## Protection from Fiat Inflation

Listen to Michael Saylor, the CEO of MicroStrategy, explain his thought process around protecting his company assets from fiat inflation with Bitcoin in this podcast episode. Listen from ~4:55 to 20:04 or read the transcript from "And I didn't pay much attention to macroeconomics until 2020..." until "...where I was conditioned to believe that you could you could get a decent return without becoming an investment analyst, or a speculator". What are some of the traditional investments that Michael mentions in this segment? Are they still suitable? What kind of returns did they offer in the past, and what kind of returns do they offer now?

STEPHAN LIVERA PODCAST: SLP213 MICHAEL SAYLOR – BITCOIN DEMATERIALIZES MONEY

September 21, 2020

Why did MicroStrategy buy $425 million of Bitcoin and adopt it as Primary Treasury Reserve Asset? How did the team learn about Bitcoin? What is driving people to learn about Bitcoin in this high inflation environment? Michael Saylor, CEO of MicroStrategy joins me to discuss. Podcast Transcript: Stephan Livera: Michael, welcome to the show. Michael Saylor: Thanks for having me. Stephan Livera: Michael, you've been really setting the Bitcoin world alight with the things you've been recently doing. And certainly I found it fascinating reading some of your commentary. I'd love to hear a little bit about yourself and how you got into the position you're in now. Michael Saylor: Well, I started the company when I was 24. We became public in 1998. The company had been founded in '89. So in about our eighth year, I've been the CEO of the company since '89, but public company CEO since '98 over the course of the last decade, we've run the company fairly conservatively. So we accumulated a bunch of cash at one point up to 700 million in cash. Normally we kept it in the treasury and nearly all of my focus corporately was on the P and L and on developing software. And I developed a lot of technology businesses under the banner of MicroStrategy. I created a business called angel.com, which was like Siri, like interactive voice response, or like Alexa, about 20 years ago in like 1999, I created a business called alarm.com and that I spun off and that's a multibillion dollar company. Michael Saylor: It's like home automation systems plugged into the internet, kind of like everybody does now Google home, Apple home, et cetera. But I started that in 2000. I launched a variety of versions of our core software, which is business intelligence software. And by probably 2010, we really focused upon business intelligence, mobile intelligence, cloud intelligence alike. And I didn't pay much attention to macroeconomics until 2020. And in 2020, once the pandemic crisis took place we transitioned into what I call the virtual wave, where there was a massive dematerialization of products and services, and the way that we operated as a business, that kind of happened in a matter of 12 weeks and that occupied our time. And then as we were working through that, we just saw a massive change in the nature of assets and asset values. And I saw an explosion in asset values that decoupled with the mainstream economy. And I found that to be so jarring that gave me anxiety about the 500 plus million dollars we had in our treasury. And it jolted me to action. And so that is the setup for how I became interested in Bitcoin. Stephan Livera: You really had this very successful technology entrepreneur background, and then I take it. You became more interested in the economic aspect of it. And that was also part of your learning journey here, correct? Michael Saylor: Yeah. I mean you know as a private investor for a decade, I had been a technology investor. So in the year 2012, I published a book called the mobile wave and the mobile wave was all about what happens when software leaps from your computer to your mobile phone. And when all of the things we've lived with, these products and services dematerialize the software. So I wrote about the impact of mobile money on a mobile phone, mobile photography, mobile music, music as software, or what happens if identity becomes software, what happens if medicine, merges with software, and education becomes software. So I was always very interested in technology, but my view toward it was, well, you go buy Apple, you go buy Amazon, you go buy Facebook. You go, you buy Google, you buy a hundred billion dollar plus digital network. Michael Saylor: That's dematerializing some product or service or some essence of society buy it when it's 10 times bigger than the next biggest competitor. Wait for it to become 10 times bigger than that, while all the conventional thinkers tell you why it won't work. And of course that's been a winning formula as an investor for the past decade. It's kind of like shooting fish in the barrel. You know, everybody tells you Amazon won't work, they don't make any money. Then they don't understand Google. They don't understand Apple. They tell you Apple won't work. They tell you, you know, HP, IBM, other big enterprise software, enterprise hardware companies are safer bets. And so I kind of understood the idea of a dominant digital network in that context, of course, I was kind of oblivious to the thought that maybe a cryptocurrency like Bitcoin would become a dominant digital network dematerializing money. Michael Saylor: And that's just because I didn't really need to solve the problem. I was kind of what was the word kind of complacent because I kinda bought the public party line, which is inflation has maybe running 2% or less than 2%. And I thought it would be okay to get a 2% or 3% yield or a 5% yield on the money back before the great financial crisis we were getting about five and a half percent in overnight money, you know, so 550 basis points on cash reserves, no risk. And then of course the interest rates just started getting bent and they got driven down, but you know, hope springs eternal. I always thought, well, they got driven down. They've got to go back up and eventually we'll get good interest on our money. Michael Saylor: And I didn't really think much about the expansion of the monetary supply. If I been more macro economically sensitive, I would have realized that the money supply was expanding. Saifedean would say at 7% a year in a good year and normal years, but it didn't click because I was a technology investor, not a macro investor. So along comes March of 2020, and then we just, we see this jolt. And then as I watch bond prices go up when they should be going down. And when I watch equity prices going up, when they should be going down and I saw, and then I realized just how powerful the Fed and the liquidity of the Fed was on determining asset prices. Many of my conventional beliefs were shattered. And that jolted me to an action where I realized, now, I didn't have$500 million that was going to yield 5% interest one day.

