How Bitcoin Can Save Any Company According To Michael Saylor

I like the analogy or the kind of the awareness that, hey, we have this giant bowl of ice cream that's melting. That's your cash pile that's melting. And the heat is basically the money printer that is causing asset inflation.

An ice cube that's melting. An ice cube that's melting. We have a $500 million ice cube and it's melting 20% a year.

Right.

It'll be gone in 5 years.

So you needed to do something with that. You didn't want it to all melt away. So you decide to do this. Now, A couple quick questions. One is, uh, this is sort of rapid fire. I've got a couple rapid fire questions for you. In 20 years from now, what do you think has generated more value, uh, or more income to the company, uh, to MicroStrategy? Is it the operating income of MicroStrategy or the investment income of the Bitcoin it holds?

The investment income for sure. Okay. And then, uh, you know, to be, to be very clear, what happened in March of 2020 is when the cost of capital goes to 25%, that means that every investor and all investment income— every, every investor generated 25% more doing nothing, right? And every Main Street company that worked 25% harder got nothing, right? Right. You literally tilt the playing field so that if you don't own— if you own assets, you're having the best year of 30 years. And if you don't own assets, it's impossible to have a good year, right?

And, um, and so, so the second question is, um, you, uh, as you acquire, as you acquire more and more Bitcoin, is MicroStrategy bet— like, do you just position the company at this point like it's a Bitcoin ETF? It's like, buy this, buy this Bitcoin buying and holding companies.

It's not a Bitcoin ETF. Everybody's— you're sloppy with those words. An ETF is a company that invests in securities and it tries to keep its assets under management equal to the amount of shares of ETF that it sold. It's a financial company. An ETP is a similar type of company that invests in commodities. If you create this Bitcoin entity that equalizes assets under management equal to the shares you sell, you created a Bitcoin ETP, We're neither of those things. We're not a finance company. We're not an ETF. We're not an ETP. We're not buying or selling Bitcoin to equalize assets under management. We're an operating company that owns property. Bitcoin is property. And in that way, you should think of it as a company that, like I bought a million acres of land in Texas, or I bought a million gallons of oil. Of fill in the blank, a million bushels of soybean. You can buy any kind of property, right? And you're holding it on your balance sheet as a company, right? That's what we are. Now, what's your question?

You are talking about like, let's say the cost of capital being 25%, right? Because since March, that's what the S&P 500 has done. But the stock market goes, you know, it does go up and down in years where the market dips and goes up, you know, the average, you know, over time, the geometric mean is whatever, 7 or 8%, something like that. So some would argue, okay, yes, this year assets inflated by that much. That doesn't mean next year it's going to remain at 25% a year. And so you have to make some prediction, right? And so are you, are you basically forecasting it at 25%, 15%, 10%, 8%? And does the decision change at a certain number there?

So, so, gen— first of all, for the decade from 2010 to 2020, it was generally about 8%. Like, it was, it was pretty consistent. And the single biggest driver of cost of capital is the rate at which the broad money supply expands. And if you look at— if you go Google M2 money supply Fed, you'll get a chart, and you'll see the chart. By the way, the chart's not all over the place. The chart is very consistent, 7% slope for a decade. It's not jerking around, so it's not that volatile. It was very consistent monetary policy for a decade. Then that chart goes like this, straight up 24%. So if you, uh, if, if you're going to make a decision as an investor— and this is any investor— what this, this has to do— this applies to all $400 trillion worth of investors and applies to every company on Earth. They all have the same exact thing they have to calculate, which is you have to estimate the rate at which the money supply will expand each year for the next 8 years. And so that's the— if you want to figure out the signal or, or the single most important thing in the world for everyone, but for everyone, 7.8 billion people, for 100 million companies, for everyone with money on Earth, or everyone that earns a salary on Earth, This is the big idea of the podcast. You have to estimate the rate at which the currency is going to expand. And if you believe the currency is going to continue to expand at 15% a year for the next 8 years, you come to one conclusion. If you plug in 10%, it's a different conclusion. If it's 25%, it's a different conclusion. So what do I think? I think that 15% is— 15% for the next 8 years is reasonable. If you're a pessimist, you could say 20. If you're an optimist, you could say 10. But the money supply is expanding because the Federal Reserve and the EU Central Bank are buying a trillion dollars worth of bonds every year each. And it's also expanding because the government of the EU and the US are running a multi-trillion-dollar deficit. And it is also expanding because of trillion-dollar-plus stimulus. And there's no reason to think that's gonna change in the next 4 years. And I don't think in the next 8 years. I think that at the point that the Democrats took control of the Senate and the House, you saw that you have, if you could have forecasted 12% inflation if it was a split government. But I think that in a non-split government, there seems to be remarkable consensus that we should run deficits, continue to keep interest rates low, and continue to stimulate the economy. So what does that mean? If you plug in a number, 15%, it means that the risk-free interest rate or the risk-free return is 15%. It means you have to generate in excess of 15% on your money every year for the next 4 years in order to stay ahead of the rate of asset inflation. A reasonable person would say the assets are going to inflate at that rate. That's pretty much what they do. That means that if your company is not growing its cash flows at a 20% rate, then it's not gonna hold value as a stock. It means that if your bond is paying you an interest rate of less than 15%, you're destroying value in the bond. If your rent yield is less than 15%, your commercial real estate's destroying value. And if you're holding cash, you're losing 15% of it a year. That's the negative real yield. So once you actually embrace the idea of asset inflation, and asset inflation equals cost of capital equals the rate of the money supply expansion. Once you have that rate, then you realize that there's a negative real yield on everything except for Bitcoin for the most part. The negative real yield on gold is 3%. That's the rate at which we mine it or hypothecate it. The negative real yield on sovereign debt is about 12%, 13%. The negative real yield on corporate debt is 10%. Every company that's got a growth rate of less than 15% has got a negative real yield on it. So, you know, once you do that, then what you realize is, You can't really have a business strategy as a company unless you find a way to solve the treasury problem. So the big idea here is you want to fix any company, sweep all the cash flows into Bitcoin, convert the treasury into Bitcoin, borrow against your future cash flows in dollars, convert that into Bitcoin, finance all your fixed assets in dollars, convert that into Bitcoin, and issue equity as much as you can now at the highest valuation you can now in dollars and invest in Bitcoin. Right? And you might say, why Bitcoin? Well, because Bitcoin is the apex property. It's the most scarce monetary asset in the universe. You can't make any more of it. It's encrypted money. And what that means is it's least likely to be impaired by a property tax, an execution issue, money printing, dilution, counterparty risk, and corruption. So we have engineered a superior asset, a thermodynamically sound, technically superior asset It's placed on a global digital monetary network, which is open, an open protocol. And the combination of the apex asset on the open monetary system makes it the most disruptive technology in the world.

