Michael Saylor is the CEO and Co-founder of MicroStrategy. Michael has over purchased over 17,000 Bitcoins and MicroStrategy has over 70,000 Bitcoins on its balance sheet. Michael tells us about his background, how he got into Bitcoin, his conversation with Elon Musk, Bitcoin FUD around Tether, Quantum Computing, and Crypto regulations. Michael also talks about the Bitcoin for Corporations initiative on February 3rd and 4th. https://www.michael.com/ , https://twitter.com/michael_saylor , https://www.microstrategy.com/en , https://www.saylor.org/ ,https://hope.com
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Interview Transcription
Tony: Hi everyone! Welcome back to the Thinking Crypto channel. I have a very very special guest with me Michael Saylor, who’s the co-founder and CEO MicroStrategy. Michael, I’m super excited to speak to you. Thank you for joining us today.
Michael: Thanks for having me Tony.
Tony: Before we get into Bitcoin, there’s a lot to go through there. I want to get a quick rundown on your background. Where did you grow up? Where’d you go to school?
Michael: I grew up in an Air Force family and so I grew up on military bases all around the world. Japan, New Zealand, Colorado, Nebraska, Florida. Went to high school in Fairborn Ohio just outside of Dayton, birthplace of aviation. I lived on Wright-Patterson Air Force base. So, after I graduated from high school, I went to MIT. I spent four years in Cambridge Massachusetts. So, that’s where I was.
Tony: Got it. What made you decide to start MicroStrategy? How did that come about?
Michael: You know it was kind of unintentional, I wanted to get a PhD from MIT. And well actually what I really wanted to do is I wanted to be an astronaut. My senior year I was about to go off and fly jets and be an astronaut. And I was diagnosed with the benign heart murmur, that kept me from flying aircraft. It was mistake, 10 years later they realized I didn’t have it but they thought I had at the time. So, that lurched me in one direction, that took place with a few weeks to go before graduation. And I was going to go in the Air Force and the cold war was ending. The Air Force didn’t have space for us and they told us, we’d have to wait two or three years to get called up to active duty.
So, they gave us the option to go in the Air Force reserve. As I was graduating from college, I went from 10 years as a pilot in the Air Force to now you’re not going the Air Force. I thought, ‘Well, I’ll go to get a PhD.’ But I’d missed all the deadlines for financial aid. So, I was catapulted into the working world at 22. I worked for about two years and I thought I’ll work for a year; I’ll apply for financial aid I’ll go back and get my PhD. And at the end of the second year, I had everything lined up and I arranged the funding and I resigned from my job. I was building computer simulations for the DuPont corporation. And they wanted me to finish the computer model, because they were using it to acquire a billion dollars in capital funding.
So, they begged me to stay. I didn’t want to stay. They offered me a raise. I didn’t want to raise. They said, ‘We’ll give you anything you want.’ I said, ‘Well, I wanted to be a rock star when I was in high school. I wanted to be an astronaut when I was in college. Now I want to be a professor. I get a PhD and there’s only one last thing on my list and the last thing on the list is be CEO. So, if you basically finance my company and let me start a company, then I’ll stick around and do it.’ So, I started MicroStrategy because my employer wanted me to finish a computer simulation and I didn’t think they would agree but they agreed. So, they ended up giving me the first few million dollars’ worth of business and I started the company.
I figured when it fails, I’ll go back to college and get that PhD and it never failed. So, I’m still stuck here, so that’s how MicroStrategy came to be.
Tony: So, for the five people who don’t know what MicroStrategy does and the services you provide, can you give us a quick overview?
Michael: Sure, we’re an enterprise software company, so we sell software tools to about 5,000 large organizations like banks, big tech companies, government agencies, insurance companies. Most of the retailers in the world. They use that software in order to create custom analytic applications. Like I want to scan every item in every store every day and figure out whether my inventory is properly aligned with the demand I expect, or I want to review every account in a bank and figure out where the credit risk is too high or where I might have some exposure. So, they build these big complicated custom applications on proprietary databases and we sell them the tools and the servers necessary to run those applications and to just deploy them throughout their enterprise.
It’s enterprise business intelligence, so that’s what MicroStrategy does. We do business about 27 countries most major cities in the world. We’re the largest publicly traded independent business intelligence company in the world.
Tony: Wow. And you’ve also have Sailor foundation and Sailor academy. Can you tell us about that initiative?
Michael: Yeah, well the idea there is why can’t I get a mathematics degree for free, because I can in theory learn mathematics online. Or why can’t I get a computer science degree for free because all you need is computer. So, why is it gonna cost me 200,000 to get a computer science degree? So, I created the Sailor academy in order to make available free college education. And the idea is just make college education free to everybody in the world forever. We’ve got engineering degrees, computer science degrees, math degrees, the like we’ve educated about 800,000 students. We sign up 80,000 a quarter or more and it’s available to everybody on earth. You can go to ‘sailor.org’ and you can start any particular course. We have all the lectures all the textbooks are free.
Tony: Wow.
Michael: All the notes are free. The tests are online, they’re all certified with ACER. We try to get college credit and we have cross accreditations with a lot of universities. So, you might take two or three or four semesters worth of classes and then transfer the credit and finish up somewhere. Or if you started somewhere and you didn’t quite finish you need three more classes to get your degree. You could take those online and get the degree. The ideas make it quick and easy and cheap for anybody to learn.
Tony: So, you’re certainly ahead of the curve there because we currently have at least in the United States and possibly globally too. The student loan bubble and even just the education bubble where it’s more about money versus quality of service and education. Are you know is the foundation itself like trying to work with possible government officials to help make education more accessible to folks?
Michael: Yeah, we negotiate lots and lots of cross accreditations and partnerships with all sorts of universities and colleges everywhere in the world. In order to help their students or give them an on-ramp to students or if they have students that left and 10 years later, they want to continue that education they can. I think that we’ll continue with that. We expect that the Sailor academy will become the Sailor university in the next few years, and it’ll be fully degree granting itself. Right now, we have to give the credits through other universities. So, I think working with various institutions and regulators is a good thing in order to make that education more available.
Tony: Sure. So, final item on your background you have written a book called The Mobile Wave, how mobile intelligence will change everything. Can you tell us about that? Certainly, I’ve given it a read and given I’m in the digital marketing space it’s been very relevant with the transition to mobile away from desktop, to give us a quick overview of that book if you can.
