Michael Saylor: The Future of Stocks & Bonds Backed By Bitcoin

the 10 years from 2025 to 2035, there's

going to be a lot of different business

models, a lot of different products

created and a lot of different companies

launched and a lot of money made and

there'll be a lot of mistakes made and

there a lot of fortunes created and this

is what the chaos of the marketplace.

[Music]

Hey everyone, welcome back to the show.

Joining me this week is Michael Sailor.

Michael, it's so great to see you. It

feels like every week I see you in some

other city giving a great presentation.

How are you?

>> Here we are in your beautiful studio.

>> Well, I feel like we have a lot to talk

about. You know, um the sentiment that

I'm feeling in Bitcoin is bearishness,

actually. So, you're the perfect person

to talk to because whenever I speak with

you and do an interview, I feel more

bullish than ever and need to buy more

Bitcoin. So, first of all, why do you

think people are feeling generally more

bearish and why do you think they should

be bullish?

I I think there's a natural eb and flow

in uh in the economy and in the

community and so Bitcoin surges up and

has periods of extraordinary excitement

generates a lot of adrenaline and um

enthusiasm then there's a celebration

and then people extrapolate straight

line to the moon and then it retraces a

bit and consolidates and and then people

think well it's going to bounce back

really fast and if it chops sideways for

a

You know, there's always a natural human

tendency to get frustrated. Um, I I

don't think we have anything to be

unhappy about. The truth is, if you zoom

out and look at the one-year chart,

Bitcoin is like up 99%.

>> It's like nearly double. So, if you

walked in to anybody in the street and

said, "Hey, I'm I'm heavily invested in

an asset that is growing up 100% a year.

Should I be happy or not?" they would

say you should be happy, right? It's

just that the way that it gets there

tends to be a bit volatile. You know, as

for why, uh I think the, you know, the

why Bitcoin has been consolidating and,

you know, building it, you know, support

in the teens right now is because you've

got $2.3

trillion

of Bitcoin that is unbanked. And so

you've got a lot of people that own a

lot of Bitcoin, but they can't get a

loan against it. And because they can't

get a loan against it, the only, you

know, at the point that you all of a

sudden find yourself Bitcoin rich, but

fiat poor, you don't have a lot of

dollars, but you have a lot of Bitcoin,

and you can't borrow against it, then

you think, I have to go sell it. So I

think bitcoins right now it's like this

mag seven startup where all the sudden

all the employees got insanely rich on

penny stock options but they can't

borrow against them so they have to sell

them and so they're selling and then

people are saying well why are those

employees selling the stock? Is that a

vote of not confidence you know in the

company? And the answer is no. It's just

they have kids to go to college. They

want to buy a house right they they want

to live comfortably. They want to do

something for their parents. Uh, and so

right now I think that the selling is o

crypto OGs that have had a lot of money

for a long time. They're selling 5%

diversifying. They're doing something

like that. And the market is absorbing

all of that energy, building its

support. The volatility is coming out of

the asset. That's a really good sign.

But because what you want for the asset

to mature is for uh for lots of

long-term capital holders, the big

corporations, the big institutions to

buy. You want the early OGs that bought

Bitcoin for a dollar or five or $10 to

sell some or as much as they need to so

they feel comfortable.

You want the volatility to decrease so

the mega institutions feel comfortable

entering the space and size. And the

conundrum is well if the mega

institutions going to enter if the

volatility decreases it's going to be

boring for a while and because it's

boring for a while people's adrenaline

rush is going to drop and it's like they

had this big high and now the adrenaline

is wearing off and they're a little bit

bearish but this is just a growing stage

or you know natural for the life cycle

of an asset that's monta that's

monetizing like this

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I've been to some events recently with

Tradfi folks, and it's always the same

reasons that they bring up of why

they're not investing in Bitcoin. um it

has no cash flow. Some of them actually

who work in finance share that they are

prohibited from purchasing Bitcoin. Can

you speak a little bit to that and how

much progress you think we've made in

terms of the trady world and what needs

to change for more people to embrace

Bitcoin?

