October 17, 2024 • 51 mins
[VIDEO EPISODE ON YOUTUBE & SPOTIFY] MicroStrategy executive chairman Michael Saylor explains how investors should analyse his company that’s valued at more than double its underlying Bitcoin assets.
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Speaker 1 (00:00):
The information provided in this program is of a general
nature and is not intended to be personalized financial advice.
We encourage you to seek appropriate advice from a qualified
professional to suit your individual circumstances. Micro Strategy is the
world's largest corporate holder of bitcoin. We're in Washington, DC
to interview its executive chairman, Michael Sailor about how his
company has catapulted to be one of the most highly
(00:23):
valued in America.
Speaker 2 (00:25):
Really, micro Strategies pioneering a new market. We're issuing securities
backed by digital capital, backed by bitcoin.
Speaker 1 (00:32):
This whole conversion financial engineering type strategy is often referred
to online as the infinite money glitch.
Speaker 2 (00:39):
See the misnomer there is. It's not a money glitch.
It is a digital transformation of the capital markets.
Speaker 1 (00:55):
Meet Michael Sailor, the technology entrepreneur who started micro Strategy
in nineteen eighty nine and took it public on the
Nasdaq in ninety eight. What is an enterprise software company
is now better known as the world's first and largest
corporate holder of bitcoin. In August twenty twenty, Sailor converted
two hundred and fifty million US dollars of the company's
(01:18):
cash to bitcoin. Since then, he's spent almost ten billion
US dollars acquiring more. Its total worth is now more
than fifteen billion dollars, making micro Strategy officially a whale.
It owns more than one percent of all bitcoin available.
Speaker 3 (01:35):
The strategy has transformed.
Speaker 1 (01:37):
Its once languishing share price to a market capitalization of
more than forty billion US dollars at the time this
video was made. Its valuation represents a premium to its
bitcoin holdings of about two and a half times.
Speaker 3 (01:51):
While believers think it could shoot higher.
Speaker 1 (01:53):
Some short sellers believe it's only worth however much bitcoin
it actually holds. Michael Saylor is obviously more bullish. He
sees his company is at the center of the modern
capital flow to digital assets. To understand how he thinks
about the company's future, we flew seventeen hours from New
Zealand to the United States to interview him at.
Speaker 3 (02:14):
His apartment in Washington, DC.
Speaker 1 (02:16):
A reminder that this show never offers financial advice, but
what this interview does offer is an insight into the
mind of Michael Saylor. mIRC Sailer, thank you so much
for having us in your incredible apartment.
Speaker 3 (02:27):
It's so good to be here.
Speaker 2 (02:28):
Yeah, thanks Rah, thanks for coming.
Speaker 3 (02:30):
I guess you are most welcome.
Speaker 1 (02:32):
I heard in another interview that you did that you
resented people who worked from home. So I felt like
we had to come and.
Speaker 3 (02:37):
I was ready to do this ran in person.
Speaker 1 (02:40):
Now you were just telling me before, but I'd love
my audience to hear this. You spent some time in
New Zealand growing up.
Speaker 2 (02:44):
Tell me about that. I did. My father was in
the United States Air Force and there was a station
down on the South Island in Blenham And so when
I was a child. I guess I arrived around age
three and I stayed there till age six. I remember
walking to school through a wheat field, and every day
(03:04):
at school, the highlight of the day was when they
delivered our lunch, and it was it was either fish
and chips wrapped in a newspaper or it was a
meat pie and you could alternate between one or the other.
Speaker 3 (03:17):
Sounds about right.
Speaker 2 (03:18):
It was like the culinary highlight of my childhood. When
it came back to the US, the food went downhill
from there.
Speaker 3 (03:24):
That's amazing.
Speaker 1 (03:25):
So you actually started school in New Zealand. So I'm
going to claim you as a Kiwi for the rest
of this conversation.
Speaker 3 (03:30):
If you're right with that?
Speaker 1 (03:31):
Okay, Now, like I want to get the figures right,
micro Strategies bitcoin holdings. Two hundred and fifty two, two
hundred and twenty is the number of bitcoin you hold?
Is that still correct? And if we put that at
the current price around sixty six thousand US dollars, that
is the total value of about sixteen billion dollars.
Speaker 2 (03:49):
Maybe closer to seventeen billion right now, but yeah, sixteen
after seventeen billion dollars.
Speaker 1 (03:54):
Now, do you mind if I personally ask how much
how many bitcoin you hold? Personally in its total value?
Speaker 2 (03:58):
I have more than seventeen thousand, seven hundred and thirty two.
That was the amount I announced about four years ago.
Haven't sold any That's amazing. Okay.
Speaker 1 (04:08):
We're going to come back to that and talk more
about the bitcoin revolution in the latest stage of this interview,
But first I want to talk about micro Strategy, the
company that you yourself started decades ago. Now, how should investors
think about the underlying software company because you still operate it. Right,
You often talk about micro Strategy as a bitcoin development company,
but I can imagine the actual software company is quite
(04:29):
critical because its success provides the means to accumulate one bitcoin.
Speaker 2 (04:34):
Well, the way to think about micro strategy is three components.
We've got a balance sheet, which is the bitcoin balance sheet.
We've got a software business, a technology business, and that
was the springboard for us to get into bitcoin. And
now we've got an emerging bitcoin securitization business where we're
a bitcoin development company and we leverage our bitcoin balance
(04:56):
sheet to issue security to the public market that no
one else could so easily create as us. So if
we look at the software business, well, that's a five
hundred million dollar a year revenue business and it generates
consistent cash flows, and that got us to twenty twenty
and that's still a very healthy business. It's a multinational
(05:19):
and we do business with thousands of companies all around
the world, including customers in Australia and New Zealand and
Korea and Japan and you know, you name it. But
the best way to think about micro strategy of your
investor is we have we're the largest operating company that
(05:43):
holds bitcoin. So if you have seventeen billion dollars of
capital a bitcoin that's permanent, so there's no redemption rights
to that there's ETFs like black Rock or Fidelity that
are comparable to us in size, but those are over
night deposits. So if you said, hey, I've got seventeen
(06:03):
billion dollars in deposits, people can take the money out
of the bank tomorrow, Well, they just basically a trustee
holding the money. They and they return it when they're
asked to return it. You can't leverage it, and you
can't build businesses on top of it. Micro Strategy has
permanent capital, so for example, we can do things like
(06:26):
we can issue convertible bonds on top of that capital.
So if you have you know, we have sixteen to
seventeen billion in bitcoin exposure, we have four point two
billion and convertible bonds. The bonds we can issue fairly
cheaply because we have a stock. The stock reflects the
permanent capital the bitcoin, but that's not redeemable either. That
(06:49):
means that it can generate a premium to the bitcoin.
So as people trade the stock and they trade the
options on the stock, the stock trades that are premium
to the acid value, and when the stock trades at
a premium to the asset value, the company issues either
equity or convertible bonds at a premium to the underlying assets.
(07:10):
When we do that, we don't just put the money
in the bank or in t bills. We actually invest
the money in bitcoin. So you can imagine when the
company issues, if we were to sell a billion dollars
of equity in the market and it's back by five
hundred million a bitcoin at one hundred percent premium, then
we buy the bitcoin in three days later, we've generated
(07:31):
a five hundred million dollar gain for our shareholders in bitcoin.
So that's very interesting. That generates what we call a
BTC yield. Now, if we do the same thing with
a bond, a billion dollar convertible bond, we don't do
it a one hundred percent premium. It might be a
two hundred percent premium because the bond comes at a
premium to the stock. So when you go up forty
(07:52):
percent over a stock which is one hundred percent, now
you're looking at something looks like more than one hundred
and eighty percent. So now a billion dollar bond sold
into the markets backed by three hundred and fifty million
dollars a bitcoin we buy backed the billion of bitcoin,
we capture the six hundred fifty million dollar gain another
BTC yield. So the real operating business of the company
(08:15):
isn't the software business anymore. I mean that's that's still there.
It generates seventy five million in cash flow, but one
of those bonds would generate ten years worth of earnings
in five days. And so really micro strategies pioneering a
new market. We're issuing securities backed by digital capital, got
(08:38):
backed by bitcoin, and then we're buying the bitcoin back.
So what that means is I could issue the bond
in one week, buy the bitcoin, capture the three four
five hundred million dollar gain, announce it to the market.
The stock would trade up. I could do another bond
the next week. So instead of a tradition model where
(09:02):
I raise a billion dollars, I go find real estate
in Auckland. I invest in the real estate, I leverage
it up, and in five years you determine whether I
was smart or stupid.
Speaker 1 (09:11):
History of our property market, you'd be pretty smart.
Speaker 2 (09:14):
It's a five year investment cycle. And if I was smart,
after five years, I come back to the capital market
and I say I'd like to raise another billion. Now
I have to find another set of real estate in Auckland,
or Blenham or Sydney or Melbourne, and it takes another
five years to figure out whether it worked. So what
you have there is heterogeneous credit, and you have a
(09:37):
slow investment cycle. Micro strategy has homogeneous credit. We're going
to raise a billion by bitcoin. Show you that we
bought bitcoin to ac created bitcoin per share. The investors
look at it. It's an immediate gain. We just lived
through five years in five days. And then once we've
done that fast rapid investment cycle, what's your next idea.
(10:01):
I'm going to do the same thing again. I'm going
to buy another billion of bitcoin. And so if you
look at that against the backdrop of this year. In
the first quarter, we did an eight hundred million dollar
convertible bond, We bought bitcoin. The market liked it. The
very next week, we went back to the market, did
a six hundred million dollar convertible bond, bought more bitcoin.
It was a creative the market liked it. So what
(10:22):
we do. We went back to the next quarter. We
did another eight hundred million dollar bond, We bought bitcoin,
the market liked it. In the middle we sold hundreds
of millions of dollars of equity and the next quarter,
we sold more equity. We sold one point one billion
of equity in Q three. We basically did that at
a massive premium, so we captured a large BTC yield.
(10:45):
We announced that the market liked it, and then very
next week we did a convertible bond and that became
a billion dollar convertible bond. And so what you see
is we're running a very rapid investment cycle. We're developing
a city in cyber we call that city Bitcoin. It's
like if we were the first public company to show
(11:06):
up in Manhattan and we started selling debt or public
equity instruments in order to raise money to develop Manhattan,
and everybody else was using cash or going at a
slow rate. And if we found that the two innovations
are one, we issue public securities to develop Manhattan, and
the second is we can build a building in five days. Right.
