Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy all Away. So, Tracy, um,
Speaker 1: you know, there's still no bitcoin e t F, as
Speaker 1: you know, I mean, for years people have been trying
Speaker 1: to float one. Still that one, But there are various
Speaker 1: some publicly listed instruments that have exposure to Bitcoin that
Speaker 1: in the meantime people are buying and selling to uh, yeah,
Speaker 1: basically find a way to get exposure to the asset
Speaker 1: class or whatever you want to call it through a
Speaker 1: listed equity. Yeah, that's right. And I know we've been
Speaker 1: talking about the possibility of a Bitcoin e t F
Speaker 1: for many many years now, it's kind of surprising that
Speaker 1: that hasn't happened just yet. But you're right, there are
Speaker 1: a number of public companies that are now a play
Speaker 1: on bitcoin, and they kind of range from the more
Speaker 1: I guess you could say outrageous or unusual to um,
Speaker 1: the more traditional. So at one end of the spectrum
Speaker 1: you have a grayscale Bitcoin Trust, which is sort of
Speaker 1: trying to replicate the e t F structure without explicitly
Speaker 1: being in e t F. And then at the other
Speaker 1: end you have remember all those companies like Long Island
Speaker 1: Iced Tea that changed their name to include blockchain and
Speaker 1: just sort of jumped on the bandwagon, and those have
Speaker 1: been going up this year along with the bitcoin price
Speaker 1: as well. And then of course you have everything in between,
Speaker 1: right is exactly right. So some companies are very tangentially
Speaker 1: related to crypto, or they're like, oh, we're suddenly a
Speaker 1: blockchain company, even though we used to sell iced tea um.
Speaker 1: Or some companies they're like, oh, we bought some bitcoin
Speaker 1: mining rigs and we're going to do something like that.
Speaker 1: So there is a range of exposures. But over the
Speaker 1: last several months, um, really since this summer, i'd say
Speaker 1: one company has sort of really jumped out from the
Speaker 1: rest of the pack in the degree to which people
Speaker 1: view it as kind of a bitcoin play or a
Speaker 1: real sort of a direct exposure to fluctuations in the
Speaker 1: coin itself. Yeah, I think that's fair to say. And
Speaker 1: that company is of course micro Strategy. We've seen them
Speaker 1: buy up a bunch of bitcoin, so basically using their
Speaker 1: cash reserves to buy bitcoin, So instead of holding a
Speaker 1: bunch of government bonds in their sort of corporate treasury function,
Speaker 1: they hold something like bitcoin or instead of holding bonds
Speaker 1: and stocks and gold, they hold bitcoin. And it's been
Speaker 1: a really interesting development because it's actually meant that the
Speaker 1: company's share price is basically tracking the price of Krypto. Now, yeah,
Speaker 1: exactly right. So, uh and it was a really well
Speaker 1: timed I mean, I think it was like the middle
Speaker 1: of the summer, maybe it was August. I think they
Speaker 1: announced that they were going to buy some bitcoin, a
Speaker 1: pretty good chunk of it, and then they announced that
Speaker 1: they're going to buy some more. They recently even UM
Speaker 1: sold a convertible note to buy more bitcoin. At the
Speaker 1: same time, the price of bitcoin is skyrocketed over the
Speaker 1: last two or three months, shares of micro Strategy have
Speaker 1: skyrocketed in a concert and so they've really become the
Speaker 1: sort of the publicly listed bitcoin exposed company. I guess
Speaker 1: you could say that people are talking about this year
Speaker 1: and the company has already also become like legendary. All
Speaker 1: the bitcoin hardcore bitcoin maximalism fanboys love this company now
Speaker 1: because they see it as UM sort of paving the
Speaker 1: way and maybe leading to more companies having bitcoin exposure
Speaker 1: in their in their treasury. Yeah, and we should know
Speaker 1: that micro Strategy is also led by Michael Sailor, and
Speaker 1: he's become a big, big name in the bitcoin community.
Speaker 1: I think Baron's called him Bitcoin's most important proselytizer, So
Speaker 1: that gives you some indication of the regard that he
Speaker 1: has within uh crypta exactly right. Every all the bitcoin
Speaker 1: people I follow on Twitter absolutely love it. They love him,
Speaker 1: and I'm excited that Michael Sailor, the CEO and founder
Speaker 1: of micro Strategy, is joining us today. So Michael, thank
Speaker 1: you very much for joining us. Tracy Joe, thanks for
Speaker 1: having me. Happy to be here. So what is micro Strategy?
Speaker 1: I mean, I feel like a lot of people probably
Speaker 1: first heard about the company this summer when you announced
Speaker 1: that you're going to be putting some of your holdings
Speaker 1: into bitcoin, but you've been around a long time. What
Speaker 1: is what is micro Strategy? What does it do? What's
Speaker 1: the story? Micro Strategy is the world's largest publicly traded
Speaker 1: business intelligence software company. We got started in nine and
Speaker 1: in the early nineties we um invented an approach for
Speaker 1: doing analytics against large relational databases. So if you had
Speaker 1: billions of rows of data your McDonald's or your target
Speaker 1: and you needed to extract insight like market basket analysis
Speaker 1: or marketing uplift. If you're a big bank and you
Speaker 1: wanted to do credit analytics against the portfolio of hundreds
Speaker 1: of millions of accounts, you needed to do complicated analytics
Speaker 1: on a large relational database. Nobody in the world knew
Speaker 1: how to do it, and we invented an approach and
Speaker 1: created this software platform too to build those apps, and
Speaker 1: that was that was our early breakthrough, and we grew
Speaker 1: on that platform, became public and uh we competed against
Speaker 1: reporting companies like Crystal and Business Objects and old app
Speaker 1: companies like Hyperion and s base. And they're probably a
Speaker 1: hundred different business intelligence companies that came and went, some
Speaker 1: went out of business, any of them merge, many were amalgamated. Eventually,
Speaker 1: our largest competitors were merged into were bought up by IBM,
Speaker 1: s a P, Salesforce, Oracle, and today we're the pure
Speaker 1: play business intelligence company and we compete against business intelligence
Speaker 1: divisions at IBM and Oracle and s A P and like,
Speaker 1: and so it's enterprise software. We saw it everywhere in
Speaker 1: the world. We have about four thousand very large customers,
Speaker 1: big hotel chains, airlines, governments, retailers, big tech companies, most
Speaker 1: of the major banks, and uh, we're about two thousand
Speaker 1: people in twenty seven countries. That's what we do. So
Speaker 1: unlike many of your competitors, you came through the tech
Speaker 1: bubble intact. And as you mentioned, you you've grown since then.
Speaker 1: What inspired you too by bitcoin? Rather something like what
Speaker 1: was the thought process that went into it? Because as
Speaker 1: Joe and I mentioned, it is quite unusual to see
Speaker 1: a company buying bitcoy in this way. Well, I mean,
Speaker 1: we ran a very responsible business. We were profitable, We
Speaker 1: generated a lot of cash. We uh, we spent hundreds
Speaker 1: of millions of dollars over the past few years buying
Speaker 1: our stock back and we and we came into the
Speaker 1: year with about five hundred million dollars in excess cash
Speaker 1: and our treasury and we kept it for a rainy day.
Speaker 1: We thought, let's have no debt, let's save the cash,
Speaker 1: let's run the business. And and we were running a
Speaker 1: business where we were we were hiring people and spending
Speaker 1: heavily on sales and marketing and services activities and um,
Speaker 1: and then March hit and when the pandemic and by way,
Speaker 1: we didn't think much about my view of cash was
Speaker 1: I invested in short term treasuries, and by way, those
Speaker 1: short term treasuries yielded five percent interest in two thousand
Speaker 1: and ten, and then ancient history. I'm old enough to
Speaker 1: remember when you could get five and a half percent
Speaker 1: interest on overnight money, Joe, right, you know. So, so
Speaker 1: I watched that interest rate whittled down until it became
Speaker 1: nearly nothing, you know, down to like twenty basis points
Speaker 1: or something, and uh, I kind of stealed myself just
Speaker 1: to accept that. And we started thinking, well, what are
Speaker 1: we gonna do with the money. But then March came
Speaker 1: and COVID hit and there were lockdowns and you couldn't
Speaker 1: fly and you couldn't go to hotel and all and
Speaker 1: all of our marketing events got canceled, and all the
Speaker 1: traditional ways of doing things changed, and we encountered what
Speaker 1: I'll call a virtual wave in essence, all of our
Speaker 1: sales and marketing and services that could be virtualized over
Speaker 1: zoom or turned into streaming videos became virtualized. And and first,
Speaker 1: you know, first we were you know, unhappy and more
Speaker 1: to hide, right because everybody's mortified in March what's going
Speaker 1: to happen? And then we realized that our value proposition
Speaker 1: was intact, everybody wanted our software. We only do business
Speaker 1: with you know, mega corporations and mega governments, so they're
Speaker 1: all fine. They wanted the software more than ever. But
Speaker 1: the cost of doing business decreased because now even if
Speaker 1: we wanted to spend millions of dollars on marketing events,
Speaker 1: we couldn't. And and at that point we realized that
Speaker 1: a we didn't really need the five million dollars to
Speaker 1: sell and market and grow the business because you couldn't
Speaker 1: throw money at the problem anymore. You're just going to
Speaker 1: post videos and you're gonna zoom everywhere at the speed
Speaker 1: of light and then be We realized that we were
Speaker 1: going to generate a lot more cash in the future
Speaker 1: than we had in the past because we had thirty
Speaker 1: or forty million dollars of costs fall out of our business.