Yeah, I think um there are a lot of

assets property the greatest property

assets of western civilization assets

like diamonds, assets like gold, assets

like old master's paintings, assets like

land, uh the Louisiana territory,

California, Mexico, all of Alaska, none

of them have cash flows, right? all of

the great things we've acquired in life

that I mean truthfully if we think about

what we want in life whether it's a

spouse a marriage kids they have no cash

flows a house no cash flows right so the

world's full of things right a Nobel

Prize no cash flows

fame

>> no cash flows yeah yachts and jets don't

have cash flows either so the world's

full of things that are deemed valuable

in the they have no cash flows and of

course as we know the perfect money has

no cash flows. The the whole the whole

definition of money uh a liquid you know

the most salailable asset but if you

want something to be money you want it

to have no utility value. Gold is better

than silver because it has less utility

value. And when it when copper or when

you find something like silicon that has

utility value of some sort it becomes

worse money. And so um I I think

probably people say uh they say well we

don't really think this is good

investment asset because it has no cash

flows. That's an opinion that has

developed in two generations. you know

since you know certainly since 1971

and the period you know from 1971 on

till today I think the world developed a

view and its view was you know long-term

capital is a 6040 mix of bonds and

equities and um bonds had some dividend

yield to them and then equity sorry

bonds had some coupon and and equities

had some dividend yield or um earnings

and that's just the way they saw the

world and eventually you know the S&P

500 became the monster you know if you

look at index investors

85% of indexes are invested in the S&P

so many people think long-term capital

what they think of as money for held for

the long term is an equity index like

the S&P index Vanguard uh they

commercialized this and they made famous

the idea of the Vanguard Ard 500 and the

Vanguard index fund. So when

organizations are hyper successful with

an idea like 500 stocks in a fund and

when the entire institution right the

S&P or Vanguard or or uh mutual funds

when they're built on that idea when a

disruptive new idea comes along that's

even better. It's not natural that they

would embrace the disruptive new idea.

They're kind of stuck in their ways as a

practical matter. I it

in a world of uh that's US dollar, the

US economy is growing and the dollar is

the king of the world. It's the world

reserve currency and there's no, you

know, there was no world war after World

War II, right?

>> So, we haven't had a massive disruptive

world war. then you're living in a very

particular situation, a particular time

and that's and and you could fall into

in calculus we call it a particular

solution to a differential equation. If

all of the boundary conditions are set

and if this and if this and if this and

if this and if this then you can just

plug in this number and you'll get out

that answer. And that is true as long as

you don't change any of the boundary

conditions and the assumption. You know,

if you've got the solution for aluminum

and then I change the steel to change

the metal to steel, then the formula

doesn't work. So, at that point, you

can't use a particular solution. You

have to use the homogeneous solution.

You you have to be not the engineer, but

you have to be the physicist. You you

you can't be the trade craftsman with

the simple lookup table of the answer.

You actually have to derive it from

first principles. So what you see is

most people have never in their life had

to derive anything from first

principles. They've they've used the

particular solutions given to them by

someone that taught them the answer and

that breaks down when for example your

entire currency collapses. For example,

if if you live in a in a economy where

the currency is collapsing like Lebanon

and they freeze your bank account and

the currency goes to zero or anywhere in

Africa or if you lived in Argentina when

the currency collapsed, then if you

actually owned anything with cash flows,

they're all worthless. So, so the irony

of course is s one of these good

traditional safe assets that generates

cash flows. Well, not in Nigerian

currency, not in the Bolivar,

not in the peso, not in the Lebanese

currency, not in the Iraqi or the

Afghani currency. I can give you a whole

not in a Russian currency, you know,

before the collapse of the ruble that

took place at the turn of the century,

what 96 or something. So the people that

have these ideas, they have a particular

set of solutions that work in a very

stable closed ecosystem that's never

been challenged either with external

stress or never never encountered a new

idea when the you know the people that

will get Bitcoin will either come out of

uh very chaotic environments you know

collapsing currency environments where

they had to had think for themsel uh or

they'll be at their their base kind of

scientist first principles thinkers

people that that question everything and

rederive it. So I think you know the the

great irony is you again uh the CEO of

Vanguard saying Bitcoin is not an

investable asset because it doesn't have

cash flows and then the largest

shareholder of my company being

Vanguard.