Michael: Well, you know one of my degrees at MIT was the history of science. So, I was always interested in scientific paradigm shifts. And they’re up until that point, I mean the first computer paradigm was mainframes and the people used software on mainframes in the back office. Then they went to many computers and moved into departments. And then when I got started in business it was the pc and all the software was running on desktops. There were entirely new companies created, you know the spreadsheet companies Microsoft for the PC. And then around 2000 the internet era hit. I mean from 94 to 2000 and companies like eBay and Amazon, Yahoo and Google became possible. That was the internet wave.
Well, by 2009 with the iPhone 3, it became clear that iOS and android were going to be a new paradigm for software. And that instead of deploying software just on the internet or on a PC, we would actually embed software into devices that we wore around and carried in our pockets and slept with. That’s the fifth wave of computing, what I call the mobile wave. And I was fascinated by it and so I wrote this book about what happens when software moves from solid state to vapor state, what happens if software is all around us 24/7, 365. Because people that use software before the mobile wave were white collar workers two hours a day in the office. And after the mobile wave, three-year-old would be using the software, 80-year olds are using the software on the week and in the evening.
So, you had just a massive explosion in software to different constituencies to different use cases. And now it became pretty clear that maybe software would replace money or software would, you know you would have the future of Facebook mobile apps and software to replace your telephone and software to replace your camera. And the implications were Amazon, Apple, Facebook. Google, the mega dominant digital networks. So, the mobile wave is all about what happens when things get de-materialized the software and what are the implications for society and business and the way that we live.
Tony: Got it. I think you were certainly ahead of the curve on that one as well and it seems and we’re gonna segue now to Bitcoin. You are the head of the curve with the monetary system and money being on the internet. When did you first learn and come across Bitcoin?
Michael: You know i probably heard about it in a 2012, 2013-time frame. I famously tweeted about it I thought it was like going, you know I thought maybe the regulars would shut it down. It was I didn’t have a strong conviction on it and then I kind of saw it flicker in the side of my eye for the next seven or eight years. But I was much more interested either in enterprise software because it’s my core business or I was interested in what was going on with Amazon and Apple and Facebook. Because I was a big investor in those and I’d written the Mobile Wave and I wasn’t really thinking about the monetary network. I had very clear ideas about the dominance of Google as an information network, Facebook is a social network, Apple is a mobile network you know and Amazon is a retail network. That was very clear to me.
The monetary network not so clear to me, that I didn’t really become super interested in Bitcoin until march of the of 2020.
Tony: Wow. What was the aha moment? Was there you took some time to study it again? Was it like, okay I missed this last time?
Michael: I think that 2020 catalyzed tremendous change in a number of ways. I would say that 2020 is a year we went into the virtual wave. You know the Mobile Wave kicked off around 2010 and 10 years later now we’re going to virtual wave. And the virtual wave is epitomized by two massive changes. One on the operational P&L side is the explosion of Zoom and remote marketing, remote work, remote meetings. The explosion of YouTube is a way to get your message out and the virtualization of sales marketing services and communication. You know we saw Zoom go from 10 million users to 400 million users or something. You could just say a decade of progress in a few weeks, in 12 weeks you had had 12 years of advance.
I think on the balance sheet side and on the money side, you saw the virtualization of gold. You saw the virtualization of money and the biggest manifestation of that is Bitcoin. This idea that maybe it’s time for a virtual digital monetary network. So, I think the catalyst was the pandemic and the lockdowns and the fight the monetary response to the pandemic.
Tony: Sure.
Michael: Because we just had an explosion in the monetary supply the M2 money supply and we had a K-shape recovery. And that K-shape recovery with a massively quick response and recovery and financial assets. But a very slow recovery of main street operations, caused a lot of people to stop and reconsider what they understood about money. And I would say 2020 ushered in the need for you know and the explosion of a digital monetary network, which is what Bitcoin is.
Tony: Absolutely. So, you personally hold Bitcoin and you have Bitcoin on MicroStrategy’s balance sheet. What occurred first? I’m assuming you putting Bitcoin into your personal portfolio, correct?
Michael: Yeah, I bought Bitcoin first and then the company followed.
Tony: Now in presenting that to the board and the folks there, was their pushback where they’re like Michael what are you talking about, are you crazy?
Michael: You know I mean it was up to me and it was just up to me then we would have just went and bought 500 million dollars’ worth of Bitcoin as fast as we could. But you know when you’re a public company officer, you’re a fiduciary and you have to consider how you communicate this in a responsible fashion to all the outside shareholders and all the other constituents that are involved. So, we went through pretty extensive deliberations and I explained to the board my thoughts and obviously I told him that I had acquired Bitcoin myself. So, they need to understand my situation. Then after that we considered as a team the regulatory issues, the financial issues, the risk issues, the other macroeconomic options. That was eight weeks.
I mean a pretty decent amount of deliberation. A lot of one-on-one meetings, a lot of group meetings, a lot of research. Work that the accountants did. Work that the lawyers did, work that the officers did, work that the board did. And after went through all that work, we actually arrived at a measured strategy. The strategy was you know multi-pronged, first we announced to the entire marketplace that we’re going to pursue a strategy of a combination of stock buybacks and asset investments in order to protect the balance sheet. So, we made that known because we wanted everybody that was an existing shareholder know that we had concerns about inflation. And we felt that we needed to do something.
The two obvious answers are either you invest all the treasury with 500 million dollars. You either invest in the stock, you buy all the stock back or you invest it in an inflation hedge. So, there’s no magic, there’s no perfect answer. So, we just concluded, well we’ll just do some of both. We split it down the middle, we said 250 million dollars earmarked for stock buyback, 250 million dollars earmarked for the inflation investment. After the market digested that, we moved forward with the strategy and we said, ‘Okay, well we thought about it we and we looked at every single asset.’ What we wanted was, a safe haven treasury reserve asset that was going to appreciate faster than the rate of monetary expansion.
So, we looked at real estate, we looked at bonds, we looked at stocks. None of those things work because they’re all fiat instruments and they’re valued based on the cash flows. And if the money supply expands and the basis the cash flows are going to debase as well. So, then we went to precious metals gold and silver and the truth is that was the best idea a hundred years ago. But there’s a better idea which is digital gold. Digital gold is everything you love about gold and everything you do and nothing that you hate about gold. So, it’s like pure pharmaceutical grade gold. And then we looked at every other crypto and figured out what’s the dominant network that’s most likely to get the lion’s share of support from other investors with similar interest to us.