Speaker 1: And so all of a sudden, we go from thinking, well,
Speaker 1: we've got a good treasury. It's responsible to keep the
Speaker 1: cash and save it for a rainy day in case
Speaker 1: we need to spend it. Two, we have more money
Speaker 1: than we need. Our stock is in the tank, our
Speaker 1: investors don't value the cash. At one point, we were
Speaker 1: valued at one time's revenue plus the cash or two
Speaker 1: times revenue, and the cash was worth nothing. And the
Speaker 1: investors literally told me to my face, they said, we
Speaker 1: don't value the money is worth anything. And so that's
Speaker 1: one dilemma. And the other dilemma is we're gonna generate
Speaker 1: five million more dollars than we thought we were going
Speaker 1: to generate. And then there's a third and that's not
Speaker 1: a dilemma, that's a that's a development because the virtual wave.
Speaker 1: And then we watched as the Federal Reserve and the
Speaker 1: EU Central Bank started printing money, and we realized that
Speaker 1: there was massive rampant hyper inflation in assets. There's no
Speaker 1: inflation and consumer goods that do not include food and
Speaker 1: energy and assets but like there's no inflation, and YouTube
Speaker 1: streaming videos and Netflix, you're never gonna get inflation, and
Speaker 1: that you've got inflation in the ten year bond, the
Speaker 1: thirty year bond, Hampton's real estate Apple shares doubled, even
Speaker 1: though the EPs was constant. All the assets and the
Speaker 1: the energy rich products inflated at a rapid rate and
Speaker 1: there was a k shape recovery. And that's when I
Speaker 1: started looking at the world differently and what I realized
Speaker 1: was the money supply the end two money supply that
Speaker 1: had been expanding at about five percent a year for
Speaker 1: the past decade was now expanding percent a year. And
Speaker 1: any reasonable person would expect that the money supply is
Speaker 1: going to expand by ten to fifteen percent a year
Speaker 1: every year for the next four to five years. And
Speaker 1: then I realized we have rampant asset inflation. And another
Speaker 1: way to say that is the purchasing power of the
Speaker 1: cash is being degraded. The Federal Reserve is devaluing the
Speaker 1: currency at fifteen percent a year. And so what that
Speaker 1: means is if you're sitting on cash, you can expect
Speaker 1: to lose half your purchasing power in thirty six to
Speaker 1: forty eight months, guaranteed. And so I went from thinking
Speaker 1: I needed the cash and I might get a yield
Speaker 1: and maybe maybe there's a two percent inflation rate to
Speaker 1: the real inflation rate is like been running six percent,
Speaker 1: but now it's about to run And so my cash
Speaker 1: is a melting ice cube and it's a it's really
Speaker 1: a violation of my fiduciary duties to watch the cash
Speaker 1: burn away, like if someone came into your backyard and
Speaker 1: started stealing your money every year. I mean, how many
Speaker 1: years would you wait before you took the cash out
Speaker 1: of the backyard. So that that's the dilemma, and that's
Speaker 1: where we went in March when we went down this journey. Well, yeah,
Speaker 1: so you made the decision to put a big chunk
Speaker 1: of that into coin. Why not do another possibility of um,
Speaker 1: you know, like a special one time dividend or something
Speaker 1: like that, so that the shareholders could in theory allocate
Speaker 1: the cash however they wanted. That is a good question.
Speaker 1: First of all our choices where we could just give
Speaker 1: it all back to the shareholders, right, we could divdated
Speaker 1: it out or do a massive stock buy back. Or
Speaker 1: the second choices, we could do a big acquisition of
Speaker 1: another company, which a lot of times people do to
Speaker 1: try to grow our top line. And the third choices,
Speaker 1: we could invest it in something liquid as a treasury asset,
Speaker 1: which was going to appreciate and price faster than the
Speaker 1: rate at which the central bank printed money. So those
Speaker 1: are the three logical choices. So so what did we do? Well,
Speaker 1: we actually went right down the middle. What's the problem
Speaker 1: with just giving all the money back? Well, Joe, if
Speaker 1: I give all the money back I decapitalized the company,
Speaker 1: and then if we have a negative event, were insolvent, Like,
Speaker 1: why doesn't Harvard give all the money back of the endowment, right?
Speaker 1: And why don't you take all the money in your
Speaker 1: bank account and give it to the needy? Right? The
Speaker 1: answer is because Harvard wants an endowment, and because you
Speaker 1: want to have money in case your family needs it,
Speaker 1: And why doesn't a company might give all of its
Speaker 1: money back to its shareholders because they might actually have
Speaker 1: to make good on a contract with a vendor, or
Speaker 1: pay an employee, or like if I, you know, all
Speaker 1: my customers are expecting me to be in business for
Speaker 1: the next twenty years, so if I drained my treasury,
Speaker 1: they might lose confidence in me. So you know, giving
Speaker 1: it all back is decapitalizing the business, and you might
Speaker 1: as well drain the endowment of every institution on earth.
Speaker 1: It does. It doesn't make a lot of sense to
Speaker 1: do that completely. Having said that, what we actually decided
Speaker 1: to do was embark on a program where we agreed
Speaker 1: to buy back to spend half of it to buy
Speaker 1: back stock and the other half to invest in alternative assets.
Speaker 1: And we decided we would go look for some kind
Speaker 1: of inflation hedge, and we put this out on the wire.
Speaker 1: We announced it to our shareholders because we wanted them
Speaker 1: to be able to digest that news. And then we
Speaker 1: went on a pretty intense search, and we considered everything
Speaker 1: we might invest in our endowment, in our treasury, in
Speaker 1: and we considered buying real estate, and we considered buying bonds,
Speaker 1: and we considered buying stocks. And the problem is, you
Speaker 1: can't buy any other currency because they're all debasing as
Speaker 1: fast as the dollar or faster against heart assets. You
Speaker 1: can't buy bonds because no bond is going to yield
Speaker 1: a coupon of more than fifteen percent a year. And
Speaker 1: the only way your bond is gonna hold its value
Speaker 1: is if it's not yielding fift interest is if the
Speaker 1: interest rates keep clicking down to go negative. And so
Speaker 1: if you don't believe interest rates are going negative, bonds
Speaker 1: absolutely won't hold their value. And it looks like bonds
Speaker 1: got to the to the line when the thirty year
Speaker 1: got to seventy two basis points or the fit you know,
Speaker 1: the ten years got the fifty basis points or whatever
Speaker 1: they got to. So bonds don't work. Then real estate
Speaker 1: doesn't work because commercial real estate trades like a bond.
Speaker 1: And and how are you going to grow your rents
Speaker 1: by fifteen percent? The cost of capital literally went from
Speaker 1: five percent to fifteen percent. So real estate is not
Speaker 1: going to hold his value, nor is it gonna have
Speaker 1: a cash yield of fifteen percent. And by the way,
Speaker 1: half of it's impaired. And I mean, how do you
Speaker 1: pick unimpaired real estate, you know, going through the time
Speaker 1: of COVID. So now you've got to go to stocks.
Speaker 1: You've got to buy a portfolio of stocks. Well, stocks
Speaker 1: are fiat instruments that are valued based upon the discounted
Speaker 1: value of the cash flows over time. If the monetary
Speaker 1: supply is expanding at five percent a year, then Google
Speaker 1: and Facebook and Amazon work because they're growing twenty percent
Speaker 1: a year. But if you've got a business it's only
Speaker 1: growing five percent a year, you have to leverage up.
Speaker 1: You have to borrow money short the dollar, buy your
Speaker 1: stock back to leverage up your cash flow per share
Speaker 1: in order to beat the hurdle rate. That's almost possible
Speaker 1: at five hurdle rate. It's impossible at hurdle rate for
Speaker 1: just about anybody. And again the problem is the you know,
Speaker 1: I can leverage up a corporation, and they've been leveraging up.
Speaker 1: But with interest rates pegged at zero or near zero,
Speaker 1: you can't go negative. So it's the end of the
Speaker 1: line for leverage equity. So we dismissed all three of
Speaker 1: those and we went to gold. And the problem with
Speaker 1: gold is the gold miners produced two percent more gold
Speaker 1: every year, and gold is centrally controlled and corruptible, and
Speaker 1: then people print gold derivatives that aren't fully bound by
Speaker 1: the gold, and so you can expect a two to
Speaker 1: four percent dedegradation of gold over time over a hundred years.
Speaker 1: That means you're gonna lose nine of your value. If
Speaker 1: you invest in gold over a hundred years, you're gonna
Speaker 1: losecent of your values. You invest in the US dollar
Speaker 1: increasing at five percent, are expanding at five percent a year,
Speaker 1: and of course the real the real likelihood as you
Speaker 1: lose nine percent of your value because most of the
Speaker 1: currencies collapse over a hundred years. So that took us
Speaker 1: to crypto, and we got to crypto. We looked at
Speaker 1: six thousand, five hundred cryptos and we found that bitcoin
Speaker 1: is the dominant crypto asset network. It's times bigger than
Speaker 1: the next closest thing that looks like it, and it
Speaker 1: had more than two hundred billion dollars of monetary energy
Speaker 1: in it. Bitcoin is an essence Facebook for money or
Speaker 1: Google for money. Uh. It's and this is the nuance
Speaker 1: most people haven't realized yet. What you have is a
Speaker 1: dominant digital network that's been engineered to host a safe
Speaker 1: haven treasury reserve assets superior to gold in all respects.