Michael Saylor:

I had $500 million that was going to have a nominal yield of zero for ever for a long time, five years. And I would discovered real yield and I realized real yield is not nominal yield minus 2% real yield is nominal yield times 20%, right? And this is the big epiphany, right? The thing that just is horrifying for me is you start thinking about this idea that I could have bought a bond in the year 2010, that would have paid me 5% interest, and I could get$50,000 a year off of a $1 million bond. And in the year 2020 a bond that pays$50,000 a year interest would cost you $10 million. And so you had a thousand percent inflation over 10 years. And if you do the discounting back, it like works out to like 22% per year inflation every year for 10 years on a government asset on a simple, plain vanilla bond. Michael Saylor: Like you start thinking about it and you think what an idiot I am. I could have actually gotten a 22% yield every year for 10 years, you know, buying a long bond, which struck me, you know as a tech investor is the most awful investment decision ever. Right? So I ended up in this bizarre situation and I developed a more nuanced appreciation of inflation like that you know, there's an old saying in propaganda, you know, all of our focus groups, all of our studies that they've shown us, that we can't tell people what to think, but we can tell them what to think about. And so when the media talks about inflation, they talk about CPI and everybody nods, and they all worry about CPI coming. But in fact, CPI is an arbitrary measure where you cherry pick a market basket of things that are not going to go up in cost, if you like, and then you call that CPI. Michael Saylor: And so if you actually, if you actually create an array of all the products, services, and assets in the world that you might purchase with the cash flow that you generate from working, then I think that there's also, there's almost like there's four standard buckets and one special bucket. The first bucket is deflating products like a video and music and maps and information and generic drugs and commodities, anything manufactured news and books, and anything that could be dematerialized during the mobile wave that's on your iPhone, you know is deflating or, or anything dematerialized to an iPad or a computer and anything manufactured by a robot or in a big factory or anything with a low variable cost and a high fixed cost, computer chips, what have you, they get stamped out and massive amounts, and they're all deflating. There's no inflation there. Michael Saylor: And then the next category is flat to 2% and that's like secondary property, property in the secondary markets are manual labor, unskilled, branded consumables. They kind of hold their value, take up a little bit, 1, 2% a year government services, regulated services. And I might not be perfect here, but it's a rough bucket of ideas. And then, you know, then the third bucket is what nobody talks about a bucket where prices are going up like 6 to 8% a year. And that's like luxury products, scarce products, elite education, elite medicine, elite services, like an Ivy league education or good medical care. And I know this cause I went to MIT. It was costing$9,600 a year when I went there 30 years ago. And it costs $60,000 a year now. And so you kind of do the math 30 years going up by a factor of five or six, and it's not 2%. Michael Saylor: And so that's your 7% monetary supply expansion, I suppose. And then I get to this last horrifically painful category where inflation is going up between 8 and 24% a year. And that's equities debt, prime, luxury property, and scarce art. So the S & P 500. I mean, if we look at the S & P index from 1000 to 3,500, over 10 years, that's that gets you a decent clip. And then if you look at that 10 year treasury bill that I talked about, so 22% rate for 10 years, and if you look at penthouse apartment in New York or house in the Hamptons, or an acre of beach front property in South Florida, anything water, I joke LA New York, Miami, San Francisco, London. You know, if you wanted to get a house in the middle of the country that nobody wants to live in, that is not going up 8% a year, but if you're in the magic mile of London or downtown in Central Park or wherever it is, then that stuff's going through the roof. Michael Saylor: And so those are the scarce assets. And of course, I've got one last category, which is, which is inflating faster than 25%. You want to guess what that is, Stephan Livera: Bitcoin. Michael Saylor: Bitcoin. I put that in for you. That's because I felt okay. I'm not pandering, but like, I, you know, I'm wishing I discovered I got beat up for a stupid tweet in 2013 where I thought Bitcoin was going away. And I'm wishing that I thought differently in 2013 because it did. And then you gotta ask the question. So why is it that thing is going up so fast? And maybe one answer is it is the scarcest of all the assets imaginable that I listed. So that's my, all of a sudden, that's my inflation view. Inflation is a vector, inflation is not a scalar. So what we have is a, world where the conventional economists and the politicians refer to inflation based on a CPI basket. Michael Saylor: And they're simply picking things that are deflating or things that are being manufactured by robots and AIs. And nobody's, you know, nobody's putting a Harvard degree, a scarce asset or Picasso, or they're not even what does everybody in the world want? They want to like work hard, make enough money to not have to work again so they can do what they want with their life. Call it a comfortable retirement at an early age. So if it used to cost$2 million to get a bond that yielded a hundred thousand dollars a year, risk-free forever, now it cost 20 million. So, you know, I joke, right? It's kinda like Jedi mind tricking the people because you're kind of saying, well, this is not an asset you would want to buy. Don't worry about this. This doesn't matter because this is not for you. This is for what, rich wall street bankers and bond traders? Stephan Livera: Yeah. And it essentially turns people into having to become some form of a professional investor, or they're having to pay a lot of money to somebody who is a professional investor rather than being able to save, which is the traditional way. So I suppose that was part of your journey as well. Michael Saylor: Yeah. It's very disillusioning because I look, I remember I grew up in an era where life was kind of simple. Like I remember Paul Volcker, I graduated from high school. Paul Volcker was the head of the Fed. And at