The Future of Bitcoin Treasury Companies

Back in the day, we used to have 50% draw downs in the price of Bitcoin in six hours. Okay, it's like a whole another world of crazy. The key thing is survival. And that was the Eureka moment where we said if you want to match uh something like Bitcoin which has long duration, high volatility, we need to provide to the market a short duration, low volatility product. That's what STRC is. When would you guys sell the Bitcoin if ever? I think when people look at strategy uh they would say you guys are the pioneer of putting Bitcoin on the balance sheet of publicly traded company and um I think early on the pitch was we're going to accretively acquire more Bitcoin. Uh you guys have gone through I think a a very positive evolution in terms of how do you get more capital to buy more Bitcoin and so how do you describe today maybe the strategy complex and the way that you guys are approaching uh this accretive uh acquisition of Bitcoin? Thanks for having us. Thanks everyone for joining. Um, three phases of the company. 2020 we took $600 million or so invested in Bitcoin and I would call that a Bitcoin holding company and that's pretty much what we did. Not much different than an IBIT today. We just bought and held Bitcoin. Second phase really started beginning of 2021 is we decided to lever up and we became a Bitcoin treasury company and the leverage was primarily through convertible notes. We dabbled a little bit in some secured loans. We even dabbled in a Bitcoin back loan with Silvergate but primarily raised at this point in time about $12 billion in convertible notes. 0% interest on average, up 50%. Pretty successful. Uh those who who work in the convertible complex realize that it's about 50 dudes with like PhDs or Harvard MBAs who sit across the table. They uh buy your converts. They short your stock. It's over- thecounter, which means that a retail investor can't buy a convertible note. Uh and it's it's sort of a quick dopamine hit. and we're able to buy a lot of Bitcoin, but at some point in time, you have uh maturity risk, right? You're going to have the convertible notes come due. Not bad for an early Bitcoin treasury company or or somebody who's just getting into the space who's trying to raise funds to buy Bitcoin, but for what we're trying to build wasn't long-term uh the the right move. Phase three last year was digital credit became a Bitcoin credit company. And what we did is we raised about $7 billion of uh perpetual preferreds. Uh and and and those who invest in preferreds, you know, it's a pretty small space. Primarily banks uh provide preferreds. People call them hybrids between equity and debt, but it's really an equity instrument, meaning we don't have to pay it back ever uh because it's perpetual nature. And it trades it trades on the NASDAQ. So, STRC trades 150 million bucks a day. And that was the Eureka moment where we said if you want to match uh something like Bitcoin which has long duration high volatility, we need to provide to the market a short duration low volatility product. That's what STRC is. That was phase three. Uh learned along the way, a lot of invention along the way. Uh but uh you know, Michael said it stretches our iPhone moment. It's pay, you know, today it's trading at like 99 spot 70. Uh Strive has done something with their sold product. This is the future. This is the future for people who don't want uh the volatility of Bitcoin, but they want access to the underlying returns. They buy Stretch. I met somebody out there. They're buying the product. Uh so constant innovation and and and Stretch is is is going to be the big thing. >> Describe just real quick um on this digital credit with Stretch. uh people will see the yield number it's much higher than treasuries etc. Maybe unpack a little bit like the plumbing in terms of how are you guys paying that yield and then uh certain investors buy Bitcoin versus by stretch and how you guys think about maybe the two different cohorts of who are buying these different assets. >> Yeah. So so those who want to buy Bitcoin, they want uh first of all I'd recommend long duration investors, right? Like if if you're buying Bitcoin to get the the immediate pump and you want to sell it in 2 weeks, look, you can be a gambler, you could be a trader, whatever it is you want to be. I I wouldn't recommend that. If you want to buy Bitcoin, you you have to have long duration. Call it four or five years. It's a 40 ARR product that has 40 V, right? If you want amplify Bitcoin, then you might buy our common MSTR, right? which is now an 80 ARR 80 baller something in that range product that's cool right like if if if Bitcoin is not enough for you you might buy our common equity great if you want something that steps down but gives the return profile of Bitcoin right everybody loves Bitcoin in this room I assume right uh but you're not up for that level of of AR involved then you buy Stretch so what is Stretch you go on to the NASDAQ Robin Hood or whatever it is Charles Schwab or or Fidelity and you