Strategy’s Saylor Touts Bitcoin-Backed Credit Products

SUMMARY

Michael Saylor, MicroStrategy's executive chairman, discusses the firm's Bitcoin-backed credit products like "Stretch," explaining the premium to holdings, new digital instruments, and Bitcoin's role as digital capital amid rising competitors.

STATEMENTS

Markets are adapting to the Bitcoin Treasury company model, which emerged recently and focuses on issuing Bitcoin-backed digital credit instruments.
For centuries, credit was backed by gold; now, Bitcoin serves as the foundation for a new class of digital credit, distinct from traditional bank, mortgage, or sovereign credit.
MicroStrategy's equity premium exists because the company creates digital credit instruments, unlike passive ETFs that cannot issue such products.
The premium on MicroStrategy shares fluctuates with Bitcoin volatility and company leverage but does not hinder issuing digital credit, which strips volatility for stable yields like 10% on "Stretch."
MicroStrategy has launched four credit instruments worth $4 billion this year, introducing a novel asset class absent for over a century.
Competition from over 250 Bitcoin Treasury companies is positive, as it drives capital flows, though MicroStrategy differentiates through scale, liquidity, and brand strength.
MicroStrategy holds $74 billion in Bitcoin, over-collateralizing $6 billion in credit instruments, minimizing risks from potential sales.
Bitcoin functions as digital capital for long-term value storage, while stablecoins like Tether serve as the medium of exchange in the crypto economy.
Digital credit against Bitcoin enables high-yield products, akin to extracting refined fuel from crude oil, with potential expansion to other currencies like euros or yen.

IDEAS

The Bitcoin Treasury model represents a paradigm shift from gold-backed credit, positioning Bitcoin as a superior digital commodity for collateralizing new financial instruments.
Digital credit products like "Stretch" transform volatile Bitcoin into stable, high-yield USD instruments, appealing to traditional credit markets.
Equity premiums in Bitcoin-holding companies arise not just from holdings but from the ability to generate novel credit products, outpacing simple ETFs.
Rising competition in Bitcoin Treasuries accelerates market maturation, with MicroStrategy pioneering products like preferred stock equivalents.
Over-collateralization in Bitcoin holdings ensures resilience against market pressures, requiring minimal equity issuance to cover obligations.
Bitcoin's scarcity and decentralization make it ideal as "digital capital" for intergenerational wealth transfer, contrasting with stablecoins for everyday transactions.
The crypto economy bifurcates into stablecoin mediums of exchange and Bitcoin-backed capital assets, resolving the store-of-value versus currency debate.
Launching multiple credit lines in a single year signals explosive growth in digital finance, digestible only gradually by global markets.
High-yield Bitcoin-derived instruments could democratize access to superior returns, like 10% yields, surpassing traditional money markets.
Expanding digital credit to global currencies positions Bitcoin as a universal enabler for high-yield banking worldwide.

INSIGHTS

Bitcoin's evolution from speculative asset to foundational digital capital unlocks unprecedented credit innovation, mirroring gold's historical role but with digital efficiency.
Separating volatility from Bitcoin through structured products creates a bridge between crypto and legacy finance, fostering broader adoption.
Company scale in Bitcoin holdings not only mitigates risks but amplifies competitive edges in liquidity and brand trust for credit issuance.
The coexistence of Bitcoin as a store of value and stablecoins as currency mediums optimizes the digital economy's dual needs for preservation and exchange.
Over-collateralization strategies ensure sustainability in leveraged Bitcoin models, turning potential vulnerabilities into strengths.
Pioneering digital credit instruments accelerates industry growth, benefiting early movers by establishing market standards amid explosive treasury adoption.

QUOTES

"The Bitcoin Treasury company is an idea that's only come to the forefront in the past year or so."
"We've discovered the killer app in the Bitcoin world is Bitcoin backed credit."
"Digital credit is a new creature. And Bitcoin Treasury companies exist to issue digital credit."
"Bitcoin has emerged as digital capital. What you want is a commodity that's also scarce and decentralized as a long term capital asset."
"If you ask them, what do you give to your granddaughter, they're going to say, give them a Bitcoin."

HABITS

Maintain a "never sell" policy for Bitcoin holdings to preserve long-term value as digital capital.
Continuously issue new credit instruments backed by Bitcoin to leverage holdings without liquidating assets.
Monitor and adapt to Bitcoin volatility by structuring products that extract stable yields for investors.
Prioritize over-collateralization in all financing to minimize risks from market fluctuations or obligations.
Differentiate offerings through superior liquidity, brand strength, and market depth in a competitive landscape.

