Preston Pysh (00:01:29):
Hey, so when I’m listening to some of your other interviews, and the one thing that really sticks out to me that I think is such an important conversation for people to really understand is some of your comments around inflation, risk premiums, the impact that this has, as you think about it from a business owner, and the hurdle rate that you’ve got to achieve. Talk to us, in depth, don’t hold anything back, on this particular topic and teach people how you’re thinking about things from an economic calculation standpoint as the CEO, the founder, of a billion-dollar company.

Michael Saylor (00:02:10):
Okay. Look, I think we start with this premise of, “You’re CEO. Your job is to preserve shareholder value, preserve wealth.” It’s the same challenge you’d have if you ran a family office and you were responsible for the wealth of the family. The question is, how do I preserve the value of my individual treasury or corporate treasury over time? So let’s say, I have a million dollars. So in a hard money environment, if the currency is utterly deflationary, if the Federal Reserve or the Central Bank was going to print no more currency for the next decade, then I’ve got a million dollars. Next year, I’ll have a million dollars. If I’m looking at the value of my cash, my million dollars, I can presumably have it sit in an account, and a decade from now, I’ll still have a million dollars of purchasing power, because the currency is not being devalued.

Michael Saylor (00:03:21):
Now, if the goods and services in the economy are growing at 2% a year, and the currency is flat, then a fixed amount of currency is going to be chasing after an increasing amount of goods and services. In that particular case, the currency is going to appreciate in value. And so the prices are going to fall. And so that’s a good thing. It means that all I have to do is just sit on the money and wait, and the economy will be larger. The value of my treasury will accrete. If the banks print 2% more currency and the economy grows 2%, then you’ve got a net equivalence. The value of my treasury won’t accrete, but it won’t dilute. So in theory, if you think about the good old days, of the gold standard. If gold has a stock to flow of 50, then it’s inflating a 2% a year.

Michael Saylor (00:04:28):
And traditionally, the economy of the world and the economy of most large countries grows about 2% a year. And so it’s ironic that the 2% gold inflation is offset by the 2% economic expansion, and you have a stable gold dollar, or a stable amount of value. And over time, that makes sense. So what happens when I started to increase the currency? If I increased the currency 5% a year, well, now will the economy grow 5% a year? If the economy grows 0% a year, the currency increases 5% a year, then I’ve got more money chasing after a fixed amount of products. Therefore, the price of the products has to keep going up and they’re going to go up 5%… The stuff that you’re wanting to get, the scarce stuff. Something that you can manufacture an infinite supply of, like a copy of a Picasso, a digital copy of a Picasso. That’s not going to inflate. But the actual Picasso is going to inflate to the extent that everybody in the society wants that one painting.

Michael Saylor (00:05:45):
And of course, what you see is that as you start to print more money, inflation is not distributed equally. There’s not really a single inflation number. There’s a vector of inflation. In fact, I can come up with the set of products… You don’t need linear algebra, you need a vector math to describe this. One set of products that are information-rich with no variable cost, like a digital copy of a Picasso. And there used to be a million digital copies. And now there a billion digital copies. And even if I print a kazillion percent inflated currency, the billionth, the digital copy of the Picasso is not going to be any more expensive. In fact, what’s going to happen, with a certain bucket of goods that are high information content is, they’re just going to get cheaper over time. They’re deflationary products.

Michael Saylor (00:06:42):
And what’s a good example of that? Digital music, digital video, digital photos, digital services, running on networks that have a fixed cost. Once you’ve actually paid to deploy wifi and LTE networks, and once you’ve built the routers, and once you’ve built the electrical power plants, and once you’ve run all the fiber optic cable, that’s all the fixed cost. The variable cost of deploying a Netflix movie to a million people is the cost of electricity. And deploying the Netflix movie to a billion people is the variable amount of electricity. So in essence, that’s got to be like 0.1% variable cost. There is no variable cost. There’s no energy content in the product that is, say… I mean, the perversity is that it’s all energy. It’s 0.1% of the value of the product, is energy. I’m just shipping electrons and energy is fairly cheap.

Michael Saylor (00:07:50):
So with things like that, they’re deflationary because the fixed cost is a sunk cost, which is amortized across all of the products. You’ve got one iPhone, you’ve got one television, you’ve got one fiber optic cable to your house. And therefore, everything I can push to the iPhone and everything I can push down the fiber optic cable, I can deliver it. The variable cost electricity, which starts to look like a product with a 99.9% gross margin. Okay. So what’s interesting? Well, in the history of the world, if you roll the clock back 50 years, we didn’t have any products with a 99.9% gross margin. 99% gross margin products are a product of modern digital networks.

Michael Saylor (00:08:45):
So Apple created a mobile network. They dematerialized everything you could hold in your hand. And that means that your VCR and your CDs and your cameras and your Polaroid photos, and your phones and your tape recorders and your weather… Your atlas and your maps and little books and reminders and yellow post-it notes, all these things had energy content and [inaudible 00:09:17] a variable cost. I mean, traditionally variable costs run anywhere from 40 to 60% of the value of the product.

Like you have to produce it for 60% of the retail value and you sell it down a retail distribution channel. And eventually the true margin is like 7% or… You know, Walmart, 3%. Whatever it is. And the other 97% gets eaten up. That’s what the world looked like. And then what happened with the mobile wave, for the last decade is, Apple dematerialized all of the mobile products or all the handheld products and converted them from 40 to 60% variable costs to 1% variable cost. And Apple then accrued a trillion dollars of value, because it was that network.

Michael Saylor (00:10:11):
It’s a crystallization of sorts. You’re collapsing from a high energy state to a lower energy state. And when you crystallize, energy gets given off. And that energy took the form of wealth created for the Apple shareholders. Google did the same thing. They pretty much dematerialized every library and every book and every piece of information and every video and every home video and every VHS and all the music on the earth and it collapsed into Google and YouTube and the like. And as it collapsed… Like this is a real library behind me. I’m sitting in a library of books and it, I don’t know, it’s a $100,000 worth of books in this room, worthless, because you go and get yourself a $500 iPad, and you can have the entire 100,000 books. And by the way, the 100,000 books on the iPad is more valuable, because they’ll read themself to you and you can resize the font.

Michael Saylor (00:11:11):
I’ll walk past this perfect book. And it’s a beautiful book. And I open it up and you know, it’s classic. And it’s in a really small font. And I’m like, “Can’t I pinch and zoom the book?” And then I go on a trip and I’m like, “I really want to take that book. Or those 10 books. They’re really heavy.” I leave, the books have mass. The books are static. The books have to be shelved. Someone can take the book, I might lose the book. Google took every library on earth, collapsed it, just like Apple’s got their iBooks, right? They collapsed these things. The variable cost goes to zero.

So you have all these things that Google touched that became deflationary. Everything that Facebook touched became deflationary. Everything that Amazon touched… And the part that Amazon eliminated, by the way, where it was like the 40% of the retail supply chain, that was the storefront. Well, 40% of everything anybody wanted to buy collapsed into a mobile app on an iPhone, or collapsed into a website. 40% of the cost of the energy cost.

Michael Saylor (00:12:22):
Conservation of mass and energy, right? That’s thermodynamics. Well, every product you buy, it either has mass, like the books have mass, or it has energy. I had to deliver the comic book to the newsstand. And I had to some… I was a paperboy, Preston. I was a paperboy growing up. And sometimes I fall into that like, “What about the paper [inaudible 00:12:47]?” There’s probably no paper boys left on the planet. That’s not a job anymore. Like who would deliver a paper? If I deliver a paper, you’ve got the mass. And that’s the paper that, you know… Paper’s made of titanium, by the way. Titanium dioxide is the primary element papers, no pacifier. I got my start in business studying titanium. It’s heavy. I remember carrying stacks of papers around. It’s like a hundred pounds worth of information. It had to move through the supply chain.

Michael Saylor (00:13:20):
And then there’s the energy. Mass and energy. The energy was me with my red wagon hauling a hundred pounds of papers on a Sunday morning through the neighborhood, in the freezing snow. And you got a… And at some point, my angelic mother, getting up at 5:00 AM, to drive the family station wagon, keeping the heat on while I haul papers through the neighborhood. I delivered them, by the way, on Wright-Patterson Air Force Base, where I grew up. I know every single street because I had to get up and deliver a two-pound paper to every house across the entire military base when it was like 20 below zero.

Michael Saylor (00:14:06):
So mass and energy in the news business. I expended the energy. I hauled the mass around. It was quite visceral. It was expensive. It’s so expensive by the way, that no newspaper could afford to hire an adult to do it. Hence 12 year old to 18-year-old high school kids hauling newspapers around on their backs, that was the world that we used to live in. And of course, now it’s kind of laughable. No, one’s going to haul that stuff. Yeah, you probably couldn’t get a 12 year old to get up during… I remember a blizzard. It was 60 below zero, Preston. And we’re trying to figure how to deliver newspapers, on a Sunday morning, at 5:00 AM, the wind is blowing.

Preston Pysh (00:14:56):
And on the Air Force Base, you had a lot of traffic to contend with at 5:00 AM, unlike other places.

Michael Saylor (00:15:02):
Mass and energy. So Facebook, Google, Amazon, Apple, they dematerialized the mass and the energy from the products. All the products are information and electricity. And that explains why they’re trillion-dollar companies. And that explains why inflation, as a metric, doesn’t work. It’s a 20th-century idea and it might’ve almost… I’m not sure it ever worked. But it wasn’t hideously misleading until the last decade. And the last decade, we got to the point where half of everything you’re consuming is pure information with no variable cost.

Preston Pysh (00:15:54):
So when you say, it’s been a hideous metric, you’re specifically talking about CPI, right? You’re saying CPI is just not something that can actually measure what in the world is going on right now.

Michael Saylor (00:16:08):
I say, it’s a metaphysical metric. It has no relation to reality. It’s been defined, almost specifically cherry-picked to define in such a way that there will never be any inflation. And so the first irony is we’ve decided that inflation is a bad thing. And the second decision is, we’ve decided that inflation equals CPI. And the third irony is, we can’t find any inflation. But of course, in order to really understand store of value, in order to get to the bottom of an investment rationale and make rational investment decisions, you have to first go to first principles. And what I find is 95% of macro economist and analyst and the traditional investment community, they rely upon metaphysical abstractions that they learned early in their career, or that are repeated to them over and over again by mainstream media.

Michael Saylor (00:17:18):
And because they just repeat these metaphysical abstractions long enough, they kind of convince themselves that there’s some veracity to them. And there isn’t any veracity to them. But the difference and [inaudible 00:17:33]… And this takes me back to MIT. At MIT, they taught you to think for yourself. You’re an engineer. If you’re trying to solve a problem, you’re expected to think for yourself. Like for example, the first class I walked into, it was a class in material science. The professor walked out to all the freshmen. It was our first week at MIT. He said, “This is a tile from the space shuttle. It burned off the space shuttle on re-entry. Nobody at NASA knows why it burned off. They’re not sure what to do about it, but they’re afraid the space shuttle is going to blow up if they don’t actually solve the problem. Why do you think it burned off? And what do you think the solution is?”

Michael Saylor (00:18:14):
And he looks at… These are 18-year-old freshmen that showed up to school. and you can see everybody’s looking at each other, like, “Is there some reading that we missed before this lecture?” And then they’re thinking, “I didn’t read the answer to the question.” And then there’s this horrifying realization that a guy, with a PhD with 20 years experience, just asked you a question that nobody on earth knows the answer to. And he expects you to think for yourself, and reason from first principles, and solve the problem. That’s the scientific way. And there’s not a lot of science and there’s not a lot of engineering in the modern macro economic landscape, or with mainstream media. They just repeat tropes over and over again as though they’re meaningful and they’re not.

Preston Pysh (00:19:09):
I mean, you couldn’t provide a better example for what we’re seeing right now, from an economic standpoint. It’s almost like we’re seeing parts of this shuttle, call it the economic machine that we’re looking at, literally falling apart right in front of our eyes. And you still have many academics, with PhDs, going on CNBC and talking about, “Well, you know, we just don’t have any inflation,” and these types of things. So this is what I would frame it for you. How would you, Michael Saylor, define inflation today… Because you still have to do economic calculation as a business owner. How are you looking at inflation and how are you saying, “Well, I think if inflation’s this, that’s my hurdle rate, plus whatever risk premium.” Talk us through how you would define it, considering CPI is so broke.

Michael Saylor (00:20:06):
I think the way you define inflation is the rate of price appreciation in a basket of goods, services, or assets that you wish that you desire to acquire in the future. So if you live with your parents, in the basement of their house, and you don’t need a house, and you don’t aspire to a yacht, a plane, a beachfront property. And if you don’t intend to ever pay for electricity or utilities, if you borrow your dad’s car, and if your mom cooks for you, and you sleep in the basement, you’re going to define inflation as the cost of beer, good weed, Netflix, YouTube, I don’t know, Tinder, like whatever. Whatever you’re going to do, when you take girls out on a date, that’s inflation. That market basket of things, that you’re going to have to pay for out of your pocket, is inflation to you.

