MicroStrategy Q1 2026 Earnings Call - Stretch Surges as Digital Credit Engine Accelerates

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Hello everyone, and good evening. I’m CJ, Head of Investor Relations at Strategy. It’s an honor to kick off Strategy’s first quarter 2026 earnings webinar. I’ll be your moderator today. We will start the call with a 60-minute presentation, starting with Andrew Kang, followed by Phong Le, and then Michael Saylor. This will be followed by a 30-minute interactive Q&A session with 4 Wall Street equity analysts and 4 Bitcoin analysts. Before we proceed, I will read the safe harbor statement. Some of the information we provide in the presentation regarding our future expectations, plans, and prospects may constitute forward-looking statements.

Actual results may differ materially from these forward-looking statements due to various important factors, including fluctuations in the price of Bitcoin and the risk factors discussed under the caption "Risk Factors" in Strategy’s annual report on Form 10-K filed with the SEC on February 19th, 2026, and the risks described in other filings that Strategy may make with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today. With that, I will turn the call over to Andrew Kang, the CFO of Strategy.

Andrew Kang, Chief Financial Officer, MicroStrategy: Thank you, CJ. First off, I’d like to officially welcome Chaitanya Jain to his new role as Strategy’s Head of Investor Relations. I also wanna take a moment to thank Shirish Jajodia, our Corporate Treasurer, for helping establish and lead our IR function for the last 20 quarters. As our team grows, I know we will strive to continue to provide transparent and relevant information to all of our shareholders and stakeholders. Welcome, CJ. Now turning to the quarter’s results. We are off to a very strong start in 2026. We now hold 818,334 Bitcoin, which is about 3.9% of all Bitcoin that will ever exist. That keeps Strategy in a clear leadership position as the largest corporate Bitcoin holder in the world.

Our market cap is now $62 billion, Stretch, STRC, has grown to $8.5 billion outstanding, showing strong market fit and investor demand and filling a gap that has existed for investors seeking stable price and attractive yields backed by Bitcoin. So far in 2026, we’ve raised about $11.7 billion of capital, giving us more flexibility to keep our Bitcoin position and creating long-term value for our shareholders. Turning to Q1 financial results. We reported an operating loss of $14.5 billion and a net loss of $12.8 billion. As you would expect, these results were primarily driven by the decline in Bitcoin’s fair value during the quarter. As these are largely non-cash market driven impacts tied to Bitcoin’s quarter-end price, our underlying strategy remains unchanged.

Raise capital responsibly, buy and hold Bitcoin over the long term, and grow Bitcoin per share for our shareholders. On slide 8 here, Bitcoin per share increased from 181,030 sats per share in May 2025 to 213,371 sats per share in May 2026, which is roughly an 18% year-over-year increase. Year to date, we have delivered 9.4% BTC yield compared to 22.8% for the full year 2025, showing acceleration year to date compared to the same point last year. We’ve also generated 63,410 BTC gain so far in 2026, compared with 101,873 BTC for all of 2025.

Having already achieved about 62% of last year’s full BTC Gain in just the first four months of the year. In dollar terms, that represents approximately $5 billion of BTC $ Gain year to date versus $8.9 billion for the full year 2025. Since 2020, Bitcoin per share has grown to 213,371 sats per share as of May 2026, which is nearly a 4x increase since the beginning, delivering positive BTC Yield every year across multiple market environments. In 2025, we delivered 22.8% BTC Yield. So far in 2026, we’ve already added another 9.4%. We remain focused on consistently increasing Bitcoin per share over time through our disciplined treasury operations and long-term conviction in Bitcoin.

Here on slide 11, our track record remains constant, having acquired additional Bitcoin in every quarter since 2020 across 108 separate acquisitions. As of May 4, we held over 818,000 Bitcoin for a total value of approximately $64 billion and a total acquisition cost of about $62 billion. Our average purchase price is approximately $76,000 per Bitcoin, and our holdings now represent, as I mentioned, 3.9% of all the Bitcoin that will ever exist. Turning here to the balance sheet, digital assets ended the quarter at $51.6 billion compared to $58.9 billion at year-end. Having acquired 89,599 Bitcoin in Q1, the change reflects the lower price of Bitcoin at the end of the quarter versus at the end of last year.

Cash and cash equivalents were $2.2 billion, which largely reflects our USD cash reserve. Regarding taxes, the change this quarter was driven by the quarter end mark-to-market movement in Bitcoin. As Bitcoin moved from an unrealized gain at the year-end to an unrealized loss at the end of Q1, our deferred tax liability of $1.9 billion shifted to a deferred tax asset. A full valuation allowance against that tax asset brought the net balance sheet tax positions to zero, which also resulted in a non-cash tax benefit on the income statement, which partially offset the pre-tax loss for Q1. Long-term debt remained unchanged at $8.2 billion, while preferred equity increased to $9 billion, driven by strong Stretch issuance in the quarter. Overall, the balance sheet remains highly liquid and extremely well-capitalized.

At the end of Q4, the market value of our Bitcoin was approximately $59 billion, which is based on a Bitcoin price of about $87,500. During Q1, we recognized that unrealized fair value loss of about $14 and a half billion. Despite Bitcoin price volatility, we continued to execute, having purchased an additional 89,599 Bitcoin in the quarter for approximately $7.3 billion at an average price of about $80,900. We ended the quarter with a digital asset value of $51.6 billion based on a Q1 ending Bitcoin price of about $67,800. In Q2 so far, we are illustrating an unrealized fair value gain of approximately $8.3 billion as of May 1st.

We purchased an additional 56,235 Bitcoin quarter to date for approximately $4.1 billion at an average price of roughly $73,400 for that period. Those purchases benefiting from the increase in Bitcoin price adds approximately $300 million dollars of positive fair value. As of May 1st, our Bitcoin held a market value of approximately $64 billion based on a Bitcoin price of $78,350. Billion-dollar Bitcoin reserve, implying an MNAV of 1.27, which has expanded since the beginning of the year. We have $13.5 billion of preferred equity, representing 34% amplification and net leverage of 9% made up of the $8.2 billion of convertible debt. Strategy is building around Bitcoin as digital capital. We have approximately $58 billion of equity.

You can see here large traditional banks operate with liabilities to asset ratios above 90%. Our ratio is a mere 9%. That gives us a very different foundation made up of a very large equity base, substantial Bitcoin reserves, and structurally lower balance sheet risk. We can issue Bitcoin-backed credit products to support investors with strong collateral and continue accumulating Bitcoin over the long term from a position of strength and durability. We have approximately $6 billion of net debt, which represents just 9.3% net leverage against our Bitcoin reserve, which is effectively a 10.8 times BTC rating. Our strategy is based on a disciplined balance sheet construction, modest leverage, strong collateral, and permanent capital to grow our Bitcoin over time.

Our net leverage is lower than the average of the investment-grade S&P universe and lower than every major industry sector across most S&P 500 companies. At the current Bitcoin price, our Bitcoin reserve is valued at approximately $64 billion compared to $6 billion of net debt, which translates to the 10.8 times BTC rating. The stress case on the right shows that even after a 91% Bitcoin price decline to roughly about $7,300 per Bitcoin, our Bitcoin reserve would still be sufficient to cover our net debt at a 1 times BTC rating. Our USD cash reserve has remained consistent at $2.25 billion.

While the years of coverage has shifted down with the growth of Stretch this year, we believe the stable cash along with our Bitcoin reserves and ability to raise additional capital continues to provide us with the flexibility to continue supporting our dividends for the foreseeable future. On the next slide, the $64 billion of BTC reserves adds an additional 43 years of coverage. Another way to look at this, at today’s reserve size, Bitcoin would need to grow by only 2.3% annually for the reserve growth to cover our current obligations. If Bitcoin grows at or faster than the break-even ARR here, the BTC reserve alone can support our dividends without requiring any additional capital. Before I turn it over to Phong for his remarks, I’d like to highlight the amendment to Stretch that we have asked for your vote on.

We are proposing to move Stretch dividends from monthly to semi-monthly, with payments twice per month on the 15th and the last day of the month, while keeping the economics unchanged. Our goal is to make Stretch work better for investors by reducing reinvestment lag, improving liquidity, dampening the impact of a single monthly record date, and helping Stretch trade more efficiently around the target price. Today, Stretch pays out 12 times per year with one payment at month-end. Under the proposed amendment, Stretch would pay 24 times a year with payments around the 15th and the last day of the month. Again, total dividend economics are unchanged, and payments would simply be about half the size and paid twice as often.

Under the proposed change, there would be 2 record dates, 1 on the 15th and 1 at the end of the month, with the related payment dates made on the next scheduled record date. If the vote is approved, the first record date would be June 30th and the first payment date would be July 15th. The mechanics are pretty straightforward. Same dividend economics, more frequent payments, and a clear transition timeline. We believe this change creates the highest frequency credit instrument in the world and makes a great product twice as better, and we look forward to your support. With that, I will turn it over to Phong.

Phong Le, Chief Investment Officer, MicroStrategy: Thank you, Andrew. Thank you everyone for joining us on this evening’s earnings call. I have a few updates to make on our capital markets, on our equity, on our digital credit, and then I’ll conclude with updates on our capital market strategy overall. You know, if you had asked us at the beginning of the year, what was our target for the year in terms of capital markets raises, we would have said it was uncertain, and it really depended on the success of the Stretch product. I think 4 months in, we can say that Stretch has been more successful than we had expected at the beginning of the year. One representation of that is the amount of capital that we’ve been able to raise for the company and ultimately for Bitcoin.

You’ll see here year-to-date 2026, we’ve raised $11.7 billion, as Andrew had mentioned, notably about half from issuances of our common equity, half from issuances of our preferred, primarily Stretch. No longer are we issuing convertible debt to raise capital. How does that compare to the rest of the U.S. capital markets, equity capital markets? You’ll see last year we represented about 8% of the equity capital markets in the full year of 2025. We were the largest issuer, we are again this year the largest issuer in the equity capital markets, about 10% total, 6% of common equity, and 60% notably of preferred equity. We’re doing what we said we would do and what we were trying to do, which was to shift our ATM more towards credit.

You see this even pronounced as we look at each month of the year 2026. We started in January with 20% of our equity issuances using digital credit, 88% using MSTR, and we’ve largely flipped that number in April, with 17 using MSTR and 83% using digital credit, which of course is also less dilutive to our overall shareholders. Research analysts have been consistently supportive. As we look to exit the Bitcoin bear cycle that we’re in, the average price target of all of the equity analysts covering Strategy for Bitcoin is $138,000, which is about a 70% increase. The average MSTR price target is about $323, which is an 80% increase from current levels. Let’s talk about digital equity and MSTR overall. We show this chart every quarter. You can find it on our website, strategy.com.

This is our annualized asset performance since we adopted the Bitcoin standard. August 10th of 2020 is when we look back to. We’ve outperformed Bitcoin by about 50%. Bitcoin has outperformed the Mag Seven by about 50%, and the Mag Seven has outperformed the S&P 500. Our ultimate objective is for our common to outperform Bitcoin by accreting Bitcoin per share, and based on this chart, we’ve continued to deliver on that performance. As Andrew mentioned, our Bitcoin per share is also accreting. That’s our business objective ultimately, and we’re at 9.4% Bitcoin per share increase so far this year. You’ll see that’s also accelerated in the last month, right?

We started off a little bit slow in January and February, 0.4% and 0.1% increase in the month of March with 3%, and really increased, doubled in the month of April with 6%. Last quarter on this call, we said our objective is to double Bitcoin per share in seven years. Doubling Bitcoin per share in seven years implies about a 10% annualized BTC yield. As I mentioned, so far this year, we’ve increased 9.4%, our BTC yield. We’re well onto our annual target, and we’ve been happy with the success of Stretch so far this year. Ultimately, MSTR continues to be one of the most widely held equities around the world and the most widely held Bitcoin proxy in the world.