FACTS

MicroStrategy holds $74 billion in Bitcoin, collateralizing $6 billion in outstanding credit instruments.
The company launched four Bitcoin-backed credit products worth $4 billion in the current year alone.
Over 250 Bitcoin Treasury companies have emerged, channeling tens of billions in capital flows.
The tokenized dollar stablecoin market, including Tether and Circle, has grown to about $250 billion.
It requires only 1-2% of annual equity issuance for MicroStrategy to cover dividends on its credit products.

REFERENCES

"Stretch": MicroStrategy's digital credit product offering 10% USD yield by stripping Bitcoin volatility.
"Stride" or "Strike": Early Bitcoin-backed credit instruments pioneered by MicroStrategy.
Tim Draper's conversation on Bloomberg Television: Discussing Bitcoin as the future currency.
Tether and Circle: Leading stablecoins representing the $250 billion tokenized dollar economy.
SpaceX: Referenced as an early innovator in treasury strategies, though clarified as MicroStrategy's analogy for preferred stock.

HOW TO APPLY

Assess your asset holdings to identify opportunities for collateralizing high-value, scarce commodities like Bitcoin into credit products.
Develop structured instruments that isolate volatility, such as fixed-yield offerings, to attract traditional investors seeking stability.
Scale operations to achieve over-collateralization, ensuring liabilities remain a fraction of assets to build investor confidence.
Monitor market entrants and differentiate by emphasizing liquidity, brand, and risk management in your offerings.
Expand product lines internationally by adapting yields to local currencies, targeting global demand for high-return savings vehicles.

ONE-SENTENCE TAKEAWAY

Embrace Bitcoin as digital capital to innovate credit products, transforming volatility into stable, high-yield opportunities for sustainable growth.

RECOMMENDATIONS

Pioneer Bitcoin-backed credit to capitalize on its scarcity, differentiating from passive investment vehicles like ETFs.
Over-collateralize holdings generously to neutralize sale risks and assure stakeholders of financial stability.
View rising competitors as market validators, focusing on superior liquidity and branding to maintain leadership.
Integrate stablecoins for exchange needs while reserving Bitcoin for long-term capital preservation strategies.
Explore multi-currency digital credit expansions to tap global appetite for yields exceeding traditional banking options.

MEMO

In a rapidly evolving financial landscape, Michael Saylor, the executive chairman of MicroStrategy, champions a bold vision for Bitcoin not as mere speculation, but as the bedrock of a new era in digital credit. Speaking on Bloomberg's The Close with hosts Romaine Bostick and Katie Greifeld, Saylor addressed the company's shrinking equity premium—now at 1.4 times its Bitcoin holdings—attributing it to markets still grappling with the nascent Bitcoin Treasury model. "The markets are still working to digest the new business model," he said, emphasizing how MicroStrategy's ability to issue innovative credit instruments sets it apart from straightforward ETFs.

Saylor likened Bitcoin's role to gold's historical dominance in backing bonds over three centuries, but with a digital twist. The company's "Stretch" product exemplifies this: by distilling Bitcoin's volatility into stable 10% USD yields, it creates an asset class unseen in over a century. MicroStrategy has rolled out four such instruments this year, totaling $4 billion, with plans for more. This isn't debt in the traditional sense—preferred credits like Stretch avoid principal repayment, functioning more like perpetual leverage. As Saylor put it, it's akin to "extracting jet fuel from a barrel of crude oil," unlocking value without depleting the core asset.

Competition, far from a threat, fuels Saylor's optimism. From being the first Bitcoin Treasury pioneer, MicroStrategy now shares space with 250 rivals, directing tens of billions in capital. Yet, with $74 billion in Bitcoin collateralizing just $6 billion in instruments, the firm boasts unmatched liquidity and brand strength. Concerns over potential sales? Dismissed outright—coverage requires a mere 1-2% of annual equity issuance. Saylor envisions Bitcoin as "digital capital" for enduring value, like gifting it to grandchildren, while stablecoins handle daily transactions in the $250 billion tokenized dollar realm.

Looking ahead, Saylor sees global potential: Stretch-like products in euros, yen, or pounds, offering yields double or triple traditional money markets. This could reshape banking, providing high-yield accounts worldwide from raw Bitcoin reserves. As the crypto economy bifurcates—Bitcoin for preservation, stablecoins for exchange—MicroStrategy positions itself at the vanguard, proving that strategic leverage can turn digital scarcity into widespread financial innovation.

Critics may question the model's risks amid Bitcoin's ups and downs, but Saylor's track record underscores resilience. The premium may contract with low volatility, yet the underlying business thrives independently. In an interview laced with historical parallels and forward-thinking zeal, Saylor doesn't just defend MicroStrategy's path; he maps a future where Bitcoin redefines credit, inviting institutions and individuals alike to join the treasury revolution.