Last Updated: 1/27/2021 | 56 min. read
Michael Sonnenshein:
All right. Well, welcome everybody. I'm going to give it a minute here. I see the attendee number creeping up quickly. Give everyone a minute or two to get Zoom to let them in, and we'll get started... Michael, this is most certainly the largest attendees number we've ever had for a Grayscale Speaker Series event. You should be honored and humbled as much as we are to have you here today.
Michael Saylor:
Michael, that's the largest to-date. They're all going to be larger from this point forward.
Michael Sonnenshein:
All right.
Michael Saylor:
Look out 12 months.
Michael Sonnenshein:
Yeah, exactly. Right?
Michael Saylor:
This will look small.
Michael Sonnenshein:
I want to be conscientious of folks' time, and appreciate everyone carving out the time to join us for this conversation today. Good morning, everybody. Good afternoon. No matter, somewhere in the world you are. I am Michael Sonnenshein. I'm the CEO of Grayscale Investments. It is my distinct pleasure to introduce my friend, and friend of the firm, Michael Saylor. Michael, thank you for joining us. Everybody who has joined in today, I believe you know, but Michael Saylor is a technologist, entrepreneur, business executive, philanthropist and a bestselling author.
He is currently chairman of the board and CEO of MicroStrategy. Since co-founding the company at 24, Michael has built MicroStrategy into a global leader in business intelligence, mobile software and cloud-based services. In 2012, he earned a spot on The New York Times bestseller list with The Mobile Wave: How Mobile Intelligence Will Change Everything. Michael attended MIT as well to receive his Bachelor's in aeronautics and astronautics, as well as in science, technology and society. With that, Michael, thank you again so much for joining us.
I think to get our conversation started today, as many people know, you are a pioneer in more ways than one, as I just said. You were also really a pioneer by becoming, I believe, the first CEO to add Bitcoin to your balance sheet as a reserve asset. To kick things off, I'm going to ask everyone dialed in to participate in a quick poll. The poll was just launched. If you're watching this, please participate. The question is, Michael, what was your reaction when you first heard the news about MicroStrategy purchasing Bitcoin as a reserve Treasury asset?
The votes are quickly coming in. I'll give it another 10 seconds, and see where the votes stand. All right, one more second here, and I will close the polling. Cool. Well, here are the results. "Not surprised, it was bound to happen sooner or later," seems to be the winning answer. With that being said, Michael, let's start out at the very beginning. How did you first hear about Bitcoin, and what were some of your initial reactions to it? Kind of give us a sense of what that initial story was like for you.
Michael Saylor:
I tracked technology for about 10 years, well I mean longer, but from 2010 to 2020, I was very interested in the cool technologies. Of course I heard about Bitcoin at that time, but I didn't really focus on it, because it wasn't a solution to the problem I had. As a public company CEO, I had cash. We invested it in overnight repos. We generated 5%, 6% interest for a while. Then it creeped down 2-3%, but we didn't really have a Treasury problem. As a private investor, I was focused upon the sexy names like Apple, Amazon, Facebook.
Michael Sonnenshein:
Sure.
Michael Saylor:
It kind of went into a vault there. It wasn't really until March of 2000 that it was jolted to my field of view again. I think what happened then was, look, the cost of capital went from 5% to 25%. The monetary supply expanded by 25% in the last 12 months. It had been expanding at 5%. We saw massive rampant asset inflation. We had a V-shaped recovery, stocks, Apple stock doubled, Tesla took off, Hamptons real estate took off. Every home in America's up 10% year-over-year. So scarce assets started to inflate, Main Street shut down.
The cost of capital, if you're running a public company and you're concerned about shareholder value, jumped from 5% to 20-25%. Then, if you're a CEO, you have to estimate what's the cost of capital for the next five years. My estimate became 15%. I figured that the cost of everything you were going to buy with cash that was a scarce asset, if you're a shareholder, is going to go up by at least 15% per year. That's risk-free cost of capital. That meant I needed to get a 20% yield with some risk, or 15% without risk. Hence, someone whispered Bitcoin into my ear, and I came back and I revisited it.
Michael Sonnenshein:
Who is the someone? Can you say?
Michael Saylor:
Yeah. A friend of mine, Eric Weiss, who was running a small Bitcoin investment fund.
Michael Sonnenshein:
Okay.
Michael Saylor:
He had whispered into my ear the year before, and I said, "Ah, don't bother me." And the year before, "Don't bother me." He had some kind of uncorrelated digital complicated razor blade, that I could juggle if I had some extra time.
Michael Sonnenshein:
Okay.
Michael Saylor:
I had it in that bucket. If you're doing really well on Apple and Amazon and Facebook, you're fat, dumb and happy. You don't have a problem. As a public company officer, if you had asked me, "Are you going to invest your Treasury in stocks, bonds, equity or crypto in February," I would've said, "You're out of your mind." I'm going to invest my Treasury in cash, short-term... I wouldn't even take a 10 year Treasury bill. I would carry a one, two year Treasury. I want a duration of six months, three months. I was chasing after 200 basis points, 100 basis points. I figured, I'm losing 2% purchasing power a year, but I'll just take the hit, and I'll buy back my stock while I'm working through this. I've got other things to worry about.
Michael Sonnenshein:
Now how many other public company CEOs that have this shared responsibility do you think have come to the same realization at the same time you are?
Michael Saylor:
I think that some of them are, obviously not all of them. But the kind of company that would be jarred by this would be a company that's growing its revenue slowly, that's generating a lot of cashflow, that has a lot of cash on the balance sheet, that stock is not appreciated by Wall Street. Our company's stock was trading at one times revenue plus cash, or two times revenue. When I went to the shareholders, they said, "The cash is worthless." I was like, "Why don't you appreciate my cash?" They're like, "Your cash is a liability." It was a liability when we were generating 1% or 2% yield, and the cost of capital is 8%, right? 5% risk free, plus a 3% risk premium. That's 8%.