Michael Saylor (00:21:19):
If your father kicks you out of the basement and says, “It’s time for you to grow up and get your own place and get your own car,” you’re going to define inflation as the cost of a car, the cost of an apartment, the cost of food, the cost of the electrical utilities and anything else that’s discretionary. And you have to embrace food and energy and apartment. If you actually aspire to get a PhD or be a medical doctor or whatever that might be, you’re going to have to include, in your inflation definition, the cost of college education, medical school, et cetera, and higher education. If you imagine having perfect health, then inflation won’t include medical care. If you imagine that you might actually need… Maybe you need your teeth fixed… By the way, Preston, I grew up on an air force base. Dentistry and healthcare were free. I was a dependent. My father was an NCO. I needed to go to the hospital, I went to the hospital on the base, everything was free. Didn’t really think about it.

Michael Saylor (00:22:40):
Then we went through this period, where there’s health insurance and you just went in network and everything got paid for it. I have noticed in the past 10 years, Preston, that none of the doctors I go to, and none of the dentists I go to, accept any of my health insurance. And I have really good health insurance. I have world-class health insurance, but every place I go, it’s like, if I want a good healthcare or good dentistry, they ask me to give them a credit card, and I ended up actually with a very large bill from all of these doctors, because they don’t accept that insurance. So the insurance only pays for half. And so if you actually want the best medical care, and you could be 20, in perfect health. If you want your teeth fixed, or you want, whatever, you need the best medical care. Then you got to throw dentistry and doctors, not in your insurance network, into the inflation calculation.

Michael Saylor (00:23:40):
If you get to the point where you’re 60 and you’ve got some medical conditions, you’re to throw all of those more expensive treatments. You know, once I dislocated my shoulder and it was a silly accident, I tripped on a wet floor while I had my hands full and I landed… An, oh, it did hurt more than anything in my entire life. So I went to the hospital, they reset the shoulder after a while, then I went to an orthopedist and the guy looks at me and he goes… I said, “So how long will it take before I get this cast or this sling off?” Because I had Googled, it was like a week or something. He goes, “Oh no, we need to operate on you.” I said, “Huh?” He goes, “Well, you’re a perfect candidate to have some shoulder surgery.

We should just fix it perfectly. It’s like $50,000.” He goes, “You’re a perfect candidate for this.” I was a perfect candidate, because I could afford to pay the $50,000 or I could probably… And I said, “No. I’ll let it heal.” It healed just fine, I’m not going to… It was my left shoulder. I’m not pitching as a baseball pitcher, I don’t really need the $50,000 operation, the six-month recovery and the potential infection and the rest.

Michael Saylor (00:25:04):
But the best medical care was going to be extended to me because I could afford to pay that $50,000. So if you’re defining inflation, do you want really good medical care? Do you want your teeth fixed? Do you want a ceramic crown? Do you want silver in those fillings? Do you want it same day? What quality of medical care do you want? The inflation rates going to go up, I guarantee it. Do you want to go to Harvard or MIT? They’re not going up at 2% a year. I know, they’re going up 7% a year, 8% a year. There is a market basket of products, if you sleep in your parents’ basement, that will be deflationary. You can probably live fairly cheap. Uber’s not going to go up that much.

Michael Saylor (00:25:54):
There’s another market basket if you’re going to live on your own. It’s going to go up faster. It’s probably, X percent, 3, 4, 5%. The Chapwood Index starts to indicate… What if you actually aspire to own your own house? Well, if you wanted to own your own house, housing prices have been going up for 4, 5, 6%, 7% a year, sometimes. So that inflation rate would look different because that’s an asset. Of course, CPI doesn’t include assets. Now the question is, where do you want to live? The inflation rate of real estate in my hometown of Fairborn, Ohio, is not nearly as high as the inflation rate of real estate in Miami Beach or the Hamptons or New York City, Manhattan. It turns out that there’s a differential.

Michael Saylor (00:26:44):
Now, why is there a differential? Because the assets are scarcer, or the thing that causes price to go up is, it’s scarce, and it’s desirable, right? And so you can’t really come up with one price of real estate inflation in the United States because there’s a lot of land in Kansas and if what you aspire to is five acres of property and a nice house in Kansas, that’s not going to inflate at the same rate as aspiring to a 4,000 square foot apartment in New York City.

Preston Pysh (00:27:18):
You can just look at the prices in Jackson Hole. And I know the first time I went out there and looked at the prices for real estate, I said, “Why is everything so expensive?” Well then, once you realize that the land out there is super scarce, because you have all these state parks and everything surrounding it, that have created this island of land that’s available, you can see why the prices are sky high, and because it’s scarce. Now when you’re talking about real estate and you’re talking about the inflation associated with it, let’s go into equities, let’s go into fixed income, and talk about how this “inflation” is impacting securities.

Michael Saylor (00:28:00):
Yeah. So if I want to live on my own as a single person, I want to rent an apartment. And my market basket is food and energy and a nice apartment and a car. If I want to have a family and own my own home, my market basket evolves to be a lot… Family healthcare, higher education for my kids, more land for everybody to play behind the house, a house, real estate, property taxes, more utilities, appliances, and maybe family vacations, right? And the like. So that’s a different market basket for the middle-class family.

Michael Saylor (00:28:51):
If I want to be wealthy, then my market basket that I aspire to is a very nice, an elegant estate in the country, or beachfront property in a hip cool town like Miami Beach or South Hampton or Malibu. That becomes a different market basket. And of course, a home in LA and Hollywood Hills, that’s a different inflation rate. If I want to be really rich, what do the wealthy aspire to? Well, they’re aspiring to own Apple stock. They want to own stock, bonds, commercial real estate, you want to own things that produce income. So what’s the cost to buy a basket of shares in Apple that produce a million dollars a year in dividends. Well, that cost doubled in 12 weeks.

Michael Saylor (00:30:01):
In 12 weeks, 100% inflation in 12 weeks this year. The dividend didn’t double. The price of the share doubled. Therefore, hyperinflation in a market basket of stocks. In fact, if we look at the S&P index, one of the most interesting metrics is the number of hours that you have to work in order to buy a share in the S&P. And we see that chart, and that’s doubled. That’s shooting up.

Michael Saylor (00:30:32):
What do the wealthy want? Well, they want to buy real estate in Manhattan or Tokyo or London. They want to buy dividend producing or income producing assets. They either want to buy rent producing real estate, or they want bonds that will produce a good coupon, or they want stocks that either will produce dividends or will buy back shares, so they’re inherently deflationary, or they will grow. Or they want [inaudible 00:31:09]. They want to buy Picassos. They want art. Or by the way, or they want to buy franchises. I would like to buy the Jets. I would like to buy a football team. I would like to buy a baseball team. That’s what really wealthy people wish to do, or they wish to buy jets, or they wish to buy yachts. None of these things are in the CPI basket.

Michael Saylor (00:31:34):
I mean, the presumption of course, is that politicians have assumed that no one wants to be wealthy. Huh? Let me say that again. Politicians have assumed no one wants to be wealthy. I guess if you assume no one wants to be wealthy, and if you track the things that the wealthy people don’t aspire to, then you won’t find inflation and then you won’t have a problem, as long as we agree that no one can be wealthy, right? You’re never going to get there.

Preston Pysh (00:32:08):
Don’t you think that that’s a little bit more out of convenience for the fiscal spending that aggressively has become more and more aggressive, that it complements their ability to continue to spend and obligate dollars and try to push some of those dollars into their regions that they are elected? And so by using CPI and pushing it lower and lower, they can just reduce that interest payment and obligate even more funds of taxpayer dollars.

Michael Saylor (00:32:40):
I think as long as you define the metric as CPI, and as long as you leave out every scarce asset, every financial asset, food, and energy, then you can lock onto a basket of goods that are inherently deflationary. You will never get inflation. Therefore, there will be no check on your ability to keep printing money. And when you print money, if you call it accommodation, we’re providing $120 billion a month of accommodation to make the markets fluid, to keep them functioning, then you don’t have to say where I’m devaluing the money by $120 billion a month. And I think it’s a convenient thing.

Michael Saylor (00:33:35):
At the point that we redefine the market basket as assets, well, we would have immediate inflation, and there would be immediate check and balance on the ability of any central bank or any bank to devalue the currency. And so I don’t think anybody wants to have a check on their abilities. So this has been adopted as a metric. The mainstream media promulgates the metric. And then I know why someone running a central bank would want to focus on the metric. I just think it’s irrational for macroeconomic analysts and investors to fixate on the metric. And so, for example, if you’re defining a macroeconomic model that has CPI as an input, you’re just engaging in metaphysical musing that is increasingly disconnected from reality.

Michael Saylor (00:34:39):
Let’s come back to this inflation definition. I think that you can define a bunch of buckets, and the definition of inflation comes down to what’s your aspiration? If your aspiration is to be a billionaire, then the definition of inflation is the rate at which scarce assets that are going to continue to appreciate are going up in price. So what’s the best investment idea? Bitcoin. How fast is it going up in price? 200% this year. We have hyperinflation, and pure at property and pure liquid money, hyperinflation. We have inflation in scarce and desirable assets. Houses in the Hamptons are up 50% in 16 weeks, the price of a house in the Hamptons. What is that? Well, when you buy a house in the Hamptons, you’re buying a scarce piece of property on an elite real estate network. When you buy a Bitcoin, you’re buying a scarce piece of property on a global liquid monetary network. Which is better?

Michael Saylor (00:36:05):
Well, clearly Bitcoin is better, because Bitcoin is liquid, global, fungible. I can take it anywhere on earth, and there’s no property tax on it. And I don’t have to worry about New York state taxing my property away from me. So given a choice between investing 20 million in Bitcoin or 20 million in Hamptons real estate, clearly the rational thing is buy 20 million worth of Bitcoin. But if you’re a New Yorker and you’ve decided you need to get outside of Manhattan, well, all the wealthy New Yorkers, they all go to the Hamptons. It’s a social network slash real estate network. It’s scarce. Ergo, prices go up by 50% in three months, and the transaction volume goes up by 50%, and they’re turning over, the entire real estate business is up 100% year over year. The real estate agents are doing great.

Michael Saylor (00:37:07):
Is there inflation? If your aspiration is to live an elegant life of affluence in the New York area, then you have hyperinflation in that real estate market. So, and of course they do, right? Go to a wealthy New Yorker and say, “Well, there’s no CPI inflation, nothing to be concerned about here.” You’ve just got to decide what you want to put in the basket. I think that when you work your way through it, you conclude, you can look at it as like five buckets, right? There’s the affluent bucket, and you’re seeing 20, on average, across all assets. It’s like that 20 to 24% M2 monetary supply expansion rate. So you could say that the inflation rate for just a broad basket of assets is like 20% or so this year, or 24%. That’s why the stock market’s at an all time high, because people that have liquid monetary energy, they want to buy those assets, and they’re all bidding against assets that are reasonably scarce. Not totally scarce, by the way.

Michael Saylor (00:38:21):
The reason that those assets aren’t going up as fast as Bitcoin, the reason that gold is outperforming maybe the S&P, is because the S&P, they’re producing more securities, they’re producing more convertible debt and more equity. And so it’s not quite as scarce. It’s harder to produce the gold, but of course, it’s really hard to produce the Bitcoin. So what you’ve got is everybody’s surging to acquire more assets. The asset supply isn’t expanding as fast as the money supply is expanding, ergo the price is going up. That is inflation of assets, or asset inflation. I’ll just call it cost to capital.

Preston Pysh (00:39:06):
So let’s talk about that a little bit more, because a lot of the people in our audience are people that are trying to perform economic calculation. They’re trying to value a business. And I love this example of M2 that you’re talking about, and using it in a frame of reference as your risk-free rate. So talk to us about that a little bit, and then also talk to us about whatever the risk premium would be on top of this quote-unquote risk-free rate.

Michael Saylor (00:39:32):
Okay. Yeah, so our inflation is just a vector. So you’ve got a market basket of stuff that’s deflationary. It’s not inflating. You’ve got another market basket of stuff that’s probably going up three to five percent. You’ve got another market basket of stuff that’s going up eight percent. But if you really want the best measure, if your goal is wealth preservation, if your desire is to be wealthy or to stay wealthy, wealth preservation, you’re either pursuing wealth, or you wish to preserve wealth, you wish to preserve shareholder value, your best surrogate is cost of capital, which is closest to the rate of the broad money supply expansion, which was 24% this year, which as we look out is going to be probably between 10 and 15% a year every year for the next five years. And that’s based upon the Federal Reserve policy, the EU Central Bank policy.

Michael Saylor (00:40:25):
You’ve had Lyn Alden estimate that she thought it was 13%, but a lot of the estimates are optimistic and politically correct. Nobody can stand up on television and they can’t estimate well it’s going to be … It was 24% this year, it’ll stay 20% next year, and then 20%, and then 30%. Because that’s like not forecasting a V-shape recovery. In March, everybody forecast a V-shape recovery. You kind of have to, because otherwise you’re kind of Cassandra, Debbie Downer, politically incorrect. No one could forecast an L-shape recovery, that is Main Street’s going down and not coming back up again.

