00:00 Scott Melker
There may be no more hotly debated company on Wall Street right now than strategy. They hold 845,000 Bitcoin, about 4% of all that will exist and have an entire capital stack around it. To Bulls, it’s genius, but the skeptics are out in droves. We’re going to get the truth straight from the horse’s mouth from Fong Lee, the president and CEO. Let’s go.
00:27 Scott Melker
What is up everybody? Welcome to the Daily Wolf on Yahoo Finance. I’m your host Scott Melker, also known as the Wolf of All streets and we’ve only got 15 minutes, so I’m going to go ahead and bring on Fong Lee right now. Fong, how are you doing? Welcome to the show.
00:43 Fong Lee
I’m doing great Scott, thanks for having me.
00:46 Scott Melker
So I’m glad that we got this rare opportunity to speak. We obviously don’t often do interviews and guests here, but I figured this was the best opportunity to get the truth straight from the horse’s mouth. So I want to start with the 845,000 Bitcoin you hold, which is, you know, roughly 4% of all the Bitcoin that will ever exist.
01:06 Scott Melker
I mean, to put that in perspective for people, where does that rank against other companies, funds, even countries?
01:13 Fong Lee
Well, there was a point in time when we and Ibit were pretty close, and Ibit seen quite a bit of outflows, uh, in the last 30 days or so. So we are now by far and large, the largest corporate and now the largest holder, identified holder of Bitcoin in the world, and we plan to stay that way.
01:31 Scott Melker
You’ve obviously created an entire preferred stack. You know, STRC, STRF, STRK, STRD. seems that this is the new focus of the company to some degree and I spoke very candidly about that with Michael uh at Vegas Money 2020.
01:50 Scott Melker
What is digital credit to you and why are traditional fixed come investors and other retail investors buying it?
01:57 Fong Lee
Oh, there’s the advantages of digital credit to us, uh the company, strategy. There’s advantages of digital credit to the purchasers and there’s advantages of digital credit to Bitcoin. Uh to us the company, uh we want to be able to raise capital that is non-dilutive, uh that also uh does not have maturity and duration risk and preferred capital is actually perfect for that. right? I’ll give you an example. There’s more recently, uh Google last week raised 80 billion dollars of capital and a large portion of that used uh preferred uh capital uh in that case convertible. And when you have you want to invest into something that has a long duration that is uncertain what the return profiles are, is it one year, two years, three years, four years, IAI, prefer capital is actually perfect for that.
02:47 Fong Lee
So, if you now take that analogy of what does AI look like? high capital investment, right, the underlying is something everybody believes in, but the return profile is uncertain, that’s what Bitcoin is. All right? So for us, strategy, preferred capital in this case perpetual preferred is perfect for a Bitcoin investment, unlike convertible bonds that have a maturity of anywhere between three and eight years. Uh, and even better than capital, uh, as equity, which is immediately deluted to to us. So that’s why it’s good for us.
03:12 Fong Lee
Uh why is it good for for somebody who an investor, right? Where else can you get something that is an 11 half percent tax deferred cash pay dividend yield, used to be monthly, now it’s twice a month. Okay? And on top of that have something that’s significantly overcollateralized in our particular case four to five times X over stretch. Um, it doesn’t exist out there. Too good to be true. In this particular case, no, I don’t think it’s too good to be true. The only challenge with the product maybe is it’s 10 years old or 10 months old, needs a maturity and to prove itself over time. and it’s a fairly low volatility product. So that’s the second piece. A third, why is it good for Bitcoin? There’s a lot of debate for this.
03:52 Fong Lee
Ultimately, as much as I like to believe everybody fully understands the bull case for Bitcoin, right? and everybody wants a non-sovereign decentralized store value asset. When I go to a cocktail party in Washington DC, 9 out of 10 people look at me when I say I’m a Bitcoin person as if I’m having either a political conversation or it’s too complicated for them, right? And those 9 out of 10 people should have access to Bitcoin.
04:22 Fong Lee
They have a right to have access to Bitcoin. And they’re not going to do it by, you know, opening up a coinbase account, they’re certainly not going to do it with a self-custody solution. They’re not going to do it even through Ibit. They’re definitely not going to do it through MSTR. Those people should be on board to Bitcoin and everybody should be happy with that as an outcome if you’re a Bitcoiner.