That's the S&P return for a decade, something like that. So it looks like it's a drain on shareholder value, when you're a cost of capital 8%. But of course after March, our stocks in the tank, the cash is a weight around our neck. Then we realized our cashflows were going to go through the roof. We had a lot of cash, because you can't spend money. Our business travel was cut by 98%.
Michael Sonnenshein:
Yep.
Michael Saylor:
All of a sudden, we realized we'd probably generate two or three times as much cashflow, and investors are telling me cash is worthless.
Michael Sonnenshein:
Then your friend Eric whispers in your ear about Bitcoin. Okay.
Michael Saylor:
My friend whispers in my ear. I think, I either have to give all the money back to the shareholders, just dividend it back or buy back the stock, or I need to invest in something that's going to appreciate it 20% per year. You go through your list of things. After you write off real estate, stocks, bonds, gold, silver, what's left? Crypto. You get educated. I discovered digital gold, because I needed a non-sovereign store of value that wasn't a cash derivative. This was the highest quality non-cash derivative asset. Ergo, it's the solution. By the way, if my stock was trading at 20 times revenue, maybe it would've been riskier.
When your stock is to the sky. Or if you're growing and the shareholders are saying, "We expect you to grow 20, 30%. You're a high grower," well then you're looking to that as the solution to your problem. You would say, "Well, Facebook and Google already have their strategy, and Twitter has their strategy. So they're not going to go and invest a large chunk of cash to fix a shareholder value problem, because they're looking to something else." When your stock is trading at one times revenue, and Wall Street's forgotten and forsaken you, we kind of had all upside, no downside. It couldn't get much worse. Right?
Michael Sonnenshein:
Bitcoin is on your radar now.
Michael Saylor:
Yeah.
Michael Sonnenshein:
That initial week, that initial month, you're keeping this to yourself. You're reading up on it. You're meeting folks like me and Grayscale and other folks in the industry. What did that journey look like, and how soon did you begin to involve the rest of the management team to start really digging into this with you?
Michael Saylor:
I think it took about four weeks of research on my own. Then I involved the management team, and the board of directors, and our accountants, and our legal advisors for another intense four weeks.
Michael Sonnenshein:
People say, "You're out of your mind." People are like, "Interesting, Michael, but maybe not right now." What are the initial reactions?
Michael Saylor:
If I had brought this idea in February, they would've thought I was crazy. But in April and May, by May, it seemed like the world was turned upside down, and people had much more open minds. Again, in February, we didn't have a problem. The cost of capital was 5%. By May, people pretty much knew that the money supply was expanded by 20%, and it was a K-shaped recovery. So I would say that 2020 was this year where, if you were cash rich corporation, you embraced this idea of a safe haven institutional grade store of value. It's an idea whose time kind of came along in 2020, after the pandemic response.
Michael Sonnenshein:
Right. That last point you made about it being a store of value, non-sovereign, is that for you what really came out of that four-week exercise? That was your light bulb kind of aha moment, that this needed to be something you needed to do?
Michael Saylor:
It finally, the light bulb went off. It's like, this is digital gold. Gold's worth $10 trillion, but gold is heavy and slow and antiquated. This is everything you like about gold, combined with everything I liked about Facebook and Google and Apple. It was big tech and gold, and nobody else understood it. Then I realized, oh, it's kind of hard to buy it. I decided to go buy it. It's like a major thing to figure out how to buy it. It took me four weeks to six weeks to buy it from one institutional on-ramp, and another two to four weeks from the other. Then I realized how many hoops the company had to work through. Other people would've said, "Well, this is scary," and they wouldn't have done it. I thought the opposite, "This is the best thing ever."
I found this solution to all my problems. I have to do some work to buy it. Which means that every other billionaire, and every other billion dollar company's going to be 12 weeks behind me, or six weeks, 12 weeks, 18 weeks behind me. I want the right answer that's difficult to buy. I don't want... I pick up the phone, I call Merrill Lynch and I say, "I want to buy $100 million of Bitcoin." They're like, "Oh, we can't." Okay.
Michael Sonnenshein:
Right, right.
Michael Saylor:
"We can sell you $100 million worth of gold IAU. We can do that in 15 seconds."
Michael Sonnenshein:
Yep.
Michael Saylor:
I'm like, "Okay. Well if it's 100 times better, and it's harder, then I want to be first."
Michael Sonnenshein:
Yep. I think for us, when we talk to a lot of our investors, and I know you know we've long made comparisons between Bitcoin and gold. I think that's a pretty widely held narrative now, that Bitcoin really starts to outshine gold. I think for most investors, they look at portability, which is one of the attributes you mentioned. We certainly think about scarcity, which is really, really important compared to gold. Then we also talk about divisibility. I think a lot of people get stuck on this idea of, well, there's only going to be 21 million Bitcoin. But then they completely overlook the fact that it's divisible to the eighth decimal place, and there's 100 million units inside each Bitcoin.
Giving rise to unbelievable applications that we haven't even broke ground on yet, micro payments, micro financing, et cetera. So for you, when you started doing this kind of digital gold analog, what was most important to you? As you started to socialize this with your management team, for them, what were their initial pushbacks on this? Or was it just kind of career risk, we can't get involved in this, Michael. You're going to crash our stock. Obviously that didn't end up happening, so I'm glad you pushed forward, but I'd be curious to hear how that went.
