Pierre Rochard and Phong Le explore valuing Bitcoin treasury companies and the rise of corporate Bitcoin adoption in this insightful discussion.
Timestamped Overview
00:00 – Intro: How to Value a Bitcoin Treasury Company
01:28 – Phong Le on Strategy’s Bitcoin Thesis
04:45 – Why MSTR Isn’t Just a Tech stonk Anymore
08:12 – The Role of FASB Accounting in Bitcoin Adoption
11:39 – Capital Markets: Equity, Debt & Bitcoin
15:20 – Convertible Bonds & Leveraged Bitcoin Exposure
19:05 – What Investors Miss When Valuing MSTR
23:34 – How Institutions View Bitcoin on the Balance Sheet
27:48 – Risks, Volatility, and Shareholder Expectations
32:15 – Bitcoin’s Role in Long-Term Corporate Strategy
36:20 – Advice for Other Bitcoin Treasury Companies
39:12 – Building a Bitcoin-Backed Capital Market
43:10 – Addressing Bitcoin Volatility in Financial Products
46:00 – Why STRF Is Gaining Market Traction
48:30 – Final Thoughts from Phong Le
Key Takeaways
1. Introduction and Recent Corporate Bitcoin Adoption
- Figma’s IPO filing and Bitcoin treasury announcement
- Comparison to MicroStrategy’s own journey
- Rationale behind corporations preferring Bitcoin over cash
2. Background and Origins of MicroStrategy’s Bitcoin Strategy
- Brief company history (enterprise analytics roots)
- Financial status circa 2020 (revenue, cash flow, operating margins)
- Impact of COVID-19 on business and capital management
- The decline of interest income due to Fed rate cuts
- Concerns over monetary inflation and cash devaluation
3. Decision-Making Around Corporate Treasury Management
- Traditional uses of cash (R&D, acquisitions, stonk buybacks)
- Limitations and inefficiencies found in typical corporate strategies
- Analysis of failed M&A in the software sector
- The rationale for holding large cash balances and liquidity considerations
4. The Pivot: Bitcoin as a Treasury Asset
- Realization of Bitcoin’s effectiveness relative to cash/treasuries
- The macroeconomic environment and its role
- Comparative analysis of balance sheet options
5. Broader Trends in Corporate Bitcoin Adoption
- Why most companies haven’t yet adopted Bitcoin
- Common attitudes towards Bitcoin in corporate and personal circles
- Demographics and mindsets of Bitcoin adopters versus skeptics
6. Flexibility and Optionality: Holding Cash vs. Holding Bitcoin
- Option value analogy in treasury management
- Bitcoin’s potential as a long-term ‘option’ asset
- Divergence from traditional cash management strategy post-2020
7. Transition: From Simple Treasury to Capital Markets Innovation
- Evolution from balance sheet management to issuing Bitcoin-backed securities
- Convertible notes: initial issuance and market response
- Discovery of market demand for Bitcoin-backed equity and debt products
8. Creation and Growth of Bitcoin-Backed Securities at MicroStrategy
- Details on convertible, secured, and margin loan instruments
- Emergence/innovation of the perpetual preferred shares (STRD, STRF, STRK)
- Role of market conditions, opportunity, and agility in corporate financial strategy
9. Shareholder Engagement and Tender Offer
- Tender offer to allow traditional shareholders to exit
- The positive response from shareholders willing to stay
10. The Mechanics and Rationale for NAV Multiples
- Explanation of net asset value (NAV) and company valuation traditions
- Justification for NAV/EBITDA/revenue multiples in high-growth businesses
- How these concepts apply to Bitcoin treasury companies
11. Comparing Bitcoin Treasury Companies to Tech Industry Historical Trends
- Analogy to Microsoft and the broader tech sector in the 1980s
- Overcoming valuation skepticism in new markets
12. Assessing Competitive Moats in Bitcoin Treasury Businesses
- Narratives about ease of entry vs. actual competitive advantages
- The uniqueness of B2B Bitcoin access and securitization
- Institutional versus retail adoption dynamics
13. Preferred Securities: Product Design and Market Performance
- How MicroStrategy’s preferreds address Bitcoin volatility for conservative investors
- Retiree and fixed income market appeal of preferreds
- Price action observations and supply/demand discussions
14. Criticisms and Corporate Finance Considerations
- Clarifying how dividends are paid (operating cash flow, asset sales, or new capital)
- Bitcoin yield and bitcoin gain as crucial KPIs
- Mathematical logic behind preferred issuance being more accretive than equity
15. Bitcoin’s Price Appreciation and Balance Sheet Growth
- Discussion on returns, appreciation not being necessary for value creation
- The impact of up-front gain capture with Bitcoin purchases for preferred holders
- Corporations starting to diversify with Bitcoin
16. The Future of Corporate and Institutional Bitcoin Treasury Adoption
- Early days of non-Bitcoin-native companies adding Bitcoin to balance sheets
- Figma as an adoption example
- Potential for incremental adoption among large tech firms (Apple, Google, etc.)
17. Macro Environment and Strategic Considerations
- The role of interest rate environments and timing in MicroStrategy’s decisions
- The resilience of Bitcoin in varied macroeconomic scenarios
18. Index Inclusion and Future Capital Market Dynamics
- Benefits of being included in major indices (e.g., S&P 500, NASDAQ 100)
- What this means for market awareness, passive investing demand, and sector legitimacy
19. Closing Thoughts and Acknowledgments
- Recap of innovations and the ongoing journey
- Gratitude towards team efforts and capital market trailblazing
Notable Quotes
Competitive Moats in Bitcoin Treasuries
It's so easy to start a bitcoin treasury company? There's no moat... those narratives don't hold up ultimately because there are other factors that do create a moat.
Phong Le @digitalphong
Explaining NAV Multiple
This concept of companies being valued greater than their asset value or greater than the discounted cash flow is not an uncommon thing... people call it alchemy, I call it valuation.
Phong Le @digitalphong
Risk-Return of Bitcoin
When we decided to put Bitcoin on our balance sheet, the primary reason was it was liquid, it was novel, it's an excellent technology. And the risk return ratio, or the return risk ratio is asymmetric.
Phong Le @digitalphong
Bitcoin Revolutionizing Balance Sheets
Bitcoin is the answer now, why haven't more companies done it? Because they haven't figured out that bitcoin is the answer... it's really revolutionized the way people think about balance sheet management and they think about holding capital on their balance sheet.
Phong Le @digitalphong
Adopting Bitcoin as Treasury Asset
On August 10th of 2020, we came to announce that we were going to use Bitcoin as our primary treasury reserve asset.
Phong Le @digitalphong
Monetary Debasement Wake-Up Call
Over the course of about three months, from April to June of 2020, the Fed printed about $5 trillion on a $20 trillion monetary supply... it became very obvious that when you take a $20 trillion monetary supply and you print $5 trillion that our $500 million was going to be worth 25% less.
Phong Le @digitalphong
Bitcoin Adoption by Companies
I think one of the most more interesting announcements in the last week was Figma puts out there in their S1 as they're filing for an IPO that, lo and behold, they have about 5% of their balance sheet in bitcoin. And here's a private company not trying to be a bitcoin treasury company.
Phong Le @digitalphong
Transcript
Phong Le [00:00:00]: I think one of the most more interesting announcements in the last week was Figma puts out there in their S1 as they’re filing for an IPO that, lo and behold, they have about 5% of their balance sheet in bitcoin. And here’s a private company not trying to be a bitcoin treasury company.