(11:29):
So you can't do that in real space. It takes
five years to build a building, right, and you can't
hit the public markets for capital. But in cyberspace, I
can raise the capital every month. I can build the
building in five days. Our investors are bitcoiners, right, So
if you're a bitcoiner, what do you think you think
(11:49):
bitcoin's going to go up forever with some volatility. So
what do you want? You want more bitcoin per share.
So how do you know whether the company is succeeding
that's giving you bitcoin per share. Well, we do the deal,
we announce BTCLD. This is how your bitcoin per share
are creeded. How long does it take? Takes a few days.
So the real micro strategy business is to be the
(12:13):
leading public issuer of securities in order to acquire bitcoin.
And as we acquire the bitcoin, we're driving up the
scarcity of the bitcoin. We've now bought more than one
percent of the bitcoin. Now there's only four hund and
fifty bitcoin available for sale from every day by natural sellers,
the miners, you know. So four hundred and fifty times
(12:36):
sixty seven thousand a bitcoin, it works out the twenty
twenty million in change. So you can see what happens
is if we're raising capital via tapping into the public
equity markets and the public fixed income markets, and we're
bringing that capital back and we're structuring our balance sheet
and we're buying the bitcoin, then that's good for bitcoin,
(12:59):
and of course that lefsverage that we get via issuing
the debt that's four point two billion dollars of debt
at eighty basis points. So we pay, you know, we
pay less than one percent interest for the four point
two billion, which creates the leverage on the equity. And
because there's leverage on the equity, that creates more performance.
(13:22):
It also creates more volatility. Now, who wants volatility? The
option traders want volatility. So in the options market, we've
gone from a three million dollar open interest in micro
strategy options to some day's forty billion, right, So the
options traders are trading high volatility. You can think of
(13:45):
them as the options traders want ten x leverage on Bitcoin,
ten to twenty x leverage, and maybe they want it long,
they want calls, or maybe they want to short it
ten x. They just you know, the haters want to
short it. The numbers what a log it, right, But
then micro strategy is like one point five x bitcoin.
(14:06):
And then if you build a derivative on micro strategy
like MSTU or mst X, they're like two x micro strategy.
So that's like three x bitcoin. And so how well
have they done in like two weeks? They raise like
seven hundred million dollars in two weeks no marketing. So
(14:26):
on top of this stack, if you're looking at spot
bitcoin et spot bitcoin, you either buy bitcoin or you
buy ibit or FBTC. They're offering you standard bitcoin returns
fifty ar R with fifty fifty volatility and fifty R
and one hundred percent upside one hundred percent downside. That
(14:47):
is the digital commodity micro strategy. The stock is one
point five x, and the way we get to one
point five x is we issue these bonds which give
you half the upside of bitcoin little downside. What if
I want half the upside five percent of the downside, right, Well,
that's you buy a convertible bond, a senior in the
(15:09):
capital structure of a company that's four x over collateralized. Right.
So people that are risk averse they can actually buy
the bond. They get half the benefit. People that are
bitcoin maximalists can buy the equity and get one point
five percent benefit. The degenerates, the traders, they can get
(15:31):
three to ten x, and then the haters can short
the common stock or short or short with puts. And
we have sometimes fifteen billion dollars or twenty billion dollars
of open put interest. You know, when I was a
younger man, when we first came public, you know, I
was in my early thirties, and if people shortened my stock,
(15:52):
I'd be like, they're short of my stock. I don't
like them.
Speaker 3 (15:55):
But you still called them to generates today.
Speaker 2 (15:58):
You know, that's that's a term where am I I
would reserve to people that are traded with so much leverage.
They might get wiped out on the weekend, but they
do it for the thrills in lieu of going to Vegas. No,
but when I was a younger man, you know, I
would have been concerned about people short in my stock.
But now I'm not because micro strategy is really just
(16:18):
providing a set of institutional instruments. Then institutional investors can
use to tailor a portfolio that's long short hedged. They
can sell the volatility, they can arbitrage the volatility, they
can arbitrage any instrument against any other instrument. They can
(16:41):
generate yield, they can buy insurance. Some of those people
that are short, they'll short a billion dollars of micro
strategy and they'll buy a billion dollars a bitcoin. And
so if we didn't exist, then billions and billions of
dollars of capital from the traditional finance markets wouldn't be
invested in bitcoin because they can't buy or hold the
(17:02):
underlying crypto asset. They can only buy securities or bonds
or options or other instruments. So we become an institutional
gateway for crypto exposure by all types of investors. And
you know, my real aspiration now is if you really
(17:24):
hate bitcoin, I want you to love us like we're
the perfect instrument to short right of you, because I
promise you I won't sell it right. We're going to
be levered long bitcoin. And if you're if you don't
like it, or if you just want to hedge it,
you get to sell our stock or sell or sell
puts or byputs right and uh. And the worst thing
(17:47):
I could do is to take your side of the
trade or to interfere with what you're doing. So so
I think part of micro strategies rise to prominence in
the space is we have been laser focused. We're very consistent,
we're very transparent. We're going to buy bitcoin, never sell bitcoin.
(18:07):
We're going to borrow money intelligently. If you like Manhattan
and if a company said I'm going to borrow five
billion dollars at one percent interest, and I'm going to
develop real estate in Manhattan. You might think that that's
kind of company you would like to invest in. But
if you hate Manhattan and we're one hundred and fifty
(18:30):
percent exposed in Manhattan, you get this investment teach you're like,
that's the company I want to short. And the most
important point in the marketplace is you just have to
be very pure, true to your focus, have integrity and
consistency and transparency because it's it's not my job to
(18:51):
trade hedge arbitrage or construct that portfolio. There are guys
with hundreds of millions or billions of dollars in a
Bloomberg and that's what they do every day. So my
contract with them is we're going to do what you
can't do. We're going to buy bitcoin, whole bitcoin, and
we're going to issue equity and we're going to issue
(19:12):
debt instruments and you can't do that. We're a public
company and on the you know the Nasdaq Stock Exchange
in America with the nearly thirty year track record, and
we have sixteen billion of permanent capital that's bitcoin, right,
So I can create an equity with eighty or ninety vol.
(19:33):
I can have permanent capital. We can stand massive swings
because of our capital structure. That's what we can do.
What you can do is decide if you want to
buy it, sell it, hedge it, or short it. Short it.
Speaker 3 (19:48):
So let's talk about micro strategies.
Speaker 1 (19:50):
Rise there. In the past few days, it hit forty
three billion dollars, a fifty two week high. All of
those functions that you've spoken about, the reasons why you
think that your stock can currently command a dreemium to
its net asset value forty three billion at it's high
versus that sixteen billion, and it's near asset value being
the bitcoin holdings. Give me the rationale beyond what you've
mentioned about those functions for you think that you think
(20:12):
it may be able to continue to expand to perhaps
one trillion.
Speaker 2 (20:18):
Yes, because I mean, if you wanted to make it.
Put it simply, we're the only company that can issue
bitcoin back bonds. So anybody can buy bitcoin and have
all the downside and all the upside and all the volatility.
But what if I want half the upside but no downside. Well,
(20:40):
there's a lot of people if you look at the
at the fixed income market, Look at the corporate debt market,
look at the preferred stock market, look at the convertible
bond market. People in the convertible bond market, they have
to buy a convertible bond I can buy. I can
sell a billion dollars of bonds in one day to
people that have to buy the bar. They can't buy bitcoin,
(21:02):
they can't buy the equity. So who in the market
is the leading issue of convertible bonds. Well, we are
micro Strategy. We've issued like five billion dollars worth of
convertible bonds, and so we've got that credibility. And what's
going to back the bonds Bitcoin? Well, what if I
had fifty billion dollars of cash and treasuries and I
(21:24):
wanted to issue bitcoin bonds. It wouldn't work. Why because
the volatility of a T bill is five, the volatility
of bitcoin is fifty. The volatility of micro Strategy equity
is eighty. If you want to buy a convertible bond,
you want to buy a bond from an issuer that
has volatility more than forty five. You want high volatility,
(21:48):
you want high liquidity, and of course you also would
like the bitcoin upside. If bitcoin if it doubles, the
convertible bond will provide you a bitcoin return only if
it's sold to you by a company that's all all bitcoin.
So micro Strategies this bitcoin securities company. And if if
(22:11):
I want highvoll high performance bitcoin equity, well you have
to have a company is one hundred and fifty percent bitcoin.
If you want high volatility, high performing bitcoin converts, you
need a company that's backed by bitcoin. If you want
to buy, you know, a bond that pays one hundred
(22:31):
two hundred basis points more than conventional things, you need
a company that can sell you that bond that has
a way to generate better than that. So there's an
entire swap market out there where a lot of people
would love to get paid seven percent interest. Fixed income
retirees let people literally have one hundred billion dollar funds
(22:53):
and they have to buy bonds that generate fixed income.
That's the name of the fund, fixed income. They can't
buy bitcoin, they can't buy the equity, They might not
even buy the convertible bond. So MicroStrategy can we can
generate that bond. And of course bitcoin's been going up
(23:13):
fifty percent a year, so we have crude capital digital capital.
On one side, this is fifty percent with massive volatility.
There's a lot of people that would love ten percent
fixed income with ten volatility. So how do you turn
you know, high voltage capital into low voltage fixed income.
(23:37):
You need a transformer, Okay, So what's the perfect transformer?
A company with ten twenty thirty billion dollars of bitcoin
and then I sell a billion dollar bond here that
gives you this percentage and this low volatility, and I
invest the money into this which is high performance, high volatility.
(23:58):
And so what Microstate does is we're scraping or stepping
down the volatility, and we're stepping down the performance. Now
you would think, why would you want ten percent instead
of fifty percent? I mean, like, why would you want that? Well,
micro Strategy has gotten fifty percent every year for the
past four years, but we took fifty percent vole. Right.
(24:21):
The world's full of people that would rather have five
percent and five vol or ten percent and ten vol
or fifteen percent and fifteen vol. So, in essence, micro
strategies opportunity is to be that leading public company in
securitizing this asset class and then providing the derivatives, you know,
(24:45):
fixed income, high yield, convertible, high performance equity, And you
can't really do that if you don't have a public
company with permanent capital. You can't do it with that
sec forty and ETA for a trust. See they've got
overnight deposits. They can't generate five years duration leverage on
(25:11):
some kind of preferred or bond like instrument. So I
guess the last metaphor I give you is, you know,
standard oil created the oil business. So I give you
a petrochemical refinery and think about what goes in one side.
It's crude oil. What comes out the other side? Gasoline?
Why do you put gasoline in the car, because that's
(25:32):
the only thing that works. Kerosene? What do you put
that in jets? That's jet fuel? Right? Propylene?