Michael Saylor (00:41:07):
Have you noticed that you haven’t seen anybody talk about the L-shape recovery on television? Well, you know, here’s the joke. We got a V-shape recovery in financial assets. We got an L-shape recovery in Main Street operations and real business, but they didn’t call it L-shaped. They called it K-shaped recovery. So they came up with some, just a nice, pleasant phrase, K-shape recovery, because it doesn’t sound as horrifying as L-shape recovery or no recovery.

Michael Saylor (00:41:46):
So I think the forecast as you look out is, I would guess 15%. My best guess is 15%. I’ve seen people say it’ll be 15, then it’ll be 20, then it’ll be 25. It could get worse. That would be a hyperinflation scenario. Or it could be better. It’s like if we start to run less deficit, but that’ll require fiscal austerity and that never worked in, it didn’t work in Greece. It hasn’t worked in Southern Europe. It didn’t work in Italy. We haven’t seen it work anywhere in particular, so I wouldn’t expect it.

Preston Pysh (00:42:22):
So what does this mean for a company that only makes a five percent margin on their business?

Michael Saylor (00:42:29):
Yeah. So let’s just work through that model. Let’s just assume, to make it simple, that we expect a 15% expansion of the money supply for the next four years. That’s the cost of capital. That’s the risk-free hurdle rate, or the risk-free discount rate. If you want to preserve your wealth or preserve your store of value, then you’re going to have to beat the hurdle rate and the risk premium. So let’s assume that you have a risk-free bond, a piece of sovereign debt, U.S. government debt. That’s the closest thing to risk-free we can get. There’s no credit risk on it. So if I give you that bond and it’s yielding 5%, but the money is being devalued at 15%, or the assets that you wish to buy are going to be 15% more expensive next year.

The assets that you wish to buy are going to be 15% more expensive the year after that, too, and then the year after that, because there’s going to be more money chasing after the same fixed amount of assets. So if I give you a bond and it only yields 5%, then that means that you’re losing 10% of your value a year, and you’re going to lose another 10% the next year, another 10%. In four years, you’re going to lose half your purchasing power. So half of your wealth will be destroyed on a 5% coupon against the 15% cost of capital.

Michael Saylor (00:44:07):
Now, that doesn’t make any sense at all. So you might say to me, why did anybody ever buy any bonds in the last decade? And the dynamic there has been that the bonds have been yielding two, three, four, five percent. The cost of capital has been about five to six percent. The M2 money supply has been expanding about five and a half percent for the last decade. And so the bonds aren’t quite keeping up with the cost of capital. Well, if you can’t keep up with the cost of capital, you have to leverage up. And so the equivalent of leveraging up is take the interest rate down. So I can make the bond hold value if I have a 5% interest rate and I crank it to four and a half percent interest. I’ll get a capital gain in the bond. The face value of the bond will trade from 100 to 110 or something, or 105.

Michael Saylor (00:45:07):
So even though the bond is yielding less than the cost of capital, I get a capital gain on the face value. And so I stay ahead of the hurdle rate. Now, if that continues, then the next year I need the interest rate to click down from 450 basis points to 425, and I need to click down to 400. And then I need to click down to 350. And so what you’ve seen in the past decade is a march from 550 basis points down to, the 10 year was 50 basis points. And we just keep marching down. If you want to hold value in bonds, when you get to 50 basis points, then you have to go negative. So that’s what happened in Europe. That’s what happens in Japan. They literally took them negative. And in the U.S., all the people who are bond investors, the hundred trillion dollars worth of money in bonds, they all need the Fed to take the interest rate negative, if their bonds are going to hold value. If they do take them negative, then they’ll get a capital gain in the bond and that will offset the cost of carry, the negative cost of carry.

Michael Saylor (00:46:20):
So the question of whether bonds will hold value all just comes down to does the interest rate click down? And when you get to the end of the line, if they’re not going negative, then the bonds are collapsing in value. Obviously, if the problem with bonds this year is not only have we … There’s twofold. We hit the end of the line with interest rates. They’re not going negative anymore. So you don’t keep getting … A 5% decrease or a 10% decrease in the interest rate is a 10% capital gain, right? So you don’t keep getting that boost in the face value of the bond. And the second problem is cost of capital tripled. That’s the earth shattering problem.

Preston Pysh (00:47:07):
Well, and I think it’s important to note that this premium that you’re talking about that goes onto the price of the bond in the aftermarket as interest rates drop, it only adds to your ability to outpace this hurdle rate of 15%, like you’re saying, if you sell it on the open market and you don’t let it mature. If you let it go to maturity, none of that premium that we’re talking about due to a drop in interest rates occurs. You’re not able to capture it.

Michael Saylor (00:47:36):
That’s a really good point, because it’s trading above par. I mean, a lot of times you’ll see these bonds that are issued at 100, and they’ll be trading at 110, 120, 130, is like, you look at them and you grit your teeth. You’re like, why would I ever buy this? Because in six years it’s going to pay me back a hundred. It almost hurts to see these things.

Preston Pysh (00:47:58):
Well, and the premium that you’re getting paid on the longer duration ones, it only further compounds the reason to pile into the longer duration ones, because you’re most likely going to sell it on the aftermarket and capture that big premium that you’re getting. On the short duration stuff, there’s no compensation in the price in the secondary market or in the market, if you try to sell it, because you’re not capturing any of that. There’s no premium being bid into it because it’s going to mature too quickly.

Michael Saylor (00:48:29):
I think you’re adequately, I mean, very articulately describing why there is anxiety in the bond market right now. Why, if you’re holding any of that hundred trillion dollars worth of debt, you have to have anxiety about store of value, and why, if you decide to hold a debt portfolio, you’re really a slave to the whim of the central banks, right?

Preston Pysh (00:48:59):
Absolutely. Absolutely.

Michael Saylor (00:49:00):
Pretty much. I mean, absolutely pretty much anybody that’s a bond portfolio investor, their number one job is just to try to convince the central bankers to keep moving the interest rates down. If the interest rates ever move up, they get destroyed in a heartbeat, but if they don’t keep moving down, the bonds bleed off value over the next one, two, three years. And eventually, you’re in a bubble and the bubble collapses.

Preston Pysh (00:49:31):
Now Michael, I have … Edit that. I’ve had a ton of people that have told me, “Well, why is it different this time than in 2008, Preston?” And my immediate response is, “Well, back in 2008, we had interest rates on the 10-year treasury at five and a half percent. And they had plenty of room to drop it down to offset this risk premium that you’re talking about. If they drop interest rates a hundred basis points, the premium that’s put on that security, on that fixed income security, it’s bid so high, you can turn around and sell it for a profit to offset this risk premium that you’re talking about.

Preston Pysh (00:50:08):
But once you get down to where we’re at now, less than a hundred basis points on the coupon that’s being issued, I mean, they’re at an end game. You can’t keep playing this farce unless you start taking things well into the negative territory. And then people are just going to take their money out and put it into a safety deposit box, because they’re going to get a higher return than what the negative interest rate bond is being issued at. It’s total insanity. That’s the difference between where we’re at today and 2008. And I see you shaking your head, you agree.

Michael Saylor (00:50:40):
I remember specifically in that timeframe that I was able to generate 550 basis points on overnight cash. The repo rates and the overnight rates were like five percent. I didn’t have to take a 10 year bet or a 30 year bet. You could generate five percent interest on a one month, a three-month debt instrument, no risk, credit grade. And so we’ve been in a march from, you know, from Libor, short term rates of five percent, all the way down to zero. And so now we’re at the end of the line, because you’re right, you have to go negative. But the problem with going negative is the interest rates the value of time. And so when you turn interest rates negative, you’re trying to stop time and make it flow in reverse.

Michael Saylor (00:51:39):
I mean, it really is kind of declaring war on the passage of time. How’s that going to end? You might as well try to get, you know, you’ve got $17 trillion of negative yielding bonds. It’s like trying to move 17 trillion gallons of water uphill. It’s natural for water to flow downhill. It’s natural for time to move forward. Attempting to get time to move in reverse is a very difficult thing. You’re attempting to get someone to give you all of their energy and sacrifice the rest of their life, and pay you for the privilege.

Michael Saylor (00:52:28):
So let’s think about all these [inaudible 00:52:30]. You’ve got three buckets. You’ve got bonds, you’ve got real estate, commercial real estate. You’ve got stocks. They’re all Fiat instruments. With a bond, it’s a kind of simple calculation. If I don’t beat the hurdle rate with the coupon, then I have to leverage up and I have to drop the interest rate in order to make that whole value. When interest rates stop going down, and the coupon is less than the hurdle rate, I’m destroying value. In the current environment, a 2% government bond against a 15% hurdle rate means you lose 13% of your value every year. You can do the simple math, right? You get cut in half in five years, and you get cut in half again. And so you’re down, you’ll lose 75% of your money in 10 years at that rate.

Michael Saylor (00:53:21):
Commercial real estate trades like a bond. The only reason I want to hold commercial real estate like a warehouse or whatever it is, is for the rents, and the rents are coupons. And as the interest rates fall, commercial real estate starts to trade kind of like a bond. The lower the interest, the higher the value of the real estate.

Preston Pysh (00:53:42):
And if you own it in a location that has scarce land or resources, then the face value of it would be going up, effectively. So it would be a little bit…

Michael Saylor (00:53:53):
Yeah, you might get a boost for like marquee scarcity value, but I mean, generally if you told me this is a piece of real estate that generates a million dollars a year in rent, or triple net rent, after paying expenses and tax and the like, it feels like a bond that yields a million dollars a year. And then my question is, well, is there like a CPI escalator on it? Okay. There’s a CPI escalator. It’s a million dollars, going up 2% a year. Okay, well, you’re going to give me $10 million over 10 years, but in 10 years, the cost of all the assets I want to buy will have inflated at 15% a year for 10 years. Well, at 15% a year, that means in four and a half years, the cost of what I want to buy doubles, and then it doubles again. So the cost of whatever I want to buy is going to be 5X.

Michael Saylor (00:54:51):
So that means that the money I get from the commercial real estate, 10 million bucks, is only going to buy me two million dollars worth of stuff. So what do I really want? I guess you can either pay me two million now, or 10 million over 10 years, and they’re both equivalent, when you have a hurdle rate of 15%. So that means that commercial real estate’s going to hold its value proportional to the hurdle rate. When the hurdle rate triples, commercial real estate all starts to look very risky. How do I get ahead of the hurdle? How do I hold value? I have to grow my rents faster than the hurdle rate.

Preston Pysh (00:55:33):
Good luck.

Michael Saylor (00:55:36):
Show me a piece of commercial real estate that’s going to grow its rents 15% a year. By the way, you’ve got to tack on a risk premium. With a bond, it’s credit risk, and with commercial real estate, it’s also credit risk. It’s the credit worthiness of the counter party. So how good do you feel about real estate that’s rented out to a retailer that’s getting crushed by Amazon, or how do you feel about a bookstore being crushed by Google, or how do you feel about a newspaper being crushed by Facebook, or how do you feel about theater real estate? Would you actually take a 10 year lease on a theater? Or how about a business hotel? Business travel is down.

Michael Saylor (00:56:16):
You want a statistic, Preston? This is interesting. Do you know, I think my business travel in my company is down 98% year over year.

Preston Pysh (00:56:31):
Oh my God.

Michael Saylor (00:56:32):
We’re not talking 50% down. We’re not talking 25% down. We’re not talking 75% down. We’re talking about 99, 98% off. And that’s directly coming out of revenues of hotels and airline, a business hotel, a business airline, business travel.

Preston Pysh (00:56:57):
And I don’t think you’re an outlier, either, compared to other businesses. I think that that’s probably maybe 90%. Let’s just be liberal. I think that most of your businesses are probably 90% or 95%. That’s totally destructive.

Michael Saylor (00:57:12):
So what you’ve got is you’ve got a bunch of commercial real estate, and half of it’s impaired asset.

Preston Pysh (00:57:17):
Yeah. You’re getting at occupancy rates. Like, if you’re using, whatever occupancy you were using to calculate your coupon, as you called it earlier, you can’t be using those occupancy rates moving forward. There’s just no way.

Michael Saylor (00:57:33):
I think you have to assume, you just have to assume that large portions of commercial office space, warehouse space, retail space, hotel space, travel, event, event convention centers, all these things, I mean…

Preston Pysh (00:57:53):
It’s insane.

Michael Saylor (00:57:54):
Every sports stadium has been dark since March, all of them. Every concert hall, dark since March. And so you’ve got a lot of impaired asset. Now, it’s valued. It’s probably overvalued as far as I can see, because interest rates are all time low. It’s been trading like a bond, and people have been able to refinance it, but you’re going to end up with, in essence, zombie bonds and zombie companies and zombie real estate, sort of like what happened in Japan.

Michael Saylor (00:58:32):
When the economy stops, when the central bank starts buying all the sovereign debt, then they buy all the corporate debt. Then they buy the equity index, and then they start buying the equities. And then pretty soon, and by the way, it’s kind of a nice way of saying, I mean, to say they’re buying these things is probably one way to say it. Another way to say it, they just print a bunch of public money to support all those things that no individual would buy, if they were rational. No rational investor would buy any of these securities or any of these properties. So the buyer of last resort becomes a government official, and then the market mechanism breaks down.

