was up twenty nine percent when the rest of the
Speaker 3: market of preferregs was down six percent. Strife was up
Speaker 3: twenty two percent when the rest of the market was
Speaker 3: down four point six percent. It's impossible to issue bitcoin
Speaker 3: backed convertible preferreds and bitcoin backed fixed preferreds unless you're
Speaker 3: willing to make one hundred percent of your balance sheet bitcoin.
Speaker 3: So I'm not really worried about competition from JP Morgan
Speaker 3: or Berkshire Hathway. I would love for them to enter
Speaker 3: the bitcoin space buy up a bunch of bitcoin. When
Speaker 3: they do it, they'll be paying a million dollars a bitcoin.
Speaker 3: The price will go to the moon. That will be
Speaker 3: good for the entire crypto economy and beneficial to everyone
Speaker 3: that holds any BTC backed equity or credit based instrument.
Speaker 1: Well, I'm still thinking about you saying that you view
Speaker 1: yourself in competition, not with the bitcoin treasury companies, but
Speaker 1: with some of the ETFs that hold preferred shares, that
Speaker 1: that is the strategy that they're tracking. And when it
Speaker 1: comes to your own financing and the fact that you
Speaker 1: have been pivoting to issue more preferred stocks to fund
Speaker 1: your purchases, why is that? Why go towards preferreds rather
Speaker 1: than convertible bonds? Is it just a question of demand
Speaker 1: or is there something to it?
Speaker 3: The convertible bond market normally is a short duration investor.
Speaker 3: They want to hold the bond three or four years,
Speaker 3: and the calls that are embedded in the bonds are
Speaker 3: capped calls capped at one hundred and thirty percent of
Speaker 3: the strike and sorry of the conversion price. And so
Speaker 3: that's a short duration call investor and a short duration
Speaker 3: credit investor. What we sold with Strike SDRK was a
Speaker 3: perpetual call option good for one hundred years or forever.
Speaker 3: And then we sold a perpetual dividend you could hold
Speaker 3: for one hundred years and give to your grandkids. So
Speaker 3: long duration credit, long duration call, and that preferred never
Speaker 3: comes due for us, so we don't have liquidation risk.
Speaker 3: We don't have credit risk, So it's a much better
Speaker 3: instrument if you intend to invest in a volatile asset
Speaker 3: like bitcoin and hold the investment forever. Now, the other
Speaker 3: point I'll make, Katie, is if you think about what
Speaker 3: we're competing against. There's like eighty billion dollars worth of
Speaker 3: corporate credit and preferred equity based ETFs that we identified.
Speaker 3: Most of them charge a fee of fifty to eighty
Speaker 3: basis points a year, most of them generate a yield
Speaker 3: of six or seven percent, and most of them have
Speaker 3: very heterogeneous o PAI credit, low volatility, and very low liquidity.
Speaker 3: We're offering preferred instruments that have eight to ten percent
Speaker 3: dividend yields at par ten to one hundred x higher liquidity.
Speaker 3: They trade really really hard, very very liquid, and their
Speaker 3: homogeneous credit and they're six x over collateralized. So it's
Speaker 3: a very compelling instrument if you believe in bitcoin as
Speaker 3: a digital assets.
Speaker 1: To finish the thought here, and I'm looking at invescos
Speaker 1: preferred ETF. The ticker there is pg X that charges
Speaker 1: in expense ratio of fifty one basis points. It has
Speaker 1: about four billion dollars in assets. When you say that
Speaker 1: you're in competition with funds such as this one. Are
Speaker 1: you referring to the fact that you're competing for investor
Speaker 1: attention with these ETFs? I just want to make sure
Speaker 1: I'm understanding your point.
Speaker 3: Yeah. What I'm saying is you go buy that, maybe
Speaker 3: you get seven percent yield effectively, and you pay the
Speaker 3: fifty basis points, and some of that is QDI eligible,
Speaker 3: and some of that is taxable. When you buy one
Speaker 3: of our preferreds, like Stride is yielding like eleven percent
Speaker 3: pluss right now, and Strife is yielding nine nine and
Speaker 3: a half percent, you buy that, it's all QDI eligible.