Michael Saylor:
My problem was a macroeconomic problem. The currency is weakening against scarce assets at an unprecedented rate. So I wanted a store of value. Michael, if Bitcoin didn't exist, I would be the first public company CEO buying 500 million worth of gold.
Michael Sonnenshein:
Yeah. I was actually just going to say, you guys never invested in gold as a company.
Michael Saylor:
Yeah. I stared at it. Two roads, two paths diverged in the wood, and I could take this one or that one, or hedge my bet. I thought about it. I thought, the only problem with this is that every rational investor, once they realize that Bitcoin is better gold than gold, is going to step over gold to Bitcoin. Or they're going to short gold, and they're going to sell their gold, which means that it's quite likely that the next one to $10 trillion will bypass gold, go to Bitcoin. Bitcoin is going to perform. Gold is not going to perform and I don't want to be holding the antiquated version of gold when the world discovers the digital version of gold.
Michael Sonnenshein:
Sure.
Michael Saylor:
Because everything that I did with the digital version, I'm going to lose in the analog version. So it was easier for me to figure this out. I'm much more enthusiastic, because I wrote The Mobile Wave, and in The Mobile Wave I was studying Apple and Amazon and Facebook and Google. My conclusion was, when you have a digital network that goes to a billion people, that dematerializes the phone, the camera, the photo, the book. Like the map, when you deliver a billion maps to people, and the maps talk to you and tell you how to drive, and let you duck traffic. And tell you whether or not you should or should not go to the restaurant, and whether your friends are there right now, at that point, that's not just equal to Rand McNally, right? Rand McNally's 500 million. Google Maps, 50 billion.
It was very clear to me that software instantiations of material things were 100 or 1,000 times better. I went through the experience of telling everybody on Wall Street in 2012, they should buy Apple. Every one of them said, "Oh, well. Yeah, but we're going to sell it if it gets too high. It's a bubble. We're going to diversify, and take some money off the table." They kept selling Apple to buy HP, and selling Apple to buy IBM, and selling Apple to buy PC hardware companies and buy Dell. I said, "You know, you're selling the winner to buy the losers, and one day Apple's going to basically destroy all of them." The same is true with Amazon. Where it's like 15,000 retailers fail, one retailer succeeds, and Walmart kind of treads water.
If you have that experience with a digital mobile, and a digital retail, and a digital social network, when digital money came along and I saw Bitcoin, I said, "Not only is this going to solve the problem of gold, this is actually going to be 100 times bigger than Facebook or Google and 99% of the world can't buy it. They don't understand it, and they think it's not divisible. They haven't done the work, and they disagree with me, but they're wrong. This is unstoppable, and I want to be first. I'm just going to be first, let the world know why I did it. Then eventually, the world's going to follow, because it's the solution to everybody's problem."
Michael Sonnenshein:
From your perspective then, clearly it sounds like you believe in this rotation out of gold into Bitcoin. We certainly agree with that narrative. I think it was in last quarter, Q4 of 2020, Bitcoin hit an all-time high price. That was at the same time that we saw some of the largest outflows on record from gold products. We don't view that as a coincidence at all. But do you see from your perspective, Bitcoin pervading other parts of society, or that there are other kind of low-hanging opportunities? Or is the near term, the next couple of years really just the story is going to be about store of value, digital gold?
Michael Saylor:
Well, I think I see it pervading everything. I think the most important point is, A, people that own Bitcoin, they know that it's a digital asset like digital gold. But B, most people that own Bitcoin don't realize it's a monetary network. It's not just an asset. It's an engineered store of value. It's probably the best engineered safe haven asset in the history of the world. It's perfectly engineered gold. Yes, click.
But the second part of it is, it's a monetary network that's an open protocol, and you can plug into it. So the thing that's really amazing is when PayPal and Square plug into the Bitcoin network, and they sell this stuff to a hundred million people, what's going to happen next? Apple and Google and Facebook are going to have to plug into this at some point. You have programmable digital gold, which means that we're on a path toward a billion people plugging into this via big tech. Every bank's got to plug into it. Look at Grayscale. Grayscale had 2 billion under management. Now you've what, 25 billion assets under management?
Michael Sonnenshein:
Yep.
Michael Saylor:
That's what happens when you plug a fund company into the monetary network. Now you've got PIMCO Fidelity, BlackRock, everybody under the sun, you've got all the big banks, they're all missing it. I don't know if they will or they won't. But what I do know is, if you plug a company, a product, a service into a monetary network that's growing at 200% per year, and it has been for a decade, and it probably will grow at some screaming rate for the next decade, you are going to out-compete everybody that's got your customer base. You're going to steal market share. So this thing, it's a very aggressively growing, 200% growing big tech network. The burden is on every company to plug into it. Either plug in your product, plug in your service, or plug in your Treasury. That dynamic isn't really well understood. That's what's driving the growth and the alpha in this thing.
Michael Sonnenshein:
I think that's a great point, Michael. When you talk about it being programmable money, there's often I guess this frustration that my team encounters when we talk to investors. "Well, there is no tangible Bitcoin, so that's a little tough for people to wrap their head around. They're buying essentially a piece of software." They often do try and think about it as currency, because there's a fiat currency pair between Bitcoin and the dollar, the euro, the yen, CAD, et cetera. But a lot of people get caught up on this idea, "Well, Bitcoin failed, because I can't walk into Starbucks and buy a cup of coffee with my Bitcoin." What do you say to someone who has that mentality around it? Because we need to start talking about what some of these misconceptions are, and how we're going to start turning them around.