The conclusion was Bitcoin, because of a commitment to proof-of-work. And if you decide what you want is a proof-of-work crypto network, well then then Bitcoin is the largest. The issue is you got to pass over Ethereum, because Ethereum’s transitioning from proof-of-work to proof-of-stake. And if you’re gonna actually put a billion dollars on the network, you have to have three to five years of experience of a stable network. So, I asked me five year after Ethereum 2.0 comes out how I feel about it and I’ll have an opinion. But right now, I can’t as a fiduciary bet on something that’s about to go through a massive architectural change. So, then you go to the next thing which is Bitcoin cash and Satoshi vision and they’re all like 50, 60, 70 times smaller.
So, really there wasn’t, I mean there wasn’t another crypto that was looking like a store of value proof of work you know network that would be a treasury reserve. And that’s why Bitcoin was the straightforward. The next closest thing is gold and gold just isn’t that close to thing, right. So, we went ahead and we allocated all 250 million dollars to Bitcoin. And then we announced a tender offer to buy back 250 million dollars’ worth of the stock at a premium. It was a Dutch auction. So, the investors if they didn’t really approve of the Bitcoin strategy, because it’s new and maybe people just don’t, right. We wanted to give them a respectful way to exit out of profit. We tendered our profit and then we waited through the tinder period.
And at the end of the period we had about 60 million dollars tendered. So, it could have been as much as 250, but it wasn’t that much. Most of the shareholders liked the idea. I mean they stuck with us and the stock traded above the tender offer price within a couple of days once people digested it. So, then we bought back the 60 million worth of stock and we had 175 million extras. We modified our treasury policy, we announced to the world that now we weren’t going to be limited to 250 million. Once they digested that we bought some more Bitcoin and then we put that on the wire. So, then we had 425 million worth of Bitcoin. And you know the stock traded up and Bitcoin traded up and eventually we had a billion worth of Bitcoin.
Then we went to the market and we raised 650 million in debt, and we bought more Bitcoin and you know the stock traded up and Bitcoin traded up again. So, now we have a lot of Bitcoin, and the bondholders have their bond and the stockholders have their stock. And everybody that didn’t like the idea, isn’t a stockholder anymore and the people that like the idea are. So, we kind of rotated the shareholder base. As you can see it’s a long-winded answer to your question, because you can’t just do it in one move. You have to methodically move through a set of steps in order to make sure that there are no surprises along the way. Because everyone deserves to be communicated to.
Tony: Absolutely, and I appreciate you taking us behind the curtain. It sounds like you did your due diligence there you looked at different options even outside of crypto. So, that’s really great. What do you think about the likes of a city group where they heard about the debt raise and using the respective funds towards Bitcoin? They lowered your you know the anticipation of your stock price. What do you think about that? I’m sure you’re getting challenge and pushback from a lot of mainstream folks. I’ve seen your other interviews on TV. How are you handling that and you know it’s you’re going against the grain for as a publicly traded company?
Michael: You know I think that some people understand Bitcoin and they understand the opportunity and they understand and accept the risk. They willingly invest in it, either they buy Bitcoin or they buy a fund or they buy companies that are in the business and they’re happy with it. And as long as you know in the public market, a publicly traded company can pursue a variety of strategies. The most important thing to do is to properly disclose what your strategy is, what the risks are to the best of your knowledge. To the best of our knowledge, we explain to everybody what we are. We’re an enterprise software company, selling business intelligence software everywhere in the world and there’s a whole set of risks this long. They take 25 pages.
Then we disclose our treasury strategy. If we were going to invest in SP 500 indexes or we were going to invest in 30-year bonds or we’re going to invest in real estate in Texas or if we’re going to hold it in cash or we’re going to hold it in euros. These are all just different disclosures and risks. And so, we disclose that and there are some people that like that. I mean clearly there are people that bought the stock. I mean today it trades it right now it’s like trading four times what it was when we started. So, there are people that bought it and they’re happy with it and then there are some people that would say, ‘Well, this is not what I signed up for.’ So, it’s important for us to let them know that, if you don’t want this you shouldn’t buy this stock, right.
Tony: Sure.
Michael: This is not your thing. So, I think some analysts don’t like to they don’t want to cover Bitcoin and it’s their right. They can do what they like, right. I mean so I don’t have a comment on that decision other than there are some investors that are delighted that we did it. There are other investors that sold back to us in the tender offer, because they didn’t want to be holding the stock. I respect both those decisions, that’s the right people make in the public market.
Tony: Sure, and that’s great that you guys disclosed all that you were transparent and doing right by the shareholders. I would like to ask, how much Bitcoin do you personally own and how much does MicroStrategy have on its balance sheet? I know you’ve done multiple accumulations, so I’m curious how much you have as far as a number.
Michael: I think I have 17,732 Bitcoin.
Tony: Got it.
Michael: Me personally, I huddle that is mine. Then the company has something like 70,400. I put it on Twitter, about 70,000, the company.
Tony: How did you personally and with the company execute their respective trades and how are you custodying it to keep it secure?
Michael: You know I can’t tell you all my secrets. I can say the way you would do it is; you go through a due diligence process and you look at all of the institutional grade exchanges and custodians. MicroStrategy is actually sponsoring a Bitcoin for corporation summit coming up February 3rd and February 4th. We’ve actually got a two-day course where we explain all of the nuances, all the things we think about with regard to acquisition, accounting, tax, due diligence, risk controls. I’ve also got 10 different institutional grade Bitcoin vendors that have either Bitcoin funds or Bitcoin exchange services or brokerage services or Bitcoin custody services. And they all have strengths and weaknesses and they have specialties.
The idea is everybody can go and look at those and decide for themselves. So, I went through that due diligence process. The company went through a due diligence process. We picked vendors that we were comfortable with for the acquisition and for the custody and that’s what we work with.
Tony: Got it. So, Bitcoin for corporations you mentioned February 3rd and February 4th. So, along those lines since MicroStrategy made the move, have you had other CEOs calling up saying, ‘Hey Michael, tell me about what you did’? Have other folks, publicly traded company folks approached you?
