00:00Let's rewind a little bit to the summer of 2020. It was the depths of the pandemic. Michael Saylor came out and started buying Bitcoin basically because he was worried about the debasement of the dollar.
00:11He also said at the time that the company's board viewed the company's cash reserves as a, quote, melting ice cube. Fast forward five years now, strategy has set up a dollar reserve.
00:21So my first question is, why buy ice cubes? Well, you know, we have long term strategy, which is to buy and hold Bitcoin.
00:31It's our primary treasury reserve asset. And we have short term dollar obligations that are created because of the dividends we have on our preferred notes.
00:39And we want to maintain and create more Bitcoin, Bitcoin yield, Bitcoin per share.
00:44And we really don't want to have to utilize that Bitcoin at times when our equity value goes below 1XM.
00:51So we said, well, if we want to really create a bulletproof balance sheet, let's have the global reserve digital asset, which is Bitcoin for the long term, and the global reserve digital currency for the short term.
01:06And so that's why I created a U.S. dollar reserve to pay down our dividends in the short term in the case that we need it.
01:11And we thought that just makes our balance sheet even stronger than it has been in the past.
01:16Well, we certainly understand needing to pay back the debt. That certainly makes sense.
01:19But on the dividend, why are you so committed to paying this dividend?
01:24Would you ever consider suspending it? Companies do suspend dividends from time to time.
01:29Yeah, companies do suspend the dividend, but it creates fear, uncertainty, doubt in our preferred shareholders, which will impact our convertible shareholders, which will impact our equity shareholders.
01:40So I think preserving the payment of the dividend, even if our board has the rights to suspend it, it's the right thing for the short term for the next one, two, three years.
01:49And it's important. It's also important for the Bitcoin asset class.
01:53And we realize we play a role bigger than just strategy in the Bitcoin world.
01:58So would you say investors should think you will never suspend that dividend?
02:01Never say never, Jim. But yeah, our objective is to pay the dividend into perpetuity.
02:09I hear what you're saying. And, you know, you just you describe that cascade, the daisy chain here when it comes to all the different equity and debt holders.
02:16I am curious. Now, you said last week that selling Bitcoin would be a, quote, last resort.
02:21How should we think about how you would prioritize dividend payments versus tapping that last resort of potentially selling some of your Bitcoin holdings?
02:30Yeah, you know, what we did in the last couple of weeks was to address, I think, some of the some of some of the misconceptions around strategy.
02:38And I do think some of the price action in Bitcoin could have been related to the to the concerns around our company.
02:48Here's misconception. Number one, we're highly levered. We have 12 percent leverage.
02:53If you add in our preferreds is 27 percent leverage.
02:57A typical company that's public in the U.S. says 60 to 80 percent leverage.
03:01A highly levered company is two to three X, 200 to 300 X leverage.
03:06We're not even close to those levels. That was misconception.
03:10Misconception number two is that we're not able to pay down our dividends using our balance sheet.
03:16And I get the concern around our ability to issue equity.
03:20Look, in eight and a half days, we issued one point four four billion dollars of equity.
03:24In eight and a half days, we issued a net equity to cover 21 months.
03:29And then on the back end of that, we have 74 years of dividends in our Bitcoin.
03:33Bitcoin. So we've addressed sort of this this this this this sort of concern around us selling Bitcoin.
03:40Now, if we are able to grow our cash dividends, that cash reserve to call it two or three years of dividends,
03:47really talking about the end of 2028, January 29, where we might have to consider, do we have to sell Bitcoin?
03:55We would if we had to to pay our dividends. But I don't think we're I don't really realistically, I don't think we're going to be in that situation now that we built up the cash reserve.
04:03Well, Fong, you talk about growing the cash reserves that you've built out.
04:07Is this something that you plan to maintain forever in perpetuity or is this just something to get you through this period where the broader market is under pressure?
04:16I think we'll we'll try to maintain a two to three year cash reserve equal to a cash reserve equal to two to three years of our dividends, which will grow as we issue more preferreds.