Michael Saylor:
Yeah. I think the biggest intellectual fail is people decide what they think it should be. Then they project that, and then they say, "Well, you can't buy coffee with it, so therefore it's no good." Here's a better mental model. There's $500 trillion worth of monetary assets in the world. They're spread between commercial real estate, other real estate, stocks, bonds, derivatives, cash, gold, precious metals, commodities. In the center of that is a $10 trillion hard thing, which we call gold. It's kind of at dead center. In the middle of that is a $1 trillion thing, crypto, of which the most bright glowing part of it is Bitcoin, which is a $600 billion thing. That is sitting in the middle of a universe, and people are plugging into it. When you buy Grayscale, you're buying a fund powered by Bitcoin. When you download the Square Cash App, you're getting a mobile app powered by Bitcoin.
When you buy MicroStrategy, you're buying a publicly traded software company powered by Bitcoin. When you buy the PayPal stock, you're buying a stock of a company with a product powered by Bitcoin. There's a lot of different flavors of this thing. What happens next is, you can expect that Bitcoin goes from 600 billion to 10 trillion. It's going to fill that void that gold is sitting in, because it's a million times faster, smarter, stronger and it's programmable. Then that expands to 20, and then to 40. There's no reason why you couldn't see a $100 trillion monetary system, monetary asset sitting in the middle of a 500 trillion going to 6, 7, 8, $900 trillion financial planet, if you will, as the fiat currency systems expand. Yeah, I think the destiny of Bitcoin in a way is to be the base of the monetary index.
It's like the base asset used to establish the generic monetary index that, first it replaces gold. But a lot of people don't use gold as their monetary index or their safe haven. They use sovereign debt, or they use the Dow, or they use the S&P or the NASDAQ index. If you look at all those things, did you want 15% return on the S&P? Did you want 20% return on gold? Did you want 45% return on the NASDAQ? Or did you want the 280% return of Bitcoin as the base layer for your insurance policy, your index fund, your savings account, your Treasury reserve asset, et cetera? That's how it should grow over time, and it's just limited by people. It takes you 12 weeks to set up the account. It takes you 24 weeks to get through the compliance.
Michael Sonnenshein:
Well hopefully not at Grayscale, and hopefully not 12 weeks, but I'm with you. As bullish as ever, based on the level of participation we're seeing from investors, moves by other public companies that have followed suit after MicroStrategy, adding Bitcoin to their balance sheet. But of course, as investors, and certainly you in your capacity as being in management of a public company protecting shareholders' interests, et cetera, how do you quantify, or qualify for that matter, the downside here? We're talking about Bitcoin's monetary base in this conversation growing exponentially from here, pervading all kinds of other markets besides the market for gold. But obviously there have been bumps in the road. We've seen major drawdowns. We continue to see major drawdowns. Today, for example, the Bitcoin price is probably down 3-4% in the last 24 hours. How do you quantify that, and what time horizon do you associate with a lot of these?
Michael Saylor:
I think if you're a reasonable investor, you should have a four year time horizon. If I met with an investor, and they said, "Give me ideas, but you have to be up on the idea within 12 months," I would say, "You're a little shortsighted." Now of course in the crypto world, we have people that want to be up on the idea in 12 hours. 12 minutes, 12 hours, 12 days, and they're barking this way and that way. A more reasonable time horizon for Treasury is 10 years, and four years is kind of a minimum if you're shortsighted. Look, I don't think it's a good idea to buy it on 20 to one leverage. I don't think it's a good idea to take margin loans with a loan to value of 80%. Would I take a loan to value of 20%? In a heartbeat.
I don't think it's going to drop by 80%. I think that the history of it is totally different. A lot of people are caught up in 2017, 2018. And they're going to lose billions and billions of dollars, because they cling to something in the past, instead of looking at it today. It's pretty clear today that $100 billion entities have major positions in this, at least 100. You're getting their marketing power, their political power, their financial power, and a lot of them are still under-allocated. When you have a $10 billion fund, to put 2% or 1% into Bitcoin, they could easily stomp down on the accelerator and go 2, 3, 4, 10X as fast.
Michael Sonnenshein:
But will headwinds come from regulation? What would keep you up at night, knowing you have $2 billion of Bitcoin on your company's balance sheet?
Michael Saylor:
I sleep a lot better now than I did 12 months ago, I'll tell you that. Here's the big idea. In February, the cost of capital was 5%. I didn't know it. I was focused on inflation being less than 2%. The media told me inflation was 2%. I thought maybe I could get 2% on my cash. It's not worth taking a risk. There's no risk to leave your money in the bank. That was my view in February. Today, I would say the money supply expanded 25%. It's certainty we're going to expand 15% a year for the next four years. But I can't imagine that whoever comes into office in four years is going to do anything other than a tapered landing. So I would say today a conservative forecast is, you're going to lose 75% of your purchasing power over a decade. Another way to say it, a brutal way is-
Michael Sonnenshein:
That is terrifying when you-
Michael Saylor:
75% of your wealth is going to be destroyed with 95% certainty, if you're sitting in cash instruments or cash derivatives over the next decade. That's the best case, Michael. I think the best case is you lose 75% of your wealth, and the likely case is you lose more. The worst case is you lose 98% or 99% of your wealth, because you're sitting in cash derivatives in a collapsing currency. Your alternative is, you can buy Bitcoin. If we look back over the crappy last five years, you would've lost 99% of your wealth if you had not bought Bitcoin and kept it in cash. That's the last five years. I actually think the next five years are better, more institutional grade, more mature. Maybe we don't get screaming 200% appreciation per year for five years, but if you put in any number north of 5%, it's a rational thing to do.