can buy STR RC is a perpetual preferred. The way the plumbing works is we pay 11% now is 11.25% cash monthly returns tax deferred if you never sell the underlying, right? Uh it's 5x over collateralized by Bitcoin. There's no product outlet that there like that, right? What's the equivalent if you want something paying income on a monthly basis, dividends on a monthly basis? Well, you can buy a money market. You might want to dabble in corporate bonds, long duration treasuries, but you're talking about three, four, five percent. There's nothing like that. You want to get up to like 11% returns. You buy a you buy a preferred for a Greek bank, you might get 11% returns, but it's not 5x over collateralized. How do we pay the dividend? We pay the dividend by issuing MSTR equity at a premium to net asset value, which is accretive to our common shareholders. You're like, "Well, you do that already to buy to to to to buy Bitcoin." Yes, that's true. But if we do that to pay dividends on a product that has a billion dollars and we pay 10% dividends, actually more creative to everybody. That's how we create amplification. I know it gets a little finy, wonky, but this is this is Bitcoin investor week. You're all investors. It's good that you understand the underlying product you're buying, but there's nothing like that out there. Really, there's nothing. And and it's you know we when we IPOed this last year stretch it was $2.5 billion largest IPO of the year at that point in time and we went through you know Morgan Stanley was the lead left they distributed 250 million of this to their wealth management channel. Morgan Stanley is the largest warehouse wealth manager in terms of assets uh of anybody out there. So it's a legitimate exciting product. David, I think that um your career is very uh um like uh simultaneous to Bitcoin, right? If you think that first time you and I met, you had the Bitcoin conference and you and I probably looked like we both had on t-shirts, we were running around having a blast. Now we're sitting up here with suits and ties on and I think Bitcoin >> wearing the costume. >> Yeah. And and Bitcoin has kind of graduated or or grown up through the last, you know, 1015 years. talk a little bit about, you know, you I think really have a great pulse on the hardcore Bitcoiner that has been coming to the Bitcoin conference year after year after year. You today have a public company as well. And so there's kind of this uh um some would say paradox, I would say, you know, complimentary component of there are still those hardcore Bitcoiners that are there that maybe not even like the Wall Street stuff, right? But obviously there are plenty of people who work inside of these organizations, whether it's me, you, Fong, etc., go and talk to these funds and it's like I always tell the story I got on a call one time on a Zoom call and the analyst had a Bitcoin you know Zoom background I was like I got it right so talk about maybe you know Bitcoin's uh kind of graduation to the stage that it's at today and and how you've kind of uh navigated this as an entrepreneur you know it's interesting uh it's changed a lot and you know even in the past couple years the new investors that are coming in are primarily coming in through the trad Adfi system and rails and they know a lot less about Bitcoin, the technology, the network, etc. Which that there is I do have a little bit of concern maybe about how successful uh Wall Street has been at taking those flows and kind of uh putting it in its own box. Uh you know for me I I agree with you. I mean it's it it is a little bit of a a juxaposition from you know uh 2012 down with the banks to running a public company. You know when I've when I've looked back over time though like the the underlying driving uh passion of the entrepreneurs that were building Bitcoin was about making Bitcoin real. And you know, there was no reality where making Bitcoin real meant that companies and corporations wouldn't own Bitcoin. Like if Bitcoin is going to become real, all parts of the economy, all economic actors have to be brought into the Bitcoin ecosystem, into the Bitcoin financial system. And so, you know, Nakamoto, Pro Cap, um, it's really about taking Bitcoin to the market and kind of forcing forcing the Tradfi world to acknowledge and embrace and trade with or against or whatever. It's just like you you cannot like us, but you can't really ignore us. And, you know, Bitcoin just keeps leveling up through that that process. So right now it's public companies but maybe four years from now we'll be launching our own countries and you know competing on that scale. So yeah vong one of the things that people have been very interested in is uh monetary policy just in the economy in general. Um I do think that there has been a connection between monetary policy and bitcoin over the years. Uh, but I do think it is a little weird right now. Like we're cutting rates into high GDP growth, stocks hitting, you know, all-time highs, Bitcoin going down. How much do you guys pay attention to