Conversation with Michael Saylor: Most People Don't Understand, Strategy's Holding Cost Has No Substantive Meaning

Michael Saylor, founder of MicroStrategy, recently appeared on a nearly two-hour YouTube podcast hosted by Bitcoin educator Natalie Brunell. The discussion covered topics such as why Bitcoin hasn't reached new highs, whether price suppression is real, quantum computing, and MicroStrategy's cost basis for its holdings. PANews has compiled the highlights of the conversation. Details are below.

Major Drawdowns and Troughs Are Inevitable in Any Tech Investment

Natalie Brunell: It's great to see you. You are one of the few Bitcoin bulls. I think there are many bulls, they're just waiting for an opportunity. With Bitcoin's price down now, market sentiment is quite pessimistic, and critics argue that Bitcoin's thesis is collapsing. What's your take?

Michael Saylor: It's only been a little over four months (137 days) since the last all-time high, with a drawdown of about 45%. But in reality, there is no case of a successful tech investment that didn't experience a 45% drop and a trough period. Large tech companies have been the most dazzling success stories. Yet in every case, you can find examples where traditional markets undervalued them. Take Apple, for instance. Between 2012 and 2013, Apple stock also plummeted 45%, its P/E ratio dropped to 10, and the market viewed it as a weak cash cow with no technology and no future. It took Apple a full seven years (2013-2020) to recover to a P/E of 30. Similarly, Amazon was heavily shorted by traditional investors for a decade.

The current bearish sentiment from traditional markets towards Bitcoin is just like the underestimation of Apple and Amazon back then. Bitcoin has actually achieved global consensus now. The US Cabinet, the Federal Reserve, Middle Eastern sovereign wealth funds, BlackRock—they are all telling you that Bitcoin is global digital capital.

Why Hasn't Bitcoin Reached the $126,000 High Predicted by Some?

Natalie Brunell: What would you say to those who are disappointed with the bull market, feeling it failed to break through $126,000? What do you think are the reasons we haven't reached the price targets many expected?

Michael Saylor: I think the market is evolving. The entire ecosystem is maturing. The derivatives market is migrating from offshore to onshore and becoming more mature. As regulated US market derivatives grow, Bitcoin's volatility and upside potential will be somewhat reduced, thereby suppressing its upward momentum. At the same time, the downside will also be reduced. What might have been an 80% drop and 80% volatility could now be only 40% or 50% drops and 50% volatility. Therefore, as the market matures, Bitcoin's volatility is being suppressed in both directions, up and down.

Meanwhile, the banking industry's acceptance of Bitcoin, while progressing steadily, is much slower than what those with short attention spans expect. It takes banks four, five, or even six years to accept a completely new asset class. Yet people expect Bitcoin to be recognized within four months.

But if it takes banks four years to start accepting Bitcoin, issuing credit, recognizing, processing, trading, and custodying it, that means Bitcoin's market cap at the peak could be $2 trillion, with perhaps $1.8 trillion held by retail investors or offshore investors. However, they can't get low-interest loans from traditional banks (like JPMorgan) using it as collateral like Apple stock. This forces people to turn to shadow banks or crypto exchanges, leading to extremely high interest rates or facing rehypothecation risk—where your Bitcoin is collateralized and then lent out by institutions to be shorted three times or more. This immature credit system and rehypothecation mechanism create massive selling pressure, suppressing Bitcoin's price.

Expectations for Long-Term Returns and Views on Volatility

Natalie Brunell: You always say volatility is where the vitality lies. So, what are your expectations for the next 10 to 15 years?

Michael Saylor: Looking ahead 21 years, Bitcoin's expected ARR is about 29%, accompanied by wave-like surges and drawdowns. Many people panic sell due to weekend news like the Middle East situation, but this also means Bitcoin is the only asset traded 24/7 globally. Bitcoin has the highest volatility because it has the widest utility. Bitcoin represents the global capital market. Some people are using this asset to do things you can't do, things you can but won't do, things you don't want to do. That's what causes the volatility, and it also creates a gravitational or magnetic field, attracting all the world's energy—financial, political, digital—into this space, all because of Bitcoin's utility. If you are a long-term investor with a four-year investment horizon, short-term wild volatility simply doesn't matter. You just let those crazy traders who like to add 50x leverage on weekends provide the liquidity.

