MicroStrategy CEO Michael Saylor Interview: The Predator Prey Dynamics Of Bitcoin
An exclusive interview with MicroStrategy CEO Michael Saylor.
LINGUA CONTRA IMPERIUM
The Language of Bitcoin: 6
Every company on Earth is sitting on a balance sheet that is normally cash and credit. With a few exceptions, everyone is holding some form of local fiat currency. If they want an alternative to that, they’re holding low risk debt or sovereign debt. Cash and credit.
Cash and credit are crumbling. They’ve always been crumbling. But now they’re crumbling at a faster rate. In good times they’re crumbling at 7% a year and in bad times they’re crumbling at 10 or 15 or 20% a year. In horrific times, if you’re in Venezuela, Argentina, or Lebanon, they’re crumbling at 60-80% a year. That’s hyperinflation.
One year ago we were staring at a balance sheet with $500 million dollars in cash and credit and it looked like it was almost certainly going to crumble at a rate of 15% a year for four years. That drove us to discover Bitcoin. A lightbulb went off and I realized we could swap out that $500 million dollars for something better.
There are a lot of ways to view Bitcoin. You can view Bitcoin as digital property, digital money, or digital energy. If you characterize it as digital property, then I bought a $500 million block of property in cyber space. If you characterize it as digital money, then I bought $500 million of a currency that nobody can print any more of. If you characterize it as digital energy, then we took analog energy and digitized it.
You can hold digital energy as Bitcoin on the network forever with no power loss. No real cost to move it. No cost to hold it. No constraints on the storing of it. The half-life of Bitcoin is forever.
When I look at Bitcoin I think, let’s just convert the balance sheet from analog money to digital money, or from a depreciating asset to an appreciating asset. We did that. We took the first bite of the apple in August of 2020. Bitcoin did what it’s supposed to do, which is appreciated. From that point our stock started appreciating.
MicroStrategy had the ability to raise more money through business operations. We generated cash flow. We sold equity. We sold convertible debt. We continue to build our Bitcoin position because we realize that we can and should have two strategies. One strategy is to run the software business. The other strategy is to run a property business. MicroStrategy is in essence running a cyber development company, or a cyber REIT, if you will.
If I tell you there’s 21 million blocks in cyber space, and each one is a Bitcoin, and this world is only going to consist of 21 million blocks, and you showed up there 200 years before everybody else showed up, you would think, I’m just going to start buying city blocks in cyber space as fast as I can.
So we bought ourselves some, and then we realized there were more to be bought, and so we kept buying.
Let’s contrast this. A year ago we were a $500 million business growing 0% a year, with $500 million on the balance sheet in crumbling cash and credit. The company was valued at about $1 billion dollars. Maybe 1x revenue for the enterprise software business, and the cash and credit was worth $1 billion. That’s where we were a year ago.
Today, MicroStrategy is a $500 million software business growing at about 10% a year. So we got some growth out of it. We got more notoriety. Better for employee moral. Better for product awareness. We’re a $5 billion Bitcoin property business growing 100% a year or more.
Our high-growth business is digital energy or digital property. Our low-growth business is enterprise software. They’re both linked. They both benefit from each other in different ways.
Why did we do it? First we did it defensively. Stage one is I don’t want to lose my money. Stage two is opportunistic, I did it because I could. Stage three is strategic.
This is a pretty good idea to buy up all of cyber Manhattan before everybody else moves here.
If Bitcoin is appreciating at 100% a year, and if I can borrow money at 6% or 5% or 1%, then my arbitrage is going to be 100%, 95%, whatever the number is. I think Bitcoin went up 130% on average for a decade and it’s up faster this year.
Let’s say we think it’s going to go up 110% for the near future. If I can borrow money at 5%, I’m going to get 105% arbitrage. Why wouldn’t you?
You’ve come to Bitcoin defensively for the number go up technology, as most people do, they come to make money and to stop leaking wealth. Many long-term Bitcoin holders have transitioned their financial world view from this number go up, fiat mindset, to that of collecting digital property and holding Bitcoin. There is no volatility when you’re accumulating Bitcoin and thinking of it on Bitcoin’s terms. Can you speak to that mindset?
First I just wanted the number not to go down. Most people don’t think their number goes down when they’re holding dollars, but once you understand the inflation rate you realize your purchasing power is going down if you’re not keeping up with the cost of capital. Your wealth is being destroyed. So first I just wanted to preserve wealth.
Then we realized Bitcoin is a high quality property. I think the epiphany comes when you realize that Bitcoin is the dominate digital property network, and digital property is better than physical property in every way conceivable. If I theoretically designed digital property to store a billion dollars, I would want to hold it in the palm of my hand, move it at the speed of light, vibrate it one thousand times per second. I want it to last forever. I want immortal, indestructible, infinite, all powerful, programmable energy.
Matter is energy. Energy is matter. I can take a billion dollars and turn it into a building. I can in theory turn a building back into a billion dollars. I can buy a billion dollars worth of electricity. I can buy a billion dollars worth of guns. Whatever it is you want to do. Money is ultimately monetary energy and you can convert it into any kind of product or service or property. It is the apex.
