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Full-Length Interview with Bitcoin God Michael Saylor

JH: Hi Michael, it’s such an honour to have you on. It’s really great to have your time and get to talk to the, especially, German crypto audience. Before we go into the questions and all of this, the most important question to me actually is: how did you change your mind on bitcoin? Because I still have a kind of a picture, where I know you had a bit of concerns. Suddenly this changed and now you are this white knight convincing, at least in our dreamworld, Elon Musk to put Bitcoin on the Tesla balance sheet and obviously many other CEOs. So how did this change?

MS: You know, I think that 2020 was a catalytic year and they say that paradigm shifts, they only take place when a generation changes, when there is a new generation or when there is a war. Obviously millennials are embracing bitcoin in a lot of different parts of the world. But I think in march of 2020 we kind of had a war break out. We had a war on Covid and then we had a currency war. So in essence, the pandemic was a global crisis and it opened up peoples minds to many things. Probably the most interesting example is the explosion and adaption of remote work is zoom. I think zoom usage went from ten million people to 400 million people in a few weeks. So there are two thinks I embraced in 2020. One is, I embraced remote work. And for a decade people had encouraged me to try Webex this and Skype that. And I tried them and I fiddled around with them and they didn’t work very well. The sound cut out or the line would drop and so I insisted that everyone would be in the office. And I actually fired a lot of people, that didn’t want to come to work in the office. So I was very adamantly against remote work and then when we didn’t had the choice, I tried remote technology one and then remote technology two and remote technology three and I finally found zoom. And zoom worked and I mandated it as company standard within a day and then we had 2.000 people using it. Trained on it the next week. So that was a paradigm shift. Necessity is the mother of invention. And the zoom technology was good enough, the other technologies weren’t that good. When the entire world, when a billion people, were locked down and they couldn’t move, they needed a technology and you learn pretty fast. So I think Bitcoin is a similar thing in response to the currency war. The money supply was expending at five percent for a decade and in the last twelve months the money supply expanded 25 percent. So the cost of capital jumped by a factor of four or five, this becomes a pretty critical issue. And you need a solution. If you have assets and they start losing their purchasing power at 25 percent a year, well you can extrapolate to basically losing 90 percent of all your assets within five to ten years. When assets are decaying at five percent a year, then you’re half-life is twelve years, right? So now it’s 30 years before you lose 90 percent of your purchasing power. And 30 years is a long time away. You don’t really have to do something urgently when you have 30 years. But when you start to see something draining away at four or five years, then it becomes urgent. So just like the lockdown created an urgent requirement to embrace video conferencing technique, the currency war created a requirement to embrace a new digital asset or come up with a new strategy to preserve capital. Just like I went on a quest and discarded a bunch of not good video conferencing techniques and I won’t describe all the ones I don’t like, because you can probably figure it out. I went on a quest in order to find an asset that I could put on my balance sheet that would appreciate faster than the rate of money expansion.

And I knew that the US dollars weren’t gonna do it, so then I considered, will Euros do it, or Pesos or Real or Yen? And then I realised that wouldn’t gonna work and then I considered derivatives and swaps and I figured that wasn’t gonna work. And then I considered buying real estate, and that wasn’t practical. And I considered market baskets and bonds and that didn’t work and I considered equities. After I went through stocks and bonds and real estate, I concluded I needed to find an asset which wasn’t a FIAT cash derivative. And that takes you to scarce art, collectables, trophies, precious metals, and I considered all of those. But you can’t go and buy 500 million dollars of scarce art in an index. Thats not liquid. So that takes you to crypto. And crypto, I’ve been aware of, but it’s just like I was aware of some video conferencing things. It was more of a nuisance and there where some millennials that were into it. Some 20-somethings use Skype, some 20-somethings use Bitcoin. But I didn’t need it and therefore I didn’t really have to embrace it. I think after march, I needed it. My mind was open. I did the research and then I realised that there was a solution to the problem and the solution to the problem was bitcoin. And first I realised it as a solution to the store of value problem, a non-fiat derivative safe heaven asset. As time went on and I studied it more, I realised it really was engineered money on the first digital monetary network. And so the big idea was, it’s not just the best engineered safe-heaven asset, that would qualify it to replace gold. That makes it worth ten trillion dollars if it’s the best engineered safe-heaven asset. That’s a good enough reason to buy it, right? But if I could take a billion dollar Block of gold and dematerialise it and program it, move it at the speed of light and chop it into a million pieces of seconds and run it on a computer? That’s something better. That’s actually an open monetary network. So what I saw was: a good asset that was on the worlds first open monetary network and that convinced me that it was probably worth a 100 trillion dollars not ten trillion dollars. And it was going to become the base-layer for the 21st century finance economy. Like a lot of things, you go from not needing it to your life depending on it. You probably don’t remember the first mobile phones. First mobile phones were bricks, this big, a few people had them to impress a few other people and then they became more interesting and then they became critical and I think that’s the case with most technology.

JH: How did the decision making, obviously it’s one thing investing personal capital than to the other hand investing company capital. How did the decision making go there? Can you walk me through that? Who did you go to first, who did you talk to? Finance first, Compliance first, legal first, the board? How did you get this through?

MS: I put together a stack of videos, educational videos, on bitcoin along some documents. I distributed them to all the directors and the officers of the company. I asked them to review them, I gave them homework and then I met with them individually. Then we met as a group to convene and build consensus that way. And then we assigned the legal council some projects to do and the CFO some finance projects to do. And the team went off and they investigated and they came back together again and we, as a group, the offices and the directors came to consensus how to move forward.