some point it seemed reasonable. You could actually put your money in a bank savings account and get 6% interest. And we didn't expect any inflation. Right? We had a world saying, we're going to stop inflation. You're going to get 6% risk free interest. You put 90% of your money in the savings account, the last 10% you put in your checking account, you got 0% interest. You wrote checks. And by the way, that's like put your savings in Bitcoin and then move 5% of your money into Fiat and write your checks with the fiat on PayPal or square cash or Apple pay or whatever you're gonna use and leave the rest and your Bitcoin savings account and let it accrete. Michael Saylor: So that, that was the world. And it was a reasonable expectation that a person could work very hard, save their money, put it in the bank. And the bank would give you interest. And somewhere along the line, the banks became broken and defective and they stopped doing their job of giving you risk-free yield. And so you end up with a situation where like my 82 year old father's going to be expected that he studies the stock market and picks the stocks that are going to go up like an investment analyst so that he doesn't lose his life savings like that. That's what our monetary policy has done to the rank and file. And it's been, people have been beaten into submission so much that they don't remember that there was a time when the risk-free interest rate on short term money was like 5%. Michael Saylor: And the risk free interest rate on long term money was 8%. And the risk premium were you to invest in an equity was plus 4% more. And you would expect 12% on the equity, 8% on the long bond, you know, and 5% on the short term savings account and no inflation that was the social contract. Obviously not for every year in the last a hundred years, but maybe I just kind of came of age in that Volcker age or where I was conditioned to believe that you could you could get a decent return without becoming an investment analyst, or a speculator. Stephan Livera: Right. And I think that is also a phenomenon of partly of the Fiat banking world that we've lived in. And it could also be argued that if we were to go back even to a more hard money time, your purchasing power of your Bitcoins, or let's say your gold in those days was rising by that, you know, a few percentage points every year. And that was quasi- where you're getting at that risk free return in a sense, but it's really just an increase in your purchasing power. So, Michael, I want to dive a little bit into how you educated yourself about the economics of Bitcoin. I mean, I presume you were reading Saifedean, you were reading Vijay, tell us a little bit about that journey. Michael Saylor: OK don't think this is sucking up, but I was listening to a lot of your podcasts. Stephan Livera: Haha, well thank you. Michael Saylor: And of course, if I look at them, I come across Saifedean. I come across you know, a lot of the luminaries in the crypto industry. So I went through a bunch of Pomp's podcasts and he introduced me to some, you know, I went through yours. I went through you know Peter McCormack's. And of course, if you listen to all of those, there are guest speakers. And as they come on, you know, the Breedloves of the world, the Dan Helds of the world you'll just go down that rabbit hole and check them out. I tend to think you can learn just about anything on YouTube. So if you go to YouTube and you Google Bitcoin, then you know, you're going to get the seminal speeches by Andreas. Michael Saylor: And so I watched a lot of speeches by Andreas. I read his first book, the internet of money. Obviously I read the Bitcoin Standard. I stumbled across Hard Money, the movie, very interesting. I read Parker Lewis's essays. Then I found you know, The Bullish Case for Bitcoin. And a lot of this I should give credit to my friend, Eric Weiss, who runs a crypto hedge fund. And Eric is a good friend of mine. And he'd been pitching me on Bitcoin since like 2018. And I was just oblivious to it living in my own world. I wasn't thinking about macro and I wasn't thinking about Bitcoin you know, all these other things going on, Apple computer and the like, and Amazon were so much more interesting from an investment point of view at that time. Michael Saylor: And Eric kept at me and first I thought well, you know, what everybody thinks. So, I mean, can't you just make some more crypto coins and someone will also mint a new one. And I didn't really think about it much then when we got like April of this year, and I just watched a V shape recovery on Wall Street and a non-recovery on main street, if not things getting worse on main street while things got better on Wall Street, and then things got best as they'd ever been on Wall Street. And I looked at the interest rates going to zero, and I looked at the prospect that we're not even thinking about thinking about fixing the interest rates. And that caused me to do a deep dive into the world of macroeconomics. Michael Saylor: And then as I started to do that, and I stumbled across all the Bitcoin advocates and Raoul Pal, and then I realized that I had been fairly oblivious to the impact of fed on interest rates and the impact of the interest rates on asset values. And that got me to my place. I would just, I would say at some interesting combination of YouTube and then all the public documentation available on Medium. And then just a few books that I bought, I would also say by the way, one thing was very instrumental was the Eric Voorhees, Peter Schiff debate on Bitcoin versus Fiat. It's kind of ironic in a way because now that I know Peter Schiff is like the Gold Bug, I think it's kind of hilarious that Peter Schiff would have got on stage to debate in favor of Fiat currency since ostensibly the number one argument to buy gold is that Fiat currency is defective, but I watched the debate. Michael Saylor: I got introduced to, you know, all of the Austrian economics ideas. I think it's like a very good succinct summary, fairly crisp, you know, and eventually what is it, Rothbard? What has the government done with your money? I think that popped up and I got driven a little bit into Austrian economics and a lot of this stuff I'd read. And you know, when I was in college and I generally agreed with all of that, right. I mean, doesn't take like a huge amount of education to get the idea that capitalism and fairness and market clearing mechanisms make sense. I think I had mentioned to somebody before that one of my favorite books is The Moon is a Harsh Mistress and the Moon is a harsh mistress, right is like