MicroStrategy Is Powered By Its Bitcoin Treasury Operations

What Mike Squack, we're watching Bitcoin near $100,000.

It did a high of about $99,500 yesterday.

But MicroStrategy, the largest corporate holder of Bitcoin,

was down 16%.

That fall coming after Citron research

disclosed a short position in MicroStrategy.

Citron said that it's still bullish on Bitcoin and praised

MicroStrategy's executive chairman, Michael Sailor.

But it said, company's volume has completely detached

from Bitcoin's fundamentals.

Michael Sailor is here with us this morning.

And I'd love for you if you could.

It's great to see you.

Bitcoin's been a wild run.

And boy, have you been right?

But I'd love for you to respond to this report.

Yeah, well, I think a lot of people

don't understand our core business.

We're a Bitcoin Treasury company.

We're powered by a Bitcoin reactor.

We've got $35 billion of Bitcoin

and it's spending at a hundred vol.

So the way we make money is we're selling the volatility

and recycling it back into Bitcoin.

And we're also stripping the volatility and the risk

and the performance off of fixed income securities.

And we're transferring that to the common stock.

So our common stock is delivering 2X Bitcoin, 2X vol.

So Andrew, if you want to understand

the economics of this, we generate a spread.

The BTC spread, we generate.

It's a function of the equity premium, the convert premium,

and the Bitcoin premium.

The Bitcoin premium is the AR, Bitcoin versus the US dollar.

Two weeks ago, we did 4.6 billion of an ATM.

We ran it at a 70% spread.

That means we made about a $3 billion BTC gain in five days.

That would be about $12.5 a share.

But over 10 years, that's $36 billion.

That's about $150 a share just on that one week.

This week, we did a convertible bond.

$3 billion at an 80% BTC spread.

That's a $2.4 billion gain.

That's about $10 a share.

But over 10 years, that's $125 a share to the shareholders.

I think the thesis of the short says,

if the premium and the equity disappears, we can't make money.

What they miss is that when we actually borrow money

at 6%, and we invested in Bitcoin,

and Bitcoin goes up 30%, and by the way,

Bitcoin's going up 60%.

We're getting a 90% BTC spread, but it would be 80% BTC spread,

which means the $3 billion fixed income raise

and preferred bonds generates the same $125 a share

in 30 billion over 10 years.

So once you understand that, you have a different view

of the company.

So what do you say, though, to those who say those are risk

here, because this is effectively a levered Bitcoin position.

And if, in fact, Bitcoin goes down, this becomes a much more

complicated situation.

Yeah, well, the number one risk you take is the existential risk

that Bitcoin has an extension level of end

and goes to zero immediately tomorrow.

But every long investor in microstrategies

is a Bitcoin maximalist or Bitcoin believer.

They've accepted that risk.

Once you accept that risk, what do we expect?

We expect it's going to go up 29% a year for the next 21 years.

It's been going up 60% a year.

So the people that are buying the equity

are buying the equity because they want two X Bitcoin,

they want two X Vol.

And once you accept that idea, you can see,

over the last two weeks, Andrew, we've generated $5.4 billion

in BTC gains.

We're making 500 million a day.

I'm stirring it my screen and we're selling dollar bills

for $3, sometimes a million times a minute.

And so it's not impossible.

I mean, we may very well be the most profitable company

in the United States growing the fastest right now.

Because there's not many companies that

are making $500 million a day doing what they're doing.

Oh, no, no.

If you don't like Bitcoin, you don't want any piece of it.

But if you like Bitcoin, then this is a monster for you.

Look, I don't think anybody is debating the success

that you're having, no question.

I think the question, and we had Michael Novogratz

on the broadcast yesterday, is just the question of leverage.

And when people talk about leverage, all sorts of bells

go off in people's minds about what can happen

if there is a downturn or there is a retreat.

Not necessarily to zero, but we've seen this be a very volatile

asset.