When I look at volatility, I think your choice is two things. You can either leave your money in cash, and in a stable way stagnate down to the point where you lose 90% of your wealth, and 90% of your shareholder value of that stuff you invested. That's stagnation, and it seems like a certain death to me. Or you can accept some volatility on a day-to-day, week-by-week, month-by-month basis, and buy a thermodynamically sound safe haven engineered digital gold that's plugged into the only big tech network. There's only one big tech network, which is misunderstood and not embraced by Wall Street today. Wall Street loves Google. They love Facebook. They love Apple. They love Amazon. They love Microsoft. They figured it out. There's only one network that's big tech that they have not yet embraced, and that's Bitcoin.
And it happens to be the big tech monetary network, which is attacking a total addressable market of $250 trillion worth of money, monetary indexes. It's the biggest addressable market in our lifetime. It's an open, global monetary network that's obviously working. Nobody understands it, and they don't appreciate it. I would willingly take the volatility day-by-day, week-by-week, month-by-month. If you told me we're going to beat you to death for the next year, or two years or three years, and you'll be down 50%, I would still take it, because I've got a 10 year time horizon. It looks to me like it's the solution to every investor's problem, and it's the solution to everybody. All 7.8 billion people on the planet that generate cashflow, they all have the same problem. There's no savings account. Their money's being debased by 75% in the US over the next decade.
Michael Sonnenshein:
Yeah, and we're not even talking about the developing world, where some of-
Michael Saylor:
And 95% everywhere else, you're going to zero.
Michael Sonnenshein:
Yeah. We've spent a good amount of this conversation talking about Bitcoin, which is great. That's certainly where you've spent your time, and where MicroStrategy's balance sheet is deployed. Have you spent much time looking at other digital assets? If so, any findings, remarks, thoughts on them?
Michael Saylor:
I think that the idea of crypto is we're going to create a decentralized network that runs software to provide immortal sovereignty to a type of functionality. I would like to release a creature into cyberspace that will do something without a CEO, a company, a country, forever, for as long as I can imagine. One idea is money. Just a pure monetary energy, and I think Bitcoin is the best of that. There are other things, privacy, license, providence, functionality, exchange. There's a lot of people working on cryptos that do all these different things.
I think that with the incoming administration and the new regulators, I think they'll provide regulatory clarity, which will be good clarifying, and it'll accelerate the development of the crypto industry. You're going to see some high quality cryptos come out of that. I don't think that any of them have the total addressable market of $250 trillion, which is what money is. But I think that there is an addressable market for lots of other cryptos, and I think that they're complementary to Bitcoin. Over time, we're going to actually sort through which of those are the winners, and how they evolve in the next few years.
Michael Sonnenshein:
We have this conversation with our investors all the time, because a lot of them say, "Bitcoin's where I'm most comfortable deploying capital. It's been around the longest. I've done most of my homework there. If I'm getting into crypto, it's Bitcoin." But there certainly over the course of 2020 was this growing appreciation of, maybe I should be allocating across more than just one crypto, but still ensuring I have Bitcoin exposure. I think you're spot on. Because I think for us, we have products around privacy like Horizen and Zcash, and those are some areas where we start seeing that there is underserved markets, or opportunities for those markets to evolve.
And ultimately believe in a world where several cryptocurrencies exist side-by-side with different addressable markets, different use cases, different prices, much the same way that you see that in the precious metals family, right? Gold, silver, platinum, they all coexist but they’re all used for very different things, but not necessarily competing for one another's market share. I think you're spot on. Do you think that we're going to see more public companies adding Bitcoin to their balance sheets? Is it going to move beyond Bitcoin and into other assets as well, as some of that regulatory landscape firms up? How should we think about that?
Michael Saylor:
We will see public companies in 2021 adding Bitcoin to their balance sheet as a Treasury reserve asset. I'm talking to a lot of CEOs of a lot of companies right now. I can see a variety of those things happening in the coming 11 months. We just saw this week, Marathon Patent announced that they had acquired $150 million worth of Bitcoin as a Treasury reserve asset on their balance sheet. We've got thousands of executives and officers and directors of public traded companies coming to our conference next week, February 3rd and February 4th. That's titled Bitcoin for Corporations. We're going to publish our playbook of legal memos, accounting analysis, due diligence documents and the like to allow any company that wants to put Bitcoin into their balance sheet, or they want to integrate products and services with Bitcoin to get a big jumpstart on that. There's a massive enthusiasm.
Michael Sonnenshein:
Oh, wow. Awesome.
Michael Saylor:
Look, I know there's 100 or more private companies that have done it in the past six months, and you're seeing those. The public companies have to jump through more hoops, and they have to go through more corporate governance due diligence processes to do it. MicroStrategy Square, Marathon, we're not the end of this. You're just going to see a steady flow of people adopting this as an asset.
Michael Sonnenshein:
Awesome. Everyone, we probably only have about 15, 20 minutes left in our chat with Michael. If you have questions, please use the Q&A function at the bottom of your screen, and we'll try and get through as many of these as we can. A couple questions, Michael, if we can start moving into that portion of our chat here. A question is, if central banks own gold, and the government is backed by them, why would governments allow Bitcoin to surpass or take place of gold? Won't government just come in and regulate this, or outright ban Bitcoin?
Michael Saylor:
Yeah. Well, the only country in the world that's really banned Bitcoin is China. China also banned Twitter, Google and Facebook. It didn't really stop any of those stocks or any of those networks from performing. I made a lot of money on everything that China banned. It's consistent with them to protect their domestic industry. But everywhere else in the world, I don't really see any regime, other than a completely collapsed currency regime, taking any moves to ban Bitcoin. It's been normalized by the IRS, normalized by the SEC, normalized by the OCC. I think generally what you'll see is regulators will take the position that it's property. You have to abide by anti money laundering laws. You have to abide by KYC restrictions. There's a little bit of ambiguity as they normalize that to be at parity with stocks, bonds and gold.
