Digital Credit $STRC Outperforms Conventional Credit

Big story of the morning, Bitcoin.

Price is remaining a lot pretty volatile.

We are still under 70,000 right now.

Strategy, though, is buying more,

adding about $90 million worth to its stockpile.

Joining us right now is Michael Seller,

Strategy Executive Chairman, and founder,

doubling down, sir, at a time when others have gotten

pretty nervous about what's going on.

Want to get into your business and so much more,

but to speak to the way you think

the price action and movement has taken place.

A lot of people trying to come up with an explanation,

and I'm curious what yours is.

I think the key to keep in mind is that Bitcoin is digital capital.

It's got to be two to four times as volatile as traditional capital,

like gold or equity or real estate.

It's got two to four times the performance this decade of traditional capital.

It's the most useful global capital asset in the world.

You can put more leverage on it.

You can trade it in more ways than any other kind of capital asset.

So the volatility is the bug,

but the volatility is the feature.

And we believe that digital capital,

because it's so much more performance,

is the basis for an entirely new set of financial instruments

that we call digital credit.

Is there any argument to made, though,

and given that this,

that Bitcoin has sort of done around trips

since the beginning of this administration,

that we are now finally getting to some kind of price discovery moment.

That's fundamentally different,

that in the past Bitcoin,

because it wasn't in ETFs,

because it wasn't as broad-based,

that there wasn't the kind of price discovery

that's now available today,

and maybe these prices are more realistic

than what had been the case before.

Well, there's no doubt the asset is seasoning,

and that's a good thing.

We just had an all-time high,

Andrew four months ago, October 6, I believe.

So if you've got a time horizon of less than four years,

you're not really a capital investor, you're a trader,

and the traders are having a field day

with the volatility good for them.

But the capital investors are looking out four years,

and if you look at a four-year time frame,

Bitcoin is two to three acts,

the performance of the alternative capital assets,

and anything built on Bitcoin over a four-year or more time frame

is going to outperform for the same reason.

The concern, as you know, about strategy itself,

to the extent that there are worries

within the Bitcoin community is that, you know,

if Bitcoin continues to fall,

and I know you've made the argument

that you have enough cash on hand

to handle this for the next two years,

that there could be a moment at which you have to sell, not buy.

Yeah, that's an unfounded concern.

The truth is our net leverage ratio

is half the typical investment grade company.

We've got 50 years worth of dividends and Bitcoin.

We've got two and a half years worth of dividends,

just in cash on our balance sheet.

So we're not going to be selling.

We're going to be buying Bitcoin.

I expect we'll be buying Bitcoin every quarter forever.

Just so we all understand,

what is the price at which this story

gets much more complicated for you,

and therefore the rest of the Bitcoin community?

I think there's a sense that given how large a player you are,

if the price of Bitcoin were to fall to a place

and continue to stay there for two and a half years from now,

and you were forced into a selling position,

that that unto itself could create a cascading problem.

Andrew, if Bitcoin falls 90% for the next four years,

we'll refinance the debt.

We refinance where, Michael?

We'll just roll it forward.

I mean, again, you think banks would lend to you at that point?

Yeah, because the volatility of Bitcoin

is such that it's always going to be a value.

Look, you're at 68,000 right now.

Literally has to fall to 8,000,

then we just refinance the debt.

If you think it's going to zero, then we'll deal with that,

but I don't think it's going to zero,

and I don't think it's going to 8,000 either.

But the credit risk is to minimize at this point.

I guess the bigger question is,

I know you have a stock of cash that you can use

to continue to pay out the dividends and beyond.

How long does that carry you through?

Two and a half years, Becky.

I thought you had some of that two and a half years from cash.

We wouldn't have to raise any money.

Okay, so that includes the debt due next year as well.

We have two and a half years of dividend coverage

and debt coverage in cash.

We raised $4 billion this year, so far.

We raised $25 billion last year.

There isn't credit risk to the company.

The story here is that the digital credit,

STRC is the most popular credit instrument of the decade.

It's trading 100 times as much as traditional preferred stocks,

and it generates two to four times the cash flow

of any other fixed income instrument.

So that's the revolution taking place.

There isn't any credit risk

and the balance sheet of the company.

Why do you think the stock's down 60% over the last year?

The company's engineered to be amplified Bitcoin.

So when Bitcoin goes up, we go up faster.

When Bitcoin falls, our volatility is higher.

We've created an asset that's got an 80-vol.

And so the stock falls because Bitcoin's been in a bear market

for the past four months.

It's been an extreme drawdown.

But at the same time, the other day,

we had a 25% increase in the stock price in a single day.

Our stock is more liquid on a market cap basis

than any of the Mag 7 stocks by a factor of 234.

The open interest is the greatest open interest

of any of the major stocks in the market.

So that volatility creates interest,

creates liquidity, creates the opportunity

for us to issue the digital credit.

Michael, can you help us with one thing?

There's some folks in the community

that Bitcoin community,

that believe that there is a floor on Bitcoin at around $60,000

because that is the average price that is effectively

or cost, I should say, for miners.

And that as a result, the arbitrage

will always be around that price.

I don't know if you think that's true or not,

or whether you think there's a possibility

you could fall below that, in which case,

what happens to those miners?

Obviously, for Bitcoin to be successful

in this decentralized world,

you need the miners to be mining.

Otherwise, the whole thing doesn't work properly.

If you're focused upon the price dynamics of Bitcoin,

I think it's much more interesting to look at what the banks do,

because as the large banks roll out credit against BTC,

and you see a lot of enthusiasm from city, from Schwab,

from J.P. Morgan, from BNY, Mellon, et cetera,

as they roll out credit, they're going to negate

the miners influenced by a factor of 10.

Also, the embrace of large Wall Street firms,

the roll out of the next black rock, Bitcoin,

income fund is going to have a big impact.

And of course, the growth of digital credit

that we're issuing, we sold $7 billion last year,

we sold 400 million in a few weeks this year.

So the issuance at credit on top of that network

is going to be 10x, the price impact

of anything that the miners do or don't do.

They're really a third order effect at this point

in the future of the network.

Real quick, if you were to make a prediction

about where Bitcoin is, call it 12 months from now,

what do you think?

You know, I don't really make predictions over 12 months.

I think the Bitcoin is going to double the triple,

the performance of the S&P over the next four to eight years.

And I think that's the only thing we need to know.

Michael Seller, I was good to talk to you.

Thank you, sir.

Thank you.

Appreciate it.