Michael: Yeah, I have people that talk to me and they’re always very interested. I would say that I get a lot more inquiries now than I did six months ago. I mean Bitcoin is becoming a very interesting topic. So, I think a lot of companies are interested in this. Private companies, public companies, high net worth individuals and also institutional investors. So, I’ve had my fair share of conversations.
Tony: You know I have to ask Michael the conversation with Elon on Twitter. How did the offline conversation go? Did you share your plan with him? Was he receptive? I know you probably can’t say, well yes, he did this, but as much as you can give us.
Michael: You know everybody asked me this question, it’s very popular question. I wish I could help you with an answer to that question but unfortunately, I cannot help. But it is an interesting question.
Tony: I should say, okay this is as far as I’ll go. Did you have a conversation with him offline?
Michael: You know I wish I could help you with that question. I had a conversation with him online, I tell you what I said which I would say to everybody. Which is I think that a company that’s got a lot of cash would do well to convert some of that cash if not a lot of that cash, if not all of that cash to Bitcoin. Because if you have cash on your balance sheet, it’s debasing it 10 to 15% a year. It’s a liability and over 10 years you’re going to lose 75% of your purchasing power. And on the other hand, if you flip it into Bitcoin it’s an accretive asset and Bitcoin’s been going up 200% a year. But if it was going up 20% a year, you would end up doubling it. You know like every three years and you would double it three times.
So, you go from a billion to two billion to four billion to eight billion. It makes sense for companies to convert their balance sheet from liabilities to assets. And the right way to do that is by embracing Bitcoin as a treasury reserve asset.
Tony: Sure. I heard you mention on TV that look Apple and Google may be on the way. Do you feel 2021 is gonna be the year of this trend that I think that you started, I’ve interviewed some medium and small businesses who are doing the same? What do you think? Do you think this is the year given that look they’re gonna print more money it’s coming, right?
Michael: Yeah, I think you’re going to see a lot more companies putting Bitcoin on their balance sheet. That’s why we’re doing this conference, because there’s a lot of demand. I’ve got thousands of customers and a lot of them are coming out of the woodwork asking, how do you do this help us you know work through the playbook, the regulatory issues the due diligence issues the acquisition the custody. All these things make it easy for us. So, it’s really popular demand right now. I think that it wasn’t on corporations’ radars in 2020, in March people were shaken. After we did it in August people started noticing. I think that a lot of early movers you know and people like square right, for example they started moving. And Stone Ridge, a lot of private companies and I’ve talked to they’ve already moved.
You can see that, but you know for the next tranche of public companies I think you start to see them; they’ll trickle out in 2021 and you’ll see a bunch. But over the next 36 months it’ll be a batch then a double triple batch then what they say gradually then suddenly. Then quite a lot, right. So, I just think you’re going to see this growing. I think you’ll see, already you’ll see high net worth individuals’ institutions. The fast money crowd, you know how it works. The fast money investors on Wall Street, they’re going to front run the massive insurance companies the massive publicly traded companies. But they’re going to get in there a little bit earlier. So, I think you already see a lot of them like Ruffin, like Guggenheim, like Skybridge. They’re already moving.
But you’ll see a lot more of that and then you’ll see some good announcements I think in 2021 from publicly traded companies. I think that that’s going to wake up more people and they’re going to realize something which is, Bitcoin’s a monetary network. It’s the first thermodynamically sound monetary network and why wouldn’t you want to plug into that thing if it turns your balance sheet into an asset instead of a liability. It’s like oxygen mask dropping out from the space above your seat in the airplane. I mean more and more companies are going to actually start to grab that oxygen mass because it just makes a lot of sense.
Tony: Sure. And we’ve also heard from Miami’s Mayor that he’s considering adding Bitcoin to the city’s treasury. Do you see central banks as well as local governments possibly federal governments around the world doing this?
Michael: Eventually, I mean you know it starts with the visionaries and then it’s the early adopters and the high net worth and the family offices. Then it’ll be the fast money and the hedge fund guys and then the private companies and then small nimble and committed public companies and then more public companies than every public company. I think that there’s definitely going to be a place for agencies. You’ll see agencies, you’ll see non-profits moving more aggressively. And eventually you’ll see banks central banks, you’ll find that it’ll be the central banks of the smaller countries first, right. I mean the ones that if your currency is completely collapsed. And you’re thinking should we go with the gold standard or the Bitcoin standard or should we just use you know dollars or euros.
It seems to me pretty clear that it makes sense to start to adopt a Bitcoin standard. I think that you know you should think of those as concentric layers, right. So, I think that the largest central banks will be last, but it seems an idea whose time has come it’s a force, it’s coming. It’s just going to keep building.
Tony: Now I want to talk about the threats to Bitcoin, kind of if we were doing a swot analysis the strengths the weaknesses and so forth. So, the threats that are out there, people have written off Bitcoin thousands of times, but it’s still around. What do you think about the Tether situation as well as quantum computing? And if there’s some very strict regulations maybe coming from the United States which is largest capital economy or market if you want to call it that.
Michael: There’s definitely a lot of fun in this industry. I’ve never seen so much fun; I don’t know why. Like for example like people that buy a billion dollars of Apple stock don’t sit around saying is Tether manipulating at Apple stock price or is the quantum computer going to destroy the Apple network. There’s a lot of people in the crypto industry I think that are very creative that are coming up with these things. With regard to Tether, it’s completely irrelevant. I can’t even imagine why anybody would take it seriously. The people that are buying Bitcoin are wiring hundreds of millions of dollars of cash into an exchange and they’re buying Bitcoin. 500 million of money goes to some place, they buy 500 million of Bitcoin that’s what’s going on.
There are some people that wire you know some money into tether and they use tether instead of cash. Because they want to move it between Singapore Malta or some offshore exchange. But it’s really third order and what does it matter that someone uses Tether, right. I guess the theory is something like someone’s created an extra 20 billion dollars of Tether and bought Bitcoin with it and it’s not backed. But that means that they’re short the Tether and if someone ever calls it back, they’re going to come up with 20 billion dollars, they’re totally out of luck. I don’t believe that for a heartbeat. I think that that’s silly.
