Why write a Bitcoin FAQ here?

This publication is mostly about Bitcoin-era investing, Strategy/MSTR, Bitcoin treasury companies, valuation, incentives, risk, and capital allocation. But that creates a problem: if you are coming from traditional finance, you may understand public companies, balance sheets, ETFs, preferred stock, dilution, and capital structure while still not fully understanding Bitcoin itself.

That matters because Strategy is not comprehensible unless Bitcoin is at least partly comprehensible. Strategy owns bitcoin. It raises capital to buy bitcoin. It measures itself, increasingly, by how much bitcoin is attributable to each share. If Bitcoin is nonsense, Strategy is nonsense. If bitcoin is a serious monetary asset, Strategy becomes a much more interesting capital allocation case study.

So this is the Bitcoin foundation. Not the technical version. Not the maximalist version. A plain-English version for investors who want to know what Bitcoin is, why people think it is valuable, what can go wrong, and how to think about it without pretending it is either easy to hold or worthless.

What is Bitcoin?

Bitcoin is a decentralized monetary network. The asset, bitcoin, is the monetary unit of that network.1

The simplest description is that bitcoin is money issued by a decentralized protocol rather than by a central bank. No government, company, or person can decide to create more bitcoin because it would be politically convenient. Both the total supply and the issuance schedule are coded in the rules of the network, and users running Bitcoin software enforce those rules.

That is why bitcoin is often compared to digital gold. The comparison is imperfect, but useful. Gold is valuable partly because it is scarce, durable, hard to counterfeit, and not someone else’s liability. Bitcoin attempts to improve on those monetary properties in digital form. It is scarce, divisible, portable, verifiable, and transferable across the internet without reliance on any trusted third party (like a bank or a government).

What problem is Bitcoin trying to solve?

Bitcoin is trying to solve the problem of money that can be debased.

Most modern money is fiat money. It is issued by governments and central banks. That system has advantages, especially in a crisis, but it also means the supply of money can expand by political and institutional decision. When the money supply expands faster than the supply of scarce goods, services, and assets people actually want, the purchasing power of each unit of currency tends to fall over time.

That decline is not always obvious day to day. It may show up as higher prices for houses, stocks, land, education, healthcare, art, or other scarce assets. It may be partially hidden by technology making some goods and services cheaper. But the basic point remains: if you save in a currency that can be expanded without limit, you are trusting the issuers of that currency to protect your purchasing power.

Bitcoin offers a different bargain. It does not promise stability in USD terms. In fact, it is famously volatile. What it offers is a monetary asset with a fixed total supply and a fixed issuance schedule that cannot be changed by a central bank meeting.

Why does the 21 million supply cap matter?

Bitcoin’s supply is capped at 21 million bitcoin. That does not mean all 21 million exist today, and it does not mean new bitcoin issuance has already stopped. New units of bitcoin are still issued to miners as part of the block reward. But the issuance rate declines over time through halvings, and the terminal supply is fixed by the protocol rules.

After the April 2024 halving, the block subsidy fell to 3.125 bitcoin per block, or roughly 450 new bitcoin per day. That issuance rate will be cut again at the next halving.

This matters because increased demand for Bitcoin cannot be met by increasing supply the way a company can manufacture more cars or a government can issue more currency. If more people want to hold bitcoin, the main way that demand is expressed is through price.

Do I need to buy a whole bitcoin?

No. This is one of the easiest beginner mistakes to make. You do not need to buy one full bitcoin. Bitcoin is divisible into smaller units called sats (short for satoshis). One bitcoin equals 100,000,000 sats.

So the price of a whole bitcoin should not be treated as the minimum investment. You can buy a small dollar amount of bitcoin. The relevant question is not whether you can afford a whole coin. The relevant question is whether bitcoin deserves a place in your portfolio, and if so, how large that place should be.

What makes bitcoin different from gold?

Gold has been used as money and a store of value for thousands of years. Bitcoin is much younger. That is gold’s advantage. Bitcoin’s advantage is that it is easier to verify, easier to divide, easier to transport, and easier to send across distance.

A person can verify bitcoin with a full node that costs a few hundred dollars to run. Verifying a gold bar is much harder. A person can move bitcoin across borders by remembering or securing a seed phrase. Moving large amounts of gold across borders is a physical and legal problem. A person can send bitcoin to someone else over the internet. Sending gold internationally is slow, expensive, and dependent on intermediaries.