Phong Le [00:00:16]: Right.
Phong Le [00:00:16]: But realizes the thing that we realized in 2020, that Bitcoin on your balance sheet is better than cash on your balance.
Pierre Rochard [00:00:29]: Welcome to the Bitcoin for Corporations Show. My name is Pierre Rochard. I’m your host today. And today we’re joined with Fang Lei from MicroStrategy, or Strategy, now rebranded. So welcome. Phong, thanks for coming on.
Phong Le [00:00:44]: Pierre, it’s fantastic to be here. Thanks for having us.
Pierre Rochard [00:00:48]: Great to see you again. We had a good conversation in Las Vegas up on stage. That was a lot of fun.
Phong Le [00:00:53]: Yeah, that was nice to have David Bailey up there. A lot of big announcements with new bitcoin treasury companies a month ago or so.
Pierre Rochard [00:01:02]: And the most recent announcement for strategy is with regards to STRD Stride, the Perpetual Preferred. That now is the third one, I believe, that has an atm. So I’m excited to dig into that. But first I want to start with a little bit of history for those listeners who are not familiar with strategy and not familiar with the bitcoin journey that the company has gone through over the past five years now. So congratulations on that landmark of five years. That’s a long time in bitcoin. So I really want to start with what MicroStrategy was in 2020, where it was from a corporate perspective and kind of just briefly, what led to the decision to acquire those first Bitcoin.
Phong Le [00:01:58]: Yeah, it’s, it’s a, it’s a long story. And you’re right, it was four years and probably 10 months and 29 days ago that we embarked on the bitcoin treasury company journey. And, you know, I’ve been with strategy since 2015. I became CEO in 2022, and Michael Saylor, our founder and now executive chairman, founded the company in 1989. And so when I joined, and certainly when he founded, the idea was not to start a bitcoin treasury company. The idea was to run a great enterprise analytics software company. And we did that for the course of, you know, 30 years or so. And in 2020, after running a business that was profitable, that was, you know, revenue growing, $500 million in revenue about, you know, given, you know, any given year, 15, 20, 25% operating margins, which were also our Ebitda margins, which were also our cash flow margins because it’s not a very capital intensive business.
Phong Le [00:03:14]: So you’re $500 million a year, generating $100 million in, in cash flow. It was a good business, but it wasn’t growing at the pace we wanted. And we’re competing in the enterprise software world with the Microsofts and the Amazons and the Googles and on the startup side, some of the most smartest, most brilliant people in the world. And the great thing about enterprise software is once you, once you’re able to convince a customer that you have something that’s accretive to their business, they stay with you for 20, 25, 30 years. So it’s a very, it’s a, economically a very sound business, it’s a very competitive business and it attracts some of the smartest people in the world. And as a result it’s extremely competitive and difficult to grow in. And so that’s what we’re doing. We’re stagnating a bit.
Phong Le [00:04:03]: In 2020, we still had great customers. We serve about 50% of the Fortune 500 as an example. And Covid hit and we had $500 million of cash on our balance sheet, $500 million in revenue, which is very conservative balance sheet management. We had previously bought back stonk with our balance sheet. We previously acquired small niche companies with our balance sheet. We funded growth. We did all the things that you see companies doing today to try to grow their business in highly competitive environments. And Covid comes around and we were earning at that point in time about 2,125basis points.
Phong Le [00:04:41]: Right.
Phong Le [00:04:42]: We were basically invested in short term treasury bills and the overnight rate was around 225 basis points. And one of the first things that happened with COVID is the Fed decided to, I think appropriately so, cut the short term interest rate to zero. And so we went from earning $12.5 million a year in our $500 million to zero. And that was a pretty stark wake up call that the $500 million in cash wasn’t working for us anymore. And then the second thing that happened, and you recall it well, and many in the bitcoin world recall it well, is the US government and governments around the world decided to stimulate their economies. And over the course of about three months, from April to June of 2020, the Fed printed about $5 trillion on a $20 trillion monetary supply.
Phong Le [00:05:36]: Right.
Phong Le [00:05:36]: I remember receiving my Covid checks in the mail. Didn’t really need it, got a thousand bucks. And you know, it became very obvious that when you take a $20 trillion monetary supply and you print $5 trillion that our $500 million was going to be worth 25% less.
Phong Le [00:05:56]: Right.
Phong Le [00:05:57]: And so no longer did we really have $500 million, but we had $375 million. So 500 million earning 12.5 million and worth 500 million to 500 million, earning 0, worth 375 million. And that was really the wake up call for Mike and the board and I to say, okay, what should we do? What really should we do? This is a, you know, a crisis beyond Covid, a crisis beyond a, a worldwide health crisis. But we now were facing a macroeconomic crisis for our business, a cash crisis. And like any good technology company, like any good engineers, Mike and I both have engineering backgrounds. Like any good technologist, we said, let’s invent a way into a new solution for our balance sheet. And that’s how on August 10th of 2020, we came to announce that we were going to use Bitcoin as our primary treasury reserve asset.
Pierre Rochard [00:06:59]: And obviously a lot of corporations hold cash on their balance sheets, so they might have faced the same problem but not had the same reaction that you had. And do you think that maybe the standard reaction is to say, well, it is what it is, it’s cash. It’s supposed to, you know, lose value. We’re just going to hold it anyway. It’s almost just accepting the status quo.
Phong Le [00:07:22]: Yeah. You know, you know, you go into the, you can ask probably the first question is, why did we have $500 million in the first place of cash in our balance sheet? Because our investors at that point in time and traditional capital market theories or our bank advisors at that point in time would have said, well, you should put that $500 million to work.
Phong Le [00:07:43]: Right.
Phong Le [00:07:43]: And you know, we had fully invested in the technology behind our software business, so there wasn’t an opportunity to say, well, let’s go hire right. Another thousand people and let’s really, you know, supercharge the software business. We’re mature.
Phong Le [00:08:01]: Right.
Phong Le [00:08:01]: Like if we were a startup, maybe that makes sense.
Phong Le [00:08:04]: Right.
Phong Le [00:08:04]: So that, that’s, I, you know, usually option one is, is invest further into your core business. And, and we were fully investing our core business. Option two then is to look at M and A or acquisitions.
Phong Le [00:08:16]: Right.
Phong Le [00:08:17]: And especially in the software world, that can be quite popular. You see, you know, large companies like an Oracle or Salesforce, that is a big part of their strategy. Mike and I both come from a place where ultimately a software company’s core product is the product is the technology, it’s the engineering behind it. And what you tend to find is when companies acquire software, companies acquire other technologies is ultimately not accretive to the software, it’s not accretive to the customer, it’s not accretive to the employees even.
Phong Le [00:08:49]: Right.
Phong Le [00:08:50]: If you, you look at our competition over the last 20 years, think of a company like a business objects or cognos. They were acquired by SAP and IBM. Respectful, respectfully. Guess who did well during those acquisitions? The shareholders did okay, right? The executives did very well because they started to develop a kingdom, get paid more for. The larger the company, the larger the market cap. But the software didn’t do well. Business objects, Cognos or practically end of life. The people who have that software have moved on to different things like strategy or some of our competition.
Phong Le [00:09:26]: So the M and A thing in technology and software typically doesn’t work, right. Like it’s different. If you take two manufacturing plants and you put them together, you get economies to scale, you are able to drive down your vendor costs. It’s a great thing. But in software doesn’t work. So the idea of going and acquiring a business wasn’t a great idea.