So, I got some email and it just felt like it was a scammer. I feel like all the Tether Fudd is like some kind of scammer distributing something. But there’s no legitimate institutional buyer would even consider that and I don’t think they’ve been using Tether, right. In the US, they’re not even using tether to buy Bitcoin and most of the demand for Bitcoin is coming from the US and just US dollars getting wired into exchanges to buy. Maybe you could help me with the theory or why anybody even thinks the Tether thing is relevant.
Tony: Well, I think to your point that it’s not fully backed. There’s a certain investigation, but to your point it’s very minimal, it’s not like the Googing Heim fund is using Tether and mass mutual using Tether and so forth.
Michael: Even if Tether goes to zero, what’s it got to do with Bitcoin it’s irrelevant. It’s like people that are buying Bitcoin are buying Bitcoin to hold for a decade and they’re using either euros or dollars or some other fiat currency. If it goes if it ever went through Tether is transitional for a day. And I’m gonna maybe I would wire some Tether into an offshore exchange to buy it. But it’s kind of like saying that you know like if I wire money from one bank to the other bank, it like sits there for 24 hours before it gets converted to Bitcoin. So, it’s completely irrelevant. It’s kind of like the Fudd of what if central banks created digital currency.
Well, the answer is that doesn’t matter either. People aren’t buying Bitcoin in lieu of central bank currency; they’re not buying Bitcoin in lieu of Tether. And there’s not any genie behind the wall that can conjure up a hundred billion dollars and Tether and buy Bitcoin and not pay it back. It just doesn’t work that way.
Tony: Sure. I think it’s kind of like what Rao Powell said. It’s both a bug and a feature of the crypto community, because if you’re invested in Bitcoin, you’re gonna want to see Bitcoin do well, right. There’re folks invested in Ethereum and others so they maybe try to put out a narrative out there to get people to be scared and sell their positions in Bitcoin and so forth. I think some of it is that, it takes your point of what’s spreading.
Michael: Yeah. So, I think the Tether is kind of just irrelevant random irrational Fudd. What’s the next thing, quantum fears?
Tony: Yeah.
Michael: Okay, that’s the same thing. The only people that pitch that or other alt coiners that want to somehow say that they’re more quantum resistant. You think anybody that owns Amazon stock is dumping the stock because of quantum fears. Do you think anybody owning Google is, you think Sergey Brinner you know is concerned about his Google stock because of quantum computers? I never met anybody on the planet outside of people in the altcoin space that talk about quantum attacks and they talk about it all the time. My conclusion is they’re just desperately grasping at straws looking for some way to criticize Bitcoin. Because they think that they’ve got a better quantum algorithm.
But A, I think it’s if someone invented a quantum computer, 99.99% of all the stuff on earth is not in Bitcoin, and it’s all subject to quantum attack. I could pretty much create World War iii and end earth and life as you know it on the planet and take away anything from anybody if I have the mythical all-powerful quantum computer.
Tony: Yeah.
Michael: And first thing you’re gonna attack is probably like wouldn’t you just steal like a hundred trillion dollars’ worth of bonds and sovereign debt. Why would you bother to go after the stuff in Bitcoin if you really had the all-powerful computer? So, it’s kind of a silly thought experiment, but like you really think a malefactor is going to get their own quantum computer. No one’s going to find out and that no one’s going to do anything about it. I really feel like it’s dudes in their garage that are making stuff up to try to sell you know the 6,437 crypto project and get funding for it.
So, now I think that’s just as silly as the Tether Fudd. I think they’re both just random Fudd from altcoin projects.
Tony: By the way, I agree with you. I think there’s folks who are listening who maybe now coming into Bitcoin and highlighting what about these things since they’re hearing them. So, I’m glad that you’re addressing them and to your point if there’s quantum computing. At least thing we should be or the last thing we should be worried about is Bitcoin. There’s just life itself and what could happen.
Michael: Bitcoin is the most secure network on earth and the most secure database and it’s got now what 700 billion dollars 800 billion dollars of monetary energy in it. Some large amount, which means that it’s got more money and more incentive to cure the problem sooner than anybody else if there should be a problem. But again, it’s the real point is life on earth as we know it would be threatened by the all-powerful mythical factor with a quantum computer. And the first thing they’re going to attack is not going to be Bitcoin, right. But I just don’t, Dr Evil is not getting a quantum computer. And if Dr Evil gets it, then you know your Bitcoin is going to be the least of your worries.
There are better things to focus your time on, it’s just a very creative way to get distracted. And it’ll probably cost you a lot of money, because you have the world’s first thermodynamically sound monetary network. There’s no reason why it shouldn’t go up by a factor of a hundred and you’re not gonna invest in it or take advantage of it. Because of your fear that a thousand whatever years from now or a hundred or twenty or ten, Dr Evil will get a quantum computer. So, I would respond with you know the classic Bitcoiner response, have fun staying poor.
Tony: But in the other threat so to speak, what if the government decides okay Bitcoin’s too much of a threat to us and our CDC’s and the IMF and Christine Lagarde, and all these folks come together. What if they come out with some strict regulations? I know that that’s going to be impossible with Bitcoin being a global monetary network, but I’m curious what your thoughts are there.
Michael: I think that over the next decade the most logical challenge for people in the Bitcoin community is just regulatory fund. You’ll just see fear uncertainty and doubt about, ‘Well, what if a regulator does something that’s bad, I don’t know what it is but what if they do. It just like you know what did Dr Evil invincible on a computer.’ They’re just kind of I’m speculating that something might happen. I don’t know what it is, but what if something that I don’t know will be really bad that will cause a problem. And that’s why we should do nothing or that’s why you should give me money to invest in the 6,437 different projects. I think the answer is the regulators will regulate it, the IRS will make you pay tax on it.
They have, its property paid property tax. If you want to use it a currency you can’t because there’s a capital gain tax when you transfer it. So, it is regulated. The OCC will have an opinion the SEC will have an opinion. You know the treasury will have an opinion. There are KYC regulations like for example it might take you four weeks to get an account with a regulated exchange. There’ll be AML regulations. I think there’ll be regulations everywhere in the world, but the writing is on the wall it’s most likely that what we’re going to see is it can be regulated as property. And that means that if you had $100,000 of cash in the bank and you wanted to wire it to a random phone number without saying or knowing who it is, probably the bank would bulk.