Preston Pysh (00:59:20):
It’s nationalization. It’s the nationalization of businesses, but they’re doing it through a per share basis, which hides, it masks what’s actually happening, versus a country that would just step in and buy the whole business all at once. But the amount of shares that they own and the voting rights that are associated with those shares, I mean, they’ve nationalized their equity market. It’s crazy.

Michael Saylor (00:59:44):
Yeah. In essence, you eliminate price discovery, you nationalize all these private assets, and then companies that shouldn’t exist and assets that don’t really have any value to society anymore, they continue to soak up the monetary energy of the civilization.

Michael Saylor (01:00:02):
The monetary energy of the civilization and that creates hyperinflation in assets. But of course there is no word for inflation of assets in the mainstream lexicon. No government official will ever refer to it. No mainstream reporter refers to it. Most of the conventional macroeconomic analysts don’t refer to it. Even investors that get it right, and they intuitively know how to invest to make money, they still have a hard time articulating why they should do what they do because they’re missing this fundamental observation that the asset inflation rate is the cost of capital. I have literally had this discussion with people, they talked about Japan. They said, “Well, central banks don’t cause inflation, look at Japan. They don’t have any inflation.” And I look at them and I think, are you out of your mind? Real estate in Tokyo is the most expensive real estate on the planet.

Michael Saylor (01:01:05):
What are your odds of graduating from school with an engineering degree, going to work and being able to afford to buy a house in Tokyo? What are your odds of being able to buy an apartment? What are your odds of being able to buy a house or an apartment in Manhattan using a salary?

Preston Pysh (01:01:22):
Yeah, not going to happen.

Michael Saylor (01:01:26):
In the Hamptons, a two acre property, people are paying $20 million for a house on two acres in the Hamptons. Okay, so you go to New York City and what are you, making 500,000 a year? Okay, 500,000 is a lot of money. Last I checked 500,000 a year used to be a fortune. People used to aspire to make 500,000 a year. You make 500,000 a year, pay 200,000 in taxes, save a 100000 dollars a year for 20 years.

Preston Pysh (01:01:57):
And you have 10% down for your property.

Michael Saylor (01:02:03):
And you have $2 million. So if you work as a well-paid master of the universe for 200 years, you can buy a house in the Hamptons. But of course you can’t, because it’s going up at 7% a year.

Preston Pysh (01:02:21):
It’s insane.

Michael Saylor (01:02:23):
So the truth is you have to work for two million years. The real point is, if you calculate it, you will find that certain assets are completely out of reach of anybody. The only way you can make enough money to buy a house in the Hamptons, you make 2000000 a year. You can’t earn enough to buy a house in the Hamptons. You have to actually buy an asset that goes up in price faster than the cost of capital. So you have to become an investor and you have either guess right and buy Zoom or Facebook stock at the right time or Apple or Amazon at the right time.

Michael Saylor (01:03:04):
And you probably have to do with leverage because without leverage, so you get 10X year investment, you can’t save $400,000. So you save 400,000, you save a 100000 a year for four years. You bet it all on something that goes up by a factor of 10, you have $4 million, you close out the trade, you have two and a half million after tax. You still can’t buy the house in the Hamptons. Right? So what you have is this interesting observation. You have hyperinflation and assets.

Michael Saylor (01:03:43):
By the way, I want to make one more point after the great monetary crisis, 2010, there was a collapse in real estate values, a collapse. If you look at a map, I remember looking at a map of the UK, all of the prices of real estate collapsed outside of London. Then they mapped the recovery. What happened was, the real estate prices came back much stronger, and the magic mile, the one square mile in the middle of Chelsea, the middle of Kensington, the middle of London, they came back. Then as you went out of concentric circles, it was like a heat map. They came back slower. And then once you get outside of London proper, they never recovered.

Michael Saylor (01:04:34):
You had the same dynamic after the crisis and New York and Miami and Los Angeles, and in San Francisco. The big cities of the world where you’re tracking the asset price of real estate, like a black hole, they all sucked in all the monetary energy. The price went through the roof and then everywhere else, all the monetary energy got sucked out of them. What you could see was massive asset inflation of the desirable assets, the scarce desirable, what could be more scarce than a nice townhouse in Chelsea, right on green park or Kensington or whatever.

Michael Saylor (01:05:26):
We had hyperinflation, all the money it doesn’t find it’s way into Netflix or YouTube. It doesn’t find its way even into the iPhone, although iPhone marched up a bit, I mean, Apple was able to drive the price up. It doesn’t find itself in a lot of these areas. Where it really pools is in the desirable assets that people with flexibility could buy. And you saw skyrocketing luxury real estate, urban real estate, you see skyrocketing. It finds its way into the asset values of professional sports teams. You ever track the price of a football team over 30 years. People own a football team and they would buy it at 200 million and it would go up in value 7% a year, 10% a year. They’re just refinancing the asset. And then all of a sudden it’s worth a billion or $2 billion.

Michael Saylor (01:06:23):
It’s a franchise because it’s scarce, they got a monopoly on football teams, they got a monopoly on the contract. If you happen to be someone that owned that scarce asset, all the inflation was in that asset, if you own scarce real estate in Manhattan, if you own a sports team, if you own a scarce piece of art, well, then you just hold the asset and refinance it, and you never pay taxes. You just keep borrowing against the asset as it goes up in price. So you’ve just got this really sweet thing. The irony is, that happens right in front of our face, and yet everybody says, “Oh, there’s no inflation in Tokyo.” “There’s no inflation in Japan.” And I think probably the best measure is how many hours you have to work to buy a share of S&P stock or something like that and that’s informative.

Preston Pysh (01:07:22):
So, Michael, I want to transition into a conversation about this big decision that you made. And then we’ll talk about the second big decision that you made. And two, before we talk about it, I want to frame this up and I want to see if you agree with the way I’m framing this. So you started your company and your company has been profitable for decades, and you guys had $475 million of retained earnings. Those are the profits that you guys, as a company collectively made. And you had that in liquid cash. You go out after 30 years of creating this treasure chest of cash, you go out, you buy Bitcoin, $475 million worth of Bitcoin.

Preston Pysh (01:08:07):
And for all intents of purposes, it’s doubled in value within six weeks, six to eight weeks or whatever it was. And so you’ve effectively walked through a time warp of value creation in I don’t know what percent that would be, but I would think it’s less than a percent of the time that it took you to create it and you’ve doubled it. Is that how you see what has taken place since October or September or whatever it was when you first put on this position?

Michael Saylor (01:08:44):
Yeah. Yeah. I see that. Look, I think that we went through a transition in March where the cost of capital went from five to 15% and a rational person has to say, looking forward, the cost capital is 15% and the currencies are being devalued at 15% a year, in the Western world, they are being devalued at a faster weight rate than the other parts of the world. That means cash is a liability, not an asset. It means that every Fiat instrument based on cash, stocks, bonds, and real estate, or starting to look like they need to be discounted at 15% a year, plus the risk premium. So, unless it’s a monopoly and there’s really no such thing other than US sovereign debt, everything else has some amount of risk on it. So you’re talking about cost of capital. That’s looking like 18 to 20%. So we got to this point, we looked at it and we just said, well, we’re going to have to do something to remain solvent. Right?

Preston Pysh (01:10:03):
From a perspective of keeping pace with your buying power, when you say the word solvent.

Michael Saylor (01:10:09):
I guess you would say, if you want to preserve shareholder value, you’re going to have to do something different than hold cash on your balance sheet. The cash becomes a minus 15% liability per year, reasonably speaking. So let’s talk about corporate treasury strategy. So we’re in an environment now where it’s reasonable to think that the hurdle rate is 15% and the currency is going to devalue by 15% a year for the next four to five years, that’s the best guess. It could get worse. It might be a little bit better, but once you crank that assumption in, then you have to say, is cash an asset or liability? What cash is a liability. If you want to preserve shareholder value, which is the same as preserving wealth, which is the same as preserving value, right? If you wish to store value, then at 15%, you’re going to lose 75% of the value in 10 years. You’re not going to be able to buy anything with it, any asset with it. You can’t really focus on inflation, You got to focus upon the cost of capital.

Michael Saylor (01:11:24):
If you look at stocks, bonds, and real estate, the issue is they’ve all got a yield on them, but the yield probably doesn’t beat the risk premium or probably isn’t… I mean, the yield of the dividend, et cetera, yeah you’re getting 3% or 4% or whatever, but at the end of the day, the credit risk of holding a bond that yields 5%, is such that you’re stripped down to 2% risk-free or so. So you’re still going to be looking at something which is 10 to 15% dilutive every year. So stocks, bonds, real estate, they’re not going hold value either.

Michael Saylor (01:12:02):
People, I think they delude themselves into this thinking that they’re safe in these things, but I think we’re at the end of the road for stocks, bonds, and real estate, because they’ve all been inflated to a max by the progression of the interest rate to zero, and by the leveraging up of all the companies to put as much cheap debt as they could in order to get the most amount of leverage. At this point, there’s not any more leverage you can put on these things and you can’t put the interest rates below zero effectively. So a reasonable estimate is, if you park $500 million in any of that stuff, you’re still going to lose 10% to 15% a year.

Michael Saylor (01:12:52):
You’re going to think maybe.. These traders, they think, Oh, I can take leverage and trade this and that. I’m a stock picker, but at the end of the day you’re going to make as many mistakes as you make good guesses, and you’re not going to outdo the money or the return on the money, which is going to be minus 15%. So you’re probably staring at the same minus 15%. You might actually get horrifically worse than that. I mean, right? There’s worse results than losing 15% a year, if you invest in companies, they go insolvent. But the best result is, you’re just holding a market basket of assets that the fed is going to buy. And as the fed buys them, you’ve got that inflation.

Michael Saylor (01:13:39):
So what are you going to do? Well, I’ve got this thought in my head pressed. I don’t know why I have it, but it’s been just in my mind, I’m almost dreaming this thing now. It’s, the road to serfdom consists of working exponentially harder in order to earn a currency growing exponentially weaker. If you’re an individual, you’re that dude in New York and you’re working to make 500 grand a year, and then you want to raise and you keep taking risk and you work harder and you stay longer and you keep struggling. But the house in the Hamptons is going up faster than you can work harder. it’s the road to serfdom. If you play that game, you have a company that makes 50 million a year. You’re going to make 50 million a year, and you’re going to try to grow the company faster than the hurdle rate. I have to grow the company 20% a year to stay ahead of the 15% hurdle rate with the brisk premium.

Michael Saylor (01:14:47):
How are you going to do that? You’re going to take risks. You’re going to throw money at the problem. You’re going to throw people at the problem. You’re going to do an acquisition. You’re going to do a dilutive acquisition. You’re going to take a risky trade. You’re going to try as hard as you can in order to make money, but no matter how hard you work, you can’t grow faster than the rate at which the bank can print money.

Michael Saylor (01:15:15):
So I’ll give you another metaphor. You have one of those heart rate monitors and you march up a mountain. When you get to 9,000 feet, you ever check your heart rate. My heart rate is beating 20% faster. I’m like, “Why is my heart beating 20% faster?” Well, if you do the quick altitude check and you know this, you’re a pilot, there’s 30% less oxygen in the air at 9,000 feet or some number like that.

Michael Saylor (01:15:44):
So if I take 20, 30% of the oxygen out of the air, my part’s got to pump 25% faster to move the same amount of oxygen in order to keep me alive. Now, if I just keep marching you up the mountain, 10,000 feet, 12,000 feet, 15,000 feet, your heart has to beat faster and faster because the option is falling out of the atmosphere and eventually your heart burst. Happens all the time, 55-year-old dude goes on a ski vacation with his buddies from college. They get up and he skids down the slope and he drops dead of heart attack. I don’t know how that happened. Well, I know how it happened. It happened because your heart’s beating 25% faster and you’re under stress, and you’re not as in good shape as you were when you were 25. So what we’re doing is, as we crank up the hurdle rate, individuals, you either have to work harder, 25% harder, or you have to take more risk in your portfolio. And you keep doing all these risky trades.

Preston Pysh (01:16:59):
So what you’re really saying is everybody’s hypoxic right now?

Michael Saylor (01:17:04):
Yeah. What I’m saying is that a government official took you into a room and put you onto a hamster wheel, and then they told you to run as fast as you can, and they told you that if you run fast enough, they’ll keep pumping oxygen in the room. And then they started pumping 20% less oxygen in the room. And then your assignment… You ever tried to run on a treadmill at 9,000 feet, Preston?

Preston Pysh (01:17:37):
That’s nuts.

Michael Saylor (01:17:39):
I’ve done it. Why do they train Olympic athletes at altitude, it’s twice as hard. So you’re on a hamster wheel or a treadmill. The oxygen is getting sucked out of the room. You’re trying harder. Your heart is getting revved and at some point you have a heart attack and you literally, your heart burst. And what is an example of this? It’s like everything company that was a low growth company in the last decade, and they’re trying to stay ahead of the hurdle rates. So they take on and debt and they leverage up.

Michael Saylor (01:18:16):
There are two ways that companies try to stay ahead of the hurdle rate to keep shareholder value. One way is they do acquisitions. I’m buying a company, buying a company, buying a company. It’s a dilutive acquisition. It’s taking massive risks because it’s really hard to integrate two companies together. There’s a 90% failure rate, but I see companies do this. They’re doing acquisitions and then they fail. The number one reason that all software companies fail, and my entire career for 30 years I watched this, number one reason, bad acquisition.