We’re able to reach 1,400 institutions, 927,000 retail accounts, 1,300 ETFs and funds, over 100 million beneficiaries that share nearly 4% of the Bitcoin in the world. I don’t think about this as concentrated among one company, a set of leaders, but really among 100 million people that we’re sharing Bitcoin with per share around the world. Let’s talk about digital credit, our favorite topic so far this year. Look, the idea of preferred capital and preferred credit is not a new idea. In fact, the Industrial Revolution was built on the railroads, which was built on analog credit through preferred capital. At that point in time, during the late 1800s and early 1900s, 20%-40% of the capital structure around the world was preferred capital.

What happened in the mid-1900s and the early 2000s is the rise of liquid debt markets, increased regulation, pushing preferred capital into what I would call niche use. Now, as people are waking up to preferred capital and digital credit especially, we’re seeing a reemergence. My analogy here is where Preferred capital helped build the railroads, which helped drive the Industrial Revolution. Now digital credit will help drive the digital railroads or the digital rails. It will drive the digital revolution, including the AI revolution. We’re excited about bringing this back to the forefront of the world. If you look at an overview here, we have five preferreds. We’ve mostly been focused on Stretch so far this year. I think there’s an opportunity for the remaining preferreds to start to perform as Bitcoin starts to perform.

Stretch is clearly the tip of the arrow as far as digital credit, and so that’s what I’ll talk about primarily. We’re up to 11.5% dividend yield. Notably, we’ve kept this flat for the last two months, right? We’ve increased the dividend yield from 9% to 11.5%, and now we’re flat for the last two months because what we’ve seen is the volatility has started to decrease. The price has started to remain stable, and we’ve seen an increase in Sharpe ratio, 2.53. The notional value is up to $8.5 billion, and we’re trading $375 million a day. I’ll share how that compares to other preferred equities and also common equities in general.

The first thing I’ll note is the rapid growth of Stretch, right? In just 9 months, we’ve raised $8.5 billion of capital. We had a running start with $2.8 billion. It slowed down, and it’s really accelerated over the course of the last couple months. Comparatively, this is one of the most successful financial instruments ever created in terms of capital inflows. It’s second only to IBIT. Compared to other products, it has seen faster growth in terms of capital inflows than famous products like the iPhone or Google Ads. We’re very proud of the acceleration of the product, and it means that we built something that is resonating with people in the U.S. and people around the world. Stretch is by far the largest tradable preferred in the world, right?

We’re nearly 2 times the size of Wells Fargo’s preferred. You’ll see here what’s interesting is almost all of these other preferreds save us and another one are bank preferreds. This has gone from being an industrialized product that’s building the Industrial Revolution to a niche financial product, and we’re excited to bring it back to being a major product in the world. The liquidity of Stretch, this is the average 30-day average trading volume is 25x the second-largest preferred. Where Wells Fargo is about half our size, it’s trading 1/25 of what we’re trading at, $15 million versus $375 million.

What that means is with that liquidity, the turnover of the next best preferred, we’re at 4.4%, 10x of what Wells Fargo is and some of these other products like Bank of America products. We think we really found a new product category, digital credit, based on an old product category, preferred capital, and we’re excited about where this is going. Interestingly, as we pointed out before, Stretch is performing, not just, you know, as one would expect in a bull market but it’s performing in a Bitcoin bear market. While Bitcoin has gone down 37% since the beginning of October, now it’s starting to rise again, we’re seeing Stretch trade essentially near par and paying dividends that are increasing in a monthly and monthly.

We’ve increased the dividend, as I mentioned, from 9% to 11.5% and kept it steady at 11.5% for two months, now going on three months, while Bitcoin has been decreasing. With that, we’ve also seen the ATM velocity of Stretch has accelerated, and the ATM velocity is really the net inflows into the product. Right? This is the demand of the product overall. You’ll see notably in April, we had a week where we raised $1 billion, and then the subsequent week we raised $2.2 billion. We’ve seen tremendous demand coming into Stretch. At the same time, we’re seeing the volatility decrease, and so our target price range for Stretch is $99-$101.

We’ve actually seen it trading in a much tighter range. For the last three months, March, April, May, it sat in that price range for 100% of the time. I mentioned here the daily liquidity is pretty significant, but it’s also growing, right? From $54 million to $120 million in January to $250 million in March to $360 million in April. For those who are interested in getting into the product and size, if you’re a corporate or if you’re a large institution, you need to have confidence that when you need to trade in and out, you need liquidity. Our product is showing that level of liquidity.

I’ll go through a series of analyses of Sharpe ratio, ’cause Sharpe ratio ultimately is a measure of the returns above the risk-free rate, given the volatility of the instrument. Ultimately, if you’re an investor, people are looking for high Sharpe ratios, right? Compared to traditional credit, junk bonds, investment-grade bonds, bank preferreds, we outperform pretty notably. Compared to traditional asset classes, the S&P 500, even Bitcoin, Nasdaq, et cetera, we also outperform very notably. Obviously, if you’re looking for Sharpe ratio, a lot of folks go to the Mag Seven equities, right? Nvidia is obviously on a hot tear because of the AI trade. Google runs essentially a digital monopoly and has been a very solid equity over the course of the last 20 years.

Stretch has outperformed all of those and all of the Mag Seven. You know, another place people typically go to find a high Sharpe ratio are hedge funds, right? Hedge funds are built with different strategies, different analyses, different quant strategies, and typically they’re built to outperform the S&P 500 and with lower volatility. Here what you’ll see is looking at different hedge fund strategies, Stretch to date, you know, notably and understandably early in its maturity is already outperforming these different hedge fund strategies, whether you’re a multi-strat, whether you’re a macro equity arbitrage, et cetera. We see a lot of benefits to this emerging category of digital credit, right? When compared to hedge funds, private credit, private equity, one, it’s extremely liquid, right?

To get these levels of returns and these levels of Sharpe ratios, sometimes people subject themselves to 90-day lockups for hedge funds, 3-7 years for private credit, 7-10 years for private equity. We charge no fee, right? These other strategies often charge a management fee of 1%-2% and a 10%-20% carry, right? A 2 and 20, if you will, right? Digital credit is homogenous. You know exactly what’s behind it. It’s Bitcoin. These other strategies are sometimes heterogeneous with many different asset groups assets grouped together, making it very hard to ultimately assess the risk. Ours is scalable through an ATM mechanism that allows people to buy the product, and hedge funds and other strategies are discreet.

We’re accessible, traded via four-letter ticker on the Nasdaq, and now interestingly, trading on many tokenized exchanges and tokenized products. The other ones are typically restricted to those who are accredited institutional investors or high net worth individuals. We’re transparent, right? We disclose our performance, our holdings through weekly 8-Ks and websites that update every 15 seconds. One of the big questions as we have seen Stretch perform over the last four months, essentially the year 2026, is what does this mean for our capital market strategy? Right? I’ll introduce this topic and Mike will talk about it a lot more. Right? We said our objective is to double Bitcoin per share in seven years through the success of digital credit. What does that mean? We sell digital credit, right?

We’ve said that we target about 10%-20% of Bitcoin reserves annually in digital credit volume. Of course, we’ll analyze that and assess that to see if that target makes sense. That will generate amplification to our common stock, right? Which should increase the Bitcoin per share in our common stock, which is ultimately our goal. As we increase Bitcoin per share, that allows MSTR to outperform Bitcoin, which is what we’ve seen happen over the last 6 years. Right? What allows us to flex these levers even better if our cost of credit goes down, right? If we’re able to decrease the yield from 11.5% to lower for a variety of factors, if we’re able to sell more Stretch, that increases amplification.

If our MNAV goes higher, and I’ll talk a little bit about our MNAV, but that also creates benefits, for example, our cost of paying our dividend. What has happened in the last 4 months is we have increased optionality for Strategy, the company, right? We have more sources of capital, and we have more uses of capital than we ever have before. The success of Stretch gives us options to do different things from a capital markets and a treasury operations perspective to benefit our common shareholders. Right? Our traditional sources of capital sell MSTR, sell Stretch, right? We could sell our U.S. dollar reserve, right? To pay dividends, which we added in November. We also have Bitcoin that we have the opportunity, and the option of selling. We can see our other pref start to perform and sell those into the market.

We’ve talked in the past about also being able to potentially sell BTC or Bitcoin derivatives. What are our uses of capital, right? Primarily today, we bought Bitcoin. We used capital to pay our US dollar dividends, and we used capital to build up a US dollar reserve. We have used capital in the past to pay down our convertible debt, our secured loans, our Bitcoin-backed loans. We continue to do that in the future. We could also use capital if we want to in the right time to retire any of our other prefers, right? What does this really mean? This means we had three trades that we have executed, and really before 2025, two trades. We sold MSTR, we bought Bitcoin, we sold MSTR, we bought US dollars.

Last year, we added Stretch in preferreds, and we sold Stretch, and we bought Bitcoin. Now, we’re really seriously thinking about and contemplating and wanna introduce the concept of a few more trades, right? Selling MSTR at the right MNAV, whereas Bitcoin per share accretive to buy back debt. What does that mean? Considering retiring, potentially early some of our convertible notes using our common stock. Selling Stretch to buy US dollars, right? We haven’t done that much to date, but perhaps reserving part of our Stretch proceeds to build up our US dollar reserve, and then selling Stretch to buy back debt, right? You can see how that would be an accretive trade to Bitcoin per share because Stretch inherently on sale is not dilutive in buying back future dilutive convertible shares. Right?

Then the third sort of set of interesting trades that I sort of previewed on the last slide is selling Bitcoin, right? This is a big sort of statement, but our ability to sell Bitcoin either to buy US dollars or sell Bitcoin to buy debt, if it’s accretive to Bitcoin per share, right? It’s something that we would consider doing, going forward. How do we make these decisions? Ultimately, there are two sides of the same coin, if you will. One side is our equity performance, right? To our common shareholders, the most important thing is to accrete Bitcoin per share, which results in higher BTC yield, which ultimately those together result in a higher BTC gain, right? Adding more Bitcoin and BTC gain on a dollar basis is the closest proxy to earnings per share.

Those are the 3 KPIs we look to assess equity performance. On the risk side, right, the other side of the coin, right, we have a BTC Rating, which is the amount that our debt and our leverage is over-collateralized by Bitcoin. We have an MSTR duration, which is the average duration of all of our instruments, right? If you look at our perpetual preferreds, they have the longest duration based on a Macaulay duration basis, 10, 15 years out. Then we have our convertible debt, which has a shorter duration. Swapping longer duration for shorter duration is a good trade for us, right? Then we have MSTR risk, right? The BTC Rating and the MSTR rating together influence the total risk profile to the company. We’ll talk through a little bit more about this framework later.

A couple things I wanna note before I hand it off to Mike. One is Bitcoin per share accretion is our primary goal. MNAV is an input, right? The threshold for Bitcoin per share accretion when selling our equity and buying Bitcoin is increasing over time, right? Where it used to be a 1x MNAV, as we add debt and as we add preferred primarily to our structure, the break-even increases. Right now it’s about 1.22x. That means at 1.22x or higher MNAV, it’s accretive for us to sell MSTR and buy Bitcoin. Below 1.22x MNAV, it’s actually more accretive for us to sell Bitcoin, right, and pay off our dividends than it is above 1.22x MNAV.

That’s a note and we’ll talk more about this and we’ll explain it further, but it’s an important point because I think there is a misconception that the break-even point is 1.0x. Next thing I’ll note, there are benefits to the way we bought Bitcoin and the holdings of Bitcoin that we have by cost basis tier. You’ll have this here, taking $20,000 tranches, 0 to 20K, 20 to 40 to 60 to 80 and beyond. We bought Bitcoin at every price level. Below current prices, about 80K, we have an unrealized gain from a tax basis on that Bitcoin. Above 80K, we have unrealized losses.