maybe what like a macro investor would be paying attention to versus from the outside people are just like they're crazy. They just buy Bitcoin every week. They don't give a You know what's going on with Fed policy? You know what's cool about Bitcoin is it converges old strategy Micro Strategy which is a software company and new strategy which is much more interested in Bitcoin as a long-term store of value and Bitcoin has this uh sort of um it plays two roles. It's a long-term store of value which is very impacted by monetary policy and in the short term it it it trades like a speculative tech stock right which micro strategy has been in the past. Uh so you know when you see software companies go down bitcoin goes down when you see expansionary monetary policy maybe bitcoin goes up. Um all that said we don't sit around and and and stare at economic indicators. We stare at ratios that determine if we issue equity or we issue uh preferred like is it a creative that's it that that's basically what we look at and like every second of every day we're staring at that but uh you know it's it's like a whirlwind trying to figure out what our government let alone all the other governments around the world are doing on monetary policy. So, no, we were like that's long-term. Short-term, it's really just about how our stock trades versus how Bitcoin trades. >> The maybe trillion dollar question, when would you guys sell the Bitcoin, if ever? >> We're not selling our Bitcoin. Um, we >> I thought you were going to say that. We we've stated that there are circumstances, you know, if Bitcoin trades down to 8,000 bucks uh for five years straight, we might need to sell our Bitcoin. But I don't think anyone thinks, you know, people ask this question. I was on Fox News yesterday. Mike was on CNBC this morning and they're they're all like, "What happens if Bitcoin goes down 90% for 5 years?" And they like when they interview Tim Cook, they're not what happens if Apple stock goes down 90% and sits there for five years, they never ask that question. So I I find it there's still a lot of people out there antagonistic and they want to know what's the situation in which you'll sell Bitcoin. It's like what's the situation that Apple is going to sell to Google, right? Who asked that question, right? Not not that I mind you asking that question because you're well educated, but that that is the question people ask. Today's episode is brought to you by Bitcoin IRA. Are you a crypto investor with a retirement account, but don't have any crypto in that retirement account? Then listen up. This message is for you. Bitcoin IRA is revolutionizing the way Americans save for retirement. 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Search for Bitcoin IRA in the app store or visit bitcoinirra.com/pump and you can join 200,000 Americans on their journey to upgrade their retirement. That's bitcoinirra.com/p to upgrade your retirement today. Today's episode is brought to you by Archub. I absolutely love these guys. Arch is an agentic trading platform that automates the buying and selling of your preferred crypto strategies using sophisticated algorithms like the intelligence arbitrage and oracle protocols. Arch Public executes advanced automated crypto strategy fully customized to your goals. Is your aim to accumulate Bitcoin during market dips, generate profits from Ethereum volatility, or sell Salana or XRP in layers as it reclaims all-time highs? If so, Arch Public is built for you. Are you worried about doing it alone? No problem. Arch Public provides everyone, yes, everyone, with hands-on dedicated support from their concierge team to help implement the strategy that you choose. As a preferred trading partner of Coinbase, Kraken, Robin Hood, and Gemini, Arch Public offers a proven track record of security and performance so that you can trade with confidence. Sign up today at archpub.com and start your automated trading strategy for free. No catch, no hidden fees, just smarter trading. Your crypto, your exchange, your profits. Archub. Go to archpub.com and tell them I sent you. David, you had a very big hand in uh orange pilling uh President Trump and I think a lot of the administration. Um it is pretty interesting that it is not just one person. I think almost every cabinet member at some point disclosed either they liked Bitcoin, they owned Bitcoin, etc. Talk about, you know, that process and the importance of the administration being so supportive of uh of Bitcoin. Well, first off, I would say going back to the question about um you know, how has the industry changed over time, it's like uh we we hate politicians. We hate we hate the political system. That's the whole point of of Bitcoin is disrupted and here we are, you know, deal making with um political parties. You know, I think it it it's the same answer of of the drum beat of Bitcoin becoming real. all political parties will eventually have to integrate Bitcoin into it in the same way that being the party that stands against the internet is just not a viable position. Like