Michael Saylor, chief executive of the world’s largest holder of Bitcoin securities, is urging nation-states to establish Bitcoin-backed digital banking systems that offer high-yield, low-volatility accounts, which could attract trillions in deposits.
Speaking at the Bitcoin MENA event in Abu Dhabi, Saylor suggested countries could use overcollateralized Bitcoin reserves and tokenized credit assets to launch regulated digital bank accounts that offer higher yields than traditional deposits.
Regulatory Landscape and Industry Discussions
Saylor’s comments come as the CEOs of Citigroup, Wells Fargo, and Bank of America are scheduled to meet with both Republican and Democratic senators this week to discuss legislation focused on crypto market structure.
Bank executives and U.S. senators are expected to gather on Thursday at the Financial Services Forum, a bank trade group that is organizing the meeting. A spokesperson for the Financial Services Forum stated, "The meeting is another opportunity to share [the banks’] perspectives and serve as constructive partners in crafting smart policy to ensure the U.S. remains a digital assets leader."
Topics that are priority to cover include bank permissibility, as well as payment of interest and illicit finance, the spokesperson noted, adding that "meetings between our CEOs and lawmakers happen often."
Addressing Low Global Yields
Saylor underscored the motivation behind his proposal by pointing to low global yields. Bank deposits in Japan, Europe, and Switzerland provide little to no yield, Saylor pointed out, while euro money-market funds yield around 150 basis points, and US money-market rates remain closer to 400 basis points. This, he added, is why investors resort to the corporate bond market, which “wouldn’t exist if people weren’t so disgusted with their bank account.”
Proposed Digital Banking Framework
Saylor described a framework in which digital credit products comprise approximately 80% of a fund, with another 20% in fiat currencies, and a 10% reserve buffer built on top to mitigate excess volatility. If such a product were available on a regulated bank’s platform, depositors could place billions of dollars in institutions to obtain larger deposits.
The account would be backed by digital credit with 5:1 overcollateralization held by a treasury body, he added. In Saylor’s view, the country offering such accounts may attract “20 trillion or 50 trillion dollars” in additional capital flows. The CEO suggested that a country adopting this line could become the international “digital banking capital of the world.”
MicroStrategy's Bitcoin Holdings and Product Offerings
The comments followed Saylor’s revelation that his company had purchased 10,624 BTC for roughly $962.7 million the previous week. This latest buy increases MicroStrategy’s ownership of the asset to 660,624 BTC, purchased for about $49.35 billion at an average cost of $74,696.
Saylor’s description of a high-yield, low-volatility digital bank product is reminiscent of some of what MicroStrategy sells. In July, the company debuted STRC, a money-market-style preferred share with a variable dividend rate of around 10% and a structure designed to maintain its price near par while being backed by MicroStrategy’s Bitcoin-linked treasury operations.
Although the product has already grown to around $2.9 billion in market cap, it has also been met with some skepticism.
Criticism Regarding Bitcoin Volatility
Bitcoin’s volatility is one reason some observers question Saylor’s push for Bitcoin-backed, high-yield credit instruments. Bitcoin has delivered strong long-term returns, but its short-term performance remains unpredictable.
Although the product has already reached a market capitalization of around $2.9 billion, it has also faced some skepticism. Bitcoin’s volatility is one reason some people wonder whether Saylor’s push toward Bitcoin-backed credit instruments, with high yields, is too big a stretch.
So far, Bitcoin has posted strong long-term returns, but it doesn’t give much insight into its immediate performance. Bitcoin has been trading at around $90,911 as of the time of this post, roughly 28% less than its record high of $126,080 on Oct. 6, and approximately 9% less over the past 12 months. However, over five years, BTC has increased by 1,155% from $7,193 on January 1, 2020.
During October, a former Salomon Brothers bond and derivatives trader, Josh Man, called Saylor’s moves “folly” and suggested STRC could suffer a liquidity event. He wrote:
The fiat banking system has been around a long time and has figured out how to build a moat around demand deposits so that they don’t break the buck. Hiking rates on STRC to maintain/defend a peg or price level is not going to work when depositors want to get their money back out.