Michael Saylor's copycats misunderstood why Strategy worked

[00:01] Bitcoin buying machine the world has ever seen. Then dozens of companies tried to copy it. Now they're selling their Bitcoin, repaying debt, and copycats are dying, but corporate Bitcoin adoption may only be getting

[00:15] Bitcoin adoption may only be getting started. Let's go. Daily Wolf on Yahoo Finance. I am your host, Scott Melker, also known as the

[00:29] Wolf of All Streets. Today, we're going to talk about Bitcoin Treasury companies. For one brief, ridiculous moment, Wall Street appeared to discover forgotten public company, announce a Bitcoin treasury strategy, sell new

[00:43] shares, use the money to buy Bitcoin, watch the stock explode, then sell more shares, buy more Bitcoin, and repeat forever. Michael Sailor made it work so spectacularly well that everyone believed they could become Michael

[00:55] Sailor. Software companies, healthcare companies, hotel companies, businesses investors had ignored for years transformed overnight into Bitcoin they sold or whether the underlying business made any money. The only

[01:08] question was how much Bitcoin can they buy. But there was always one enormous problem. They copied sailor's transactions without copying the conditions that made them possible. Strategy had the head start, the scale,

[01:21] the liquidity, the credibility, and the institutional investor base. Eventually, it had an entire menu of financial products built around the largest corporate Bitcoin treasury on Earth. The copycats had a press release and an ATM

[01:33] offering. I've said this from the very beginning. Bitcoin financial engineering was never going to work at scale for everyone. Strategy's lead was too large and the entire trade depended on investors permanently paying a premium

[01:46] elsewhere. Now those premiums have collapsed across much of the sector. are falling apart. Companies are selling Bitcoin to repay debt, fund operations, and buy back their shares. Some are abandoning their crypto strategies

[02:01] entirely. Even Strategy has sold Bitcoin, built a multi-billion dollar cash reserve, and entered a far more complicated phase of balance sheet experiment is not dead. But the fantasy that every public company could issue

[02:14] endless stock, buy Bitcoin, and manufacture value forever, that part is dead. What replaces it, though, could be far bigger and far healthier. Real companies producing real cash flow and using real profits to buy Bitcoin

[02:26] without depending on Wall Street's permission. The first era of Bitcoin treasury companies was built on financial engineering. The next one will Now, to understand what happened, we have to go back to what Michael Sailor

[02:39] simpler than the machine strategy eventually became. In August 2020, the company, then known as Micro Strategy, used $250 million of corporate cash to buy 21,454 Bitcoin. That first purchase was a

[02:55] straightforward Treasury decision. Micro Strategy had excess cash. Sailor and Bitcoin was a superior long-term reserve asset. So the company exchanged a portion of its dollars for Bitcoin. That is the basic corporate Bitcoin

[03:09] perfect sense. Sailor did not stop there. Micro Strategy issued convertible debt and bought more Bitcoin. It sold common shares and bought more Bitcoin. It created multiple classes of preferred stock, raised billions of dollars, and

[03:22] bought even more Bitcoin. The software company became a capital markets machine wrapped around a Bitcoin treasury. Strategy currently owns 843,775 Bitcoin. It paid approximately 63.7 billion for them, including fees, at an

[03:38] average price of $75,476 per coin. That is more than 4% of Bitcoin's absolute 21 million coin supply cap. It is an absolutely extraordinary achievement. But Sailor's real innovation was not merely buying a

[03:52] strategy securities to increase its Bitcoin holdings. and under the right Bitcoin attributable to each diluted share. Here's how the flywheel worked. When strategy traded at a premium to the value of its Bitcoin, it could sell new

[04:06] stock at that elevated valuation and use the proceeds to buy Bitcoin. The number of shares increased, but if the shares were sold at a large enough premium, Strategy's Bitcoin holdings increased even faster. Existing shareholders owned

[04:18] a smaller percentage of the company, but each share could represent more Bitcoin than before. The premium made issuance attractive. The issuance funded more attracted more investors. Those investors supported the premium. And the

[04:31] premium allowed strategy to issue even more securities. That is financial engineering. But I'm not using that phrase as an insult. Financial engineering can be incredibly powerful. Sailor understood the relationship among

[04:43] Bitcoin volatility, equity premiums, convertible debt, and investor demand before almost anyone else. Most importantly, he got there first. By the what he had created, Strategy already owned hundreds of thousands of Bitcoin.