Phong Le [00:09:47]: Right.
Phong Le [00:09:47]: And then obviously the other thing people say is, well, go buy back your stonk. And what we found over the course of 10, 15 years is yes, you can buy back your stonk, you can return, you can return the cash to your shareholders, but it doesn’t really do much to your stonk.
Phong Le [00:10:03]: Right.
Phong Le [00:10:03]: And there’s a lot of history and analysis of whether stonk buybacks actually are accretive to the equity in the end game. And generally speaking, it’s not.
Phong Le [00:10:13]: Right.
Phong Le [00:10:13]: And so those are all traditional sort of theories of what to do with your cash. And so what do we do? We just held it for a rainy day, right? Like, and, and, and we kept it in the most liquid thing you can have it in, which is either cash or short term Treasuries. And so you’ll start with the idea of what to do with our cash was generally speaking non traditional. And if you look at really large companies that are out there, a lot of them tend to want to hold and hoard a lot of cash. Right? Berkshire Hathaway is a great example. But even if you look like an Apple or Google, they hold more cash than you would traditionally do traditionally hold in a company of their size. We were like that too. And the reason is you want to have a large balance sheet to give you ultimate flexibility and the ability to weather storms.
Phong Le [00:11:08]: You know, Covid was a storm Right. Like I’m sure some of the travel and leisure companies, hospitality companies, wish they had a lot of cash at that point in time. You look at the opposite, you look like an airline, right? They load up on their debt, they don’t have enough cash. When, when travel is going well, like it is now, they serve food, they put the olives back in first class, you get free pretzels and coach, you get, you know, you don’t have to pay to bring your bags on board. And, and then when a downturn happens, because they load on the debt, up on debt. And by the way, they load up on debt and then, and then they, they actually buy back shares with the cash they have, right? Guess what happens in a downtime for an airline. You see it happen every single time. They cut flights, they take the olives out, they make you pay for water, and they don’t let you check bags anymore.
Phong Le [00:11:57]: And so it goes up and down and up and down. And so of course you want to have a lot of cash and technology companies can do that. You know, it’s a long story, but cash is king. You want to have cash on your balance sheet, you want to have the optionality. And up until now, the only thing that you could invest in on your balance sheet that gave you the kind of liquidity and the access to your capital was cash and short term T bills. And now you can invest in a commodity called bitcoin that is extremely liquid, right? And that returns, you know, 20, 30, 40% a year. There’s been nothing like it before. And it’s, it’s really revolutionized the way people think about balance sheet management and they think about holding capital on their balance sheet.
Phong Le [00:12:45]: So the problem always existed. It forced companies that were under capitalized to make bad decisions. It forced companies that over capitalized to hold their money in something that was underperforming short term T bills. And, and bitcoin is the answer now, why haven’t more companies done it? Because they haven’t figured out that bitcoin is the answer. They, you know, there’s, you know how it is, Pierre and I, I hear folks talk about on your podcast and others. We’re still early. You know, maybe 1 in 10 people that I talk in my circles even want to talk about bitcoin, right? And imagine that they all know what I do for a living. They’re all fairly intelligent, highly educated, wealthy people.
Phong Le [00:13:27]: And you know the ones that want to talk about bitcoin in my circles, my parents like folks who don’t have a ton of capital who don’t have access to a lot of cash like the people who need Bitcoin. The 1 in 10 are typically not the over educated, you know, over capitalized folks. It’s the under educated, under capitalized folks that want to talk about bitcoin. Everyone else is tired of hearing me talk about bitcoin in sort of my, my, my my my sort of family and friends group.
Pierre Rochard [00:13:56]: Yeah, it’s as, as Saylor says, a need to know basis.
Pierre Rochard [00:14:28]: Learn more@lenio so you mentioned that you know you were holding cash for kind of the option value of it, that flexibility that it offers. And so when you swap the dollars for bitcoin back in 2020 you still saw that as long term optionality that this is providing flexibility in the future and without the currency debasement of the cash. And now you’ve got a long term treasury asset that has that same option flexibility value plus the increase in value from the bitcoin network adoption and the tailwinds that has as an asset. But that it wasn’t quite that today’s approach of oh, we’re going to also issue capital markets instruments that are ultimately powered by Bitcoin. How was that journey and would you call it a transformation or just a discovery of new opportunities along the way?
Phong Le [00:15:36]: Yeah, so I think you’re right. The analogy of the option value of holding cash in your balance sheet is a lot different than the analogy of the option value of holding bitcoin on our balance sheet. I’ll start with when. When a software company or generally an operating company holds cash on their balance sheet as an option value, it’s to be opportunistic, right to acquire or to invest at the right time. Or it’s also to be defensive in case there is a major shock, macroeconomic geopolitical or competitive. And in many industries the competitive shock can come out of nowhere. And rather than then having to raise money on your heels at a time where the cost of capital would be very high to the company because it’s facing some of these shocks, you want to just have the cash available. So that’s sort of the traditional way that I think a lot of, well capitalized growing companies think about cash on their balance sheet.
Phong Le [00:16:35]: When we decided to put Bitcoin on our balance sheet, the primary reason was it was liquid, it was novel, it’s an excellent technology. And the risk return ratio, or the return risk ratio is asymmetric.
Phong Le [00:16:54]: Right.
Phong Le [00:16:55]: And that was the primary reason we started this. Did we know that we would really then create a market for bitcoin backed securities and do it in a way that gave people access to bitcoin via the public markets, the public equities markets and now the public debt markets? Now we didn’t know that that was what was going to happen in August 2020. We started to discover that that was going to happen when we realized that we could raise capital. And this was in December of 2020 at very accretive rates.
Phong Le [00:17:32]: Right.
Phong Le [00:17:32]: We did our first convertible note for about $625 million in December of 2020, which was really only at that point in time, four months after we launched a bitcoin strategy, our equity had appreciated three, four times. And we were able to raise money at, I think at that point in time it was 65 basis points. Right. And up 35%. And we went off on the back of that in February 2021 and we did the same thing. $1.05 billion, 0% interest, up 50% on the equity. It was the most successful convertible note that had ever been launched. One of the most, one of the three most successful convertible notes ever launched in the last five years and the second ever launched with the explicit purpose of buying bitcoin.
Phong Le [00:18:24]: And did we know in August that we’re going to do that? No. Did we know that when we launched the second convertible in the first quarter of 2021 that we’re going to go off in the back of that and raise about $600 million in secured notes? We started thinking about that. Did we know that right after that we’re going to raise another $250 million in a margin loan through Silvergate know. And we certainly didn’t know in 2021 that we’re going to enter the preferred market. But we started to discover along the way with our banking advisors and with the help of AI and ChatGPT that there was a entire market of bitcoin backed securities that was to be created and a huge demand for these markets. And as bitcoin became to, you know, more legitimized by the US government in 2024 and nation states and by other bitcoin treasury companies. We start to realize that, that, that the entire equity market and the entire debt market has a huge opportunity. And there are people out there who want access to capital that’s backed by bitcoin.
Phong Le [00:19:36]: And, and, and when you back capital by bitcoin, it’s such a novel commodity, is that you’re able to build securities that had never been built before at returns that have never been built before and that are accretive to us, the corporation. So no, we didn’t know what we were getting into when we launched in August of 2020. But like any, any entrepreneur, inventor, technologist, some of the things we knew we were getting into, which was starting with bitcoin on the balance sheet. And then you have to be agile. You have to have the team, the place, the leadership and the willingness, the guts to go do it. And that’s what we did.