the quintessential work by Robert Heinlein where he coins the phrase there ain't no such thing as a free lunch. So I probably read it when I was nine. So I've always been of that belief. I just didn't really pay attention to what was going on with our money until I was forced to. Stephan Livera: Yeah. So it's sort of like, it aligned very much with some of your earlier thinking. I'd love to also talk a little bit about how you did that education process within the company. What was that like? Michael Saylor: So I had a problem, which is I had this large corporate treasury, and I, you know, after the macroeconomic analysis, I came to the conclusion that it was it was debasing at the rate in excess of 10% a year, which meant that I had a50 million a year loss, and I couldn't reasonably expect to generate more than $50 million a year in cashflow. So in essence, if I did nothing, there was no point in doing anything right. Like I literally was running to stand still. And, and it could be much worse than that. You can make an argument that we have a 20, 25% or more debasement of the currency this year, if you were, if you wanted to trade your currency for those scarce assets that, you know, that popped after April. So once I knew I had that problem, then there's a checklist right? In a publicly traded company you need to get all the officers and the directors on board. So it's an education process. So I collected like a summary of the three, or probably the three best videos on YouTube. Maybe an Andreas video, the debate between Voorhees and Schiff. And then I think a Pomp video on an overview of Bitcoin, something like that. And I packaged them together and I opened up a group chat line to all the officers and the directors we had previously had board meetings once a quarter, and it was all fairly stately and conventional, and we couldn't have a board meeting face to face anymore because of COVID lockdown restrictions. And the like, so I just opened up an iMessage chat line with all of them. And I posted the three videos. And then I said Hey guys, I want you to watch all three of these, and then I'm going to call you. Michael Saylor: And then I waited and I set up a one on one meeting like a zoom meeting with each one of them, you know, after having made sure that they done their homework, then we had a one on one sessions and intense with the CFO, the general counsel, all the outside directors. I answered all their questions. I fielded that all their thoughts, they were all fairly well informed. And half of them had experience with crypto before I did. Right. So, you know the funny thing about Bitcoin is whenever you say, you're going to do something with it, like as a public company or whatever people go, Oh, aghast isn't that scary? And won't you know, will the investors be concerned about that? And they think it's some kind of horrifically strange thing, but in my experience, half the officers, I talked to knew more about it than I did, or they'd already been in it, half the directors had already been involved and then half my investors already own Bitcoin privately. Michael Saylor: And you know, in fact, my number one, detractor that, you know at one point some my investment relations people said, well, you know, you're doing this Bitcoin thing and there's this everybody's generally okay with it, but there's one investor that has concerns about you investing in Bitcoin. So be very careful when you talk to him. So I said, okay. So I talked to that investor and his real messages was well, why don't you just like, give us all the money back instead of buying some Bitcoin with it. And I explained, well, you know, we just can't give you all the money back. A corporate treasury is meant to assure the longevity of the company so that we can make good on all of our obligations to our counter parties over the next decade. And if I drain the corporate treasury of all liquid assets and we had a downturn, I couldn't make good on my promises to my customers, my employees, or my vendors. So, you know, of course everybody, if they thought about it, they would probably conclude, yeah, you need treasury. So then after I finished that, I started to go off on Bitcoin. And I explained to him why I thought Bitcoin was the most prudent thing we could do with our corporate treasury. And it cuts me off. And he goes, yeah, I already know about Bitcoin, I own it. Michael Saylor: So sometimes people are afraid of the unknown. And you see a lot of times that the people that you would be afraid to talk with about Bitcoin, actually, they might know more than you think. But anyway, coming back to my Education process with the board and the directors and the officers. So it's important to make sure everybody had the same information. And then after that, make sure that I understood all their thoughts and they all had really good thoughts about how, you know, how we ought to think about it. And then after that you know, we went down the rabbit hole a bit more with more writings, and there's an article by Lyn Alden she wrote, you know, where she was a skeptic on Bitcoin in 2017. And she became a bull on Bitcoin in 2020. Michael Saylor: And she laid out exactly why. And she talked about security and after being passed the hard fork and you know, and the changed Macroeconomic situation and the hardening of Bitcoin and the stabilizing of the community and the like, and I sent that to the board. And, so after we had that kind of critical mass of information, then we had an exercise to go through all the legal issues related to it. And the general council led that exercise to work through our outside counsel and crypto experts and think it through. And then we had an extra exercise to go through the finance and accounting issues and control issues related to it. And the CFO took responsibility for that, and then we had all the issues of how do we communicate and evolve this process and communicate respectfully to the outside investors. Michael Saylor: Because, you know, there's a simple rule in life, you're a public company no surprises. Yeah. And that's a kind of general rule in life to get along with anybody. Right. It's like people don't like surprises. So if you're going to do something and this would be my message to all the Bitcoiners out there in the world, too, if they were to ask. So what is someone that wants to invest$425 million in Bitcoin want? And the answer is no surprises. Don't surprise me with something beautiful and elegant and risky and complex that may or may not work that I was, that was unexpected, right. Move forward in life carefully and responsively.