if you have a position where the anti- internet party, you're not going to get elected. And so over time, all the parties um will embrace Bitcoin in their own way and integrate it into their platform. You know, one of the things that's really surprised me through this process is really, maybe it shouldn't have, but how influential specifically President Trump is and United States policy as a whole is on the world. And you know, when the president first embraced Bitcoin and you know, we host conferences um uh we have one coming up in Vegas, which by the way, all of you all should go to if you're not planning to go to it. Subtle subtle shill. But we we >> what an entrepreneur We host a conference in Hong Kong. We host one in Abu Dhabi. Weo host one in Amsterdam. And so I actually get a nice flavor of p perspectives from around the global community. And you know, I kind of thought maybe when Trump got on the Bitcoin train it'd be like a flash and then it would kind of fade out. But as I've talked to people, it's actually it's like it's building a slow momentum. Like the gears of policy, you know, just move slower. And so I would say there's actually more excitement about Trump and what he's going to do now when I go internationally than there was even, you know, a year ago. You know, I think though like one thing we can't get carried away with, and I'm I am deeply loyal to the president for everything he's done for our industry, for everything he's done for um uh for Ross, for a lot of causes that he's championed for us. That's the first politician that's ever, you know, championed our our worldview. But at the end of the day, you know, liking Bitcoin is not enough. Like people I I keep reading this commentary like, "Oh, well, you know, all the regulatory barriers have been swept away. You know, there's nothing preventing uh Bitcoin from, you know, uh reaching a million dollars of Bitcoin." Well, just because you like Bitcoin doesn't mean that you've invested the political capital necessary for things to happen. And so, you know, we're sitting here a year later. the strategic Bitcoin reserve was signed into an executive order. You know, last I've checked, we still don't even know how much Bitcoin we have exactly. And so, unless you're willing to bring to bear the political capital necessary to mobilize the all the different gears of government necessary to move the ball forward, then at the end of the day, it's like you can like Bitcoin, you cannot like Bitcoin, you're going to get the same outcome achieved. So I think that the Trump administration was a very important first step but you know there is so much further for us to go and not just in talk but in actual delivery um and substance and so uh I'm I'm bullish I think on what we can accomplish in this administration but if we really want the progress to continue we need more people to own Bitcoin every year. We need more voters to own Bitcoin every year. And then it's just an inevitability. Whether it's four years from now or 10 years from now or 20 years from now, we will get to the point where we actually have a government that is conducive to the rules we need for Bitcoin to be successful. And Bitcoin, let me pause there. Bitcoin will be successful with or without the government. So, it's not like that we need the government to cater to us for Bitcoin to be successful. The government's realizing it's in their own best interest to work with us. And so that's really what we want is a is a willing dance partner on the other side to make rational sound policy decisions that's in the United States strategic interest. Fong um you guys are the pioneer of this you know put Bitcoin on the balance sheet. There's a lot of people who followed, good or bad. And I think maybe what is unique is that I see you, Michael, many other people at strategy continue to be supporters and even to a degree bring awareness to a lot of these other folks. Why do you guys do that? I think a lot of people would say, hey, you know, they're competition and uh you could easily just ignore them and try to go and, you know, take the whole market. I think uh it's very early for Bitcoin and you know when I'm not talking about strategy or Bitcoin treasury companies. I'm meeting with friends, family and telling everybody you can about Bitcoin. I know you guys are too. So I'll start with that. Is it's still very much an education process that needs to occur. The great thing I love about Bitcoin, the ethos is Bitcoin, is it's not like you have more coins than I do, therefore you've won. Or, you know, my enemy has Bitcoin, therefore I shouldn't. It's an everybody wins ethos. Everybody helps, everybody educates. Uh, it's, you know, back to the technology world. Technology works best when it's open source. Uh, a good financial strategy works best when it's open source. So, the more Bitcoin treasury companies, the better. and and you guys are leading Bitcoin treasury companies. Thank you very much. But >> we're getting our ass kicked to be honest. Pop. It's been it's been ugly. >> Well, I