Speaker 1: It's pharmaceutical grade gold. If God gold as a treasury
Speaker 1: reserve asset to hold for a hundred years, he would
Speaker 1: create twenty one million gold coins. He'd make it impossible
Speaker 1: to make anymore. He would make it possible to audit
Speaker 1: it anywhere on Earth from any node every ten minutes.
Speaker 1: He would make it. He would make it unhackable and uh.
Speaker 1: And he would make it an open architecture that's programmable,
Speaker 1: so you could build it into an iPhone or Square
Speaker 1: or PayPal or any other exchange without permission. And he
Speaker 1: would distribute it everywhere on Earth with these with these
Speaker 1: crypto shaw to fifty six miners, so that no company
Speaker 1: controls it, no ceo controls it, no country controls it,
Speaker 1: no regulator controls it. So that's kind of the perfect
Speaker 1: synthetic safe haven asset, and that's what we found in
Speaker 1: our search. So you touched on this earlier. But corporate
Speaker 1: treasuries are generally supposed to be full of liquid assets because,
Speaker 1: as you mentioned, you don't know when the company might
Speaker 1: experience some sort of emergency event where it actually needs
Speaker 1: cash on hand. How liquid is bitcoin? And also how
Speaker 1: did you go about buying it? Because again, as we mentioned,
Speaker 1: you built up a pretty big position, So I'm curious, like,
Speaker 1: buying it up, what was that like? And then in
Speaker 1: your mind, what would selling it all in an emergency
Speaker 1: scenario be? Like? Well, I mean it's a good point.
Speaker 1: Bitcoin is the best treasury reserve asset on earth for
Speaker 1: anybody at our scale. It might not be the ideal
Speaker 1: asset for someone that needs to store a hundred billion
Speaker 1: dollars at a shot, like a like Apple or maybe
Speaker 1: a nation state, but for a billion dollar company or
Speaker 1: a multibillion dollar company where you're going to move ten
Speaker 1: to a hundred million, two hundreds of millions at a time,
Speaker 1: it's ideal. How liquid is it? It trades seven three
Speaker 1: sixty five every minute in every country, in every language,
Speaker 1: and nearly every currency pair over Thanksgiving, Apple Stock, Amazon Stock,
Speaker 1: most all the all the US capital markets shut down
Speaker 1: at four pm on Wednesday. They traded nine thirty am
Speaker 1: to one pm on Friday. They didn't reopen again until
Speaker 1: nine thirty am the following Monday. That means over one
Speaker 1: hundred and thirteen point five hours US capital markets function
Speaker 1: Three and a half hours three point one percent of
Speaker 1: the time was the banking and the capital market system
Speaker 1: working for treasury. Bitcoin was functioning all one hundred thirteen
Speaker 1: point five hours trading, mark the markets, every country, every currency.
Speaker 1: It's really it is the global asset of choice. If
Speaker 1: what you unted was transparency, marked the market and liquidity.
Speaker 1: On average, uh, it normally trades about two billion dollars
Speaker 1: a day. UH. Sometimes it trades a bit harder than
Speaker 1: that three billion. You could reasonably liquid a hundred million
Speaker 1: dollars over a few hours on a Saturday afternoon. During weekdays,
Speaker 1: the volume increases and you could probably do it faster.
Speaker 1: So in that size or scale, it's fine. I mean,
Speaker 1: if again, if you wanted to liquidate fifty billion dollars
Speaker 1: worth of stuff, it's a little bit too small because
Speaker 1: the network is about three or fifty billion dollars right now. Liquidity.
Speaker 1: But you put your finger on an important point, which
Speaker 1: is the value of bitcoin is to serve up liquidity.
Speaker 1: As the price goes up, the liquidity goes up, the
Speaker 1: value the use case goes up. The value and use
Speaker 1: goes up. When bitcoin goes up by a factor of ten,
Speaker 1: it will be ten times better, and when it goes
Speaker 1: up by a hundred, it will be a hundred times better.
Speaker 1: And so you have a positive feedback loop as a
Speaker 1: treasury asset. And what you see right now is people
Speaker 1: are starting to adopt it and plug their treasuries into
Speaker 1: this network. It starts with small, mid size, then high
Speaker 1: net worth individuals, small mid size companies, and it will
Speaker 1: roll to larger and larger institutions over time as people
Speaker 1: start to discover it and as the network is bigger.
Speaker 1: Let me let me ask you a question. I wanna
Speaker 1: you know, I wanna sort of said to the sort
Speaker 1: of bigger strategy in a second, but I want to
Speaker 1: press you on one thing. And you're talking about fifteen
Speaker 1: percent inflation or degradation of the dollar value. But just
Speaker 1: to be clear, I mean your costs. I mean you
Speaker 1: run a business, and so you have salary and computer
Speaker 1: you know, technological infrastructure, spend and rent for your offices,
Speaker 1: uh travel when travel exists, those class haven't been surging
Speaker 1: fifteent of years. So when you say that, it's not
Speaker 1: actually consumption, right, you're talking about financial assets rising, not
Speaker 1: actually purchasing power of day to day business needs. You know,
Speaker 1: I'm gonna be fairly brutal about this. I'm gonna say
Speaker 1: that everybody on Earth, all three hundred trillion dollars worth
Speaker 1: of investors, are going to lose half their wealth in
Speaker 1: the next forty eight months due to the currency collapse.
Speaker 1: And that's in the that's in the Western world and
Speaker 1: US and Europe. It's much worse. It's loss. If you
Speaker 1: go to Argentina, Brazil, Venezuela, Nigeria, South Africa, Turkey, Lebanon
Speaker 1: and the like, there's a billion people where the currency
Speaker 1: is literally collapsing. Everybody in the Western world is just
Speaker 1: gonna lose half their wealth if they don't start paying attention. Now,
Speaker 1: let me, I just want to say now to our producer,
Speaker 1: we're definitely rebooking Michael for December fIF team uh two
Speaker 1: to talk about that, all right, So keep going, keep going.
Speaker 1: But I just want to make sure that we follow up. Okay,
Speaker 1: I'm gonna make another important point. Inflation is an irrelevant
Speaker 1: metric as defined by the central banks, central banks and
Speaker 1: the FED, and most of the mainstream media refers to
Speaker 1: inflation incessantly and laments the lack of inflation, and their
Speaker 1: definition of inflation is a market basket of goods and
Speaker 1: services that do not include the highly volatile food and energy.
Speaker 1: And then nobody ever questions that in mainstream media, or
Speaker 1: at least they don't really think hard about it. But
Speaker 1: first of all, there is no planet where anybody can
Speaker 1: live without food and energy, and so tracking a metric
Speaker 1: that does not track food and energy is entertainment, but
Speaker 1: irrelevant when you're contemplating the future of the economy or
Speaker 1: an investment. My second point, if you added food and
Speaker 1: energy such that you did not starve to death, it
Speaker 1: still wouldn't be the proper metric to track. If you're
Speaker 1: actually an investor, the appropriate metric to track would be
Speaker 1: cost a capital or asset inflation, which is the rate
Speaker 1: at which a market basket of assets that are desirable
Speaker 1: by rational people, or the rate at which goods and
Speaker 1: services that are desirable by rational people go up in price.
Speaker 1: And if you were to actually put into that basket
Speaker 1: things like early retirement or social security. How about how
Speaker 1: about a stipend to live, you know, for the rest
Speaker 1: of your life on fifty thousand a year. That used
Speaker 1: to cost a million dollars when bonds yielded five percent,
Speaker 1: and then it costs two million dollars when bonds yielded
Speaker 1: two and a percent, And today that would cost you
Speaker 1: four or five million dollars when bonds or yielding that
Speaker 1: it would cost you six million dollars with a ten
Speaker 1: year bond yielding ninety bases points. So there's definitely rampant
Speaker 1: hyper inflation and annuities, and there's hyper inflation and other assets.
Speaker 1: If you look at the last decade, the cost of
Speaker 1: capital is about five and a half percent. That's the
Speaker 1: end to money money supply expansion. And it turns out
Speaker 1: that you know, the S and P was was appreciating
Speaker 1: it about seven to eight percent. And you you will
Speaker 1: look and see the cost of the cost of buying
Speaker 1: labor intensive highly desirable things people want is going up
Speaker 1: faster than one or two percent. For example, none of
Speaker 1: my employees are willing to keep working for me if
Speaker 1: their salaries increased by one percent a year on average,
Speaker 1: it's about a seven percent increase in costs to keep
Speaker 1: to keep talented people from quitting your company. And so
Speaker 1: if you're tracking technical labor, that's about the rate at
Speaker 1: which the prices go up. If you look at the
Speaker 1: chap would index prices go up across the board undesirable things.
Speaker 1: Real estate in the Hampton's went up in sixteen weeks
Speaker 1: this year, sixteen weeks. Look at any desirable real estate.
