Strategy’s US dollar reserve is for company’s short term: CEO

00:00 Speaker A

Strategy shares are back in the green along with Bitcoin today. Now, CEO Fong Lee made headlines when he said on the podca podcast, what Bitcoin did that the company would consider possibly selling some of its cryptocurrency if needed to cover its dividend. But then the company announced it had acquired 650,000 Bitcoin now. That’s the total, just over 3% of the total supply. It also established a 1.44 billion US dollar cash reserve that would cover that dividend for 21 months.

00:30 Speaker A

Fong Lee is joining me now, CEO of strategy. Thank you so much for being here. It’s great to have you. Um I was just listening to that to that podcast where you talked about the dynamics at play with the company Fong. So really happy you’re here. Now, um at as of the close yesterday, the so called market net asset value MNAV, which is a barometer a lot of folks talk about with your stock. It was at about 1.15.

01:05 Speaker A

And you talked about the potential for considering a Bitcoin sale, as you said from a mathematical perspective, if you got to a one to one MNAV. So, you had gotten pretty close there. I mean, what’s your thinking about when that could be necessary or does this cash reserve now make that unnecessary?

01:32 Phong Le

Yeah, look, we we have um a Bitcoin reserve for the purpose of the long-term of the business and now we’ve built a US dollar reserve for the purpose of the short-term of the business. Uh we don’t want to be in a position to sell Bitcoin, but below 1 X MNAV, it doesn’t make sense for us to issue equity to pay off our dividends. Uh we built up 1.44 billion. We will target two plus years uh of cash reserves, if you will, US dollar reserves, so we don’t have to sell Bitcoin.

02:04 Phong Le

Let’s say that gets us to three years. If there’s literally a three year sustained Bitcoin down cycle, a three year sustained cycle where our MNAV trades below 1X, then we may have to sell Bitcoin. At this point in time, it’s the end of 2025. We’re talking about 2029 where that may be the case and and we have the Bitcoin for a reason uh to protect the company, to protect our shareholders. And if if we have to sell, we will.

02:25 Speaker A

Um and the the cash that you all put into this reserve, this $1.4 billion reserve is the cash that you have raised from selling shares, correct?

02:38 Phong Le

That’s correct. It’s from selling equity at a premium to MNAV, which by definition is accretive to our shareholders.

02:45 Speaker A

And of course, you have now embarked on a more recent strategy where you have been issuing various types of preferred shares, um, and getting cash from that. They’re sort of more credit like instruments. We’ve talked to, um, executive chairman, Michael Saylor about that. Um, what is sort of your capital raising plan for the rest of this year and going into 2026 when it comes to selling either the common equity or more types of this preferred equity.

03:22 Phong Le

Yeah, our preference is to to increase our amplification by selling more preferred equity. Uh we really just started this in January of this year and the idea of of a perpetual preferred to buy Bitcoin, uh is a pretty novel idea. Look, it’s as novel as in 2020 when we said we were going to become the first Bitcoin treasury company. It took, I would say about a year for people to understand what we were doing, then we layered debt on top of that.

03:52 Phong Le

We became a Bitcoin treasury company that leveraged ourselves and that took people a year, 18, 24 months to figure that out. And now we’re issuing perpetual preferred, which we think is superior for a variety of reasons to traditional debt, to convertible debt. Uh it’s going to take 18, 24 months for the market to figure this out. Uh but it’s not just the market understanding what MSTR is doing. It’s the market understanding that a perpetual preferred instrument that pays 10 and and now three three quarters a point that’s STR C, uh is better than other alternative things that you might be able to invest in.

04:29 Phong Le

And so it’s going to take a while to season the market. It could be a year, two years, three years. At that point in time, I think we’ll be able to really grow a lot of capital through our perpetual preferreds. The big challenge people had with them was how we’re going to pay the dividends in the short term, if we see volatility in Bitcoin, volatility in MSTR. Now we’ve created this uh US dollar reserve to address that challenge.

04:52 Speaker A

Uh I’m also curious when it comes to your Bitcoin buying strategy, you guys have pretty consistently bought that Bitcoin and it and it seemed pretty price agnostic. Is there any thought of going forward? I I mean, listen, everybody says it’s tough to time the market. I get it. But like buying lower is better than buying higher as a general rule of thumb. So is there any uh sort of plan going forward to try to maybe not buy on more on the on the higher side and more by I mean, I think that your what your your um average cost to purchase at this point is above where the price of Bitcoin is right now if I’m not mistaken.

05:28 Phong Le

Yeah, I I I split buyers into sophisticated buyers into two categories. You have investors and you have traders. Uh traders are PH Ds working at hedge funds who have uh you know, large, large desks with four screens in front of them and and they’re making decisions at the millisecond level of when to buy and sell Bitcoin or buy and sell equities or or derivatives, etcetera. That’s not us.