JH: Personally, I am obviously invested in bitcoin, but one thing that keeps me from investing everything I own into bitcoin is, the risk of black swans. What if Satoshi is malign, what if there is a bug in the code. What if there is a risk we are not considering? How do you approach those risks that are there, very unlikely but they are not zero. How do you go about those possible black swans? Which ones do you consider? Which ones do you have on your radar? How do you go about that?

MS: I think it’s reasonable for anybody to allocate their portfolio, to vary the assets because of risks. I don’t think it’s constructive to spend time dwelling on black swans, by definition they are unknown unknowns. If they are unknown unknowns ,you’re just wasting mental energy. If you’re concerned that bitcoin might go to zero then invest 90 percent of your assets instead of 100 percent. Or 50 percent and move on. When you get in a car, it’s possible for you to get in a traffic accident and you might get hit from the rear, you won’t see it coming, how do you plan for that? Well, if you keep looking behind you, in your rear-view mirror, you’re more likely to get in an accident. So it’s kind of dysfunctional to worry about something that you can’t anticipate. Because you’re wasting mental energy. So no, I don’t really concern myself with it. If you’re an investor and you want to invest in ten different things. For example you want to invest in someone that makes hamburgers, and someone that fliess airplanes, but you don’t want the pilot of the airplane to be continually worrying about some random meteorite hitting the airplane and checking for a meteorite hitting the airplane every ten seconds, because it will interfere with the landing. You don’t want the burger flipper to be, you know it’s possible to serve someone a cheeseburger and they choke on it and die and sue you and shut down your restaurant. How many people who own a restaurant worry about that? If your waitress walks up to someone and asked, are you going to choke on the cheeseburger and sue the restaurant, how is that for business? Wouldn’t you be angry at the waitress and say, I don’t want to eat at that restaurant, why don’t you guys focus on serving the cheeseburger. Stop worrying about that stuff, you can’t control that. So I think, worry about the things you can control. By definition, you can’t control a black swan.

JH: What do you think are extremely optimistic things that you might have on the radar, that the average bitcoin investor doesn’t have on the radar? Something that isn’t priced in yet, what you don’t see on bitcoin twitter, in the bitcoin community?

MS: I think that most people don’t really understand that bitcoin is the worlds first digital monetary network which means that ultimately it’s a 100 million people using it going into a billion in five years. Eventually everyone with a mobile phone will have some bitcoin on their mobile phone. I think that this is a big dynamic. I think that the big tech-companies like Facebook,  Apple and Amazon and Google, as they embrace it, I think that’s going to drive adoption. I think they’ll have to embrace it. I think the big banks will actually start to embrace bitcoin as collateral. I think that most people haven’t the right thought, most people buy bitcoin so they can sell it when it goes up. I think what they don’t realise is that ultimately no one is ever going to sell bitcoin. As the market matures and as the banks mature, you’ll buy it and hold it forever. You give it to your daughter, your son and your sons-son and your sons-sons-daughter. Why would you ever sell it ever? Most people sell it to buy a Lamborghini, right, I mean that’s the trope. I sell it to buy a house. Why would you?

JH: I would love to talk about the latest round. I think that’s the most recent thing. How was the decision to raise more funds to get more bitcoins on your balance sheet? Let’s start there. And then we can branch a lot into your believe structures and how you see this long-term.