Speaker 1: Look at any scarce asset that the FED can't print,
Speaker 1: anything that is not if it's energy intensive, if it's
Speaker 1: labor intensive, or if it's if it's a true financial instrument.
Speaker 1: It's inflating somewhere in the last decade, easily at seven
Speaker 1: percent a year or so. And the problem is it's
Speaker 1: just doubled or tripled because the FED is is pumping
Speaker 1: so much more currency into the economy. If you double
Speaker 1: the amount of currency and you keep the goods and
Speaker 1: services constant ergo, it goes to reason that things that
Speaker 1: are scarce and desirable will double in price. The things
Speaker 1: that won't double in price. Our YouTube streaming videos, information
Speaker 1: rich things with the variable cost of electricity or one
Speaker 1: to five variable cost, or maybe if you've got if
Speaker 1: you've got a high fixed cost, like I spend two
Speaker 1: billion dollars to design the iPhone twelve and I stamp
Speaker 1: out you know, a hundred million of them the fixed
Speaker 1: cost or are high, the variable cost or low. You
Speaker 1: typically don't track inflation on those things. You're gonna track
Speaker 1: inflation on energy intensive goods and services. And where are
Speaker 1: you going to see the real inflation is. You're gonna
Speaker 1: see it on scarce assets. For example, Bitcoin is up
Speaker 1: a hundred and seventy in twelve months. Okay, let that
Speaker 1: sink in. It's the ultimate scarce asset. Gold is up,
Speaker 1: the SNP is up six, Apple stock is doubled, and
Speaker 1: yet EPs of Apple is not doubled. The the P
Speaker 1: T E ratios are blowing out. If you calculate the
Speaker 1: number of hours you have to work, the amount of
Speaker 1: labor you have to actually perform in order to buy
Speaker 1: a share of the SNP five, it's doubling. If you
Speaker 1: calculate the number of hours you have to work to
Speaker 1: buy real estate or residential real estate, and Tokyo. Since
Speaker 1: the central Bank started printing money very rapidly, you realize
Speaker 1: that that ordinary people can't ever make enough to buy
Speaker 1: these things, So you won't get any inflation on on
Speaker 1: low variable cost information rich items. In fact, you will
Speaker 1: get deflation. You're going to get inflation and assets. And
Speaker 1: that's that's the basis of the k shape recovery. So
Speaker 1: let's come back to my fighter siay responsibility as a CEO.
Speaker 1: But the answer is, I have five million dollars. It
Speaker 1: will go to zero and be worth nothing and buy nothing,
Speaker 1: or I can find a way to invest it in
Speaker 1: something that's going to appreciate against the dollar, and if
Speaker 1: it appreciates more than against the dollar, then my purchasing
Speaker 1: power will stay at parody. If it appreciates faster than that,
Speaker 1: then my purchasing power will outstrip the dollar and I
Speaker 1: and I will appreciate and therefore I will create shareholder value.
Speaker 1: So this entire exercises how do I actually grow my
Speaker 1: balance sheet or grow my cash flows faster than the
Speaker 1: rate at which the money supply is expanding? Amazon, Facebook,
Speaker 1: and Google. This is why all those stocks performed so
Speaker 1: well in the last decade, their top lines growing, their
Speaker 1: cash flows are growing. The FED is printing money at
Speaker 1: five percent a year, they're creating at more than the
Speaker 1: risk free cost to capital, and they're effectively monopolies. And
Speaker 1: so if you're holding something like that, you're good. The
Speaker 1: problem is that, you know, but the FED, if they
Speaker 1: triple the cost to capital, the companies can't beat that.
Speaker 1: And if you want to see it illustrated in a
Speaker 1: more brutal fashion, go imagine yourself starting a company in Argentine,
Speaker 1: where the paso traded with dollar to a peso, then
Speaker 1: it went ten dollar ten pacos to the dollar, then
Speaker 1: it went twenty pasos to the dollar. We rolled into
Speaker 1: this year, it said the forty paces to the dollar.
Speaker 1: Now it's eighty paces to the dollar. And by the way,
Speaker 1: the black market rate is a hundred and forty paces
Speaker 1: to the dollar. You know, there's no way you can
Speaker 1: grow a company fast enough. And by the way, it's
Speaker 1: a hundred and forty paces to the dollar and the
Speaker 1: dollar is only worth half as much against scarce assets.
Speaker 1: The same story is true in Mexico. You can't. Mexico
Speaker 1: went from ten pacos to the dollar to twenty paces
Speaker 1: to the dollar. The dollar lost half of its asset
Speaker 1: value against scarce assets, so you lost of your wealth.
Speaker 1: I want to jump in here because you mentioned fiduciary duty,
Speaker 1: and you know you were going to get to it earlier,
Speaker 1: and I think this is an important point. But what
Speaker 1: did your discussions with investors actually look like? Because I
Speaker 1: imagine for the vast majority of them, they put our
Speaker 1: money in a business intelligence firm, a software firm, they're
Speaker 1: not necessarily expecting that firm to go out and buy
Speaker 1: bitcoin in this way. That's true. So let's let's put
Speaker 1: the put the dilemma here. I have a company that's
Speaker 1: may be able to grow five percent a year. It's
Speaker 1: cash flows. It can generate fifty to seventy five million
Speaker 1: dollars in cash flow. It's got five million in in
Speaker 1: in cash. The US Federal Reserve is debasing my treasury
Speaker 1: at the same rate as my company as a creating
Speaker 1: cash flow. So in essence, all of the work of
Speaker 1: the company is for not and then they triple they
Speaker 1: triple the cost the capital. So it's imp it's impossible,
Speaker 1: reasonably speaking, to grow the cash flows a year without
Speaker 1: taking excessive risk in a competitive marketplace. So we're struck
Speaker 1: with the dilemma, what are my choices? Well, I can
Speaker 1: attempt to grow faster than the rate at which the
Speaker 1: Fed prints money, and I will probably fail and they'll
Speaker 1: suffocate me to death or choke me to death. Or
Speaker 1: I can simply invest in a monitoring network that's appreciating
Speaker 1: it or more against the dollar and go about my business.
Speaker 1: And so those are the two choices. One of them
Speaker 1: well and bye. This is the choice that every business faces,
Speaker 1: and this is the choice that every individual faces, and
Speaker 1: and you can see one of them is like, you
Speaker 1: continue to do your work in Venezuela, working harder as
Speaker 1: the currency collapses, or in Argentina. The other choice is
Speaker 1: you invest in a treasury asset that's going to go
Speaker 1: up a hundred percent a year. It's easy to say, well,
Speaker 1: why don't you just give the money back to the investors.
Speaker 1: What the answer is, We're still going to suffocate. We're
Speaker 1: still going to choke to death. You've got to consider
Speaker 1: everybody on the planet is going to freeze to death
Speaker 1: or suffocate if we keep sucking the oxygen out of
Speaker 1: the room as as we monetary value out of the currency.
Speaker 1: It's creating a life or death situation for everybody. Now
Speaker 1: let me come back to your point, because you ask
Speaker 1: me a question, I want to answer. What I did
Speaker 1: was I went to the investors and I said, we
Speaker 1: believe we have to have a treasury. We're going to
Speaker 1: invest it in some asset that will actually appreciate faster
Speaker 1: than the rate of the mind of the currency collapse,
Speaker 1: the rate of collapse of the dollar inflation rate, the
Speaker 1: asset inflation rate. And then I also said, and we're
Speaker 1: gonna start buying the stock back. One week later, we
Speaker 1: tendered for two or fifty million dollars worth of stock.
Speaker 1: Our our stock was trading about one, and we did
Speaker 1: a Dutch auction and we offered to buy back two
Speaker 1: fifty million dollars worth of the stock at a premium
Speaker 1: up to one. And so we also then announced we
Speaker 1: bought two fifty million dollars worth the bitcoin. Why because
Speaker 1: it's the best performing asset of the decade, the last
Speaker 1: five years, the last two years, the last one year,
Speaker 1: the last three months, it's up four thousand in five years,
Speaker 1: it's up a one year. Because it's the best treasury
Speaker 1: reserve asset that you could buy. So that's why we
Speaker 1: did that. We tendered, We waited twenty days. The stock
Speaker 1: traded up first below the tender, then above the tender price.
Speaker 1: Anybody that didn't like bitcoin was able to sell their
Speaker 1: stock between one forty and one fifty one. They all
Speaker 1: got a premium if they didn't want to take that risk.
Speaker 1: Then some people tender their stock. We had sixty millions
Speaker 1: share our sixty million dollars tendered. We bought all that stock,
Speaker 1: and then the stock of the company started trading north
Speaker 1: of the tender price because we had rotated our shareholder
Speaker 1: base from people that had invested in an enterprise off
Speaker 1: a company, two people that understood that it was wise
Speaker 1: for us to invest our treasury in an asset like bitcoin,
Speaker 1: and they were comfortable with it. And from there the
Speaker 1: stock traded to one sixty two hundred twenty to fifty
Speaker 1: two eighty three hundred and above three hundred because there
Speaker 1: are there are a lot of people that agree with
Speaker 1: me and they like the idea of investing. By the way,
Speaker 1: would you rather invest in a company that's growing its
Speaker 1: cash flows a percent a year or growing its cash
Speaker 1: flows five a year? Because what we did was invest
Speaker 1: a bunch of cash in an asset that has traditionally,
Speaker 1: over the last decade grown faster than a hundred percent
Speaker 1: a year. You can see that's what we did, and
Speaker 1: that was the investor base we had when we finished
Speaker 1: that exercise. You know, absolutely, So looking at your chart,
Speaker 1: I mean, obviously the stock has done phenomenally well, you know,
Speaker 1: as you mentioned, you know, going back to this jill
Speaker 1: in July, it was just over a hundred dollars to
Speaker 1: share one twenty share. It recently peaked around three forty share.