Bitcoin is not literally gold on the internet. It is its own thing. But the digital-gold phrase exists because bitcoin is trying to be a scarce, non-sovereign monetary asset for the internet age.

Who controls Bitcoin?

Bitcoin is best understood as a consensus network. Miners propose blocks. Nodes verify that blocks follow the rules. Users choose what software to run. Exchanges, custodians, wallets, developers, miners, and economic actors all matter, but no single person, company, miner, or government can unilaterally change Bitcoin’s rules.

People sometimes hear that a miner with 51% of the network’s hashpower could attack Bitcoin and assume that 51% of miners can simply vote to create more bitcoin. That is not right. Mining power can affect the ordering of valid transactions and can create certain attack risks, but miners cannot make invalid coins valid if the nodes enforcing the rules reject them.

How does this connect to Strategy/MSTR?

Strategy matters because it took the Bitcoin thesis and made it a public-company capital allocation strategy.

A spot Bitcoin ETF holds bitcoin. Strategy owns bitcoin too, but it also has a capital structure, a management team, an operating business, debt, convertibles, preferred stock, and common equity issuance. Strategy is trying to use public capital markets to increase the amount of bitcoin attributable to each share over time.

That is why the Bitcoin foundation matters. If bitcoin is just a speculative token, Strategy is hard to defend. If bitcoin is a serious monetary asset, then Strategy becomes a live experiment in Bitcoin-era corporate finance.

So what is the shortest version?

Bitcoin is a decentralized monetary network with a fixed supply schedule. The asset, bitcoin, is scarce, divisible, portable, verifiable, and transferable across the internet. It is volatile and young. But it also gives investors exposure to a monetary asset that cannot be debased by political decision.

That is the starting point. From there, the question becomes whether Bitcoin belongs in a portfolio, how to size it, how to hold it, and how to think about companies like Strategy that allocate capital around it.

Want To Read Further? Start here:

• Why I’d Rather Be Right and What This Publication Is About

• Strategy as Not a Closed-End Bitcoin Fund

• The Case for Thinking in Bitcoin per Share

Before I Understood Strategy’s Bitcoin per Share, I Understood My Own

Before I understood Strategy’s bitcoin per share, I understood my own. At some point after buying MSTR and GBTC in my Roth IRA in 2020, I stopped asking how many dollars my account was worth. Instead, I started asking a different question: how much bitcoin did my account effectively represent?

When I bought my first MSTR shares, in my Roth IRA I owned some GBTC and some other non-bitcoin stocks. By the end of 2020, I only had MSTR and GBTC in my Roth IRA, held 50/50 in USD terms.

Somewhere after that I started to think about what I owned with MSTR. When I first bought it, I saw a company with no debt and earning free cash flow of about $100 million per year but with no growth prospects. After Strategy took the cash on its balance sheet and bought bitcoin, I effectively had proportional ownership of the bitcoin on its balance sheet (though that ownership was non-redeemable).

As for GBTC, I also effectively had proportional ownership of the underlying bitcoin (though that ownership was also non-redeemable). With GBTC, I also had to pay a fee, which was effectively eating away at the amount of bitcoin represented by each share.

In in this timeframe, probably in 2021 and certainly by 2022, I started to think in bitcoin per share. I’m not sure exactly when. I do know that by 2022, I was posting on X evidence that I was thinking in this way. For instance, on October 5, 2022, I posted the following screenshot of a simple spreadsheet I built comparing the bitcoin per share of the different securities.

The idea was simple. If I could move from GBTC to MSTR, or from MSTR to GBTC, and end up with a larger economic claim on bitcoin, then I had increased my bitcoin-denominated net worth. The trade did not need to be complicated. I just needed a metric to tell me when MSTR or GBTC was undervalued relative to the other.

The Spreadsheet That Changed How I Traded

So, for instance, using this spreadsheet to trade between the securities, if I owned MSTR, it would be a good time to sell MSTR and purchase GBTC. Indeed, on October 11, 2022, I did just that. I sold all of my MSTR and bought GBTC with the proceeds. See here:

I would regularly make such trades, and they significantly increased my return.

