Large pullbacks and troughs are inevitable in any tech investment. Natalie Brunell: It's great to meet you. You're one of the few Bitcoin bulls, and I think there are many bulls, they're just waiting for their chance. Bitcoin prices are currently falling, market sentiment is quite pessimistic, and critics believe Bitcoin's theoretical basis is crumbling. What are your thoughts on this? Michael Saylor: It's only been a little over four months (137 days) since the last all-time high, a pullback of about 45%, but in reality, no successful tech investment case avoids a 45% drop and trough. Large tech companies have always been the most dazzling success stories. But in all these cases, you can find examples of traditional markets undervaluing them. Take Apple, for example. Between 2012 and 2013, Apple's stock also plummeted by 45%, with its P/E ratio dropping to 10, and it was seen by the market as a weak cash cow with no technology and no future. It took Apple a full seven years (2013-2020) to recover to a P/E ratio of 30. Similarly, Amazon was heavily criticized by traditional investors for a decade. The traditional market's current pessimism towards Bitcoin is similar to its underestimation of Apple and Amazon in the past. Bitcoin has actually gained global consensus; the US government cabinet, the Federal Reserve, Middle Eastern sovereign wealth funds, BlackRock, and others are all telling you that Bitcoin is global digital capital. Why didn't Bitcoin reach the $126,000 high predicted by some? Natalie Brunell: What do you have to say to those who are disappointed with the bull market and think it failed to break $126,000? What do you think are the reasons we didn't reach the price targets expected by many? Michael Saylor: I think the market is constantly evolving. The entire ecosystem is maturing, and the derivatives market is migrating from offshore to onshore markets and becoming increasingly mature. With the growth of derivatives in the US regulated market, Bitcoin's volatility and upside potential will decrease, thus suppressing its upward potential. At the same time, downside potential will also decrease. What might have been an 80% drop and 80% volatility might now only be a 40% or 50% drop and 50% volatility. Therefore, as the market matures, Bitcoin's volatility is suppressed in both upward and downward directions. Meanwhile, while the banking sector's acceptance of Bitcoin is progressing steadily, it's much slower than those with short attention spans would expect. Banks need four to five, even six years, to accept this entirely new asset class. People, however, are hoping for Bitcoin to be accepted within four months.But if it takes banks four years to start accepting Bitcoin, issuing credit, recognizing and processing, trading, and custodian it, then the peak value of Bitcoin at its peak is as high as $2 trillion, of which $1.8 trillion may be held by retail or foreign investors who cannot obtain low-interest loans from traditional banks (like JPMorgan Chase) like they would with Apple stock. This forces people to turn to shadow banks or crypto exchanges, which leads to extremely high interest rates or the risk of re-collateralization—that is, your Bitcoin is used as collateral and then borrowed by institutions and shorted three or more times. This imperfect credit system and re-collateralization mechanism generate huge selling pressure, suppressing the price of Bitcoin. Regarding expectations for long-term returns and volatility, Natalie Brunell: You always say volatility is the lifeblood. So, what are your expectations for the next 10 to 15 years? Michael Saylor: Looking ahead 21 years, I expect Bitcoin's ARR to be around 29%, with wave-like rises and falls. Many people panic-sell due to news such as the situation in the Middle East over the weekend, but this also means that Bitcoin is the only asset globally that trades 24/7. Bitcoin is highly volatile because it has the widest range of uses. Bitcoin represents the global capital market; some people use this asset to do things you can't, can't, or don't want to do, which is precisely what causes volatility. It also creates a gravitational field or magnetic field, attracting all kinds of energy from around the world, including financial, political, and digital energy, all because of Bitcoin's utility. If you're a long-term investor with a four-year investment horizon, short-term volatility doesn't matter; you just need to let those crazy traders who like to leverage 50x on weekends provide liquidity. Why didn't a large number of retail investors participate in this bull market? Natalie Brunell: Bitcoin is still primarily held by individuals. But I just had Lynn Alden speak, and she said that retail investors didn't really participate in the last bull market. Why do you think that is? What can provide ordinary retail investors with access to the best savings techniques? Michael Saylor: I think early retail investors were already in. Those retail investors who were passionate and invested in digital capital, especially Bitcoin, had ten years to buy in. If you were looking for a non-sovereign store of value digital asset sometime between 2010 and 2015, you would have found Bitcoin in a series of waves, and then bought as much as you could.The next wave of retail investors doesn't want assets with 40% annualized returns but huge volatility; they want assets with 10% or 0% annualized returns and tax-deferred returns. That's why I've been working on this for the past year. Is it possible to reduce the volatility of an asset like Bitcoin, with its 45% volatility, by 80% to 90%? Then offer retail investors four to five times over-collateralization, creating double-digit returns, and doing this in a capital return manner. This way, you can enjoy tax deferral or deferred tax benefits. You get the returns and performance of stocks, the principal protection of credit or bonds, a fixed rate of return, and monthly cash dividends. If you want to reinvest, simply reinvest the dividends back into the principal, turning it into a continuously growing, tax-deferred asset with an 11% annualized return. When you need funds to pay your children's tuition or taxes, you can simply withdraw the funds or sell. To achieve this, you can't tolerate the volatility and drawdowns of stocks. You can't tolerate the volatility and drawdowns of Bitcoin. You need some kind of credit instrument, and you need an issuer willing to provide overcollateralization. And you need to actively manage this credit instrument to maintain price stability. So, in my view, STRC, or digital credit, is how we attract the next wave of retail investors into this space. Is quantum computing an existential threat to Bitcoin? Natalie Brunell: I want to talk about a very important topic: quantum computing. There's a famous saying in the crypto market: Don't blindly trust, verify. But many people lack sufficient expertise to verify whether quantum computing truly poses an