04:27And it is something that I think we'll do do, you know, for the next five, 10 years and we'll reassess it.
04:33The end now, how do you get that back up? How do you get that higher?
04:37You know, we have the same thing happen. You know, folks, some folks have been in our securities for the last year.
04:46Some have been in the last five years. Some have been in for 30 years.
04:48Those have been in it for five years. I've seen this happen before. Right.
04:52And during crypto winter in 2022, our MNAP compressed to similar levels.
04:57And everyone thought that was the end of strategy. Everybody thought it was the end of Bitcoin.
05:01And you've seen it expanded to three X. I think there's a big misconception about what we are as a company.
05:08Right. People think that we're a closed ended fund. We're an ETF.
05:11And therefore, we should trade at one X MNAP. The MSCI thinks we're a closed ended fund and we're an ETF.
05:17Therefore, we shouldn't be on potentially shouldn't be, you know, part of their indices.
05:22We're not. We're an operating company. We're an operating company, a fully integrated, vertically integrated Bitcoin operating company.
05:29The only thing we don't do is we don't mind Bitcoin, but we we buy Bitcoin.
05:34We issue securities. We create products and we create operating income.
05:40And we have employees. We have staff. We have finance people. We have attorneys.
05:45We have engineers like we're a fully operational Bitcoin treasury company.
05:50And so in that case, we should trade at some premium equal to the ability for us to grow our treasury and our operating income over time.
06:00Could one of what? Go ahead, Katie.
06:01I was just going to ask, you know, you mentioned there's this misconception about what strategy is, what the company actually is.
06:07And it's interesting to hear you say that, because you think about what MSCI is asking right now.
06:12In mid-October, it said basically that digital asset treasury companies maybe more closely resemble investment funds rather than traditional companies.
06:23Investment funds, of course, aren't allowed in their indices.
06:25And they proposed actually excluding DATs from their indices.
06:30So to that point, have you engaged with MSCI on that? What strategy actually is?
06:38We're beginning the education process and a lot of our supporters and others in the industry have, too.
06:44And I don't think this is really a topic for significant debate, either from, you know, an optics or a legal perspective.
06:51We're an operating company, right?
06:53If you want a fund, go buy IBIT, which is a great option.
06:57Go buy underlying Bitcoin.
06:58That's not what we purport to be, not what we look like, how we operate at all.
07:04And so I think there's an education process.
07:06I also don't think it's a great idea to pick and choose winners and losers, right?
07:10There are many other operating companies that capitalize on assets like oil or gold or airplanes or hotels.
07:18And to tell an industry that your asset doesn't count, right, that if you have more than 50% of your assets in a particular asset, Bitcoin, versus more than 50% of your assets in hotels, it just seems like someone's picking winners and losers out there.
07:34And that's not really what indices should be doing.
07:37Fong, to switch gears just a little bit in terms of other types of businesses that strategy could be involved with, lending of Bitcoin.
07:44It reached a record high in the third quarter.
07:46Why hasn't strategy gotten involved?
07:49Yeah, we run a very simple business, right?
07:53I've been doing this for 10 years now, five years with Bitcoin.
07:57We buy and we hold Bitcoin.
07:58I do think over the course of the next year, and I'm quite excited about it, traditional finance entering the Bitcoin world, companies have made announcements, Citibank, Morgan Stanley, and others.
08:10You know, big, real banks are going to offer custody service, lending service, and staking and otherwise.
08:18I think when they enter that space and we have different counterparties, it's something we would consider and I think we'd be enthusiastic about.
08:26Well, to that point, Fong, I mean, have you held any preliminary talks with lending platforms or other potential partners to handle those logistics?
08:35We've had a lot of constructive discussions.
08:38They've primarily been of the, hey, we're thinking about offering Bitcoin services, custody, exchange, lending, et cetera.
08:45You're the largest corporate holder of Bitcoin in the world.
08:48What's your advice to us?
08:49And can we work together?
08:50And to the extent they're large, you know, U.S.-based banks that have a lot of history and a strong balance sheet, we're very excited to partner with them.
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