MS: We have two corporate strategies. One strategy is to continue to grow our enterprise all for business which is business intelligences software, we sell it to thousands of companies all around the world. And that strategy, for the most part, is a cash generating strategy. We don’t really need a lot of capital to execute that. Its more skill and about polishing the software and then we upload the software and our marketing and sales are primarily by a websites and efficient channels. The second strategy of the company, that we actually made clear on our latest 10K is the bitcoin strategy. And that is to acquire and to hold bitcoin. So our latest capital raise was pursue into that second strategy, that is a capital intense of strategy. Because we are obviously buying bitcoin. And what we made clear to our shareholders and the market places that we are going to sweep excess cashflows from the business into bitcoin. Since it’s our primary treasury reserve asset. So as the business generates cash and we generate cash from quarter to quarter, and time to time. We just convert that into bitcoin. Then from time to time we may do equity or dept financings to raise capital to buy bitcoin. In essence we did an equity offering of sorts, back in September, when we did a tender offer. And we offered to buy 250 million dollars worth of our own stock and a dutch tender. And the amount that wasn’t tendered, we actually converted into bitcoin. Then in December we did a convertible debt offering for 650 million dollars of convertible debt. Those terms were, I think, premainof 37.5 percent above the stock price at the time. And a coupon of 75 basis points. I think the stock was trading in a low 300 range, I think it traded at 290 or so, the day we did that convert. And the strike price on the convertible bond were 398 dollars a share. So that means that in the stock trades above, 398 dollars a share, that people that own that bond have the right to convert their bond into shares at 398. So they have equity participation above it and then below 398 they have a bond. And it was a five year bond. We issued that bond and we had 650 million dollars in proceeds. So we bought 650 million dollars worth of bitcoin around 21 thousand and something. And then bitcoin continued to appreciate. Now our view is, you should do the financing in a way that’s accretive to the common stock shareholders. If the stock is trading in the high twos the low threes and the strike is a substantial premium above it. (20:14) And if we can buy bitcoin at what we think is a good price, then it makes sense to do that transaction. That worked out well and bitcoin took off and eventually traded into the forties and then it started trading in the high forties. Our stock traded up and I think our stock traded past one thousand and when it was in the one thousand range, we had the opportunity to do another financing. So this financing was convert and I think the convertible price is a 1438 dollar a share perhaps. Somewhere in that range, but more than 1400 dollars a share. And obviously the last financing was 398 dollars a share. This is accretive to any shareholder, that’s holding stock, below 14.000 dollars plus a share, and that would be everybody. Wouldn’t be worry about getting diluted. And it turns out that the market conditions were very favourable. And the corporate debt market, the junk bond index dipped below four percent. So that means, people are actually buying corporate debt with no warrant. Just straight debt. That pays four percent interest, with low degrees of security. So what we offered was a convertible bond with an assets warrants above 1400 dollars a share. We were able to do that with a premium of 50 percent. And the interest rate was zero. And it was six years. So in essence, we started out offering 600 million dollar bond and there was a lot of demand for it. Over demand. So we were going to price up between zero and fifty basis point, we were able to price it at zero percent yield. And our indicated premium ranges 45 to 50 percent premium and we were able to price it at the top in that range, 50. And there was still so much demand that we were able to upsize the issue. So we upsized the bond issue from 600 to 900 million and then there is a greenshoe, which is an option to exercise an additional amount of the bond, it was 150 million. To make a long story short: by the end of the week, the greenshoe was exercised and the deal closed. We had raised 1 billion 50 million dollars  for six years at a 50 percent premium at 1400 dollar strike price. Please figure out the exact number, I think it was 1.438. (23:20)We raised that bond and we had a zero percent compound for six years. Then we preceded to purchase bitcoin with that. So in essence, that’s an unsecured debt. It’s not marked to market. If bitcoin is trading less than what it is right now in six years, then that’s the risk. We will have lost some money. But if bitcoin is trading more than it is right now in six years, then we will have made money. It’s not really dilutive to our existing shareholders until the price of the stock gets past 14.000 dollars a share. And then it’s maybe five percent of the upside past, the strike price. So that’s the way to think of that. From a strategic point of view, if I look at the numbers today, bitcoin is up 429 percent over the last twelve months and it’s up on a compound annual growth rate of a 196 percent on average for the last ten years. So if you’re a finance theorist, what you would say is, we just borrowed money at zero percent interest to invest it in something that we expect to be at 196 percent interest. And maybe you’re not so bullish for the next decade, so if you want to be conservative, you could say, perhaps we will do 1/10 of that. We borrowed money at zero percent interest to invest it at 20 percent. But pretty much any number more than zero is a good number. Because the interest rate is so low. So that’s what we did with that bond issuance. And it’s an opportunity that a publicly trader company has. Bitcoin is a monetary network and it is the best performing asset class in the past decade. Maybe the best performing asset class in the history of the world. What do you need to grow a monetary network? You need money. Okay, where is the money. The money is sitting in the public stock market. It either is equity or equity derivatives or secured debt or unsecured debt. So what we are doing at essence is, we are securitising bitcoin. There is one way to buy bitcoin, which is to buy bitcoin straight. Well that’s a challenge to some people, certain investors don’t have the relationship with the bitcoin exchange. Or they don’t have the ability to custody that bitcoin and that is a dilemma for them. Or it’s not in their charter, or their limited partners don’t understand it. It can be a challenge to buy the underlying asset class. But there are plenty of pools of capitalin the world. There are hundreds of billions, if not trillions, of dollars of equity investment funds and they can buy publicly traded equities. There are other funds who have a strategy of trading publicly traded equity options. They can buy the options, on a Nasdaq or a new york listed stock but they can’t buy the underlying stock or they can’t buy the underlying asset like bitcoin. There are other funds that engage in convertible arbitrage. They can buy a convertible bond as long as they can arbitrage it against the underlying equity. So they can buy a bitcoin bond, but they can’t buy a company that owns bitcoin without the bond. But if they buy the bitcoin bond, they can buy the stock of the company that owns bitcoin, because now it fits into their strategy, they raise billions of dollarsto executethat strategy, that’s what they’re good at. They have binomial hedging models, that allow them to execute their strategy and they have been doing it. And if you give them the security, then they can invest in it. There are other bond funds, that are invested long. They can’t buy, for example, a public company with upside and downside risk. But they can buy the bonds, the convertible bonds of that publicly traded company. Because the downside risk is mitigated and they have an option on the upside risk. So these are all just pools of capital. There are people that have money in retirement accounts and they are allowed to invest or direct that money to be invested in publicly traded equities, but they can’t direct the money to be invested in bitcoin. So you see if you actually believe in bitcoin and you want that exposure, you need to find the right form of security. Maybe buy the underlying asset, maybe buy options on the asset, like bitcoin futures. But that’s not a very well-developed market. You can’t buy a five year option on a bitcoin future right now, for example. But you could buy a micro strategy six year bond, that’s a six year option on bitcoin future, with downside protection. So these are all just different securities that give you the ability to invest in the bitcoin monetary network. And if you believed that the future consists of a digital transformation of money and a digital transformation of balance sheets and  if you believe in a digital monetary network, you might very well be a fonds manager that can actually buy 25 million dollars worth of a bitcoin bond. But it would take you five years to convince your company to let you invest 25 million dollars in bitcoin. In fact, you could never ever. So there are people who can do certain things in certain ways, and what we have done as a company, we have just, in essence, given them different types of securities that they can use to invest in bitcoin. Which is to their benefit and to the benefit of the people who hold underlying native bitcoin. And to the benefit of everyone that participates in the eco-system. That’s what the bond issuance was doing.

JH: That’s super exciting. I would love to take on there. What’s the execution then afterwards. You get this billion dollars plus minus, how do you actually get the bitcoins?