If you have a 100,000 worth of Bitcoin and you want to wire it to a random place and it’s in a regulated custodian, they’ll probably get around to saying the same. The same rules that apply to AML rules that apply to cash or to gold or to order a share of Apple stock will probably start to apply to Bitcoin. There’ll be some evolution of that, maybe they’ll be more flexible maybe they won’t. But at the end of the day, if your greatest fear is it gets regulated the same way other property is regulated. It’s not going to impair Bitcoin is a store of value. And in fact, Bitcoin is the best store of value on earth. It’s a better store of value than stocks.
You can’t wire 10 million dollars of stocks to a private wallet in Africa right now. But that doesn’t mean that Amazon is worthless, right. It’s going to be a better store of value than real estate is going to be a better store of value than bonds. You can’t send a billion dollars’ worth of sovereign debt to a private wallet, but that doesn’t mean that the debt isn’t there, right. So, if Bitcoin is better store value than bonds, stocks, real estate, gold, silver and derivatives and every flavor of cash, then there’s no reason why it shouldn’t absorb 100 trillion dollars of monetary energy. Regardless of what if you apply all the regulations to it that you applied to all those things, I just named.
Tony: Right.
Michael: For example, if you had a 10-million-dollar ranch in California you probably couldn’t wire that to your friend in Africa to a private wallet without permission either, right. I mean the point, but does that make it worthless.
Tony: No, Yeah.
Michael: So, I think that the regulatory Fudd again is another example of it can be a debilitating paralytic type reaction. Where people paralyze themselves, they prevent themselves from doing something obvious and rational. Because they’re speculating about some parade of horrible that may or may not take place that are incoherent. They can’t quite articulate yet, but they’re sure they’re afraid of something that they haven’t quite been able to articulate. But let’s just say in the extreme case that Bitcoin is regulated the same way that $10,000 of cash is in the US. It’s still going to be a thousand times better than holding the cash. What are you gonna do, right? You’re gonna convert your Bitcoin back into cash, right. Like you can sell your Bitcoin right now. What are you going to convert it into that’s less regulated? Nothing right.
Tony: Yeah.
Michael: So, at the end of the day I think they’ll be know your customer this, there will be anti-money laundering that there’ll be some tax regulations. There’ll be some back and forth over what you can do. There’ll be concerns about privacy. That’s why I look at Bitcoin and I think it’s pretty clear if the use case is store of value, well like 7.8 billion people on earth need a store of value and then probably the value of that is 100 to 300 trillion dollars, right. That’s enough, that’s good. If the use case is currency replace the dollar and the euro, that seems like I mean that’s just intentionally inflammatory. We don’t need to replace the euro and the dollar. The bankers are going to be upset about replacing the zero in the dollar.
I don’t think it’s going to happen not in the next decade or two decades. So, we don’t need to get wrapped around the axle on that. And if the use case is medium of exchange and payment, like we don’t really need to pay for a pizza with it we don’t need to pay for Starbucks coffee with it. I mean that’s already solved by Alibaba and PayPal and Square and Apple pay and Amazon and Google pay and it’s you know they can be regulated and Visa and Mastercard. So, you can leave these in Mastercard alone, you can leave the dollar in the euro alone. We can agree to pay taxes. We cannot thumb our nose at regulators and then we can focus upon the critical matter at hand. Which is everybody on earth needs a store of value. It’s not illegal to pursue a store of value.
If you have $100,000 in cash and you’re looking at it being debased at 15 a year, because the expansion of the M2 money supply and fractional banking. Then your choice is: Are you going to buy bonds? Are you going to buy real estate? Are you going to buy Apple stock? Are you going to buy the Nasdaq index? Are you going to buy the Dow? Are you going to buy any index, the Russell 2000? Are you going to go buy gold? You’re going to go buy silver or you’re going to go buy Bitcoin? That’s your choice. Make a choice.
Tony: Sure.
Michael: If Bitcoin is an index, you know it becomes a thermodynamically sound monetary index and you compared that to the Dow, the SP and the Nasdaq. It would be a better index. It’s a deflationary index, right. It doesn’t necessarily replace currency with privacy with censorship resistance. Don’t get me wrong right, before I trigger everybody, I’m in favor of all those things. But you don’t have to achieve all those things in order to have a valuable a store of value crypto asset network. If Bitcoin is simply a store of value and is better than gold, there’s no reason why it shouldn’t go to 100 trillion dollars in value. And that’s what five million dollars a coin.
So, I think that we’ve got a very simple addressable market, a powerful one. It’s a hundred times bigger than Google or Facebook or Amazon or Apple. It’s a big thing. I think sometimes my issue with the Fudd is when you get all wrapped around the axle on, oh it’s quantum attacks and oh my god Tethers being manipulated or what about regulators. You focus on that; you miss the big picture. Guys, this is a big tech network which is a hundred times bigger than every other big tech network. It’s only gonna happen once in your life. This is it. You will never get a better chance actually to get a leg up in the world than to be early to the world’s first digital monetary network. And you’re gonna miss this opportunity, because you’re worrying and freaking out over all these third order fourth order fifth order hypothetical Fudd concerns. I think they’re just enormously distracting and expensive and people should focus upon the first order issue here.
Tony: Sure. And I’m sure you know some of it is the people who are anti-Bitcoin who put a lot of those things out. Those who also possibly looking look it’s a market and a game of shorts and longs and shake people out and create different emotions and a psychological wall street cheat sheet so to speak. So, I’m sure some of that is part of it. I’m curious as far as your, I know this is a cliché question price prediction for this year and maybe the next, by the time the next halving. Anything you can share in that front?
Michael: I think people in the crypto community are too fixated upon short-term price movement. Like they’re studying which way it’s going to go every two days or every week or every month. You know I don’t subscribe to that; I don’t think anybody knows. And if you told me it was going to go one direction or the other in the next month it wouldn’t change any decision. If you told me three months it wouldn’t change a decision, if you told me a year it wouldn’t change my decision. I think that the rational way to think about this is to look out over, if you want to be near term and a conventional investor four years a 200-week moving average. And if you want to be a bit more fundamental investor then you look out a decade to two decades.
So, when I think about it, I think what happens in a decade what happens in 100 years. Between 10 and 100 years I run all my models I work backwards, and I say what do I think in four years. But I never think about four weeks four days four hours, even four months, right. You could be wrong for four months, but if you’ve worked out the fundamental physics of the thing and you’re looking at the bigger issues. Then you’ll probably be right over four years. So, what is my prediction? My prediction is over time it will go up in price and I think it’ll go up in price because I expected to demonetize gold and then demonetize negative yielding sovereign debt, then demonetizing low yielding debt. It’ll demonetize other stores of value, like bond indexes, stock indexes, Russell 2000 indexes, mutual funds etc.
