Strategy's Michael Saylor on the crypto sell-off and the company's approach to buying more bitcoin

Key Concepts

• Crypto Selloff: A period of significant price decline in the cryptocurrency market.
• Hard Drawdowns: Substantial declines in the value of an asset from its peak.
• Deleveraging: The process of reducing debt or financial leverage.
• Digital Credit Issuance: Creating credit instruments backed by digital assets like Bitcoin.
• Treasury Credit (STRC): A credit instrument issued by the company, backed by Bitcoin, with potential dividend payouts.
• European Credit Instrument (STRE): Another credit instrument issued by the company, also powered by Bitcoin.
• Capital Acquisition: The process of obtaining funds, in this case, through the sale of credit instruments.

Current Crypto Selloff and Market Drivers

The current cryptocurrency market is experiencing a selloff, with Bitcoin falling below $90,000. While acknowledging Bitcoin's inherent volatility, the primary driver behind this selloff is identified as a natural deleveraging of the asset. This phenomenon is described as a recurring event, occurring approximately every six months to a year, with the speaker having witnessed five significant drawdowns since 2020. The current situation is viewed as an overdue correction after a period of accumulation.

Strategy Behind Bitcoin Purchases

The company's strategy for acquiring Bitcoin is intrinsically linked to its core business: issuing digital credit. The process involves creating credit instruments that are backed by Bitcoin. These credit instruments are then sold to investors. The capital generated from these sales is subsequently used to purchase more Bitcoin.

Step-by-step process of Bitcoin acquisition:

1. Issuance of Digital Credit: The company creates and sells credit instruments.
   • Example 1: Last week, approximately $130 million worth of treasury credit in the form of STRC was sold.
   • Example 2: A European credit instrument called STRE was issued, amounting to about $700 million.
2. Credit Instrument Features: These credit instruments are designed to pay dividends, potentially as high as 10% at par, and are powered by Bitcoin over time.
3. Investor Participation: Credit investors purchase these instruments.
4. Capital Deployment: The capital acquired from selling the credit instruments is then used to buy Bitcoin.

Therefore, the company's Bitcoin purchases are directly driven by the activity and success within the credit markets.

Conclusion

The current crypto selloff is attributed to natural deleveraging, a cyclical event in the volatile asset class. The company's strategy for accumulating Bitcoin is a direct consequence of its business model, which involves issuing Bitcoin-backed credit instruments. The capital raised from selling these instruments, which offer dividend payouts and are powered by Bitcoin, is then reinvested into purchasing more Bitcoin, creating a self-reinforcing cycle tied to credit market performance.