MS: We have relationships with institutional grade custodies and institutional grade bitcoin exchanges and so we work over certain time schedule to require the bitcoin. Generally we do it with time related average price algorithms. So we pick a certain time period and we will place millions of orders. I think we executed 90.000 orders over about five days.

JH: So it takes you five days to get the billion dollars in?

MS: Yeah, it takes a while.

JH: I would have expected it to take longer. I think five days is actually quite liquid. I thought it’s going to take you forever.

MS: You can do it slower, it all depends on your timeframe and your strategy. You could buy it in a day, but the people would notice. And you could take a month, but you would be taking the risk of being short for the month. You know, there is no right answer to that. You just pick the timeframe that you want to move in.

JH: I don’t know how much you can share, but how do you store the bitcoins afterwards? You must have a very sophisticated system to store all of that?

MS: There is a dozen of institutional grade custodians of bitcoin. You know coinbase stores 90 billion dollars worth of assets, fidelity stores billions of dollars of assets, and IDX stores billions of dollars with of assets, genesis stores billions of dollars of assets. They all use different strategies generally, calls, storage, multi-sig. If you’re an institution, then you’re going to do it with an institutional grade custodian. BitGo another example, I think they have 30 billion dollars worth of assets under management.

JH: We are using BitGo, my company, they are doing quite a good job. How was the feedback from all the CEOs and the companies that participated on February 4th? The conference that you guys held for institutional treasury, ideas. What was the feedback? Also, what surprised you positively from the entire event, if you can reflect on it?

MS: Our goal was to provide corporations with our playbook. What are the accounting issues, what are the legal issues, what are the regulatory issues, what are the execution issues, what are the corporate government issues, what are the strategies that you can pursue to create shareholder value and what are the macroeconomic drivers. I probably had fifty meetings in the past three months, and sometimes there were up to 16 different companies at a time on a meeting, so I talked to a lot of companies. And that’s good. I don’t mind talking to 16 companies at a time, but I thought, life is too short. I can’t afford to keep doing them one at a time. If I have a meeting every hour, for 40 hours, for 2000 hours a year, for 30 years. I still am not going to get everybody. So we had this idea to do this summit and we are going to basically curate ten of the most notable bitcoin vendors in the space. And we are going to curate all the content from our accountants and our lawyers and our executives. And I am going to provide everybody with kind of like this crash course in bitcoin for cooperations, that I wish I had. So that we can save like two months. If you are running a company and you are the CEO or the CFO or treasurer, you’ve got to convince your board of directors and your lawyer and your accountants and your officers. Then you got to go through due diligence and you got to talk to different vendors and figure out what to do. And then you have to draft all your documents, and the documents get drafted a thousand dollars an hour. And they take like 80 hours and maybe someone doesn’t want to spend all the money on that. So we put that entire package together. We uploaded it to our website, and I figured maybe we get two thousand people. And we ended up on the day of the event, we had so much demand, it broke the event streaming platform for an hours. Because we had like 25.000 people show up and we sized it for like 15.000. So it took us like an hour to get more capacity and meanwhile, some enterprising bit-coiners got online, and they started streaming it on YouTube and we had thousands of people watching the YouTube stream, because I think they were locked up at like 15.000 users or something. So the short of it is, we ended up with about 10.000 people crowding into the session that day. And from 8.000 different companies, and then it went viral on the bootleg copies were on YouTube. And it went on 250.000 in the next three or four days. And I think 750.000 people watched it in the last few weeks. And I just think on our own website, we had like 50 to 60 thousand views on our own hosted version. But the YouTube versions got copied multiple times and each of them grad around 100.000 views. All of the key institutional provider in the space. I talked to them, and they said, all of their inquiries jumped dramatically afterwards. So I think that was really good. I mean it definitely accelerated things. A few days later on February 8th Tesla announced that they had bought 1.5 billion worth of bitcoin. And that was an inflection point , I think that bitcoin for cooperations became a mainstream media event. It was derisked. I saw an explosion in media coverage across the new york times, the front page of the wall street journal, in Asia, Pacific, Australia, Ireland, Europe. It hit the front page of the Financial Times and hit Forbes, Fortune and Bloomberg and before that people used to be saying that’s this odd thing. But no ones going to do this. And now, while you had an access, you had Marathon invest 150 million in bitcoin, around 31.000 of coins. So they made a hundred million dollars on their investment, and that became big news. And Tesla did it. And then we announced additional buys and Square announced they bought another 170 million for their balance sheet. That was more than triple what their previous buy had been and Hut 8 announced that they are hodl-ing bitcoin. Large amounts. I think you start to see that we went from one company to now around ten publicly trading companies. And so we are breaking through. It’s still a small thing, but now you have people like Gardner Group doing surveys. And Gardeners said, well, only five percent of the companies want to do this, but maybe 15 percent are going to be looking at it the next year. And I am thinking, five percent of 4.000 public trading companies is a massive amount. It’s kind of breaking into the consciousness. And people have to address it now. They are asking Bill Gates what he thinks, they are asking the CEO of Uber, and the CEO of General Motors, are you going to buy bitcoin.

JH: Uber doesn’t have any money.