Speaker 1 (25:40):
You know, the two men goes in paint.
Speaker 2 (25:43):
All of those petrochemical products come out this side. The
refinery does a lot of work and incomes crude oil.
So think of micro strategy as we take in crude capital.
There's no doubt it's the best performing acid fifty years.
It's theoretically the best digital. Best form of capital is
(26:04):
digital capital. It's just scary to a lot of people.
It's too volatile, it's too difficult to manage. So they
want someone that can, you know, domesticate it, step it down,
package it in safe components, and then connect it into
the fixed income market, the high yield market, the you know,
(26:27):
the convert market, and the public equity markets and micro strategy.
You know, we inadvertently, we just inadvertently backed into that
because to do what you do what we did, you
have to start with a very small company, a billion
dollar company, and then we become a forty billion dollar
company and now we're one hundred and fifty percent bitcoin.
(26:48):
So if you take another billion dollar company and do
what we're doing, you can't catch us, because at this
point we can we can grow five ten billion dollars
a year in capital or faster. Can't catch us if
you start with the same thing. But if you take
a big company like Google or Meta or Microsoft or Apple,
and they took fifty billion and they bought fifty billion
(27:10):
a bitcoin, well that would be good for Bitcoin, and
that would be good for their shareholders. And if Apple
did it a lot, they might add a trillion dollar
to their market cap, but it would be a trillion
on top of three trillion, So at the end of
the day, Apple would be an enterprise twenty five percent bitcoin,
seventy five percent Apple micro strategy is an enterprise one
(27:31):
hundred and fifty percent Bitcoin. So how do you create
a company which is one hundred and fifty percent bitcoin
that can sell billions of dollars of fixed income instruments
or billions of equity into the market with a permanent
capital base that's going to oscillate, It's going to vibrate
(27:52):
with the frequency of bitcoin, right that that is I'd
love to say we had the idea four years ago
and that's what we were trying to do. No, we
just kind of stumbled onto just a really great business.
Speaker 1 (28:05):
I do want to get to Apple and how you
perhaps plan to convince companies like that to follow your
Bitcoin adoption strategy playbook.
Speaker 3 (28:13):
But this whole conversion.
Speaker 1 (28:14):
Financial engineering type strategy is often referred to online as
the infinite money glitch. But I wonder if it is
infinite or not. And if it's not, do you perhaps
see it running into more of a supply issue first
or a demand issue first, demand being perhaps there might
not be potential buyers of all of those other options
like bonds or supply that if you create too many
(28:37):
shoes and can make too many conversions from your stock,
that investors existing investors will be diluted too much that
you'd then run into a sort of cap with that.
Speaker 3 (28:46):
Or can this just keep going forever?
Speaker 2 (28:47):
Michael, see the misnomer there is. It's not a money glitch.
It is a digital transformation of the capital markets. When
you have a system that moves from a higher energy state,
a more disordered state, to a lower energy state, lots
of energy gets given off. Think of steam becoming water, like,
(29:12):
is it a money glitch? It's just steam becoming water
and it condenses what heps when water becomes ice, it's
not a heat glitch. But heat what you and what
happens when you add heat, the ice becomes water, the
water becomes steam. So if you look at the capital markets,
you've got eight hundred nine hundred trillion dollars of wealth
(29:33):
in the capital market, and you've got this wealth, You've
got people invested in all these heterogeneous assets. Why to
ninety eight percent of the companies in the S and
P five hundred not perform? Right? How come one percent
of all the returns come from like seven companies. Right,
what I talked about with if you study the convertible
(29:56):
bond market, someone issues a convertible bond, it takes them
five years for the investors to figure out whether it worked,
and then when they come up with a new convertible bond.
Is a different credit proposition. It's very inefficient, right, if
you think about preferred stocks very inefficient, junk bonds very inefficient,
private credit very inefficient. You know, fixed income people get
(30:18):
very low yields. What if I you know, I'm getting
this yield and I'm taking all this credit risk and
counterparty risk. So of the nine hundred trillion in capital
in the global capital markets, half of it is just
long term, well store of value, long term capital. You know,
that is pure capital. People with money just want to
(30:38):
keep their money rich, just want to stay rich. I
give you an organization of billion dollars in the endowment,
you just want to not lose the billion dollars. Precisely right,
So that four hundred and fifty trillion is invested in
buildings that are rusting, it's invested in cars, it's invested
in fleets, it's invested in things that suffer from twentieth
(31:00):
century risk factors, credit, default, war, tariff, tornado, text tech.
You know, like you had a good business at Kodak
and your family had all their money in Kodak, and
then what happened. Or you owned Xerox and what happened.
Then you own the best business in Ukraine, and then
as a war that happened. Right, I could give you
ten thousand examples of risk factors that destroy wealth. So
(31:24):
you've got that four hundred and fifty trillion on one side,
and then you've got one trillion digital capital. It's like,
well I had a building. I get rid of all
the things that make the building a problem, and I
make it an invisible, immortal, indestructible, teleportable, digital building. That'd
it be cool? Okay? Well that's what bitcoin is. So
this thing that people think of as a gwitch, it's
(31:46):
not that. It's it's energy flowing from a from a
steam state, from highly disordered, inefficient bouncing into each other
into a more ordered state. Right, it's moving from a
year in Africa, I give you a billion dollars, I
say go invest in any real estate in Africa and
(32:07):
anything you want, any country, hold it for thirty years.
There's not a single thing you know that you would
want to invest in. And I say, well, you know,
would you rather own a billion dollars of real estate
in Africa or a billion dollars of real estate in
New York City. Well, you can see you'd rather swap
the New York City risk for the for the Nigerian risk.
(32:28):
And then I say, well, would you rather own a
billion dollars of real estate in New York City or
a billion dollars of bitcoin? Or billion dollars in cyber Manhattan.
There's no mayor in cyber Manhattan. There's no property tax
in cyber Manhattan. There's no storms, there's no weather in
cyber Manhattan. Everybody lives forever in cyber Manhattan. You can
you know, you can teleport cyber Manhattan sixty times a second.
(32:51):
You can program it as an AI. It's like, so
what you see is it's not it's not a glitch.
It's simply capital flowing from a disordered economy. In Argentina
and Nigeria, they have hyperinflation. Okay, So if I happen
to be there and I'm selling pesos and buying dollars,
(33:12):
and you know, the peso used to be one peso
to the dollar, and today it's like fourteen hundred or
twelve hundred pasos to the dollar. Was that a glitch?
Like was?
Speaker 3 (33:22):
Or was that?
Speaker 2 (33:24):
That's basically the free market. It's it's capital flows to
where it's treated the best. And so if I have capital,
you know in Argentina, I would put it in the US.
And if I have capital and the dollar, let's take
the dollar. One hundred years ago in Miami Beach, an
acre of land in the waterfront cost ten thousand dollars,
today ten million dollars. The dollar lost ninety nine point
(33:50):
nine percent of its value against real estate waterfront property
in Florida. Okay? Is that a glitch? Right in? The
peso lost ninety nine point nine percent of its value
against the dollar in twenty years. Is that a glitch?
That's really just capital flowing from a weak asset to
(34:11):
a middling asset to a stronger asset. And Bitcoin's advance
is capital flowing from twentieth century analog assets, financial and
physical assets to the twenty first century digital economy. And
it's going to go fast. Early on, it went really fast.
(34:32):
The first decade has been going fifty percent a year
ar for the past four years. But as the one
trillion equalizes with the four hundred trillion, and this becomes
two hundred. When this becomes four, probably this four hundred
and fifty trillion will become seven hundred trillion, But this
one trillion will become one hundred trillion, And so as
(34:52):
this becomes a fraction of the twentieth century economy. The
difference between the cost of capital on the bitcoin universe,
which is fifty percent right now, and the cost of
capital in the dollar universe, which is about twelve to
fourteen percent. Look at basically, that's the return of the
S and P. So the S and P sets the
(35:14):
cost of capital for traditional conventional assets, and bitcoin is
the opposite. And so bitcoin is like three and a
half times the S and P. And it's also three
and a half times of volatility. Look at dvol Bitcoin
volatility fifty five versus the VIX. And so if you
look at the two it's not a complicated thing. It's
(35:36):
a thermodynamic idea that any physicists will tell you. This
is a hot fluid, this is a cold fluid. I
pull up the gate and I mix the fluids. And
how hot is the bathtub it's somewhere in between, right,
the temperature is it's going to be in between scalding
hot and freezing cold and in the middle. If there
(35:57):
are some ice cubes in this one and I have
at least scalding hot water, ear some of the ice
cubes are gonna melt, but you're gonna end up with
a warm bath. With the exception that there's always going
to be you know, if you look out, if you
look out ten years instead of fifty versus fifty voll
versus fifteen ball, maybe it'll be forty five to forty
(36:18):
to thirty eight to thirty six to thirty two to
twenty eight. This volatile is coming in. This arr is
coming in. Now. This comes up because what happens when
when like when Apple and Google and Microsoft and Facebook
or whatever, when they buy bitcoin. What happens when you
could take the bottom ninety eight percent of the S
(36:40):
and P five hundred if they bought bitcoin, their performance
would start to approach the big tech and so the
performance of the S and P index will move toward
bitcoin as they put bitcoin on the balance sheet, Bitcoin
performance will move toward the S and P. As we
move move from you know, a one hundred to one
(37:02):
ratio to a ten to one ratio to a five
to one ratio, and these things equalized. But you know,
if you understand it is thermodynamics and collapsing into a
more efficient energy state. Like, how is it not more
efficient to be able to teleport a building sixty times
a second between New York and London? Like that's efficient
(37:23):
versus your family made an investment in London thirty forty
years ago and they changed the law last month, and
now you're going to lose all your wealth. That's inefficient, right.
So bitcoin is the digital transformation to capital. MicroStrategy is
just a business taking advantage of the digital transformation. But
(37:46):
if I was talking to Apple, I would say, don't
buy back one hundred billion of your stock. Buy one
hundred billion of bitcoin. It will go to five hundred billion.
You'll have a five hundred million dollar business growing twenty
percent a year. You'll make one hundred billion investment games
a year. Your investors will look at it and they'll
add a trillion or two trillion dollars to your market cap.
(38:06):
And now the company will be valued sixty percent based
upon the operating business, forty percent based on the balance
sheet right, and the risk will shift. Because the risk
in a conventional company is the balance sheet's worthless and
the company's value based upon the P and L. And
(38:27):
so if you make a billion dollars a quarter, I
basically value it at twenty.
Speaker 3 (38:32):
P to E.