If we were to sell Bitcoin, our objective would be to sell high cost basis Bitcoin to capture some of those unrealized losses and to take some of those unrealized tax benefits, of which on our balance sheet there’s about $2.2 billion, right, estimated of tax benefits. There is a tax benefit if we were to sell high cost basis Bitcoin as an example, right, to pay down some of our dividends over time. Amplification. We’re currently at about 34% amplification. A portion of that, about 10% of that, is driven by our convertible debt. The ability for us to increase amplification to the company is higher when we have long duration digital credit than it is when we have short duration convertible debt.

As the company starts to cycle over time from convertible debt to digital credit, we can take on more amplification with lower risk levels. We could see ourselves getting 50%, 60% amplification levels over time and still feel like we have a high credit quality and a high risk quality to the company. The last thing I’ll share here before I get to some of our principles is the US dollar reserve, right? We have built up a $2.25 billion US dollar reserve, which at that point represented over 2 years of dividends and interest payments. Now we’re with the same exact US dollar reserve at about 1.5 years. Adding to the US dollar reserve reduces Bitcoin per share, but improves the credit quality of the company.

It’s something that we’ll continue to evaluate over time, what the right level of US dollar reserve is. We feel like at a minimum it should be $2.25 billion, but likely as we grow our digital credit and Stretch, we will wanna add to this at a certain level. I’ll summarize what I shared here because hopefully it addresses a lot of questions from our shareholders. How do we think about managing capital markets and our balance sheet? One, our objective is to create long-term value for MSTR, right? We wanna increase Bitcoin per share, which will increase the price of the common equity and ultimately be better for our common shareholders. Two, we’re gonna continue to grow demand for Stretch.

We’ve seen it to be a very popular product in the market and very beneficial to our balance sheet. It will continue to improve the features as we can. For example, moving to semi-monthly dividends. Three, we are going to proactively reduce convertible debt based on market conditions, and that could mean actively purchasing back through whatever means we think appropriate some of the convertible debt before it comes due. Right. Fourth, we’re gonna look at the Stretch demand and credit risk to determine the size of the U.S. dollar reserve. There’s a natural market mechanism that as the U.S. dollar reserve in months to cover, years to cover decreases, the credit risk of Stretch goes up nominally and could decrease the demand. We will monitor that to decide what is the right U.S. dollar reserve size.

Fifth, similarly, the amplification, the appropriate amplification for the company will also be based on market conditions, right? Mike and I and Andrew and the entire team are looking literally every day at what are the trades that are accretive to Bitcoin per share, what are the trades that create the right equity accretion, and what are the right trades that manage the credit risk at the right levels. Six, not necessarily most importantly, but maybe most notable, we will sell Bitcoin when it’s advantageous to the company, right?

We’re not gonna sit back and just say, you know, "We’ll never sell the Bitcoin." We wanna be net aggregators of Bitcoin, increasing our total Bitcoin, but more importantly, increasing our Bitcoin per share, because we think that is what is going to be most accretive long term for MSTR and for the common. With that, I will hand it over to Michael Saylor to complete the presentation.

Michael Saylor, Chief Executive Officer, MicroStrategy: Thank you, Phong. I thought I’d elaborate on some of the things said up till now and just give you an overview of the BTC market and then our capital market strategy. Everything is based on digital capital, and Bitcoin is digital capital, and that means global legitimate collateral, global property. We keep track of Bitcoin as digital capital and the consensus in the market. What you can see here is the U.S. government has embraced it.

All of our key financial regulators, the head of Treasury, the head of the SEC, the head of the CFTC, and now the incoming head of the Fed, are all digital assets enthusiasts, innovators, and Bitcoin believers, as is the President of the United States, Donald Trump, and the Vice President, JD Vance, along with many, many other cabinet members. I think that’s a very important fact. There are a lot of bills still working their way through Congress. The most notable one right now is Clarity. The real key here is that Bitcoin is a priority in the House and the Senate, on the Hill, at the White House, and there’s bipartisan support and bipartisan agreement for Bitcoin as digital capital and for legislation that supports the adoption of Bitcoin as digital capital in the world.

Really exciting, a few months ago at our Bitcoin for Corporations conference, we saw major announcements by systemically important banks, Morgan Stanley, Citi, TD, all with intent to integrate Bitcoin into their operations. This is something we only hoped for three or four years ago, and now it’s reality. At the point that Bitcoin’s integrated into the banking system, then it’s digital capital here to stay. You can just see the announcements across your ticker, right? Everywhere in the world, this is a global phenomenon. It turns out whatever happens in the U.S. and with the U.S. banks is spreading to Europe, to the UAE, to Hong Kong, to South America, et cetera. I think you’re gonna see these announcements accelerate, but we’ve crossed the event horizon, and it’s pretty clear that you can’t put the genie back in the bottle.

Bitcoin has arrived. We try to be systemic, so we track it. We track the 15 largest or most systemically visible banks in the world, and we look at their embrace of Bitcoin as a credit-worthy instrument. Will they trade it? Will they offer credit against it? Will they custody it? Will they handle the derivatives, et cetera? What you can see here is that adoption has actually advanced since even last quarter. Everywhere in the world across all of these banks, there are active efforts to improve Bitcoin support. If you track the number of accounts that support Bitcoin access, you can see we’re marching up into the high hundreds of millions.

840 million crypto exchange accounts, nearly 1 billion neo bank accounts, nearly 1 billion brokerage accounts that all have access to some sort of Bitcoin derivative. ETFs, of course, continue to embrace Bitcoin. There’s now been 125 ETFs with about $126 billion of capital. The capital flowing into these ETFs continues to accelerate. As you can see, we were the first company to embrace Bitcoin, and now we’re up to 194 public companies. We anticipate this will continue to grow. Lots and lots of IPOs. The public markets have embraced Bitcoin, and this is just an example of some of the notable companies that have come public just recently that have substantial Bitcoin exposure. The digital credit ecosystem has been a very pleasant surprise. It has grown very rapidly.

It’s become very diverse, and the way that we know that digital credit is working is that companies and economic actors everywhere in the world that we’ve never met face-to-face are discovering this, and they’re building products and businesses around it. Right now, what we see is very enthusiastic support with retail investors, with corporate treasurers, with institutional investors, with crypto native innovators, and with TradFi innovators. Five different groups of capitalists, but they’re all getting very heavily involved enthusiastically and rapidly. If we drill into retail, 80% of all STRC shares is held by retail as of our last check. This is an extraordinary fact. Normally, it’s very difficult to get a broad, deep retail support for a common stock and/or a public stock, and yet we’ve been very pleasantly surprised.

We’re able to trace about 120,000 individual retail accounts. Word of mouth is spreading this. It’s spreading virally. Based upon our studies, we see that anybody that buys STRC is generally telling their friends, their family, their parents, their working associates about it, and it continues to spread word of mouth. You can also see Schwab is a big distribution channel. 23% of Stretch is held in Schwab accounts. Fidelity is a channel. Robinhood is a channel. Morgan Stanley and ETRADE are channels. BlackRock is a channel. Interestingly enough, Vanguard that won’t let their investors buy Bitcoin natively, they actually are a channel for Stretch.

It’s pretty exciting that we have wrapped Bitcoin into a credit instrument that is being distributed through all sorts of traditional finance channels to types of investors that otherwise would never be able to buy Bitcoin itself or would never want to. We actually have traced Stretch exposure, and we estimate that there are about 3 million households that are benefiting from Stretch right now. Think of it as powering a savings account for 3 million households. Phong mentioned about 100 million beneficiaries of MSTR. Well, 3 million beneficiaries of STRC in 8 months is a pretty good start to the race. Our ambition is to spread this to tens of millions and then hundreds of millions of people, so we’re off to a good start, but we’re just very enthusiastic about the retail support.

We’re also very enthusiastic about corporate support. Corporations unprompted by us, we didn’t go and sell this to them. They just figured out that it was a good idea for them. Corporate treasurers and corporate CFOs with working capital have been allocating some of their treasury capital to Stretch, and this is a really pleasant development and, you know, we’re starting to think that there might be thousands of companies that might allocate some amount of their treasury capital to Stretch. You know, I’ve had a lot of experience selling BTC to corporations. What I’ve found is that tends to be a board-level decision. It goes all the way to the board of directors. The CEO has to be way behind it, and if one director on the board has concerns, the cycle slows down.

With STRC, it’s not a board-level decision. It’s more like a CFO-level decision. If the treasurer is enthusiastic, the CFO can green-light it. They might or might not give the CEO a heads-up, but this is a very different value proposition, you know? It’s maybe a five-minute conversation with the CEO instead of a two-hour conversation with the entire board. For that reason, we think that STRC really is Bitcoin for corporations. It’s gonna spread very rapidly now. The other thing that’s very exciting is that STRC has spread into credit indexes. BlackRock’s PFF is a $14 billion credit ETF, and Stretch is the number 2 holding. VanEck’s PFXF is another credit ETF, and Strategy’s Stretch is also the number 2 holding.

Imagine an instrument coming out of the blue, didn’t exist 12 months ago, and in less than 12 months we’ve gone from nonexistent to number 2. Next stop, number 1. We’re enthusiastic about seeing Stretch embedded in lots and lots of institutional credit indexes and lots of institutional credit funds. Third-party ETFs have been finding Stretch, and they’re building innovative ETFs. Strive is building a digital credit ETF. 21Shares created an ETF with Stretch and took it public in Europe. There’s a number of ETF providers that are working with us that are in the pipeline right now. I think active discussions with 4 right now. We would think that over time there’ll be more ETFs that build STRC into their fund offering. Here I’d like to talk about digital money and digital yield.

We start with digital capital. Bitcoin is 34 vol on a rolling 30-day average. It’s 39 ARR. The 1-year trailing vol of Bitcoin is almost 40. Think about it as a 40 vol, 40 ARR asset. Raw economic energy. We split that asset into STRC, which is 3 vol, 11.5% yield, and then MSTR, which is 71 vol, 59% ARR. One’s an amplified Bitcoin we call digital equity, and the other one is damped, you know, digital credit. Now, digital credit, we believe, is like the kerosene of finance, right? It is the monetary fuel and is a universal monetary fuel. It’s high grade, highly distilled, but from here you can build all manner of products. We see the layer 3 as digital money and digital yield. Neither of them would really be possible without digital credit.

It’s just too difficult to distill pure zero vol 8% money from a 40 vol, 40 AR asset. You have to crack it. You have to have a crypto reactor, and you have to have $50 billion of equity capital to do it, and that’s what we did to create Stretch. Simple definition. Digital money in our lexicon is 0% volatility daily liquid instruments built on digital credit, like zero vol 8% yield coin. Then digital yield, that’s non-zero volatility or it might be illiquid. It might be a 3-month lockup, 5x levered, 35% yielding fund that loops digital money 4, 5, 6 times in order to get there. Digital yield is a levered construct and digital money is the stripped down construct. We think digital credit’s programmable across lots of dimensions.

There are a lot of ways to add value to it. You can tokenize it, put it in a private fund, put it in a public fund, put it in a bank account. You can deploy it on a crypto exchange, on a neo bank. You can deploy it on a real bank. You can deploy it on a crypto network. You can program it to a volatility of zero or let it float up to a volatility of 10. You could program the liquidity to be continuous or daily or monthly. You could also put in a quarterly lockup or an annual lockup in order to put more leverage on it or create a different characteristic. You can program the yield from 5%-25%, reasonably. Some people might go beyond that, but we think 5%-25% is reasonable.

Then you can convert to currency. You can create great British pounds or euros or yen or Swiss francs with digital credit starting from STRC. When you think about all these different forms, the question is, do you wanna create a yield coin, like a digital money coin? Do you wanna create a yield fund? Do you wanna create an account, right? Depending upon what your assets are, if you’re the biggest bank in Australia or if you’re Deutsche Bank, you probably would do it one way. You know, if you’re a crypto exchange, you might do a different way. The math is pretty straightforward. You start with 11.5% performance and like 3 vol right now. If we’re lucky, maybe we’ll be able to get our vol to 2 or to a 1 handle.

