A Masterclass on Digital Credit & The Potential Risks
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To investors,
Michael Saylor and Strategy have purchased over 840,000 bitcoin in the last half decade. In pursuit of accumulating as many bitcoin as possible, the Strategy team has innovated on a number of capital market tools.
Their most recent offering, STRC, is a preferred equity instrument that pays a double-digit variable interest rate. Proceeds from the preferred equity raises are allocated to a bitcoin reserve and a dollar reserve. The idea is that bitcoin’s price will appreciate at a faster pace than the dividend obligation, which gives Strategy common equity holders exposure to the difference.
Saylor has coined this idea as “digital credit” and there have been billions of dollars allocated to the preferred equity instrument in less than a year. As we know, when something works on Wall Street, there are fast followers who rush to capitalize on the trend.
In this case, Matt Cole and Strive Asset Management have been the big winners of second place. They came to market with a similar instrument, except they pay a higher interest rate and are implementing daily dividend payments. You can imagine why this has been attractive for investors.
I am fascinated by the idea of digital credit. If Saylor and Cole are right, we will see an explosion of digital credit offerings that leverage bitcoin to create returns, while stripping out the bitcoin volatility for fixed income investors. The global credit market is very big and if digital credit works, you could expect hundreds of billions of dollars to flow to the assets.
But this idea does not come without risk. The big question is what happens if bitcoin doesn’t appreciate at the required CAGR, but there are also nuanced aspects of managing the issuance process, along with the bitcoin and cash reserves, that require investors to underwrite potential risks.
In order to better understand digital credit and the risks associated with this new innovation, I sat down with Strive CEO Matt Cole for an unfiltered conversation. He was very transparent about the pros and cons, how Strive and Strategy differ, and why he thinks this idea is even bigger than his team realized initially.
You can listen to the conversation here or you can watch it here on YouTube.
If you do not have time to listen or watch, here are the 10 big ideas from the conversation:
1. Digital Credit Is a Bridge Between Fiat and Bitcoin
Cole’s biggest thesis is that digital credit is not merely a financing tool but a transitional asset that helps investors move from a fiat-based world to a Bitcoin-based future.
He believes sovereign debt problems will continue to worsen over time, making Bitcoin increasingly attractive.
Digital credit allows investors to gain exposure to Bitcoin’s long-term appreciation while receiving income and avoiding some of Bitcoin’s volatility.
2. The Core Structure Is a Bitcoin-Backed Carry Trade
Strive raises capital through preferred equity instruments that pay investors a yield.
The company then buys Bitcoin with the proceeds.
The entire strategy works if Bitcoin appreciates faster than the cost of capital being paid to investors.
Cole frames this as a simple spread trade: if Bitcoin compounds above the financing cost, common shareholders benefit substantially.
3. Digital Credit Solves a Massive Yield Problem
Cole argues that traditional fixed income has become increasingly unattractive.
Many investors agree the classic 60/40 portfolio is no longer as effective as it once was.
He believes digital credit could become a compelling replacement for part of the bond allocation because it offers double-digit yields while maintaining exposure to Bitcoin-driven economics.
4. Daily Dividends Could Transform the Product Category
One of Strive’s innovations is moving from monthly dividends to daily dividends.
Cole believes this reduces volatility around dividend dates and makes the instrument behave more like a savings account or money market fund.
His goal is to make digital credit feel like a continuously compounding income-generating asset rather than a traditional security with periodic payout events.
5. The Biggest Risk Is a Prolonged Bitcoin Failure
Cole acknowledges there are many disclosed risks, but he views one risk as dominant: Bitcoin failing to appreciate over a very long period.
He explains that Strive has substantial cash reserves and dividend reserves specifically designed to survive severe Bitcoin bear markets.
In his view, investors must ultimately decide whether they believe Bitcoin’s long-term thesis remains intact.
6. Digital Credit Is Designed for People Who Cannot Handle Bitcoin Volatility
Cole repeatedly emphasizes that he personally prefers owning Bitcoin and leveraged Bitcoin exposure.
However, he recognizes most investors cannot emotionally or financially tolerate Bitcoin’s volatility.
Digital credit offers those investors a way to participate in the Bitcoin ecosystem while receiving stable income and experiencing significantly lower volatility.
7. Michael Saylor’s Bitcoin Sale Was a Positive Evolution
Cole argues that Strategy’s decision to sell a small amount of Bitcoin was misunderstood.
Rather than viewing it as surrender, he sees it as evidence of disciplined capital allocation.
He believes the ability to occasionally sell Bitcoin for tax optimization or strategic purposes ultimately strengthens the company and reduces long-term risk.
8. Institutional Adoption Is Still in the Very Early Stages
Cole believes both Bitcoin ETFs and digital credit products are still building track records.
He notes that institutions typically require several years of performance history before making meaningful allocations.
He expects adoption to accelerate significantly between 2027 and 2029 as institutions become more comfortable with the products.
9. Tokenization Could Turn Digital Credit into an Alternative Form of Money
One of the most forward-looking parts of the discussion focuses on tokenization.
Cole envisions a future where digital credit is tokenized, pays near-continuous dividends, and integrates with debit cards, banking products, and payment systems.
In that world, people may increasingly hold digital credit rather than cash, effectively creating a new form of financial infrastructure.
10. Competition Makes the Ecosystem Stronger
Cole rejects the idea that only one issuer should dominate the digital credit market.
He argues that competition between firms like Strive and Strategy drives innovation, improves products, and ultimately expands the overall market.
His view is that dozens of issuers, not just one or two, will eventually create a healthier and more resilient Bitcoin-backed credit ecosystem.
Key Takeaway
The central idea of the conversation is that digital credit could become the financial bridge between the existing dollar-based economy and a future Bitcoin-based economy. Cole believes investors want three things simultaneously: Bitcoin exposure, income, and lower volatility. His thesis is that digital credit is one of the first products capable of delivering all three, potentially making it a major asset class over the coming decades.
- Anthony J. Pompliano
Founder & CEO, ProCap Financial (Nasdaq: BRR)
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Strategy sold 32 BTC last week to cover STRC dividends while sitting on $10.8 billion in unrealised losses. The digital credit thesis is getting its first live stress test and most of the commentary is treating it as a non-event.
The model is a carry trade. It works when Bitcoin appreciation exceeds cost of capital. But carry trades have a specific failure mode Cole didn't really address: reflexivity. When multiple issuers need to liquidate Bitcoin during the same drawdown to meet obligations, they become correlated forced sellers. The selling deepens the drawdown, which triggers more obligation pressure. Structurally identical to the yen carry trade unwind.
I'd put roughly 30% odds on a digital credit credit event within three years. The 2027-2029 institutional adoption window Cole describes is also the window where the model faces its first real recession.