MS: They are not asking if they are going to buy gold. They are not asking if they are going to buy silver, they are not going to ask if they buy anything else. Are you buying the S&P Index. At this point bitcoin for cooperation and cooperate treasures has become part of the conversation. And I think people are increasingly realising, across through the mainstream media and across the investment community, that traditional treasury strategies are broken. They are intellectually bankrupted, they’re not really justifiable anymore. You can’t, with a straight face, invest corporate treasury funds in debt yielding one percent. The short term Libor rate is still like zero. You can’t invest billion of dollars at zero percent interest, while the cost of capital is twenty-five percent. And the cost of capital, the best surrogate for it, if you want to check something, let me see if I can find this, would be the S&P 500 Index, which is 26.37 percent. That’s the cost of capital. That numbers was used to be 8, for a decade. So if you could invest money at four or five percent, against a eight or nine percent cost of capital your negative yield is three percent. But then those interest rates went to one or two percents and now your negative real yield is minus six. Minus six means that you are going to lose half of your corporate treasury purchasing power in twelve years. Minus two means you are going to lose half of it in 30 years. So at minus two, you can just hang out in treasuries. At minus six you couldn’t, so people started taking on debt and leveraging up. But at minus 25 percent, you’re boiling everybody, you’re going to lose half of your shareholder value in three years. So everybody is getting uncomfortable, like I have a real problem now. And if you are a big tech high growth, maybe you can afford to burn billions and billions of shareholder value. Maybe. But it’s still uncomfortable and embarrassing to burn that much. And if you are a thoughtful thinker and if you have a little bit of courage and a little bit of clarity, like, say, Elon Musk. You realise, this is bullshit. That’s what he said. This is bullshit, I am holding this cash and someone is basically devaluing it at 20 percent a year. And so you go out and start to do something about it, and that’s kind of your message. And Elon sent a message and it’s worth 500 million or a billion dollars, when bitcoin trades up, so you send a message and you make some money. And Jack Dorsey does the same thing at Square. On the other end, if you’re a value stock, if you’re a billion dollar company generating a hundred million a year in cashflow, and if you have 500 million in cash in the bank. Or a billion in cash. Now you have got different issues. It’s like ok now your billion in assets is devalued to zero, at 20 percent a year. And then your billion in cashflows over the next ten years are going to be worth ten percent or 20 percent. If you are a value stock, you’re getting cut by a factor of five or a factor of ten. It’s like the bankers have declared war on you. It’s currency war. Okay, what are you going to do? The dysfunctional thing to do, and by the way the conventional thing to do, if you don’t think hard is, I am just going to dividend the cash back to my shareholders. Think about this. I am going to give a billion dollars back to my shareholders so they can invest it in bitcoin, while I go bankrupt. Why are they going to invest in bitcoin? Because they’re are gonna go bankrupt, they are gonna lose all their wealth if they don’t. So if I give a billion dollars to my shareholders, so that the financial investors can rationally protect their interest and not see it go to zero and invest it in something that beats cost of capital. Well, that’s kind of like me committing economic suicide. If you want to commit economic suicide, you do that. If you really want to commit economic suicide, you borrow a billion dollars, you finance your forward cashflows, you borrow a billion dollars and then you buy the stock back. You gave back your billion in cashflows, that’s one billion closer in insolvency, then you borrow a billion, so you’re two billion closer to insolvency. It reminds me of the stories when all the doctors bled Georg Washington to death, to save his life. Ok, hey doc, I am sick, what are you going to do? We are going to bleed you to death, we are going to take all your blood, because, you know, blood is capital. So, if I give you all my capital and then I take on debt and I give you that capital, I literally bled myself to death. Running on a razor thin margin of equity. If you hate the company and if you have no value to society, if you don’t care about the products you produce, the employees you employ, the community that you support. If you don’t care about the country you pay taxes to. Then you do that, that is rendering you company to be insolvent. That is conventional treasury thinking. Borrow money, buy the stock back, dividend the capital back. And there are literally people that would suggest you do that. But I just think it’s the most foolish thing. If you think about it, if you hate the company and you want to destroy the jobs, and destroy the products and destroy the company and destroy the capital. Then you can do that. If you actually happen to think that the company matters and you want to create good products and good jobs  and support the community and support the country.

Then the answer is the opposite. You should take the capital, a billion dollars, you should buy bitcoin, you should forward finance the cashflows the next billion. And then you should buy bitcoin. And then you will have 2 billion dollars of bitcoin. And when bitcoin doubles, you’ll have 4 billion dollars. And then you will have a strong capital base and you can continue to create good products, and you can continue to pay your rent. Continue to make good on your counter-party obligations. Continue to pay your employees, continue to pay your taxes and continue as a going concern. That’s advice I would give to you and your family Julian, if you would have asked, what should I do. Should I give all my money up and work exponentially harder forever to earn a currency, growing exponentially weaker in hope that I’ll be able to put my children through school or buy a house in ten years. Even though the price of everything is going to go up at 10-20 percent a year. That’s one possibility. If you think you can generate a salary which goes up 25 percent a year, forever, then maybe you can get by. But it’s a lot of risk to assume. I wouldn’t tell you to do it. I would tell you to convert your capital into a non sovereign store of value, so that you can protect yourself and your family for the next decade or the next hundred years. If you were running a university, or if you’re in an endowment for any charitable cause. If you’re trying to protect a park, or protect a kindergarten, or support anything, anything honorable, ethical, valuable over time and you needed money, I would say, invest your endowment into a non sovereign store of value, like bitcoin. Now if you say, no Mike, I read in the newspaper I should give all my money back to the donors, so that they can invest into bitcoin, and I am just going to work hard and ask people to give me more money in five years. Even though the money is collapsing in value and they’re losing their jobs.