I mean, that’s our the goal of our proposal to the shareholders. I doubt seriously we get below a 1.5 or a 1 vol. 1 vol is sort of what publicly traded money market funds look like right now. Getting to zero vol takes a bit of work. One approach to add value is to step it down, strip the vol to zero, and maybe instead of three vol, 11%, you offer zero vol 8%, and that’s digital money. The other approach is step it up, right? Lever it 3-to-1, pay 5% for the capital and, you know, maybe you end up with something that’s paying you like $35, you pay $10 on the capital, and you get a 25% yielding levered yield fund and these are all opportunities.

We are not going to do it ourselves. Our laser-like focus is make Stretch the deepest, most liquid, most stable, least volatile, highest Sharpe ratio credit instrument in the world, and that’s a mission. What we think is there are a lot of crypto innovators, and you see right here on this screen, a lot of very impressive companies, you know, that are moving fast right now. Apex has had enormous success early on. Saturn’s doing the same thing. You know, Hermetica, Kraken, RockX, Roxom, Ondo, Pendle, Spreads, Strata, they’re all doing very interesting things right now, and they’re very innovative, and they’re moving about 10x faster than the TradFi complex normally moves on these sort of initiatives.

Having said it, there’s a lot of interesting TradFi initiatives, things you can do in a traditional finance environment, either with a private fund or a public fund, and we see those things happening as well. Eight weeks ago, there was no Stretch in the DeFi industry. In those eight weeks, we have rapidly grown to something like $270 million of exposure. This is just really extraordinary, the rate at which money is flowing. Sometimes money’s flowing into this complex $1 million an hour, $2 million an hour. It’s starting to feel to me like we may very well see more than $1 billion of Stretch enter the DeFi industry in the near future. It’s moving very fast, and it’s very dynamic. Let’s speak about outlook and our vision.

We’re a structured finance company, and you can see here we’re taking raw capital, digital capital, 40 vol, 40 ARR, $1.6 trillion market cap of Bitcoin. We are stripping the currency risk, we are reducing the credit risk, we are compressing the duration risk, we are distilling a yield, we are damping a volatility in order to create various instruments. Our greatest product and biggest success right now is Stretch. As you can see, it’s taking a 71 vol down to a 3 vol. We’re targeting a 1 vol. Some important items to be aware. The Bitcoin breakeven ARR, we calculate it all the time. It’s very significant for this reason.

If Bitcoin grows more than 2.3% a year, that breakeven ARR, we can fund our dividends forever. We can fund our dividends forever without selling a single share of stock. It is a very critical point. If Bitcoin does not grow at all forever, we can fund the dividends for 43 years. We’re very clear about this. You’ll see we publish it on our website, and we update it every 15 seconds. Let’s go to the next slide. Here you see this is our website. If you go to the Credit tab, you’re gonna see we show you the Bitcoin reserve, we show you the years of dividends. That’s the years we have of coverage if Bitcoin appreciates 0% a year. Then we show you the Bitcoin breakeven ARR, 2.27%. It’s updated every 15 seconds.

For those people that are wondering, you know, what is the credit risk in all of these instruments, I encourage you to go to the Credit tab. You can go and you can type in. You can assume the Bitcoin price crashes to $30,000. You can change your vol outlook. You can change your ARR outlook. The model will recalculate all of the risk and credit spreads for every credit instrument and especially for STRC. As I said, you know, we’re updating all of these things in real time every 15 seconds. There’s a misnomer. Sometimes people think, well, Bitcoin has to appreciate 11% or 11.5% for us to be successful or cover the dividend. Not true. 2.3%. Or they think 30%. No, that’s what we think it’ll do.

The number that really matters is 2.27%, the big BTC breakeven ARR. Now, it’s important for another reason. The BTC breakeven ARR is also the inflection point, where Stretch issuance results in more Bitcoin being stacked by our company than the Bitcoin we use to pay dividends if we choose to pay dividends with Bitcoin. This chart here, what it illustrates is that we don’t have to sell a single share of stock. We could stop selling MSTR common stock right now. We can fund the dividends with Bitcoin sales. If Stretch issuance is greater than that BTC breakeven number, not only will we fund the dividends forever, we will increase the amount of Bitcoin that we hold forever at the same time.

You would say, "Well, how much is that?" Well, you can see if we were to sell $1.5 billion of Stretch per year, we can sell Bitcoin, pay the dividends, buy more Bitcoin than we sell, grow our Bitcoin stack, and generate Bitcoin yield. Now, of course, we saw $1.5 billion in Stretch in two days a few weeks ago. Yeah, I think we can definitely stay above that breakeven point. What you see here on this slide is that if we actually have Stretch issuance equal to 20%, that would equate to $12.8 billion of Stretch sales this year. We’re kind of on the path to that if we look at the first four months of performance. We might exceed it. Who knows?

We might be less. If we actually run at a 20% issuance rate, then the first-order model shows or indicates that we generate a BTC yield of 17.7%. We accumulate an additional 144,000 Bitcoin, and that’s after we pay all the dividends by selling Bitcoin. Again, the most important point here is there are occasionally some short narratives. People would say things like, "Well, you know, if they sell the Bitcoin, that’s bad for the business," or it proves the business doesn’t work or something.

You know, we look at it as if you’re a real estate development company and you bought land for $10,000 an acre and you sold it at $100,000 an acre, and then you bought more land with the profit. No, you know, or if you sold it at $100,000 an acre to pay some interest expense on debt that you used to buy more land, nobody would say that that’s bad for the price of real estate, and no one would say that that proves the business doesn’t work. Real estate development companies literally exist to buy land cheap and sell it expensively. We’re like a Bitcoin development company. We buy it cheap. We sell it dear. Where do the dividends come from? Capital gains from credit dividends, right? That is the essence of the business.

We invest in digital capital, Bitcoin. The capital gains from the investment fund the credit dividends. They will do it in perpetuity if you, if the capital appreciates at that break-even rate. It turns out that sometimes we will sell a Bitcoin derivative because it’s in the best interest of the company, but it’s not necessary. This chart really illustrates that you can strip the business down to something very simple. You buy Bitcoin with credit, you let it appreciate, and then you sell Bitcoin to pay the dividend. As long as you’re issuing credit in excess of the break-even point, then this business works and grows forever. How do we decide what to do? Because every single day we’ve got a bunch of trading decisions. Well, we have a very sophisticated equity and risk model.

We calculate the benefits of the equity and the deltas to the risk for every single capital markets transaction, and that means we’re making these decisions not just every day, oftentimes every minute of every day based upon all the fluctuating prices of the trading pairs. Right now, our BTC rating corporately is about 3.3. The duration of our liabilities is 10.9. That’s the stochastic duration. It’s our estimate of the stochastic duration of all the debt and the prefs. The risk that we’ve centered on works out to 818 basis points, and that works out to a fair credit spread of 61 basis points.

818 basis points of risk means that there’s an 8% chance at the end of the duration of the liabilities that you’re trading at a BTC Rating of 1. 61 basis points is the credit spread a rational investor needs to be paid to offset the risk. What you can see here is two things. First of all, the assumptions we plug into the model to estimate that centerline risk is 10% BTC ARR. We assume that Bitcoin will perform about at the level of the S&P 500 over the last 100 years. It’s a fairly conservative, realistic view. We plug in 40 vol. We assume that the asset will remain volatile ad infinitum. We see that as two conservative estimates.

Even with those estimates, what pops out is a credit spread of 61 basis points. The investment-grade credit spread is, like, 88, this is investment-grade credit even with very realistic, pragmatic inputs. Let’s delve a bit more into this. Here’s the risk model. What you can see, of course, is that if you’re a Bitcoin maxi, you think Bitcoin’s going up 30% a year, there is no risk, right? The more bullish you are on Bitcoin, the more the risk drops away. If you’re a tech investor and you think Bitcoin’s as good as a Mag Seven stock and it goes up 20% a year, the risk is fairly de minimis. If you’re a trader and you think Bitcoin is no different than the S&P, well, you’re on that 10% ARR line.

Then if you think that the vol stays constant, you’ve got that 818 basis points. If you’re a skeptic and you think Bitcoin’s going up 0% forever, the risk increases, you know? If you’re a hater, pessimist, and you just think that Bitcoin is going down ad infinitum, well, then the risk actually explodes. There’s a lot of risk here, and you can see it in the model. We will show you risk numbers here with that realistic view as though you’re an agnostic trader. You don’t love Bitcoin. You just think it’s just as good as any other equity capital asset that’s diversified. You can see, you can calculate the risk with various Bitcoin prices and, you’ll get the answer you would expect. Bitcoin price going up is good.

Bitcoin vol going down is good. On the next slide, you can see, you can slice this with various assumptions about the outlook of Bitcoin as well. Let’s look at some trades. If we decide to sell $1 billion of MSTR stock and buy $1 billion of Bitcoin, if you do that at less than 1.2 MNAV, when you do it at 1 MNAV, you can see it’s dilutive. It’s a minus 48 basis point yield. It costs the shareholders $310 million. For that reason, not very good idea. What you can see here is that as the MNAV goes to 2 or 2.25, it becomes extremely accretive deal. At 2, you make $457 million in gains on the trade.

We’ve broken it down to basis points of yield. There’s also another point. 57 basis points of BTC yields a lot of money. It’s worth a third of $1 billion. It’s not that complicated to see whether something’s accretive or dilutive when you’re swapping common for Bitcoin. You can also see here what it does to the credit risk. It improves our BTC rating. It decreases the risk. Whenever we’re swapping MSTR for Bitcoin, it’s credit positive. It’s probably equity positive unless we’re trading below that 1.22 break even. Now, let’s consider whether we wanna use equity to pay the dividends or whether or not we wanna use Bitcoin to pay the dividends. If we fund $1 billion of dividends with Bitcoin, it costs us $1 billion. It’s $1 billion of cost to the shareholders.

Look at the lowest line. You’ll see it. It’s a 12,763 Bitcoin loss. 156 basis points. What you can see here is that’s pretty comparable to funding the dividends with common equity at 1.22 MNAV. They’re pretty much the same. If you fund the dividends with equity below that breakeven, it gets more expensive for the shareholders. You know, it costs you an extra $290 million to fund at 1 MNAV, so you’d be better off to sell the Bitcoin than to sell the equity on this analysis if the equity’s trading weak. On the other hand, if the equity’s trading at 2 MNAV, it only costs, you know, $535 million.

It’s an 83 basis point hit instead of a 156 basis point hit. As you can see, we’re always considering do you use MSTR or do you use BTC to fund obligations of the company. What you’ll notice is if you do use equity, it doesn’t change the credit metrics at all because you’re expanding the capital base of the company. With Bitcoin, it may be less dilutive, but it does slightly increase the credit risk. It drives down the BTC Rating. The risk goes up 13 basis points. That would equate to like a one basis point increase in a credit spread. What about funding the U.S. dollar reserve to the tune of $1 billion?

What you can see is, well, it’s a lot more efficient for the shareholders to fund it at a high MNAV, like 2.25 or 2, than it is to fund it at a lower MNAV. That’s the negative from the equity point of view. The positive from the credit point of view is it extends our duration dramatically, 160 days of duration. It decreases MSTR risk by 55 basis points and improves the rating. Next. What if we actually buy back one of the converts or some of the converts? You can see here if we go and we sell $500 million of Stretch to buy $500 million of convertible bond, we actually generate substantial BTC gains.