Pierre Rochard [00:20:22]: Yeah, and the shareholders as well, because I remember that you did a tender offer to make sure that you had the shareholder base that really was voluntarily participating rather than kind of being dragged along.
Phong Le [00:20:36]: Yeah, we took the 200, the 500 million or so of cash on our balance sheet and we did a Dutch tender of I think at that point in times $275 million. And we said to our shareholders, our share price at that point in time was 12 and a half bucks split adjusted and it’s $125, but we’ll call it 12 and a half after the 10 for one split. And we told everybody, look, if you want out, we’re going to do this digital asset thing, right? And if you’re not interested that we’re going to allow you to go ahead and, and tender your shares at a 15 appreciation. So you’ll get 137 bucks or 138 bucks. And we were very prepared to fill up the entire 275 million dollar books book and give that back to our shareholders and appreciation. And, and the end result was about $65 million of shareholders tendered their shares. I’d say Mike and I and the board were quite surprised, pleasantly surprised. And everybody else who, you know, was part of our company and back then, you know, our market cap was one and a half billion dollars.
Phong Le [00:21:47]: You know, our enterprise value was $1 billion net of the cash. But of 101 and a half billion dollars, about $65 million worth of shares were tendered. Everybody else said, I’m in for the ride. And I think they were happy. They stayed.
Phong Le [00:22:03]: Right.
Pierre Rochard [00:22:04]: And so you plug in Bitcoin into the balance sheet. And that was I think at the front of the bull market. In 2020, Bitcoin’s price appreciates that creates by the transitive property almost upward volatility skew for MSTR’s share price. And then that creates the opportunity for a well priced convertible. Is that fair to characterize that that timeline?
Phong Le [00:22:36]: That’s right. We, we bought our first tranche of bitcoin at an average price of about $9,500. We bought about $600 million of Bitcoin in the first three months of an average price of 11,000. Coincidentally it was $11,111.11. That was not on purpose. And when we did that, you’re right. By the end of 2020, Bitcoin price at that point in time I think was about $30,000. And so that appreciation of 3x of the $600 million meant that we would have a $1.8 billion bitcoin value.
Phong Le [00:23:10]: But then to your point, you know, demand for the stonk increase, our shares priced up, we saw three, four times nab at a certain point in time. And with that the opportunity to raise capital at very attractive valuations. And so absolutely it also happened to be, if you remember the, the end of 2020, early 2021, sort of post major downturn in the markets, Covid a a start a increase in markets again as people started to understand what Covid was doing. The markets, especially with technology companies and healthcare companies, valuations went up. And so access to capital via especially the convertible bond market was strong. And so I guess we took advantage of strong interest in bitcoin and an increase in bitcoin price. A general bull market with technology and healthcare companies companies and opening up of the credit markets and opening up of the equity markets and the fact that we were becoming very interesting and unique and other companies were starting to follow us, right? PayPal and block and eventually Tesla in the first quarter of 2021. And so it was the combination, the confluence of all these events not too different than where we are today.
Phong Le [00:24:36]: By the way, between November and now were in a similar market environment. And so what you’re seeing the bitcoin treasury companies take advantage of today was similar to the market conditions that we had taken. The only difference or the big difference was getting a bank to underwrite. You know, what we were doing was extremely difficult because of their risk profiles and the lack of knowledge of bitcoin. And so that was a difference in terms of market conditions. But otherwise outside of bitcoin, the Equity markets and the capital markets were strong back then like they are now.
Pierre Rochard [00:25:14]: The reason why I really want to look at the origin story because I think it helps people understand where this concept of an NAV multiple comes from. Because today it seems like some commentators view it as almost alchemy and that it’s too good to be true. But establishing kind of the history of the company I think helps clarify where that’s coming from. So how would you describe the NAV multiple and what its reason to be is?
Phong Le [00:25:50]: I’ll start with there are many companies outside of Bitcoin, treasury companies that trade at a multiple to what you might consider their net asset value, right? And if you take a traditional company, a net asset value would be a combination of the assets on its balance sheet and a discount on the sort of earnings projections. And so if you were to combine those two things, I was just talking to folks at one of the banks that we work with, Morgan Stanley, they trade at a multiple. I don’t know exactly what it is, but it’s one and a half to two and a half times their net asset value.
Phong Le [00:26:31]: Right.
Phong Le [00:26:31]: And so why does a company like Morgan Stanley trade at a multiple net asset value? Well, one, you may believe that the earnings potential is growing at such a rate that whether you look at one year, five years or 10 years out, you think the potential is greater than that. You might also believe that they have a distinct competitive advantage right, in the market that they’re in that is not showing up in a cash flow projection. You might also believe that their management team is unique and is strong. And so you take all those combinations and you’ll say, okay, this is the asset value, but we’re going to put a multiple on that of two, three times, right? You see that happen, by the way, all the time with high growth tech companies, right? Like you might, you might value them especially early stage, but middle stage too, at multiples over their asset value, right? You see that happen with a Microsoft when, when they come upon AI, right? You might build a projection of the revenue and the cash flows from that. And you might say, but you know what, I’m going to value it even greater than that, right? So this concept of companies being valued greater than their asset value or greater than the discounted cash flow is not an uncommon thing. Which is why then people say, hey, you know, maybe I should value high growth companies as just a multiple to revenue, as a multiple to ebitda. And I think that’s a very reasonable thing. And then what do you do rather than take net asset flow value or discounted cash flow.
Phong Le [00:28:04]: You take an EBITDA multiple and you look at all the peers and you say everyone’s worth 20x. These guys, I’m going to give 30x because I believe in them. And you’ve thrown away, you know, the, the spreadsheets and the cash flows and you’re saying, let’s just take a look at the peer group, right? And let’s say they’re in a really hot sexy industry, they’re doing AI and you know, throw away the cash flows, throw away asset value. I’m just going to take a multiple of EBITDA and I’m going to give them a 50x multiple, right? I’m Palantir. I don’t really care what they’re doing in their business with, with, with AI and I don’t believe, care about what their revenues are. I’m going to Trade Palantir at 50x revenue, right? So this is not unique to Bitcoin. First of all, the idea of a multiple than that asset value. And so people call it alchemy, I call it valuation.
Phong Le [00:28:52]: And every bank and everyone who’s been to business school or studied corporate finance realizes that there’s a time when the models, the traditional models don’t work. And you have to come up with a different way to value a company. Our belief is a good way to value the company is take the bitcoin yield and then take the bitcoin gain, which is a function of bitcoin yield. It’s a dollar gain, right? Like it’s sort of like an earnings, right? And take, take a multiple on that.
Phong Le [00:29:20]: Right, right.
Phong Le [00:29:20]: And so we’ve projected, right, that this year, right, our bitcoin dollar gain is going to be in the 25 billion dollar range. And if we do that and you take a typical EBITDA multiple or an earnings multiple and you say, hey, what, what’s the company worth if they had to produce $25 billion in Bitcoin dollar gain? Well, perhaps, perhaps you’ll put a 20x multiple on that. But what if, what if that number is growing 50% a year? Should you put a 30x multiple on it? 40x multiple, it’s not unreasonable. And you would value strategy there then somewhere between, right, $500 million or sorry, $500 billion and a trillion dollars and then you can go back and say, well, that versus our net asset value of 60, right. Maybe we should be a 10, you know, 10x NAV or 20x NAV, right? So it’s not Alchemy, it’s. This has been happening since the beginning of corporate finance and equity valuations is there’s gotta be a different way of looking at the enterprise value of a company than just looking at a straight, you know, what is the asset value that it’s worth?