Michael Saylor (01:18:51):
The other thing they do is they borrow money to buy their stock back and they leverage up. So I’m going to buy Oracle, borrows tons of money, buys their stock back, now we’re holding 40, 50 billion in debt on the balance sheet to IRS. We’re borrowing money to buy the stock back, we’re leveraging up. That’s another way to get ahead. And you want to these two together in the most toxic cocktail, I borrow money to buy another company. And so I put them both together, I’m either leveraging risk or I’m leveraging to take my shares out of production. This is the road to ruin. It’s the road to serfdom. It all starts with somebody on the board of directors announced [inaudible 00:19:37] by investors saying, “You’re going to have to generate more than 8% growth. I need 8% share growth. Amazon’s growing 20%. Why can’t you grow 20%?”

Michael Saylor (01:19:49):
Okay. So here’s the last got you, not only do you have to work harder, you’re not growing 10% a year, you’re a loser. Not only do you have to take on more risk, you can’t grow 10%, you’re running a bakery, why don’t you launch a bar down the street? Why don’t you expand into a foreign town? Why don’t you buy your competitor? Why don’t you do a leveraged trade on options? why don’t you do something different? So I have to work harder. I have to do risky stuff. And then the third part is, Oh, and by the way, you have to compete against big tech monopolies that have infinite free money and infinite power that have the ability to ship products to a hundred million people over the weekend for a nickel. You’ve got to compete against Microsoft, or they have like every company on earth is their customer now.

Michael Saylor (01:20:51):
So what’s that feel like, well, they can just ship anything they want to every customer on earth. Now you think that’s not an advantage. You got to compete against Amazon. You got to compete against Apple. You’ve got to compete against Google. You’ve got to compete against Facebook. So as the bankers are basically printing, they’re giving free money to the big corporations, they’re also putting you on this treadmill where you have to go faster and faster and do riskier and riskier things. Those three dynamics are a road to ruin, and that’s why so many midsize businesses and small businesses are getting crushed by this economic environment we’re in.

Preston Pysh (01:21:41):
Do you see Square and PayPal really disrupting traditional wall street banks moving forward, based on your understanding of Bitcoin, the fact that they are way out in front of many others in their adoption and integration of that. How do you see that playing out as far as finances.

Michael Saylor (01:22:00):
Let’s talk about that. I talk about the problem, the problem for corporations is they’re being squeezed toward insolvency by competition and cost to capital and the requirement to beat this hurdle rate. The solution is Bitcoin. The solution is I have to either plug my PNL into a monitoring network a creative monitoring network, or I have to plug my balance sheet into a monitoring network. So Bitcoin is the world’s first engineered monitoring network and it is a creative asset. It’s like an asset growing more than a hundred percent a year versus the dollar. That’s one way financially it makes sense, but it’s also a big tech network growing faster than a hundred percent. So if I’m Square or PayPal, they’re competing against Google and Apple, right? So you could say, Oh, they’re big.

Michael Saylor (01:23:07):
Well, actually they’re competing on one hand against JP Morgan and Citigroup and Wells Fargo against monster banks. But on the other hand, they’re competing against monster big tech companies, Amazon, Apple, Google, Facebook. So they’re really the upstart challengers. They’re in between these two worlds, the old world of banking and the new world of big tech. So what’s your best idea there? Well, the best idea is plug your mobile payment app into Bitcoin because Bitcoin needs a high-speed payment rail. Bitcoin needs a stable currency solution to buy coffee, right? So Square and PayPal solved the problem.

How do I buy coffee with Bitcoin? They solved the problem… They give you a rapid payment rail to every visa compliant merchant on the planet. But what they get for themselves is… This is not really about Bitcoin, this is about Square. Square needs to do this because Square is able to offer all of its customers savings account that yields a hundred percent interest yield tax-free.

Preston Pysh (01:24:22):
On an annual basis.

Michael Saylor (01:24:25):
If I put my $1000000 or a $100000 or $10,000, whatever the number is, if I put a $100000 into bank of America or a conventional bank, I’m going to get 25 [inaudible 01:24:37] base just points. It’s a liability and in five years, it’ll purchase half of what it would purchase today. So I’m going to lose half my wealth while I get no yield. That’s one option. The other option is I put my million dollars into a Bitcoin off of the Square cash app. I think they’re like whatever it takes, 20,000 a week or 10,000 a week. So maybe let’s call it a hundred thousand dollars.

Michael Saylor (01:25:05):
I put a 100000 dollars in the Square cash app and it doubles the next year, and it doubles and it doubles and it doubles. Pretty soon you have $5 million and that’s how you buy that house. Maybe not in the Hamptons, but maybe down the street from the Hamptons, starting from a 100000. And the thing that makes it compelling is A) it’s increating at North of a hundred percent, A) it’s increating it all. B) It’s increating at North of a hundred percent. It’s hyper-growth and C) it’s increating tax-free. Because you want to give me a bond that gives me 10% interest taxable. Well, 10% taxable is 6%, 5% in California after tax, right? I’m taking all the risks. This is why all the yield farming and chasing after yield and everything doesn’t necessarily make sense.

Michael Saylor (01:25:58):
You’re taking a huge risk to get 12% interest, and you’re going to pay 6% or 4% tax. And you got 6% after tax. You’d be better off to hurdle. Just take your Bitcoin or take your whatever, put it on a network, leave it there. The network’s growing, it’s up 200% this year, right? But we don’t have to be super optimistic. Let’s say I just estimated, it’s been growing more than a hundred percent for a decade, but I’m going to estimate it’s going to grow 20% for the next decade. This 20% is a 1/10th of what it did this year, and it’s 1/5th of what it’s done any year for the most part. So once I make that decision, I got a savings account yielding 20% tax-free. That’s the same as yielding 35% return consistently taxable. Okay. What bank and IRF gives you that? No bank. Which company, which piece of real estate, which bond and which stock we’ll give you 35% dividend? Nobody.

Michael Saylor (01:27:05):
Now I go back and I say, do I want to keep my money on Apple pay or Google pay? Or do I want to put it on Square? Well, the answer is on Apple pay, it gives me zero interest. I’m going to lose half my wealth in three years. On Square, I’m going to get a 20% interest.. 35% pre-tax equivalent interest. So it’s very simple, money is going to go, capital is going to flow to wherever you get the highest tax-adjusted interest rate. And the beauty of Bitcoin is, because I just buy the Bitcoin and hold it, it’s a zero-coupon bond that’s appreciating. It means you don’t have all of the anxiety of managing City tax, New York city taxes you, state tax, New York state taxes you, federal tax, federal government taxes you, every other country taxes you, property tax. You don’t have the anxiety of income tax, all sorts of other types of Medicare, Medicaid taxes, every other thing, dividend tax rates.

Michael Saylor (01:28:14):
These are all massive questions and Warren Buffet and any great investor would tell you that 40% of the challenge of investing is just the tax efficiency of the investment. If you’re perfectly right, you lose 40% of whatever just from being wrong on tax or more potentially. So for Square, this is a game-changer. Now, once Square did it, PayPal is got to do it. It’s the same thing. My competitor gives a hundred percent tax-free savings account. The beauty of this is that Square and PayPal do this, they bring utility to the Bitcoin network, and when Roger Ver [Buck 01:28:57] sell Bitcoin, only got seven transactions a second or three or four transactions a second, you can’t buy coffee with it.

Michael Saylor (01:29:04):
The point is, seven transactions a second is fine because what is going to be, is it’s going to be Square cash, moving $182 million worth of Bitcoin once per day. And then, they’re going to do that settlement and they’re going to provide 37 million people with a Square cash account and they’re going to do 187 million transactions a day on their network. They’re a second level solution. They’re going to do 180 million transactions a day for 37 million people and settle it with one transaction against the blockchain. And it’s going to scale just fine. Bitcoin wins, Square wins, the customers win. Everybody converts their Bitcoin into USD currency at the point of transaction

Preston Pysh (01:30:02):
I’m already seeing, and this is.

Preston Pysh (01:30:03):
…transaction.

Michael Saylor (01:30:03):
I’m already seeing, and this is just out with this Fold card. I don’t know if you’re familiar with fold and what they’re doing. So I got a debit card from fold. Bitcoin is literally part of every single transaction I make today. So with my Fold card, I go out, and I sound like a commercial right now, but I go out and I spend, let’s say, I want to pay my electrical bill, or I want to go to target and I want to buy whatever. After every single transaction, I get cash back, but on paid in Bitcoin. So in an indirect way, Bitcoin has already started, because I mean, this thing has just come out. I can only imagine in a year from now.

Michael Saylor (01:30:44):
And if I’m getting 3% back on a transaction and Bitcoin goes up to the hundred percent that it has every year since the past decade, I’m almost getting a majority of the purchase of whatever I spend. If I spend $100 paying for whatever, I’m getting a significant portion of that back just in the first year through the 3% reward. And then in a couple of years, I’m getting the whole amount back. So I just don’t know how things like that are going to… They’re going to just totally eat the whole transaction payment layer.

Michael Saylor (01:31:17):
Well, you described a company differentiating by plugging into the Bitcoin network to make you love the Fold app.

Preston Pysh (01:31:26):
That’s right.

Michael Saylor (01:31:27):
We can describe Square and PayPal differentiating by plugging into Bitcoin to let you buy Bitcoin in one click. By the way, it took me six to eight weeks to buy Bitcoin once I decided going through conventional Bitcoin exchanges. So eliminating six to eight weeks and turning it into one click in one second, right? I mean, there’s utility to that. And [crosstalk 01:31:50]

Preston Pysh (01:31:50):
And what I’m talking about, isn’t even a click. It’s just happening automatically in the background, and I’m not even having to do anything. Every week or so, I’ll look into the app and see the treasury of Bitcoin that I’ve accumulated in rewards. And it’s like, wow. And then as the price is going up, it’s like, holy crap. This thing just keeps on going up. My rewards just keep doubling. It’s nuts.

Michael Saylor (01:32:16):
So let’s generalize this to corporate strategy for Bitcoin. On P and L side, Square and PayPal do this in their payment application. They give you a savings account. That’s a big deal. That’s a huge deal. If Apple wants to compete, they have to offer that to be at parity, and so does Google. Now, what’s Apple do next? The logical thing for Apple is to build a secure element hardware wallet into the iPhone and turn the iPhone into everybody’s hardware wallet, because then they can say, “Hey, we’ve got secure element. That would be better than what Square can give you. They’re software, but we’ve actually put it in the firmware.” By the way, I think Walway, maybe Samsung might’ve done this in one of their phones. So it’s an idea that popped up in the far East, but Apple hasn’t done it.

Michael Saylor (01:33:05):
If Apple does that, they can use that to try to take that bank account from Square. Square will have to innovate. And then Google on Android, they’ve got to innovate. And so Google has got to put that feature into Android, and they’re going to need Samsung to build it in their hardware. So then you got Facebook, and then Facebook thinks they want to be in the money business. So Facebook gives you a stable coin. That’s interesting, but what do you want? Do you want to be able to pay someone with your phone, or do you want to be rich? I think the answer is you want to be rich. And so if Facebook wants to be competitive to Square and PayPal, Facebook is going to have to give you a quick on-ramp to Bitcoin because the getting rich part comes from investing in an asset that pays you a hundred percent tax-free. It doesn’t come from paying for coffee.

Preston Pysh (01:33:54):
That’s completely decentralized. And I think that’s a really important point when you compare Facebook’s Libra to Bitcoin. Libra is not completely decentralized like Bitcoin. And that’s why you’re saying what you’re saying. Correct, Michael?

Michael Saylor (01:34:08):
I just think DM, which is Facebook’s stable coin, it’s just another, “Me too,” thing. I mean, it’s not a game-changer. Let me just say it this way. The game-changer Preston is making everybody rich. Okay? If you can download a mobile app, get rich now, and put it on your phone and punch the button, don’t you think a billion people are going to want that app?

Preston Pysh (01:34:33):
Yeah, it’s the incentive structure that’s going to drive all this into… Everyone has an interest to adopt this is what you’re saying, right?

Michael Saylor (01:34:43):
Well now, I just want to make my rounds here. What I’m saying is in big tech with all these mobile apps, if they don’t give you the ability to funnel a monetary energy into the Bitcoin monetary network, you can’t tap into the network going a hundred percent a year, or 20% a year, or 30%. It’s the only thing that’s accretive in the environment. Everything else is going to be dilutive, and as people start to realize that, “Really? Can I buy a million dollars worth of real estate that goes up 20% a year off my iPhone in one click?” No. We’ve already gone over the issue, which is fiat instruments aren’t going to be accretive in this monetary environment. There’s one obvious answer. It’s Bitcoin. That means Google, Amazon, Facebook, Apple, Microsoft, if they want to stay competitive with Square and PayPal, they have to adopt it.

