Michael Saylor: BTC collateral bonds yield 10% annually, the $90 trillion retirement fund battlefield is ready.

*Original video: *Michael Saylor

Compiled by｜Odaily Planet Daily (@OdailyChina)

Translator｜CryptoLeo（@LeoAndCrypto）

The corporate layout for Bitcoin reserves is continuing to heat up. Recently, multiple companies have accelerated their Bitcoin reserve strategies, with typical cases including:

• Nasdaq-listed company Profusa: announced the signing of an equity credit agreement with Ascent Partners Fund LLC, planning to raise up to $100 million through the issuance of common stock, with all net proceeds to be used for purchasing Bitcoin.
• H100 Group: Raised an additional approximately $54 million, which will be used to seek investment opportunities under its Bitcoin reserve strategy framework.

In addition to the above cases, many traditional enterprises are also actively raising funds to build Bitcoin strategic reserves. At the same time, the potential "battleground" of the pension market is also beginning to emerge.

On July 18, the Financial Times reported that the Trump administration is considering opening up channels for cryptocurrency, gold, and private equity investments to the U.S. retirement market, which manages $90 trillion in assets. It is reported that Trump plans to sign an executive order allowing 401(k) retirement plans to invest in alternative assets beyond traditional stocks and bonds. If this policy is implemented, publicly traded companies focused on Bitcoin reserves or holding large amounts of Bitcoin may become popular investment targets in the pension market, potentially surpassing the attractiveness of existing methods such as spot ETFs.

In this trend, Strategy (formerly known as MicroStrategy) is moving towards a broader stage with its business model. Previously, Strategy announced the "BTC Credits Model" for assessing the equity value priced in Bitcoin, and founder Michael Saylor elaborated on the application and significance of this model in a recent interview. Odaily Planet Daily has compiled the key content as follows:

What is the next business model for Bitcoin reserve companies? Why is this model so simple yet powerful? How can focusing on execution yield maximum results?

Saylor's first paragraph is just the same old story (he always says this at the beginning of interviews) - the story of a dentist buying Bitcoin to establish a company and Metaplanet. The author has omitted this part; for details, please refer to the previously translated Saylor interview articles: "BTC Conference | Michael Saylor's Speech: 21 Keys Unlocking Bitcoin Billionaire Wealth" and "Exclusive Interview with Michael Saylor: 62 Billion USD is just the beginning, Strategy Bitcoin reserves will increase exponentially";

I once said in Las Vegas that corporations are the most effective wealth creation machines we have designed to date. If we view the spread of Bitcoin as a monetary virus or a super idea, when Bitcoin comes into contact with individuals, the spreader of the virus is a corporation. When corporations undergo capital restructuring through Bitcoin, the real opportunity for any publicly traded company is to sell equity or issue credit.

All equity capital in the world is valued based on future expectations of statutory cash flows. For example, every company in Nigeria is valued based on expectations of cash flows in Nigeria. Brazilian companies are based on cash flows in Brazil. Companies in the United States rely on cash flows. But we know that the value of cash is declining.

Facing bullish, heterogeneous, and uncertain risks, such as credit risk or equity risk, and in terms of credit, the value of all creditors is based on future expectations of cash flow. I don't have money to borrow from you, I guarantee I will pay you back, and I plan to get this money in 10 years. Therefore, the existing market is based on future expectations of business operations. We are evaluating real-world assets, we are assessing future cash flows, and we are evaluating equity or opportunities.

The Bitcoin treasury company has the most elegant business model. I have some Bitcoin (worth 10 million USD). I started issuing stock based on my ability to acquire more Bitcoin, followed by credit, fixed credit, convertible credit, and other credits, which I then used to purchase Bitcoin. For example, Metaplanet reserves Bitcoin through frequent stock issuances, resulting in an exponential increase in its market capitalization, while Strategy announced a $21 billion ATM plan last year to purchase Bitcoin. If we achieve this within three years, it will become the most successful stock plan in the history of capital markets.

I just want to say that a company is essentially a gathering of someone who understands finance, someone who understands law, and a leader—an CEO, a CFO, and a Chief Legal Officer come together to form a Bitcoin treasury company. If you put Bitcoin into it, then your company can grow as quickly as issuing securities and buying Bitcoin.