Phong Le [00:30:32]: Right.
Phong Le [00:30:33]: And so that, that’s. I think it’s very reasonable. And then it goes back to the same thing you do with a technology company.
Phong Le [00:30:39]: Right.
Phong Le [00:30:39]: What’s the potential for earnings growth? Do they have a competitive advantage? And do you believe in a management team?
Phong Le [00:30:46]: Right.
Phong Le [00:30:47]: Do you believe in Mike and I.
Phong Le [00:30:48]: Right.
Phong Le [00:30:48]: Do you believe that having 3% of Bitcoin in the world and having more bitcoin on our Treasury 10x more than the next bitcoin treasury company? Do you think that’s a competitive advantage? I sure as heck think it’s a competitive advantage. And so, so then. Yeah, and then you go back to what’s our earnings potential? And that’s our bitcoin. That’s our bitcoin game.
Pierre Rochard [00:31:13]: Do you think there’s a bias of. Well, the tech companies, they produce goods and services. We can wrap our minds around that. That’s where the earnings come from. But a bitcoin treasury company, like strategy, they’re selling a financial product and financing their balance sheet and earning or creating value from doing that. And that’s not okay somehow, that selling financial products is not okay, but selling AI is good?
Phong Le [00:31:46]: Yeah, of course there’s a bias, but the bias is not based on anything other than ignorance.
Phong Le [00:31:50]: Right.
Phong Le [00:31:51]: Like in 1985, Microsoft. Somewhere between 1985 and 1990, Microsoft received a valuation that was 20 to 30 times its first earnings. And, you know, its revenue was growing 2, 300% a year. And at that point in time, all equity analysts only knew how to do a discounted cash flow as a way to value a company. So the entire conversation we just had around the idea of a multiple on revenue and a multiple on earn on earnings, which is today very well understood with tech companies, was a complete innovation.
Phong Le [00:32:29]: Right.
Phong Le [00:32:29]: You know, evaluating equities in 1985. And so go back to 1985. Right. Go back 40 years ago. And the same conversation you and I are having now about how to value bitcoin treasury companies was being had by very smart equity analysts.
Phong Le [00:32:46]: Right.
Phong Le [00:32:47]: On technology companies. And Microsoft was the first technology company that, that they decided to start to value.
Phong Le [00:32:55]: Right.
Phong Le [00:32:55]: Based on a earnings and a revenue multiple. It was really a revenue multiple. And it was considered a complete innovation. It was considered blasphemy in the world of Corporate finance. Nobody liked the idea. They’re like, how can you do that? This makes no sense. The company’s making no money.
Phong Le [00:33:09]: Right.
Phong Le [00:33:09]: Like I have to have a multi revenue. The same conversation we’re having now happened, right? Like it happened 40 years ago in the world of technology valuations. And so is there bias? Absolutely there’s a bias, but this is what, when you blaze new trails, when you pave new roads, people are going to have to come along. Now I think the difference back then was the personal computing movement was happening, the business computing movement was happening. So everybody was very easily able to grasp, look, I’ve got a Commodore 64 and Apple IIe or you know, a P. IBM PC. And I have it in my household now. There’s going to be one in every household.
Phong Le [00:33:54]: I can very quickly jump to the conclusion that Microsoft is growing at 5, 2, 300% a year. We should, they’re not making money. We should go ahead and give them a multiple base on a, on revenue.
Phong Le [00:34:07]: Right.
Phong Le [00:34:07]: Literally in everybody’s home.
Phong Le [00:34:09]: Right.
Phong Le [00:34:10]: PC in everybody’s home. So when the average consumer understands it, then it’s easy to do that. Today, bitcoin is, is harder for people to conceptualize who aren’t in the bitcoin world. Now we have 50 million holders of Bitcoin in the U.S. so those folks can start to conceptualize what bitcoin does for themselves personally. The jump to then, how should corporations, why should corporations hold bitcoin? How should they be hold bitcoin? What is the, what is the value proper valuation for a bitcoin treasury company? That’s a little bit harder of a leap. But people will get there. People will get there.
Phong Le [00:34:45]: And it took about five years for people to get there. In the technology software world in the 1980s, I think people get there in less time now.
Phong Le [00:34:53]: Right.
Phong Le [00:34:54]: And, and you know, year to year. Look, most folks, the people that you and I hang out with, Pierre, understand the valuation methodology. It makes a lot of sense. I think we’ll get there. Yeah.
Pierre Rochard [00:35:08]: I imagine that 40 years ago there were Microsoft bears who suggested that it’s so easy to compete. Right? Anybody can write code. Even if we look at Steve Ballmer himself, he was saying that open source software is a problem because it reduces those moats. And then we saw a change of guard. Satya Nadella comes in. It really embraces open source software. Do you think that there’s a lot of narratives out there that it’s so easy to start a bitcoin treasury company? There’s no moat and that Those narratives don’t hold up ultimately because there are other factors that do create a moat.
Phong Le [00:35:49]: Yeah. If you continue with the Microsoft sort of analogy, what caused Microsoft to go from being a billion dollar company to, to a 10 to $100 billion company was when the enterprise entered the enterprise market, right? And Steve Ballmer is given a lot of credit for the one who cracked open the enterprise market and said not only do you need a PC in every house, you need a PC in front of every employee. And if you have a PC in front of every employee, it’s really office, right? That’s going to be the killer product, right? Word and Excel and PowerPoint, those products. And so going from a very challenging, often consumer market, B2C market, to B2B market was really what unlocked the value of Microsoft. Now let’s take that. And by the way, that’s why we entered the B2B software market because it’s actually much more profitable. It’s recurring revenue churn rates are very low and it’s a great market for us on the software side. Now think about what strategy has done with Bitcoin.
Phong Le [00:36:53]: Right?
Phong Le [00:36:54]: We went from Bitcoin in 2020, really being a retail product, right? Retail investors buying Bitcoin, smart folks at home or wherever they were taking their Covid checks, getting a Robinhood account or getting a Coinbase account or even a PayPal account and buying Bitcoin. Great. What we did is we created a B2B market for Bitcoin. And, and the way we did that was by securitizing Bitcoin in the form of mstr, in the form of convertible notes, in the form of secured notes, and ultimately in the form of strk, STRF and strd.
Phong Le [00:37:34]: Right?
Phong Le [00:37:35]: And so what we’ve done now is we’ve created a market that institutional investors, high net worth individuals can invest in Bitcoin through traditional securities listed on the NASDAQ, right? And so we have uniquely created a B2B Bitcoin market for people who otherwise would not be able to get access to Bitcoin. There are mandates in some of these hedge funds and some of the portfolio managers, or it could be institutions.
Phong Le [00:38:07]: It.
Phong Le [00:38:07]: Could be pension funds, it could be endowments, right? A lot of them have a mandate that says they can’t buy bitcoin, right? Can’t buy any commodity for that matter, and they can’t buy ETFs like an iBit. And so they get access to us as an equity, right? And so we have securitized Bitcoin and we’ve Created a Bitcoin back equity and debt market that gives B2B access to Bitcoin. Just like what Microsoft did in the 1990s. Their big unlock was creating a B2B enterprise software company. The original and arguably still one of the most successful, if not the most successful enterprise software company in the world. We are the most successful enterprise grade bitcoin treasury company in the world. We have a big head start. We create a lot of trust with our shareholders and interestingly, it’s coming full circle.