Speaker 1: It's come back a little bit. But um, how does
Speaker 1: your You have over two thousand employees who up until
Speaker 1: a few months ago, we're working in for a business
Speaker 1: intelligence company sort of standard uh cloud, Uh, you know,
Speaker 1: software company, who now have in some sense their fates,
Speaker 1: the fates of these over two thousand people tied in
Speaker 1: what is kind of a sort of a levered play
Speaker 1: on bitcoin. And so I'm curious, Um, you know it's
Speaker 1: worked out well because bitcoin has really rallied over the
Speaker 1: last few months. What are the internal communications like a
Speaker 1: sort of all the employees sort of realizing that the
Speaker 1: fortunes of their company is a typed to bitcoin. And two,
Speaker 1: you know, you obviously as the CEO, you spend a
Speaker 1: lot of time focus on bitcoin. You talk about on Twitter,
Speaker 1: you have some amazing uh sort of analogies that you use.
Speaker 1: I think called it the hive or something like that,
Speaker 1: the electric hive. How do the what's the internal feeling?
Speaker 1: Like all these people suddenly their careers associated with a
Speaker 1: levered bitcoin play all of a sudden. Let's start with
Speaker 1: one observation. It's not a levered bitcoin play until last week.
Speaker 1: Last week we did a convertible debt offering which added
Speaker 1: some leverage to it. It was an unleveraged treasury decision
Speaker 1: until last week. And um, by the way, it's the
Speaker 1: same reaction your family would have if they were all
Speaker 1: going bankrupt and going to starve to death because the
Speaker 1: currency was collapsing, and then use in Argentina or Nigeria
Speaker 1: or Brazil or even in the US. If you know,
Speaker 1: if your family said, we're gonna lose half our stuff
Speaker 1: and be bankrupt, and if you said, I invested it
Speaker 1: in bitcoin, and by the way, we just doubled our
Speaker 1: money and now we're rich, Like, how would your family react.
Speaker 1: It's like we we had we had five third million
Speaker 1: dollars that was going to zero, and now we have
Speaker 1: eight hundred million worth of bitcoin which has been appreciating
Speaker 1: a hundred percent a year. So first of all, there's
Speaker 1: a collective side of relief. Now we have an endowment
Speaker 1: which is actually appreciating faster than the rate of currency collapse.
Speaker 1: So that's a good thing. Second, the stocks up, a
Speaker 1: lot of the shareholders, a lot of them have options.
Speaker 1: Of course they're delighted about that. Third, the you know,
Speaker 1: the company had a massive jolta of electricity shot into it.
Speaker 1: Bitcoin is hope. If you're living in a country Nigeria, Argentina, Brazil, wherever,
Speaker 1: and the currency is collapsing and you're going bankrupt and
Speaker 1: you're going to start to death, they're you're hopeless. And
Speaker 1: so the ability to actually buy a liquid asset which
Speaker 1: is going to appreciate and protect you against the currency collapse.
Speaker 1: It's like getting on an art right. We say bitcoin
Speaker 1: is like an arc against you know, to avoid drowning
Speaker 1: in a currency flood. Right, It's like wouldn't you like
Speaker 1: a life raft? I mean, it's pretty motivational to know
Speaker 1: you're not going to drown when the macro economy is collapsing,
Speaker 1: you know, and you might you know, there's a certain
Speaker 1: set of people that own stocks in this in this
Speaker 1: country and they think it's all fine, but there's a
Speaker 1: lot of people that aren't really owning all those assets
Speaker 1: that have bounced into k shape recovery, and it's not
Speaker 1: fine for them. Right, There's a there's a quite a
Speaker 1: macro economic dilemma right now around the world, and seven
Speaker 1: point eight billion people have collapsing currencies. The best they're
Speaker 1: collapsing at ten to fifteen percent a year. The worst
Speaker 1: are collapsing faster. Every investor has a problem. So my employees.
Speaker 1: The employees are happy because stocks up. The awareness of
Speaker 1: the company is up by a factor of ten thousand, right,
Speaker 1: I mean, everybody is aware of what we're doing. We've
Speaker 1: had million, million, millions of hours of video on YouTube.
Speaker 1: People know the company, they know about micro strategy, business intelligence.
Speaker 1: Our customers like it. You know. By the way, every
Speaker 1: company with a treasury has the same problem. Guys like
Speaker 1: you can you can paint me as like this crazy
Speaker 1: guy taking a risk. But on the other hand, it's
Speaker 1: not a risk if I told you you're going to
Speaker 1: freeze to death in forty eight months, it's not a
Speaker 1: risk to step out of your house and try something new.
Speaker 1: And so every company that we do business with is
Speaker 1: thinking about these things. So we've actually taken a leadership
Speaker 1: position with our customers, are partners, are vendors, are employees.
Speaker 1: The brand has been created, everybody knows more about the brand,
Speaker 1: They know more about the stock, they know more about
Speaker 1: the product, and everybody, you know, how do you think
Speaker 1: employees at Tesla field? They like working at Tesla, They
Speaker 1: like working on a for a company that's doing progressive
Speaker 1: things that are going to improve the planet. Everybody likes
Speaker 1: the mission. And so micro Strategy was a very focused
Speaker 1: business intelligence company. In February, we were faced with a
Speaker 1: challenge our challenges. We could either basically decapitalize the company
Speaker 1: and struggle against a currency collapse, or we could craft
Speaker 1: ourselves a bitcoin sale, turn our ship into you know,
Speaker 1: into the wind, catch the wind, and start sailing. And
Speaker 1: so what we did is a transformation on the balance
Speaker 1: sheet of the company in order to instead of suffering
Speaker 1: from the devaluation of the currency, we wanted to benefit
Speaker 1: from the devaluation of the currency and uh and that's
Speaker 1: been very motivational for everybody, and it's it's providing us
Speaker 1: with lots of opportunities on the business side too. So
Speaker 1: I think it's it's generally been quite positively received. So
Speaker 1: we mentioned at the outset of this conversation that somewhat surprisingly,
Speaker 1: there isn't a bitcoin e t F in existence just yet.
Speaker 1: Some people have been saying that your company, now given
Speaker 1: the bitcoin holding resembles and E t F on bitcoin,
Speaker 1: or at least to play on on on bitcoin. What
Speaker 1: do you say in response, because I saw you tweeting
Speaker 1: a little bit about this recently, but what's your response
Speaker 1: to people who say that micro Strategy is now just
Speaker 1: a Bitcoin e t F. We're not a bitcoin e
Speaker 1: t F. And E t F is an investment company
Speaker 1: per the forty Securities Act, and and that means it
Speaker 1: has the whole securities and it's a company that's fashioned
Speaker 1: to hold securities like stocks or bonds. First of all,
Speaker 1: we're not an investment company. We're an operating company. Second
Speaker 1: of all, bitcoin is not a security. I mean, Jake
Speaker 1: Clayton just went on TV two weeks ago it was
Speaker 1: very emphatic about that bitcoin is property. It's like owning
Speaker 1: land in Texas. You cannot it's it's it's property. You
Speaker 1: can own land without being uh an e t F.
Speaker 1: So we have a treasury. We could own cash. We
Speaker 1: chose to actually invest our treasury in in some property
Speaker 1: that we thought was scarce that would appreciate faster than
Speaker 1: uh than the rate of monetary inflation. So that does
Speaker 1: mean that if you invest in micro strategy, you have
Speaker 1: some exposure to bitcoin. But again we're not an E
Speaker 1: T F, right, I mean, those are very special purpose vehicles.
Speaker 1: People are you know, you're buying gold shares of i
Speaker 1: AU and you're hoping that the company will balance you know,
Speaker 1: the assets under management to the share account and we're
Speaker 1: not engaged at anything like that. Is there any regulatory
Speaker 1: limit like to how much you could lever up do
Speaker 1: sort of? Does there get to be a point where
Speaker 1: the company lawyers get concerned that maybe a regulator could
Speaker 1: view you as an e t P that or an
Speaker 1: E t N or an e t F that's not
Speaker 1: filed properly, Like does that potentially create any risks? Now
Speaker 1: I tweeted this out and you can see my tweets.
Speaker 1: I wanted to clarify it. It's quite It's quite clear,
Speaker 1: you know, an E t P and an E t
Speaker 1: F our investment companies. They're very special vehicles defined defined
Speaker 1: precisely by the Securities Act of forty. Bitcoin is not
Speaker 1: a security nor nor is it a commodity under the
Speaker 1: definition of the E t P. It's just property, and
Speaker 1: you and own as much of property as you want
Speaker 1: as an operating company. You know, you don't trip these
Speaker 1: things until your owning security security as a share of
Speaker 1: stock or a bond or something. So that's a different thing.