Speaker 2 (38:33):
So I take the quarterly result, I'm multiply by eighty,
and I say, oh, you're worth eighty billion dollars because
I took one billion. I'm multiplyed by eighty, and the
balance sheet's worthless. But the next quarter, I say, well,
my billion went to zero. Well that's eighty times a
billion dollar change. You've got a massive whip saw. That's
(38:54):
why these companies stocks crash. If the company had forty
billion dollars of tangible assets on the balance sheet and
it was that puts a floor right on the equity.
And really what you want is you want a well
balanced company where it's like Harvard University or Yale. They're
not valued based upon the earnings of this semester of
(39:16):
freshmen entering Harvard. They're valued because they have eighteen billion
in the endowment. You know, and if they close, the
university is still rich. They have eighteen billion in the endowment.
So micro strategies just pioneering. It's kind of common sense.
Your family wouldn't give away all your money and just
say we're going to work harder, And a university wouldn't
(39:38):
give away all its money and say we're going to
raise tuition, cram the classes, cut the teacher's salary, and
work harder. But conventional wisdom and finance is your company
ought to diving it out its capital, It ought to
buy back its stock. It shouldn't actually hold any capital
in the balance sheet, and it should just raise its
prices and tell its employees to work harder and cut
(40:00):
its cost. And that, in a nutshell, is why ninety
nine percent of the companies in the world underperform the
Magnificent seven and why they all could benefit by just
adopting bitcoin. Is there a Treasury reserve standard?
Speaker 1 (40:15):
That was an interesting point you made about analyzing and
coming to the valuation in terms of analyzing the performance
of a company. Right, investors historically, as you mentioned, just
look at a price to earnings forward looking ratio or
look at the profit and loss. How should investors analyze
micro strategy Because if you mentioned that, to give you
a metaphor, micro strategy is the tap to that capital flow.
(40:37):
As you mentioned, there's nothing else like that, like are
you a bitcoin bank? Do we value you similar to
do we analyze you similar to a bank or do
I've seen a simplification perhaps as analyzing micro strategy like
a ret like a real estate investment trust, But that
feels too simple. I mean, is there anything we can
compare it to micro?
Speaker 2 (40:56):
I think I think you got to look at the
balance sheet and say, okay, that's one component. They've got
this much bitcoin, and then you got to look at
the P and L and say, well, how much investment
income can they generate? So if the company gets to
fifty billion dollars a bitcoin, and if bitcoin goes up
twenty percent a year, the company generates ten billion dollars
a year of investment income and that compounds twenty percent
a year. So if I said to you, hey, here's
(41:19):
a big tech company that makes ten billion a year
and they're growing that twenty percent a year, how would
you value that?
Speaker 1 (41:25):
I mean, through the roughot it there you go.
Speaker 2 (41:28):
So it's not very complicated. The thing that's helped people
back is we've used in definite and tangible accounting for
the last four years, and it's not until twenty twenty
five that you actually start to do fair value accounting.
And when you start to do fair value accounting, you
can actually see investment income and you can see the
income potential. And so it's not complicated to figure out
(41:51):
what the balance sheet is. Everybody knows, you know, two
hundred and fifty two thousand bitcoin. The complicated thing is
to grasp the idea of a company that's securitized that
issues securities back by bitcoin, and the real franchise the
micro strategy has is we're the leading issuer of bitcoin
(42:13):
back securities. So the question is how much capital can
we raise, how much permanent capital we have? And the
second question is how much leverage will we use and
how intelligent will it be? And the third question is
what's your forecast for bitcoin? Right? I mean? And so
there's three variables there. If we barrow ten billion dollars
(42:35):
at seven percent, and we invest in bitcoin and bitcoin
returns twenty one percent, then we scrap fourteen percent arbitrage
on ten billion, We make one point four billion a
year in the swap, We roll that into the business,
and then ten years out you've got fifty billion dollar
business fifty billion in capital, and you're generating ten billion
dollars your investment income just off of that one piece. Right,
(42:58):
But it all comes down to, you know, what's the
nature of the capital, how much can we get and
raise and then how will we invest it and will
be responsible? You know? And you know the haters, right,
the haters think, well, Bitcoin's just going to go up
zero percent a year, right, So of course from their
point of view, the balance sheet's going nowhere. And if
(43:20):
bitcoin goes zero percent a year, you can't raise any capital, right,
So if that's your forecast, you're not that interested. You know.
My view is Bitcoin's going to appreciate twenty nine percent
a year arr for the next twenty one years, right,
that's what it takes it too.
Speaker 3 (43:35):
Well, was the dollar cigirl on that.
Speaker 2 (43:36):
Thirteen million pi bitcoin? Yeah? Okay, And so what do
you think my shareholders think? Well, my shareholders are pretty
bullish on bitcoin, right. There's no one buying Micro's strategy
that hates bitcoin. No, they're shooting in Yeah. So at
the end of the day, I mean, the methodology would
be figure out what's your forecast for bitcoin? By the way,
(44:00):
you can go to Google type Bitcoin twenty four and
you'll find the Bitcoin twenty four open source model. It's
a twenty one year model. You can download it. It's
a spreadsheet you can put in your forecast for innovation rate,
inflation rates, all the asset class, monetizations, demonetizations, bitcoin assumptions, supply. Well, yeah,
(44:21):
you can put that all in and you can run
your model and you can get your own answer. Right,
So do that, and then you just got to consider, well,
how much capital do you think the micro strategy will
raise via securities offerings? And after you do that, you
decide are we responsible custodians? And then you create a
five or ten year model for our investment income and
(44:43):
you figure out how much income can we generate and
how fast can we grow? And of course all those
things are very integrated. And you know, if the more
you know about the capital markets, the more enthusiastic you get,
because we look and we say the convertible markets are
in a efficient, the preferred stock markets inefficient, the high
(45:04):
yield markets inefficient, the corporate debt markets inefficient. You know,
the real estate market is and efficient. So you know,
we our view is we kind of want to be
the Amazon of fixed income. We want to we want
to build a better product direct to a new distribution channel.
(45:24):
And uh, you know, I don't blame people for not
necessarily understanding that, because sometimes you have to see it.
And in the in the absence of you know, fair
value accounting and the like and three or forecasts and
those you know don't exist. It's it's a lot for
people to grasp right now.
Speaker 1 (45:42):
Well, you've even had to come up at micro strategy
with your own measurement to measure the success of the strategy.
You already mentioned it earlier on in this chat. The
BTC yield Currently you're to date, that's around twelve point
two percent that yield.
Speaker 3 (45:55):
But over the next three.
Speaker 1 (45:56):
Years, according to your most recent quarterly report, you're targeting
something betwe I think four to eight percent. Does that
correct that? So that then implies a diminish, a diminishing
in that yield. So once it decreases or compresses that yield,
what happens then? Do you need to come up with
another means to well in the capital.
Speaker 2 (46:15):
Let's just focus on BTCo for a second. What is it?
It's the rate of increase in bitcoin per share. So
if I think we're getting close to almost an eighteen percent,
like seventeen percent BTC yield for the year so far,
And that means that between January first and today you've
you've gotten more than seventeen percent more BTC per share.
(46:41):
If I if I gave you a company and I
said it's going to dive in and yield to seventeen percent,
and I give you another company, say it's got to
be a dividend yield of zero, you know, it's like, well,
you would value the second one based upon the underlying asset,
but you're not going to any more. But the first
one you would actually take the underlying asset it and
then you would take the yield. And then the question
(47:02):
is how long will they generate that yield? Right, And
what's the average yield over the lifetime of my holding period.
So in that case, I mean you could say, if
I expect four to eight percent yield, you could put
a ten, twenty, or thirty pde on that. Sometimes people
will know it's basically your earnings per share in a way,
but you know, we can't really call it that because
(47:25):
it's it's a non gap measure, and it's a it's
a bitcoin per share type measure for that's valuable to
people that love bitcoin. But when you think about it
that way, right, this simple model there is the company
should have a premium equal to the multiple of the yield. Right.
(47:45):
If you think the multiple should be twenty, and if
you think the yield will be eight percent, then you
could say the companies are traded one hundred and sixty
percent premium to the underlying asset. Right, So so the
ability to generate that yield will justify that premium. And
it's a simple model, but it's not the whole model.
The real issue is how you generate the yield, and
(48:07):
the way you're generating the yield is through issuing securities
to the public market. You know that come to generate
that yield. And one way to do it is by
issuing equity at a premium. That's a simple way, the
most simple way imaginable. Right. Another way to do it
is to issue convertible bonds at a premium to the equity,
(48:27):
which may or may not be at a premium to
the asset. That's a slightly less simple but still kind
of straightforward way to do it. A third way to
do it is I just issue a fixed income instrument
that pays seven percent, and I buy bitcoin with it
that yields more than seven percent, which is what you're
done right Well, well, technically that's not exactly what I'm
(48:48):
doing right now. What we're doing right now is you've
issued equity at a premium, and we've issued convertible bonds
at a premium. You know, if the company and the
future were to issue preferred stock that had to fix thing,
or issue bonds corporate debt or or something that had
a fixed coupon, then you would be swapping the fixed
(49:09):
for the you know, for the bitcoin return. And of
course in that case, look, if you're if your forecast
or bitcoin is to go up seven percent a year
and your and the company's paying seven percent for their capital,
there's no yield, you see, right. If your forecast is
to go up twenty one percent a year and the
company pay seven percent, there's a big yield, right, And
so so if you use BTC yield, then you just
(49:33):
think about what's the company going to do to get
to it. And we've just got lots of different tools
to get to it. We can there's other things. There's
a thousand things you could do, right, I just I'll
keep it for the sake of our interview to just
those few because they're simple to discuss. And you know
our guidance. You know, our target is four to eight percent.
(49:54):
We've done more than double eight percent this year.
Speaker 3 (49:57):
So it feels pretty conservative.
Speaker 2 (49:59):
Then I think we try to be conservative in our
guidance because we don't want to disappoint our shareholders. But
clearly you know we will. We will pursue our objective,
you know, as rapidly as we can in a prudent fashion.
Speaker 1 (50:15):
Should we talk about the bitcoin revolution, Yeah.
Speaker 2 (50:20):
You are.
Speaker 1 (50:22):
It's all bitcoin and part two of this interview with
Michael Sailer, he explains what could be Bitcoin's next big moment.
Speaker 2 (50:29):
Banking is just the next logical step and is.
Speaker 1 (50:32):
That not exactly what bitcoin is? Don't want to happen.