Phong Le [00:39:13]: Bitcoin was a retail asset, it’s now an institutional asset because we’ve opened that up and now our institutional instruments we’re putting back out in front of retail. Because the fixed income nature of our preferred securities in the perpetual nature is something that’s very attractive to people who want fixed income access.
Phong Le [00:39:37]: Right?
Phong Le [00:39:37]: Think about people who are retirees. How did they get fixed income access today?
Phong Le [00:39:41]: Right?
Phong Le [00:39:42]: Well, we can get them better returns, perpetual returns and over collateralized products. So I think what we’re doing to give institutions access to Bitcoin and the return profile they want and now retail investors access to preferred securities that are backed by Bitcoin. Completely unique innovations and it’s exciting, it’s exciting to see how they’re being received in the market. I’m sure you follow, Pierre, like the, the, the behavior of Strike and Strife and soon, you know, and hopefully at some point Stride looks like unlike any other preferred security out there, right? Like Strike, since its inception of February this year, right. We’re five months in, has traded up 50% and we paid two dividends at 8%. And it has the equity upside of MSTR. It’s like nothing people have ever seen before.
Pierre Rochard [00:40:41]: And I’ve heard critics say, well look, the preferreds market is so small, but with performance like what we’ve seen with your securities, I imagine that market will grow in a, that’s, that’s how capital markets work, is that they start out small and then they perform well and then they attract capital.
Phong Le [00:40:58]: The, the, the preferred market was small because the preferred products were crap. Nobody wanted them. Right? Like it wasn’t, you know, it wasn’t that. There, there, there’s always a desire for long duration high return over collateralized securities, whether that be in the form of a preferred security or otherwise, right? Like someone’s always going to want that. If I told you tomorrow that I’m going to give you 5x over collateralized 10% returns in forever, right. Would you want that? You’d say yeah, right. Because right now people are getting two times over collateralized 5% returns and it’s called within four or five years. And so the fact that we use the preferred market for it is a matter of convenience more than anything because it exists, it’s understood, and it’s a fairly liquid market.
Phong Le [00:42:01]: But yeah, you put a great product out there and people are going to want it.
Pierre Rochard [00:42:08]: Now, a lot of bitcoiners, their reaction to the preferreds is, well, first of all, the end user is saying, bitcoin’s too volatile for me. I think that we can start with that which has been a critique of bitcoin since inception, right? That it’s too volatile and that for somebody who’s young and risk seeking, that does not phase us of saying, yeah, let’s accept that volatility. And then when we hear the criticism, our reaction is very defensive of, well, it’s not bitcoin that’s volatile, it’s the dollar that’s volatile. Try some reverse psychology on them. That seems to not have been particularly effective. And it seems like creating products that do address the underlying concern that person has seems more constructive. How do you view the volatility question for bitcoin in relation to the preferreds?
Phong Le [00:43:10]: I have friends who get into some of our securities and I’m always careful what I say and don’t say with them, but one of them is like, hey, I bought msty. And I’m like, do you know what’s in that? They’re like, no, but I like the return pro. You know, I like that it, that, that it’s, you know, pretty stable. And then I have a friend who bought MSTX and you know, which is, I think it’s three times, you know, levered mstr. And I’m like, so do you know what’s behind that? They’re like, no, not really. But know the return profile is great and I can handle the volatility. What I would say is when you’re buying a security, you have to understand what’s underlying it or you have to at least understand the counterparty risk.
Phong Le [00:43:53]: Right?
Phong Le [00:43:54]: And so if, if I’m, I’m going to somebody, I, I’m saying, hey, you know, you should, you might want to, you might be interested in STRF, right? Strife. And it has 10% returns inter gratuity, it’s perpetual, and it’s senior in the capital stack to everything except the convertible notes. And it is 10x over collateralized. It has a BTC rating of about 10 and the counterparty is MSTR. It’s MicroStrategy right. And do they need to know that it’s backed by bitcoin? Not necessarily, because it’s first backed by MicroStrategy. And we’ve said that the dividends are cumulative. If we ever miss a dividend that they’ll accumulate and you’ll still get the dividend over time.
Phong Le [00:44:47]: And if we miss multiple dividends, we give up board rights. And you’re backed by, not Bitcoin necessarily, but you’re backed by a company that’s been public since 1998. So we have 27 years of experience in the public markets and if you look at our equity performance, it’s the best performing equity in the world since 2020.
Phong Le [00:45:09]: Right.
Phong Le [00:45:09]: That’s what the preferred is.
Phong Le [00:45:11]: Yeah.
Phong Le [00:45:11]: It happens to be backed by bitcoin.
Phong Le [00:45:13]: Right.
Phong Le [00:45:14]: And, and so sometimes bitcoin has a marketing issue because we want to explain, you know, everything that someone should learn in a thousand hours, right. In about 10 minutes. And once you start with that, as your goal is to abbreviate, right. Like a thousand hours into 10 minutes, 1% of 1% of what people need to know to understand Bitcoin, to try to pitch, you know, strf, I think that’s a fool’s errand.
Phong Le [00:45:43]: Right.
Phong Le [00:45:43]: What you need to do when you pitch STRF is you let people know that it’s backed by a company that’s $100 billion, that has 60 billion, $65 billion of assets on its balance sheet. Right. And is issuing about, has issued about a billion dollars, you know, 500, 700, about a billion dollars worth of, worth of STRF. We have $2 billion left in ATM facilities at $3 billion on $65 billion of assets.
Phong Le [00:46:11]: Right.
Phong Le [00:46:12]: And you’re going to get a 10% return. I think that’s pretty compelling.
Phong Le [00:46:16]: Right.
Phong Le [00:46:16]: And do I need to explain to everybody why bitcoin’s volatile and why that’s actually good, you know, and that volatility will go down over time as more and more money gets put into Bitcoin and, and the market cap goes up. Not really.
Phong Le [00:46:29]: Right.
Phong Le [00:46:29]: Like if who, who’s the ideal purchaser of STRF other than major institutions? It’s probably retirees, right? Like a 70 year old individual who’s retired has done reasonably well for themselves and they, they live, they have bills to pay and no income, want a fixed income. Do I really believe I need to fully explain to a 70 year old, I’m not trying to be ageist here, retiree, all the intricacies of bitcoin, a thousand hours worth of study in 10 minutes? Not really. Just explain to them why this is a good security.
Pierre Rochard [00:47:04]: Yeah, that makes a lot of sense. And that all of those cushions are preventing the volatility from hitting strf. And well, just observing the price in the market, it seems like starting at $85, I believe, was where it started. Now it’s trading at a premium over $100. Is that the result, do you think, of the market education, or is there a supply and demand dynamic there?
Phong Le [00:47:37]: I think it’s the market education and it’s the quality of the security.
Phong Le [00:47:41]: Right.
Phong Le [00:47:41]: At a hundred at par. At $100, it’s a 10% return, 10% yield. At $120, it’s an 8.5% yield. Everyone still realizes that with all the qualities I mentioned of strf, it’s still an excellent security. It’s an excellent option.
Phong Le [00:47:59]: Right.
Phong Le [00:47:59]: Like eight and a half is still superior to anything you can get out there with the characteristics of strf. And so I think it’s just pricing up to what the market believes it’s actually worth.
Phong Le [00:48:12]: Right.