05:59 Phong Le

We’re investors. And when you see an asset class like Bitcoin and you believe in it, you just buy it when you’re able to raise capital to buy it. Uh and that’s our strategy, right? We are not Bitcoin traders, we’re Bitcoin investors and that’s the distinction there. Uh I’m pretty sure that if I tried to become a Bitcoin trader, I would lose to more sophisticated Bitcoin traders. So we just buy when we have excess capital or when we’re able to raise capital.

06:26 Speaker A

So Fong, as we talked about, Bitcoin is going up today, right? It’s been on this downswing recently. But when you do sort of um scenario preparation simulation, what have you and you think about Bitcoin going to 80,000 or even going to 60,000 or even going to 40,000 or lower, what would these various levels mean for your ability to pay that dividend?

06:50 Phong Le

I I think there’s there there’s two things. There’s Bitcoin price and then there’s this price of our our equity which drives MNAV, right? And we’ve seen this in previous scenarios where Bitcoin price goes down, uh has a massive drawdown, but our MNAV is still above one and so it’s accretive to our shareholders to issue equity to pay dividends to buy Bitcoin. Uh and so in fact, let’s let’s say Bitcoin price, you know, hypothetically, hope it doesn’t goes to 40 K and our MNAV is two X is actually more creative to buy Bitcoin, issue equity to buy Bitcoin and MNAV of two X when Bitcoin is 40 K. Uh so that that’s sort of probably the primary difference here is not just a function of Bitcoin prices, a function of our equity price.

07:40 Phong Le

And then, you know, the big question becomes well what drives your MNAV, right? And and what drives our MNAV is the ability for us to be creative and in adding Bitcoin per share, right? Do people believe that we can add Bitcoin per share, can we raise more capital either through equity financing or debt financing or now preferred financing. And do they believe that the management team is doing things in a thoughtful uh way and and a transparent way. So that’s what we really focus on.

08:14 Phong Le

And so, yeah, I think when Bitcoin price goes down, we see that as a buying opportunity as long as we feel bullish about the enterprise overall.

08:24 Speaker A

Do you, um, are you concerned at all that as that MNAV has compressed that you know, despite the sort of management that you’re talking about that your stock will be less appealing, even if you do acquire more Bitcoin because people can buy an ETF that’s more of a one to one to Bitcoin. They can buy cryptocurrencies themselves. I mean, how much are you concerned about that and and what if anything can you do about it?

08:58 Phong Le

Yeah, we’ve faced this question, you know, some folks have been following uh strategy for the last year. Some have been following us for the last five years, some for 20 years. Those who’ve been following us for the last five years have seen this exact sort of movie play once before. We had a crypto winter in 2022, it went through 2023. At the beginning of 2024, we had spot Bitcoin ETFs launch, Ibit is is probably the best known of the bunch.

09:34 Phong Le

And the same exact question arose which is what happens in a Bitcoin winter and what happens when your MNAV starts to compress and there are alternatives out there. And and I think this is probably one of the maybe less understood notions about strategy and we see it now coming through discussions of MSCI and the indexes. We’re not an ETF, we’re not a closed ended fund. If you were, you could see the company trade to MNAV or even below MNAV.

10:00 Phong Le

We’re an operating company that creates our products is Bitcoin back securities, right? And so in that particular case, the valuation of the company shouldn’t be equal to the underlying assets. The valuation of the company should be equal to the ability to grow the underlying assets, grow income and grow the business. Uh And so we look much more like a mag seven tech stock than a closed ended fund or an ETF. And and and I’m not sure exactly why people don’t quite understand that except many people don’t understand Bitcoin and many people don’t understand financial markets.

10:48 Phong Le

Uh but but we are an operating company that creates Bitcoin back securities and we should trade at a valuation equal to our ability to grow Bitcoin per share and our ability to grow our operating income, just like any other operating company would be conceived and thought of.

11:06 Speaker A

Um Fong, I could go down that rabbit hole. We could we could be here for another hour. But I finally what I want to ask you is this, you know, um most people are used to seeing the face of this company as Michael Saylor. So I’m very happy to be able to talk to you today, but I’m also curious what you want people to know about you as somebody who has not been, I mean, you’ve done podcasts as as we mentioned, but what do you what would you want people to know about you as the CEO of strategy?

11:33 Phong Le

Um Look, my my background is not much different than Mike’s. I’m an engineer, I’m a technologist, I like data, I like software. Uh and that’s how I came upon Bitcoin. Uh I have an MBA so I have uh and I was CF O here, so I have a lot of financial background too. And I feel like Bitcoin, I I sort of feel like I was made for Bitcoin. The the the the intersection of technology and finance capital markets, macroeconomics has been what I’ve been doing my entire career.

12:03 Phong Le

And 2020, it just became this aha moment when Mike said, hey, what do you think about this? Uh So, uh I love strategy. I love Bitcoin and uh I think the potential for for both is tremendous and I’m very excited about the future.

12:22 Speaker A

Well, and you guys also have in common that you both make sure you get the orange on when you when you come to talk to people like me. Fong, thank you so much for your time. I appreciate it.

12:33 Phong Le

Thank you. Thank thanks for the opportunity.