>> Ironic.

the the the the most ironic outcome is

most likely according to Mr. Musk.

>> Let's zoom in on bonds as an asset class

and maybe give a little master class for

the mainstream audience about how you're

revolutionizing the credit markets. I

want to first start with just what

problem did you identify in the fixed

income world that you thought could be

solved with Bitcoin?

>> Yeah. um credit um if you look at the

credit markets, you got mortgage back

credit. Mortgage back securities are one

and a half times collateralized and they

yield like two, three, four%. And then

you have fiat credit. It's credit backed

by the promise that the government will

print more money

>> and that sets the risk rate. uh that

credit you know in Japan generates 50

basis points in Switzerland generates

minus 50 basis points in uh Europe 200

basis points a year and uh in the US

about 400 it just got reduced by 25

basis points yesterday right so you have

that kind of credit then you have

corporate credit and corporate credit um

is backed by the cash flows of companies

whether they're good companies like the

magnificent seven like Microsoft or

Apple or they're junk bonds or there are

struggling companies that you know are

struggling to stay in business. Those

credit spreads can range from 50 basis

points all the way up to 500. But that

means that when you're buying corporate

bonds in Europe, you might be getting

250 basis points a year in yield 2.5%

interest. Well, the real monetary

inflation rate is greater. So all of

these uh all of these countries, Japan,

Switzerland, Europe, the US, they're all

suffering from a form of monetary

repression where the natural risk-free

rates or the fiat yields are are less

than the monetary expansion rate and the

rate at which scarce desirable assets

are appreciating. So that's one

challenge. The other challenge is those

instruments are illquid. Uh sometime

like all preferred stocks, they're very

hard to trade. sometimes they don't

trade at all. Um, and they're under

collateralized. So, what we observed is

the credit markets are weak. Uh, they're

they're unhealthy is how I would say

them. Um, how if you live in Switzerland

and someone is willing to give you zero

or take take 50 basis points of your

money every year you have it in the bank

and that's the offer, one can't

characterize that as anything other than

weak. yield starved is another way and

so so a lot of markets are yield starved

and on the other hand most people like

in in the conference the other day there

were 500 people in the room and I asked

them how many of you have a bank account

everybody's got a bank account you know

how many of your bank accounts yield

more than 4 and a.5% none of them how

many of them how many of you would like

your bank account to pay you eight or

nine or 10% all of them

who's offering that nobody what we see

is is the opportunity in the market is

unless you have Bitcoin and unless you

have a long-term store of value, what

I'll call digital capital, and you're

going to hold it for the next 30 or 40

years, no one's willing to give you a

fair yield for the long term. Like, tell

me a uh tell me who's going to give you

10% interest for the rest of your life?

Well, you are.

>> Yeah. Yeah, we are. Right. The Bitcoin

community is, right? Uh, your bank

won't, a company won't, a government

won't, uh, no mortgage back security

issuer will.

>> And I think it's important to share why

not why why can't we get that kind of

rate outside of what you're doing.

>> Yeah. That's because no company has a

good enough business that they can be

confident that they can generate uh uh

returns north of 10% a year at

infinitum.

>> Running a company is hard, right?

Because because no one with a home can

afford to pay that.

>> That's that's another reason. So at the

end of the day and because no government

that has a strong position wants to,

right? The strong governments that run

the world that are stable don't wish to.

They wish to pay you much less. And the

weak governments,

they they are forced to pay more, but

their currencies are collapsing and

their government is collapsing.

>> So you can't find a national creditor

that would pay that rate. You can't. And

most corporations,

most corporations corporate finance

strategy is not to issue credit uh and

make it good. Their strategy is is to

avoid credit to buy back their stock.

Right?

>> That's the conventional method.