In other words, this is also an investment cycle that is 1000 times faster and more uniform than physical, real estate, or business cycles. The main point of conflict is the issuance of securities, which requires compliance and poses a regulatory challenge. If you are Japanese, the situation is different from that of the French. In the UK, you need a Bitcoin treasury company that understands UK law, and you also need one each in France, Norway, Sweden, and Germany.

Moreover, these companies have local advantages. If you are a Japanese company, it is much easier to issue securities in Japan than for an American company to issue securities there. I know this because I called Simon (Metaplanet CEO) and said, you might be able to issue preferred shares in the Japanese market earlier than I can, so go ahead and do it.

So I think this is the simplicity of the business model. I just want to issue billions of dollars in securities and then buy billions of dollars in Bitcoin.** I want to transform the equity and credit capital markets from the cash-based physical cash of the 20th century to Bitcoin (based on cryptocurrency) in the 21st century.**

About the BTC Credit Model

We have established a set of indicators to assess the equity value priced in Bitcoin. Since we are using the Bitcoin standard, simple US dollar accounting methods are not applicable, as US dollar accounting is designed for companies that generate revenue through operations. Therefore, we created the BTC yield, which is essentially the appreciation and percentage of each Bitcoin.

The idea is that if you can achieve a 20% BTC return, you can multiply it by a factor, such as 10, so you can obtain a 200% premium relative to the Net Asset Value (NAV). To calculate what the premium relative to the NAV is, it's a very simple method that depends on whether the company generates a 220% return, or a 10% or 200% return. For example, bonds that pay 200% interest after tax are worth much more than those that pay 5% interest after tax, therefore, BTC returns or USD returns are an equity metric.

The dollar yield of Bitcoin is essentially equivalent yield. A Bitcoin company is based on Bitcoin, so if you generate 100 million dollars in Bitcoin dollar yield, it is equivalent to 100 million dollars in after-tax income, which is directly accounted for in shareholders' equity, bypassing the profit and loss statement (PnL). However, a company that generates billions of dollars in BTC yield is the same as a company that generates a billion dollars in yield. You can use PDE for this (Note from Odaily: PDE stands for partial differential equations, which can model the price dynamics of financial derivatives and are widely used in the field of options pricing), and then say, I should set the value of PDE to 10, 20, 30, or any other number multiplied by that yield.

This helped me understand the enterprise value of this business and the ability of the enterprise to execute this business. The current question is, how to generate BTC-denominated income or BTC U-denominated income? There are several ways to do this:

The first way is to manipulate cash flow by investing all operating profits into Bitcoin, which will yield corresponding returns, involving a cash flow of 100 million dollars. I use this money to buy Bitcoin. In this way, I achieve a profit of 100 million dollars in Bitcoin without diluting any shareholder equity, but it requires an operational company capable of generating significant cash flow to do this;

The second method is that if you sell equity at a price higher than the net asset value (M times NAV), for example, selling 100 million dollars of equity at 2 times NAV, you will obtain a profit of 50 million dollars in BTC. Of course, if you sell equity at an amount lower than NAV, you are effectively diluting shareholder stakes and will receive a negative return rate;

I believe that the BTC return and yield are important because they provide investors with a simple, transparent, and immediate way to understand whether the management team has engaged in value-added transactions or dilution transactions on any given date. As long as a publicly listed company is willing to dilute shareholder equity, they can almost raise any amount of funds. The real trick is that these must be conducted in a value-added manner. So these two indicators are important, but we have already solved this issue.

For example, if my cash flow has run out and the BTC price rises, what would you do? If M is 10 or 5 or 8, this is not a complicated question. When M is 10, you earn about 90% of the price difference, so , selling 1 billion dollars of equity can generate 900 million dollars in profit, which is a risk-free instant gain. Essentially, this is not complicated.

The question is, what happens if M drops to 1 or below? If you have no cash flow and M drops to 1, but you have a billion dollars in Bitcoin on your balance sheet, what will you do? If you are a closed-end trust fund like Grayscale, or if you are an ETF (especially a closed-end trust fund), you will be powerless. Therefore, your trading price will be below M times the NAV.

And this is exactly what people want to avoid. However, the special power that the operating company possesses is the issuance of credit instruments. Therefore, if the discounted trading price or the trading price falls to the normal market price, then the real way to get out of the predicament is to start selling credit instruments, which are collateralized by the company's assets, leading to the concept of the BTC credit model.