Michael Saylor (01:35:37):
Now, they got their own advantages. I mean, Apple can actually build a hardware wallet into an iPhone. Google needs Samsung to help them do it. And Facebook can do some things that neither Apple and Google can do. And Amazon can build Bitcoin support. So they’ve all got their different assets and there are ways to compete, but they don’t have a choice. If they want to stay competitive as the Bitcoin network grows, they’re going to have to enter that space, and that’s going to be a beneficial fit to the Bitcoin network. And they’re going to plug all the gaps in Bitcoin that the people criticize it for in terms of…

Michael Saylor (01:36:21):
Facebook will give you a stable coin, right? DM will be the stable coin. And then Facebook or Apple will give you a payment network. And then they’ll give you the political support, right? And all of these things that people worry about that might be a risk factor for Bitcoin, they’ll be cured by the big tech companies to plug into Bitcoin. Again, let’s talk about corporate strategies for Bitcoin. One strategy is build it into your P and L. And you can see the big tech companies moving to do that. And Square and PayPal are catalyzing it. And I expect that that Apple, Amazon, Facebook, Microsoft, they all have to follow. Otherwise, they’re not competitive. Well, there’s another group people. Like let’s look at what’s going on with mutual funds. Well, Fidelity, Vanguard, PIMCO, all these guys, they need to offer Bitcoin funds. If they don’t, then all of the money flowing into Bitcoin flows through who? Grayscale.

Michael Saylor (01:37:27):
Grayscale is the big winner because they’re unique in the market. They’re offering people simple ways to get into Bitcoin. And they’ve grown from $2 billion to $13 billion in assets. So they’re super high growth because there’s a vacuum in the market. So if you’re in the mutual fund business, then you need to build Bitcoin into your product offering if you want to stay competitive. Then you go to the traditional banks. All the big banks need to build Bitcoin into their business. And that. And what does that mean? Trading, banking, lending, yield, custody, you’re seeing that right now.

For example, we just saw Standard Chartered moving, DB, S-Bank, Banco Santander. There’s a whole set of large banks that are starting to creep into the custody space, and they are going to come in at their rate. And then you’ll see the much faster, more aggressive banks. The Kraken, they just got a banking license. Coinbase and Kraken and maybe Fidelity Digital Assets, maybe they’ll come their way, and Binance will do their thing.

Michael Saylor (01:38:37):
So there’s a lot of competition there. If these organizations, which to say competitive, they’ve got to plug into the monetary network with a mixture of product and service offerings. And some will do it fast and in an agile fashion, some will drag their heels and they’ll be followers, and some will resist, and they’ll be marginal, right? When someone takes a billion dollars of money out of your bank, and they move it into the bank of Bitcoin, how many billions of dollars have to flow out of your bank before you realize that lost the custody and the yield and the carry on that money? And so that’s the wake up call and it’s starting to happen in 2021. That’ll be much bigger. So all these corporations, they need a Bitcoin strategy on their PNL if they want to stay competitive.

Michael Saylor (01:39:35):
But now let’s flip to the other side of corporations, the balance sheet. Micro strategy, we’re not a bank. We’re not a mobile app company. And we sell enterprise software. It’s not immediately obvious to me that people that buy business intelligence need Bitcoin built into my hyper-intelligence or business intelligence software, right? It’s a pretty obvious plug into Apple. It’s pretty obvious for Google. It’s pretty obvious for Facebook. It’s not obvious for enterprise software. It’s not super obvious for Tesla, for example. But, what can you do? What should you do? Well, you have a treasury. I have $500 million in cash, so I can either hold it in a depreciating asset, USD, or I can flip it to BTC. So when I flip it to BTC, I plugged in my treasury into the monetary network. It’s equivalent Preston, to having done a $500 million acquisition of a company, a big tech monopoly growing a hundred percent a year.

Michael Saylor (01:40:45):
So think about that. I had a $500 million revenue company selling software that’s low growth, maybe growing 5% a year. If I do everything I can, work very hard, I can grow one to 15% a year, whatever. It’s a low growth. But then there’s a big tech network, which is growing faster than Apple, faster than Google, faster than Amazon, faster than Facebook that’s dominant, and you can sort of acquire that. And so we bought $500 million worth of that, and we just hold onto that, and now that basically turbocharges our balance sheet, and enhance our balance sheet goes from us owning $500 million worth of cash and Bitcoin to owning a billion dollars worth of cash and Bitcoin. And as long as Bitcoin is accretive, and as long as the Federal Reserve keeps printing money, and the money supply expands, and this dynamic ensues, then our balance sheet is growing faster than the hurdle rate, right?

Michael Saylor (01:41:50):
Bitcoin is growing a hundred percent a year, and the hurdle rate is 15% a year. All of a sudden I went from having cash flows growing at 5% while their hurdle rate is growing 15% or is 15%, to a company where my cash flows are growing a hundred percent. And so here’s the big idea. Any traditional company, any traditional individual that’s working for a salary or generating cash flows in fiat currency that’s growing slower than the hurdle rate, can cure the problem by simply sweeping all their cash flows into Bitcoin.

Michael Saylor (01:42:38):
Take my company. If we’re generating $50 million a year in cash, and we save in USD, our treasury is exponentially going to zero, and our cash flows in the future are being devalued by 15% a year, such that in 10 years, the cash is not going to be worth anything, right? So our cash flows are being devalued. Our treasury is being devalued. That’s a road to serfdom. If you flip and you invest all your treasury in Bitcoin, and then you sweep all your cash flows into Bitcoin, it’s like you have a company that is growing a hundred percent. And so you converted yourself into a big tech dominant network from a bakery, or a dentistry, or a traditional conventional business.

Preston Pysh (01:43:31):
And I think it’s important to note when you’re talking. Before, when we were talking the income statement side versus now the balance sheet side, when you’re making these decisions on your balance sheet, those gains are unrealized gains that don’t have the frictional tax burden associated with them as long as you don’t sell. Which just compounds, if you continue to be right, compounds it even… I mean, I can’t imagine what that frictional barrier of tax, if this was on the income side, how much of a difference that would be.

Michael Saylor (01:44:02):
Let me take you through an exercise. I have $500 million in revenue and I generate $50 million in cashflow a year. Let’s say after tax to make it easy. And I have $500 million in cash in USD. And the hurdle rate, the cost of capital is 15%. So I burn $75 million purchasing power a year. So net minus $ 25 million a year, I’m working as hard as I can to lose shareholder value. It’s collapsing. I convert the $500 million into Bitcoin. Let’s say Bitcoin accretes by 20% a year. Very conservative number, but 20%. Now, I go from having $50 million in cashflow, losing $75 million in purchasing power a year, to having $150 million in cashflow a year. Okay? So I’m getting a hundred million in tax-deferred investment income and $50 million in operating income. So I tripled my cash flows with that flip.

Michael Saylor (01:45:12):
Now what happened? Bitcoin doubles and it’s all worth a billion. Now I have $200 million in investment income a year plus $50 million. Now I have $250 million worth of income. And before I had minus $25 million of income. You see, before I did this I was at minus 25, and now I’m at plus 250. Now, what happens if I go out and I borrow $500 million against the cash flows of the business at effectively zero interest? Now I’ve got $1.5 billion and an asset that’s invested in a network, that’s the dominant monitoring network growing a hundred percent a year. But let’s just discount that. And let’s just say to be conservative, it’s only going to be 20% accretive. Now I have $1.5 billion that’s going to generate $300 million a year in tax-deferred investment income with the $50 million from the core business. Now you’re up to $350 million.

Michael Saylor (01:46:15):
You can see that it’s not that much further, if it keeps accreting, that you end up generating more income per year than the revenue of the company was last year. Now, you can do that with anything. For example, if you’re a dentist…

Preston Pysh (01:46:37):
As long as you got free cash flows.

Michael Saylor (01:46:40):
Well, as long as you, you got any assets at all. If you have no monetary energy to speak of, well, that’s a problem. But let’s say you’re a dentist and you’ve got a great dental practice. You get $500,000 in revenue a year, and you manage to save $50,000 a year. And you have $500,000 in the bank or $500,000 in stocks and bonds, real estate. Sell that stuff, invest in Bitcoin, sweep your excess cash in Bitcoin. It’s the same exact calculation. Now you’re generating three X your cash flows. Instead of losing capital you’re making it and you’re compounding. And then you’re the dentist, so you go and your mortgage your house, take a 30-year mortgage at 3% interest, finance it, take $500,000 out, and now you’ve got a billion in Bitcoin. Or borrow against the dentist practice.

Michael Saylor (01:47:34):
Now you’ve got a billion on your balance sheet, and you’re generating $200,000 a year in tax-deferred income with your $50,000 from your practice. Now you’re making $250,000 a year. Now you’re beating the hurdle rate. And so for an individual, the logical thing to do is you borrow against assets at a very low-interest rate. You invest in an accretive asset that’s going to have a high tax-deferred yield. And you sweep all of your fiat cash flows into the accretive asset because they’re just going to depreciate if you don’t. And so that’s the Bitcoin standard. That’s what I did. That’s what my company did. And we’re kind of showing you how to do it. But that’s the same as any individual could do, if they simply use Bitcoin as a savings account.

Preston Pysh (01:48:29):
So a person who’s hearing that, because we have people that listen to the show that look at Bitcoin, they look at the volatility, they haven’t done the research that you’ve obviously done on Bitcoin, and they’re saying, “This sounds really risky what you’re describing.” What’s your best advice for that person who’s hearing this saying, “This guy is obviously smart. I know he’s smart. I can hear he’s smart, but I just don’t necessarily trust Bitcoin.” What do you say to that person?

Michael Saylor (01:48:59):
Yeah, so let’s talk about the risk. So, first of all, with regard to debt, there’s intelligent debt and there’s unintelligent debt. I think it’s pretty foolish to go and buy Bitcoin on an exchange with 10 or 20 X leverage on margin loans, where you could be liquidated on a big move down or up. You don’t do that, right? If you’re going to make an investment, you want permanent capital or permanent debt that’s not marked to market. So for example, would I borrow money for 30 years at two and a half percent interest to buy a house? Yeah. Doesn’t everybody? Isn’t that the American dream? Is that risky? No. What makes it risky? Well, if the interest rate might spike up and it’s not a fixed interest rate, that might be a bit risky.

Michael Saylor (01:49:59):
If the house gets marked to market every day and some banker shows up on Monday and says, “I think your house is only worth half of what you paid for it, and now you owe us $400,000. I need the check before I leave.” And you don’t have $400,000, you’re you’re ruined and bankrupt. That’s risky. So if you borrow money against an asset which is not being marked to market at a fixed or well understood affordable interest rate, and it’s not going to come due for a period of time, then it’s a lot less risky. So if you borrow money overnight in the repo market like Shearson Lehman, did, and then you buy risky stuff, then you might get ruined on a Monday morning when the market moves against you.

Michael Saylor (01:50:43):
So I’ll tell you how we thought about it at my farm. We’re borrowing money for five years and a convert. It’s an unsecured loan. There are no covenants against it. It can’t be called for five years. So we’ve got the use of the money for five years. It’s not marked to any market. It’s not marked to our stock. It’s not marked to the price of Bitcoin. There aren’t any covenants that we have to test against. There are no cashflow covenants to trip over. And there’s none of these complications. So it’s basically a large pool of money. The interest rate is fixed at 75 basis points. So the interest rate is diminimous. And we’re buying an asset with it that we believe is accretive. Now, is Bitcoin volatile. It’s volatile day today, but you can’t find a period of five years over the history of Bitcoin where it wasn’t worth more at the end of the five years, right?

Michael Saylor (01:51:48):
There is no, there is no period where you could have bought Bitcoin and it was worth less money five years later, right? I mean, at this point, some people that bought at the very top in 2017, they had to wait three years. There’s a 1% probability that you might wait three years, but that’s in the past. So the volatility of Bitcoin day to day, week to week, month to month, doesn’t really have much impact. The only real question is, do you think it’s going to go up? Will it be worth more than I bought it in five years? And if it’s worth more in five years than it is right now, the leverage is a winner.

Michael Saylor (01:52:32):
The truth of the matter is from our point of view corporately, even if Bitcoin was worth less and five years than it is right now, it’s probably still a winner as long as it doesn’t go to zero. Because if the Bitcoin traded down 10% and it was very volatile in the meantime, the volatility would be a benefit to my shareholders. I mean, the guys that bought the convertible debt, they’re trading the volatility. So as long as the asset doesn’t go to zero five years from now, it’s probably a winner because we’ll probably use the capital with common sense to make money over that time period.

Preston Pysh (01:53:16):
I think it’s really important to highlight as well for people that would be hearing about you borrowing money to buy Bitcoin, that the face value that’s being paid back on this five-year note, you have double that. Approximately, you have double that in liquid assets, current assets on your balance sheet to pay back the face value of what you’re borrowing today. So that’s a really important point when you talk about the health of your company and what you’re doing, and the position that you had set yourself up in prior to this decision, to be able to do something like this.

Michael Saylor (01:53:52):
Yeah. If you look at the analysis of this debt we issued, we had a company unencumbered. No credit lines, no debt. We had a company where we publicly said, we expect to generate 60 to $90 million in cashflow a year. So the midpoint and guidance is $75 million in cash flow a year. So over five years, we’re expecting to generate $400 plus million in cashflow. We rolled into this with $900 million in cash and liquid Bitcoin asset. So if we borrow $600 million, when the dust settles, we have one and a half billion or more worth of liquidity against borrowing. So this is a loan to value of 30 to 40% versus liquid assets, plus it’s backed by the cash flows of an enterprise software company that’s stable. And if Bitcoin went down by 50%, we still can pay off the loan, right?