Why Haven't Many Retail Investors Participated in This Bull Run?

Natalie Brunell: Bitcoin is still primarily held by individuals. But I just had Lynn Alden on, and she said retail didn't really participate in the last bull run. Why do you think that is? What will it take for the average retail investor to access the best savings technology?

Michael Saylor: I think the early retail investors are already in. Those retail investors who are passionate and committed to digital capital, especially Bitcoin, had ten years to buy. If you were looking for a non-sovereign digital store of value asset sometime between 2010 and 2015, you would have found Bitcoin in some successive wave and bought as much as you could.

The next batch of retail investors don't want an asset with 40% annual returns but huge volatility risk. They want an asset with 10% or 0% annual returns and tax-deferred status. That's why I've been working on this for the past year. Can we take Bitcoin, an asset with 45% volatility, and reduce its volatility by 80% to 90%? Then provide retail with four to five times over-collateralization, create double-digit yields, and do it in a way that qualifies as a return of capital. That way you get tax-deferred or tax-advantaged treatment. You get the performance of a stock, the principal protection of a credit or bond, a fixed yield, and monthly cash dividends.

If you want to reinvest, just reinvest the dividends into the principal, and it becomes a growing, tax-deferred asset with an 11% annual yield. When you need funds for your child's tuition or taxes, you simply withdraw or sell. To achieve this, you can't withstand the volatility and drawdowns of stocks. You can't withstand the volatility and drawdowns of Bitcoin. You need some kind of credit instrument, an issuer willing to provide over-collateralization. And you need to actively manage that credit instrument to maintain price stability. So in my view, STRC or digital credit is how we attract the next wave of retail investors into this space.

Is Quantum Computing an Existential Threat to Bitcoin?

Natalie Brunell: I want to talk about a very important topic: quantum computing. There's a famous saying in crypto: Don't trust, verify. But many people lack the expertise to verify whether quantum computing is a real existential threat. You recently announced a strategy regarding quantum computing and future development, aimed at ensuring Bitcoin can withstand quantum attacks. Can you explain why you think the market hasn't priced in the risk of quantum computing?

Michael Saylor: The general consensus in cybersecurity is that the quantum computing threat is at least 10 years away, and it's not even certain if it will become a real threat. If a quantum threat does materialize by then, the operating software of the entire global banking system, the global internet, consumer devices, all crypto networks, the Bitcoin network, all digital systems, AI networks, and all networks we rely on today—whether government, financial, consumer, or defense-related—will be upgraded. All stakeholders, whether Google, Microsoft, Apple, Coinbase, BlackRock, MicroStrategy, the US government, the Russian government, the EU government, JPMorgan, or Morgan Stanley, they all have to face the same problem.

All our digital systems would be at risk if a credible quantum threat truly existed. When it does happen, it's expected that some software or hardware, or both, will respond accordingly. The crypto community is actually the most mature community in the cybersecurity space. I believe the crypto security community will be the first to sense this threat and respond. We have announced a Bitcoin security initiative, and Coinbase clearly has its own security plans. In fact, a lot of the funding I directed early on to the Bitcoin Core development team was actually for Bitcoin security projects, like the MIT Bitcoin Security Project. So, I think we large Bitcoin holders or users, and industry insiders, know cybersecurity is crucial. But I don't believe quantum computing is the biggest security threat Bitcoin faces currently, nor has it ever been.

People joke that they've discussed this issue every two years for the past 15 years. Actually, I think there are many factors people discuss that could pose security threats, at least a hundred. For example, is there a bandwidth issue? Is there a nation-state attack vector? Is it functional enough? Is it too functional? Is development too fast? Is development not fast enough? Is it decentralized enough, etc. These debates will continue, and quantum technology is just one of them.