Obviously, that’s a 100x more than it is right now. As for how fast you know like it was going up at 1,500% annualized yeah for a month. So, people are freaked out that it like you know it traces back. Well, when it traced back when it crashed it was only going up 1,000% annualized.
Tony: Yeah.
Michael: Okay, if it went up a 100% annualized, it would destroy every other alternative, right. So, the point really is whether it’s 1,500 or a 1,000% or a 100% or 200%, that’s going to be a really big deal for people staring at the chart over one two, four, eight-week time frames. But the only decision you can make which is a mistake right is to be short Bitcoin, right. Like to sell it and not own it when it goes up again is the one mistake, right. I mean, in fact so if you get up every day and you ask this question, ‘Well, should I sell it today?’ Well, you can ask the question 365 days in a row and one day you’ll make a mistake. If you get up every day and you don’t ask the question, are you committed. If you’re committed, then why don’t you just wait a year and then you can look and see what happened and maybe it went up and maybe it went down.
And after four years, if it’s down it’s probably not working after four years. There’s something wrong with the thesis. After one year, I’ve actually seen periods where like with Apple stock you know it was clear Apple’s going to crush everybody. There’s like a one-year period when you could have bought it and it would be down for the year over the past 10 years or 15 years. There was one time, you might have been saying. There was never a two-year period or a three-year period and over a four-year period. You could have bought Apple, Amazon, Facebook, Google, Microsoft over four years. You know anytime during this mobile wave era. It’s impossible, this thing’s going Bitcoin is going faster than they’re going.
I think the people that are real critics right they looked at the blow off talk in 2007 and they were like they were using that as a criticism. But even then, right over four years, it turns out that you would have it would have been a mistake to have sold ever.
Tony: I’ve heard you say, you’re never going to sell your Bitcoin. So, is there any situation that you would find yourself in that you’re like, you know what I’ll sell some or are you like plan to leave it as an inheritance for your family, things like that?
Michael: That’s right. Let me explain on that. Why would you ever sell an asset in an inflationary environment if it’s being priced in Fiat currency, which is collapsing in value? For example, if I told you that the dollar is going to be printed and it’s going to be debased 10% a year. And if you owned a house and it was a desirable house and you wanted to live there the rest of your life. Why would you ever sell the house? Because you know it’s going up in price 10% a year. And if the interest rate is 3%, you would just hold the house the rest your life and just refinance the house. And when you need more money, you would borrow against the house because the house is going up. If you owned a football team and I printed 10% more money the value of the football team would go up, you’re not going to sell the football team you’re going to hold it. If you need money, you’re going to borrow against it.
Selling something, selling a good asset normally is always a mistake. But Warren Buffett’s never sold his assets, he held him forever. John Malone held his assets, pretty much every billionaire that you know of for the past hundred years, they got that way by never selling anything, right. So, the trick is you have to find an asset which is not going to be impaired, right. The reason to sell something is not because you need money. The reason to sell something is because the asset is impaired. And by impaired, I mean like sell the football team because you know no one will ever watch football ever again or sell the ranch in California, because you know that they’re gonna pass a 5% of your property tax on California. You need to leave California and no one’s going to want to go to that ranch. And sell it, because it’s impaired.
If it’s not impaired, then as fiat gets printed the asset is going to go up in value if it’s a high-quality asset. And if you were to sell it you would get hit with the capital gains tax either long term or short term, right.
Tony: Yep.
Michael: Capital gains tax is likely to go up next year, right. I mean it’s 25 to 50% depending on where you’re living. So, you sell something you’re going to pay half of it to the federal government or the state government you keep the other half and then you’re going to lose the appreciation on the asset. If Bitcoin was going up 20% a year right, and you sold it you would lose a 20 return every year for a decade. That means selling a million dollars a Bitcoin will cost you 10 million dollars in 10 years. So, you lose the capital appreciation, you pay the tax, you get half a million dollars to spend. Why wouldn’t you just borrow half a million dollars?
Tony: So, you’re saying borrow against your Bitcoin holdings. It in a way to earn. Okay, so like kind of like block fi, I use block fi lend and earn interest on my Bitcoin and other cryptos in that type of scenario.
Michael: Let me make a big point, right. If the asset is appreciating faster in value than the rate at which your expenses are going up yearly. You can borrow against it forever and your debt to equity ratio will fall. You see like if I had a million dollars of Bitcoin, I borrowed 100,000 again, so my debt to equity ratio would be 10%. I would pay maybe I pay 5% interest, maybe I pay obscene interest 10% interest. so, it cost me a 110,000 instead of a 100,000. Okay, well Bitcoins going up fill in the number. What do you want to fill in? 20%, it’s going up 200%, right. If it was going up 100% by the way your 1 million becomes 2 million, next year you have 2 million. You borrow another 100,000, now you’ve got $200,000 in debt outstanding. You’ve got you know 30,000 in accumulated interest; you’ve got $200,000 dollars against two million dollars.
You know your debt to equity ratio is no worse, you know the next year it doubles again. And now you’ve got four million against three 300,000 in debt. Your debt to equity ratio falls, the next year it doubles again. Now you got 500,000 in debt against 8 million your debt decree equity ratio falls to 6%. You know your debt to equity ratio will fall and exponentially to zero, right. I mean well not the zero but to a low number. So, if you actually wanted to accumulate wealth, the number one thing you got to do is you have to acquire high quality assets that will not be impaired. The number two thing you have to do is you have to have relationship with banks that will advance you money, cash, fiat, euros, dollars that you have to spend against those assets.
That’s the second thing, but the first thing. Well, now let’s come back to Bitcoin. What’s the highest quality asset and on earth? What’s the best property you could possibly have? A city block in Manhattan, not anymore. It used to be a city block in Manhattan when everybody in the world went to New York city. But you can’t move a city block. What if I gave you know all of park avenue and cyberspace and I told you that a billion people are going to live there one day and they’ll live there for a thousand years? What if 10 billion people want to live in cyberspace for a thousand years and you could actually own 1% of the city or 0.1% of the city? Why would you ever sell it?