It will actually accelerate a massive flow of money into the asset class. For those people that are freaking out about potential regulatory intervention, well, you're making a foolish trade, because you're going to sell it before it goes up by a factor of 10. Because that regulator you're worried about, if they did the thing that you fear the most, it would cause an insurance company to drop $10 billion into this asset class and create a massive appreciation. I just don't see it happening. I mean, also I think that there's another story here, Michael, which hasn't come out yet. When Coinbase becomes public, people realize there's 42 million people with accounts on Coinbase. Then they think about it, and they realize Coinbase is not the market share leader in Bitcoin trading finances.
Which means that there's probably 150 million people, somewhere between 100 and 200 million people that own this asset. It's going to be the most popular asset in the world by far, more popular than gold, more popular than anything. Those people vote, growing at 100% a year or more. I would say if you're concerned about this, you watch a couple things. Watch the count of the number of people that own Bitcoin. Then watch the numbers that PayPal and Square print in their quarterly results, which will come up in the next four weeks. You're going to see a growth rate, an explosion in new users. Then at some point, it's going to click with everyone that this is the single most popular investment asset in the history of the world.
Michael Sonnenshein:
Mm-hmm. I think you're spot on. I think from our standpoint, the genie's out of the bottle. When we talk about regulatory clarity. We talk about, at least domestically, CFTC, IRS, Treasury, FinCEN, SEC, we've seen quite a bit of engagement around this. We've even seen the U.S. Marshals Service auction off Bitcoin. I don't see a scenario where a government is going to sell you something, and then turn around and tell folks that the thing they sold you is in fact illegal. So we're right with you. Interesting, and maybe a fun one. I don't know if you guys have explored this. Are you guys yet accepting Bitcoin as a form of payment from your customers?
Michael Saylor:
Yeah. I want to put a stake in the heart of this one. I think that people keep thinking, they hear the word cryptocurrency, and then they think it needs to be a currency and a medium of exchange.
Michael Sonnenshein:
Yep.
Michael Saylor:
It doesn't need to be a medium of exchange. It's not a currency. Here's what I mean by that. A currency has a tax treatment by the IRS, which allows you to take a million Bitcoin... Or sorry, let's take a Bitcoin a year ago, and then convey it to someone a year later, and not incur a tax obligation. When you spend a US dollar, it doesn't matter when someone gave you the dollar. You don't have a capital gain tax on a dollar, because you don't have to mark it. If you had to mark the dollar against the peso, recognize 1,000% capital gain and pay a massive tax bill when you spent the dollar, it wouldn't be currency. Currency is a taxable treatment. Bitcoin is taxed as property. It was dead on arrival as currency as soon as the IRS said, "We're going to tax it as a capital gain. You're not going to ever take delivery of it and then pay for it."
The only thing that makes sense to do is to take your... You sell things in euros and dollars in fiat. You convert your excess cash flows into a Treasury asset like Bitcoin once. You let it sit there forever, for a decade. You're never going to convert it back, because if I were to ever pay you in Bitcoin, I would get tagged with a capital gain tax. So I'm always going to use fiat currency to pay vendors, to pay employees, and to receive payment for goods and services. It's okay, because the payment rails are going to be Mastercard, Visa, US Banks, PayPal, Apple Pay, et cetera. Those are the payment rails. The currency's going to be the dollar and the euro. Bitcoin is a Treasury reserve asset. It's an asset. You should buy it, throw away the key, hold it forever, give it to your children or your children's children.
Because the one thing it has going for it is it's not going to be impaired by any jurisdiction for 100 years, or it's less likely to be impaired than any other asset you could possibly buy. That's why you hold it for a long duration. That's why you should never sell it, and you should never pay for anything with it. When someone says, "Ah, you can't pay for this with your Bitcoin." You should ignore them, because they're about as dinosauric as saying, "I can't pay for a cup of coffee with a bar of gold. Gold is worthless." Or, "I can't use half of my house in the Hamptons to pay for a cup of coffee. Houses in the Hamptons are worthless." No, houses in the Hamptons are fine. Gold is fine. Shares of Apple stock are fine. No, you're not going to take payment in Apple stock, and you're not going to pay employees in Apple stock. It's an asset. It's not a currency, and you should leave it in that bucket.
Michael Sonnenshein:
Interesting conversation there, because I think a lot of people are still stuck on that idea of payment. We've seen a lot of companies, maybe sometimes as a marketing ploy, accept payment in crypto and things like that. Now I want to ask you actually a totally different question. When we think about other investors, we certainly feel, and you're kind of predicting that other public companies, other CEOs will continue to add Bitcoin to their balance sheets, like you have. Like Square has Marathon, as you just mentioned earlier. But what about other institutions? We've started to see a big uptick in interest from pensions and endowments and foundations. Did those types of investors you think face the same kinds of challenges in terms of navigating the investment landscape these days? Are they going to be forced into crypto, if they're not already?
Michael Saylor:
Look, I'm an investor personally. I run my own 501(c)(3). I have a nonprofit foundation. I'm the trustee of that, so I invest those funds. Which need to go on for 100 years. I mean, that foundation's mission is to provide education for free, for everybody, forever. So I have a long horizon for a foundation. I have a horizon as a personal investor, and I have a horizon as a corporate treasurer and as a CEO with a corporate treasury. I look at it the same way. Cash is a liability in a monetary environment, where you have rampant asset inflation. So cash and all cash, and the only issue is, is cash a 5% a year liability, a 15% a year negative yield? Right now, it's 15% or more negative yield in the US. If you're in Argentina, and I do business in Argentina and Brazil, I know what it's like. I have lost millions of dollars in those countries, due to currency debasement. There, it's a 30% negative yield. So the currencies are all negative yielding assets. They're toxic.