I would say, that’s pretty stupid too, right? If you’re an investor and you had a billion euros to invest and someone said, well Julian, why don’t you take the billion euros and give it back to the investors. And you should just go ahead and invest one euro and try to make that work. I would say, that’s pretty stupid strategy too. So I think investors know it’s stupid to give the capital back. I think that endowments and charities and non-profit foundations know it’s pretty foolish to give the capital back. I think that families know it’s pretty foolish to give up all your capital. I think countries know this too. I think countries know they can’t afford to have all their capital flee. And yet, there are still people, shareholder activists, or critics that think they should tell CEOs they ought to give all their capital back, borrow money and dividend it all back, if they can’t generate the cost of capital and their treasury. And they’re only allowed to buy bonds that have zero yield. It’s a moral hazard, telling the companies they can only buy zero yield bonds and the cost of capital being 25 percent, or else they should give the capital back, is literally like doctor telling you, they’re gonna bleed your child to death because they shouldn’t have blood flowing through their veins, because the blood is toxic. What makes the blood toxic is injecting that poison into their vein. What makes the capital toxic is the fact that the cost of capital is going to 15 percent, to 25 percent. The antidote to the toxic currency is to convert your currency into bitcoin, is to convert it into something which cannot be debased. I think the HODLers, the bitcoin supporters, they understand this. I think that private companies are doing this aggressively, I think thousand companies did this in the last 12 month. March was a catalytic event. March 2020 drove the cost of capital from eight percent to 24 percent. Not everybody perceived it. It kind of went from eight percent to sixteen percent. But over the next six month, it was cleared as 24 percent. So the cost of capital trippled, the yield on conventional risk-free investments went to zero. The heat got turned on and rational people started to act. Year one was march of 2020 to February 2021. February 8th was kind of the end of year one. And it’s like, the people that are going to move fast. Now we are kind of entering year two of institutional adoption of bitcoin. Bitcoin touches a trillion dollar market cap. It was less than 200 billion, just after this pandemic crisis, when I got involved. Where does it go from here? I just think it continues to steadily march up. There will be some day to day volatility, there always is. It will move forward, it will retrace. But it’s the solution to every corporations treasury problem. It’s the solution to every conventional company. If your company is not growing at 24 percent in a year or more the top line, and you don’t do this. You are doing to destroy shareholder value or bleed it at one to two percent a month. That’s kind of what’s happening, you’re just being beat to death if you can’t grow more than 24 percent a year. But even if you do grow more than 24 percent a year. If your growing 20 percent a year, all you’re doing is keeping up, with the rate of monetary expansion. If you want to win, you have to adopt a bitcoin strategy on your P&L and you have to build it into your products and your services. And you have to adopt a bitcoin strategy on your balance sheet. You have to sweep your Cashflows or forward finance your future cashflows via debt and then convert it into something which is not debasing at the rate of the US dollar. The problem is, every currency is correlated to the dollar. The only question is, are they weakening at the same rate as the dollar, are they weakening faster or slightly slower. But you have every current correlated and that means very stock is trading based upon on expectation of the discounted value of future cashflows. Every bond is trading based upon the discounted value of the coupons. And every piece of commercial real estate is trading based upon the discounted value of the rent. And all of the commercial real estate contracts have a CPI cap in them. In fact, most long-term contracts have a CPI cap in them.

So if CPI is capped at one or two percent, and it’s going to be, and if the monetary inflation rate is 20 percent and it’s going to be at least 15 percent. This year it’s 24 percent, but if it goes to 15 percent, what you’re looking at is a negative real yield and now you got a discount real estate contracts dividend yields and bond coupons, at 15 percent. So you grab your spread sheet and crank that in. And that’s the best case. Anybody holding portfolios that are substantial, commercial real estate, or bonds or equity. They tend to have a very optimistic view that we are just going to solve all the problems in the next six months. I don’t know what they are thinking, interest rates will return to normal? Well if they turn to normal your bonds crash. Interest rates don’t return to normal, we have to keep buying bonds which means flooding the market with currency. So they got some kind of view that we pull a rabbit out of the hat, and we are gonna start running surpluses and not deficit. And we are going to have normal interest rates and the economy is gonna start growing effectively and there will be no problem with all this. But I don’t know how that’s gonna happen. I think the really realistic view, you have to crank in some estimate of monetary inflation over the next four to eight years. The conclusion would be, all conventional assets, cash or cash derivatives, derivatives stocks, bonds, real estate, they all need to be heavily discounted than they are currently discounted. And as the market place becomes rational, there will be increased flow of money, out of that fiat universe of 400 trillion dollars of assets into the one trillion dollar universe of bitcoin. That’s going to drive the price of bitcoin up, that’s going to return price discovery to these other assets classes. The return of price discovery is a very polite euphemism for those prices are gonna fall. Those prices will fall so that the dividend yields increase, the coupon yields increase and the real estate yields increase, because they need to. And if they don’t increase, government has to print more money, and the additional money has to find its way into assets. And the most compelling asset is going to be something which is ultimately scarce. The most scarce most desirable asset in the world is bitcoin.

JH: Can you answer a question that a lot of crypto twitter obviously has, how did the entire interaction between you and Elon Musk happen? What people saw was, Elon trolling on dodge coin, him tweeting on, is it even possible to buy that much money in bitcoin, you answering, sure it is, let me show you how, and then there are these rumours on February 4th, that he had people there from Tesla at your conference and then February 8th, Tesla announcing buying bitcoin. Is there anything you can share from behind the scenes?

MS: I talked to a lot of officers and directors of publicly traded companies and a lot of people wanted to hear my thoughts on bitcoin and macroeconomics and as you can imagine, normal acceptable etiquette is public company officers can’t speak about conversations with other public company officers. If it’s on twitter, it’s on the record and you can see what has been said. But I mean all my conversations with any kind of public company officer would be off the record and I can’t share them.