When you were first starting MicroStrategy, you were in the weeds, you were thinking, I have to make a product that solves a problem and I have to make money off of it, right? Now you've gone way up the hierarchy of—

Now we can do whatever we want.

Now you can do whatever you want. At what point did you notice a shift like, oh my gosh, like this business is stable, it's working, it's working pretty well. Uh, yeah, it's quite predictable. At what point did that shift happen? Because what you're talking about now is quite foreign to what Look, we solved our problem when we actually embraced Bitcoin.

I could say to you, "Oh, yeah, when I had $500 million in cash in the bank, I could," and we were focused. But the problem with that is that if you have a bunch of cash generating zero interest, the cost of capital goes to 25%, then all the public company investors forsake the company. And if the stock market forsakes the company, then mainstream media forsakes the company, right? Then the employees become dejected because eventually you're gonna have Facebook, Amazon, Apple, or Google steal every one of your employees if you can't drive the stock up, right? Nobody wants to invest in a company that makes a lot of money growing at 5% a year. I mean, it seems brutal to say that. It wouldn't be true if the cost of capital was zero. If we had a sound money policy in this country, then you could hold your head up high and say, "I run this great restaurant and we made a lot of money last year. We're going to make a lot of money this year. And our plan is to keep doing what we've been doing." And everybody would pat you on the back and say, "That's good. That's honorable." But if I tell you I'm going to devalue the cash by 25% a year or 20% a year, at some point you're driven into this cycle where I have to either do a big acquisition to keep my revenues growing, I have to take extreme risk and do dilutive acquisitions, or I have to go borrow billions of dollars to buy the stock back to leverage up the cash flow per share. And if I don't do either of those things, the investors dump the stock. And if they dump the stock, the employees start feeling like, you know, why don't they go work someplace cool and hot? And you're going to get all your engineers stripped away by Facebook or Amazon or something. So the truth is, when we actually fix the balance sheet, we fix the stock and we fix the— you know, at this point, the company has $5 billion, more than $5 billion in assets. If the cost of capital remains at, let's say it goes up 20%, if we print 20% more money next year, I can reasonably expect to generate $1 billion of investment income, which would be a 20% increase in Bitcoin, right? But the truth is I can reasonably expect better than that. If the cost of capital is 10, I can reasonably expect $500 million investment income. Well, all 2,000 people doing 100,000 things right perfectly for the entire year competing against Microsoft that has more money than God, they can generate $75 million a year. Okay, so the truth is the company, its future became secure when we actually converted the balance sheet to Bitcoin. Because now we don't have to struggle. Let me say it a different way. I don't think any company could be successful without a financial strategy in the year 2021. Like, I wouldn't have said it 3, 4 years ago. If you have a sound money macroeconomic environment where the money supply is expanding at 2 or 3% a year, you can go out and make things and create things and market things and sell things and service things and generate cash with that, and that makes sense. But if the money supply is expanding at 20% a year, you need to own assets because what's happening is no one's going to invest in any project that doesn't generate more than the 20% hurdle rate. And so, who can generate consistently risk-free 20% returns? You have to be a monopoly. You have to have a digital monopoly or some kind of monopoly. So it becomes exponentially harder to grow. And so what happens next? All these other companies get squeezed out of the ecosystem, right? They get decapitalized and rendered insolvent by the monetary policy. So I would say that, you know, if I can get my, My stock was $120 a share. What is it right now? Like, I haven't checked in the market, but—

$768.

Okay, so if I get my stock up, then I can actually make my shareholders happy. I can change the narrative. I can recruit. I can retain talent. I can get that, you know, I can inspire the confidence of my customers. I can drive momentum and then we can do what we want to do. I guess it's similar to if you're a university and you had no endowment, you know, or university that has a billion-dollar endowment or university has a $100 billion endowment. You know, if you're a professor, which university do you want to work for? If you're a student, where do you want to go? You know, do you have a shiny building coming or not, right? At the end of the day, right? Money is a measure of energy. And so if you have monetary assets, you have energy. And if you have high energy, you can pursue your vision with integrity.

And what percentage of your time now are you spending on this, on investing the income versus on the day-to-day of MicroStrategy, of just the business as usual, making the products that— making business intelligence products versus investing the the income?

I'm the CEO, but we have a president, and the president of the company is Phong Le, and he actually has day-to-day operational responsibility for sales, marketing, and even technology development at this point. So, I'm the chairman and the CEO. I oversee the company strategy and I oversee financial strategies. I oversee long-term direction. And, I oversee technology strategy, but I'm not in the weeds in the day-to-day running the business. That's really left for the operating executive team.