[04:57] institutional access, and a chairman almost synonymous with corporate Bitcoin adoption. MSTR was not simply another company that owned Bitcoin. It was the Bitcoin treasury company. Then Bitcoin soared. MSTR exploded, and executives

[05:12] everywhere learned exactly the wrong lesson. The lesson should have been that long-term treasury asset. Instead, the lesson became announce a Bitcoin overpriced shares, buy Bitcoin, and try to repeat strategies flywheel. For a

[05:27] announced treasury strategies, and their stocks surged. Higher share prices gave them access to capital. They used that capital to buy Bitcoin, Ethereum, or compelling story. The market called them

[05:40] digital asset treasury companies, DATs or DACA. But the entire system depended on a premium that had no obligation to exist. Why should investors consistently pay $2 for $1 of Bitcoin sitting inside a public company? And once spot Bitcoin

[05:53] ETFs existed, investors already had simple Bitcoin exposure. Once strategy access to the largest and most liquid version of the leverage treasury trade. Then dozens of copycats arrived, all competing for the same limited pool of

[06:07] capital. The first company was unique. The fifth might still have been that it would sell shares to buy Bitcoin was offering a smaller, less liquid, and less proven version of something the market already had. Strategy had

[06:20] accumulated its enormous treasury before most of them began. Its brand had been built over years. It stock traded with massive liquidity. It could offer common preferred products with different risk and return profiles. A smaller copycat

[06:33] could imitate the transaction. It could not imitate the history that made the transaction valuable. This is what I meant every time I consistently said financial engineering would not work beyond strategy at scale. I was never

[06:45] Bitcoin. I was saying that issuing shares, buying Bitcoin, and expecting not a durable business model for hundreds of nearly identical companies. own destruction. The more companies copied it, the less unique each company

[07:00] became. The less unique each became, the harder it was to justify its premium. machine went into reverse. A treasury company trading below the value of its announce another Bitcoin purchase. But if dilution grows faster than the

[07:13] Bitcoin treasury, the economics become worse for existing shareholders. Bitcoin held by the company can increase while Bitcoin per share falls. That's the bought more Bitcoin, but the shareholder quietly owns less. Common shareholders

[07:26] convertible instruments, and preferred securities are included. That's why the right question was never simply how much Bitcoin does this company own. The real Bitcoin, how many shares it issued, whether Bitcoin per diluted share

[07:39] dividend obligations sit ahead of common shareholders, whether the underlying business generates cash, and whether the company can survive if its premium never the answers. Satsuma Technologies

[07:52] liquidate all 668 of the company's Bitcoin, return capital, and delist from the London Stock Exchange. The Smarter Web Company sold 178 Bitcoin to repay a convertible instrument. Seaquan's Communications initially sold 1,025

[08:07] of what remains to repay convertible debt. It was ruled out additional Bitcoin purchases and plans to monetize its remaining holdings. Nakamoto sold roughly 284 Bitcoin to raise 20 million for working capital. Coindesk reported

[08:21] that nearly 70% of its remaining 5,342 Bitcoin was pledged against a Kraken loan maturing in December. Empire Digital has reportedly sold almost half its Bitcoin to finance debt repayments and share buybacks. A proposed merger

[08:35] involving Cancer Equity Party Partners and BSTR holdings, which was supposed to than 30,000 Bitcoin, failed to close under its original terms because of market conditions. Bitcoin miners, including Marathon and Bitier, have also

[08:48] toward artificial intelligence infrastructure. These companies are not obligations, and motivations are different, but collectively they tell us the same thing. The market is no longer rewarding the simple act of placing

[09:01] When the premium disappears, financial engineering stops hiding the quality or complete lack of quality of the underlying business. That does not mean mistake. In many cases, the mistake was

[09:14] continuous access to favorable financing just to maintain the strategy. There's an enormous difference between owning Bitcoin and depending on the capital markets to keep owning Bitcoin. That brings us back to strategy. Strategy is

[09:26] being tested, too. Bitcoin remains far below its 2025 high. MSTR has been below the company's average purchase price sometimes. And its once powerful flywheel is operating under completely different conditions. Strategy recently

[09:39] sold 3,588 Bitcoin for approximately $216 million. The proceeds were used to replenish its dollar reserve. That was a real change, but it was not capitulation. Strategy sold approximately 4/10en of 1% of its

[09:53] treasury and still owns more than 843,000 Bitcoin. On Monday, Strategy announced that it added another 525 million to its dollar reserves, bringing that reserve to 3.75 billion, while its Bitcoin holdings remained unchanged.