You have to get them off your balance sheet, no matter who you are. Here's the bigger idea. If I offered you a shareholding in every company in Venezuela, as the currency is crashing, would you take it? Because if you owned every stock in Venezuela... What if I offered you all the real estate in Venezuela? What if I offered you all the debt of the Venezuelan government? Stocks, bonds, real estate are currency derivatives. If the currency's collapsing, the derivatives are collapsing. What I would say is, if you're an endowment, if you're an institution, if you're a hedge fund... You read about these hedge funds, which will remain nameless. They're like, "Yeah, we bought some Bitcoin." Well, what's your performance this year? 12%. What did Bitcoin do? 280%. So what's that mean? Well, 98% of what I bought lost money, and 2% of what I bought went up 280%, and I made 12%. The cost of capital is 20%. I got paid. I didn't fail. You're failing your investors.
Michael Sonnenshein:
Right. So if you're a pension or an endowment, and you're used to allocating capital to those types of managers, and they're not making the kinds of returns that they once did. I'd venture to guess a lot of these people are having to go further out on the risk spectrum, or into new assets like Bitcoin to achieve targeted returns.
Michael Saylor:
Yeah. Yeah. I think that you're going to see an explosion in allocation. Wouldn't you feel kind of silly if you allocated 1% to Bitcoin, it generated 200%, and the other 99% generated 12% or 6 or -4? Then don't you think the next year, you would think, "Maybe we'll go from 1 to 2?" Or how do you justify-
Michael Sonnenshein:
One would think that would be rational. Yeah, sure.
Michael Saylor:
Well, how about this one? How do you justify to your investors that you allocated to gold, and in the year when... In the best year in your lifetime for gold, when you had political unrest, when you had rampant currency expansion, currency collapse everywhere in the world, it was a tailor-made Hollywood movie for gold, and gold did 20% and Bitcoin did 280%. How do you actually justify to your investors that you put 80% or 90% of your inflation hedges into gold, and 10% into Bitcoin? At some point, you really need to flip that to like... And that's my point. I just can't see how anybody's going to buy gold, once they think about this for a bit. I think you'll see flows. Bottom line is, gold doesn't work. It's not working. It's a very blunt, brutal assessment. Why isn't it working? Because people are intelligent and technology progresses. The only way gold is going to work is if people are stupid. They stay ignorant, and technology doesn't progress.
So if you're buying gold, you're betting against Apple, Amazon, Facebook, Google, Square and PayPal. You're betting against the internet. You're betting against YouTube. I got on a podcast with Raoul Pal back in October. I said, "Raoul, Bitcoin's better gold than gold. You know what that means?" He said, "I've got to sell my gold?" I said, "Yeah. You've got to sell your gold." Well, that podcast or that video's been seen 400,000 times, and you would've lost billions if you didn't listen to that advice. You think that that insight is not going to circulate at some point? I would be terrified if I had a billion dollars invested in gold, as you see millions and tens of millions of people realizing it doesn't work. You want to be holding that when the music stops?
Michael Sonnenshein:
Yeah. Certainly not. But we know today some of the largest holders of gold are sovereign nations. Is 2021 the year where there is some sovereign purchase of Bitcoin?
Michael Saylor:
Between you and me, how's it going to work? Well, first of all, the millennials with Robinhood and PayPal and Square, that hover on Reddit and on Twitter, a hundred million of them are going to buy Bitcoin, and then 200 million. They're going to crush gold performance, and they're going to do it just like they crushed GameStop. The second thing that's going to happen is big tech billionaires who are watching them are going to follow. The next thing that happens is intelligent progressives that are running hedge funds and running investment funds, they're going to think, "I'm going to front run the next group," and they're going to go do it. You're going to see the SkyBridges of the world, then you're going to see Fidelity try to spin up their thing. Grayscale's going to keep doing its thing, right?
Michael Sonnenshein:
Yup.
Michael Saylor:
Then what happens next? You're going to see all of those big hedge funds that allocated one or 2%, they're going to say, "We feel kind of stupid, that we actually got a 12% yield in a year where we allocated a 280% asset class. Maybe we'll go from 2% to 4%, or 4% to 8%." They're going to up their thing. Then you're going to see all of the quiet pension funds and endowments put 1% in, or 2% in, and the insurance companies do that.
Michael Sonnenshein:
It's the snowball effect.
Michael Saylor:
Then you're going to see corporations and the big tech companies are going to do it. Someone's going to do it, and their stock's going to double. They're going to do it some more, and their stock's going to double again. They're going to get really aggressive then. Then you're going to see small nation states, that have nothing to lose everything to gain, get a little bit more appropriate. Then who's going to be last to the party, Michael? The last to the party is going to be the biggest, most comfortable nation states and central banks, because they don't really, they didn't come to the market to make money. They're not really in it to make the right decision. But before they get there, there's plenty of people with $10 billion or more, or a $100 billion of assets that do care about the money.
Michael Sonnenshein:
Right, and are a lot more agile, and will move on it, for sure. In the last couple of minutes here, I wanted to touch on something. Earlier in our conversation, you were talking about I think how powerful Bitcoin is as a network. How secure Bitcoin is as a network. Those of you listening in, I'm sure at this point you all have a general understanding of Bitcoin mining, and the security of the network, and the fact that it creates this immutable ledger where transactions can't be reversed. That's also the monetary incentive that keeps miners involved in processing transactions and brings new Bitcoin online. Michael, with kind of that in mind, one question that I saw, which I think is really interesting for you as a technologist. What do you think about the advent of quantum computing, thinking about how that may or may not impact Bitcoin mining, the security of the Bitcoin network? What we all certainly with relatively blind faith continue to rely upon for Bitcoin, and the stability and the integrity of the network.