Speaker 1: If you wanted, uh, if you wanted to review all
Speaker 1: the literature on it, you know, I could send you
Speaker 1: some stuff, but I think you the digging, you'll find
Speaker 1: it's quite black and white. Right. We're not a a
Speaker 1: t F. We're not an a t P. There's no limit, right,
Speaker 1: I mean people see to think like I'm getting away
Speaker 1: with something because what because I'm not losing money, Like
Speaker 1: because I happen to own a lot of assets, right,
Speaker 1: I mean, it's a company that owns assets. You know,
Speaker 1: presumably if we owned a million acres of land in Texas,
Speaker 1: that wouldn't make us an E t F or an
Speaker 1: a t P either, right, we would just have assets
Speaker 1: on the balance sheet. This is this is a piece
Speaker 1: of property that our treasury is invested. And so one
Speaker 1: thing I'm really curious about um, and I remember there
Speaker 1: was a lot of discussion about this among retail investors
Speaker 1: in bitcoin when we had some of the earlier pops
Speaker 1: in price. But how do you actually go about paying
Speaker 1: taxes on on bitcoin gains? Because I imagine for a
Speaker 1: company it might be different, or it might be um
Speaker 1: even more difficult to calculate that tax. Right, Bitcoin is property,
Speaker 1: So you buy it, there is no tax on it
Speaker 1: until you sell it, and if you sell it, you
Speaker 1: pay the short term or long term capital gains tax,
Speaker 1: depending upon the holding period. So for a treasury asset
Speaker 1: like this our use cases, we simply buy it, we
Speaker 1: put it in cold storage, and we hold it likely forever, right,
Speaker 1: I mean highly likely we never sell it. This is
Speaker 1: this is the ultimate long duration safe haven treasure reserve asset.
Speaker 1: You're buying it. You're buying it to hold for a
Speaker 1: hundred years. Now when under what circumstances would you sell it?
Speaker 1: Probably never because you don't want to generate a taxable event.
Speaker 1: I mean, people hold a block of real estate in
Speaker 1: New York City for a hundred years in their family
Speaker 1: and they never sell it. Right, what if you needed cash?
Speaker 1: If you needed cash, you borrow against it, right, I
Speaker 1: mean it's just like if I have a billion dollars
Speaker 1: of assets and I needed twenty million dollars, I would
Speaker 1: go and borrow against the asset, you know, at the
Speaker 1: best rate that I could get, like any other asset.
Speaker 1: And there's no tax on a borrowing. It's just it's
Speaker 1: just a loan, right, So if you were to sell it,
Speaker 1: you would pay capital gains tax based on the period,
Speaker 1: just like another asset. But otherwise, you know, it just
Speaker 1: sits on your balance sheet. So you referenced this already,
Speaker 1: but you recently went to market with a convertible debt
Speaker 1: offering explicitly to raise cash and to buy more bitcoin.
Speaker 1: So a I'm curious, um, what that conversation was like
Speaker 1: actually getting people to lend you money to buy bitcoin.
Speaker 1: But more importantly, can you just talk a little bit
Speaker 1: about the mechanics of the trade, because it's how smooth
Speaker 1: it was to buy several hundred million dollars of bitcoin
Speaker 1: without front running yourself by making the announcement without creating
Speaker 1: too much of a ripple, and the price how sophisticated
Speaker 1: is the trading aspect of it, or the acquisition, so
Speaker 1: that you're not driving the price up like crazy as
Speaker 1: you move cash into bitcoin. Okay, So if you want
Speaker 1: to buy bitcoin, and if you want to buy it
Speaker 1: and stize like you would, you would line up an
Speaker 1: institutional broker and there there are a bunch of good
Speaker 1: institutional brokerages that you could go to and uh, you
Speaker 1: would do your diligence and pick the one you like. Generally,
Speaker 1: they all have trading algorithms and you can have a
Speaker 1: computer sit there and trade every three seconds for you
Speaker 1: for two days in a row. You'll just put a
Speaker 1: time weighted algorithm out there and it'll just sit and
Speaker 1: it'll run across every market seven three subject to your order.
Speaker 1: So it's programmatic acquisition. You know, there are other ways
Speaker 1: to buy and sell it, but but the logical way,
Speaker 1: the way that Square did it, the way that we
Speaker 1: did it, is just on a t WAP algorithm over time,
Speaker 1: and that's not that hard. You just have to you
Speaker 1: just have to choose, uh, your broker that you're going
Speaker 1: to use. By the way, Square and PayPal are using
Speaker 1: something similar to that to sell bitcoin to people that
Speaker 1: use Square in cash or Paypals mobile wallet, and they're
Speaker 1: buying billions of dollars of it. I think Square about
Speaker 1: one point seven billion in the last quarter, So they're
Speaker 1: buying a hundred million a week or two hundred million
Speaker 1: a week of this stuff and they're just running it
Speaker 1: via computer algorithms. So that's not terribly difficult. With regard
Speaker 1: to the second question, there are different pools of capital.
Speaker 1: So one pool of capital are progressive, forward thinking companies
Speaker 1: and high net worth individuals and family offices and hedge
Speaker 1: funds that want to buy bitcoin directly, and so they
Speaker 1: would go and set up those custodian and institutional relationships,
Speaker 1: you know, with night Egg or coin base or Genesis
Speaker 1: or or gray Scale, and they would buy it. They
Speaker 1: would either buy the underlying asset or they would buy
Speaker 1: a fund like gray Scale and buy into the funder.
Speaker 1: And and they have those choices. Um. The second pool
Speaker 1: of capital are are people that have just you know,
Speaker 1: raised money to invest in in uh US equities or
Speaker 1: equities in general. Right, they can buy a nastac or
Speaker 1: a nice listed stock. They can't buy bitcoin is not
Speaker 1: in their charter, their limited partners would never allow them.
Speaker 1: They can't buy bonds. They can buy stocks. Sometimes they
Speaker 1: can only buy tech stocks, right, I mean whatever, So
Speaker 1: there's a lot of pool of capital there for those people.
Speaker 1: They can buy ms tr right, So our company is
Speaker 1: is one thing they can buy. They you know, in theory,
Speaker 1: they could also buy GBTC, right, they could buy the
Speaker 1: gray scale thing they might buy as other PayPal and
Speaker 1: Square people been buying them. PayPal stock traded up after
Speaker 1: they announced their bitcoin strategy, for example. So so there
Speaker 1: are some companies that are on the bitcoin network. Right.
Speaker 1: Bitcoin is a monetary network. You can plug into it.
Speaker 1: We plugged in our treasury to it, but Square and
Speaker 1: PayPal plugged in their mobile apps to it. And then
Speaker 1: Square plugged in fifty million of their treasury to it. Googgenheim,
Speaker 1: you know, they plugged in there, you know, part of
Speaker 1: their asset fund to it. So so that's one way
Speaker 1: you can plug into it. And uh, and there are
Speaker 1: a few public toy traded companies that are plugging in
Speaker 1: the network right now, and I think that will grow
Speaker 1: over time. Now, let's go to converts and the bond market. Well,
Speaker 1: there's a lot of funds that the raised convert bonds.
Speaker 1: There are convert funds there either convertible arbitrage, and they
Speaker 1: exist to arbitrage convertible debt versus equity, and that's their
Speaker 1: strategy and that's all they do. And they're good at
Speaker 1: it and they have models. And there are other people
Speaker 1: that have convert long funds. It's like we would we
Speaker 1: will invest in a company, but we want to buy
Speaker 1: the convert we don't buy the underlying comment three types
Speaker 1: of volatility, right and risk. I can buy the bitcoin,
Speaker 1: but that's hard to buy, and I've got to change
Speaker 1: my charter, and I got security issues. I'm you know,
Speaker 1: how do I secure it in the custodian And I
Speaker 1: gotta work through that issue. We figured all that out.
Speaker 1: There's another set of companies. They're gonna buy the equity,
Speaker 1: but the equity might go up, they might equity might
Speaker 1: go down. That's another risk reward idea. And then convert, well,
Speaker 1: maybe I go convert long and like I buy the
Speaker 1: convertible bond. Like if you were to buy the micro
Speaker 1: Strategy convertible bond, you have a bond with the security
Speaker 1: of an enterprise software company with reliable cash flows okay,
Speaker 1: and a long tenure history. So we in essence borrowed
Speaker 1: against an enterprise software company that's stable, has good cash flow,
Speaker 1: that's low growth, and we then we then also had
Speaker 1: eight hundred million dollars of extra liquidity in the form
Speaker 1: of bitcoin and cash. So someone wants to loan US
Speaker 1: four hundred million dollars and we've got eight hundred million liquidity,
Speaker 1: that would be a loan to value of thirty three
Speaker 1: against our liquid assets. Plus we're gonna generate four hundred
Speaker 1: million in cash flow over time. So that's that's the
Speaker 1: second credit benefit. And then the third is you have
Speaker 1: first lean against an entire software company with no other
Speaker 1: debt on it. Right, So if you're if you're a
Speaker 1: debt a bond holder, you're thinking, okay, that's three forms
Speaker 1: of downside protection. And then your upside is the company
Speaker 1: makes a creative investment. If I borrow money at one
Speaker 1: percent and I invest in something that yields a or
Speaker 1: ten percent or right, it's a creative that's good. Or
Speaker 1: maybe maybe um I get benefit and MSTR stock because
Speaker 1: people like the stock better because we become even more
Speaker 1: prominent in the bitcoin world because we have more exposure.