The reason we're discussing quantum computing now is that none of the other risks from ten years ago materialized. All the various "Bitcoin doomsday" scenarios over the past 15 years: the block size debate (insufficient bandwidth), boiling the oceans with energy consumption, mining bans, etc. None of these destroyed Bitcoin; the free market solved them all. Ultimately, this alarmist rhetoric gets amplified economically and politically because it benefits politicians, entrepreneurs, and those hungry for money or power.

What Is the Strongest Argument Against Bitcoin Currently?

Natalie Brunell: I have a very interesting question for you. What do you think is the most powerful argument against Bitcoin currently?

Michael Saylor: The most reasonable reason people reject Bitcoin right now is simply that it hasn't been around long enough. Bitcoin has only existed for 17 years. Just like 17 years after the invention of the airplane, most people still wouldn't dare to fly. It takes decades for a disruptive technology to go from invention to a consumer product everyone uses.

Does MicroStrategy's Bitcoin Cost Basis Matter?

Natalie Brunell: I'm curious, you seem completely unconcerned about cost. Many people are trying to find the price bottom, studying technical charts, but you seem indifferent. Can you explain that? Especially for those who think the price might drop further, why not buy at a lower cost?

Michael Saylor: You can think of us as dollar-cost averaging. The key point: we are using equity; we are not buying with borrowed money.

When we buy Bitcoin, if we raise funds by selling stock (equity) to buy it, then whether we buy at $100,000 or $200,000, we are essentially performing a permanent, risk-free asset swap. We are swapping equity for Bitcoin.

When should you swap equity for Bitcoin? Whenever it is value-accretive. If Bitcoin is up 10% and our stock is up 25%, then swapping equity for Bitcoin is profitable.

So, if after buying, Bitcoin subsequently drops 20%, would you regret it? Of course not. Because if you didn't do it, you wouldn't own that Bitcoin at all. Moreover, when Bitcoin drops 10% and your equity value drops 20%, you actually reduced the risk of your equity by swapping into Bitcoin. If you back a stock with a stable asset, the stock's risk is reduced, especially if you swap at a premium.

So, the core issue isn't the price, but whether this swap is profitable for shareholders.

If you are swapping common stock for Bitcoin, then Bitcoin's future price movement isn't that critical because there's no ongoing liability from this operation; you don't need to repay anything for the next thousand years.

Of course, if you are using digital credit (like preferred stock) to acquire Bitcoin, the calculation is more complex. For example, if I pay a 10% dividend on preferred stock, and Bitcoin only yields 5% over the next hundred years, then for that hundred years, this swap would be dilutive to common shareholders.

If you acquire Bitcoin through debt, like a 10-year corporate bond costing 5%, you need Bitcoin to appreciate more than 5% over 10 years to avoid dilution.

If you buy with a margin loan, say you have $100 million collateral and use 10x leverage to buy $1 billion worth of Bitcoin, that's extremely risky. Because that loan's term might be just one minute. If Bitcoin drops 10%, you get liquidated and lose the $100 million.

So the real difference is the term. If you borrow a one-minute flash loan to buy, the purchase price relative to the spot price is extremely important. If you borrow for ten years, the importance lies ten years later. If you borrow permanently (like through equity, never needing to repay principal)? Then the importance of price becomes blurred.

What the vast majority of retail investors don't understand is: the only credit they can access is margin credit, which is one-minute credit. If you're wrong, you get liquidated over the weekend. The credit we use, even if we're wrong for 30 years, it doesn't matter.

I can put it this way: If we pay 10% interest and Bitcoin only returns 8%, even if we're wrong for 30 years, due to some second-order, third-order, or even fourth-order dynamics, it might still be a good deal for the common stock. But the fact is, if we have a 10 to 30-year time horizon to prove ourselves right, then our average purchase price has no substantive impact whatsoever.