>> It's very they're very conventional. So

what we discovered is Bitcoin is digital

capital. Bitcoin is going up faster than

the S&P

forever. Right? Once you actually

acknowledge that Bitcoin is appreciating

more than the S&P forever and my

forecast is it appreciates about 29% a

year for the next 21 years and I've

shared that with the community but you

could have any forecast but if Bitcoin

is an asset and it's appreciating

then you can create credit

collateralized by that appreciating

asset. So, so Bitcoin's digital capital

appreciating faster than the cost of

capital. The cost of capital is the S&P

500 return.

>> And then credit written against it or

issued against it is digital credit. And

the digital credit can have longer

duration or it can have short duration.

It can have higher yields. It can be in

any uh currency because Bitcoin is a

stronger currency. Right? One of the

keys in the credit market is if you're

going to um if you're going to issue uh

credit instrument in a currency, you

want it to be weaker

than the collateral you hold. So

>> So if you issue the credit in a currency

which is stronger than the currency you

hold, you'll be upside down and you'll

go bankrupt, right? And and this happens

for example

when people when they borrow in dollars

and they live in uh a country where the

currency collapses they're bankrupted.

>> Y

>> right. So what you want to do is is you

want to issue the credit in these other

currencies. And so we can issue credit

in yen or or franks or Swiss Franks or

in euros or in dollars because all of

those currencies are weaker than the

Bitcoin currency, right?

>> And so we discovered that we could take

on any kind of currency risk. We can uh

then issue we can offer higher yields.

We can offer yields like a distressed

debt like a company going out of

business, but we can then

overcolateralize them so that they look

better than an investment grade.

investment grade companies in the United

States aren't aren't 2x or 3x over

collateralized. We can create five, six,

seven, 8, 10x over collateralized

credit. So we can create credit which is

less risky. We can create durations

which are longer. We can create yields

that are higher. And because we can

create those in perpetual instruments,

we can take them public. And if we take

them public, then they'll have more

liquidity. And so the idea is give me

something which is smarter, faster,

stronger than everything else, right?

Make it more liquid, make it longer

duration, make it, you know, more more

collateralized, make it less risky, make

it higher yielding, better performing.

And the the opportunity of any kind of

Bitcoin treasury company is you have the

world's best collateral, you have

Bitcoin, digital capital.

>> If you issue digital credit, you'll have

the world's best credit. And that credit

will then create amplification for the

equity because whatever volatility and

whatever performance you strip off of

the credit will acrue to the common

stock shareholders. And so you create

amplified Bitcoin in your equity. You

create domesticated

lowrisk low volatility Bitcoin with

yield. You you know that thing that

doesn't have cash flows. We give it cash

flows.

>> Right? I mean the irony of course is

>> you know a lot of these traditional

credit investors right the people that

want to invest in cash flows they'll

invest in the bonds you know they'll

invest in the bonds or the equity of a

company which is losing money

>> or or that has cash flows that don't

even meet the cash flows that they're

collecting but at least it's cash flows.

So uh so what we're doing is we're we're

giving Bitcoin cash flow. We're making

it credit. It that way it goes into

credit indexes and then we're creating

equity which outperforms and that goes

into equity indexes. And both of those

two things raise capital.

>> They're both gateways for capital. The

capital flows into the Bitcoin ecosystem

and then we buy Bitcoin and that that

finances and powers uh the Bitcoin

network. So you've identified that

capital is grossly mispriced and the

collateral in the traditional world is

really overvalued whereas Bitcoin is

undervalued and so you saw this

opportunity. You've released these

credit instruments. You've got Strife,

Strike, Stride, and now Stretch. Let's

break it down a little bit further. Can

you just share um for a lot of people

they don't really understand what is a

preferred stock? It says stock or share,

but it really acts more like a credit,

like a bond. You're getting a yield. So,

can you talk about what a preferred is?

And these are specifically perpetual

preferreds and how unique that is in the

market.

>> Okay. A preferred stock is uh is a

second class of stock other than common.

Common stock is you're just uh the final

owner of the company. Um and you don't

really have any particular uh

preferences. is you don't you don't get

any particular guarantees from the

company. But if you create a preferred

stock, that stock can be given a

dividend yield. We can say that stock's

going to play pay this this dividend

monthly or quarterly or it's going to

pay a dividend that floats with sofur.