Speaker 1: If you like the bitcoin before, now we're gonna have
Speaker 1: double that exposure or more whatever the number is, depending
Speaker 1: on what we buy. And then the third is we're
Speaker 1: carving a channel between the convertible debt market and the
Speaker 1: bitcoin market. This is a bitcoin convert which means that's
Speaker 1: a creative to bitcoin. We were making bitcoin and investment
Speaker 1: great asset. If you like the bitcoin, By the way,
Speaker 1: you could buy a convertible bond where the downside is
Speaker 1: protected by an enterprise software company and just have the
Speaker 1: upside right like you know, under certain circumstances. I joked,
Speaker 1: I said, you know, guys, if I was on the
Speaker 1: other side of the table, I'd buy the entire thing.
Speaker 1: I would club everybody over the head and take it.
Speaker 1: Because where do you get to buy a bitcoin and
Speaker 1: have downside protection at the same time. Now that's the
Speaker 1: convert longs. If you're a convertible arbitrage player, they're what
Speaker 1: they're doing is they simply want to buy the convert
Speaker 1: and then they want to short the common and as
Speaker 1: long as the common stock has volatility and it goes
Speaker 1: up and down, they make money. That's their strategy. They're
Speaker 1: not they're not expressing a pause, a short or a
Speaker 1: long sentiment. There is arbitraging the volatility against the bond.
Speaker 1: So they need a bond to arbitrage against the stock.
Speaker 1: And now guess what what, How do arbitragers make the
Speaker 1: most money? They need volatility what creates volatility Bitcoin. Okay,
Speaker 1: so if you plug a high volatility asset, and if
Speaker 1: you're gonna say we hate bitcoin is highly volatible, Well
Speaker 1: tell me who in the world wants volatility more than
Speaker 1: a bond arbitrager, right, that's actually a volatility engine for them.
Speaker 1: So what we did was we went to the market
Speaker 1: and we offered we offered UH investors in common stock
Speaker 1: a company which had bitcoin exposure, you know, after going
Speaker 1: through our tender offer and after all these announcements and
Speaker 1: we we were able to attract new capital the believed
Speaker 1: in bitcoin and liked that idea. And then we went
Speaker 1: to the debt market and we offered the debt markets
Speaker 1: an instrument and convertible debt that offered them exposure to
Speaker 1: bitcoin and and the credit worthiness of a responsibly run
Speaker 1: enterprise software company. And we were rewarded with an over subscription.
Speaker 1: We were going to raise fourn million. We had massive demand,
Speaker 1: and so we upsized the deal to five fifty million,
Speaker 1: and we had a green shoe, and then we executed
Speaker 1: the green shoe the next day and it became a
Speaker 1: six fifty million dollar deal. Because because this is the
Speaker 1: only UH convert doable debt instrument in the market in
Speaker 1: the world where you could actually have the upside bitcoin,
Speaker 1: the volatility a bitcoin, and the downside protection of a
Speaker 1: credit worthy company that's got like double or triple collateral coverage,
Speaker 1: and so like, why wouldn't you like that deal? I mean,
Speaker 1: people say, they're like, well, who would blown your money
Speaker 1: at seventy five basis points because that was the coupon.
Speaker 1: And the answer is, well, it's got great volatility, it's
Speaker 1: got it's got warrants with great upside opportunity, and it's
Speaker 1: got good downside protection. And what are their choices? Can
Speaker 1: I jump in here and ask, because we've been talking
Speaker 1: for I think a little over an hour now and
Speaker 1: we've been entirely focused on bitcoin, I'm curious, how do
Speaker 1: you feel about other cryptocurrencies and would you consider an
Speaker 1: investment in non bitcoin something else. Look, I think bitcoin
Speaker 1: is the investment grade, long duration safe haven asset. It's
Speaker 1: the best purest synthetic treasury asset invented in the history
Speaker 1: of the world. Now what does it take for it
Speaker 1: to be that good? Well, it needs to be the
Speaker 1: dominant network, so it needs to be fifty times bigger
Speaker 1: than the next thing, and it is. It's fifty times
Speaker 1: bigger than bitcoin cash or bitcoins. To total vision, it
Speaker 1: needs to go through ten years without changing the architecture
Speaker 1: to be Lendy secure, and it is. It needs to be.
Speaker 1: It needs to have a history of not being hacked.
Speaker 1: It needs to be adopted with a political contingent, a senator,
Speaker 1: a congressional caucus. It needs the endorsement of the I
Speaker 1: R S D SEC right when, for example, when J
Speaker 1: Clayton was on television, he said bitcoin and ethereum are property,
Speaker 1: they're not securities. He was silent on every other crypto.
Speaker 1: So you understand where I'm coming here. Every other crypto
Speaker 1: may or may not be a security and and uh,
Speaker 1: and I don't know. I'm not an expert. But what
Speaker 1: I would say is, if you wanted to say segment
Speaker 1: the market of crypto, you have one asset which is
Speaker 1: three or fifty billion dollar guerrilla juggernaut, dominant digital network,
Speaker 1: the monetary network, the most powerful thing that I've ever seen,
Speaker 1: a hundred times more valuable than Facebook, a hundred times
Speaker 1: more valuable than Google. It's the money network, right, that's
Speaker 1: Bitcoin in the world doesn't understand it. Everybody needs it.
Speaker 1: It's the solution to everybody's problem on Earth. Everybody needs
Speaker 1: to not lose their wealth and not have the economic
Speaker 1: energy sucked out of their currency and all their investments.
Speaker 1: That's bitcoin. There is no comparable asset. You have another category,
Speaker 1: call it unicorns. I put a theoryum in there. It's
Speaker 1: a unicorn, like an Airbnb or you know, or an uber.
Speaker 1: It's a big it's like fifty six billion in market cap.
Speaker 1: People are excited about it. It's it's complicated, it's compelling.
Speaker 1: There are a lot of people enthusiastic about it. And
Speaker 1: then after that, you've got a bunch of venture capital investments,
Speaker 1: a bunch of crypto networks doing different things, very exciting.
Speaker 1: There's going to be a high failure rate. There's like
Speaker 1: ten thousand cryptos launched right, so it's like who's gonna
Speaker 1: be Instagram, who's gonna be What's Up? Who's gonna be Facebook?
Speaker 1: And then what are the other ten thousand? And maybe
Speaker 1: one of them will become Snapchat and then maybe them
Speaker 1: will go away. I don't know. I would bucket your
Speaker 1: money into this is my treasury reserve asset. Massachusetts Mutual
Speaker 1: will put a hundred million in a bitcoin it's a
Speaker 1: treasury reserve asset. It's institutional grade asset. I would bet
Speaker 1: five million on this. The next thing, you know, soft
Speaker 1: bank may buy a big piece of of a theory. Um,
Speaker 1: they buy a big piece of Uber Airbnb. You know
Speaker 1: that's you know, we were right, that's a soft bank play.
Speaker 1: And the last is venture capital. You know, you bet
Speaker 1: venture capital. You expect massive gains. You except risk. It's
Speaker 1: it's all uncertain and complicated. And that's how I feel
Speaker 1: about the crypto space. Let me, you know, wrap up soon,
Speaker 1: but let me ask you. You know, I mentioned you
Speaker 1: tweet a lot about bitcoin. Uh, extremely compelling case for it.
Speaker 1: How much of your sort of like mental, sort of
Speaker 1: like capacity is focused on it? And are you still
Speaker 1: active in the sort of day to day business intelligence
Speaker 1: business of micro strategy, Because bitcoin, I mean, it definitely
Speaker 1: takes over people's minds and I see it. I know
Speaker 1: a lot of people who are intuited. Becomes their thing.
Speaker 1: It becomes like the main focus of their energy, it
Speaker 1: becomes their obsession. You're clearly very into it, um are
Speaker 1: do you are you also like running the sort of
Speaker 1: the software company. Let's say I'm kind of at the
Speaker 1: Larry Ellison stage, where Larry was responsible for technology, he
Speaker 1: delegated sales and services and marketing to to the president.
Speaker 1: So fond Lee is the president of the company and
Speaker 1: sales and services and marketing that he's running the day
Speaker 1: to day operations of the business. I'm the CEO and
Speaker 1: the chairman. About half of my time is spent on
Speaker 1: business matters, technology initiatives, corporate initiatives, other business things. Probably
Speaker 1: half of my time is spent on on corporate marketing,
Speaker 1: corporate balance sheet and communication of around bitcoin and the like.
Speaker 1: So I'd say fifty percent of it is balance sheets
Speaker 1: stuff which is increasingly macroeconomics and bitcoin. Other is, you know,
Speaker 1: being the CEO, but I'm not day to day running
Speaker 1: every deal and running every operation. Fong does that and
Speaker 1: he does it very well. Could you see yourself, could
Speaker 1: you see micro Strategy starting a a bitcoin related or
Speaker 1: bitcoin specific business in the future. Are there, for instance,
Speaker 1: software opportunities that you could provide for crypto, bitcoins and
Speaker 1: monetary network and everybody figures out how plug into it? Right?
