When Strategy (MSTR), the largest publicly traded company holding Bitcoin, first floated the idea of selling its Bitcoin stash to fund its dividend obligations during its recent earnings call, it sparked concerns among investors and the crypto community.
However, Executive Chairman Michael Saylor spoke with CoinDesk Senior Analyst James Van Straten at Consensus in Miami to explain, in his opinion: why the announcement was “inconsequential”.
As the company transitions from a Bitcoin treasury company to a full-spectrum capital markets operation, in a wide-ranging conversation with CoinDesk, Saylor discussed the company’s potential sale of Bitcoin to fund dividends, the mechanics of its preferred shares (called Stretch or STRC), and the criticisms that get its business strategy wrong.
This interview has been edited for brevity and clarity. This is part one of a series of stories from CoinDesk’s interview with Michael Saylor.
CoinDesk: Your earnings call revealed that Strategy may sell Bitcoin to fund its dividend. This scared some investors. How important is it really?
Michael Saylor: It’s a big nothing burger from an economic point of view. If we were to fund all of our dividends exclusively by selling bitcoins over the next year, we would buy 20 bitcoins for every bitcoin sold. So it’s no different than buying 20 bitcoins and not selling any bitcoins. And then, from a market perspective, Bitcoin today has liquidity of between $20 billion and $50 billion. If we were to fund all of our dividends with Bitcoin, that would be maybe $3 million; it’s immeasurable. It’s really inconsequential.
CoinDesk: So how do you actually decide between buying Bitcoin, paying off debt, or buying back your own shares?
Saylor: We use two metrics. The first is the yield of BTC. What is the benefit for the ordinary shareholder? If there is no return, it is equity neutral. If there is a negative return, it is dilutive. If there is a positive return, it is accretive. The second measure is credit: what is the impact on the balance sheet? Does this create more risk?
For example, if we used all our dollars to repurchase shares, that would be positive for equity, it would create yield, but it would be negative for credit. The market price of bitcoin, of all our credit instruments, of all our bonds, changes every day. On a daily basis, we adjust our activity on the capital markets to take advantage of return opportunities and meet our commitments.
We prioritize transactions that generate more bitcoins per share. If we can create 10x more bitcoins per share by making one transaction over another, we would prioritize that first.
CoinDesk: Bitcoin is currently about 36% to 37% off its all-time high. Is now a good time to sell high-cost Bitcoin and benefit from this tax credit?
Saylor: We have the opportunity to obtain up to $2.2 billion in tax credits. The value of this credit changes every day, every minute. We also have the ability to calculate the misvaluation of convertible bonds: this generates a huge return. We also have the ability to capture bitcoins during a transaction. We make this decision week by week, day by day.
Everything we do prevents us from doing anything else. So we always have to ask, is this positive for equity, but negative for credit? It might be great for equity, it gives us $500 million, but it’s a little bad for credit. If credit is very strong, I would do something with positive equity and slightly negative credit. If credit is very poor, we will not do this.
We’re not going to telegraph exactly when or if we’ll do it. But the optionality is there, and it’s one of the most interesting trades currently on the table.
CoinDesk: Reviews on X (formerly Twitter) say you always buy the weekly high in Bitcoin. What is really happening?
Saylor: This is an ignorant criticism. What happens is when we buy Bitcoin with a stock swap, it’s because the stocks have rallied and there is a huge premium on the stocks. When bitcoin goes up, stocks go up, the premium goes up, and it actually becomes more profitable for us to trade. We trade a share of MSTR for a share of BTC when the premium rises, and that’s when bitcoin recovers.
In a 168 hour week, there could be three hours where the market is rallying, and we could raise $250 million in swaps in those three hours. So yes, we choose the top of the bitcoin market, but we also choose the top of the equity market and trade both – and we generate a much larger gain. We make money for our shareholders without risk by performing these swaps.
If we wanted to make these trades when the price is low, the premium is low. This brings in a lot less money, otherwise we would lose money for the common good. [shares] by trading the stocks when the price of Bitcoin is low. That’s why it seems like maybe we’re buying the top, but we’re not buying it with the money that’s out there.
CoinDesk: STRC has been your flagship product. Can you explain how it differs from a traditional bond?
Saylor: We built this instrument to be extraordinarily robust. The key is that we have created a perpetual preference that never expires. When someone decides to sell $2 billion worth of STRC, we won’t buy them back. There is no right of liquidation. There is no solution. It is not a bank deposit.
If I sell you $2 billion of a stablecoin on Friday, you can buy it back on Monday, and I have to find $2 billion in cash. But when we sell you $2 billion worth of Stretch, it’s a perpetual trade. We agree to pay you SOFR [Secured Overnight Financing Rate] plus a credit spread forever. You agree to give us the money forever. We plan to hold Bitcoin forever.
Liquidity is not provided by us. The market provides it. There are people at Soros, Millennium, and Citadel who actually want to make fast trades in minutes or hours. If I set it at 100 and absorbed all the cash myself, they wouldn’t have the chance. And I would take $100 billion of risk, which would be a problem for stocks, and I would deprive them of the opportunity to make a very healthy, almost risk-free, annualized return.
CoinDesk: Stretch has been trading at a slight discount to par recently and takes longer to recover after dividend dates. What is happening?
Saylor: You need to watch it over full monthly cycles. We sold $3.2 billion in a few weeks on an instrument on a base of about $5 billion. We have therefore considerably increased the offer. It doesn’t surprise me that the market is taking time to digest this. Some of that certainly came from people buying a billion to get a 90 cent dividend and then selling it.
We are at a growth rate of almost 400%. Given the hypergrowth, it doesn’t surprise me that it’s [STRC] digest it [the sell pressure]. In recent days, it’s [STRC] was trading for less than five cents [of $100 per share] daily range, three hundred yesterday. This is all comfortable. We think about it the same way we design an airplane wing: you want the wings to flex. If you try to remove the flex, they break. The instrument is designed to bend under stress, but not to break.
Disclosure: The author of this story owns stock in Strategy (MSTR).
Read more: Michael Saylor’s latest tax strategy echoes Strategy’s 2022 bitcoin sale