Michael Saylor (01:55:08):
If Bitcoin went to zero, we’ve still got cash and cashflow. We probably got cash and cash flow equal enough to pay off the loan if Bitcoin went to zero. And it, Bitcoin went to zero and we stopped generating cash, there’s no other debt on the company. So you’ve got first lien against an enterprise software company with thousands of customers and intellectual property, a very fine portfolio of domain names like hope, angel, hope, and usher, and courage, and wisdom, and strategy and the like. So there’s a lot of assets, a lot of patents, a lot of customers, a lot of revenues. And so we were basically a very creditworthy company, and we took this debt to market. And if you were on the other side of the table, why wouldn’t you buy this debt?

Michael Saylor (01:56:03):
If you like Bitcoin, you have the ability. By the way, the debt’s not just yelling 75 basis points. The debt comes with warrants, or basically the ability to get paid in shares above $398 a share. So what we are doing is giving the debt holders participation in the upside, and we’re giving them security on the downside. So if you wanted to buy Bitcoin, you could buy this debt. You have all the upside of Bitcoin. If Bitcoin goes to the moon, you’re going to get paid off because you have the equity participation. If Bitcoin goes to zero, you’re going to get paid off because you’ve got the security of enterprise software.

Michael Saylor (01:56:44):
If Bitcoin just simply yo-yos back and forth, and it goes up and down, these guys are going to arbitrage the stock. They’re going to short it when it goes up, they’re going to go long. When it goes down, they’re going to trade the volatility, and sell the volatility. And that’s good too. So in fact, why wouldn’t you do that? Right? Like I said to some of these guys if it was me on the other side of the table, I would club all my competitors on the head and I would take the entire deal for myself. It’s a very straightforward thing.

Preston Pysh (01:57:17):
Let’s say big tech starts trying to do a similar move, do you see them being able to come in at an even lower coupon of 75 basis points? Let’s say Apple wants to do something like this. And they say, you know what, we’re going to issue…

Michael Saylor (01:57:32):
They could borrow the money for zero.

Preston Pysh (01:57:34):
They could borrow the money for zero, and if they have some type of convert ability into common stock at whatever strike, they could basically drop the coupon down to nothing if they say they’re buying Bitcoin with it. Do you see that as a real possibility in the future?

Michael Saylor (01:57:51):
I think we got to take this in steps, right? I mean, the first thing that’s got to happen is people understand that public companies can buy Bitcoin. And then they see that not only can you buy Bitcoin with your treasury cash, but you can also use debt to buy it, right? And as people start to see this, then I think there’s just a wall of money. I mean, that’s an avalanche of money. But could Apple do it? Look, Apple could go and they could borrow $50 billion at zero and buy Bitcoin. But the truth is, they wouldn’t need to. They have $50 billion in cash right now. They have a hundred billion in cash, which is diluting and 15% a year, or being devalued at 15% a year. So before Apple went to borrow money, the first stop would be, why don’t they just actually convert their cash that’s debasing under Bitcoin?

Preston Pysh (01:58:46):
I want to double down on this. I want to take this even a step further just to hear what you think about this extreme example. I think that there’s going to be so much demand for this at a certain point in the future, call it one year from now, that if you’re a company that’s going out there and saying, “I’m trying to raise money. I’m going to buy Bitcoin with it.” And we all understand the restrictions for people that are investing in the fixed income space. They can’t invest in other things. But yet we got a hundred trillion dollars in this particular pool of money that’s trying to chase after yield. So could we see a scenario where it’s so competitive to buy this issuance? I mean, I’m just looking at the issuance that you had. You were going after I think it was like $450 million. It was oversubscribed…

Michael Saylor (01:59:32):
$400 million. You were going after $400 million. It was oversubscribed the $650 million. Right?

Preston Pysh (01:59:37):
Yeah.

Michael Saylor (01:59:37):
So does this change to, “I’m going to issue a note, a bond, whatever it is, as far as duration goes, I’m going to issue it at negative a hundred basis points,” just to keep the oversubscription to the point where the amount you were actually going after. Is this where we see…

Preston Pysh (02:00:00):
I think you’re enthusiastic.

Michael Saylor (02:00:00):
I think you’re enthusiastic. It’s possible. But look, I think what’s more likely is, you’ve got a wall of institutional money, hundreds of billions of dollars that’s sitting in fiat instruments, stocks, bonds, sovereign debt, and they have to just get over this mental block of maybe I should buy Bitcoin. And you saw that with Guggenheim. You saw that with Ruffin or whatever. You’re starting to see blocks of $500 million. They’re just sitting out there. That will flow.

Michael Saylor (02:00:37):
Then I think you’re going to see private companies, and they’ve got a wall of money. Then I think the next step is just for public companies like Square and PayPal and the like, I mean, they’ve got billions and billions of dollars in cash. There’s $5 trillion or something in corporate treasuries, some large amount that’s sitting in cash. Once they realize that they can put it into Bitcoin and keep it liquid, then you’ll just see a wall of that money. They don’t have to borrow to do it. You’re going to see, before they borrow money to do it, I mean, Apple’s got 120 billion or some God awful amount, so first they’ll just put 50 billion of that in.

Michael Saylor (02:01:20):
Or Tesla’s got $20 billion. They’ve already borrowed it. You don’t need to come up with this idea of Tesla raises money at a negative interest rate. If Tesla took the 20 billion that’s basically melting right now and put 10 billion into Bitcoin, they would triple it and they’d make $30 billion in the trade in a hurry. So how about a simple idea, which is Tesla, just take the money that’s melting and put it in Bitcoin and triple it. And then at that point, everybody else does it. And then there are other people that can do other things, but that’s just such a simple idea right now that’s right in front of his face.

Preston Pysh (02:02:01):
Well, I agree with you on that. I guess this is the lens that I’m looking at it in. So I buy into the stock-to-flow model. Stock-to-flow model suggests we’re going to be over 100,000, call it September to October, whatever timeframe, end of 2021, we’re going to be at 100,000 on this. I’m looking at how the market’s already reacting to just us breaking 20,000. We’re seeing headlines on CNBC, “Is the dollar doomed with Crowns on Bitcoin?” All of these things, we have Paul Tudor Jones, all these people are all are owning it right now, the headlines out there at 20,000. What in the world is going to happen on the 24-hour business news cycle when Bitcoin goes through 100,000, potentially here in nine months to 10 months from now?

Preston Pysh (02:02:51):
When I look at that and I see that you’re already putting out the example. You’re not doing it with 1 or 2% of your balance sheet. You’re doing this in an all-in kind of such an example to what the power of this really is. And so when I look at all the money that’s pent up in fixed income, yielding nothing, and it’s to the tune of a $100 trillion, and it’s almost like the barriers to get that money out of there is so high and so difficult for them to get the money out of that pool. And there’s a way to do it. And pretty much the only way I can find to do it is through a corporate balance sheet kind of move, by issuing debt that’s convertible. I just don’t know how you’re going to be able to keep the lid on that type or the genie in the bottle on that trade come a year from now, if Bitcoin is going through 100,000.

Michael Saylor (02:03:46):
Well, let’s think about the ways that this money is going to move, though, and let’s talk about the layer cake of money. There are individuals, family offices, and tech entrepreneurs, and privately they can go buy Bitcoin. They’re the early movers. Then there’s the hedge funds, like the Guggenheims of the world. And after they get their head around it, Paul Tudor Jones, Stanley Druckenmiller, Bill Miller, they can put it in their charter and they’ll buy some. I’m talking about 1%, 2%, 3%, and they’ll start to move. But there’s nothing that keeps them from buying 10% or 20%. The first year they’ll dip their toe in at 1 or 2%. Next year, they could amp that up by a factor of two or four.

Michael Saylor (02:04:39):
So in 2021, the simplest way we grow is at some point Bill Miller and Paul Tudor Jones and Stanley Druckenmiller say, “You know, this worked really well, but why did I buy three times as much gold as I bought Bitcoin? Because Bitcoin performed 200% up and gold was up 10% or 15 or something.” So when you transition from that idea that Bitcoin is a great idea to the idea that it was really stupid of me to invest in something which underperformed, you would see two, three, four, five X that money coming from those investors.

Michael Saylor (02:05:16):
Now, there’s another pool of money. The next pool of money is people that can buy publicly-traded stocks. The money’s locked up in retirement funds like 401(k)s. There’s a lot of investment funds that can buy public stocks, and they can buy a GBTC, they could buy MSTR, but they can’t buy Bitcoin. They just can’t, okay? Lots and lots of that money. What are they looking for? Companies with Bitcoin exposure, PayPal, Square, Grayscale, MicroStrategy, there’s a dynamic there, and the dynamic is, companies that have a Bitcoin strategy either on their balance sheet or on their P&L or both, like MicroStrategy is strong on the balance sheet. Square is strong on the P&L.

Michael Saylor (02:06:10):
There’ll be other companies that’ll come. Coinbase will come public. They’ll be strong on the P&L maybe. Interesting question is, will Coinbase actually put Bitcoin on their balance sheet? Big question. Coinbase can do an IPO, raise billions of dollars, and buy Bitcoin with it. Will they? This is my plug. Brian Armstrong, I hope you do.

Preston Pysh (02:06:31):
You’re nuts if you don’t.

Michael Saylor (02:06:32):
But you’re going to see more and more of that happen. That’s another part of the layer cake. Then you have companies that can do debt, companies that can invest in debt. There are a lot. There are 200 convertible funds, and they invest in debt. That’s all they can buy. They can’t buy the equity, quote-unquote too risky. By the way, people that buy equity, if asked about Bitcoin, they say, “Oh, I can’t buy Bitcoin, quote-unquote too risky.” So at the end of the day, one layer is the Hodlers with their private keys, running their own nodes. And there’s a lot of people say, “Oh, that’s too risky.” And there’s another group of people buying Bitcoin on Square Cash and on PayPal, or buying it through Coinbase, less risky. And there’s another layer buying Bitcoin through institutional funds like Grayscale or the like, less risky but still too risky for the equity people.

Then there’s another layer of people that’ll buy the tickers like Square and PayPal or MSDR or GBTC. Then there’s another layer of people that’ll buy the debt, the convert debt. And then there’s also secured debt. Maybe at some point people will start to do secured or convertible debt that is invested in Bitcoin. All of these are different buckets of money. You’ve got insurance companies like Mass Mutual, and they’ve got the 230 billion in their general fund. Now, if they decide they can start to buy an investment-grade asset and anoint Bitcoin as that investment grade asset, then there’s no reason that number can’t go up by a factor of 100 or 1,000.

Michael Saylor (02:08:17):
So what we have is, I guess, about seven layers of money. And I’ve met guys. I’ll meet a person that runs a hedge fund that invests in publicly traded companies. They’re like, “Well, you know, I like Bitcoin, but I’m not allowed to buy Bitcoin per my charter. I have $10 billion, but I can’t buy Bitcoin. To change that requires I change the minds of a committee of 24 people. It’s a 24-month process. We got to go back to all of our limited partners and we got to redo our charter, and then that’s a three-year process.” So they like Bitcoin, but they can’t buy it.

Michael Saylor (02:08:59):
But if they like a public company, a NYSE or a NASDAQ listed stock, they can buy that, and so it’s not really a matter of right or wrong or orthodoxy. You just got to give them the on ramp for the money to flow. I literally met people on my convertible bond roadshow, not a roadshow, but when I had my meetings, person goes, “Yeah, I’ve owned Bitcoin since 2013. I love the idea. Yeah, we’re in, 20 million bucks.” 60 seconds, five minutes. I’m going to give you $20 million. Why don’t you buy a Bitcoin? “Oh, that’ll take me three years. We can’t do that.” I mean, you have to move a mountain to buy Bitcoin, but they can buy the debt in 30 seconds. In fact-

Preston Pysh (02:09:47):
That’s what I’m telling you. I’m telling you that the rates are going to go negative. In a year from now, the rates are going to go negative, because the oversubscription. There’s going to be so much demand for it, it’s going to be nuts.

Michael Saylor (02:09:58):
We’re just doing the work of providing people the on ramps. When Fidelity provides a Bitcoin fund for consumers that you can put your 401(k) into, then billions can flow. When they provide an institutional fund, then billions can flow. When companies come public and they offer you a stock ticker, then billions can flow. When you issue debt, then billions can flow. They’re all just different ways to carve a channel from the asset ocean to the Bitcoin pond, and we’re just carving that channel and we’re making it easy for people. And it’ll take some time, but as people get more comfortable with Bitcoin as an investment grade treasury reserve asset, and that’s the key thing, then there’s $100 trillion worth of problem here. I mean, $100 trillion of assets that needs to find a safe haven home, and people have been using sovereign debt as a safe haven.