We get a yield of anywhere from 22 basis points on the 2029 convert to 63 basis points of yield on the 2030 convert in the middle. Why? Because different converts have different equity content in them, and some converts are more dilutive to the common than others. You can see here all the analytics. You can see the impact on the rating. You can see the impact on the risk. Generally, we’ll stretch the duration, we’ll dramatically decrease the leverage, we’ll slightly increase the risk, and we’ll of course generate massive BTC gains through this trade. You have to evaluate this, of course, every day because the price of all the converts will be changing every day and this is illustrative of the model we use.

What if we actually sold Bitcoin to buy the common stock back? This is not something that we have considered before, but I like to illustrate it, because what you can see here is that below 1.22 MNAV, it’s actually extremely accretive to the investors to swap BTC for MSTR. You know? If you have an irrational market, let’s say some crazy short seller shorted our stock to 0.5 MNAV, well, the most profitable trade, you know, in the entire model is to actually swap BTC for a common stock at a massive discount to MNAV, and you pick up 636 basis points of yield. Massive amounts of BTC Gain. Of course, the opposite is intuitive.

If you’re trading at a high MNAV and you’re swapping BTC for the stock, you’re generating a dilution. You know, you won’t see us swap BTC at a high MNAV, but you might see us swap it at a low MNAV in the future. You can see all of these trades, they have a small impact on risk, but it’s fairly de minimis. It’s primarily an equity dilution or accretion. You know, you can see we can swap BTC for MSTR, but here, another very powerful tool the company has is we can swap STRC. We can sell credit to buy MSTR. Over time, as the business model becomes more well understood, the company has the ability to do its own levered buyout or, you know, LBO on its own common stock.

We can create amplification. I’m not gonna use the word leverage, ’cause leverage implies that you’ve got a debt obligation that comes due. Really, it’s amplification on the equity. If we wanted to amplify the returns of the equity, we would simply sell the credit and buy back the common equity. Of course, we get to take advantage of market mispricing. If the market perfectly prices everything, we don’t have great arbitrage opportunities. I mean, you can see here, even if the equity was trading at 2 MNAV, we can generate 85 basis points of yield by swapping $1 billion of credit for $1 billion of equity. If the market trades down to 0.5 MNAV, we can generate 800 basis points of yield.

It starts to become pretty accretive, and this is an option in the future that we have as an operator. Of course, we can actually sell dollars to buy common equity. You can see the impact of this and, of course, probably one of the more expensive programs we have is to carry the U.S. dollar reserve. It’s dilutive to the equity. It’s equity negative, but it’s credit positive. You can see we do have the option, if the equity were to trade to a discount, to actually swap the dollars back for the common, and it would be extremely profitable for the common stock shareholders to do that. We’ve got some scenarios here. We can continue with our conventional strategy at 1x MNAV.

Even if the stock was trading at a discount to break even, if we’re selling credit and selling equity, and we use the equity to fund the dividends and we hold the US dollar reserve constant at one and a half years, we would run a 10.6% BTC yield, and we would accrete up to 263,000 BTC per share or Satoshis per share over the next 3 years. You can see, you know, even if the market conditions aren’t great, right? We have a business to deliver 10.6% yield. The duration would stretch out a bit. The risk would increase a bit. The fair credit spread, you know, looks like 94 basis points, but it’s still just a shade off of investment grade. That’s a conservative case.

Should the market continue, if we were at 1.22 MNAV, you can see that the yield expands to 12.2%. The credit metrics don’t change, but this is really positive for the equity investors. Now, here at 1.5 MNAV, you can see that the BTC yield goes to 13.4%. You can see market sentiment and confidence in our ability to maintain this business or belief in digital capital, belief in digital credit is gonna drive an expansion of the MNAV, which is going to actually drive an increase in the rate of accretion of Bitcoin per share. It’s gonna drive the BTC yield up. It’s gonna drive Bitcoin per share aggressively. Then at 2 MNAV, you see the BTC yield of this strategy gets you to 14.6%.

Those are just different scenarios showing how market sentiment drives the business. You know, negative sentiment, it’s a pretty good business. We’ll double Bitcoin per share over seven years, and positive sentiment means that we will double Bitcoin per share faster. The company, as I said before, it can fund its dividends without selling any equity. We can fund the dividends by selling Bitcoin, and we can still grow Bitcoin holdings continuously. Here’s a scenario where what we do is we fund the dividends, we fund the USD reserve at one and a half years. We do it by selling Bitcoin, and you can see we drive a 12.2% BTC Yield. We go from the 670,000 BTC level to 850 to 950 to 1 million.

We’ll go through 1 million Bitcoin held on the balance sheet in the next 36 months, and we’ll do that while funding all of our obligations with Bitcoin. You can see the impact, the impact that’s measurable is a slight increase in credit risk and a slight increase in credit spread. You know, I think it would be a second order effect of the market. This is interesting to keep in mind. What happens if we fix the U.S. dollar dividend and fund dividends with Bitcoin? Here what we do is we just hold the dividend at $2.25 billion, and we pay all of our obligations by selling Bitcoin. What you see is we get to a 14.7% BTC Yield.

A slight increase in credit spreads, a slight increase in risk, you know, this is without accessing the equity capital markets at all to drive the business. You know, we’re looking at first order effects. We’re not really showing the second order effect and the third order effect. You know, there are tax credit advantages that are second order effect. There’s reflexivity in the common stock itself. It might very well be that, you know, if people decided we weren’t gonna sell any common stock, they might actually decide that the rational MNAV should go to 2 or 3 or 4. We can’t really model those.

What we can just illustrate here is that even the first order model, it’s pretty clear that the company has the option to run on the Bitcoin engine or on the Bitcoin derivative engine. MSTR is a Bitcoin derivative, and either of them are options. Here’s a scenario where we just retire all the converts. If we diverted 20% of the Stretch issuance to retire debt, we retire all the debt in the next 3 years. We’ll go from $8.2 billion of debt to 0. Net leverage goes to 0. The duration of our instruments goes up to 15 years. There’s 114 basis points of credit spread, you know, on the digital credit, but there is 0 leverage.

We run with a 12.4% yield, and we maintain this constant 1.5-year USD reserve. You can see that’s kinda interesting as well and an option that’s available to us. Here’s a table that just shows all the various options. Of course, there’s a lot of other things. You know, we’ve got a sophisticated model. We can plug in any possible trade and any size on any day of the week. Rest assured, we’re considering these every single day, and we’re programming trading algorithms to trade all these instruments, sometimes every single second. The key point that Phong made is the optionality in the business is expanding dramatically.

You can see on the equity side, our assumptions are 30% BTCAR, 20% Stretch issuance, 11% dividend rate. On the credit side, we’re much more pessimistic or conservative, or you could call it realistic if you want, 10% BTCAR, high vol. If Bitcoin vol starts to fall. As Bitcoin price appreciation accelerates, we have a lot of other options we can take advantage of, and rest assured we’ll jump on top of those. I thought I’d show one last slide of interest here, which is sometimes people have this misnomer. They think that we’re borrowing money at 11.5% and it’s a fixed obligation. That’s not correct. We’re not borrowing money. When we sell $1 billion of Stretch, we’re never paying it back.

The first obligation is Stretch is a perpetual swap. It is not a loan. The second observation is the cost of capital is not 11.5%. There is a stochastic cost of capital. What Stretch is a perpetual swap where the issuer agrees to pay SOFR plus a credit spread, a variable credit spread adjustable each month, and then the issuer invests that in Bitcoin. We are paying SOFR plus a credit spread. We are taking back the Bitcoin return, and the company, the issuer, has a couple of very powerful options. One powerful option the company has is over time to reduce the credit spread. That is an option.

Of course, the credit spread is probably at a high point when you’re early in the industry when digital credit is not understood. You would think after three years or after six years or after nine years, the credit spreads will compress as confidence in Bitcoin grows, as confidence in Stretch grows, as AUM grows, as confidence in the business model grows. The credit spread should compress. The second option is the company has the option to lower the dividend to a floor of SOFR. As SOFR falls, when SOFR’s 375 basis points, that’s the floor. If SOFR goes to 200 basis points, the company gained 175 basis points of additional optionality. SOFR has gone to zero or 25 basis points in the past.

The fact that SOFR generally fluctuates between 500 basis points and 25 or 50 basis points on an 8-year cycle is a very important point. When you consider those two options, the stochastic cost of capital for Stretch, you know, has to be modeled as something less than 11.5%, maybe more than the long-term rate. If you imagine SOFR is 2% or 3% and we have a 300 basis point credit spread 20 years out, at that might be 6%. Somewhere between 6%-11.5% gets you to like a blended rate of 875 basis points. When we think about the cost of capital, we think that it’s probably 875 basis points, and the debt’s never coming due. I think that’s an important point to make to the world.

It colors your thinking. With that, I’ll just end with our capital markets principles, and I’ll reiterate what Phong said. You know, we’re here to drive Bitcoin per share up, and we’re doing everything we can to drive Bitcoin per share up. We think the best product and the best tool to do it is Stretch. It’s clear the market’s telling us that. We will focus laser-like on making Stretch the best digital credit instrument. We do see a world where we’re debt-free, and sooner rather than later. We’re gonna adjust our amplification and our credit metrics and our U.S. dollar reserves and our use of proceeds based upon market feedback. We get market feedback every minute. We’re literally staring at all of these signals every minute.

Of course, we’re talking to every credit investor and every equity investor continuously. With Bitcoin, the company’s got more than $60 billion of Bitcoin, and the Bitcoin market has $20 billion or more of daily liquidity. If we were to be boxed in by a troll or a cynic or a skeptic into agreeing that we’re never gonna sell the Bitcoin and we’re never gonna tap the liquidity, we would be impairing the asset which accounts for 99% of the future of the company. You know, it’s kinda like a real estate developer saying, "I’m just never gonna sell any real estate ever at any price." It’s kind of a silly thing.

If a wealthy person, you know, if a billionaire sells $1 million or spends $1 million to make $1 billion, nobody says they’re poorer. Nobody would lament that spending a few $1 million is gonna crash the U.S. currency either. I don’t think that if we spend $100 million of Bitcoin or sell $100 million of Bitcoin to pay a dividend, I don’t think it’s gonna negatively impact the Bitcoin network. I think it’s probably good for the Bitcoin network. It definitely doesn’t impair our business model. If anything, it just creates more optionality and second and third order effects. The management team’s practice is to run the company in the best interest of all the stakeholders, and that means there are three that we laser-like focus on.

Whenever we’re making a decision, we ask the question, "Is it good for the common equity, MSTR?" We ask the second question, "Is it good for the creditors, especially STRC investors?" The third question we ask is, "Is it good for the capital investors, BTC investors?" We happen to believe that running our business in such a way as to commercialize digital credit in the most efficient fashion is the best thing we can do for Bitcoin and Bitcoin investors, the best thing we can do for digital credit investors, and the best thing that we can do for our common equity investors. There is no conflict between those three goals because if we sub-optimize to the benefit of one to the detriment of the other two, the entire machine doesn’t work.

When we balance the interest of the three, the more credit we sell, the higher the equity MNAV. The higher the equity MNAV, the more credit we can sell, the less the credit risk, the more Bitcoin we can buy, the better it is for Bitcoin. The better it is for the price of Bitcoin, the less risky the credit is, the more profitable the equity is. There really are concentric flywheels here, feedback loop within feedback loop within feedback loop. When we’re in harmony, all three of those feedback loops are working really well, and you can see that happening in the market. We monitor it.

Indicia of everything working is when the MNAV is expanding and the equity is healthy, and the equity is outperforming Bitcoin, when the volatility of Stretch is falling and liquidity is increasing, right? That is indicia of the success of the credit, and when Bitcoin price is appreciating, yeah, and Bitcoin support and liquidity in the world is appreciating, that’s indicia of success of the capital. That’s what we’ve been doing. That’s what we’ll continue to do, and we thank you for your support. Now I think we’ll open it up for Q&A.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Thank you, Michael. Before we jump into the Q&A, I’d like to just share with all our investors that we’re organizing a special Q&A for retail investors next week on May thirteenth. You can scan this QR code if you’d like to submit questions. We’ll share the link on X and we’ll share more details as well. With that said, let’s jump into the Q&A. I’d like to invite all our guests to turn on their cameras. Get ready to ask some tough questions. Let’s get started with Peter Christiansen from Citi. Pete, please go ahead.

