Discover how Strategy transformed into a Bitcoin powerhouse, holding $72B in BTC. Expert Jeff Walton explains their strategy, value, and future in simple terms.
Timestamped Overview
[00:00:00 - 00:20:00] Strategy’s Shift to Bitcoin
- Strategy was a struggling software company in 2020 with extra cash, so they bought Bitcoin to protect against money printing and inflation.
- They now hold over 600,000 Bitcoins worth $72 billion, way more than any other company, creating a huge advantage no one can easily catch.
- Buying MSTR stock is like owning a share in a company that grows by using Bitcoin as collateral to borrow money cheaply and buy more Bitcoin.
- They issue special bonds (like loans) at 0% interest because lenders get a chance to convert to stock if Bitcoin rises, acting like a bet on future growth.
- This setup lets the company raise billions easily, turning Bitcoin’s value into more buying power without selling any.
[00:20:00 - 00:40:00] Bitcoin-Backed Products and Growth
- MSTR creates new financial products like preferred stocks (STRF, STRC, etc.) that pay steady returns, backed by their Bitcoin holdings, appealing to retirees or safe investors.
- These products are like safe savings accounts with high yields (8-10%), protected by Bitcoin’s value, and they help MSTR raise money to buy more Bitcoin.
- The company uses “ATMs” (quick stock sales) to get cash for Bitcoin buys, diluting shares a bit but boosting long-term value as Bitcoin grows.
- Volatility in Bitcoin price is turned into an advantage: it creates excitement, deeper trading markets, and options for investors to bet on ups and downs.
- Compared to big tech like Apple or Microsoft, MSTR’s strategy could make it grow faster by stacking Bitcoin, which rises 50% yearly on average.
[00:40:00 - 01:00:00] Risks, Comparisons, and Future Outlook
- MSTR is like a super-strong bank with low debt (16% leverage), making it easy to borrow; it’s safer than many traditional companies with physical risks like fires or crashes.
- Bear cases include Bitcoin failing (very unlikely) or key person risk if CEO Michael Saylor leaves, but the Bitcoin stays with the company.
- Big companies like Meta or Amazon don’t need Bitcoin yet because they’re successful, but they might if treasuries underperform; MSTR electrifies its stock this way.
- Options and volatility mean more trading activity, like funds (MSTY) that pay huge dividends by betting on price swings.
- Ethereum and other cryptos are seen as less secure than Bitcoin due to decentralization issues; MSTR sticks to Bitcoin for its fixed supply and strength.
[01:00:00 - 01:26:05] Government Role and Final Thoughts
- No margin calls on MSTR’s debt since it’s not tied directly to Bitcoin; even if prices drop, they can hold or buy more.
- Proof of reserves isn’t shown to avoid risks like theft or market panic from wallet moves, but Bitcoin’s ledger is public.
- US government might buy Bitcoin for power, like gold reserves; MSTR could move abroad if needed due to Bitcoin’s portability.
- Bitcoin could hit $500K soon and $20T long-term, making MSTR a top company; Saylor won’t stop buying as it’s the base of global finance.
- Personal stories: Host and guest went all-in on MSTR options at lows, turning big gains; it’s a life-changing bet on Bitcoin’s rise.
Notable Quotes
Strategy's Moat
They've got more than 11X Bitcoin held on their balance sheet than any other company in the world. So that's a literal order of magnitude larger.
Jeff Walton @punterjeff
Bitcoin as Collateral
Bitcoin itself is collateral. It can effectively be pledged as collateral, but what strategy is doing is they're monetizing the balance sheet as collateral.
Jeff Walton @punterjeff
Why Buy MSTR Over Bitcoin
They're fundamentally different products. You're buying an equity for some expectation of that equity to continue to arise. It's effectively a infinite duration call option on the assets of the company.
Jeff Walton @punterjeff
Volatility is Vitality
Volatility is vitality. They're effectively monetizing the volatility. They're selling the volatility of the asset.
Jeff Walton @punterjeff
Future of Finance
This is like redeveloping the world of finance. The total addressable market is the entire balance sheet of the world. This is a $900 trillion total addressable market.
Jeff Walton @punterjeff
Bitcoin's Long-Term View
If you look at Bitcoin on a four-year compound, four-year rolling periods, the 99th percentile four-year compound annual growth rate is like 22%.
Jeff Walton @punterjeff
Saylor's Buying Strategy
It's never going to stop buying. They are going to issue $3 trillion of Bitcoin backed credit over the next 20 years.
Jeff Walton @punterjeff