Speaker 2 (50:36):
Right, Like, at the end of the day, you have
an og crypto community is very hardcore about it. But
if you look at where all the money is, ninety
nine point nine percent of the money is actually in
the traditional economy and in the war for the future
of money. The war's going to be won with money.
The information provided in this program is of a general
nature and is not intended to be personalized financial advice.
We encourage you to seek appropriate advice from a qualified
professional to suit your individual circumstances. Micro Strategy is the
world's largest corporate holder of bitcoin. We're in Washington, DC
to interview its executive chairman, Michael Sailor about how his
company has catapulted to be one of the most highly
(00:23):
valued in America.
Speaker 2 (00:25):
Really, micro Strategies pioneering a new market. We're issuing securities
backed by digital capital, backed by bitcoin.
Speaker 1 (00:32):
This whole conversion financial engineering type strategy is often referred
to online as the infinite money glitch.
Speaker 2 (00:39):
See the misnomer there is. It's not a money glitch.
It is a digital transformation of the capital markets.
Speaker 1 (00:55):
Meet Michael Sailor, the technology entrepreneur who started micro Strategy
in nineteen eighty nine and took it public on the
Nasdaq in ninety eight. What is an enterprise software company
is now better known as the world's first and largest
corporate holder of bitcoin. In August twenty twenty, Sailor converted
two hundred and fifty million US dollars of the company's
(01:18):
cash to bitcoin. Since then, he's spent almost ten billion
US dollars acquiring more. Its total worth is now more
than fifteen billion dollars, making micro Strategy officially a whale.
It owns more than one percent of all bitcoin available.
Speaker 3 (01:35):
The strategy has transformed.
Speaker 1 (01:37):
Its once languishing share price to a market capitalization of
more than forty billion US dollars at the time this
video was made. Its valuation represents a premium to its
bitcoin holdings of about two and a half times.
Speaker 3 (01:51):
While believers think it could shoot higher.
Speaker 1 (01:53):
Some short sellers believe it's only worth however much bitcoin
it actually holds. Michael Saylor is obviously more bullish. He
sees his company is at the center of the modern
capital flow to digital assets. To understand how he thinks
about the company's future, we flew seventeen hours from New
Zealand to the United States to interview him at.
Speaker 3 (02:14):
His apartment in Washington, DC.
Speaker 1 (02:16):
A reminder that this show never offers financial advice, but
what this interview does offer is an insight into the
mind of Michael Saylor. mIRC Sailer, thank you so much
for having us in your incredible apartment.
Speaker 3 (02:27):
It's so good to be here.
Speaker 2 (02:28):
Yeah, thanks Rah, thanks for coming.
Speaker 3 (02:30):
I guess you are most welcome.
Speaker 1 (02:32):
I heard in another interview that you did that you
resented people who worked from home. So I felt like
we had to come and.
Speaker 3 (02:37):
I was ready to do this ran in person.
Speaker 1 (02:40):
Now you were just telling me before, but I'd love
my audience to hear this. You spent some time in
New Zealand growing up.
Speaker 2 (02:44):
Tell me about that. I did. My father was in
the United States Air Force and there was a station
down on the South Island in Blenham And so when
I was a child. I guess I arrived around age
three and I stayed there till age six. I remember
walking to school through a wheat field, and every day
(03:04):
at school, the highlight of the day was when they
delivered our lunch, and it was it was either fish
and chips wrapped in a newspaper or it was a
meat pie and you could alternate between one or the other.
Speaker 3 (03:17):
Sounds about right.
Speaker 2 (03:18):
It was like the culinary highlight of my childhood. When
it came back to the US, the food went downhill
from there.
Speaker 3 (03:24):
That's amazing.
Speaker 1 (03:25):
So you actually started school in New Zealand. So I'm
going to claim you as a Kiwi for the rest
of this conversation.
Speaker 3 (03:30):
If you're right with that?
Speaker 1 (03:31):
Okay, Now, like I want to get the figures right,
micro Strategies bitcoin holdings. Two hundred and fifty two, two
hundred and twenty is the number of bitcoin you hold?
Is that still correct? And if we put that at
the current price around sixty six thousand US dollars, that
is the total value of about sixteen billion dollars.
Speaker 2 (03:49):
Maybe closer to seventeen billion right now, but yeah, sixteen
after seventeen billion dollars.
Speaker 1 (03:54):
Now, do you mind if I personally ask how much
how many bitcoin you hold? Personally in its total value?
Speaker 2 (03:58):
I have more than seventeen thousand, seven hundred and thirty two.
That was the amount I announced about four years ago.
Haven't sold any That's amazing. Okay.
Speaker 1 (04:08):
We're going to come back to that and talk more
about the bitcoin revolution in the latest stage of this interview,
But first I want to talk about micro Strategy, the
company that you yourself started decades ago. Now, how should investors
think about the underlying software company because you still operate it. Right,
You often talk about micro Strategy as a bitcoin development company,
but I can imagine the actual software company is quite
(04:29):
critical because its success provides the means to accumulate one bitcoin.
Speaker 2 (04:34):
Well, the way to think about micro strategy is three components.
We've got a balance sheet, which is the bitcoin balance sheet.
We've got a software business, a technology business, and that
was the springboard for us to get into bitcoin. And
now we've got an emerging bitcoin securitization business where we're
a bitcoin development company and we leverage our bitcoin balance
(04:56):
sheet to issue security to the public market that no
one else could so easily create as us. So if
we look at the software business, well, that's a five
hundred million dollar a year revenue business and it generates
consistent cash flows, and that got us to twenty twenty
and that's still a very healthy business. It's a multinational
(05:19):
and we do business with thousands of companies all around
the world, including customers in Australia and New Zealand and
Korea and Japan and you know, you name it. But
the best way to think about micro strategy of your
investor is we have we're the largest operating company that
(05:43):
holds bitcoin. So if you have seventeen billion dollars of
capital a bitcoin that's permanent, so there's no redemption rights
to that there's ETFs like black Rock or Fidelity that
are comparable to us in size, but those are over
night deposits. So if you said, hey, I've got seventeen
(06:03):
billion dollars in deposits, people can take the money out
of the bank tomorrow, Well, they just basically a trustee
holding the money. They and they return it when they're
asked to return it. You can't leverage it, and you
can't build businesses on top of it. Micro Strategy has
permanent capital, so for example, we can do things like
(06:26):
we can issue convertible bonds on top of that capital.
So if you have you know, we have sixteen to
seventeen billion in bitcoin exposure, we have four point two
billion and convertible bonds. The bonds we can issue fairly
cheaply because we have a stock. The stock reflects the
permanent capital the bitcoin, but that's not redeemable either. That
(06:49):
means that it can generate a premium to the bitcoin.
So as people trade the stock and they trade the
options on the stock, the stock trades that are premium
to the acid value, and when the stock trades at
a premium to the asset value, the company issues either
equity or convertible bonds at a premium to the underlying assets.
(07:10):
When we do that, we don't just put the money
in the bank or in t bills. We actually invest
the money in bitcoin. So you can imagine when the
company issues, if we were to sell a billion dollars
of equity in the market and it's back by five
hundred million a bitcoin at one hundred percent premium, then
we buy the bitcoin in three days later, we've generated
(07:31):
a five hundred million dollar gain for our shareholders in bitcoin.
So that's very interesting. That generates what we call a
BTC yield. Now, if we do the same thing with
a bond, a billion dollar convertible bond, we don't do
it a one hundred percent premium. It might be a
two hundred percent premium because the bond comes at a
premium to the stock. So when you go up forty
(07:52):
percent over a stock which is one hundred percent, now
you're looking at something looks like more than one hundred
and eighty percent. So now a billion dollar bond sold
into the markets backed by three hundred and fifty million
dollars a bitcoin we buy backed the billion of bitcoin,
we capture the six hundred fifty million dollar gain another
BTC yield. So the real operating business of the company
(08:15):
isn't the software business anymore. I mean that's that's still there.
It generates seventy five million in cash flow, but one
of those bonds would generate ten years worth of earnings
in five days. And so really micro strategies pioneering a
new market. We're issuing securities backed by digital capital, got
(08:38):
backed by bitcoin, and then we're buying the bitcoin back.
So what that means is I could issue the bond
in one week, buy the bitcoin, capture the three four
five hundred million dollar gain, announce it to the market.
The stock would trade up. I could do another bond
the next week. So instead of a tradition model where
(09:02):
I raise a billion dollars, I go find real estate
in Auckland. I invest in the real estate, I leverage
it up, and in five years you determine whether I
was smart or stupid.
Speaker 1 (09:11):
History of our property market, you'd be pretty smart.
Speaker 2 (09:14):
It's a five year investment cycle. And if I was smart,
after five years, I come back to the capital market
and I say I'd like to raise another billion. Now
I have to find another set of real estate in Auckland,
or Blenham or Sydney or Melbourne, and it takes another
five years to figure out whether it worked. So what
you have there is heterogeneous credit, and you have a
(09:37):
slow investment cycle. Micro strategy has homogeneous credit. We're going
to raise a billion by bitcoin. Show you that we
bought bitcoin to ac created bitcoin per share. The investors
look at it. It's an immediate gain. We just lived
through five years in five days. And then once we've
done that fast rapid investment cycle, what's your next idea.
(10:01):
I'm going to do the same thing again. I'm going
to buy another billion of bitcoin. And so if you
look at that against the backdrop of this year. In
the first quarter, we did an eight hundred million dollar
convertible bond, We bought bitcoin. The market liked it. The
very next week, we went back to the market, did
a six hundred million dollar convertible bond, bought more bitcoin.
It was a creative the market liked it. So what
(10:22):
we do. We went back to the next quarter. We
did another eight hundred million dollar bond, We bought bitcoin,
the market liked it. In the middle we sold hundreds
of millions of dollars of equity and the next quarter,
we sold more equity. We sold one point one billion
of equity in Q three. We basically did that at
a massive premium, so we captured a large BTC yield.
(10:45):
We announced that the market liked it, and then very
next week we did a convertible bond and that became
a billion dollar convertible bond. And so what you see
is we're running a very rapid investment cycle. We're developing
a city in cyber we call that city Bitcoin. It's
like if we were the first public company to show
(11:06):
up in Manhattan and we started selling debt or public
equity instruments in order to raise money to develop Manhattan,
and everybody else was using cash or going at a
slow rate. And if we found that the two innovations
are one, we issue public securities to develop Manhattan, and
the second is we can build a building in five days. Right.
(11:29):
So you can't do that in real space. It takes
five years to build a building, right, and you can't
hit the public markets for capital. But in cyberspace, I
can raise the capital every month. I can build the
building in five days. Our investors are bitcoiners, right, So
if you're a bitcoiner, what do you think you think
(11:49):
bitcoin's going to go up forever with some volatility. So
what do you want? You want more bitcoin per share.