It could pay a fixed dividend. It could

pay a variable monthly dividend. It

could so you can give it certain cash

flows and certain yielding rights. The

stock can also have conversion rights.

So you can say hey this converts to

onetenth of a share of my common stock

or 1/5if of a share or it's fully

convertible. So you can give it uh any

amount of equity upside. You can give it

any amount of yield. You can give it

liquidation preferences. You can make it

senior and you can you can give it

guarantees like like uh it's a

cumulative preferred uh dividend. So if

we miss our dividend, we we'll

accumulate it. Or you can give it

penalty. You can say if we miss it,

we'll pay you a penalty. You can you can

pretty much write anything into the the

share that you like. So there are many

different types of preferred stocks.

It's a generalized container

>> and it's not debt where you have to pay

it back, right? It's it's not like a

convertible where you have to pay the

principal back.

>> You raise the money and you don't pay it

back.

>> Yeah. it generally it's different than a

debt instrument because a debt has to be

the principal has to be repaid at some

point certain uh you could make it more

debt-like if you said hey uh the holder

has a put right to put it back for cash

and you should you could make it look

more like a debt instrument if you

wanted or if you basically give the

holder the right to get all their cash

and principle or to redeem it if you

gave it a redemption right at some point

that would look a lot more like debt

Or you can make it look a lot more like

equity if you said it's noncumulative

like stride is non-cumulative. So the

principal never comes due and the

dividend could be suspended without a

penalty or without an accumulating

liability over time. So so you have

extremes from very very debt-like

preferred to very very equity like

preferred everything in the middle. Um

and that just makes it a very flexible

uh a flexible uh security for a public

company to issue. Now if you happen to

be a public company and if you have a

lot of Bitcoin then you could you could

create this security and then you could

take it public. So so the first

innovation is to create a preferred. The

second innovation is to take it public

and then you IPO it on like a

four-letter ticker like STRC.

And the third innovation would be uh if

you do take it public, you might put a

shelf registration against it. And in in

that case, that means you might sell a

billion dollars of it up front, but then

you might sell 50 million a week or some

amount of it continuously almost like an

ETF gets bigger. Like IBIT got bigger

because every single day capital flows

into it and they increase the number of

shares of of an ETF. So, when you create

a preferred that's got a shelf

registration that's public, you've

almost created a kind of proprietary

ETF,

>> right? You've created a new financial

creature. It's got all the benefits of

an ETF, but it's got also the benefits

of a proprietary asset because you're

creating the credit instrument in real

time as opposed to I I collect someone's

money and then and I'm running a junk

bond ETF and I have to go and I have to

buy a bunch of junk bonds.

>> So, an ETF provider is got a wrapper on

someone else's assets.

But when you create a digital credit

instrument as a preferred, you're

actually creating a native in instrument

back integrated all the way to the

Bitcoin.

>> And so

>> over collateralized.

>> Yeah. And then in that particular case,

you could create you could create a

preferred that is 10x over

collateralized that pays 10% dividend

and and it pays that forever, right?

That would be an instrument and just say

that's what I'm going to sell. and I can

sell a certain amount of that.

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>> What we uh did was we created four

different instruments so far. Um the

first one we created was Strike. And the

idea with Strike was let's give people a

dividend 8% at par. Let's make it par

value $100, pay an 8% dividend stream

and then give people a conversion rate

to a tenth of a share of MSTR. So that

you know if if this the strategy stock

is trading at 350 bucks, you have three

$35 worth of equity inside that

instrument, right? So that was like have

some equity upside, have downside

protection via the liquidation

preference and then have continuing

income via the dividend. So that was a

very simple uh well not a simple

instrument but an idea which is I want

the upside with very little downside and

I want yield while I'm waiting. The

second instrument we created was uh

Strife STRF and that was a 10% dividend

yield at par. So, we're going to pay 10%

interest in a way or 10% yield on a $100

instrument forever.

