The chairman of the Bitcoin treasury company Strategy says the firm now intends to buy all of the organic BTC until all 21 million coins are mined by 2140.
The News
In a new CNBC interview, Michael Saylor says Strategy has been gobbling up all of the Bitcoin supply sold by BTC miners.
According to Saylor, the company plans to keep the Bitcoin-buying strategy until all BTC have been mined.
“The formation of digital credit means that the credit market itself is absorbing all of the organic supply of Bitcoin from now to forever. Our company will probably buy all of the Bitcoin that gets produced by the miners between here and the year 2140. Then there’s no more Bitcoin.”
Saylor also explains how Strategy plans to fund its Bitcoin accumulation spree over a long arc of time.
“So we think Bitcoin’s going up more than the S&P index over time. We expect 30%, but it doesn’t matter if it’s 10% or 20%. We can pay 11 .5% dividend on a preferred stock, a credit dividend, because that represents a fraction of the long-term capital gain that we’re expecting.
And so if you’re disciplined about the way that you convert a capital gain into a credit dividend, the capital gain is unrealized. The credit dividend becomes a return of capital and is tax-deferred. So digital credit is really synthetic yield, where we’re extracting the first 11.5% of our expected capital appreciation of Bitcoin. We’re remitting it to the credit investors via an over-collateralized preferred stock.”
What It Means for Investors
Data from Bitcoin Treasuries shows that Strategy has accumulated 843,738 BTC worth about $65 billion at current levels. Earlier this week, Saylor announced that Strategy bought 24,869 BTC for roughly $2.01 billion, bringing the company’s total Bitcoin buys this year to 170,238 BTC.
Meanwhile, the total number of Bitcoin mined so far this year is approximately 63,000 BTC, and less than 1 million BTC are left to be mined for the next 114 years. Strategy is buying BTC at more than double the rate of new BTC emissions.
And the company is doing it by raising funds and using Bitcoin as the main capital asset. They issue preferred shares that pay an 11.5% dividend, significantly higher than the 3.3% yield on money market funds and dwarfing the 0.01% to 0.4% interest paid by banks on deposits.
In February, the company announced that its USD Reserve has climbed to $2.25 billion, providing 2.5 years of dividend and interest coverage. Strategy’s USD Reserve is funded by the proceeds from the sale of shares of the firm’s class A common stock (MSTR).
In short, Strategy is selling MSTR in the public markets to pay dividends to investors of its preferred shares. Subsequently, the money raised in issuing preferred shares is used to buy more Bitcoin, ensuring the amount owed to preferred investors is “over-collateralized,” or backed by its massive BTC holdings.
Saylor has created a massive flywheel that supports Strategy’s business while sending a message to the market that Bitcoin will always have a bid.
As an investor, it’s tough to be long-term bearish on Bitcoin as more companies add BTC to their balance sheet, while Morgan Stanley and Goldman Sachs offer Bitcoin exchange-traded funds (ETFs) to their clients. Saylor himself put it nicely when he said that Bitcoin is now driven by capital flows, and “bank and digital credit will determine Bitcoin’s growth trajectory.”
Since its inception, Bitcoin has risen more than 10x in a bull market, only to collapse more than 70% once a bear market hits. During those cycles, retail traders, whales and speculators mostly drove BTC’s price action. Today, about 4.195 million BTC are held by public and private companies, government entities, ETFs, exchanges, DeFi and other protocols.
In the same CNBC interview, Saylor says Bitcoin has bottomed after dropping to $60,000. While it remains to be seen whether his call is correct, Strategy’s Bitcoin accumulation game plan along with increasing institutional adoption indicate that BTC is a maturing asset and that could ultimately change the way its price behaves moving forward.
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