For instance, in my Roth IRA, from January 1, 2023 to December 31, 2023, I achieved a 466% return. Over the same period BTC returned 155.4%, MSTR returned 337%, and GBTC returned 317.61%.1 Therefore, I beat the best-performing of the three assets, MSTR, by 129 percentage points simply by thinking in bitcoin per share and having the guts to make the trade.2

This was not because the metric was magic. It was because GBTC, MSTR, and bitcoin were temporarily mispriced relative to each other, and the metric helped me see the trade clearly.

Michael Saylor Was Thinking This Way Too

I’m not the only one who was starting to think in bitcoin per share and making decisions accordingly. So was Michael Saylor. I was convinced of this before Saylor ever discussed it.

In fact, on November 30, 2023, on NOSTR, in response to a post by Preston Pysh, I made the following post:

I believe Saylor is laser eye focused on one metric: *sats per share.* He’ll do anything that doesn’t threaten the stack to increase it.

IMO, he’s a brilliant capital allocator.

In the rest of the post, I explained how I had used GBTC, MSTR, and OBTC to increase my own sats, and why I was waiting for the MSTR premium and GBTC discount to converge around the spot ETF launch.

At this point, Michael Saylor hadn’t publicly discussed bitcoin per share. On the August 1, 2023 earnings call, Phong Le, the CEO of MSTR, mentioned it just once when he said, “The primary use of prior ATM proceeds has been to acquire additional bitcoin, increasing bitcoin per share for our shareholders.” Michael Saylor wouldn’t introduce what he called “Bitcoin Yield” until October 2024.

The first time I could find where Michael Saylor discussed bitcoin per share at all was on the eve of the spot bitcoin ETFs being launched, specifically December 19, 2023 in an interview with Bloomberg Crypto. See here:

Note that despite Saylor being a prolific poster on X, especially for a CEO and/or Chairman of the Board of a public company, his earliest tweet mentioning bitcoin per share was the following one on March 20, 2024.

Despite Michael Saylor not discussing his focus on increasing bitcoin per share until December of 2023, it was obvious to many of us who understood both bitcoin and capital allocation that this was what he was focused on. The through-line of Strategy’s capital allocation since then has been the goal of intelligently and responsibly increasing bitcoin per share over the long term.

Why Bitcoin per Share Matters

Total bitcoin owned tells you the size of the stack. Bitcoin per share tells you how much of that stack each share represents.

That distinction matters because a public company has a numerator and a denominator. The numerator is the bitcoin. The denominator is the share count. If Strategy buys more bitcoin but issues too many shares to do it, shareholders may not be better off in bitcoin terms. But if Strategy can issue shares, debt, convertibles, or preferred stock in a way that increases the amount of bitcoin represented by each share, then dilution is not the right word for what happened. Accretion is.

This is the basic formula:

Bitcoin per share = total bitcoin owned / shares outstanding3

This is the corporate version of the same question I was asking in my Roth IRA: how much bitcoin does this thing actually represent?

Over time, the question is whether that number is going up or down.

That is why I do not think about Strategy as merely a company that owns bitcoin. I think of it as a bitcoin capital allocation company. The goal is not simply to own more bitcoin in the aggregate. The goal is to increase the amount of bitcoin represented by each share without taking risks that threaten the stack.

That is also why I think many people misunderstood MSTR for years. They saw stock issuance and thought “dilution.” But stock issuance is not automatically bad. It depends on what the company gets in return. If Strategy sells shares at a premium and uses the proceeds to buy enough bitcoin to increase bitcoin per share, then the issuance can be accretive. If it fails to do that, then the issuance is dilutive in the way people normally fear.

The metric does not make the decision for you. But it tells you what question to ask.

What Bitcoin per Share Does Not Tell You

Bitcoin per share is the metric that measures accretion. It is not the whole analysis.

It does not tell you whether MSTR is cheap. It does not tell you whether the premium to NAV is rational. It does not tell you whether the capital structure is safe. It does not tell you whether a particular financing was wise. It does not tell you whether the preferreds are attractive. It does not tell you whether you should own MSTR instead of bitcoin.

It tells you something narrower but extremely important: whether the actions being taken increase or decrease the amount of bitcoin represented by each share.