Once you realize that Bitcoin is digital property, or digital money, or digital energy, all of these things, then it becomes clear that everything else you could possibly own is inferior to that. You would really never want to own anything other than pure digital energy.
Why do you want to own a building? It’s something to come in from the cold to. A building is something to live in. That’s a good reason. But if you chose to own a 50 story skyscraper in Manhattan, is that as good as digital property?
No, because the mayor of Manhattan can seize your building by eminent domain. If you’re thinking you’re going to rent the building out, a politician can tell you that you’re not allowed to evict any of your tenants even though they don’t pay you. Property in the physical realm can be impaired by anyone with political jurisdiction over the property. That means the neighborhood review board, the mayor, the governor, the regulator, OSHA, environmental review boards, the congress, the senate, the white house. . . Everybody in that domain can impair the value of your physical property.
Not only that, your physical property is going to be taxed. When they decide to tax your building you can’t move your building. If you have a billion dollars of property in Manhattan it’s not fungible and it’s not desirable to everyone else on earth.
What I want is something that is universally desirable through all space and time. How desirable will your building be in 500 years? There’s another interesting dynamic here with physical property. There’s a maintenance cost. The cost of maintenance is the theoretical investment you have to make every year to preserve the property value. If you ever owned a boat, you know what that is. If you stop investing in the boat, the boat sinks.
Property in the physical domain doesn’t hold its value through time and it doesn’t hold its value through space, and it’s not fungible. The Rockefeller center is not the same thing as 1,000 acres in Kansas. The Rockefeller center is not even the same as another big building in Manhattan. Whereas a Bitcoin is the same as a Bitcoin.
How do you get rid of volatility? One Bitcoin is equal to one Bitcoin. One Bitcoin is one twenty-one millionth of all the energy in the network. What is that going to be in 1,000 years? One twenty-millionth of all the energy in the network. Who is that interesting to? Everybody that joins the network. Who can join the network? It’s open and permissionless. Anybody on earth can join the network. Is that everybody? It’s not everybody, because some people haven’t join the network. But, it is more inclusive than any other property network.
A building in Manhattan is interesting to people who do business in Manhattan. Land in the US is interesting to people who can traverse to, or do business in the US. A Picasso is interesting property to people who appreciate Picassos. Presumably, a lot of people do, but not everyone does. Gold has value to people who value gold. Bullets have value to people that want to fire bullets. But if the bullet doesn’t actually fit in your gun it’s like a rock. There’s a certain bullet you want and a certain bullet you don’t want. So why Bitcoin?
Bitcoin is the most universally desirable property in space and time. It’s the property with the lowest maintenance cost. You can put one billion dollars of Bitcoin in cold storage and you don’t have to pay to maintain it. You have to pay to store your gold, pay to store your artwork. There’s a cost to storing everything else. You own a company? There’s a cost to owning a company. You actually get diluted by the CEO or the executive team when they issue stock options. If the company didn’t have any employees and didn’t have any cost then maybe there wouldn’t be as much maintenance. But what do you call a company that has no employees or no maintenance cost? Bitcoin.
I think that when you embrace Bitcoin as your property strategy you can get away from maintenance costs. The likelihood that your Bitcoin is going to be impaired decreases exponentially. It’s a lot harder to seize a billion dollars of Bitcoin than it is to seize a billion dollars of land or art or gold or a building or stock. Exponentially harder. It’s easy to seize a billion dollars in the bank.
If I wanted to take all the money from everybody in Argentina, I could do it overnight if it was sitting in cash or credit. If they all used Bitcoin and held their own private keys, I’d have to incarcerate 70 million people for 90 days, and I’d have to sweat it out of them. So how hard is it to jail 70 million people for 3 months? How many people do I need to do that? Very difficult. It’s probably 10 million to 100 millions times harder to seize Bitcoin than it is to seize cash or credit or securities.
Seizing companies and seizing buildings is easy. The Cuban’s seized all the buildings, everybody lost their private property in Cuba when Castro took over. It’s easy to nationalize an oil company. It’s easy to seize all the gold. It’s very difficult to seize passwords in people’s heads.
So I look at Bitcoin and I think it’s a universal property. It’ll last forever. It’s very hard to seize. It’s very hard to tax. It’s easy to move. That makes it universally appealing. On the day that you wake up and you find it’s illegal to own Bitcoin in your country you can take it to another country. Try taking a billion dollars of gold to another country with you.
So you can take Bitcoin with you, or you can send it somewhere, or you can sell it. The ability to send it, to take it, to keep it, or to sell it, all those are rights that you sacrifice when you buy a house, or a building, or land, or securities, or credit, or cash, or art, or collectibles, or sports teams. You don’t have the property rights you think you have with those things.
Ultimately, the idea of Bitcoin is elegant. One twenty-one millionth of all of the value on the network for as long as the network may last. There’s nothing more stable, nothing more predictable in the entire financial universe than that. That is the single most stable body in the entire financial universe. If you’re looking for something to revolve around there is nothing more stable.