Peter Christiansen, Equity Analyst, Citi: Thank you, CJ. Trying to start the video here. I think it’s disabled. Anyway, I’ll hop right in here. Michael, I was just hoping that we can take this call and how you’ve laid out, I think all these scenarios, and think about like historically, I guess, well, I’m pointing to last year, the end of last year, that there was a false signal that Strategy was selling Bitcoin and it was taken negatively in the marketplace. Today, you outlined a lot of different optionality scenarios that Strategy now has to optimize its capital stack.

Should we take today’s call as a signal to the market that, yes, Strategy is willing to be more proactive with its capital stack, which may include the sale of Bitcoin, maybe for tax purposes or maybe for other optimization purposes, credit, what have you? Should we take today’s call as a signal that, yes, Strategy is gonna be more tactical with its capital stack going forward?

Michael Saylor, Chief Executive Officer, MicroStrategy: Yeah, you should. I think the company got much healthier when we proactively began to utilize the equity ATM, and we said it, we’re gonna do it. We’re not ashamed of it. We’ll probably do it again. When the company started proactively executing on the Stretch, the credit ATM, and we said we’re gonna we’re not ashamed of it. We’re gonna keep doing it. We think it’s good, and we’ve got a plan for it. Now I think at this point to say we’re turning on the BTC drive, we’re not ashamed of it. We got $65 billion. We have a, you know, a $2.2 billion tax credit that’s lying on the floor. We ought to go find a way to pick up the $2.2 billion, right?

Just like, you know, with everything else, the more optionality we create and the more tools we have at our disposal, I think the better it is for the equity investors. You know, yeah, we’ll probably sell some Bitcoin to fund a dividend just to inoculate the market, just to send the message that we did it. Look, the company’s fine. The Bitcoin’s fine. The industry’s fine. The world didn’t come to an end. If you’re a short seller and your thesis is the company’s got to sell equity in order to fund the dividends, I would like nothing better than to, you know, rip your wings off.

Peter Christiansen, Equity Analyst, Citi: I like that term inoculate. Very well. Thank you.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Thank you, Pete. I’d like to invite Jeffrey Bock next.

Jeffrey Bock, Equity Analyst: Hello. First off, congrats to the team, particularly on Stretch’s accelerated redemption. Happy to be a part of this. Thanks for having me here. My question’s focused on understanding how macro factors may influence the firm’s Bitcoin acquisition strategy, and particularly in regards to interest rates. You know, as we all know, we’re just about a few weeks away now from Kevin Warsh’s official inauguration, and even though rate cuts odds are a little lower this year, Strategy now does have, like, an explicit growing interest rate sensitivity, right, as we just saw from the stochastic model. If hypothetically we see interest rates being lowered, Stretch has this momentum that it will likely trade above par, more aggressively, given the nature of, like, the floating rate dynamic.

Now the company has, like, a really, really interesting fork. You can either, one, issue more Stretch and push the price back down to par, or you can actually use that moment to reduce the interest burden itself, right, on what’s outstanding. There’s a healthy tension between these two things. I guess my question is, can you help us understand that risk framework a little better to calibrate that particular trade-off, right? Lowering the coupon versus selling more STRC, it changes a little bit of the Bitcoin acquisition velocity, but it also cuts interest expenses, especially in that lower rate interest environment. Any specific, like, input parameters that you might say takes priority here in your calculation?

Michael Saylor, Chief Executive Officer, MicroStrategy: I’ll start and then Phong or Andrew may have some comments. So first of all, you know, when the macro indicators are moving against us, we’ve got a headwind, everything slows down, right? When we go to a restrictive monetary policy, you know, that’s really bad for Bitcoin. It’s bad for risk assets. Bitcoin is risk assets squared. MSTR is risk assets cubed. So I feel like we’re like tech cubed and big tech cubed and Bitcoin is big tech squared in a risk-off environment, and you could see that. In a risk-on environment or a more accommodative monetary economy, I expect you’ll see the opposite. I think Bitcoin will rally hard as squared. Our equity should rally as tech cubed.

The credit, presumably we have more optionality if SOFR falls. Our bias is to grow the business responsibly but as rapidly as we can, and our bias is to grow Bitcoin. If we have the ability to accelerate our capital raising, you know, and we could raise twice as much capital in a risk-on or a looser, more accommodating monetary policy, we will run the vehicle as hard as we can. We won’t run it so hard that the capital structure doesn’t keep up with it. The circumstances under which we would slow down or wanna throttle the credit would be if we go to risk-on and Bitcoin doesn’t rally and our equity doesn’t rally, but the credit rallies, right?

If the demand for the credit triples and somehow Bitcoin and Bitcoin doesn’t react to the interest rate macro environment and or MSTR doesn’t, then we might very well say, "Well, we’re gonna want to adjust the dividend rate down because we’re getting too much demand for the credit." By the way, Jeff, I don’t think that’ll happen, right? I think the likelihood that we go to a risk-on environment and Bitcoin doesn’t rally is small. If Bitcoin rallies, then our capital stack and our collateral base expands, and then we can accommodate more credit. The rate of Stretch issuance or credit sales is a function of the BTC growth rate or ARR. If Bitcoin grows 30%, we can expand, you know, credit aggressively. If it grows 50%, we could go faster.

The second order is really the equity capital markets’ enthusiasm for our business model. If the equity capital markets looked at our business and said, "Okay, well, you’re gonna run a BTC Yield of 20% a year, and I’m gonna give you a P/E of 10. I’m gonna give you a 200% premium to NAV, and you’re trading at 3x MNAV," well, that would be better than we are right now. If the equity capital markets did that, gave us a 10 P/E on BTC Yield or BTC Gain, then of course, you know, our optionality increases, we grow faster.

You know, the countervailing view is, well, you’ve only been doing this for a year or two years, and so the Lindy effect says, "I’m only gonna put a P to E of two on that." If we get a P to E of two, we could have a Bitcoin rally that gets us a collateral stack, but the equity doesn’t go as fast, and that might govern the rate at which we run the credit engine. The bottom line is if Bitcoin, if the macro environment turns risk-on and expands and Bitcoin rallies, our equity rallies, it’s go time. We’re going to go, and we’re gonna go with the credit. Like, we’re gonna use the credit. Like, make no mistake about it, we wanna see the MNAV. The equity is undervalued.

We wanna see the MNAV expand to 2, 3, 4, 5 or 6. Nothing would make me happier than to rip the faces off of all the skeptics and the shorts and drive the equity to the moon. I think the question you gotta ask yourself is this company gonna sell $10 billion of Stretch this year or $20 billion or $40 billion or $80 billion, right? The answer to how much we can sell responsibly is a function of where the Bitcoin price is, and to a lesser extent, how the equity capital markets react. If the equity capital markets are accommodating and supportive and Bitcoin rallies, the company has a lot of tools to manage the BTC rating and the collateral coverage, and we can add more equity capital.

You could see, I just showed you, we can put equity capital in the market fast. We’re the biggest equity issuer last year and this year. We could also take common equity out of the market if we decided to. What we’re gonna look at is the interest rate forward yield curve. We’re gonna look at how Bitcoin performs if Bitcoin keeps performing as big tech squared. We’re gonna look at the forward curve or the forward expectation curve of BTC. We’re gonna look at the forward vol curve, right? If Bitcoin at vol 40 or 35 is different than vol at 50 or vol at 20. When Bitcoin vol falls to 20 or 25, you can lever these things and still have investment grade.

You can lever 2, 3, 4, 5x more and still have investment grade. That’s by the way, Bitcoin vol being 30 right now is not the same as institutional credit investors expecting Bitcoin vol to be 30 for a decade, right? The forward yield curve, the forward vol curve, the forward price curve, the forward, you know, equity curve, all that stuff gets discounted back and we get up and we ask ourselves the question, what is the rational thing to do? At the end of the day, what we’re wanting to do is to drive the MNAV to the sky and drive the Bitcoin price to the sky, and to build Stretch into the biggest credit instrument in the world, because the higher Stretch AUM we have, the more liquidity.

If we can get to $1 billion of liquidity for STRC, the vol will keep coming off, adoption will expand, and we get a network effect. I think you know how Amazon gave, like, free shipping or shipping for $10 a month, and everybody said, "You’re losing money on that," and they lost money on that for a decade, and then one day they just raised the price and they were the only player in the world and they made a fortune, and people, you know, thought, "Well, I guess that was a good idea." I think we would like if you gave me a choice, do I wanna sell $500 billion of Stretch and pay 11%, or do I wanna sell $50 billion and pay 9%?

If you know me and the company, I think you can guess which of the two we want. At the end of the day, our long-term view is Bitcoin’s gonna go up more than 11%. It’s gonna go up 30%, and if we’re wrong, it’s 20%. 200 basis points won’t make the difference one way or the other, but I rather think that if we gather an extra $100 billion of capital, I think the war to determine the future of the credit markets and the war to determine the future of money is gonna be fought and won with money. We’re gonna get the money if we can do it in a responsible way, right?

At some point, if you have this perverse random situation where Bitcoin prices is not reacting and MSTR is not reacting, but everybody, I can’t imagine that credit investors are more bullish on Bitcoin credit than equity investors or Bitcoin investors. If you construct that tortured scenario, then maybe we would slow down the credit machine. If equity investors are more bullish than credit investors, and if credit or Bitcoin investors are more bullish than credit investors, then I think the entire system solves its own problems, because we’re probably not gonna be able to keep up with the expansion of our BTC collateral stack.

Phong Le, Chief Investment Officer, MicroStrategy: I’ll add one short thing to this, Jeff. I think the scenario you lay out is in a maturation of the digital credit market, right? 5, 10 years out when digital credit is $3 trillion or $30 trillion on a $300 trillion market, we would run into this issue of how do you manage the demand for Stretch. I think 10 months into it, I think our issue is not so much what interest rate or are we paying or what does the Fed do to interest rates. I think the demand is gonna be driven by awareness and marketing of the product right now. I don’t think that scenario is gonna be much of an issue for the short term.

Jeffrey Bock, Equity Analyst: Got it. Thank you for those thoughtful responses. We’ll take a note.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Thank you, Jeff. Next, I’d like to invite Andrew Hart from BTIG.

Andrew Hart, Equity Analyst, BTIG: Hey, thanks for the question. I think the optionality in the business really came through clearly today. Maybe just shifting gears a bit. Earlier in the slide, Michael, you talked about Bitcoin being digital capital and MicroStrategy being digital equity and Stretch being digital credit. You also talked about kind of innovators kind of building digital money down the road. You called it like a layer three in that example. I guess, considering Stretch is going to be the foundation or the building blocks for digital money at some point as the market continues to mature, I guess, you know, what do you think that solution looks like? Are you having conversations with innovators who are out there looking to build on top of Stretch and create these digital money solutions? Thanks.

Michael Saylor, Chief Executive Officer, MicroStrategy: Hold on. Sorry. Can you hear me?

Andrew Hart, Equity Analyst, BTIG: Yeah, I can hear you.

Michael Saylor, Chief Executive Officer, MicroStrategy: Oh, you hear me fine. Okay.

Andrew Hart, Equity Analyst, BTIG: Yes.

Michael Saylor, Chief Executive Officer, MicroStrategy: You know, I think you see it with Apex and Saturn and Hermetica and a lot of the token issuers that are creating these yield coins that are powered by Stretch. They’re rapidly innovating. I think if you look at some of the DeFi protocols that are offering, you know, 2x, 3x, 5x, 10x leverage and looping, you know, Pendle of the world and the like, I think they’re also innovating pretty rapidly. We don’t know the final shape. I think there’s 1,000 different combinations of digital money and digital yield. I think there’s a different. For example, there’s a different currency in every country. I think you can create various yield coins in different currencies.