Preston Pysh (02:11:01):
History has taught us, when a currency fails it fails in a spectacular way, and in a way where speed is of the total essence. If this 100,000 mark that we were talking about earlier happens in 2021, I just don’t know how you’re going to be able to keep the lid on it. I don’t know how speed isn’t going to just, fear is going to just take over the market. And you seem to think that it’s-

Michael Saylor (02:11:27):
Look, I’m an optimist. I’m an optimist there. Look, if you’re living in the Weimar Republic and there is no alternative, you’ve got Weimar marks, then you’re going to have a complete collapse. But in fact, if you’re living in a modern society where people have options, what’s more likely to happen is, as Bitcoin price goes up, money flows into it, price discovery returns to these other markets. There are a check and balance on behavior. And then people start to react to it and they start to act more rationally. So I would like to think that in a marketplace where there are rational alternatives, that Bitcoin is a stabilizing influence, and people go, “Oh.”

Michael Saylor (02:12:15):
For example, when a bank sees a billion dollars go out the door, they say, “I guess I’d better treat my customer better. Why is it they’re leaving me? Oh, I’m not offering Bitcoin. So I’ll offer that.” And then when 100 billion flows out the door, people notice, and when a trillion flows out the door, someone says, “Why is a trillion moving? Oh, well, because the currency is collapsing. Maybe we ought to do something about that. Maybe we should stop printing money.” I’m going to continue to print a trillion dollars a year and buy bonds, because there is no inflation.

Michael Saylor (02:12:48):
Well, if the money starts to move and people start to see that that’s a dynamic, maybe I’ll slow down on the money printing. In the Weimar Republic, there was no Bitcoin, right? I mean, that’s why that went to zero. But there’s Bitcoin here, and Bitcoin’s an antidote to a problem. And so I think an optimistic view would be, as the price goes up, it becomes more appealing. And then more people adopt it. It’ll keep going up. Price discovery will return to the markets. People will start to act more rationally in the political sphere, and they’ll act more rationally in the investor sphere in a constructive, peaceful fashion. That would be a good outcome.

Preston Pysh (02:13:28):
I totally agree with you there, that this needs to take place in a manner that’s controlled in order to avoid the whole civil unrest and all that kind of stuff. But as far as the governments around the world being able to pull back on their printing. You know, I know, the printing is going straight into the fixed income market, which is keeping the interest rates low. If interest rates start coming up, the value of everything on the whole planet starts to erode in a rapid way, right? So my argument against, not that I want this to happen, but I guess what I’m trying to do is frame the reality of what I think is going to happen. I don’t necessarily know that the government can become responsible with their monetary policy, because it makes the value of everything unwind, right?

Michael Saylor (02:14:18):
I don’t know. I don’t think it’s that constructive to speculate about the zombie apocalypse.

Preston Pysh (02:14:25):
I like that. I like that.

Michael Saylor (02:14:27):
I think we should just focus upon what’s constructive right now, and what’s constructive right now is Bitcoin is a monetary network. Apple Computer can make $100 billion if they plug into it. Tesla can make $20 billion if they plug into it. The individual dentist, doctor, baker, lawyer that’s struggling to protect their economic wellbeing and create prosperity in the future can benefit by plugging into it. As more and more companies and individuals plug into Bitcoin, their lives will improve, their lot will improve, and they’ll be able to escape the path to ruin, which comes from attempting to grow faster than the rate of monetary expansion. And I think what we should be doing is we should be giving people a clear, peaceful, constructive way for them to save their companies and to save their businesses and to protect their families and protect their wellbeing, and the Bitcoin monitoring network is that constructive, exciting thing.

Michael Saylor (02:15:35):
I mean, I don’t think we’re going to get to the point where governments collapse and taxation ceases, and we all have to go get a rifle and ammunition and antibiotics and operate on ourselves. I’m not really planning for that. I don’t think it’s that relevant. I think what’s relevant right now is that Bitcoin is big enough for billion-dollar funds to take a position in it, for you to take a billion-dollar position. When it goes to 50,000, you can do it with two or three billion. When it goes to 100,000, you can do it with 10 billion. Companies like Apple and Google, when they start to see I can move 10 billion in and out of it in a day or two days or three days, then they’re going to get interested.

Michael Saylor (02:16:20):
And as it marches up, it’s going to be a solution to bigger and bigger companies. Then it will be a replacement for sovereign debt. It’s not a replacement for safe haven sovereign debt now, because you can’t buy $2 billion of it in a minute. For example, I’ve done trades on the 30-year debt, and I’ve done $150 million trade on 30-year debt where I shorted it. I did it in March. I shorted it when the swap rate was 72 basis points. Someone’s going to loan me money for 30 years for 72 basis points. So I thought, okay, I’ll take that trade. It was a $150 million trade, and it took 15 seconds, Preston, and it didn’t move the market one basis point. I mean, it was 72, maybe 71, and that was my margin for what I wanted to move.

Michael Saylor (02:17:20):
So if you could buy $150 million worth of something and not move the market one basis point, that’s liquid. The sovereign debt market has that liquidity. Bitcoin, as it gets bigger, the number you want to keep your eye on is what’s the daily liquidity? Can you buy and sell 4 billion a day, 8 billion a day, 1 billion a day, 20 billion a day? As the daily liquidity gets larger, it’s safe haven investment-grade asset status gets better. When you’re a big insurance company, you’re going to want to be able to buy a billion of it or liquidate a billion of it quickly, without moving the market, easily.

Michael Saylor (02:18:08):
And so, I think what’s going to happen is, it’s going to grow at some rate, and you either need to solve the problem of on ramps for consumers, which is what Square and PayPal will do and what Apple and Facebook and Google can do. When that happens, a billion people can buy it with a mouse click or with a finger click. By the way, that’s Mark Cuban’s criticism, show me it’s easy to use. Well, the answer is, have you checked out Square, Mark? I mean, Square and PayPal and Apple, they’re going to make it easy to use. They’re making it easy to use.

Michael Saylor (02:18:45):
So that’s one thing that has to happen. And on the other side, what has to happen is just these hedge funds and these institutional investors, they need to take a billion-dollar position, and I can count like three or four of them that are about there now. And once you get to the point where you’ve got 20, 30, 40 funds have taken a half-billion or a billion-dollar position, Bitcoin starts to trade in an area where there’s 5 to $10 billion of liquidity a day, and the volatility goes away. When I can go and I can sell a billion dollars of it an hour and not move the market, then that’s the point at which the Facebooks, the Googles, the Amazons, the Apples of the world will say, “I guess we can do treasury operations with this.”

Michael Saylor (02:19:27):
They probably won’t be the first. Tesla might be, because they take risk, maybe, but more likely it’ll be mid-sized companies that have 500 million, 250 million, 800 million lying around. They’ll start to move into this, because this is accretive to them. And we’ll get this positive feedback loop. Companies will do it, their stocks will go up, other people will say maybe it’s not so scary. They’ll do it. The hedge fund guys will do it. They’ll make money. And then they’ll go from fear to greed. First they thought, I’ll do a 2% and I made a bunch of money. I’m afraid it’ll work out badly. Then they’ll go like, crap, I lost money on 98% of my portfolio, because I invested in garbage. And maybe instead of 2% good, 98% garbage, I ought to actually move to 10% good and 90% garbage.

By the way, 10% good, 98% garbage would be five times as much money coming from institutions as they’re coming now. So all that starts to happen. And as that happens, as all of these companies and investors buy into the network, you’re going to get their lawyers and their lobbyists, and their lawyers and their lobbyists are going to defend the network. PayPal is going to protect the network. Square’s going to protect the network. You’re going to have anybody that ever invested. If you have a billion dollars of Bitcoin, you think you’re not going to pick up the phone and call your congressman or senator and say, ” Don’t F with this”?

Michael Saylor (02:21:03):
That happens, and then the political dialogue is going to evolve. Right now, there’s one view of the world, but Bitcoin is going to, in a constructive way, infect everybody’s minds, and hopefully it will get them thinking about a different view of the world. And that’ll be a good thing. So I’m optimistic that as this spreads, this could be a force of good, and there’s no reason why it won’t grow faster, but it’ll be progressive. People have to get over the technical challenges, the charter challenges. One narrative we hear a lot is, guy runs a billion-dollar fond or a multi-billion dollar fund. He likes the idea. First, he’s going to buy some on his own account to get his feet wet, to get used to it. How does this work? Okay, now I’m comfortable.

Now I’m going to bring my fund into it. Like me, Michael Saylor, what did I do? I buy it personally. I understand how it works. I get comfortable. Then I go back and I talk to my board and I talk to my officers, and then we do all of the due diligence and we work through the accounting and the regulatory issues and the corporate governance issues and the research to figure out how operationally, security, how we do it. That’s a 12-week, 24-week delay. A lot of these things, there’s a three- month, six-month, nine-month, 12-month delay. There are funds that have hundreds of billions and trillions of dollars, they’ve got on their agenda like somewhere in February, they’re going to have a meeting to discuss Bitcoin.

Michael Saylor (02:22:44):
When they have that meeting to discuss Bitcoin, then three months after that, six months after that, they might start to move. And that’s not a bad thing. It’s a good thing, because everyone listening to your podcast has a chance to continue buying this stuff. You’re going to get in ahead of successive walls of money that are going to come, wave after wave. And when it gets to the point where it’s $10 trillion, it starts to work for small nation states. And when it gets to $50 trillion or $100 trillion, it starts to work for countries. Countries, institutions, endowments, corporations, everybody has the same problem at a different level, but some of them don’t recognize this is the solution yet. It’s human nature. You have to make it easy for them, and you have to give them a role model.

Michael Saylor (02:23:42):
When I have a role model, when another company like me did it, like Mass Mutual did it, Mass Mutual did a little bit, the next 100 insurance companies will say, maybe we should look at it. Then Mass Mutual scales up by a factor of 10, other companies come in. Each of these, it’s a little brick in the road to something better. And so I think we get to sit back and enjoy the way it evolves, and each of these things that happen, they’re going to be good for the network. Every single time a new constituency plugs in the Bitcoin network, they’re going to plug a functionality gap in the network. When a Fidelity comes aboard, there’s a pool of money that couldn’t invest in Bitcoin except through Fidelity.

Michael Saylor (02:24:33):
Coinbase is another pool of money. When Coinbase comes public, there’s another pool of money that couldn’t get into it except through Coinbase’s public offering. Each of these things is another extension of the network. The Bitcoin blockchain is the core base settlement layer, and there’s going to be hundreds and hundreds of, call them member banks, they’re all just kind of member banks and Bitcoin is the central bank in cyberspace. There’s someone doing business in Nigeria. Well, that someone probably won’t be my company, and every country is different. They’ve all got political requirements, regulatory requirements, technical requirements, cultural requirements. You could almost think of Bitcoin is like, it’s a bank franchise or a bank franchising company, ultimately decentralized.

Michael Saylor (02:25:32):
Anybody can start their own bank. If you’re a dentist, it’s a bank for your family. If you’re a small time operator in Nigeria, it’s a bank for, I don’t know, 47 people in your village. If you’re Square or PayPal, it’s a bank for 100 million people. If you’re Apple, it’s a bank for a billion people. If you’re Fidelity, it’s a bank for institutions. There’s someone that’s going to bank pension funds and endowments and other types of money. They’re all just different banks, and they all cater to a different clientele who all have different requirements, except that they all share one requirement. They all want to store their value forever. There’s no one that’ll tell you, I want to lose all my money. Everybody’s got the problem. The answer is different. And what we see in front of us is, we see this Cambrian explosion of innovation, all sorts of companies solving the problem in different ways with different instruments.

Michael Saylor (02:26:35):
And the market is going to sort out the winners and the losers. Some people are going to fail, because they can’t execute. Other people are going to try to bring a product to market, and the customers don’t want it. Other people are going to create a really good product, and some regulator is going to shut it down. It works in Wyoming, but it won’t work in, pick another state. In some case, I’ll do this thing in Nigeria or Zimbabwe, and they’re going to cut me off, and the market will migrate to the next solution that works in Zimbabwe. Maybe we’ll go from a centralized exchange to a de-centralized solution for Zimbabwe, because the politicians are hostile. And maybe the politicians won’t be hostile. And it’s going to be happening in 20,000 places every month differently, as fast as it can happen. And that’s really the beauty of Bitcoin.

Preston Pysh (02:27:24):
Michael, all I can say is, my pencil was going crazy throughout this. I was taking a lot of notes. I thank you for your time. And I know our audience, to be able to basically step into your thought process and to hear all these ideas around economic calculation, how you’re thinking about it from a business perspective, is so valuable. You’re so giving with your time, and I think that’s the thing that not only I’m deeply thankful for, I know everybody who’s listening to this is also thankful. So thank you for coming on the show, and I would really love to do this again in the future.

Michael Saylor (02:28:03):
Preston, thanks for having me. I think you’re doing great work, and I just share your passion in educating the community. I think 2020 is a catalytic year. It’s full of challenges, but it’s also full of opportunities. And Bitcoin is such a paradigm shift in the history of money that I think this is a year where it’s incumbent on all of us to do everything we possibly can to catalyze constructive change. I think so many people can benefit by plugging into this network. If we show them all the different ways you can plug in the network, then I think we can call it a good year. Thanks for having me.

Outro (02:28:42):
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