existential threat. You recently released a strategy on quantum computing and its future development, aiming to ensure Bitcoin can withstand quantum attacks. Can you explain why you believe the risks of quantum computing haven't been priced into the market? Michael Saylor: The general consensus in cybersecurity is that the quantum computing threat is at least 10 years away, and whether it will actually become a threat is still uncertain. If the quantum threat does occur then, the operating software of the global banking system, the global internet, consumer devices, all crypto networks, the Bitcoin network, all digital systems, AI networks, and all the networks we rely on today (whether government, financial, consumer, or defense-related) will need to be upgraded. All stakeholders, whether it's Google, Microsoft, Apple, Coinbase, BlackRock, Strategy, or the US government, Russian government, EU government, JPMorgan Chase, or Morgan Stanley, must face the same problem.All our digital systems are at risk if a credible quantum threat truly exists. When it does occur, expect some software or hardware, or both, to react accordingly. The crypto community is actually the most mature community in the field of cybersecurity. I believe the crypto security community will be the first to perceive this threat and react. We have already announced a Bitcoin security plan, and Coinbase obviously has its own. In fact, a significant portion of the money I invested in the early Bitcoin Core development team was actually used for Bitcoin security projects, such as the MIT Bitcoin Security Project. So, I think those of us who are big Bitcoin holders or users, and industry insiders, know that cybersecurity is crucial. But I don't believe quantum computing is the biggest security threat facing Bitcoin right now, nor did I ever think it was. People joke that they've discussed this issue every two years for the past 15 years. In reality, I think there are many factors that people discuss that could constitute a security threat, at least hundreds. For example, are there bandwidth issues? Are there nation-state attack vectors? Is its functionality sufficient? Is it too much? Is the development speed too fast? Is the development speed not fast enough? Is the degree of decentralization sufficient, and so on. These debates will continue, and quantum technology is one of them. The reason we're discussing quantum computing now is that none of the other risks materialized ten years ago. The various "Bitcoin doomsday theories" of the past 15 years—such as the block size controversy (insufficient bandwidth), the power consumption to boil the ocean, and banning mining—none of them destroyed Bitcoin; they were all resolved by the free market. Ultimately, this alarmist rhetoric is amplified economically and politically because it benefits politicians, entrepreneurs, and those who crave money or power. What is the strongest argument against Bitcoin right now? Natalie Brunell: I have a very interesting question for you. What do you think is the strongest argument against Bitcoin right now? Michael Saylor: The most reasonable reason people reject Bitcoin right now is simply that it hasn't been around long enough. Bitcoin has only existed for 17 years. Just like how, 17 years after the invention of the airplane, most people still wouldn't dare to fly on it. It takes decades for a disruptive technology to go from invention to becoming a consumer product used by everyone. Does Strategy's Bitcoin holding cost matter? Natalie Brunell: I'm a little curious. You seem completely unconcerned about costs, especially since many people are trying to find the bottom of prices and studying technical charts. Could you explain why?Especially for those who think the price might fall, why not buy at a lower cost? Michael Saylor: You can think of us as doing average costing, the key point being: we're using equity, not borrowing to buy. When we buy Bitcoin, if we raised funds by selling stock (equity), whether we bought at $100,000 or $200,000, we were essentially making a permanent, risk-free asset swap. We're exchanging equity for Bitcoin. When should you exchange equity for Bitcoin? Whenever the act is appreciating. If the price of Bitcoin rises by 10% and our stock price rises by 25%, then exchanging equity for Bitcoin is profitable. So, if Bitcoin subsequently falls by 20% after you buy it, will you regret it? Of course not. Because if you didn't do it, you wouldn't have those Bitcoins at all. And when Bitcoin falls by 10% and your equity value falls by 20%, you've actually reduced the risk of your equity by exchanging it for Bitcoin. If you back your stock with a stable asset, the risk of your stock is reduced, especially if you're exchanging at a premium. So, the core issue isn't the price, but whether the exchange is profitable for the shareholders. If you're exchanging common stock for Bitcoin, then Bitcoin's future price movement isn't that important because this operation doesn't involve ongoing debt; you don't need to repay anything over the next thousand years. Of course, if you're using digital credit (like preferred stock) to exchange for Bitcoin, the calculations become more complex. For example, if I pay a 10% dividend on preferred stock, and Bitcoin's return over the next hundred years is only 5%, then this exchange will dilute the common stockholders over that century. If you're exchanging debt for Bitcoin, such as a 10-year, 5% corporate bond, then Bitcoin needs to appreciate by more than 5% over those 10 years to avoid dilution. If you're buying with a margin loan—for example, if you only have $100 million in collateral but leverage it 10 times to buy $1 billion worth of Bitcoin—the risk is extremely high. This is because the loan term might be as short as a minute. If Bitcoin drops 10%, you'll be forced to liquidate, losing $100 million. So the real difference lies in the term. If you're borrowing a one-minute flash loan, the purchase price relative to the current price is extremely important. If you're borrowing for ten years, the importance lies in what happens ten years later. What if you borrowed money permanently (like through equity, where you never need to repay the principal)? Then the importance of price becomes blurred.What most retail investors don't understand is that the only credit they can obtain is margin credit, which is one-minute credit; if you're wrong, you'll be liquidated by the weekend. The credit we use, however, doesn't matter even if we're wrong for 30 years. I can put it this way: if we pay 10% interest, and Bitcoin only returns 8%, even if we're wrong for 30 years, due to certain second-, third-, or even fourth-order dynamics, it might still be a good business for ordinary stocks. But the truth is, if we have a 10- to 30-year time window to prove ourselves right, then our average purchase price actually has no substantial impact. [Transcribed from Natalie Brunell podcast: Felix, PANews]