>> Okay? A 100redyear bond that pays 10%

yield, right? You just don't see that

very often. And we made that senior in

the capital structure. So, we we

basically put as part of the security,

one of one of the covenants in the

security is we won't sell any other

preferred stock senior to Strife. So,

Strife will always be first in

preference that senior senior long

duration credit and that's very

comforting to uh credit investors who

are very riskaverse

>> because they would say well I'm going to

get paid before everybody else so that

makes my principle much better protected

and uh that that gives me uh in theory

that's credit positive. It gives it a

better credit rating in their eyes. Um,

so we sold that and that traded uh above

par. So that traded way up. So it was

yielding. And the idea was as the credit

improves of our company and as people

get more comfortable with Bitcoin, as

the price of Bitcoin goes up, that could

go from 85 to 100 to 110 to 120 to 150.

It could go to 200. So it could trade

way up uh above par because it's it's

totally perpetual. And that sets the

cost of capital for our company. Like

that is the investment grade. Yeah. If

you're saying what would be the

long-term the 30-year bond rate for an

investment grade Bitcoin company that's

setting that rate by the market right

now. So then the third thing we did was

we created stride STRD. And the idea of

stride is what if we just sold strife

but let's just take away the penalty

clause and the cumulative effect. We

literally took out like two clauses and

it's the same thing. It's still 10% at

par. But you would say, well, this is

junior longterm

credit, not senior. So the senior one

looks more bond like and you're you've

got not a bond, but it looks it looks uh

less risky.

>> Less risky. Higher in the capital stack.

>> Yeah. Higher in the capital stock. And

this looks more risky. Lower. It's just

right above the equity.

So we sold that and that trades with an

effective yield of 12.7%

whereas Strife trades with an effective

yield of 9. So a 370 basis point credit

spread appeared between the least risky

and the most risky.

>> And people say and ironically um the

Stride deal was twice as successful as

Strife. It was twice as big. And PE and

people would say, well, why would

someone want to buy that when it doesn't

have a cumulative right, it doesn't have

penalties and it's junior. And the

answer is because they believe in

Bitcoin

and they trust the company.

>> Yep.

>> And they want the yield, right? What you

would rather have 12.7% in your bank

account than 9%.

>> And so the issue is, do you trust your

bank? If you know at some point if you

trust your bank and and they offer you

12 instead of nine, you know, then

you're going to do that. So now who else

trusts the company? The equity holders,

>> right? Just like who trusts Bitcoin? The

Bitcoin holders. At some point, you

decide what you're going to trust. And

this is an instrument that uh provided

two benefits.

>> Well, many benefits. One benefit is it

gives people that believe in the company

and believe in Bitcoin the ability to

get paid 12.7% dividends. That's great

for them. The second is it gives the

company the ability to build collateral

that's junior to the senior instrument.

So it impro it's credit positive. It's

good for strife. It's good for strike.

>> It's good for you know the everything

else. And then it also gives the company

a very scalable way to generate leverage

to buy Bitcoin which doesn't have credit

risk. So in theory if there's a market

to buy a hundred billion dollars of

Stride, we could sell a hundred billion

dollars of Stride and we could leverage

the company to 90% leverage

and we would buy Bitcoin with it

>> and that would be good for Bitcoin. That

would be good for the equity. If that

was good for the equity, that would be

good for the equity component of strike.

You see, so it's and of course because

we bought all this Bitcoin that's that

means that Strife would be 50x over

collateralized.

>> So it's actually good for the credit,

good for the converts, good for the

equity, good for Bitcoin, and then good

for the stride holders, right? So So

it's it's kind of the flywheel.

>> And that's why we did the third. And

then the last thing we did was stretch.

And the idea with stretch was people

said, "Yeah, I'd like to get five. I'd

like to get 10% bank account instead of

5%. But I don't want the volatility. I

don't want to think that maybe the

principal would trade up 10 $10 or trade

down $10 a share. Like if I buy it and

it's trading at 110 and then the

interest rates change and it trades to

105, I'll have lost one year worth of

interest or one year worth of dividends.