So how do you know whether the company is succeeding
that's giving you bitcoin per share. Well, we do the deal,
we announce BTCLD. This is how your bitcoin per share
are creeded. How long does it take? Takes a few days.
So the real micro strategy business is to be the
(12:13):
leading public issuer of securities in order to acquire bitcoin.
And as we acquire the bitcoin, we're driving up the
scarcity of the bitcoin. We've now bought more than one
percent of the bitcoin. Now there's only four hund and
fifty bitcoin available for sale from every day by natural sellers,
the miners, you know. So four hundred and fifty times
(12:36):
sixty seven thousand a bitcoin, it works out the twenty
twenty million in change. So you can see what happens
is if we're raising capital via tapping into the public
equity markets and the public fixed income markets, and we're
bringing that capital back and we're structuring our balance sheet
and we're buying the bitcoin, then that's good for bitcoin,
(12:59):
and of course that lefsverage that we get via issuing
the debt that's four point two billion dollars of debt
at eighty basis points. So we pay, you know, we
pay less than one percent interest for the four point
two billion, which creates the leverage on the equity. And
because there's leverage on the equity, that creates more performance.
(13:22):
It also creates more volatility. Now, who wants volatility? The
option traders want volatility. So in the options market, we've
gone from a three million dollar open interest in micro
strategy options to some day's forty billion, right, So the
options traders are trading high volatility. You can think of
(13:45):
them as the options traders want ten x leverage on Bitcoin,
ten to twenty x leverage, and maybe they want it long,
they want calls, or maybe they want to short it
ten x. They just you know, the haters want to
short it. The numbers what a log it, right, But
then micro strategy is like one point five x bitcoin.
(14:06):
And then if you build a derivative on micro strategy
like MSTU or mst X, they're like two x micro strategy.
So that's like three x bitcoin. And so how well
have they done in like two weeks? They raise like
seven hundred million dollars in two weeks no marketing. So
(14:26):
on top of this stack, if you're looking at spot
bitcoin et spot bitcoin, you either buy bitcoin or you
buy ibit or FBTC. They're offering you standard bitcoin returns
fifty ar R with fifty fifty volatility and fifty R
and one hundred percent upside one hundred percent downside. That
(14:47):
is the digital commodity micro strategy. The stock is one
point five x, and the way we get to one
point five x is we issue these bonds which give
you half the upside of bitcoin little downside. What if
I want half the upside five percent of the downside, right, Well,
that's you buy a convertible bond, a senior in the
(15:09):
capital structure of a company that's four x over collateralized. Right.
So people that are risk averse they can actually buy
the bond. They get half the benefit. People that are
bitcoin maximalists can buy the equity and get one point
five percent benefit. The degenerates, the traders, they can get
(15:31):
three to ten x, and then the haters can short
the common stock or short or short with puts. And
we have sometimes fifteen billion dollars or twenty billion dollars
of open put interest. You know, when I was a
younger man, when we first came public, you know, I
was in my early thirties, and if people shortened my stock,
(15:52):
I'd be like, they're short of my stock. I don't
like them.
Speaker 3 (15:55):
But you still called them to generates today.
Speaker 2 (15:58):
You know, that's that's a term where am I I
would reserve to people that are traded with so much leverage.
They might get wiped out on the weekend, but they
do it for the thrills in lieu of going to Vegas. No,
but when I was a younger man, you know, I
would have been concerned about people short in my stock.
But now I'm not because micro strategy is really just
(16:18):
providing a set of institutional instruments. Then institutional investors can
use to tailor a portfolio that's long short hedged. They
can sell the volatility, they can arbitrage the volatility, they
can arbitrage any instrument against any other instrument. They can
(16:41):
generate yield, they can buy insurance. Some of those people
that are short, they'll short a billion dollars of micro
strategy and they'll buy a billion dollars a bitcoin. And
so if we didn't exist, then billions and billions of
dollars of capital from the traditional finance markets wouldn't be
invested in bitcoin because they can't buy or hold the
(17:02):
underlying crypto asset. They can only buy securities or bonds
or options or other instruments. So we become an institutional
gateway for crypto exposure by all types of investors. And
you know, my real aspiration now is if you really
(17:24):
hate bitcoin, I want you to love us like we're
the perfect instrument to short right of you, because I
promise you I won't sell it right. We're going to
be levered long bitcoin. And if you're if you don't
like it, or if you just want to hedge it,
you get to sell our stock or sell or sell
puts or byputs right and uh. And the worst thing
(17:47):
I could do is to take your side of the
trade or to interfere with what you're doing. So so
I think part of micro strategies rise to prominence in
the space is we have been laser focused. We're very consistent,
we're very transparent. We're going to buy bitcoin, never sell bitcoin.
(18:07):
We're going to borrow money intelligently. If you like Manhattan
and if a company said I'm going to borrow five
billion dollars at one percent interest, and I'm going to
develop real estate in Manhattan. You might think that that's
kind of company you would like to invest in. But
if you hate Manhattan and we're one hundred and fifty
(18:30):
percent exposed in Manhattan, you get this investment teach you're like,
that's the company I want to short. And the most
important point in the marketplace is you just have to
be very pure, true to your focus, have integrity and
consistency and transparency because it's it's not my job to
(18:51):
trade hedge arbitrage or construct that portfolio. There are guys
with hundreds of millions or billions of dollars in a
Bloomberg and that's what they do every day. So my
contract with them is we're going to do what you
can't do. We're going to buy bitcoin, whole bitcoin, and
we're going to issue equity and we're going to issue
(19:12):
debt instruments and you can't do that. We're a public
company and on the you know the Nasdaq Stock Exchange
in America with the nearly thirty year track record, and
we have sixteen billion of permanent capital that's bitcoin, right,
So I can create an equity with eighty or ninety vol.
(19:33):
I can have permanent capital. We can stand massive swings
because of our capital structure. That's what we can do.
What you can do is decide if you want to
buy it, sell it, hedge it, or short it. Short it.
Speaker 3 (19:48):
So let's talk about micro strategies.
Speaker 1 (19:50):
Rise there. In the past few days, it hit forty
three billion dollars, a fifty two week high. All of
those functions that you've spoken about, the reasons why you
think that your stock can currently command a dreemium to
its net asset value forty three billion at it's high
versus that sixteen billion, and it's near asset value being
the bitcoin holdings. Give me the rationale beyond what you've
mentioned about those functions for you think that you think
(20:12):
it may be able to continue to expand to perhaps
one trillion.
Speaker 2 (20:18):
Yes, because I mean, if you wanted to make it.
Put it simply, we're the only company that can issue
bitcoin back bonds. So anybody can buy bitcoin and have
all the downside and all the upside and all the volatility.
But what if I want half the upside but no downside. Well,
(20:40):
there's a lot of people if you look at the
at the fixed income market, Look at the corporate debt market,
look at the preferred stock market, look at the convertible
bond market. People in the convertible bond market, they have
to buy a convertible bond I can buy. I can
sell a billion dollars of bonds in one day to
people that have to buy the bar. They can't buy bitcoin,
(21:02):
they can't buy the equity. So who in the market
is the leading issue of convertible bonds. Well, we are
micro Strategy. We've issued like five billion dollars worth of
convertible bonds, and so we've got that credibility. And what's
going to back the bonds Bitcoin? Well, what if I
had fifty billion dollars of cash and treasuries and I
(21:24):
wanted to issue bitcoin bonds. It wouldn't work. Why because
the volatility of a T bill is five, the volatility
of bitcoin is fifty. The volatility of micro Strategy equity
is eighty. If you want to buy a convertible bond,
you want to buy a bond from an issuer that
has volatility more than forty five. You want high volatility,
(21:48):
you want high liquidity, and of course you also would
like the bitcoin upside. If bitcoin if it doubles, the
convertible bond will provide you a bitcoin return only if
it's sold to you by a company that's all all bitcoin.
So micro Strategies this bitcoin securities company. And if if
(22:11):
I want highvoll high performance bitcoin equity, well you have
to have a company is one hundred and fifty percent bitcoin.
If you want high volatility, high performing bitcoin converts, you
need a company that's backed by bitcoin. If you want
to buy, you know, a bond that pays one hundred
(22:31):
two hundred basis points more than conventional things, you need
a company that can sell you that bond that has
a way to generate better than that. So there's an
entire swap market out there where a lot of people
would love to get paid seven percent interest. Fixed income
retirees let people literally have one hundred billion dollar funds
(22:53):
and they have to buy bonds that generate fixed income.
That's the name of the fund, fixed income. They can't
buy bitcoin, they can't buy the equity, They might not
even buy the convertible bond. So MicroStrategy can we can
generate that bond. And of course bitcoin's been going up
(23:13):
fifty percent a year, so we have crude capital digital capital.
On one side, this is fifty percent with massive volatility.
There's a lot of people that would love ten percent
fixed income with ten volatility. So how do you turn
you know, high voltage capital into low voltage fixed income.
(23:37):
You need a transformer, Okay, So what's the perfect transformer?
A company with ten twenty thirty billion dollars of bitcoin
and then I sell a billion dollar bond here that
gives you this percentage and this low volatility, and I
invest the money into this which is high performance, high volatility.
(23:58):
And so what Microstate does is we're scraping or stepping
down the volatility, and we're stepping down the performance. Now
you would think, why would you want ten percent instead
of fifty percent? I mean, like, why would you want that? Well,
micro Strategy has gotten fifty percent every year for the
past four years, but we took fifty percent vole. Right.
(24:21):
The world's full of people that would rather have five
percent and five vol or ten percent and ten vol
or fifteen percent and fifteen vol. So, in essence, micro
strategies opportunity is to be that leading public company in
securitizing this asset class and then providing the derivatives, you know,
(24:45):
fixed income, high yield, convertible, high performance equity, And you
can't really do that if you don't have a public
company with permanent capital. You can't do it with that
sec forty and ETA for a trust. See they've got
overnight deposits. They can't generate five years duration leverage on
(25:11):
some kind of preferred or bond like instrument. So I
guess the last metaphor I give you is, you know,
standard oil created the oil business. So I give you
a petrochemical refinery and think about what goes in one side.
It's crude oil. What comes out the other side? Gasoline?
Why do you put gasoline in the car, because that's
(25:32):
the only thing that works. Kerosene? What do you put
that in jets? That's jet fuel? Right? Propylene?
Speaker 1 (25:40):
You know, the two men goes in paint.