Michael Saylor:

Because people's livelihood are in your hands. So Like the livelihood, if I invest in Bitcoin, the miners, the developers, the community has my livelihood in their hands. Well, I am a fiduciary responsible for the outside shareholders of MicroStrategy and they own MSTR stock. And I have to be concerned, not just with my officers and directors and my employees and my customers and the regulators. I have to be concerned with the investors. And there, of course, there's a lot of different investors. There's, you know, there's and they all have different timeframes. So I spent a lot of time with the management team and the board thinking about what's the process of due diligence we go through, what's the process, you know, what would you expect? Right. There's a simple golden rule, right? Do unto others, as you would have them do unto you. You know, if you were an investor in my company, what would you expect the management team to do when faced with a crisis?

Michael Saylor:

And the answer is do something, you know, if somebody invented a quantum computer and you heard about it, what would I expect the Bitcoin community to do? Do something like, ideally like once you get yourself, one of those quantum computers and plug it into a mining rig, and once you be mining some Bitcoin with it, right? Like that's what gets me about all these guys that talk about, well, what if this quantum computer? Well, the answer is when there's a new computer or a new software or a new something I'm expecting the community will take advantage of that to make the network more secure and more efficient for everybody involved. And that's a healthy response think about it, consider it, move forward, carefully and responsibly with respect to all constituencies. So the public company officer, we did the same thing, which is we think about a really hard, we do our research and you know, I didn't write, I didn't mention it right, but the first thing you gotta do is say, well, my treasury is debasing at 10 to 20% a year.

Michael Saylor:

The next thing you got to say is what are my treasury assets? And can I invest in equity? Can I invest in real estate? Can I invest in precious metals? Can I invest in crypto? And you can, we x'ed off most of those. And got down to gold and crypto, and then I did a deep dive on gold. And we could talk about that for quite a bit, but the summary of it is I concluded the crypto was at this point in time, somewhere between 10 and a 100 times, better than gold, but over time would be a thousand to a million times better than gold. And so it just didn't make any sense to invest in gold because gold is going to be eaten. And gold as a store value rationally, be eaten by Bitcoin. And even if it isn't eaten, it's already defective by 21st century standards.

Michael Saylor:

All you have to do is conclude that's Bitcoin is working. And as soon as Bitcoin has concluded to be working, then everything else starts to pale in comparison to it. And then it just became a question of how do we go about communicating it to the investors in a respectful way, how do we go about buying it and how do we go about handling it?

Stephan Livera:

Great. And I'd love to hear your thoughts on why Bitcoin and not any altcoins?

Michael Saylor:

So first you do a quick lock of Bitcoin and you conclude while, and you've got about a $200 billion market cap. And then you see Ethereum's out there about a$45 billion market cap. And then you see the tethers and the stablecoins the pop-up whatever, in the four or five, $10 billion range varying. And then you start to see Bitcoin cash like 4 billion, and then you see the other ones that fall off. Michael Saylor: And so I started thinking about it a bit and I guess what I would say Stephan is you know, it took me about 15 hours of research to determine that Bitcoin was the best money ever invented. 15 hours, from start to finish. It took me about 15 minutes to figure out that Ethereum was still in its developmental venture capital stage. Like Ethereum's like the unicorn of the crypto industry. They've done really great so far. I wish them well full of exciting possibilities. But you know, I've listened to Vitalik on your show, right? And even they would admit they have a lot of work to do to arrive at a finished product. You know the entire Ethereum 2.0 process or initiative is in essence, it's an admission that Ethereum 1.0, the first version is an unstable or incomplete architecture, and that being the case. Michael Saylor: It's interesting and fascinating. I think it's you know, obviously I think it's the number one crypto applications platform. If their vision is we want to create a crypto application platform so people can, you know, create any kind of decentralized application or DeFi application. Well, that's good. I get it. It would be inappropriate to use ether as a store of value for a corporate or an institutional treasury. You wouldn't put$500 million or a billion dollars into Ethereum. Yeah. And you know, and why, well, I mean, it's got an identity crisis. You can't have the founder saying that the current product in its current form is defective over the long term, right? Like I mean, it's that in and of itself, right, stops you. If I walked into a bank and I said, I've got business intelligence software, you can run your business on it.