So, we wanted to find uh some way to get

to $100 and keep this price right around

par, right around 100, low as the

volatility imaginable and extract the

yield. Okay. And so the idea of stretch

is well we don't we don't want the

duration risk. What Strife has is long

duration. And that means effectively 120

months of interest duration that will

cause the principal to move up and down

but below or above par a lot. In fact,

1% move in interest might cause a 20%

change in principle if you have an a

long dur a 20-year asset. Right?

>> So what we wanted to do is strip all the

duration off. So not 120 months, we go

to one month.

And we wanted to and when you strip the

duration off, you strip the volatility

off because you know the 30-year bond

trades much more volatile than the one

month right

>> treasury bill.

>> So we wanted to strip the volatility off

when we strip the duration off.

>> And um to do that we had to create we

had to create a monthly instrument not

quarterly. So we basically took the

dividend to a monthly cash pay and then

we had to create a variable dividend

rate. So this is the first time in uh

modern capital markets that a company

created a preferred stock that has a

variable monthly dividend, right? And so

we call that a treasury preferred.

>> We invented the treasury preferred stock

with AI. I used AI to do it. nobody else

would have thought to do it because they

never had an asset that would that would

justify doing this. And um in essence

uh stretch becomes like uh it's not

quite a high yield bank account because

you don't have perfect zero volatility

and you can take you know if you had a

$1,82.32

you would get exactly $1,82.32

tomorrow if you asked for it. It's not

that, but it's you would be pretty close

and you could put money in it that you

needed to hold for a year, you know,

with very low volatility. You could

collect the 10% dividend and then if you

needed the capital back, you could

redeem it into the market and get your

capital back. So, the idea is a

Bitcoinbacked

money market type instrument. Not again,

not quite as good as a money market.

they're they're less volatile, but we

wanted to compete with that, you know,

with Bitcoin backing it.

>> So, you're building out a whole yield

curve backed by Bitcoin. Um, these are

perpetual. Here's where I I feel like

people are get confused. You promise not

to sell your Bitcoin, right? So, if you

aren't selling the Bitcoin, where does

that yield come from from these

instruments? That's the question I hear

from the average person who's

considering like what what are these

instruments actually? So, how does that

work exactly?

>> So, we've got about $6 billion of these

uh preferreds. We uh we pay out about

$600 million a year in dividends.

The company enterprise values about 120

billion and we sell about $20 billion

worth of equity a year. So you think

about this. Uh we basically sell the

first 600 million of the equity. We use

it to fund the dividends. The rest of

the $20 billion we just buy more Bitcoin

with. So we're raising capital at a

ferocious rate in the equity capital

markets. And maybe 5% of the equity

capital we've raised, we've earmarked

for dividends. The rest we just buy more

Bitcoin. uh in the event that that we

couldn't sell equity for some reason, we

actually have the Bitcoin itself and we

can sell we can sell either credit

instruments against it or we can sell

derivatives. So for example, we could

sell Bitcoin derivatives, we can sell

futures against Bitcoin or we could sell

out of the money call options. And you

know they call there's something called

the basis trade where you can actually

sell the future against the spot and you

can capture a yield if you have Bitcoin

as collateral to post against that

trade. So the company's primary method

of paying the dividends is we just sell

equity. Our secondary methods would be

to sell derivatives on the Bitcoin

itself and then the credit markets are

open to us. So we could also tap various

credit markets from time to time. And is

the goal to have these instruments rated

by the big credit agencies? And what

would that mean?

>> Yeah, the company's campaign right now

is to become the first investment grade

Bitcoin treasury company and crypto

company in general. And and to get all

of the instruments rated by credit

rating agencies and and that's an

elaborate process of lots and lots of

meetings and lots and lots of education.

>> Oh, really?

>> But over time, I'm confident we'll get

there. Well, this makes me think of um

you know, a lot of people were wondering

why why you didn't make it into the S&P

500 yet, but it seems like you weren't

that surprised, at least at least for

now. Why weren't you included yet?