Tony: Right.
Michael: I mean the point is they’re not making any more of it. Bitcoin is Manhattan in cyberspace. It’s 21 million city blocks. You can buy a block. It’s better than buying all of LA, because you can’t move LA out of California, you can’t move it out of the US. It’s better than buying 10 of Apple because Apple might twice as many shares and they only have 5% of Apple. It’s better than owning a bunch of gold, because gold miners are going to produce twice as much gold. Okay, it’s better than owning bonds and cash. So, tell me what on earth is better than owning the jets or a football team? People might not be watching football in a thousand years.
There’s nobody in the stands this year watching football, right. So, find an asset, it’s probably better than owning the Mona Lisa or owning a Michelangelo or something like that. I mean all those are scarce.
Tony: Right, it scares.
Michael: You can’t be guaranteed that everybody’s going to want to have classical art, but will everybody want money, monetary energy. Like monetary energy is the ultimate property I have pure encrypted tokenized monetary energy and I can own 121 millionth of all the monetary energy. There’s ever going to be for people on the monetary network, which is the dominant monetary network. So, you buying that fill in the number you buy it and it’s going up a 100% a year, right. You have a million dollars and you sell it, so you have half a million dollars you can spend or you don’t sell it and it goes to 2 million, 4 million, 8 million, 16 million, 32 million, 64 million, 128 million, 256 million, 512 million, a billion.
Okay, so a millionaire becomes a billionaire by not selling over 10 years. Let’s say you wanted to spend 500,000 a year, borrow 500,000 a year and after 10 years you will owe 5 million out of a billion. Your debt to equity including interest is less than 1%. 1% of your Bitcoin would be debt. Now you tell me, you think it’s a wise thing to sell the million dollars. It’s gonna cost you 999 million dollars to sell the million. You think it’s less risky. And I think the answer is I think people they’re not realizing that they can borrow against it. They should go and the single most important thing you can do is develop relationships with bankers that will loan you money against your assets. And then in terms of Tony like what would I borrow.
Well, first you borrow against fixed assets like borrow against your house, because it’s not marked a market. No one’s going to, it’s not going to trade down by 50% in the morning, right. So, I joke you know mortgage your house by Bitcoin. But the truth is before I sold Bitcoin, I would mortgage my house. Because I can get a 30-year mortgage with a fixed interest rate and the house is probably going to go up in value over the 30 years. Because the banks are going to print more money. So, why don’t you borrow against a fixed asset, if I can’t bar against a house I borrow against my car. Okay, I started MicroStrategy I took a furniture loan. I borrowed money for furniture. I didn’t buy the furniture by the way; it was just an excuse to get an unsecured loan.
But you know you borrow against something like that, that is not gonna trade down rapidly. For example, I would not tell anybody go buy Bitcoin on 10 to 1 margin. Like that’s stupid, like don’t go buy a million dollars of Bitcoin with a hundred thousand of collateral. Because if it trades down 10%, you’re going to get force liquidated and wiped out and lose your 100,000. I would say a better idea would be buy a 100,000 of Bitcoin with a 100,000 in collateral. And when it goes up by a factor of three or four, you can borrow $50,000 against it. Your debt to equity ratio would be 20%. If it doubles the next year, your debt equity ratio will be 10%. If it doubles again, your debt to equity ratio will be 5%. If it doesn’t go up by a factor of 100% it goes up by 10, as long as it’s appreciating faster than your rate of interest and interest rates are low. It’s kind of a non-issue. You have to adjust your expenditures right to keep them in line.
So, common sense is you know keep your debt to equity ratio at 10, 20, 30 of your assets and then hold on to high quality assets. There is no one that ever got rich in my opinion, nearly no one that didn’t buy an asset and let it appreciate tax free over time. It’s the taxes that kill you, right. The capital gain tax, the income tax etc. And when you borrow against assets, you’re actually living on liability. So, right instead of making $525,000 a year and then paying 250,000 a year in taxes, wouldn’t it be a lot smarter to borrow 250,000 a year. Let the money appreciate tax free for the next 20 years of your life. That way you pay no tax and you’ve still got an asset that’s working for you. So, you win both ways.
You just have to manage your debt exposure and you have to be intelligent about are you marking the asset to market. And if you’re marking it to market, you need to be very conservative about your debt-to-equity ratio. As opposed to are you taking an asset against a loan against a fixed asset which isn’t going to be marked the market is just the term loan.
Tony: So, Michael I know you have a few more minutes, because you mentioned you had to hop off at a certain time. Two quick questions before we wrap it up. Is MicroStrategy planning to get into any Bitcoin mining? We’re seeing a Bitcoin mining movement in the United States. Anything there that you’re planning to do?
Michael: You know I think it’s important that the Bitcoin mining industry grow everywhere in the world and especially in the US. I’m a big fan of that, I like it. I think that the people that should be in Bitcoin mining, they need to have proprietary assets either in energy. But you need to have access to cheap energy over a long time. And/or they need to have a capital structure optimized. If you’re a publicly traded company, that’s got shareholders that want to be in the mining business. Like say Marathon, it makes sense for them because that’s what they are, right. Their shareholders signed up for that and they’ve got a capital structure for that. So, if you have a public company that’s optimized for that, that’s good. And then if you have access to, if you’re I mean Intel ought to get into it, right.
If you can manufacture semiconductors or if you’ve got data centers like Amazon. The real the ideal thing would be an Intel or an Amazon, someone that’s actually got serious data center structures. Because they have strategic assets there. MicroStrategy really isn’t strategically in the data center business the chip business or the energy business, so it’s not really a good fit for us. But it would be a good fit for one of those types of companies.
Tony: Got it. Final question is rapid fire. Favorite food?
Michael: Steak.
Tony: Favorite musician or band?
Michael: Sting.
Tony: Sting, nice. Favorite movie?
Michael: The Godfather.
Tony: Nice. What’s your favorite book?
Michael: The Moon is a Harsh Mistress.
Tony: And when you’re not at MicroStrategy or you know looking at Bitcoin, what are you doing for fun as a hobby?
Michael: I’m floating somewhere in the watery part of the world.
Tony: Very cool. Michael I’ve learned so much today, it’s a pleasure to chatting with you. Thank you so much for joining us.
Michael: Thanks for having me Tony I appreciate it.