Phong Le [00:48:12]: And as Bitcoin goes up in price, we further over collateralize, the BTC rating on STRF goes up, and so the quality of it, of the quality of STRF as, as a security goes up, and so the price goes up. And so you could see a point where, let’s say not 65 billion, but we have 130 billion on our balance sheet. You know, if Bitcoin were to double, the BTC rating of STRF goes up, you know, from 10 to 20, and the quality of that security just in terms of the collateral doubles.
Phong Le [00:48:48]: Right?
Phong Le [00:48:48]: The collateral coverage doubles. And so STRF should continue to price up because somebody might be willing to Pay to get 5% or 4% yield on something of that quality. And not to mention that our equity value goes up too, which either even further strengthens strf. So I think the market, I, I don’t think it’s a supply demand issue because we have an ATM open, right? And so we’ll, we’ll fill the supply or so we’ll, we’ll create supply to fill the demand. I think people are just pricing the security is at what it’s worth. And look, we launched at 85. It was the second security that we launched and, and, and, or second preferred that we launched. We were testing the market, right? I, I think the reality is when we launched it, it was worth over 100, right? But it’s early in the preferred market.
Phong Le [00:49:36]: And you saw that with STRK, we launched at 80 with STRF, we launched at 85. With STRD, we launched at 85. I think if we were to launch additional perpetual preferreds, we could likely launch them at higher, you know, prices closer to par because people are starting to understand what we’re doing. We paid dividends on them now, you know, twice on strk, twice on, you know, once on strf, not yet, but we will on strd. And so there’s also, I think some people, believe it or not, we’re sitting there saying, are they really going to pay the dividend? You know, what we did was we raised about $50 million via an ATM more to buy Bitcoin, but $50 million to pay the dividend last week and know a couple weeks ago and, and people were like, okay, they’re doing what they said they would do, right? So back to, do you believe in the management team? Are they going to. We said we’re going to, we’re going to raise money via an ATM because it’s much less dilutive than just raising ATM to buy Bitcoin by itself or raise money via an ATM to pay the dividends of 8 and 10% on STRK and STRF. And we did it right. And, and so there’s, there’s a little bit of a, it’s priced up at that point in time, right after we pay the dividend, people, okay, they’re actually doing what they said they would do.
Pierre Rochard [00:50:55]: Now it seems like there’s some who believe that to pay the dividend it has to either come out of operating cash flow or from selling Bitcoin and that paying the dividend with new investor money doesn’t pass the smell test for some of the critics out there. What, what’s your reaction to that from a corporate finance perspective?
Phong Le [00:51:17]: Yeah, I guess I don’t quite get it. I mean, and I can understand this goes back to the traditional finance point of view of non bitcoin backed companies, non Bitcoin treasury companies, which is why we created additional KPIs like Bitcoin yield and bitcoin gain. And that’s why bitcoin yield and bitcoin gain are such important, important KPIs for this world. It’s, it’s basically, are you in, are you increasing bitcoin per share and you’re, are you doing it with velocity, right? Are you growing Bitcoin per share, the rate in which you increase? And you know, I think people have become reasonably comfortable with the idea of issuing equity at a premium to net asset value to buy bitcoin, right? Like I think our shareholders, I think bitcoin treasury company shareholders and I think in general are getting comfortable with that within the bitcoin world.
Phong Le [00:52:14]: Right.
Phong Le [00:52:14]: Like outside the bitcoin world. I think some folks still don’t quite understand why that would make sense or why there’s the dislocation which we talked about earlier in bitcoin and M Nav.
Phong Le [00:52:25]: Right.
Phong Le [00:52:26]: And so I think in the bitcoin world people understand why it’s accretive to issue equity and a premium to net asset value to buy bitcoin.
Phong Le [00:52:37]: Right.
Phong Le [00:52:37]: And so, and, and by the way, when we started doing that in 2021.
Pierre Rochard [00:52:41]: There’S a little con, a lot of.
Phong Le [00:52:43]: Consternation and people started seeing it.
Phong Le [00:52:44]: Right.
Phong Le [00:52:45]: So now the idea, the, the new idea is if you can issue a preferred which is non dilutive.
Phong Le [00:52:55]: Right, Right.
Phong Le [00:52:56]: It’s non dilutive to common equity holders and you’re able to issue a non dilutive instrument and pay 8 to 10% yield on it. And therefore the only part that’s slightly dilutive is issuing equity to pay the 8 to 10%. And that’s better than issuing equity.
Phong Le [00:53:17]: Right.
Phong Le [00:53:17]: And that’s why we came up with additional KPIs like Bitcoin Torque.
Phong Le [00:53:21]: Right.
Phong Le [00:53:22]: But even bitcoin yield, if you just calculate the bitcoin yield on a preferred. And, and, and, and it sort of makes sense conceptually, right. Like you could issue equity at a 2x premium, right. And you’re capturing that 50% more.
Phong Le [00:53:40]: Right.
Phong Le [00:53:41]: Or you could issue a preferred at 2x premium and pay 10% per annum. And so you’re capturing that 90%.
Phong Le [00:53:50]: Right.
Phong Le [00:53:51]: So you’re just basically any bitcoin we buy and any incremental value creation on the bitcoin. Bitcoin going up is more creative, more accretive in a preferred, even by using the atm.
Phong Le [00:54:05]: Right.
Phong Le [00:54:05]: And so it just mathematically works out. You can put in a little spreadsheet. You’ve seen some of the KPIs we put out, we talked about ad nauseam, I think in our Q3 earnings call. Actually I think it was our Q1 earnings call, but we talked about it in detail. Mathematically it just makes sense. Why, why you’d want what, why it’s better to issue equity to pay a dividend on a non diluted preferred than it is to issue equity on an atm. Now that that’s on a micro basis, on a macro basis, they’re both important instruments. You want to have a reasonable amount of debt and a reasonable amount of equity and they work together.
Phong Le [00:54:46]: Right.
Phong Le [00:54:46]: So you know, we have a lot of, we have capacity for debt. We’re talking about 20, 30% with something that’s strd, maybe even more. But you can’t just go issue debt forever without having equity to collateralize it. Both are important instruments. It’s not like a one or the other.
Pierre Rochard [00:55:11]: Right. If we look at the math, it’s really that we expect Bitcoin’s growth rate into the future to, on an average basis to be greater than the cost of capital, the cost of the, the perpetual preferreds for, for, for the company. And you know, the critic would, would come up and say, well look, there’s no guarantee that Bitcoin’s value is going to increase. So you know what, what gives confidence in Bitcoin’s long term growth rate would be kind of my question.
Phong Le [00:55:47]: Yeah.
Phong Le [00:55:48]: I’ll start with what’s really unique about the preferreds because of their non dilutive nature is if we were to go raise, and we have done with STRK and STRF and strd, we raise capital and we buy bitcoin the same day. Let’s say we issue a billion dollars of strd, which we did, and we raise a billion dollars of capital and we buy a billion dollars of bitcoin.
Phong Le [00:56:15]: Right.
Phong Le [00:56:15]: And we were to pay every single year $100 million roughly. But as STRD increases in price less than that on a relative basis, the price of bitcoin doesn’t have to go up.
Phong Le [00:56:30]: Right.
Phong Le [00:56:31]: We’ve already captured the billion dollars of bitcoin value, bitcoin gain, day one.
Phong Le [00:56:36]: Right.