>> Well, you know, the S&P is has a certain

set of criteria, and we didn't qualify

for the criteria until just this

quarter. So, for five years, we didn't

qualify. You have to you have to be uh

you know, profitable. You have to check

a certain set of box. And I think uh we

weren't able to qualify until we had

implemented fair value accounting. And

so in the second quarter of 2025, that

was our first quarter of eligibility. We

didn't expect that we would be accepted

into the S&P 500 in the first quarter of

eligibility. Tesla wasn't accepted in

its first quarter of eligibility. Uh

we're kind of a revolutionary new

company and this is a revolutionary new

asset class. It would be very reasonable

for a riskadverse traditional committee

uh of decision makers that are making a

decision that's that's going to

determine the flow of billions or

hundreds of billions or trillions of

dollars capital. It would be reasonable

for them to wait a few quarters. They

might very well say let's see what

happens with the second and and and if

this business you know turns out to have

staying power after two three four five

quarters look if I if someone adopted a

new idea after four quarters of

performance they would be deemed to be

quite innovative and progressive right

sometimes people wait three four five

years before they acknowledge something

so I I wouldn't expect in the first

quarter I would think over some number

of quarters at some point after you've

got a track record, you know, in the

industry seasons, then I think uh we

will be accepted. I think the S&P's

already uh you know, they've accepted

Coinbase

>> and they've accepted Robin Hood.

>> So, I I don't think that they're averse

to the crypto asset class and or or to

Bitcoin or digital assets in general. I

just think that uh exchanges have been

around a long time, a hundred years,

right? And so those businesses have a

much longer track record and and so they

understand them better. Uh treasury

companies are really exploding new

category of company and they're very

revolutionary. And

>> I I date the entire treasury company

industry to November 5th of 2024. I feel

like we're three quarters into it when

it's very clear

>> that this is a legitimate new class of

companies. And you can see the markets

treating it the same way. We've gone

from 60 companies to 185 companies in 12

months. So the industry is in hyperrowth

mode.

>> Yeah, we have gone to almost 200

companies. Um but some of them, you

know, that we're seeing the MNABS

compress. We're seeing this

consolidation happen. Can you speak to

maybe just the market reaction outside

of the Bitcoin space? Are they looking

at Bitcoin Treasury companies as

something that will be kind of the

institutional investment grade in the

future? How do they value these

companies? Are you still seeing that

adoption really slow and maybe something

will be a catalyst to turn that around?

>> I think the market's in getting educated

mode. I mean, I just had 25 investors

and and I asked them, you know, how

familiar are you with this, this, this,

and they're like, no,

>> tell us about Bitcoin and is Bitcoin

going to get banned, you know, not and

and we literally have to go back to no,

Bitcoin was actually not going to get

banned in 2023, right? And then you have

to lay out the crypto industry in

general and then you uh then you explain

the various credit instruments then you

explain the equity and so most of the

market's still getting educated. I you

know if you wanted a metaphor imagine

that the year was 1870

and people are are starting to refine

crude oil and there's a bunch of

companies being launched you know to do

crude oil things and then someone comes

up with an idea for plexiglass or lexan

and there's polyester and there's lycra

and there's nylon and there's there's

all these possible prochemical

>> applications

>> products and there's you know and

someone's talking about kerosene and

some guy saying, "Well, I think we could

use diesel or gasoline." And some guy

talks about asphalt and you know, and

and all the investors are sitting around

saying, "Is this a good idea? How big is

how big could this industry be?" You

know, and they're still struggling with

how big could the you know, the kerosene

business be in 180 countries. And by the

way, the the first application of

kerosene was lamps to light your home.

it was light and then it became engines

and then it became heaters and then it

became

>> jet fuel and it's rocket fuel today.

>> And so I think the industry is just so

embionic that you know the uh the

companies are learning how to h how to

uh explain what they're doing. They're

deciding what they're going to do. The

companies are deciding what their

business model will be. the investors

are trying to understand the business

models and and the industry. The

regulators, you know, are evolving the

regulations and this is all happening in

real time. So, this is the digital gold

rush in the 10 years from 2025 to 2035.

There's going to be a there's going to

be a lot of different business models, a

lot of different products created, you

know, and a lot of different companies