Author: Michael Saylor

Translated by: Jiahui, ChainCatcher

The birth of digital credit has gone through four centuries of accumulation.

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

This story began in the age of sailing ships, went through railroads and ticker tape machines, and crossed 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 finance industry today: the time a company needs capital may far exceed the time individual investors are willing to hold an investment.

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

In the decades that followed, 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 duration remains important today. A company can hold Bitcoin for years while its shareholders can buy and sell stock daily. Common stock gives investors ownership, provides a way for the company to raise new capital, and allows shareholders to share in the company's growth profits while also bearing operational losses.

2. Preferred Stock: Different Investors, Different Priorities

1836

Investors wanted to provide funding for businesses in more than one way. Some wanted to maximize their participation in the business's growth, while others hoped to have more priority rights for regular payments.

Preferred stock offered this option. An early example in the United States appeared in 1836, when Maryland financed the Baltimore and Ohio Railroad through a preferred right 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 dividends, voting, conversion, and redemption terms.

Preferred stock grants holders certain privileges over common stock shareholders, but creditors' rights still take precedence over both. Preferred stock can also be perpetual, with no predetermined maturity date. This is a useful structure for companies that hold long-term assets and regularly make distributions.

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

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

1792 · 1867 · 1971

If there is a place to trade shares, there will also be a way to discover prices, and transferable stocks become more useful.

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

Preferred stocks began trading before the introduction of the ticker tape machine. In 1867, the ticker, invented by Edward Calahan, transmitted price information outside 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 offers issuers a reference price when setting dividend policies, issuing new stocks, or repurchasing stocks.

A simple stock ticker symbol in today's securities accounts 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 the 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 to explain digital credit: companies hold Bitcoin as a reserve asset, while preferred shareholders hold the securities issued by the company.

Reserve assets and investment products play different roles. This distinction allows a company to offer various types of investment products centered 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 structures.

The well-known "40% test" examines the proportion of investment securities relative to total assets. In calculating, cash items and government securities need to be excluded while adhering to the definitions and exclusions set forth in the act. The nature of the company's business is equally important.

For a Bitcoin reserve company, directly held Bitcoins and investment securities are treated differently. Holding a share in a Bitcoin fund is another form of holding.

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

6. Capital Return: Confirming the Recovery of Investment Principal

1921 · 1924 · 1954

Tax law distinguishes distributions of company profits from returns of investment principal.

The Revenue Act of 1921 explicitly states that certain distributions not within the scope of earnings and profits must lower a shareholder’s tax cost basis. The Revenue Act of 1924 made provisions for distributions exceeding that cost basis. This framework has been incorporated into the Internal Revenue Code of 1954 and continues to this day.

Assuming an investor buys stock for $100. A $12 distribution fully classified as a capital return would reduce the investor's cost basis to $88. If the investor then sells the stock for $100, absent other adjustments, the difference would be $12 in gains.

The benefit in this example lies in the timing: the investor receives cash first, while the confirmation of corresponding gains occurs later. Once the cost basis drops to zero, further non-dividend distributions generally generate taxable income.

Thus, a preferred stock payment may be termed a dividend in the company's provisions while being viewed as a capital return for tax purposes. The specific classification depends on the earnings and profits in the tax sense and the investor's cost basis. This distinction utilized by digital credit has been explicitly present in federal law for more than a century.

7. Shelf Registration: Preparing for Financing Before Opportunities Arise

1968 · 1982–1983 · 2005

The speed at which favorable market opportunities arise may exceed the speed at which a company organizes a complete public offering.

Shelf registration separates most 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 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 stocks, preferred stocks, and debt securities all participated in this early system.

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

For companies managing Bitcoin balance sheets, shelf registration allows them to prepare for financing in advance and raise capital 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 (ATM) allow companies to sell stocks at the current market price in the existing market.

The regulatory basis traces back to Rule 415 from 1982. The reforms of 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, it’s the ownership of shares that changes; when a company sells new shares through an ATM, new capital enters the enterprise.

Common stock ATMs target investors looking for exposure to common stock, while preferred stock ATMs cater to investors valuing preferred stock distribution terms and rights.

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

9. Repurchases: Capital Management Can Work Both Ways

1828 · 1982

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

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

In 1982, SEC Rule 10b-18 provided a safe harbor for eligible common stock repurchases. Preferred stock repurchases do not qualify for this specific safe harbor but follow other applicable rules.

For digital credit issuers, repurchasing and canceling preferred stock can eliminate future dividend claims on those shares. Together with issuance, liquidity reserves, and dividend policies, repurchases provide companies 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 in place. On October 31, 2008, Satoshi Nakamoto released the Bitcoin white paper, thus introducing a new asset. On January 3, 2009, the Bitcoin genesis block was born.

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

Bitcoin's regulatory status is also evolving. In 2015, the CFTC explicitly classified Bitcoin as a commodity. In 2026, an SEC interpretation and guidance released simultaneously by the CFTC classified Bitcoin as one of the digital commodities that do not fall under the category of securities.

Bitcoin provides reserve assets, while companies offer capital structures, 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 periodic income.

Four Hundred Years in a Securities Account

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

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

The Dutch East India Company helped distinguish the company's duration from the investors' holding periods. Railroads propelled the development of preferred rights. Exchanges made ownership tradable. Laws and regulations provided a lasting framework. Bitcoin added a new form of capital.

Digital credit represents a new chapter in this four-hundred-year financial history.

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