04:40 Scott Melker
I totally agree. So, on the Q1 earnings call, you alluded to using the full range of capital tools and that included the discipline sale of Bitcoin and I think uh, you know, Saylor famously said that he would use a small sale of Bitcoin to inoculate the market, right? You said you were going to do it, weeks before you did it. You sold a simply 32 Bitcoin, a very small amount, which obviously was bought back in much greater size immediately.
05:01 Scott Melker
You planned it, but the I guess naysayers are saying that it was a forced sale that indicates that you will continue to be a forced seller. So how do you dispel that myth?
05:13 Fong Lee
We said we were going to do it, right? We have $52 billion dollars worth of Bitcoin on our balance sheet. At some point in time we have to put it to work. Uh and to put it to work one option is is to sell it, right? And so we sold less than 1% of 1% of our Bitcoin. Uh and we thought two and a half billion dollars or two and a half million dollars, 32 Bitcoin was a reasonable amount. Um, why did we do it? One, to inoculate the market.
05:32 Fong Lee
What does that mean is is to indicate to all classes of shareholders and stakeholders of strategy that we’re willing to sell our Bitcoin, right? Two, uh to test our processes and three, to to give ourselves the opportunity for future tax loss harvesting. It’s really that simple. Uh, we did not sell it because we needed to sell it to meet our cash dividend obligations of $100.5 million dollars. If we did, we would have sold a lot more than two and a half million, right? and and so there there’s there’s talk out there they did it to satisfy the dividend. No, we didn’t do it to satisfy our dividend. We did it to to one, inoculate the market, two, test our processs and three, be able to capture future tax loss.
06:03 Scott Melker
I mean, isn’t satisfying the dividend like $1.6 billion dollars a year or something? you sold 32 Bitcoin.
06:08 Fong Lee
It’s $1.7 billion a year we sold 32 Bitcoin. By the way, $1.7 billion a year sounds big to most people, right? Our equity, which is primarily how we satisfy our dividends, trades about $2.7 billion a day. Right? So it would take about four hours of full selling into the market of our equity, right? Obviously we didn’t wouldn’t do it in a four-hour window, but that’s four hours of a day of trading volume to satisfy our $1.7 billion cash dividends.
06:40 Fong Lee
So it’s really not, you know, I I don’t I don’t lose sleep at night wondering how are we going to pay our dividends. So that’s that’s like so really low on the list of risk to the company.
06:51 Scott Melker
Right. and you’ve still built a USD reserve up that at one point gave years of dividend coverage. And I think the same critics are screaming loudly because you closed one of those convertible notes and that uh cash reserve went down, even though you raised another 100 million this week. So is this something you’re doing to batten down the hatches? Is it a signal to the market? Do you need a cash reserve or is it just something the market’s demanding? I mean, why the cash reserve?
07:16 Fong Lee
Yeah, so so first, why the cash reserve? Mathematically, I do not believe I need a cash reserve for the reasons you mentioned. Now, from a risk perspective and to satisfy those sort of four different stakeholders, our common, our preferred, our Bitcoin and our debt holders, especially our debt holders, right? and our stretch holders. They feel that it’s less risky to have a cash reserve, right? Like what if Bitcoin was to crash by 90%? We would have two and a half years or whatever it is, right? So we took the two point two five billion down to north of 700 million. Why did we do it? Because at that point in time, that was the best way to buy back our converts of one and a half billion dollars.
07:49 Fong Lee
Look, we’ve also said we’re going to bring it right back up, right? And we’ve done it 100 million dollars at a at a time so far last week, right? And by the way, we also bought 100 million dollars of Bitcoin last week right after we sold two and a half million. No nobody talks about the purchase of a million hundred million, they talk about the sale of two and a half. But it’s uh we’ll bring the cash dividend, well sorry, we’ll we’ll bring the cash reserve back up and refresh it over time because it satisfies our debt holders and our stretch holders.
08:16 Scott Melker
The criticism there has been that this one week’s action has been dilutive to strategy shareholders, but if you obviously zoom out over any meaningful period of time, you know, that that number has only gone up. So how do you address that?
08:30 Fong Lee
Every year since the and and and look I we we take week to week actions, but we think strategically year to year and really long-term we think in four or five year time horizons, right? And and so are we increasing Bitcoin per share every single year, the answer is yes. The best year was 2024, we increased it 77%. Last year we increased it 30, 23%. This year year to date we’ve increased 12%, right?