Speaker 3: It's it's trading ten to fifty times more liquid on
Speaker 3: a dollar for dollar basis. It's very homogeneous credit and
Speaker 3: you get an extra foreigner basis points of yield, better
Speaker 3: tax treatment, et cetera. So we're actually competing against that.
Speaker 3: We're offering tax efficient, zero fee fixed income yield to
Speaker 3: someone that wants to hold that in their portfolio.
Speaker 2: Michael, I would at least in the top five most
Speaker 2: important characteristics of bitcoin is its security, right, I mean,
Speaker 2: scarcity has to be one near the top. And the
Speaker 2: Ledger obviously was a genius move by Satoshi, but it
Speaker 2: seems to be uncrackable, and I'm wondering if that will
Speaker 2: hold true far into the future with the development of
Speaker 2: quantum computing. Do you worry about that?
Speaker 3: I don't worry about it, And I make the point.
Speaker 3: You know, Microsoft and Google market their quantum projects, but
Speaker 3: they would never sell a quantum computer that cracked cryptography
Speaker 3: because it would destroy their own companies. And there isn't
Speaker 3: a practical use case for those quantum projects they've been marketing.
Speaker 3: I think at some point a decade out, maybe ten
Speaker 3: twenty years, maybe whenever, there'll be a powerful computer it
Speaker 3: may start to threaten modern cryptography. When it does it,
Speaker 3: it'll be a threat to Microsoft, Google, JP Morgan, the
Speaker 3: US government. It may be a threat to bitcoin. When
Speaker 3: it is a threat, all of these organizations are going
Speaker 3: to upgrade their crypto protocols to be quantum resistant. You'll
Speaker 3: see it coming a mile away. And every other digital
Speaker 3: entity in the world is more vulnerable to that idea
Speaker 3: or that threat than Bitcoin, and so they're all going
Speaker 3: to upgrade, and we'll be talking about it while you're
Speaker 3: reviewing Microsoft stock or Apple stock exposure.
Speaker 2: I only I don't want to go too deep into this, Michael,
Speaker 2: because it's only a half hour program. But I feel
Speaker 2: like AI could You know, everyone's worried that AI may
Speaker 2: turn on us, and this could be a way in
Speaker 2: which AI has real power. Is that not the thing
Speaker 2: that keeps you up at night.
Speaker 3: I'll make a point here. The typical person might do
Speaker 3: ten thousand transactions in their lifetime, maybe one hundred thousand
Speaker 3: if they're very busy. The AIS are going to do
Speaker 3: one hundred thousand transactions of minutes. They're not going to
Speaker 3: suffer the existing credit systems, in the existing banking systems
Speaker 3: of the twentieth century. They're going to want to move
Speaker 3: digital money at high frequency, at the speed of light.
Speaker 3: That means digital assets like bitcoin over the Lightning network
Speaker 3: or via Layer three protocols. The demand for digital capital
Speaker 3: which is what bitcoin is, and digital networks like Lightning,
Speaker 3: and like all of the crypto protocols that are being
Speaker 3: worked on right now, it's going to go through the roof.
Speaker 3: So I think AI is really a demand driver for bitcoin.
Speaker 3: It's going to accelerate the entire digital assets economy. And no,
Speaker 3: I'm not worried about the threat the AIS can't crack
Speaker 3: public private key cryptography. What they can do is imitate
Speaker 3: you and talk you into doing something stupid if you're
Speaker 3: listening to them. And so they are a threat to
Speaker 3: all the other systems in the world, not to Bitcoin.
Speaker 1: All right, Michael, we got to leave it there. It's
Speaker 1: always great to speak with you appreciate the time that is.
Speaker 1: Strategy co founder and executive chairman, Michael Saylor