Speaker 1: So in our case, all of our assets are around
Speaker 1: business intelligence. So we've been exploring how we might bring
Speaker 1: bitcoin intelligence, uh to the to the bitcoin space and
Speaker 1: blockchain intelligence, and and we're looking at different options. And
Speaker 1: if we find a way to plug the plug the
Speaker 1: blockchain and bitcoin related things into micro strategy, then we
Speaker 1: will release that. We're we're going to release some some
Speaker 1: cool analytics um to the community to help them evaluate
Speaker 1: alternative investments and all and to make treasury decisions. But
Speaker 1: I think it's more of a marketing benefit to us.
Speaker 1: So we'll get marketing benefits, we get some QA benefits.
Speaker 1: We might release some some software that does blockchain analytics,
Speaker 1: but we haven't really determined that yet. We're really kicking
Speaker 1: the tires in an R and D stage there, Like
Speaker 1: we're not going to go into bitcoin mining just I mean,
Speaker 1: just people think because you buy bitcoin, that means you're
Speaker 1: gonna love everything bitcoin. But you know, if you run
Speaker 1: data centers and you have free electricity and you own electricity,
Speaker 1: then maybe you should think about mining. But if you
Speaker 1: don't have free electricity, and if you don't own data
Speaker 1: centers and that's not your thing, you know, it for
Speaker 1: PayPal and Square to plug their mobile payment apps and
Speaker 1: the bitcoin totally rational. They have mobile payment businesses, right,
Speaker 1: I don't I won't go into that business. Every you know,
Speaker 1: if you run an investment fund, it makes sense for
Speaker 1: you to create a bitcoin investment fund and marketed institutions
Speaker 1: because that's your business. So everybody finds they're part of
Speaker 1: the economy. It's very competitive. It's the most competitive economy
Speaker 1: I can imagine, because anybody can compete in cyberspace from
Speaker 1: anywhere on Earth, and so you better be the best
Speaker 1: in the world at whatever you decide to bring to market.
Speaker 1: So so I would say, we're looking at it. But
Speaker 1: you don't have to change your product offering or your
Speaker 1: service offering to plug into the network. You can plug
Speaker 1: your treasury. If you're a dentist, you can still be
Speaker 1: a dentist. But what I would tell you is the
Speaker 1: value of your cash flows for being a dentist. You're
Speaker 1: gonna go down ten percent a year every year for
Speaker 1: the next decade, and so you might want to sweep
Speaker 1: those cash flows into treasury, put that in bitcoin, so
Speaker 1: they go up a dent a year, so that you
Speaker 1: are a wealthy dentist in a decade instead of being
Speaker 1: a poor, starving dentist in a decade. So that the
Speaker 1: easiest way for most people to plug into bitcoin is
Speaker 1: to plug their treasuries into bitcoin. It's a monetary network.
Speaker 1: It's it's a straightforward thing before we go. I mean,
Speaker 1: you say you're never the goal is never have to sell.
Speaker 1: It could be something that micro strategy holds for a
Speaker 1: hundred years. But if bitcoin go is to a hundred thousand,
Speaker 1: are you gonna throw a wild party or what? I
Speaker 1: will throw a wild party. I agreed to do that
Speaker 1: for John Wallace. You know, he hit me up. He
Speaker 1: said the Hornets won a party at a hundred thousand
Speaker 1: where you host. So I feel like I have that
Speaker 1: obligation that I've committed to and so yeah, okay, and
Speaker 1: you're invited. I was just gonna I was just gonna say,
Speaker 1: Tracy and Tracy and I are very excited about joining
Speaker 1: you at your party. I'd love to have you and
Speaker 1: I appreciate you on your show today. Yeah that was great,
Speaker 1: this is We appreciate you joining us. Said fantastic conversation,
Speaker 1: and I wish you the best of luck. Thanks same
Speaker 1: to you by Tracy, by Joe. Thanks Michael, Thank you
Speaker 1: really appreciated that. Thanks Michael. That was great. Yeah, that
Speaker 1: was a lot of fun. Take care. Oh well, here's
Speaker 1: a very uh energetic prose would say, I think that's
Speaker 1: a fair characters trying to figure out exactly the right
Speaker 1: way to put it. I'm kind of thinking what the
Speaker 1: party would be like, but you know, a lot of
Speaker 1: fun I imagine um and a lot of talking as
Speaker 1: well about bitcoin. Um. Okay, here's one thing that I
Speaker 1: was thinking at the beginning of the conversation, which is
Speaker 1: I I hadn't necessarily thought about what So I've been
Speaker 1: thinking a long time about low economic growth, and uh,
Speaker 1: you know what that means for companies, and this idea
Speaker 1: that in an environment of sluggish economic growth, you kind
Speaker 1: of have to engineer profit growth in one way or another.
Speaker 1: So lots of companies have done that through M and
Speaker 1: A deals. Others have done that through buybacks and dividends.
Speaker 1: But the theme overall is that a lot of companies
Speaker 1: have a lot of cash. I hadn't really considered that
Speaker 1: that problem has grown more stark in the COVID area
Speaker 1: era and Michael laid out a really interesting description of it.
Speaker 1: This idea that you know, sales are still going to
Speaker 1: the through the roof for a software company, but at
Speaker 1: the same time, expenses are down quite a lot, and
Speaker 1: so they're swimming in cash at the moment, and you
Speaker 1: get back to the age old problem of what to
Speaker 1: do with all that corporate cash. Yeah, I mean, you know,
Speaker 1: some companies obviously will reinvest it and their businesses are
Speaker 1: just going so strong. I mean, if you're like, you know,
Speaker 1: some of these really hot you know, if you're like
Speaker 1: a snowflake or one of these like really hot enterprise
Speaker 1: software companies that people are crazy about, there's probably kinds
Speaker 1: of reinvestment opportunities, fast growth. You know, a business intelligence
Speaker 1: company has been a round like what they say, like
Speaker 1: almost thirty years, maybe not as many opportunities to do that.
Speaker 1: You know. I would just say, like I I disagree
Speaker 1: a little bit. I would say with maybe some of
Speaker 1: Michael's characterization of the macro economy and the FED or
Speaker 1: measuring inflation or the value of the dollar. But you know,
Speaker 1: who knows, We'll be back here in four years and
Speaker 1: forty eight months to see if the dollar has collapsed.
Speaker 1: But on the other hand, I think he is on ironically,
Speaker 1: genuinely a very good articulator of many of the bull
Speaker 1: cases for bitcoin, the characterizations property, the network effects, the
Speaker 1: always on nous of it, the increasing liquidity, the flywheels
Speaker 1: such that the more the market value grows, the easier
Speaker 1: it is to transact in it. There were a lot
Speaker 1: of like sort of like big ideas that when he
Speaker 1: puts it sort of some of the macro and fetch
Speaker 1: stuff aside I found compelling. Well, my mind, it gets
Speaker 1: back to that growth point, which is one of the
Speaker 1: ways to achieve growth in the current environment is to
Speaker 1: try to select the asset that's not going to I
Speaker 1: guess he would say be debased in the future, right,
Speaker 1: But I guess what I'm getting at is like there's
Speaker 1: a lot of money out there at the moment, and
Speaker 1: they're all chasing a pool of assets, and to some extent,
Speaker 1: the value of those assets is being driven by flows, right,
Speaker 1: So identifying the asset with the most flows and the
Speaker 1: most potential for upside makes some sense in the current environment.
Speaker 1: Although I think a lot of people in the traditional
Speaker 1: investment community are still wrapping their heads around bitcoin and
Speaker 1: they don't necessarily see bitcoin as the asset um that's
Speaker 1: going to be the most successful. But for sure you
Speaker 1: can see it getting those flows at the moment. And
Speaker 1: you know what, I'll just say that it's like there's
Speaker 1: people like me and other people although like not technically
Speaker 1: the definition of inflation or you know, it's like what ever,
Speaker 1: But it's like, to some extent the future crypto aside,
Speaker 1: bitcoin of side, the future belongs to people that are
Speaker 1: really excited about a story. And the people who say, like, well,
Speaker 1: that's technically not how inflation are measured, they're like, you know,
Speaker 1: they do podcasts, tweet and stuff, and their journalists for
Speaker 1: a living. So I risk, even if I like would
Speaker 1: poke some holes in his view, I actually think probably
Speaker 1: like the long term winners are more people like that
Speaker 1: than people like me. Does that make sense? Do you
Speaker 1: get what I'm saying? No, it does. I think this
Speaker 1: story about hopes and dreams and fixing the world is
Speaker 1: definitely more compelling than the story about actually you should
Speaker 1: think about inflation in this way and and here's how
Speaker 1: we construct an inflation that's not technically debate. Yeah, yeah, yeah.
Speaker 1: The future does not belong to people who did pick
Speaker 1: about inflation index construction. Um, so we leave it there,
Speaker 1: all right, Yeah, let's leave it there. This has been
Speaker 1: another episode of the All Thoughts podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Allowa. I'm Joe,
Speaker 1: why Isn't All? You can follow me on Twitter at
Speaker 1: The Stalwart. Follow our guest Michael Sailor on Twitter. He's
Speaker 1: at Michael Underscore Sailor. Follow our producer Laura Carlson. She's
Speaker 1: at Laura, I'm Carlson. Follow the Bloomberg head of podcast
Speaker 1: Francesca Levi at Francesca Today, and check out all of
Speaker 1: our podcasts at Bloomberg under the handle at podcasts. Thanks
Speaker 1: for listening.