Michael Saylor:

And they said, great, well, we're going to roll out this app. And then I said, but you know, this is only going to work for 12 months before it breaks down because of congestion and transaction fees. And there's some problems with it but don't worry. Cause I've got a plan between month 12 and month 36 to fix it. You wouldn't make a sale, like no sale. Like nobody is going to bet a billion dollars or $10 billion on a developing product, except a venture capitalists. Right. So that's a challenge. The other challenge is the value. There's no clear value proposition. You know what surprises me, Stephan which is like in my Twitter today. I said, you know, when I look at market dominance, I think Bitcoin is a crypto asset network. I mean, it purports to be a store of value. And most people that are into Bitcoin know that that's good enough digital Gold, we're going to store some value. Michael Saylor: They're fine with it. It doesn't have to be anything more than that. If we store a hundred trillion dollars worth of value in Bitcoin, we're just going to be fine. It's not a problem, right. I mean, it would go up by a factor of 10 to 2 trillion and by 10 to 20 trillion. So it's going to go up by a factor of 500, if all it does is store, a hundred trillion. I don't, who's complaining about that. Right. On the other hand, I feel like when I suggested that the Ethereum really is better classified as the largest and the primary crypto applications platform or crypto applications network. A lot of people kind of took offense to it. And I wasn't trying to, I wasn't trying to trigger them. I wasn't actually trying to be insulting. I was actually saying, I can see a place for a decentralized app platform. Michael Saylor: I got, you know, a dozen use cases for it. If I was on your board of directors and you were this, and if this was a company, I would say, it's not mature enough to go public because they're not willing to say what they stand for. They can't say, well, we're just working our way through, we just want to launch an experiment? See what happens. But right now we know we've got a problem. So we're going to try to fix it somehow. And in 24 months, we're going to roll out a new network. That's going to do what we think you're going to want to do then. And you know, but the problem of course is no big enterprise is going to trust anything until it's rock solid and stable probably for three years. So three years after you lock on to the architecture, you get someone to bet a billion dollars on it, you know, and you get a lot of people that will do venture capital and speculative investments before then. Michael Saylor: And we need that. And look, I'm a free market capitalist, but I think that the Ethereum, I don't, I'm not gonna speak for all of them. Cause I dunno, there's thousands of them. Some of them want to have their cake and eat it too. They'd like to be a store of value. They'd like to be a crypto asset. And they'd also like to be a crypto application and lock it. It doesn't take a rocket scientist and I am a rocket scientist, but it doesn't take a rocket scientist to figure out that when you make something, when you make software more complicated, there's more things to break and there's more attack surfaces. And you would think everybody in the Bitcoin community, they know that better than anybody, right? Because the Bitcoin miners use ASICs that's a very specific thing. You know, they're not using general purpose CPUs. Michael Saylor: They're not using GPUs. They're using a very special purpose chip that just does one thing. And if you used any other chip, you fail. And then they're using hardware wallets, which are specialized mobile devices that do one thing, you know? And if anybody said, well, I think I want to use the Amazon AWS general network. And I want to use S3 buckets and I want to use my iPhone or whatever. They would say too many attack surfaces, too much complexity. It's a Rube Goldberg device. Like it's fine for an experimental developmental prototype app. It's good. You're going to get stuff done fast. But you know, here, Stephan here is you know, a basic premise number one, number one, when I was at MIT and I was a freshman, you know, the first thing they taught us is simplicity, right? Michael Saylor: Complexity kills, right? Rube Goldberg device, do not build a Rube Goldberg device, too many moving parts. It's going to break that's. That's just the law KISS. Keep it simple, stupid, as simple as it can be. That's the first observation. And I think the second observation is, you know, crypto is like creating software life and releasing it into the cyberspace. It's not the same as creating a centralized application. You have to create a life form, code the DNA and you have to release it and let it go. Right and you can't keep tinkering with it. You can't call it back in its fifth year and change out the heart, add three more legs. And double or change the way the eyes work. You can't do that if you want it to be truly crypto or truly decentralized. You know, when you're the architect at the very beginning, you kinda got to figure out what the protocol is. Michael Saylor: And the protocol for doing decentralized applications is different than the protocol for doing store of value or the world's best money. And you can, I can posit a protocol for a special type of decentralized application, and that would be different too. Nature, right? Mother nature has given us millions and millions of creatures. Their DNA is differentiated and they're all good at whatever they do. You know, a spider, a fish, an Eagle, a person, but you release the thing and then you let it become the full, you know, the best version of itself. And you don't tinker with it. If you tinker with it, you're kind of starting again. So I mean, the real challenge with Ethereum right now is when they go to 2.0 you start the clock all over again, and you throw away all the Goodwill or much of the Goodwill. You generate it with the first version. And now anybody that's looking to put a billion dollars into it has got to wait for another three to five years to see if anything's going to break. But that's the Lindy effect, right? From Nicholas Taleb. Stephan Livera: For sure. Michael, I'd also like to ask about your thoughts around whether you see any kind of future regulatory risks, or if, you know, because it's funny, I think people talk about "Oh see, I think the government's going to ban Bitcoin". And so on. Did that come into your mind at all? Or do you, or are you not as concerned about that and you think it's actually going the other way? Michael Saylor: Well, you know, the reason that Nicholas Taleb's Lindy effect is so brilliant is because as he says, time is the ultimate, you know, stressor the ultimate volatility. So in the year, 2010, that was a big question in the year 2013, you know, I watched online gambling get banned, you know, I watched, you know, things get shut down and I actually tweeted, you know, maybe Bitcoin's days are numbered, it's going to go the way of online gambling and 2013, it might have been, might have not, you know, who knows? I didn't know. But then each year that went by, there's always this question, like, will, will the IRS give you a tax treatment? Like, for example, if the IRS said that you have to recognize your gains in Bitcoin mark to the market and at the end of each taxable year, that would have a negative effect on Bitcoin, for sure. Michael Saylor: Instead of buy the Bitcoin, wait for 22 years and defer the capital gain. So that IRS opinion came later, you know, the OCC opinions come later, you know, adoption by Fidelity the formation of the crypto custodians, right? The custodians and the exchanges got licensed by New York State, each one of those things right now, each one of those is another brick and the firmament of regulatory compliance and stability for Bitcoin, the Kraken crypto bank announcement this week, right? Each of these things is building up. So I would say if you'd asked me this question three years ago, I would have thought, who knows, right. It would be difficult for me, right? Take Lyn Alden right. She writes the paper in 2020. She says in 2017 I was a skeptic in 2020, I'm not. Well, I guess I'm the same way in 2017, maybe it was a venture capital investment on 2016. Michael Saylor: I think by the way, Stephan, I feel kind of guilty in a way, because I could have bought Bitcoin for$10,000 in 2017. And I would have taken a huge amount of risk, you know, a lot more risk than I'm taking today. I got to wait 36 months and see the result of the hard fork and see all the regulatory compliance coming into play and see all the bricks falling into place and all the risks disappearing. And then I thought to myself and I get to buy it at the same price. This is, I mean, ironically, and it really is ironic Stephan, because, you know, come May or June, every asset that you can buy as an institutional investor is shot through the roof. And it's a crowded trade. Big tech is a crowded trade, overpriced, long bonds are overpriced. Real estate is overpriced.