JH: Fair enough, that’s more than fair. A lot of people are now expecting many other companies to follow suit. I mean, the ideas you’re sharing, they are so spot on. I would be surprised if not more public officers, decision makers understand that. What do you see as the timelines, from your experience. How long do you think, a company is gonna take to, where a decision maker goes and says, let me convince, legal, compliance the finance, and until this is finally executed. How do you see the timelines playing out? And I am talking more about the larger companies right now. The public larger companies.

MS: I think that the institutional investors, especially the fast money institutional investors, what happens is, those managing directors and partners, they move first with their own money. So you have high net-worth individuals that move first, because they have to convince themselves. Then you have private companies. A guy owns a billion dollar private company, first he invests his own money. He’ll go and he’ll buy millions of dollars of bitcoin, to get familiar. Then he or she will talk to two or three people in their private company. And they will go and they will buy bitcoin, and they won’t announce it, they will just do it for the company. And when you have institutional investors, it’s the same dynamic. The managing partners will buy on their own account, then they will socialise it with their team, then often times what they do is, they say, I am going to buy one or two percent. Because they don’t have to get permission from their limited partners to buy one or two percents, they can just do it. So you’ll hear about, we’ll have a small allocation. I have ten million dollars of capital and we’ll have one or two percent allocation. And then they will play with it, and they will let that go for about a year. And then they will go, and start to communicate to their limited partners. We did it and it worked really well, and the limited partners go, okay, since it’s working well, the pension funds and the endowments. The big ivy league endowments, the big pension funds, they’ll be like, okay, we will crawl in and we will put some of our money in and they’ll start to bless a more aggressiv move by the institutions. Then you will hear about the 800 million dollar buys, they get more aggressiv. Now, public companies, they have the most hoax to jump trough. Because a public company, you have the CEO has to get the officers on board. The general council, the CFO, the finance team, they have to get comfortable so they have to get educated. Then the board of directors has to become comfortable. So you’ll see companies that are generally run by technology executives. Jack Dorsey, Elon Musk, Michael Saylor, a company that’s a technology forward company, they will move first, because normally they have the best communication channels with the board of directors. Also those companies understand, you have to turn on a dime if you want to keep up with trends. If you don’t actually take an aggressive stance, you’ll miss the wave. So you’ll see them and normally a public company, massively fast would be three month. Fast is six month. Square, Tesla, Microstrategy, Marathon, Hut 8, some of those companies they could be massively fast, they are the leaders. Six month is more conventionally. I think you’ll start to see more coming in the three to six month timeframe, after February 8th. And then the leaders, 12 to 24 months. And then, when you get to the bigger conventional companies, 24 to 48 months, because they’ll have a board of directors with 20 people on it. They’ll have 40 people that have to get involved, and they’ll meet once every three month and they’ll have hundreds of billions of dollars and they are more like aircraft carriers. Like, I have a hundred billion dollar entity and this is a very exciting idea, can you talk to our executives, we have a slot for you in two months from now. And if we like that, we’ll study it for three months and then in six month we’ll bring it up. And next year it will be an agenda item. So I think that they’ll move a bit slower. But I think that’s good, because there is a phrase in bitcoin. Everybody gets bitcoin at the price they deserve.

JH: I never heard that one before, but I love it.

MS: If you looked at it and made a decision, you could have bough it at 10.000. You knew as much then, as you knew at 20.000. And when we got to 20.000, the people weren’t convinced, they were afraid, it’s an all time high, I am afraid. Some people bought it at 20.000, some people waited till it was 30.000 and decided it was okay. And then there are people who bought it at 30.000 and some bought it at 50.000. It’s gonna keep going up and you’re gonna have hundred billion dollar entities buying it at 250.000. And they’ll be buying it at 500.000, and they’ll be buying it at a million. And the good news is, if you’re the individual and you can do the work and do the thinking for yourself. And engage in that exercise, then you got a one, two, three year advance on everybody else. I think for five years, you’re gonna see progressive adoption institutionally. We’ll see ten, twenty public companies in the next 12 months. Then it will double and it will double, and it will just go like that. Just like we just crossed a hundred million bitcoin holders and I think, we’ll probably go to 200 million, by the end of this year. And then we’ll go to 400 million, and then we go to 800 million. I think we will break a billion holders in five years. And when it’s a billion, it will still be kind of a new thing, but people start to understand then. That’s what keeps the price moving on a steady curve. You’ll have an opportunity to get an investment edge. Once a billion people have it, once a thousand big companies are invested, seriously, then it will start to mature and then it will yield like the long-term money yield rate. It will go from 200 percent a year to 150, to 100, to 75, to 50, to 30, to 20, to 10, and then it will be clipping along. It’s like the money index. Always positive, not negative. If you take a 40 year time horizon, and you’re looking on a 200 moving week average. If you’re looking at it as a 200 moving week average, think of it as a monetary battery, it’s just spinning up with monetary energy, it’s charging. And if you’re fixing yourself on it, you’re get yourself worked up. But if you step back and you just keep your eyes on the 200 week moving average and your 40 year time horizon, then it will be a relaxing process. You don’t need to worry about all these other things, that are coming and going all the time, which can cause people anxiety.

JH: I want to ask you two last questions, because I want to be respectful with your time. How is this gonna play out for governments? On the one hand, we have those stories, the media loves to spin that, all these public companies buying bitcoin, the governments gonna step in, there will be heavily regulations, they’re gonna be additional taxes, they gonna punish those companies. And then on the counter side, it says, no, the governments are actually gonna get in, in the entire game, and they gonna start holding it themselves. How do you see this playing out?