I think that in Australia you can deploy it via a regulated bank or via token that can sell in Australia, or via an ETF taken public in Australia, or via a private fund in Australia. When you take the combination of currencies and platforms and containers. You know, the sky’s the limit. What I do notice is the people that seem to be moving the fastest and the most enthusiastically right now are the DeFi players, and it’s people that are launching stable coins that have to compete with Tether and Circle. The issue is how do I convince people to put AUM or put capital into my stable coin?

I need to create either a digital money, a yield coin, zero vol, 8% yielding, I mean, that’s kinda compelling, or I need to create, like, a 25% ARR, you know, lock up your money for a month and I’ll give you 25% on 3 or 4 turns on the capital or something. Obviously the market’s gonna decide who it trusts, and it’s gonna decide what form of that it wants to buy, and it votes with its money, and you can literally watch the money flowing every hour in that system. I think you’ll see some ETF players. But they’ll come slower because they’re a little bit more, there’s more regulatory friction there. We hold out hope that we’ll see a neobank offer a digital yield account.

There’s no reason why the, you know, a bank or, you know, any neobank that has a mobile app couldn’t just say, "Hey, we’ll just give you 8% on your money in this yield account if you want it." Each one of these things, it’s a different counterparty, a different platform, a different regulatory container. What I would say is we had none of these conversations going on 8 weeks ago or 12 weeks ago, and now I see, like, 3 dozen initiatives. I think there’s a Cambrian explosion, and check back in 12 more weeks. I think we’ll have some exciting news and some exciting partners, but just watch my X feed, ’cause I retweet some of the more interesting digital yield, digital money offerings that are literally happening.

A lot of times people are inventing stuff and I’m finding out, you know, at the same time you are. The market’s evolving in real time right now.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Thank you, Andrew. Next, I’d like to invite Eric Balchunas. Eric, please go ahead.

Eric Balchunas, Analyst, Bloomberg Intelligence: Yeah. Hi. Thank you for having me today. Great presentation. My question’s maybe a little more philosophical. I think it impacts the price in the future, but it’s about the changing ownership and identity of Bitcoin. According to River, in the past 16 months you’ve had businesses buying 560,000 Bitcoin. ETFs bought another 208,000. Governments bought 160,000. That’s 1 million total Bitcoin by those entities. Meanwhile, individuals sold 730,000 Bitcoin. Some have called this the silent IPO, and it’s arguably the reason for that 45% drawdown. This changing ownership is being reflected, I think, at the recent Bitcoin conferences, where you see an increasing number of you know, suit coiners, as some have called them, which you highlighted in the slide on the government and the banks.

I’ve noticed it’s made some of the native Bitcoiners a little uncomfortable and conflicted regarding the original mission, given it was made to bypass governments and banks. To me it feels like Facebook 10 years ago when everyone’s parents joined. Some people left the platform, although the user base did grow from 1 billion to 3 billion since then. I just wanna get your read on this transition and this sort of mainstreamification of Bitcoin, and how important it is to keep the original base of investors, keep them along for the ride, and keep the sort of cypherpunk edge of Bitcoin as it goes more mainstream and gets adopted by companies, asset managers, governments, and boomers in general.

Maybe it doesn’t matter, you know, given the size of the institutional and advisory market, for that price, you know, maybe hitting $1 million, but maybe it does. Just curious your thoughts.

Michael Saylor, Chief Executive Officer, MicroStrategy: Well, I’ll make a quick point. You know, since we got into this space there’s been something like $1.4 trillion of wealth created for people other than the shitcoiners. I don’t know who got the money, but there’s certainly 80% I think we can trace 4% to BlackRock investors, and they must have 50-100 million beneficiaries. You can trace almost 4% to our investors. We’ve got 100 million beneficiaries. You know, if you look at the corporates, they’re representing thousands of institutions, and tens of millions of investment accounts, and hundreds of millions of beneficiaries. The network is decentralizing. It is distributing through them, and it is maturing through them, and finding its way into retiree accounts and insurance beneficiaries, and trust funds, and 3-year-old trust fund babies.

Everybody in the world is getting exposure now. You know, when everybody criticizes the centralization of the network, I note that 85% of the network is held by others. It’s held by the crypto OGs. We don’t know how many people that is, but it’s almost certainly represents fewer beneficiaries than the beneficiaries that rely upon BlackRock’s ETF or a common public stock. The corporations have been spreading exposure to Bitcoin by an order of magnitude or orders of magnitude right now. I do think that, you know, if you ask, who owns the $1 trillion of Bitcoin that’s not public? The Chinese. There are Chinese, there are Russians, there are Americans, there are Europeans, there are South Americans, there are Ukrainians, there are Iranians.

When you wonder who’s selling it, well, it’s $1 trillion of capital held by crypto OGs that are unbanked. Maybe they’re selling it because, you know, the currency in Iran crashed. Maybe they’re selling it because of some fear of, you know, some Chinese government memo. If the Chinese mined half the Bitcoin in the first, like, 15 years, it’s kind of impossible that there aren’t a lot of people with Bitcoin in China, you would figure, since they mined a great deal of it. I think generally the industry’s maturing. It’s rotating from the crypto OGs, but they’re not going away, right? We spent $60-$62 billion to get to less than 4%. It’s pretty expensive to not get to the other 96%. If you look at all the money that BlackRock and us put in this together, right?

The $150-$200 billion of capital that flowed from the institutions, it didn’t get 90% of the network. 90% of the network is still in global crypto OG hands. I meet people. You know, I go everywhere in the world. I’ll walk down the beach and there’s someone that’s like, you know, slapping me on the back, thanking me for making them a lot of money, right? It’s because, you know, literally people that you will never know who they are, and they will never announce it. They’re sitting on $1.2 trillion of capital gains right now in the crypto ecosystem. I guess what I’m saying is I’m not worried that the crypto ethos is being squashed. People with $1 trillion probably have a lot of power to do whatever they’re gonna do, and they’re continuing to do it.

The Bitcoin network is still highly decentralized. The miners are decentralized. This is a global phenomenon. If anything, what’s happening is the corporates are just powering up the network. We’re the people that invest the $100 billion or $200 billion of capital to drive the price from $10,000 to $80,000 or from $10,000 to $100,000. But when we do it, 90% of the gain goes to other crypto actors, and they power the entire decentralized digital economy. Good for them. That’s good. They’ll do whatever they’re gonna do. I think that if you want to, I don’t use the analogy it’s like Facebook when your parents came along.

I use the analogy it’s like the internet when it used to be a girl or a dude in a dorm posted their blog on their webpage, and then all of a sudden Amazon started selling hundreds of billions or trillions of dollars of products on the internet, right? It’s just we started doing business with digital assets, and ultimately, you know, the killer app of Bitcoin that we see is digital credit, and the way you know it’s a good app is when someone wants to buy $1 billion of your product a day, right?

I mean, everybody in the entire crypto ecosystem has always dreamed about let’s invent the killer app, and a good product is something that people will buy $1 billion a day of, and there aren’t that many in the history of the world, and we found one. I think that the networks are gonna grow. We’re going to power it up. You’re gonna see an explosion of all the other crypto ideas. Whatever crypto idea didn’t catch fire over the past decade, now they’ve got 10 times as much money and opportunity to catch fire, and some of them will, and the ones that don’t won’t because the market doesn’t want them. The industry is. The network’s evolving in every direction simultaneously, and I would take issue with anybody that ever said it’s centralizing.

It’s absolutely not. It’s decentralizing. The truth of the matter today is that there’s a lot of people with money and power and influence in the world that are going to support this network and defend this network because of the success of all the corporations, whether it’s Coinbase or whether it’s BlackRock or whether it’s Strategy, right? If you’re gonna lobby for things that are good for digital assets in Washington, D.C., it’s not gonna be a Chinese crypto pseudonymous billionaire hiding off the grid that’s going to do that lobbying, right? The $1 trillion of crypto OG money is not going to fix the accounting, fix the tax code, fix the banking system, and build the technologies that actually commercialize these apps to 1 billion people.

They’re not gonna give a bank account to a billion people that pays them 10%, and they’re not gonna put. The crypto OGs are not going to put Bitcoin on every iPhone and every Android phone in the world. That’s going to be corporate actors. The corporations are doing their part. The crypto OGs did their part. Everybody’s in the system. There’s tension. It’s healthy tension. We welcome the healthy tension. It’s the fact that, you know, someone’s gonna sell Bitcoin because they’re in Iran and some missiles got launched, right? That’s a feature, not a bug. It’s just, you know, people are trading based upon things that have nothing to do with the way Wall Street trades the S&P index, and I think that’s what makes Bitcoin special, and that’s why we welcome it as global digital capital.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Thank you, Eric. Next, we’ll invite Ramsey El-Assal from Cantor.

Andrew Kang, Chief Financial Officer, MicroStrategy0: Hi, thanks for taking my question tonight. Michael, you mentioned that if Bitcoin volatility were to fall as the asset price accelerates, you’d have some options and cards to play to preserve the attractiveness of the model. I’m just wondering if you can kind of elaborate a little further on what you meant there. Completely separately, I was wondering if you could just give us a quick update on the BTC Security Initiative. How has that been received, and has there been any developments on the quantum risk topic worth calling out? Thank you.

Michael Saylor, Chief Executive Officer, MicroStrategy: I’ll answer the first. I’ll let Phong answer the second. If you go to our credit tab on our website and you type in a vol of like 40, and you have a BTC Rating at 3, stuff starts to look sort of investment grade. When the vol falls to 30, you know, you can have a BTC Rating of 1.5 and it looks investment grade. When the vol falls below 30, you know, your amplification can triple, quadruple, you know. You know? As the vol falls, the credit risk falls. I think that the forward volatility curve changes the view of credit investors, and it’s gonna create more demand amongst more traditional credit investors, and it’s also going to change the view of banking regulators and, you know, credit rating agencies and the like.

You know, there’s a certain gift here, or a certain What is the word? Like, nuance. If the vol is high, it’s equity positive. You know, today, I think on CNBC at, like, 3:50, they said the largest options trade in the entire market, in the entire stock market today was an MSTR options trade. Someone traded hundreds of millions of our options today in the market. Number one of all companies in the entire U.S. That’s because of the vol. When vol is high, it feeds the equity market, and that’s good and it’s equity positive. When the vol falls, it won’t be so good for the equity, but it’s very credit positive.

The answer You know, the conclusion you come to is you’re gonna get performance through volatility on the vol side. You’re gonna get performance through more amplification and more intelligent leverage as the vol falls. Of course, the entire asset class is going to expand, and people’s view of it is going to improve as the vol develops, as the vol, you know, falls. I do think over time, over the long time for horizon, if the asset’s 40 ARR, 40 vol, it’s reasonable for it to eventually mature to be 20 ARR, 20 vol.

I mean, it’s just kind of common sense that as it gets bigger and it gets more liquid, the law of large numbers and the inertia of the market and its relative size to all the other pools of capital are going to damp the vol. I think it’ll always be more volatile than the S&P and always be more useful, but I think that if you’re a credit issuer and a credit investor, you just wanna be sensitive to it. You know, certainly right now the single number one issue in the entire market is what is your forward volatility curve for Bitcoin? Because if you think that Bitcoin is a 30 vol asset, everything we sell is investment grade, and it should be priced double or triple what it is, if that’s what you think.

Your view of volatility will control how much of this you want. If the vol starts to fall, there’s just no reason why there shouldn’t be, you know, a 10X bid on all this stuff. Then you might decide rather than levering it 3 to 1, you lever it 8 to 1, right? Or something. It’ll change the behavior of all the downstream players as the vol increases or as it changes. Okay. Phong, you wanna talk about security?