That matters because metrics shape behavior. If you measure the wrong thing, you manage toward the wrong thing. If Strategy were only trying to maximize total bitcoin owned, it could issue shares endlessly and buy more bitcoin, even if each share represented less bitcoin over time. That would make the company’s stack larger, but it would not necessarily make each shareholder better off.

Bitcoin per share disciplines the analysis. It forces the investor to ask whether Strategy is growing the bitcoin stack in a way that actually benefits shareholders.

The Point

This is why thinking in bitcoin per share matters.

At the personal level, it helped me compare GBTC, MSTR, OBTC, and bitcoin in a way that made the tradeoffs visible. If a trade increased my bitcoin-denominated net worth, then it was worth considering. If it reduced my bitcoin-denominated net worth, then it needed some other very good reason to justify it.

At the corporate level, the same idea helps explain Strategy. Saylor’s job is not merely to buy bitcoin. His job is to allocate capital in a way that intelligently and responsibly increases bitcoin per share over time.

That is Michael Saylor’s North Star metric.

And once you understand the metric, you can start to understand the machine built to increase it.

Want To Read Further? Start here:

• Why I’d Rather Be Right and What This Publication Is About

• Strategy as Not a Closed-End Bitcoin Fund

• Bitcoin FAQ for Traditional Investors

Strategy, formerly MicroStrategy and still traded under the ticker MSTR, is what is now often described as a bitcoin treasury company. When Strategy announced its first bitcoin purchase on August 11, 2020 and became the first publicly traded company to make bitcoin its primary reserve asset, it gave a lot of individuals, institutions, and other entities a chance to gain bitcoin price exposure they never had before.

At the time, there was no approved spot1 bitcoin ETF. Before Strategy bought its first bitcoin, many investors had no clean way to get bitcoin exposure in a brokerage or retirement account. If you could not buy bitcoin directly because the fund you managed was not permitted to own it, or because your retirement account did not allow it (which was true of the vast majority of retirement accounts), then your options were limited. One of the few public-market vehicles was Grayscale Bitcoin Trust, which traded over the counter under the ticker GBTC. GBTC was legally a trust, but before its ETF conversion it functioned like a closed-end bitcoin fund. Investors could buy and sell shares, but ordinary shareholders could not redeem those shares for the underlying bitcoin. That structure mattered because GBTC often traded at a premium or discount to the value of the bitcoin it owned. And even then, many funds and retirement accounts were precluded from buying it.

For instance, personally, with my 401(k) plan at my job, I was precluded from buying GBTC. At the time, my 401(k) plan did not even allow me to buy individual stocks. So the only way to gain any exposure to bitcoin’s price at all was to find a mutual fund that owned GBTC. Of course, it meant price exposure to everything else in the mutual fund at the same time. Eventually, I found some funds by Kinetics2 that had a large exposure to GBTC. So I dumped my entire 401(k) into their funds.

Then on August 11, 2020, Strategy changed the game. By purchasing bitcoin and making it Strategy’s primary reserve asset, any individual, institution, or other entity that could not buy BTC or GBTC but could buy individual stocks could gain exposure to BTC’s price by purchasing MSTR. So that’s what many did, including myself. While I owned GBTC in my Roth IRA, I also added MSTR to it on September 18, 2020. Then later, when my 401(k) plan changed the rules and allowed me to buy individual stocks, I sold all my Kinetics funds and bought MSTR.

It was around this time I had to contend with what Strategy was and was not, especially as it concerned my Roth IRA where I could own either GBTC or MSTR but not spot bitcoin. At the time, Strategy was earning about $100 million in free cash flow (FCF) annually, later decreasing to about $70 million. It had a profitable but non-growing software business, and still has the software business to this day.

So there was GBTC, which functioned like a closed-end fund. Bitcoin could be added to the trust in exchange for shares of GBTC, but ordinary shareholders could not redeem their shares for either spot bitcoin or even an equivalent value in USD. GBTC also charged a fee. Then there was Strategy, this profitable but non-growing operating company that was putting its FCF into BTC. Like GBTC, you had no specific claim to the underlying BTC, but unlike GBTC it had an operating company and no fee. It’s a very different structure, and this is the structure the current bitcoin treasury company model was built on. To this day, Strategy has an underlying software business that’s likely valued in a few billion dollars.

