Michael Saylor: The Four Hundred Year Evolution of Digital Credit

Author: Michael Saylor

Compiled by: Jiahua, ChainCatcher

The birth of digital credit has undergone four centuries of accumulation.

Bitcoin was born in 2008. However, long before the emergence of Bitcoin, many financial infrastructures required for companies to hold assets and issue income-generating securities already existed.

This story begins in the age of sailing ships, passes through railroads and stock tickers, and traverses over a century of tax law and securities regulation, ultimately arriving at modern securities accounts. Understanding this history helps to comprehend the development of digital credit.

1. Common Stock: Investors Can Leave, Capital Can Stay

1602

In Amsterdam, merchants faced a question that still affects the financial industry today: the time a company needs capital may far exceed the time a single investor is willing to hold an investment.

The Dutch East India Company, which obtained its charter in 1602, helped solve this problem. Investors could hold shares and transfer them to others. Even if shareholders changed, the company could continue to use those funds.

In the following decades, this company and its market evolved, becoming an important chapter in the history of modern corporations. By 1791, the First Bank of the United States was chartered with a capital of $10 million, divided into 25,000 shares.

This separation of investment timeframes remains important today. A company can hold Bitcoin for years, while its shareholders can buy and sell stock daily. Common stock grants investors ownership, provides a way for companies to raise new capital, and allows shareholders to share in the company's growth profits while bearing operational losses.

2. Preferred Stock: Different Investors, Different Priorities

1836

Investors wish to provide funding to companies in more than one way. Some want maximum participation in the company's growth, while others prefer to have priority rights to regular payments.

Preferred stock offers this choice. An early example in the U.S. appeared in 1836 when Maryland financed the Baltimore and Ohio Railroad through a preferred equity that provided a permanent 6% preferred dividend from profits.

By 1899, Delaware corporate law explicitly recognized that holders of different classes of stock could enjoy different rights. This framework gradually evolved into today's flexible system of dividend, voting, conversion, and redemption terms.

Preferred stock grants holders specific priorities over common stock shareholders, but the rights of company creditors still take precedence over both. Preferred stock can also be permanent, with no predetermined expiration date. This is a useful structure for companies holding long-term assets and making regular distributions.

Stretch uses this familiar form. Its specific dividend design is outlined in the preferred stock terms.

3. Exchanges and Stock Codes: Ownership Enters the Public Market

1792 · 1867 · 1971

If there is a place to trade shares, there is also a way to discover prices, making transferable stocks more useful.

The origins of the New York securities market trace back to the 1792 Buttonwood Agreement. By March 1866, publicly reported transaction prices on the New York Stock Exchange already included preferred stocks from companies like the Erie Railroad and the Chicago and Northwestern Railway.

Preferred stocks began trading before the advent of stock tickers. In 1867, the ticker invented by Edward Calahan transmitted price information beyond the trading hall. In 1971, NASDAQ began operating as an electronic quotation system.

Today, public trading provides a market for preferred stock shareholders to buy and sell shares, and it offers issuers a reference price when formulating dividend policies, issuing new stock, or repurchasing stock.

Today, a simple stock code in a securities account represents hundreds of years of market development.

4. Securities and Commodities: Distinguishing Assets and Rights

1922 · 1933---1936 · 1974

A company's assets are different from the securities it issues. A business can own commodities or properties, while investors hold stocks or bonds issued by that business.

U.S. securities law gradually developed into a modern federal legal framework through the Securities Act of 1933 and the Securities Exchange Act of 1934. Commodity regulation evolved through the Grain Futures Act of 1922, the Commodity Exchange Act of 1936, and a significant expansion in 1974.

These two parallel systems help explain digital credit: companies hold Bitcoin as reserve assets, while preferred stock shareholders hold securities issued by the company.

Reserve assets and investment products serve different roles. This distinction allows companies to offer various types of investment products around the same balance sheet.

5. Investment Company Rules: What Assets a Company Holds Matters

1940

The Investment Company Act of 1940 established a specialized regulatory framework for companies investing in securities, including rules affecting their capital structure.

The well-known "40% test" examines the proportion of investment securities relative to total assets. Cash items and government securities must be excluded from the calculation, following the definitions and exclusions set forth in the Act. The nature of the company's business is also important.

For a Bitcoin reserve company, directly held Bitcoin is treated differently from investment securities. Holding a share of a Bitcoin fund represents another form of holding.

This distinction helps determine which rules apply when a company uses common stock, preferred stock, and debt. Thus, a regulatory framework established in 1940 continues to influence companies built around assets that emerged in 2008.

6. Capital Return: Confirming the Recovery of Investment Principal

1921 · 1924 · 1954

Tax law distinguishes between distributions of company profits and the return of investment principal.

The Revenue Act of 1921 explicitly stated that certain distributions not classified as income and profits should reduce the tax cost basis for shareholders. The Revenue Act of 1924 provided regulations for distributions exceeding that cost basis. This framework was incorporated into the Internal Revenue Code of 1954 and continues to this day.