And while it's 100% gone up over the long term,

and I'm not questioning that, I'm questioning whether you think,

if in fact there was a retracement from 98,000 to,

I don't know, 70,000.

What happens?

I'll make two points.

One point participants in the market

are buying Bitcoin 20x faster than the supply

is coming from the miners.

There's a major demand supply and balance.

And that's going to continue for the foreseeable future.

So I don't really expect that.

But let's say it did happen.

Microstrategies business is so good.

We're generating one times the capital we raised.

When we raised 10 billion in capital,

it Bitcoin traded down $20,000 like you described.

We'd still make $10 billion off the arbitrage

by selling the volatility.

If it trades up like I expect it will, we make 10x that.

So we're either making $3 billion on that convertible bond

in this week and the worst case when it trades down.

Or we're making $30 billion in that convertible bond.

If it trades like the Bitcoiners believe it will.

And Michael, how should investors think about buying

microstrategies versus buying now

an ETF that might be levered, for example?

Well, what makes us special is we've got $35 billion

of permanent capital.

So we can lever that.

We can sell a five year bond

or a weekend pledge that is collateral

and raise fixed income instruments.

If I sell six percent bonds or six percent

per firds, I'm getting that 80% or more spread out of it.

BlackRock is a great company and I bet it's great,

but it's overnight deposits.

And the ETFs have overnight deposits.

So they can't create duration.

They can't exploit the difference

between borrowing money at 0%

and investing at a 60%.

But that's exactly what we've been doing

for the past four years.

So right now, I know you've been buying your own stock,

but right now, if somebody was interested in Bitcoin,

you think that the better bet is microstrategies versus buying it

directly, for example,

forgetting about the leverage piece of it.

You know, I actually think by far the best bet

is by our convertible bonds

because our convertible bonds are outperforming Bitcoin

right now with downside protection.

That's why we sold three billion of them this week.

That's why I got a $500 million order

to buy one in a 20-minute meeting.

So if I was really Bitcoin curious

and I wanted downside protection

and I wanted the upside of Bitcoin,

I'd buy the convert.

But ultimately, you got three choices, Andrew.

You can buy Bitcoin fixed income instruments

like a microstrategic convert,

which is some of the upside but downside protection.

You can buy the straight Bitcoin in a wrapped ETF

like Ibit, which is fine.

Or you can buy high voltage Bitcoin,

two X Bitcoin, which is what microstrategies is.

And I think it depends on the investor.

Like what's the conversion premium and what's the coupon?

We just sold that bond at 55% premium zero coupon five years.

It's the biggest crypto convert in history.

It's zero.

And by the way, that's interesting.

Zero.

And we're the only company in the world

that's ever issued five converts in a single year.

So we are dominating the convert market

as well as the equity in the options market

in Bitcoin related securities.

I know you're obviously super bullish on Bitcoin.

We had a guest here in the six o'clock hour,

I don't know if you had an opportunity to see him.

He said he believed that it is plausible

that Bitcoin gets to a million dollars of coin

literally in the next year,

given what he thinks may happen in Washington

as it relates to this new Trump administration.

Well, my long term forecast is 21 years, 29% ARR.

Right now we're 60% ARR.

It'll decelerate toward 20% ARR over the next 21 years.

And the volatility will decelerate from 60 vol to 20 or 25 vol.

So that's my outlook.

I think that the red wave was incredibly bullish.

Basically, the red wave converted headwinds into tailwinds

instead of a 20% headwind, it becomes a 20% tailwind.

So I would be more bullish based upon the red wave.

But ultimately, I think the right way to think of it

is it's always going to be the stronger capital asset

versus a conventional S&P index.

So what's that goodness to it?

With, would you say 29% ARR?

Or in 21 years, what is that?

My forecast is 13 million coin by the year 2045.

And what I tell everybody is every Bitcoin you don't buy today

is going to cost you 13 million dollars in the future.

Michael Seller, given us a lot to think about this morning,

we appreciate you joining us on this Friday morning.

Thank you.

Thank you for having me.