If I have 1 billion dollars in Bitcoin, I could sell 100 million dollars in bonds or 100 million dollars in preferred stocks, with a dividend yield of 10%. This equates to a 10 times collateral. Therefore, the rating of Bitcoin is 10, and now you can calculate the risk, which lies in the fact that your 1 billion dollars in Bitcoin could shrink to less than 100 million dollars by the time the instruments mature. You can calculate it using statistical methods like the Black-Scholes Model (Note: The Black-Scholes model is a mathematical model in the financial field, widely used for pricing options and other derivative financial instruments), inputting volatility, BTC rating, to derive the risk, and then calculate the credit spread, which we refer to as BTC credit.

BTC credit represents the theoretical credit spread you need to offset risk (relative to the risk-free rate), and of course, the credit spread itself. If the BTC rating is 2, then the credit spread will be higher than the case of a rating of 10; if the predicted volatility of Bitcoin is 50, then the credit spread must be higher than the case when Bitcoin's volatility is 30.

Therefore, if you input your return rate or annualized yield for Bitcoin into the BTC credit model, fill in the expected volatility of Bitcoin, and then input the price of Bitcoin, you will obtain the BTC rating, and the risk will pop up, as will the BTC credit model. What we are doing is to start issuing credit instruments for Bitcoin, and our idea is to sell securities to a market that is orthogonal (completely unrelated) to the stock market and the Bitcoin market, or to an unrelated market.

In the US dollar yield market for retirees. Many people do not know what Bitcoin is, do not know what Strategy is, and are completely unaware of our business model. However, if we offer them preferred shares with a 10% dividend face value, providing them with a 10% dividend yield and qualified income distribution, a qualified type of tool, if your annual income is below $48,000, you can purchase this tool in the US and receive a 10% tax-free return.

Many people want 10%. The current issue is the risk; if it is over 5x or 10x collateral, then it doesn’t seem that dangerous. If you are bullish on Bitcoin, my idea is simple: to provide someone with high fixed returns at very low risk. I believe collateral is a killer application for Bitcoin. Strategically, what we have done is create a convertible preferred stock called 'Strike' (ticker: STRK), which allows you to gain a 40% upside on the stock and an 8% coupon dividend.

We then created a convertible preferred stock called "Strife" (STRF), offering a 10% yield. These two stocks are the two most successful preferred stocks of the century. They are the most liquid and highest performing, rising 25% when other preferred stocks trade down by 5%.

They are the most successful because any security purely constrained by Bitcoin is always better. These equities are more valuable, convertible bonds are more valuable, and these preferred stocks are more valuable because you are connecting to an asset that rises 55% a year. We put it into those tools, and they will be very successful, going public and achieving a rise in stock price. The current idea is that we can market it to people.

We can sell people a 40% increase in stocks, while Bitcoin might rise by 80%, with downside protection and guaranteed dividends. So we call it "Strike". It's like a Bitcoin bonus, similar to receiving a living allowance, where you have enough funds for protection, and you can keep it forever on the vehicle.

This is for those who are curious about Bitcoin but afraid of the "rollercoaster", such as the "turbocharged" version of Bitcoin stock MSTR. But there are also many people who do not want to touch Bitcoin; they only want dollar returns, euro returns, or yen returns. But how many people in this world have such thoughts? The fact is that for all retirees, no one does not want to achieve 8% or 10% dividend returns with extremely low risk.

This is why the size of the credit market and fixed income market is larger than that of the stock market. What we do is use Bitcoin to generate this kind of return. If Bitcoin is rising and has already increased by 55%, then you can almost cut out any proportion of the return from 50%, as long as it is below 55%, to distribute to investors. Moreover, I believe the long-term highest prediction for Bitcoin is 30%, but I think the annual return on Bitcoin will always remain between 20% and 60%.

As long as the return rate of Bitcoin reaches 20% or above, you can sell these tools that provide a return rate of 6% -10% at any time and exchange them for a return rate of 20% -40%. This allows equity investors to capture the price difference, thus the performance of equities will outperform Bitcoin. As for convertible bonds, this is our financial engineering.