Before the spot bitcoin ETFs launched on January 11, 2024, these two vehicles, GBTC and MSTR, were effectively the only way many large-scale institutions and individuals whose retirement accounts limited their options could gain BTC price exposure. That’s no longer true. Now, many institutions and individuals are deciding to buy one of the many spot bitcoin ETFs instead of buying MSTR. (GBTC has been converted into a spot bitcoin ETF, but because of its very high fees compared to other spot bitcoin ETFs, I would not buy it today. If you already owned GBTC before the launch of the spot bitcoin ETFs, and there are large taxable gains built in because the GBTC position is held in a taxable brokerage account, it may make sense to keep it.)3

During that same pre-ETF period, I came to realize that the most important thing for increasing my long-term net worth in USD terms was increasing my net worth in bitcoin terms. That’s when I, along with Michael Saylor (and many others), came upon the same insight: the importance of understanding bitcoin per share. In Saylor’s case, he applied the idea at the corporate level at Strategy. But we’ll get into that during the next post.

Want To Read Further? Start here:

• Why I’d Rather Be Right and What This Publication Is About

• The Case for Thinking in Bitcoin per Share

• Bitcoin FAQ for Traditional Investors

Back in 2020, a friend and I started a short-lived podcast. We talked about a lot of things but mostly about Bitcoin. A few things from that period now feel directly relevant to this publication.

First, it took us a while to determine what the name of the podcast would be. In one of our first episodes, I said to my cohost, “You know that saying, ‘You can be happy, or you can be right’?” He responded, “Yes, of course.” Then I admitted, “Well, I’d rather be right.” He laughed and agreed. And that’s how we came up with the name of the podcast.

At the time, we discussed the name. Of course there is some arrogance in the name but also some humility. It didn’t claim we were right, only that we wanted to be right. We discussed how getting to right starts with being wrong, often way wrong. Part of our goal, both personally and with the podcast that didn’t work out, was to learn quickly and get closer to right.

That’s my goal with this publication. To help myself, and hopefully you, dear reader, get closer to right. Faster.

The second thing that happened during Covid was I went all-in on bitcoin. I owned some since the 2017 bull market and never sold it. At the time, I owned mostly bitcoin but some altcoins (i.e., shitcoins) but by 2019 I had learned enough to become convinced that Bitcoin was the only one that mattered. So at that time, I sold all my altcoins and used the proceeds to buy bitcoin. Then Covid happened, and I watched the government respond to a pandemic with enormous monetary and fiscal expansion, with far too little apparent concern for the long-term consequences. That’s when I decided to go all in on bitcoin because I understood it was built as a technological solution to the human problem that all governments will inevitably print money. I then spent all of 2020 allocating as much of my money as possible to bitcoin while learning everything I could about it.

I wasn’t the only one. Michael Saylor, who is far, far, far wealthier than I, was going through a similar experience. On August 11, 2020, Strategy ($MSTR), then MicroStrategy, announced they made their first bitcoin purchase. With that, Strategy became the first publicly traded company to adopt bitcoin as a primary treasury reserve asset. I made my first purchase of MSTR on September 18, 2020. Since then, I’ve been learning right along Michael Saylor, and often from Michael Saylor. As I learned more both about him and from him, I came to believe something I expect to argue often in this publication: Michael Saylor is the greatest living capital allocator.

My hope is this publication helps me learn from writing, and helps readers learn from reading. If I’ve done my job well, you too will also come to appreciate Bitcoin, bitcoin1 treasury companies, the different offerings of bitcoin treasury companies, and their proper place in different people’s portfolios. And just maybe you’ll also come to agree with me that Michael Saylor is the greatest living capital allocator.

That means I’ll write about Bitcoin, Strategy/MSTR, bitcoin treasury companies, their preferred offerings, capital structure, portfolio construction, valuation, incentives, risk, and the lessons of great capital allocators.

Sometimes that will mean writing about my own concentrated portfolio. Sometimes it will mean writing about very different portfolios, including portfolios for people who need more income, liquidity, and diversification. The point is not that every investor should express the bitcoin thesis the same way. The point is to think clearly about what is right for whom, at what price, and under what conditions.

Welcome. Let’s get closer to right.

Want To Read Further? Start here:

• Bitcoin FAQ for Traditional Investors

• Strategy as Not a Closed-End Bitcoin Fund

• The Case for Thinking in Bitcoin per Share