was going to ask you what what does it feel like? >> Well, you know, first off, it sucks, you know, to be down a lot of money. >> Fong's like, "Yeah, we don't have that problem." >> Yeah. No. So, one thing you said, there is no Micro Strategy competitor. like all of the other treasury companies that exist, there are so many um strengths that strategy has that you can't fully appreciate or recognize until you're in a similar chair and you're trying to make the same decision and you're like, "Oh, wait. We can't make that decision cuz we don't have that strength or lever that strategy has." You know, they have a fantastic cap table. They have a very liquid stock. They have a lot of optionality that I think is really unique to Micro Strategy and like I wish we could do what Micro Strategy could do. Um, in terms of like how is it, you know, having a stock that's down 75% from our pipe price. You know, I was hoping we would be making $50 million a day when we launched the stock, not losing $50 million a day. So, it's painful, but you know, at the same time, we've I've been here before four, five times. I mean, I've been Bitcoin since 2012. I've been through five Bitcoin winters. As painful as this process is, it's nothing compared to what we've lived through before in the past. It's like, oh, like we're upset about a 30% draw down or 40% draw down in the price of Bitcoin. Back in the day, we used to have 50% draw downs in the price of Bitcoin in six hours. Okay, it's like a whole another world of crazy. So the key thing is is survival. The key thing is, you know, the a bare market for a treasury company like ours can always get worse. And so you always have to have the mindset that you're playing a long game. And you know, to Fong's point, Bitcoin is very early. Bitcoin is going to be incredibly successful. The key thing is to make sure that you're there when Bitcoin is successful and you're not in the tombstone uh and you're not around to see the dividends of the fruit of what we've planted. And so, you know, I I think uh for us, we have to chart a different way than strategy did. You know, congratulations by I saw the news today. You closed the deal. How painful was that process? >> I do not recommend doing a related party trend. >> Yeah. Yeah, it's not fun. >> We're gonna interview Pomp now. Yeah, >> I I do feel like I'm getting grilled at the moment. >> Well, no. You know, it's funny too because Sailor will always say like M&A hell. You know, you don't want to do that. And it's like >> he's not wrong. >> He's not wrong. That's again it's it's so many times I find myself >> actually wrong. You ever seen on the internet people say the worst words in tech or Bellagi was right. >> I feel like in Bitcoin, you know, Michael was right gets said a lot. Do you say that a lot internally? Michael and I have our fair share of de one-sided debates. You know what what I would say though, the thing is, look, I've been a public company officer for 10 years, 11 years. Mike's been a public company board member and CEO since 1998. And you guys are are waiting into the world of being, you know, public companies or you're now deep in the world of being a public company. uh it's a responsibility to your shareholders that we have entrenched in us collectively of 40 years of experience and you know for those out there who are shareholders of strategy who own MSTR any preferred it's it's it's a hard job when you have 5 million folks out there who own your shares in some way shape or form and it's a responsibility and and so it's in in that way it's a a lot different than owning Bitcoin, running a public company. Uh, and Mike and I do not take it lightly. We talk every day about the capital markets decisions we're making once in the morning, once at the end of the day. To recap, mostly one-sided conversations, but uh it's it's it's a big deal. And and and for for those who are becoming Bitcoin treasury companies or are uh I wish you all the success. Uh, and it's it's a lot of it's it's it takes some fortitude even more so than than than owning Bitcoin does. >> Yeah. And I and I think you like there's the capital formation piece of this which I think there's really no company in the world better than micro strategy at there's the capital allocation piece of this and and and balance sheet strategy which you know there's a lot of things that if you listen to all the podcast like oh okay that makes sense like durability or you know there there's certain attributes you may want in your balance sheet but until you're actually holding a balance sheet of that size you really actually don't spend very much time thinking about what attributes do I want in my balance balance sheet. And so there's a lot of uh appreciation that you have for certain elements that you only get once you're in the the battlefield and you're like living the experience. And then I think one thing that's a little bit different and and how companies are going to have to find their own way is like we're going to have an operating business. Um we're in the process