Phong Le, Chief Investment Officer, MicroStrategy: Yeah, Ramsey El-Assal. We started to bring together a group of folks calling it the Bitcoin Security Program or Council. The objective is to bring together institutions that represent custodians, exchanges, large Bitcoin treasury companies who have a vested interest in the success of Bitcoin and share a combined point of view on what is the potential risk and time horizon of quantum, what activities are underway in the development community, how do we get to consensus. Likely in the next month or so we’ll share who’s in that group and what is our combined point of view. Right now I’d say there’s a lot of divergent point of views, and I thought it would be useful, those who are interested in the success of Bitcoin, bring something together.

You’ll hear from the Bitcoin Security Program likely in the next month or so.

Andrew Kang, Chief Financial Officer, MicroStrategy0: Excellent. Thank you. Appreciate it.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Thank you, Ramsey. Next, Jeff Walton. Please go ahead.

Jeff Walton, Equity Analyst: Thank you for including me and very appreciative of your leadership. I’ve got a bit of a two-parter here. You spent a lot of the presentation talking about risk of the credit instruments. You’ve created a really unique arbitrage surface between all of the different instruments and a really unique incentive structure that’s resulted in people buying and selling the instruments right below par on STRC and some of the other instruments. First question is, do you find that the market agrees with you? This is kind of in line with the answer to the last question on forward-looking volatility curve. Do you find that the market agrees with you and the instruments are trading in tandem with each other? What’s the biggest hurdle in communicating that relative risk profile?

Part 2 is what is the biggest hurdle in accelerating the adoption of the digital credit instruments into the future?

Michael Saylor, Chief Executive Officer, MicroStrategy: Well, I think all the credit instruments are undervalued. No, the market doesn’t agree with us. If the market agreed with us, then STRF would be trading $200 bucks a share right now, not where it is. I think all of the I think the equity is trading weak. I think it’s undervalued. I think all the credit instruments are undervalued. I think all the bond instruments are way undervalued. I would say the market is much more skeptical and biased pessimistically than we are. That’s why, for example, we’re not selling STRF, STRD, STRK, STRE, you know. We don’t really have much interest in selling MSTR. We think all of those assets are undervalued.

STRC is special because as we pointed out, it’s a variable monthly preferred, and the stochastic cost of that capital is hard to determine over 20 years, but you’re not locking in a mispriced trade. I have a lot more enthusiasm to sell $1 billion of STRC at 11.5% than I have enthusiasm to sell $1 billion of STRF at 10%, right? No, I think we’re embryonic. I would say you know, how do we fix it? It’s a Lindy effect. There’s a lot of education. We have to go and educate the market. You could say part of it is we have to tell the story, and you could say part of it is people are just gonna have to wait, right?

Like, after we’ve been in the market for 3 years, they’ll say, "Well, it’s worked for 3 years, I guess it’s better than we thought it was." I think we’ll be continually re-rated up. I mean, the risk will be rated down, and the opportunity will be rated up as time goes by. We won’t be sitting on our hands, right? We’ll be out there communicating the message, displaying it. We’ll, you know, partly we’ll do it through publishing, partly we’ll do it through investor outreach, partly we’ll do it through partners. I think, as our partners create compelling, you know, digital money products or the like, I think that’s helpful. I think if you just ask the question, how long will it take?

How long did it take before the market thought that Amazon had a good business, right? It took 10 years after they started doing what they were doing. You could be a pessimist and say it took 10 years for that, and how long did it take before Netflix was deemed to be good? The truth is, Apple was mispriced and misunderstood for many, many years. I think if you have a revolutionary business, I think that the market will be biased skeptical because that’s just what it is. It’s gonna be skeptical. The market was skeptical of Google. You know, Google, Amazon, the market was skeptical of Nvidia, skeptical of Apple, skeptical of whatever.

It will be skeptical of digital credit, you know, and digital treasuries for a while, and then there’ll be some point when it isn’t, and they’ll, just like Warren Buffett comes in and buys some Apple and the stock price doubles, and the multiples expand from 10 to, you know, PDs of 10 to PDs of 20 or 25 or 30. It’ll happen at some point when we least expect it to happen, but we have to do all the hard work of performing, laying down the track record, and educating the market, and managing the risk of the business and the like. That’s what we’re doing.

I think if you want the optimistic observation, well, the fact that the market’s willing to buy more of the STRC is the most successful preferred stock in the world in the century, I think that’s an indicia that maybe some people get it, right? There are a lot of indicators that it’s working and it’s spreading fast and virally, but we still have a lot of work to do.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Thank you, Jeff. Next, I’d like to invite Randy Benner from Texas Capital. Randy, go ahead.

Andrew Kang, Chief Financial Officer, MicroStrategy1: Yeah, thanks. Michael, I think this one is for you. And hopefully you can hear me okay. The question I have, you know, so we talk about the Clarity Act a lot, and it’s, you know, I think it’s important for the broader crypto ecosystem more, and you know, this bipartisan compromise is good news. For MSTR, for MicroStrategy, for your world, you know, what would be the most important regulatory or policy change or impact? I think, you know, I think we’ve talked about bank and insurance companies being lobbied to, you know, recognize crypto as a statutory asset. Is it something like that?

The follow-up question, in case you cover this along the way, is: At this point, with so many arrows pointing in the right direction for crypto regulation and guardrails, do the midterms matter that much? For that matter, does the next presidential election matter much from kind of a policy and regulation perspective?

Michael Saylor, Chief Executive Officer, MicroStrategy: Bitcoin’s in a safe harbor. There’s global consensus as digital capital. MSTR is sitting in a safe harbor. It’s a publicly traded, well-known, seasoned issuer, came public in 1998, governed by securities laws that, you know, date back 100 years. STRC is in a safe harbor. It’s a publicly traded preferred stock based on 100-year-old tax law, 100-year-old securities law, trading on, you know, the Nasdaq exchange, which has been around for who knows how long, longer than many of us have been alive. Everything that we’re doing is sitting in a zone of regulatory clarity. I don’t think we need any change in a law or a rule in order to 10x or 100x. We can probably be 100x bigger from here without any change in any law or any rule. We’re not asking or looking for anything.

I think that clarity is pretty important to the dynamic and the balance of power with regard to token issuers, DeFi exchanges, stablecoin issuers, crypto exchanges, and it determines the balance of power between the crypto industry, the neo banks, and the regional banks, and the systemic, the big banks. There’s a lot of dynamics there that are almost too nuanced to get into right now. The significance to us is just ignorant skeptics will gloat if it slows down and they will all flip to uninformed cheerleaders, you know, or acknowledgers if it passes. There’s not anything that we need. It’s just gonna change sentiment. It’s gonna be a positive bullish sentiment as it goes through.

Long term, if I look at my laundry list of things that are good for Bitcoin and good for us, it’s a second order, not a first order, but the second order is the Basel rules to the extent that they’re upgraded to recognize Bitcoin as legitimate collateral and not haircut it. It would be positive for banking adoption and especially credit adoption, ’cause right now there’s still a bit of haircutting of it by the credit rating agencies and the very conservative regulated entities that they want a gatekeeper or they want a regulator to tell them it’s okay.

I think that at some point, if you want an insurance company portfolio manager to buy the product without knowing what it is or why they bought it, then it would be beneficial for the Basel rules to evolve and get an embrace of Bitcoin as a legitimate asset. Right now, we’re selling to informed investors that wanna buy the best thing, and if you look at that market, if we slurped up 10% of private credit, that’s $370 billion right there. We’ve got plenty of runway for the next decade.

My wish if you know if I had one wish is for the Basel rules to be fixed and then for the world to recognize Bitcoin as legitimate collateral pari passu to gold or to other capital assets on banking balance sheets and regulated entities. Then it should spread faster through the banks as a reserve asset and through insurance companies and the like. It’s not necessary to us. We could be a multi-trillion dollar company and sell $400 billion of STRC and not have that fixed.

Phong Le, Chief Investment Officer, MicroStrategy: You know, one thing I’ll add, Randy, is Stretch is already a rapidly accelerating product in the category of digital credit. That is without clarity as it relates to tokenization of securities, which I think will either be created through the passage of clarity or rulemaking by the SEC. That will only accelerate things. We show $270 million of layer 2 tokenized Stretch from companies like Apex and StockX by Kraken. Those are sold outside the U.S., not in the U.S., right? When we get clarity, that’ll only accelerate things and will accelerate layer 2 development on top of Stretch and just accelerate digital credit overall. It’s exciting to see what may come on something that’s already an exploding asset class.

Michael Saylor, Chief Executive Officer, MicroStrategy: That’s right. Thanks.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Saving the best. Thank you, Randy. I was just saying saving the best for last. James Lavish.

James Lavish, Equity Analyst: Thank you, CJ. Congratulations on your new role. Phong, Michael, Andrew, thank you for having me and allowing us to ask questions. But first, congratulations also on your success with Stretch. You know I’m a believer in the digital credit world. I appreciate you all sharing the many levers that you can now use to create value for the common shareholders while protecting creditors. But on that, with Strategy’s energy and focus on Stretch, which you’ve said before is a security you landed on through iteration, what do you see as the optimal future balance sheet structure for maximizing the accretion of value for common shareholders? And would that include retiring most or all of the other debt and preferreds currently outstanding?

Do you believe that that’s ultimately necessary to attract more of the largest institutions to invest in Stretch in lieu of traditional yield-generating securities?

Michael Saylor, Chief Executive Officer, MicroStrategy: Yeah, we think we wanna be debt-free completely. All six of the converts we may go away by either swapping them for Stretch or swapping them for equity or paying them off with cash. I think there’s consensus on that. I think there’s consensus that Stretch is the killer strong credit instrument. I think the jury is still out on the other four credit instruments.

They’re all long duration credit instruments and they represent important optionality for the company and they. I think that our policy will be to retire the six convertible bonds to promote and to polish the jewel in the crown, which is STRC, and then to watch and nurture the other four and improve them as we can, and then observe whether or not they’re material in generating demand. I think right now you can imagine the company if I was designing a Bitcoin treasury company from a clean sheet of paper, the company would consist of one common equity, one monthly or, you know, or semi-monthly variable preferred equity, and a big stack of Bitcoin and nothing else. Right? That’s my advice I give freely to anybody that ever asks me.

The other things are interesting maybe, but, you know, not necessary. We’ll watch them. It’s very difficult to create a publicly traded instrument like Strife or Stride or Strike, so we won’t retire it because it represents giving up billions of dollars of optionality. On the other hand, what really is critical for us is manage the common stock carefully to get the MNAV up and the premium up, manage the Bitcoin stack, and then manage the, you know, the monthly variable rate preferred, the digital credit instrument. Those are the things that really matter.

CJ (Chaitanya Jain), Head of Investor Relations, MicroStrategy: Thank you, everyone. That brings us to the end of the Q&A session. I’d like to thank everyone for their questions and all the attendees for joining and listening to the earnings call. I’ll hand it back to Phong for any closing remarks.

Phong Le, Chief Investment Officer, MicroStrategy: Yeah. I wanna first thank everybody for attending our earnings call. I know there’s tens of thousands of you out there, spending two hours and 15 minutes of your evening with us and we find that to be very gracious and flattering. Many of you are shareholders of our common MSTR and our perpetual preferred Stretch. As many of you know, we have a shareholder vote coming up that’s due early June to primarily modify Stretch to go from, as Andrew mentioned, a monthly dividend to a semi-monthly twice-a-month dividend. We believe this is beneficial to our shareholders. As we mentioned, one of our principles is to make Stretch better and more attractive, so we would appreciate you all voting early so that we can start to tabulate the votes.

This is how you can do it. If you have additional questions on how to vote for Stretch and for the common, you can also go to our website. With that, I really appreciate your time. Thank you for all the interest and the attention, and we’ll talk to you again, if not before then, at our next earnings call, three months away. Thank you all.