[10:05] dividends and interest payments. Strategy's formal policy requires it to least 12 months of those expected obligations. Its Bitcoin monetization to replenish the reserve, cover certain obligations or finance repurchases.

[10:20] Strategy is not facing an automatic Bitcoin margin call or the imminent significance is much subtler. Even the company that created the model has entered a new and more complicated phase. Strategy is no longer simply

[10:32] issuing common and preferred securities, dividends, servicing debt, managing liquidity, considering repurchases, and selling Bitcoin when management believes it is less damaging than issuing more

[10:44] rational. If a preferred security trades at a deep discount, strategy may create repurchasing that security than by blindly holding every coin forever. If MSTR trades below the value management believes belongs to common shareholders,

[10:58] could theoretically increase the remaining shareholders claim. Financial for cash flow. It rearranges claims on future capital. Strategy can manage because it has the largest treasury, strongest brand, and deepest access to

[11:13] capital in the sector. Strategy will survive precisely because it is strategy. That does not mean its model was broadly repeatable and it certainly to owning Bitcoin. When you own Bitcoin directly, you own Bitcoin. There's no

[11:26] convertible debt, or senior shareholder standing between you and the asset. When company, you own the residual value remaining after the company satisfies every claim ahead of you. That residual can be extremely valuable, but it is not

[11:39] Bitcoin adoption go from here? I believe the answer is simpler and potentially much larger than the treasury company boom we just experienced. The future is profitable companies buying Bitcoin with actual cash flow, which is what I have

[11:52] since the treasury company model began. Imagine a business that sells a real product or service. It pays employees, suppliers, taxes, and other obligations. safely. Then it uses a percentage of excess free cash flow to buy Bitcoin

[12:06] company does not need its stock to trade at twice the value of its assets. It every purchase. And it certainly does not need to issue shares simply to through bull markets and bare markets because customers, not capital markets,

[12:21] fundamentally different model. Financial engineering can accelerate Bitcoin accumulation. cash flow can sustain it. A business generating a hund00 million of annual free cash flow could allocate 10, 20, or 50 million a year to Bitcoin.

[12:34] If Bitcoin falls, it can continue buying. If its stock falls, it can continue buying. If its MNAV premium disappears, nothing about the strategy is not betting its survival on market enthusiasm. It is converting a portion

[12:47] of the value produced by its operating business into a scarce long-term asset. That model can scale far beyond strategy because every company does not need to become strategy. Companies do not need to transform their shares into leverage

[12:59] Bitcoin products. They do not need a celebrity chairman, five classes of securities, or an ATM offering. They need profits, discipline, and a longtime horizon. A functioning company also creates value beyond the Bitcoin it

[13:12] margins, develop new products, and generate additional free cash flow. A real business with Bitcoin has two potential engines. the operating company and the asset. A financial engineered vehicle without a viable business has

[13:25] only one engine and frequently several layers of obligations attached to it. expands, that structure looks unstoppable. When Bitcoin falls and the premium disappears, everyone suddenly notices the liabilities. Strategy proves

[13:38] public company could make Bitcoin its primary treasury asset. It forced investors, and Wall Street banks all to take Bitcoin seriously. But the era of announcing a crypto treasury is long over and that is healthy. The market is

[13:55] Bitcoin from companies that have a sustainable reason to exist. It is separating accumulation from accretion, Bitcoin per company from Bitcoin per business. You cannot manufacture value forever simply by moving money among

[14:09] different securities. Eventually, someone has to produce something. A obligations must be paid with cash instead of another financing round. Bitcoin financial engineering machine the market has ever seen. He had the

[14:23] it possible. But the future of corporate Bitcoin adoption will not be 100 inferior copies of strategy. It will be thousands of profitable companies quietly converting part of their cash flow into Bitcoin. No giant premium

[14:36] required, no endless dilution required, just businesses doing what Sailor originally did in 2020, deciding that excess dollars are not the safest hold something scarcer. Financial engineering introduced corporate America

[14:49] to Bitcoin. Cash flow is how Bitcoin stays on the balance sheet. See you next stays on the balance sheet. See you next time.