Speaker 2 (25:43):
All of those petrochemical products come out this side. The
refinery does a lot of work and incomes crude oil.
So think of micro strategy as we take in crude capital.
There's no doubt it's the best performing acid fifty years.
It's theoretically the best digital. Best form of capital is
(26:04):
digital capital. It's just scary to a lot of people.
It's too volatile, it's too difficult to manage. So they
want someone that can, you know, domesticate it, step it down,
package it in safe components, and then connect it into
the fixed income market, the high yield market, the you know,
(26:27):
the convert market, and the public equity markets and micro strategy.
You know, we inadvertently, we just inadvertently backed into that
because to do what you do what we did, you
have to start with a very small company, a billion
dollar company, and then we become a forty billion dollar
company and now we're one hundred and fifty percent bitcoin.
(26:48):
So if you take another billion dollar company and do
what we're doing, you can't catch us, because at this
point we can we can grow five ten billion dollars
a year in capital or faster. Can't catch us if
you start with the same thing. But if you take
a big company like Google or Meta or Microsoft or Apple,
and they took fifty billion and they bought fifty billion
(27:10):
a bitcoin, well that would be good for Bitcoin, and
that would be good for their shareholders. And if Apple
did it a lot, they might add a trillion dollar
to their market cap, but it would be a trillion
on top of three trillion, So at the end of
the day, Apple would be an enterprise twenty five percent bitcoin,
seventy five percent Apple micro strategy is an enterprise one
(27:31):
hundred and fifty percent Bitcoin. So how do you create
a company which is one hundred and fifty percent bitcoin
that can sell billions of dollars of fixed income instruments
or billions of equity into the market with a permanent
capital base that's going to oscillate, It's going to vibrate
(27:52):
with the frequency of bitcoin, right that that is I'd
love to say we had the idea four years ago
and that's what we were trying to do. No, we
just kind of stumbled onto just a really great business.
Speaker 1 (28:05):
I do want to get to Apple and how you
perhaps plan to convince companies like that to follow your
Bitcoin adoption strategy playbook.
Speaker 3 (28:13):
But this whole conversion.
Speaker 1 (28:14):
Financial engineering type strategy is often referred to online as
the infinite money glitch. But I wonder if it is
infinite or not. And if it's not, do you perhaps
see it running into more of a supply issue first
or a demand issue first, demand being perhaps there might
not be potential buyers of all of those other options
like bonds or supply that if you create too many
(28:37):
shoes and can make too many conversions from your stock,
that investors existing investors will be diluted too much that
you'd then run into a sort of cap with that.
Speaker 3 (28:46):
Or can this just keep going forever?
Speaker 2 (28:47):
Michael, see the misnomer there is. It's not a money glitch.
It is a digital transformation of the capital markets. When
you have a system that moves from a higher energy state,
a more disordered state, to a lower energy state, lots
of energy gets given off. Think of steam becoming water, like,
(29:12):
is it a money glitch? It's just steam becoming water
and it condenses what heps when water becomes ice, it's
not a heat glitch. But heat what you and what
happens when you add heat, the ice becomes water, the
water becomes steam. So if you look at the capital markets,
you've got eight hundred nine hundred trillion dollars of wealth
(29:33):
in the capital market, and you've got this wealth, You've
got people invested in all these heterogeneous assets. Why to
ninety eight percent of the companies in the S and
P five hundred not perform? Right? How come one percent
of all the returns come from like seven companies. Right,
what I talked about with if you study the convertible
(29:56):
bond market, someone issues a convertible bond, it takes them
five years for the investors to figure out whether it worked,
and then when they come up with a new convertible bond.
Is a different credit proposition. It's very inefficient, right, if
you think about preferred stocks very inefficient, junk bonds very inefficient,
private credit very inefficient. You know, fixed income people get
(30:18):
very low yields. What if I you know, I'm getting
this yield and I'm taking all this credit risk and
counterparty risk. So of the nine hundred trillion in capital
in the global capital markets, half of it is just
long term, well store of value, long term capital. You know,
that is pure capital. People with money just want to
(30:38):
keep their money rich, just want to stay rich. I
give you an organization of billion dollars in the endowment,
you just want to not lose the billion dollars. Precisely right,
So that four hundred and fifty trillion is invested in
buildings that are rusting, it's invested in cars, it's invested
in fleets, it's invested in things that suffer from twentieth
(31:00):
century risk factors, credit, default, war, tariff, tornado, text tech.
You know, like you had a good business at Kodak
and your family had all their money in Kodak, and
then what happened. Or you owned Xerox and what happened.
Then you own the best business in Ukraine, and then
as a war that happened. Right, I could give you
ten thousand examples of risk factors that destroy wealth. So
(31:24):
you've got that four hundred and fifty trillion on one side,
and then you've got one trillion digital capital. It's like,
well I had a building. I get rid of all
the things that make the building a problem, and I
make it an invisible, immortal, indestructible, teleportable, digital building. That'd
it be cool? Okay? Well that's what bitcoin is. So
this thing that people think of as a gwitch, it's
(31:46):
not that. It's it's energy flowing from a from a
steam state, from highly disordered, inefficient bouncing into each other
into a more ordered state. Right, it's moving from a
year in Africa, I give you a billion dollars, I
say go invest in any real estate in Africa and
(32:07):
anything you want, any country, hold it for thirty years.
There's not a single thing you know that you would
want to invest in. And I say, well, you know,
would you rather own a billion dollars of real estate
in Africa or a billion dollars of real estate in
New York City. Well, you can see you'd rather swap
the New York City risk for the for the Nigerian risk.
(32:28):
And then I say, well, would you rather own a
billion dollars of real estate in New York City or
a billion dollars of bitcoin? Or billion dollars in cyber Manhattan.
There's no mayor in cyber Manhattan. There's no property tax
in cyber Manhattan. There's no storms, there's no weather in
cyber Manhattan. Everybody lives forever in cyber Manhattan. You can
you know, you can teleport cyber Manhattan sixty times a second.
(32:51):
You can program it as an AI. It's like, so
what you see is it's not it's not a glitch.
It's simply capital flowing from a disordered economy. In Argentina
and Nigeria, they have hyperinflation. Okay, So if I happen
to be there and I'm selling pesos and buying dollars,
(33:12):
and you know, the peso used to be one peso
to the dollar, and today it's like fourteen hundred or
twelve hundred pasos to the dollar. Was that a glitch?
Like was?
Speaker 3 (33:22):
Or was that?
Speaker 2 (33:24):
That's basically the free market. It's it's capital flows to
where it's treated the best. And so if I have capital,
you know in Argentina, I would put it in the US.
And if I have capital and the dollar, let's take
the dollar. One hundred years ago in Miami Beach, an
acre of land in the waterfront cost ten thousand dollars,
today ten million dollars. The dollar lost ninety nine point
(33:50):
nine percent of its value against real estate waterfront property
in Florida. Okay? Is that a glitch? Right in? The
peso lost ninety nine point nine percent of its value
against the dollar in twenty years. Is that a glitch?
That's really just capital flowing from a weak asset to
(34:11):
a middling asset to a stronger asset. And Bitcoin's advance
is capital flowing from twentieth century analog assets, financial and
physical assets to the twenty first century digital economy. And
it's going to go fast. Early on, it went really fast.
(34:32):
The first decade has been going fifty percent a year
ar for the past four years. But as the one
trillion equalizes with the four hundred trillion, and this becomes
two hundred. When this becomes four, probably this four hundred
and fifty trillion will become seven hundred trillion, But this
one trillion will become one hundred trillion, And so as
(34:52):
this becomes a fraction of the twentieth century economy. The
difference between the cost of capital on the bitcoin universe,
which is fifty percent right now, and the cost of
capital in the dollar universe, which is about twelve to
fourteen percent. Look at basically, that's the return of the
S and P. So the S and P sets the
(35:14):
cost of capital for traditional conventional assets, and bitcoin is
the opposite. And so bitcoin is like three and a
half times the S and P. And it's also three
and a half times of volatility. Look at dvol Bitcoin
volatility fifty five versus the VIX. And so if you
look at the two it's not a complicated thing. It's
(35:36):
a thermodynamic idea that any physicists will tell you. This
is a hot fluid, this is a cold fluid. I
pull up the gate and I mix the fluids. And
how hot is the bathtub it's somewhere in between, right,
the temperature is it's going to be in between scalding
hot and freezing cold and in the middle. If there
(35:57):
are some ice cubes in this one and I have
at least scalding hot water, ear some of the ice
cubes are gonna melt, but you're gonna end up with
a warm bath. With the exception that there's always going
to be you know, if you look out, if you
look out ten years instead of fifty versus fifty voll
versus fifteen ball, maybe it'll be forty five to forty
(36:18):
to thirty eight to thirty six to thirty two to
twenty eight. This volatile is coming in. This arr is
coming in. Now. This comes up because what happens when
when like when Apple and Google and Microsoft and Facebook
or whatever, when they buy bitcoin. What happens when you
could take the bottom ninety eight percent of the S
(36:40):
and P five hundred if they bought bitcoin, their performance
would start to approach the big tech and so the
performance of the S and P index will move toward
bitcoin as they put bitcoin on the balance sheet, Bitcoin
performance will move toward the S and P. As we
move move from you know, a one hundred to one
(37:02):
ratio to a ten to one ratio to a five
to one ratio, and these things equalized. But you know,
if you understand it is thermodynamics and collapsing into a
more efficient energy state. Like, how is it not more
efficient to be able to teleport a building sixty times
a second between New York and London? Like that's efficient
(37:23):
versus your family made an investment in London thirty forty
years ago and they changed the law last month, and
now you're going to lose all your wealth. That's inefficient, right.
So bitcoin is the digital transformation to capital. MicroStrategy is
just a business taking advantage of the digital transformation. But
(37:46):
if I was talking to Apple, I would say, don't
buy back one hundred billion of your stock. Buy one
hundred billion of bitcoin. It will go to five hundred billion.
You'll have a five hundred million dollar business growing twenty
percent a year. You'll make one hundred billion investment games
a year. Your investors will look at it and they'll
add a trillion or two trillion dollars to your market cap.
(38:06):
And now the company will be valued sixty percent based
upon the operating business, forty percent based on the balance
sheet right, and the risk will shift. Because the risk
in a conventional company is the balance sheet's worthless and
the company's value based upon the P and L. And
(38:27):
so if you make a billion dollars a quarter, I
basically value it at twenty.
Speaker 3 (38:32):
P to E.