Michael Saylor:
Yeah. When you look at Bitcoin, you say, "Well, this is digital gold. God designed this to be the perfect solution to all of my Treasury and investment problems." That's what you do. You say, "It's perfect, engineered to solve my problems." What's the catch? Well then you worry, will it be banned? Will it be copied? Will it be hacked? Okay, so it's not banned. It got copied 10,000 times. It's the winner. It's got 95% of the hash rate of the processing power of proof of work crypto asset networks meant to do this thing. When something's 95% dominant, it makes it the most secure crypto asset network on earth. It actually makes it the most secure database on earth. Because you're staring at an array of SHA-256 ASIC Miners that have no purpose in the world other than to provide security to the crypto network. That's more processing power for this than Amazon or Google or Microsoft, or anybody else could marshall. So it looks pretty secure.
Then we go through this little mental exercise of, "Well, can I imagine anybody inventing any atomic overthrust or secret weapon to defeat it? Maybe the quantum computer is." Here's my view on that. This is the most secure computer network invented in the history of the world. It's more secure than everything else. It currently holds 0.1% or less of the asset value, tangible assets in the world. It's probably 0.01% of the power on earth. If Dr. Evil gets a quantum computer, they can launch World War III by taking over the president's Twitter account. They could take over and they could steal $100 billion out of any bank. They could actually manipulate up the interest rates. They could tweet that Elon Musk quits Tesla, and the stock would get cut in half.
Larry Page and Sergey Brin are not dumping their Google stock in fear of the quantum computer. Jeff Bezos is not living in fear. He has not sold his Amazon stock and shut down Amazon in fear of the quantum computer. If you have a quantum computer, you can destroy the country, steal from every bank, crash every monetary system. Destroy every network, including Facebook, Amazon, Apple, Google, Microsoft. You could have whatever you want, and it would be a heck of a lot easier to hack all those systems. I mean, for example, in the last year, did we not just see Twitter get hacked?
Michael Sonnenshein:
Yeah.
Michael Saylor:
It didn't take a quantum computer to hack it.
Michael Sonnenshein:
And countless other networks, for that matter.
Michael Saylor:
The sad joke of it all is, the guy could have taken over Elon Musk's account, tweeted, "I'm quitting Tesla." The stock would've crashed, and he could have made billions of dollars shorting it. All he could think to do was ask people to send 100,000 in Bitcoin to a traceable wallet. I mean, you could have done anything. You could have taken over Donald Trump's account. My bottom line is, no rational person with money or power on this earth is living and cowering in fear of the quantum computer. The US government is not shutting down in fear of it. No bank is shutting down in fear of it. I would not be in fear of investing in Bitcoin because of the hypothetical theoretical Dr. Evil with the quantum computer.
A, it's not going to happen. B, if someone improves the computer, the people that are going to take advantage of that compute power first are going to be the miners to make the Bitcoin network better, because they have best economic incentive. C, you've got to go about your life. Hypothetically, when you walk out this door today, an asteroid could hit you in the head. But I would still recommend that you walk out the door, and not cower in fear of the asteroid hitting you on your head. Because the rest of the world is dominated by people going about their business, making billions of dollars investing in things that also could be attacked by said quantum computer.
Michael Sonnenshein:
Sure. Sure.
Michael Saylor:
Is not going to happen. Right?
Michael Sonnenshein:
All right. With our last kind of 60 seconds here, Michael, parting words for those folks that have dipped their toe in crypto. Trying to think about where this fits within their portfolio, what to do when crypto falls out of bed. Any kind of sage advice from your journey in crypto so far?
Michael Saylor:
Don't obsess over it every minute of the day. Don't read all the FUD on the internet. It's all garbage. People just make up garbage all the time, in order to create volatility to scare you and make you do something stupid. Check it once a year. Look out four years. Expect to hold it at least 10 years. If you're smart, think about holding it 100 years. Compare it to anything else you could buy that you'd be holding in 10, 20 or 30 years, and ask yourself whether this is a better asset than that thing. Consider what happens when every intelligent person figures out this is a digital monetary network that's a solution to their problem.
What happens when Apple and Google build it into their products? Once you think through that, you're going to realize, what if Netflix could charge Rupert Murdoch $100 million a month to watch television? Would that not be a good business? Because Rupert Murdoch didn't buy $10 billion worth of Apple devices when he started using the iPhone. He doesn't pay a billion dollars a month to watch Netflix. Amazon can't extract $10 billion in a year from a billionaire. But Bitcoin costs you a billion dollars to join if you're a billionaire, and it'll cost you $10 billion to join if you have 100 billion. This is a digital monetary network. It's self monetizing. It's going to be 100 times bigger than Google. You're under-allocated.
That's what I think. You're all under-allocated. What you ought to do is sell your gold, mortgage your house. Sell a lot of your currency derivatives, stocks, bonds and equities. You should buy Bitcoin, then you should buy more Bitcoin. Then you should tell the world you bought Bitcoin. Then you should go convince your parents, sisters, brothers and business associates to do the same thing. Because this is a once in a lifetime opportunity to own a digital monetary network, before the rest of the world understands that it's the solution to their problems. It won't happen again. You won't see this in our lifetimes.
Michael Sonnenshein:
All right. Well, very well said. Michael Saylor, I cannot thank you enough for spending some time with us. Those of you who are dialed in, I apologize we didn't get to all of your questions. If you had to duck out early, we will make this replay available. Michael, I hope you will come back and join us in a couple months on your crypto journey. Thank you very much
Michael Saylor:
Anytime. Thanks for having me.
Michael Sonnenshein:
Awesome. All right, everybody. Stay safe. Thank you. Bye-bye.