of completing a merger with um the company I've been building the past 13 years, BTC Inc. which owns the conferences and Bitcoin magazine and and UTXO which is our asset manager and so that's going to be something a little bit different about our company and like bomb you now have an AI company like so each of these treasury companies they're going to be put in a position if they don't have the inherent strengths that strategy has how can they create value and differentiate themselves so that they have a compelling thesis for why you should buy that stock and not just put everything in strategy which frankly putting everything into strategy is a pretty pretty damn good plan. So, um you know, I think that story is playing out. There's a lot of capital that's gone into DATs, which I hate the term DATs, but whatever. There's a lot of capital that's gone into DATs. I think half those companies are going to disappear over the next 18 months. There's going to be a lot of consolidation that's going to occur. And then I think the other half that sticks around, they're going to have to do more than just sit on a pile of coins. And so I think you're going to see a lot of operating companies get acquired. I think you know not just in Bitcoin but throughout the crypto landscape. And we're going to see which which models work. And I think one thing that our industry has always been very good at is copying good ideas. And so you know if if people start doing differentiated things that are successful people will quickly follow behind. You know the the stretch has been incredibly successful. Um, you know, you've seen SATA. I know there are many treasury companies that are very interested in doing their own preferred if they can get to the scale. I mean, is that something that y'all talked about? I'm sure. >> No, >> no, I'm going to take a different path. >> Okay, cool. There you go. It's a different path. I like it. >> I'm not smarter than these guys, so I let I'll let them those capital market calls twice a day. I uh I'm good. They're uh they're going to outbeat me every day. Sometimes you got to know what what games to play and what games not, right? >> Exactly. So, um, anyway, I I don't even remember the original question, but, um, >> it's all right. I'm getting yelled at, but we got to go. But, uh, I appreciate both of you guys, uh, coming up here. U Fong, I'll leave you the last word. Uh, what's kind of your word to the Bitcoiners during a bare market? >> Uh, if you're not, if you don't have the stomach for the bare market of Bitcoin, then I would not suggest you buy Bitcoin. You should buy Stretch, right? and and and if we're going to show products here, right? Like buy the product that has Bitcoin behind it that's that's not volatile and gives you 11%. That's why we created that product. >> Incredible. All right. Thank you, guys.

Phong Le is CEO of Strategy (formerly MicroStrategy), and David Bailey is CEO & Chairman of KindlyMD. This conversation was recorded live at Bitcoin Investor Week in New York. In this conversation, we discuss Strategy’s evolution from a bitcoin holding company to a leveraged treasury and now a digital credit platform, including the launch of its perpetual preferred product designed to offer bitcoin exposure with lower volatility and yield. We also cover capital markets strategy, competition among bitcoin treasury companies, macro impacts, and bitcoin’s continued integration into Wall Street and global finance. 🔊 Audio Podcast Listen to The Pomp Podcast on the audio platform of your choice: http://pomppodcast.com 🖥️ From The Desk of Anthony Pompliano Check out my NEW show for daily bite-sized breakdowns of the biggest stories in finance, technology, and politics: http://pompdesk.com/ 📧 Newsletter Pomp writes a daily letter to over 270,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at: https://pomp.substack.com/ 👉 Follow Pomp on Social Media: Twitter: https://twitter.com/APompliano Instagram: https://www.instagram.com/pompglobal/ LinkedIn: https://www.linkedin.com/in/anthonypompliano/ 🤝 Podcast Sponsors BitcoinIRA: Buy, sell, and swap 80+ cryptocurrencies in your retirement account. Take 3 minutes to open your account & get connected to a team of IRA specialists that will guide you through every step of the process. Go to https://bitcoinira.com/pomp/ to earn up to $1,000 in rewards. Arch Public is an agentic trading platform that automates the buying and selling of your preferred crypto strategies. Sign up today at https://www.archpublic.com and start your automated trading strategy for free. No catch. No hidden fees. Just smarter trading. ⏰ TimeStamps: 0:00 - Intro 0:25 - Strategy’s three phases of buying bitcoin 7:04 - Bitcoin’s graduation into Wall Street & traditional finance 10:11 - Macro economy & Fed policy 12:01 - Would they ever sell their bitcoin holdings? 15:26 - Bitcoin, government policy, & political adoption 19:52 - The responsibility of running a public bitcoin company 26:35 - The future of bitcoin treasury models & consolidation #Bitcoin #AnthonyPompliano #Pomp