We are restructuring the company, with the goal of achieving actual performance that exceeds Bitcoin by 50% to 100%. If you want to invest directly in Bitcoin, you can buy BTC on IBIT and hold it. However, through our stocks, you will receive all the gains and losses of Bitcoin, as well as all the volatility. The design of the STRK convertible bond aims to provide you with 80% to 100% of Bitcoin's returns, but only bear a 10% downside risk. So we hope you can achieve an 80% upside return, bear a 10% downside risk, and receive guaranteed dividends. This is suitable for those who want to enjoy returns while avoiding risk, who do not want roller-coaster-like volatility.** This is almost designed to compete with IBIT; if I give you an 80% to 100% upside return, 100% downside risk, and no dividends, what will happen in the end (IBIT)?**

I don't know if we will fully reach 100%, but the more equity we utilize, the greater the likelihood that the convertible equity will perform similarly to Bitcoin. Therefore, our goal is to ensure that the performance of convertible equity is comparable to that of Bitcoin in the long term, while providing principal protection, liquidation priority, and guaranteed dividend streams. That's it. It seems there is a demand in the market for people who want to enjoy the upside without bearing the downside risk, right? This is financial engineering; I bring you the upside, you incur no losses, and while you wait to get rich, I will also give you dividends. In my view, smart financial engineers would agree with my perspective, but many people have not fully understood it yet. They have not fully understood it because among the last 10 preferred shares issued in the past four years, there has never been a permanent convertible preferred share issued.

The top three of the 10 preferred stocks are all ours, and they are all perpetual, while the other seven are not. People usually do not sell perpetual dividends or perpetual call options because they do not have the right to use permanent income; they cannot invest for 100 years. If you have confidence in Bitcoin and believe it will always outperform the S&P 500, then you can sell a dividend that is always below the S&P index. Then you can also sell convertible preferred stocks that perform better than the market, which is a good thing. So we designed such a product, and the idea about fixed income is, do we want to give someone an indefinite and perpetual dividend income? Traditional thinking suggests that it is reasonable to design a call option.

If interest rates decline, you can redeem it. This is a method favored by traditional bankers; you set a call option, and if interest rates drop by 200 basis points, you exercise that option and refinance it.

But this is how you think: if you sell 144 A in the trading market (Odaily Note: this refers to SEC's Rule 144 A, which is a regulation that allows qualified institutional buyers to trade unregistered private securities in the over-the-counter market, these types of securities usually have lower liquidity but offer flexible trading, suitable for institutional investors) for a period of three years in exchange for trading in the over-the-counter market, but these are all incomplete tools from the 20th century, then the current mindset is: I inject STRF into the market, I don't care how much I see in the first week, I created this tool to maximize fundraising over the next 20 years.

So we want to design a tool that if Powell lowers the interest rate by 200 basis points, then when the STRF trading price rises to 150, the yield will drop to 6%. When the yield drops to 6%, we can sell it instead of buying it back.

The whole idea is that when interest rates go down, I would sell billions or even hundreds of billions of these financial instruments at an ATM for prices of 150 or 200, and those "smart people" would think, I need to buy it back, refinance, and then go back to do a 144 A deal with the investment bank, paying huge amounts to refinance it, so STRF would become both liquid and flawed, and I don’t want to issue a series of flawed and illiquid securities.

By the way, what I'm describing is the entire preferred stock market, all preferred stocks are garbage in my view. You buy these garbage instruments with only $400,000 in daily trading volume, a yield of 6%, a credit rating equivalent to a medium-sized regional bank, and a mortgage portfolio from a place you have never encountered and do not understand. Yet you have to accept this illiquid OTC product with minimal trading and a yield of 6%, instead of products with higher yields, strong liquidity, and that everyone can buy.

Of course, the problem lies in all corporate credit, all preferred stock, which are based on the century-old idea of 20th-century credit models. Our conclusion is that the killer application of Bitcoin treasury companies is the issuance of Bitcoin credit, that is, Bitcoin-backed equity, which is the first step.

But the long-term sustainable business is issuing BTC-backed credit instruments, starting with the issuance of billions, tens of billions, and hundreds of billions of dollars. You are not competing with other Bitcoin treasury companies; you are competing with all the junk bonds issued by companies with no funding and all corporate bonds issued by investment-grade companies. Moreover, our collateral is more than that of the best investment companies issuing corporate bonds, and our collateral is better.

So, we are competing in this market with corporate bonds, investment-grade bonds, junk bonds, private credit, and preferred stocks. Our idea is to sell products that have better credit, lower risk, higher quality collateral, higher returns, and greater liquidity.