Speaker 2 (38:33):
So I take the quarterly result, I'm multiply by eighty,
and I say, oh, you're worth eighty billion dollars because
I took one billion. I'm multiplyed by eighty, and the
balance sheet's worthless. But the next quarter, I say, well,
my billion went to zero. Well that's eighty times a
billion dollar change. You've got a massive whip saw. That's
(38:54):
why these companies stocks crash. If the company had forty
billion dollars of tangible assets on the balance sheet and
it was that puts a floor right on the equity.
And really what you want is you want a well
balanced company where it's like Harvard University or Yale. They're
not valued based upon the earnings of this semester of
(39:16):
freshmen entering Harvard. They're valued because they have eighteen billion
in the endowment. You know, and if they close, the
university is still rich. They have eighteen billion in the endowment.
So micro strategies just pioneering. It's kind of common sense.
Your family wouldn't give away all your money and just
say we're going to work harder, And a university wouldn't
(39:38):
give away all its money and say we're going to
raise tuition, cram the classes, cut the teacher's salary, and
work harder. But conventional wisdom and finance is your company
ought to diving it out its capital, It ought to
buy back its stock. It shouldn't actually hold any capital
in the balance sheet, and it should just raise its
prices and tell its employees to work harder and cut
(40:00):
its cost. And that, in a nutshell, is why ninety
nine percent of the companies in the world underperform the
Magnificent seven and why they all could benefit by just
adopting bitcoin. Is there a Treasury reserve standard?
Speaker 1 (40:15):
That was an interesting point you made about analyzing and
coming to the valuation in terms of analyzing the performance
of a company. Right, investors historically, as you mentioned, just
look at a price to earnings forward looking ratio or
look at the profit and loss. How should investors analyze
micro strategy Because if you mentioned that, to give you
a metaphor, micro strategy is the tap to that capital flow.
(40:37):
As you mentioned, there's nothing else like that, like are
you a bitcoin bank? Do we value you similar to
do we analyze you similar to a bank or do
I've seen a simplification perhaps as analyzing micro strategy like
a ret like a real estate investment trust, But that
feels too simple. I mean, is there anything we can
compare it to micro?
Speaker 2 (40:56):
I think I think you got to look at the
balance sheet and say, okay, that's one component. They've got
this much bitcoin, and then you got to look at
the P and L and say, well, how much investment
income can they generate? So if the company gets to
fifty billion dollars a bitcoin, and if bitcoin goes up
twenty percent a year, the company generates ten billion dollars
a year of investment income and that compounds twenty percent
a year. So if I said to you, hey, here's
(41:19):
a big tech company that makes ten billion a year
and they're growing that twenty percent a year, how would
you value that?
Speaker 1 (41:25):
I mean, through the roughot it there you go.
Speaker 2 (41:28):
So it's not very complicated. The thing that's helped people
back is we've used in definite and tangible accounting for
the last four years, and it's not until twenty twenty
five that you actually start to do fair value accounting.
And when you start to do fair value accounting, you
can actually see investment income and you can see the
income potential. And so it's not complicated to figure out
(41:51):
what the balance sheet is. Everybody knows, you know, two
hundred and fifty two thousand bitcoin. The complicated thing is
to grasp the idea of a company that's securitized that
issues securities back by bitcoin, and the real franchise the
micro strategy has is we're the leading issuer of bitcoin
(42:13):
back securities. So the question is how much capital can
we raise, how much permanent capital we have? And the
second question is how much leverage will we use and
how intelligent will it be? And the third question is
what's your forecast for bitcoin? Right? I mean? And so
there's three variables there. If we barrow ten billion dollars
(42:35):
at seven percent, and we invest in bitcoin and bitcoin
returns twenty one percent, then we scrap fourteen percent arbitrage
on ten billion, We make one point four billion a
year in the swap, We roll that into the business,
and then ten years out you've got fifty billion dollar
business fifty billion in capital, and you're generating ten billion
dollars your investment income just off of that one piece. Right,
(42:58):
But it all comes down to, you know, what's the
nature of the capital, how much can we get and
raise and then how will we invest it and will
be responsible? You know? And you know the haters, right,
the haters think, well, Bitcoin's just going to go up
zero percent a year, right, So of course from their
point of view, the balance sheet's going nowhere. And if
(43:20):
bitcoin goes zero percent a year, you can't raise any capital, right,
So if that's your forecast, you're not that interested. You know.
My view is Bitcoin's going to appreciate twenty nine percent
a year arr for the next twenty one years, right,
that's what it takes it too.
Speaker 3 (43:35):
Well, was the dollar cigirl on that.
Speaker 2 (43:36):
Thirteen million pi bitcoin? Yeah? Okay, And so what do
you think my shareholders think? Well, my shareholders are pretty
bullish on bitcoin, right. There's no one buying Micro's strategy
that hates bitcoin. No, they're shooting in Yeah. So at
the end of the day, I mean, the methodology would
be figure out what's your forecast for bitcoin? By the way,
(44:00):
you can go to Google type Bitcoin twenty four and
you'll find the Bitcoin twenty four open source model. It's
a twenty one year model. You can download it. It's
a spreadsheet you can put in your forecast for innovation rate,
inflation rates, all the asset class, monetizations, demonetizations, bitcoin assumptions, supply. Well, yeah,
(44:21):
you can put that all in and you can run
your model and you can get your own answer. Right,
So do that, and then you just got to consider, well,
how much capital do you think the micro strategy will
raise via securities offerings? And after you do that, you
decide are we responsible custodians? And then you create a
five or ten year model for our investment income and
(44:43):
you figure out how much income can we generate and
how fast can we grow? And of course all those
things are very integrated. And you know, if the more
you know about the capital markets, the more enthusiastic you get,
because we look and we say the convertible markets are
in a efficient, the preferred stock markets inefficient, the high
(45:04):
yield markets inefficient, the corporate debt markets inefficient. You know,
the real estate market is and efficient. So you know,
we our view is we kind of want to be
the Amazon of fixed income. We want to we want
to build a better product direct to a new distribution channel.
(45:24):
And uh, you know, I don't blame people for not
necessarily understanding that, because sometimes you have to see it.
And in the in the absence of you know, fair
value accounting and the like and three or forecasts and
those you know don't exist. It's it's a lot for
people to grasp right now.
Speaker 1 (45:42):
Well, you've even had to come up at micro strategy
with your own measurement to measure the success of the strategy.
You already mentioned it earlier on in this chat. The
BTC yield Currently you're to date, that's around twelve point
two percent that yield.
Speaker 3 (45:55):
But over the next three.
Speaker 1 (45:56):
Years, according to your most recent quarterly report, you're targeting
something betwe I think four to eight percent. Does that
correct that? So that then implies a diminish, a diminishing
in that yield. So once it decreases or compresses that yield,
what happens then? Do you need to come up with
another means to well in the capital.
Speaker 2 (46:15):
Let's just focus on BTCo for a second. What is it?
It's the rate of increase in bitcoin per share. So
if I think we're getting close to almost an eighteen percent,
like seventeen percent BTC yield for the year so far,
And that means that between January first and today you've
you've gotten more than seventeen percent more BTC per share.
(46:41):
If I if I gave you a company and I
said it's going to dive in and yield to seventeen percent,
and I give you another company, say it's got to
be a dividend yield of zero, you know, it's like, well,
you would value the second one based upon the underlying asset,
but you're not going to any more. But the first
one you would actually take the underlying asset it and
then you would take the yield. And then the question
(47:02):
is how long will they generate that yield? Right, And
what's the average yield over the lifetime of my holding period.
So in that case, I mean you could say, if
I expect four to eight percent yield, you could put
a ten, twenty, or thirty pde on that. Sometimes people
will know it's basically your earnings per share in a way,
but you know, we can't really call it that because
(47:25):
it's it's a non gap measure, and it's a it's
a bitcoin per share type measure for that's valuable to
people that love bitcoin. But when you think about it
that way, right, this simple model there is the company
should have a premium equal to the multiple of the yield. Right.
(47:45):
If you think the multiple should be twenty, and if
you think the yield will be eight percent, then you
could say the companies are traded one hundred and sixty
percent premium to the underlying asset. Right, So so the
ability to generate that yield will justify that premium. And
it's a simple model, but it's not the whole model.
The real issue is how you generate the yield, and
(48:07):
the way you're generating the yield is through issuing securities
to the public market. You know that come to generate
that yield. And one way to do it is by
issuing equity at a premium. That's a simple way, the
most simple way imaginable. Right. Another way to do it
is to issue convertible bonds at a premium to the equity,
(48:27):
which may or may not be at a premium to
the asset. That's a slightly less simple but still kind
of straightforward way to do it. A third way to
do it is I just issue a fixed income instrument
that pays seven percent, and I buy bitcoin with it
that yields more than seven percent, which is what you're
done right Well, well, technically that's not exactly what I'm
(48:48):
doing right now. What we're doing right now is you've
issued equity at a premium, and we've issued convertible bonds
at a premium. You know, if the company and the
future were to issue preferred stock that had to fix thing,
or issue bonds corporate debt or or something that had
a fixed coupon, then you would be swapping the fixed
(49:09):
for the you know, for the bitcoin return. And of
course in that case, look, if you're if your forecast
or bitcoin is to go up seven percent a year
and your and the company's paying seven percent for their capital,
there's no yield, you see, right. If your forecast is
to go up twenty one percent a year and the
company pay seven percent, there's a big yield, right, And
so so if you use BTC yield, then you just
(49:33):
think about what's the company going to do to get
to it. And we've just got lots of different tools
to get to it. We can there's other things. There's
a thousand things you could do, right, I just I'll
keep it for the sake of our interview to just
those few because they're simple to discuss. And you know
our guidance. You know, our target is four to eight percent.
(49:54):
We've done more than double eight percent this year.
Speaker 3 (49:57):
So it feels pretty conservative.
Speaker 2 (49:59):
Then I think we try to be conservative in our
guidance because we don't want to disappoint our shareholders. But
clearly you know we will. We will pursue our objective,
you know, as rapidly as we can in a prudent fashion.
Speaker 1 (50:15):
Should we talk about the bitcoin revolution, Yeah.
Speaker 2 (50:20):
You are.
Speaker 1 (50:22):
It's all bitcoin and part two of this interview with
Michael Sailer, he explains what could be Bitcoin's next big moment.
Speaker 2 (50:29):
Banking is just the next logical step and is.
Speaker 1 (50:32):
That not exactly what bitcoin is? Don't want to happen.
Speaker 2 (50:36):
Right, Like, at the end of the day, you have
an og crypto community is very hardcore about it. But
if you look at where all the money is, ninety
nine point nine percent of the money is actually in
the traditional economy and in the war for the future
of money. The war's going to be won with money.
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