Michael Saylor, the CEO of a company with the largest Bitcoin holdings, is advocating for nation-states to establish Bitcoin-backed digital banking systems. These systems would provide high-yield, low-volatility accounts, potentially attracting trillions in deposits. At the Bitcoin MENA event in Abu Dhabi, Saylor proposed that countries could leverage overcollateralized Bitcoin reserves and tokenized credit instruments to create regulated digital bank accounts offering higher yields than conventional bank deposits. He pointed out that bank deposits in regions like Japan, Europe, and Switzerland yield minimal returns, with euro money-market funds paying around 150 basis points and US money-market rates near 400 basis points. This situation, he argued, pushes investors towards the corporate bond market, which thrives due to dissatisfaction with traditional bank accounts.
Saylor suggested a model where digital credit instruments make up about 80% of a fund, combined with 20% fiat currency and a 10% reserve buffer to mitigate volatility. If a regulated bank provided such a product, depositors could potentially transfer billions into these institutions for better returns. The accounts would be secured by digital credit with a 5:1 overcollateralization managed by a treasury entity. Saylor believes that a country offering these accounts could attract capital flows of "up to $50 trillion," positioning itself as the "digital banking capital of the world."
These comments came shortly after Saylor announced on social media that his company acquired 10,624 BTC for approximately $962.7 million, bringing its total holdings to 660,624 BTC, purchased for around $49.35 billion at an average price of $74,696 per Bitcoin.
Saylor's vision for high-yield, low-volatility digital bank products is reminiscent of Strategy's own offerings. In July, the company launched STRC, a money-market-style preferred share with a variable dividend rate of about 10%, designed to maintain its price near par and supported by Strategy’s Bitcoin-linked treasury operations. Despite reaching a market cap of around $2.9 billion, the product has faced skepticism from some quarters.
Bitcoin's inherent volatility raises concerns about Saylor's push for Bitcoin-backed credit instruments. Although Bitcoin has shown strong long-term returns, its short-term price movements can be unpredictable. Currently valued at around $90,700, Bitcoin is about 28% below its all-time high of $126,080 from October 6 and roughly 9% down over the past year, according to CoinGecko. However, over five years, BTC has risen by 1,155% from $7,193 on January 1, 2020.
Critics like Josh Man, a former Salomon Brothers bond and derivatives trader, have labeled Saylor’s strategy as misguided, suggesting that STRC might face a liquidity crisis. Man argued that the fiat banking system has long mastered the art of safeguarding demand deposits, whereas raising rates on STRC to uphold a peg or price level would fail if depositors demanded their funds back.