Our ultimate goal is that, instead of having a thousand preferred stocks with each circulating share worth 500 million dollars, which are illiquid and worthless junk stocks, it is better to have only one preferred stock with circulating shares worth 50 billion dollars and a daily trading volume of 2 billion dollars. This would yield higher returns than anything you have ever heard of, supported by Bitcoin. To achieve this, you only need to adopt the indicators I just described, which can be replicated by every Bitcoin treasury company. We sincerely invite all enterprises to give it a try.

I encourage companies to do this, because just as 20 publicly traded Bitcoin treasury companies have legitimized Bitcoin and Bitcoin stocks, 20 companies issuing Bitcoin-backed credit instruments will also legitimize Bitcoin credit, which will accelerate the digital transformation of all credit markets and trigger capital to transform the flawed credit instruments of the 20th century into digital credit instruments of the 21st century, and S&P, Moody's, and Fitch will begin to rate them.

Everyone's understanding of credit risk will evolve. Retirees earn a 200-point return while their risk decreases by at least an order of magnitude. If the price of Bitcoin rises to $1 million/$2 million, the value of collateral will also increase, and the market as a whole will evolve accordingly.

What I am expressing is that the digital transformation of capital markets driven by these blockchain technology companies will quickly put an end to the current popular methods of capital markets.

Answering Journalists' Questions

This part is the content of Saylor's response to the reporter's question,

Journalists express concerns about the centralization of Bitcoin mining pools.

The network is decentralizing, and I'm not worried about mining pool centralization. I believe Bitcoin mining is decentralizing globally. The level of decentralization today is higher than during the time when China banned mining, when China accounted for half of the mining volume. At that time, mining was somewhat centralized, but then mining migrated to the United States, and over the past year or two, mining has moved from the United States to all over the world. Ultimately, I think mining doesn't have that much of an impact.

The control of computing power lies in the hands of economic participants, political participants, Bitcoin miners, and technology providers. Compared to five years ago, the consensus among all parties has increased. Moreover, I believe that policy-driven mining will eventually be replaced by economic and technological participants. In my view, Bitcoin is actually stronger than ever before. I am not worried about the current situation, and I believe it will continue to remain good in the future.

The reporter asked questions about the exchange's KYC review.

We need to clarify one point: you are not cooperating with an exchange or a company, but rather you are in a world of Bitcoin. The exchange is just a medium, and you can completely bypass it. The way people handle cryptocurrency exchanges is dynamically evolving. As the digital asset environment becomes more flexible, we will see an explosive growth of innovation happening at both national and individual levels. No matter what the current situation is today, it might not be the same five years from now. There will be more freedom and privacy, and they will develop very good technologies that may spread to other parts of the world. Other countries will also make mistakes in KYC and scrutiny, rather than in privacy.

KYC is not a Bitcoin issue, but a matter of nation-states and citizenship. If you find yourself in a particularly unfriendly country that deprives you of your privacy or economic freedom, then the answer is, of course, you either use technology from elsewhere, such as VPNs and firewalls, or you obtain citizenship from another country.

Bitcoin is global, allowing participants from every country to engage and develop Layer 2, 3, and 4 technologies as quickly as possible around the world. Some actions taken in countries where you do not reside may be illegal or culturally unacceptable in your own country. As a Bitcoin holder, you might benefit from someone else’s actions elsewhere; for instance, if you own Bitcoin in Cuba or North Korea, it can be profitable, but such actions are illegal in certain places.

Similarly, a lot of technology will flow from the United States to countries that do not allow it. Additionally, there will be technology flowing into Europe from other countries that may not be permitted. I believe this dynamic balance does not have a standard answer, and the best answer would be protocols like the Bitcoin Lightning Network, which can provide the most sovereign-resistant and robust means of acquiring and circulating currency assets.

So all of this is gradual, everything is developing, don't be too idealistic. The fact is that Bitcoin has surged to a market value of 2.3 trillion dollars. We are now in a very good position, the best and smartest technicians from around the world are starting to spend more funds on programming and innovation, as well as on BTC Layer 2 and 3, to solve all existing problems. Bitcoin is a movement, a technology, and a protocol that offers us a hopeful path to solutions, better than any other protocol I currently know of.