Assuming an investor purchases stock for $100. A distribution fully classified as a capital return of $12 would reduce the investor's cost basis to $88. If the investor later sells the stock for $100, not considering other adjustments, the difference between the two would be a $12 gain.

The benefit in this example lies in the timing: the investor receives cash first, while the corresponding gain is recognized later. Once the cost basis is reduced to zero, further non-dividend distributions typically generate taxable income.

Thus, a preferred stock payment can be referred to as a dividend in company terms but treated as a capital return for tax purposes. The specific classification depends on the tax law's definitions of income and profits, as well as the investor's cost basis. This distinction utilized by digital credit has been clearly established in federal law for over a century.

7. Shelf Registration: Preparing for Financing Before Opportunities Arise

1968 · 1982---1983 · 2005

The speed at which favorable market opportunities arise may outpace a company's ability to organize a complete public offering.

Shelf registration separates most of the preparatory work from the actual financing date. Companies can register securities in advance and issue them over a period while keeping the required information updated.

In 1968, the U.S. Securities and Exchange Commission (SEC) recorded different categories of delayed and continuous offerings. In 1982, Rule 415 established a broader modern framework and became a permanent rule in 1983. Common stock, preferred stock, and debt securities all participated in this early system.

This system gradually developed through rules established by the SEC under the Securities Act of 1933. Subsequent reforms increased its flexibility, including the introduction of automatic shelf registration in 2005 for qualified, larger, and mature issuers.

For companies managing Bitcoin balance sheets, shelf registration allows them to prepare for financing in advance and raise funds when market conditions are favorable.

8. At-the-Market Issuance Programs: Daily Trading Can Also Bring New Capital

1982 · 2005

Shelf registration provides a registration framework. At-the-market programs allow companies to sell stock at the current market price in the existing market.

Its regulatory foundation traces back to Rule 415 from 1982. Reforms in 2005 lifted some significant restrictions for qualified issuers. Both common stock and preferred stock can adopt this issuance method.

The distinction between trading and financing is simple: when two existing shareholders trade with each other, the ownership of the stock changes; when a company sells new shares through an ATM, new capital enters the business.

Common stock ATMs target investors seeking exposure to common stock, while preferred stock ATMs cater to investors who value preferred stock distribution terms and priorities.

Strategy simultaneously uses both methods. The actual amount raised depends on real sales, market demand, prices, and the company's financing decisions.

9. Buybacks: Capital Management Can Be Two-Way

1828 · 1982

Issuing stock brings funds to a company, while buying back stock uses funds to reduce the number of shares outstanding and their corresponding equity.

This power has a long history. In 1828, a court in Georgia recognized that a bank had the right to purchase and subsequently resell its own stock. Modern corporate law also clearly stipulates matters related to a company repurchasing its own shares.

In 1982, SEC Rule 10b-18 provided a safe harbor for qualified common stock buybacks. Preferred stock buybacks do not apply to this specific safe harbor but follow other applicable rules.

For digital credit issuers, repurchasing and retiring preferred stock can eliminate future dividend claims on those shares. Along with issuance, liquidity reserves, and dividend policies, buybacks provide companies with another way to manage capital as market conditions change.

10. Bitcoin: A New Reserve Asset

2008---2009

By the early 21st century, most of these infrastructures were already established. On October 31, 2008, Satoshi Nakamoto published the Bitcoin white paper, giving rise to a new asset. On January 3, 2009, the Bitcoin genesis block was born.

Bitcoin introduced a native digital asset. Companies can purchase it, hold it on their balance sheets, and finance through traditional capital markets.

The regulatory status of Bitcoin is also evolving. In 2015, the U.S. Commodity Futures Trading Commission (CFTC) explicitly classified Bitcoin as a commodity. In 2026, an SEC interpretation and guidance released simultaneously by the CFTC classified Bitcoin as a digital commodity that is not itself a security.

Bitcoin provides a reserve asset, while companies provide capital structure, dollar liquidity, and distribution policies. Cash payments come from the issuer's management of its business, assets, and financing.

Investors can then choose different forms of investment: Bitcoin itself, the company's common stock, or preferred stock rights designed around regular income.

Four Hundred Years in a Securities Account

Digital credit consolidates over four hundred years of corporate ownership transfer history, nearly 190 years of American preferred stock history, a tax cost recovery system clearly defined for more than a century, and over forty years of modern shelf registration and ATM rules.

This history provides investors with familiar concepts to help them understand this new combination: assets, ownership, priority, income, liquidity, and taxes.

The Dutch East India Company helped distinguish between the duration of a business and the holding period of investors. Railroads drove the development of preferred equity. Exchanges made ownership tradable. Laws and regulations provided a lasting framework. Bitcoin introduced a new form of capital.

Digital credit is a new chapter in this four hundred years of financial history.