Michael Saylor:

All the equity indexes are overpriced. Gold arguably is even overpriced. Merrill Lynch is telling all their, you know, all their investors, you've got to put 25% of your money in the gold. Everything spiked up, it's all overpriced. It's all, you know, Gold's up 30, 40% or something everything's up plus 35%, except for one thing, Stephan, what's the one thing?

Stephan Livera:

That's right, Bitcoin.

Michael Saylor:

Bitcoin. I know you got, I mean, you, you got like a difficult black Thursday event and spiked down, but what was Bitcoin in January 1st of this year?

Stephan Livera:

Oh, maybe something around $10,000. I can't remember exactly. Michael Saylor: Yeah. And if I look at the last 24 months, right. I mean, Bitcoin looks like it's been trading a bit sideways, and I thought this is kind of a gift from God. Like I finally got, I got woken up to how good this thing is. And there are people out there selling it. And that's why I joke, you know, like I sit there and I buy this stuff and I think I sat for eight days straight. It took me eight days to accumulate$425 million worth of Bitcoin. And I watched it day and night and I watched the ticker scroll and I'm making trade after trade, after trade, after trade. And I'm obsessing in fear that someone that thinks like me will get into the market. Right.

Michael Saylor:

And I'm feeling very chronically short, right? Like I said to someone like, once you understand Bitcoin, you just have this horrifying feeling that you're short. Like I thought, well, I'm buying it at 10,000 or something, but what if someone finally wakes up and is going to go to 20 or 25,000, how do I go to my board and explain to them that I want to keep buying it when it's 15,000 or 17,000 or 20,000, right. It'd be a much more difficult conversation then. So eight days of this torture while I'm buying it bit by bit, you know, and I noted in my tweet, like I think we used 160,000 individual trades to get this done. Right. It's like, it's just obscene. And all the time, all I can think is who are these people that are selling this to me?

Michael Saylor:

Why would you ever sell this? And then I thought to myself, I hope that they're selling it to get married to the love of their life, or because they want to buy a jet or a yacht or that Lamborghini, or maybe they're selling it. And because it's like this life changing thing they need to pay for, but if they're selling it to buy another asset, they're trading something that looks like it's got you know, a positive, real yield, 20% higher than the next best thing and everything else I can figure out to buy looks to have a negative, real yield for the next decade. So I thought it was ironic, like, who are these people that would sell this to me? But I, you know, I'm not going to kiss a gift horse in the mouth.

Stephan Livera:

Right. And as you stated, I think it was in one of the press releases. It was stated, this is part of a deliberate corporate strategy to adopt a Bitcoin standard.