08:58 Fong Lee
And we went from 13% down to 12%, right? And and so there will be weeks that we’re going to be taking actions that reduce Bitcoin per share and weeks that we increase. Big question is, you know, every single year are you increasing, right? Like if you look at the capital outlays of a company, right? Like that that’s why you have capital investments and operating expenses, right? Like if you were to if you if you look at a cash flow of a highly capital intensive company, you’ll have weeks and months where the cash flow dips, weeks and months where it increases. But the question is over the course of the year are you cash flow positive and really for them, maybe you’re making a capital investment that’s 500 million dollars in one year, right? And you see returns of one and a half billion dollars over three years. That would be accretive.
09:42 Fong Lee
Now we’re talk about a week to week, you know, and and we choose to disclose this week to week. We don’t have to. Right. That is a voluntary disclosure. What we have to do is disclose quarter to quarter. Uh and with the weekly disclosure and the greater transparency, we get more scrutiny and and I think over time hopefully more maturity from all of our constituents.
10:07 Scott Melker
The list of things I keep hearing, obviously STRC is trading below par, which prefs do. Uh and that’s they’re designed to be able to. So for people who don’t, I guess live in this space, what does that signal and what does it not? What does it mean when something is trading below par and you know, what happens if it’s not immediately back to 100?
10:24 Fong Lee
So so it’s an equity first of all, right? It is a preferred equity, right? It’s not debt and it’s definitely not a money market even though some people are using it in place of a money market. It’s definitely not that, right? And so although it’s designed to trade within a tight window of par, 99 to 101, there will be times when it doesn’t. And here I’ll I’ll give you an interesting stat, right? Total shareholder holder return. Bitcoin from October when it started decreasing to now is down 50%. That’s the TSR of Bitcoin.
10:46 Fong Lee
The TSR of stretch during that time up 4%, right? So even though stretch is now trading whatever today at 96 cents on the dollar, right? That means it’s down 4% during that period, but when you take the 11 and a half percent dividend that’s paid over the last 10 months, that’s up 8%. So if you’re a shareholder of stretch over that period of time, you’re up 4%, right? It is designed to have Bitcoin as the underlying
11:08 Fong Lee
and to have stable, fairly stable price and to give you a return of 11 and a half percent over the course of the year. Uh I would argue it’s it’s done basically that. Uh and you know, if I told you in October, I’m going to I’m going to design an instrument with Bitcoin as the underlying. Bitcoin’s going to go down 50%, I’m going to give you a 4% TSR. Would you believe me?
11:26 Scott Melker
No.
11:27 Fong Lee
Yeah, well we’ve done it, right? And so uh now, last couple weeks it’s gone down because Bitcoin’s gone down, but it’ll come back up, right? We we have the mechanisms to do so. We could increase the dividend, right? uh as an example, we could shore up the US dollar reserve if that’s what’s important to people. But you know, I I I have a strong belief one, we’ll continue to pay the dividends and two, it’ll trade back at par.
11:45 Scott Melker
I wish we had more than two minutes left, so I’m going to ask you the good one for the sound bite. What would it take for you to actually be a forced seller of Bitcoin, which is what the critics keep screaming about? And then I guess as a Cory, what are people just completely getting wrong that you’re seeing in the narrative?
11:58 Fong Lee
The the the the the most realistic scenario of us being a four seller of Bitcoin is we have about three and a half billion dollars of prefers that come due in 2028, right? with a high strike price over $400. If at that point in time but Bitcoin has lost uh a significant amount of its value, our share price is depressed, we would sell the Bitcoin potentially to satisfy the convert. Now, that’s a I’ll call it an edge case because we could also just refinance those converts. We could equitize them, right? That that’s, you know, we’re talking 2028, we’re talking two years out.
12:33 Fong Lee
I don’t see any scenario until then that we become a forced seller of Bitcoin. And even then we have other opportunities and options. And and if you’re a believer in Bitcoin, which I am, right? Bitcoin’s not going to go down significantly between now and then, we’re about to enter another bull cycle.
12:49 Scott Melker
I agree. So I we got about 45 seconds. What’s the one thing people are just totally getting wrong in the narrative?
12:54 Fong Lee
Uh, I I think big picture zoom out. We’ve been doing this for six years. We’ve outperformed Bitcoin by 50% in the last six years. Right? And so so if you believe in Bitcoin, we are amplified Bitcoin. Bitcoin’s been up 37%, we’ve been up north of 40, closer to 50% during that period of time. We’ve outperformed every company in the Mag 7 except for Nvidia out of all of them, right?
13:19 Scott Melker
Incredible. Well, Fong, thank you so much for coming on and giving us the information straight. We deeply appreciate it and uh we’ll all be watching closely. Everybody else will see you back on Monday.