Phong Le [00:56:36]: And so you don’t need bitcoin to grow 20, 30% a year. In fact, if bitcoin price declines, we still already accelerate creative value to the shareholder.
Phong Le [00:56:45]: Right.
Phong Le [00:56:46]: And so I’ll start with that. And that’s, that’s, I don’t know that everyone quite understands that if you capture the gain up front, anything that happens with bitcoin price in the future is just further. It’s, it’s, it’s gravy on top but not required.
Phong Le [00:57:01]: Right.
Phong Le [00:57:01]: And in fact if bitcoin declines, and we talked about this in one of our earnings calls, you still have accreted value to the shareholder with an instrument like strd, which is one of the beautiful things with it. So let’s start with that as the base case. But of course if bitcoin price goes up, you’re creating even more value the shareholder. Right? We, that’s what happened between the end of Q1, right. March 31, 2025 and, and June 30, 2025 is we showed basically a $14 billion increase in our bitcoin value.
Phong Le [00:57:34]: Right.
Phong Le [00:57:34]: And even maybe more interestingly is we went from $40 billion of Bitcoin, our balance sheet, to $60 billion of Bitcoin, our balance she one quarter.
Phong Le [00:57:43]: Right.
Phong Le [00:57:44]: So that’s a company increasing its balance sheet $14 billion or $20 billion and increasing our income statement $14 billion. Companies don’t do that.
Phong Le [00:57:54]: Right.
Phong Le [00:57:54]: That puts us in our top 10% of companies out there. So yes, bitcoin going up, not top 10%, top 10 of companies in the U.S. right. So yes, bitcoin prices going up is a good thing, but not necessarily needed for a prefer our preferred instruments to work.
Phong Le [00:58:12]: Right.
Phong Le [00:58:13]: Because we’re capturing the value up front. Now why do we think bitcoin price is going to go up? I mean a lot of folks have talked about this over time, but there’s clearly a supply demand equation there. We see what’s happening initially with retail adoption and talked about that. Then corporate adoption, then nation state adoption, now bitcoin treasury company adoption. I think one of the most more interesting announcements in the last weak was Figma who you know, we’re a customer of, they have great, you know, software for, for creative, you know, design and development. People love Figma, you know, puts out their, in their S.1 is they’re filing for an IPO that lo and behold, they have about 5% of their balance sheet in bitcoin.
Phong Le [00:58:57]: Right.
Phong Le [00:58:57]: And here’s a private company not trying to be a bitcoin treasury company, right. But realizes the thing that we realized in 2020 that Bitcoin on your balance sheet is better than cash in your balance sheet. You can be upset, people are upset. Like why only 5%? They’re not trying to be a bitcoin treasury company. They’re just trying to make smart capital allocation decisions. And they decided and these guys are brilliant. If you ever use their software. Our marketers love their software.
Phong Le [00:59:25]: It’s so much better than using everything else out there. I won’t name their competitors. That’s the part that hasn’t even started yet.
Phong Le [00:59:34]: Right?
Phong Le [00:59:35]: Like corporations who are not bitcoin treasury companies deciding that they should put a portion of their balance sheet into bitcoin.
Phong Le [00:59:42]: Right?
Phong Le [00:59:42]: And you know, I hear all the time, well when is Apple going to flip, you know, their $150 billion to Bitcoin? And you know, Mike said it, you said, others said it, probably no time in, probably not in our lifetimes. Maybe, maybe the next 20 years they’ll realize it, but we don’t need them to do that. We need them to do what Figma did and put 5%, put $10 billion, you know, seven and a half, $10 billion on the balance sheet of bitcoin. And if they do so, they would be the third largest holder of bitcoin in the world. And so I guess it’s a long way of saying we’re still early. We’re seeing the wave of bitcoin treasury companies now. I think what you’re going to see in the next year to two years is the wave of traditional companies putting bitcoin on their balance sheet. Not as like what strategy has done or Meta Planet’s done or Semler has done, but just as a way to diversify their balance sheets in general.
Pierre Rochard [01:00:43]: And looking in the short term. Do you factor into the decision making and strategy, the macro outlook, or is it pretty agnostic of. Well, you know, you don’t have a view on whether rates are going to be cut this year or not.
Phong Le [01:00:58]: We buy as much bitcoin as we think is responsible by raising as much money as we think is responsible. And I don’t think we try to time the market and rate cuts and macroeconomics etc. I think frankly that’s tough. You know, like when is the Fed going to cut its rates? There’s like 50 banks and 50 macro economists and they get it right 50% of the time and wrong 50% of the time. I might as well flip a coin. That’s a tough, that’s tough to do is to try to predict what’s happening and then what happens.
Phong Le [01:01:38]: Right?
Phong Le [01:01:39]: Like there’s some major war or pandemic or some other asteroid hits the earth. I don’t want any of these things to happen. Their rate cuts change and your timing changes and everything changes. The nice thing is no matter what happens, bitcoin will do well.
Pierre Rochard [01:02:01]: Right. All right. Well, I’ve got one last question for you which I think a lot of people have been discussing recently is index inclusion, which is that with the rise of passive investing, lots of passive money flows go into indices. How important do you think index inclusion is to strategies, capital markets activities going forward?
Phong Le [01:02:25]: I think it’s important. I don’t think it’s necessary for us to see positive movement and success in our equity. But I think it’s, it’s good for, it’s, it’s good for the market.
Phong Le [01:02:39]: Right?
Phong Le [01:02:39]: It’s good for bitcoin. I’ll start with that.
Phong Le [01:02:41]: Right.
Phong Le [01:02:41]: Having Coinbase included in the s and P500 was great, right? Having strategy included in NASDAQ 100 was great for bitcoin, right? Great for, for P. The market awareness of bitcoin, frankly, I think it’s good for investors, right? A lot of the, the NASDAQ 100S and P500 attract a lot of passive investment and passive capital. And so we know that the returns on assets that are tied to bitcoin outperform the market, outperform the MAG7, outperform the S&P 500, the NASDAQ 100. So I think it’s good for investors and, you know, I think it’s good for the S and P and it’s good for the nasdaq, right? It’s good marketing, right? Like we want to get rated by the S and P. And the folks there know that, that they understand that these, these are pools of capital that they can access and pools of customers they can access that they otherwise wouldn’t that have interest in bitcoin, Right? And they realize that people have an interest in bitcoin tend to be, you know, intelligent technologists with lots of money.
Phong Le [01:03:49]: Right?
Phong Le [01:03:49]: Why wouldn’t S&P1 access to that? Ultimately, they’re a business. They’re a $250 billion market cap business. And they realized that inclusion would be good for them and rating would be good for them. So I think it’s good. You know, it’s good for bitcoin, it’s good for the markets, it’s good for individuals, good for institutions, and it’s good for the agencies. And then it’s just a matter of when.
Phong Le [01:04:10]: Right?
Phong Le [01:04:11]: I think the fact that they included Coinbase is very bullish and kudos to those guys for doing that. And I think it’d be great when we get included.
Pierre Rochard [01:04:22]: All right, well, thank you so much, Phong, for coming on the show. I really enjoyed our conversation and thank you to you and Mr. Saylor and the whole strategy team for really breaking the ice in capital markets and bringing bitcoin exposure to so many investors who otherwise wouldn’t have access to it. So thank you again for coming on and we look forward to having you back on in the future.
Phong Le [01:04:51]: Yeah, it’s been a terrific ride. It’s been a lot of fun. And so thank you for the conversation and for Bitcoin magazine and all the work that you’re doing.