Michael Saylor:

Yeah. Like I look a lot at a people and the community people talk about speculation all the time or, you know or even they talk about, you know, Paul Tudor Jones says, Oh, I put 1% into Bitcoin. And I guess it's good that an investor puts 1% of the Bitcoin. But from my point of view, I just can't see how you could say that you understand Bitcoin and then at the same time say you've decided to speculate in it or that you're putting 1% of your wealth in it. Like I mean, the joke that I made is, you know, a guy thinks he understands Vegas, he goes to Vegas and he spends a million dollars gambling in a week. A billionaire that understands Vegas that really understands that Vegas is Howard Hughes. He goes to Vegas, he buys Vegas, all of it, all of it.

Michael Saylor:

He buys all the casinos, all the land, everything around it, which of the two guys understands Vegas? Which of the two guys is the better business person.

Stephan Livera:

Yeah. The billionaire.

Michael Saylor:

Look, what I would say to Paul Tudor Jones is if you really understand Bitcoin and you understand it's the scarcest digital asset, then you know that it's going to have a positive, real yield, 10 to 20% just based on Fiat printing. If you, if you actually dug into it to understand the technology characteristics that is smarter, faster and stronger than gold, you would realize that it's probably a 100x to a 1000x better than gold. And its value is going to accrete better than just the Fiat printing. It's going to be North of the Fiat currency printing. And once you realize that, and if you buy into the notion that, that the Fed is going to debase the currency 10% a year for the next decade, or at least for the next five years, then 99% of the stuff you're holding is debasing by 10% a year.

Michael Saylor:

And even if Bitcoin works plus 30%, you're not making any progress. Yeah. It's a hedge, but you know, why would you, why would you take 99% of your assets and invest it in something that's losing 10% a year for the next decade? If you really understood Bitcoin, what is there you could buy, that's going to be better, right? I mean, Stephan you kind of have to buy a high growth equity. That's growing faster than the rate of which the Fed is printing money, right?

Stephan Livera:

And there's not too many of those right.

Michael Saylor:

Name, but if you can buy a company trading at three times revenue, that's going to grow its cash flows at 20% a year for the next decade, then have at it. Right. Find me one of those, there ain't. I'm gonna leave you with a funny quote.

Michael Saylor:

You know, Snowflake comes public. I don't know. It's like 500 billion in revenue and is growing fast. And it's losing a lot of money, like 300 million a year or some large amount of money, but it's growing and it comes public at like what, 20 times revenue. And then on the IPO day, it's like, we're 30 billion. And then it jumps to 70 billion on like What $700 million revenue, like a hundred times revenue. I haven't even read all the details, but I'm like roughly and plus, or minus 30% in the right order of magnitude. But it's just an obscenely spiked, you know, like 100x revenue growth company. That's not making money. And they write about it in the Wall Street Journal, I guess, on the front page, because how do you not write about this? And the journalist writes, and by the way, this is delicious quote, the journalist writes well, you know, we know it's very, it's very over overvalued. I mean, it's a massive multiple and the markets would normally never tolerate this, but you have to understand that it's a company that's growing its revenues during the pandemic and investors are willing to pay up for a scarce asset. Michael Saylor: This is a company that just raised$3 billion in their IPO and they're being valued plus 35 billion more than a 50x revenue, multiple. And the journalist explain it away as well. It's, it's a scarce asset investors willing to pay up for it. So now I come back to speculators and hedgers and I'm like, if you really understand Bitcoin, and you've got a lot of money, then you're secretly buying it all up. Okay. It's like, how do I buy all this stuff? Right. Maybe there's some of them and they're not talking at all right. They're saying nothing. On the other hand, you know, if you've got a \$10 million investment fund and you just go and you buy a billion dollars of this stuff, it's going to be like shooting fish in a barrel. Right. Then you just put it out on the wire and announced that you want the next 5 billion worth of it.

Michael Saylor:

There's not any more, it's the short squeeze from hell. So I kind of just wonder, like, why would anybody that really understood Bitcoin and knew that every, you know, all cash is deflating 10% a year. All sovereign debt is debasing 10 plus percent a year. It goes for, and all equities are probably in a crowded trade, topped out. And the S&P 500 is probably looking at a loss decade. Why in the world would you take 99% of your assets and put it in any of that? And then say, I've bought 1% of Bitcoin?

Stephan Livera:

Phenomenal, excellent articulation there, Michael. I know you've got to go. So before we let you go, where can listeners find you online?

Michael Saylor:

The best thing to do is follow me on Twitter. I'm @michael_saylor and you know, on Twitter, I'm the little blue check Mark, Michael Saylor. Find that one with the cyber hornets quote at the top. And that's me.

Stephan Livera:

Well, Michael, I've really enjoyed chatting with you. It's been a great pleasure. Thank you.

Michael Saylor:

Thanks Stephan. Bye.

This resource was provided to Saylor Academy with the permission of Stephan Livera. You can find the original work at https://stephanlivera.com/episode/213/.