MS: I think the forward thinking, progressive governments, are gonna embrace it and they’re gonna benefit from it. And I think backward looking governments are going to fear it and they are gonna suffer from the lack of it. Bitcoin is pure monetary energy on the first digital monetary network. It’s like electricity. If I said to you, everybody, every company, in the US wants to plug into electricity. You can probably find someone, that is afraid of electricity. Saying this is burning all of our buildings down, and this is bad for us, because it causes fires. And you might even find a country that will ban electricity. China banned google, they banned twitter, they banned Facebook. Okay, great. Do you think they are better off for not having google? You lose google maps. I don’t think they are better off. So there will be governments that will be forward thinking, and others will be backward thinking. I think the politicians in the western world will realise, and they do realise, that bitcoin is fundamentalto the 21st century finance system. A block of bitcoin is like a block of light, that has dematerialised monetary energy in it. We found a way, to dematerialise money and move it at the speed of light and make it a million, if not a billion, times more intelligent. So what does this remind you of? What if I told you, I could put a thousand horses into clean electricity and I could shoot it to you, over a small little wire and you could use it, to run a motor, to lift a million pounds. Have you ever ride an elevator up to the 100th floor? Imagine putting a thousand horses in the basement of a skyscraper to run an elevator. Electricity is fundamental for civilisation. We use it in our refrigerators, to keep our food from spoiling. We use it in our air conditioners, in order to make life liveable, in the tropics, in Florida. All of Florida is uninhabitable as a state, without air conditioning. Life expectancy is 20 years less, without refrigeration. We use it to move hygienic water, we’d all be dead without it. We use it to make New York City habitable. Take away the electricity, from the city. How do you get up and down 57 floors? Before electricity every building in the world was limited to five floors. Five is the most floors you can actually have, without an elevator. But if you actually want to have a modern civilisation, you need to channel energy. And everybody understands electricity. Most people don’t understand, that bitcoin is monetary electricity. It’s monetary energy and I can move the equivalent of a billion horsepower around the earth. Maybe at the speed of light. Once I plug the layer two solutions into the underlying layer one blockchain. If you listen to the discussion of the regulators, I think they are very smart, they understand it, I think that our sector of treasury understands it. I actually think that all the regulators coming in under Biden ministration understand that, if you want the United States to dominate the financial technology market in the 21st century, you have to have bitcoin. If you want to dominate any industry, turn off the internet and turn off electricity and tell me what your strategy is to avoid sliding back to the stone-ages. It’s not gonna work. We are not gonna abandon satellites, we are not gonna abandon air. Space and aerospace technology. We are not gonna abandon crypto technology and we are not gonna abandon bitcoin, because it really is the trillion dollar dominant digital monetary network. It’s going to be a big benefit to any country that embraces it, and it’s going to be a detrimental liability  to any country that blocks it. They are just going to fall further behind in the race to dominate the 21st century civilisation.

JH: Very interesting. Lets see which country picks it up first. I love that idea. Last question. If a time traveller came in a years time and then a ten years time. One in 2022 and one in 2030, and would tell you about the bitcoin price. Which answers from the time traveller wouldn’t surprise you at all?

MS: I think it’s harder to predict what happens in the next 12 months, because you have near term volatility. I wouldn’t try to predict it in 12 months. I think in ten years, we are going to see billions of people with bitcoins on their mobile devices. You’re gonna see bitcoin has definitely flipped gold and gone beyond it. I wouldn’t be surprised to see bitcoin at a million dollar a coin in ten years. That would be double gold. It’s at least the double of gold. I expect over time it will rapidly approach the value of gold and then it will approach aggressively 100 trillion dollars, which is the value of store value debt, store value monetary indexes, cash balances held in treasuries, savings accounts and precious metals. I think that that’s a fairly straight forward future, because I think it’s the answer to every companies problem, every investors challenges and I don’t think there is anybody on earth that doesn’t want to own their own monetary energy. Who doesn’t want money? Money is monetary energy, it’s life. So ultimately, if you have a choice, would you like to have your life force under your control? So that you’re not gonna starve to death and you can protect your family and live for the rest of your life in comfort. Or would you like to have your money controlled by a bank, controlled by a politician, controlled by a government, maybe interfered by another government, and maybe it will have value and maybe it won’t. And maybe you can access it and maybe you can’t. I don’t think there is any human being that really wants to give up all their monetary energy, all that they have, to a person, behind a person behind a person, that may or may not give it back to them. So I think that the future is clear. The future is a world of billions of people with bitcoin under their control. Controlled by their minds or by their mobile devices. And all that monetary energy moving at the speed of light and over intelligence monetary networks cross boarders, cross counter-parties. So that the world functions more efficiently.

JH: Wonderful. Michael, I truly believe that 2020, you had such a big impact for the entire ecosystem, long-term, I think a lot of people still underestimate the impact you had. It’s exponential, because I thought you were the catalyst, you really bring all these companies in and that was so essential for the ecosystem. So from the entire German crypto community and that’s by far the largest channel we have here, I want to say thank you. You’re doing everyone a huge service, I really appreciate that.

MS: Well, thank you Julian, you’re too kind. What I’ve said to people before is, I wouldn’t have gotten involved with bitcoin, if, when I looked at it, it wasn’t clear to me, that it was going to be successful without me and the world needed it. As Victor Hugo says, no force on earth can stop an idea who’s time has come. And this is the hope for all of the people on earth. It’s a critical idea, the invention of a digital monetary network for the first time in 5.000 years, it’s probably the most significant thing that’s happened in our lifetime and I am just grateful to be able to be part of that. So thank you.

JH: Thank you, Michael, I appreciate it.


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