Bitcoin has the potential to be the most useful asset for meeting the coincidence of wants for the most people. It doesn’t predict the future but it can alleviate future uncertainty for the most people on the planet. Those people have the freedom to accumulate property because of this technology. What do you think from a humanitarian standpoint?
I think it naturally follows, digital energy, digital property, digital money is the greatest utilitarian asset, the greatest utilitarian value on the greatest utilitarian network in the world and in the history of the world.
That means for 8 billion people Bitcoin offers the possibility of economic empowerment. I think if you want to give joy to 8 billion people, you need digital music. If you want to give enlightenment to 8 billion people, you need digital books or digital education. If you want to give wealth to 8 billion people you need digital property, digital money.
There is no other. There is nothing else that offers that promise. The reason Bitcoin is powerful is because at the end of the day you can put trillions and trillions of dollars of energy on the network and you can distribute it over something like the Bitcoin Lightning Network to 8 billion mobile devices and the mobile devices cost $50.
Bitcoin is the ability to give economic energy to 8 billion people on a $50 device and to do it with integrity and to do it with no friction. When you move energy on the Lightning Network you’re moving it for like one Satoshi. It’s friction free, speed of light, at any scale, at any frequency.
Understand frequency. If I have $1 billion of gold and put it in a vault the frequency is like once every ten years. That’s the velocity of gold. If I have $1 billion of fiat currency and I move it over the Visa rails and the Fed wire, then it takes one to two months to move it. If I make a charge transaction, before final settlement it’s going to be 30 days before you know that you’re not going to get clawed back in another 15 days. So 45 to 60 days after I pay you for something you can move it. So you’re talking about an annual velocity of 6 per year.
I put the same money on the Bitcoin Lightning Network and the velocity is 6 per hour, 6 per minute, 6 per second. You’re talking about a velocity which is orders of magnitude higher, and the cost is incomparable.
Bitcoin is a revolutionary transaction network and it’s also a revolutionary monetary network at the same time. Dual revolutions. In one case you can distribute economic energy to billions and billions of people, billions of times per hour. That is something of wonder. In the other case you can store a billion dollars of energy in a battery for 100 years and still have the energy. We don’t have any other credit or cash, or asset instrument or property instrument where you can store $1 billion of economic energy for 100 years without dissipating it. It’s just a question of how fast.
In gold you dissipate 90% of it in 100 years. In fiat, in US dollars you dissipate 98%, 99% in 100 years. In electrical energy you dissipate 100%. No one can store electrical energy for 100% years. You dissipate it all. It’s all gone.
Last year they were pumping oil out of the ground and the oil price went negative because there was no where to store the oil. Once you run out of containers or tanks to store the oil you’ve got to pour it on the ground or into the ocean, you can’t store it. We run into the same issues with natural gas and the like. Every single form of energy or form of property is challenging to move, to store over time, and Bitcoin solves that problem.
If you want to empower 8 billion people, you need a monetary network that can reach all of them at an economic cost with something like lightning on top of Bitcoin. There are other layer 3 apps. Centralized solutions such as Square’s Cash App have exponentially decreasing transaction costs that you get by accepting counter-party risk. If you accept a central Bitcoin bank, and you make Google, or Apple, or Facebook, or Square, or PayPal that bank, you can still move a billion transactions per hour. It’s almost frictionless.
Bitcoin offers the promise of monetary superconducting. In a superconducting network, when you get the temperature to a low enough level and there’s no friction anymore, you can do some pretty amazing things. That’s what we have in Bitcoin. Call it weightlessness. If I actually took you into a weightless orbit and I can all of a sudden push a million pounds with a finger, interesting things happen. I think that’s what we have here. It’s a major breakthrough.
I think of it as the next logical evolution of energy. The advent of electrical energy was a big deal. When we had mechanical energy, a mill was put around a turbine because we were running water through the mill and every machine had to run off of that turbine. Then we got to electrical energy, and you didn’t have to build around the turbine anymore. You could spread out the plant across 18 acres. You can move electricity up and down in multiple dimensions in space.
With digital energy I’m not limited to a plant. I can move the energy through time and space a million times more efficiently, so the kinds of structures that you could build and the kinds of things you can do are now exponentially more efficient.
Until we found a use for it, oil on a plot of land would depreciate its value for most of human history. We’ve solved the problem of monetary entropy by decentralizing the whole system and keeping it moving through proof of work, which secures Bitcoin as the strongest asset. But what does the transition look like toward Bitcoin becoming the strongest currency?
I think Bitcoin as a network is going to continue to grow. It’s going to demonetize other assets. The assets it’s going to demonetize will be a function of the cultures it is within. For example, in a culture where you have hyperinflation and the government collapses, it’s going to demonetize the currency, because everybody desperately needs a currency and there isn’t an alternative. In a culture where people feel that it’s unsafe to own property, for example if you had weak property rights, and you felt like the government was going to seize your house or seize your land, or you couldn’t own land, maybe it’s illegal to own land, then Bitcoin is going to demonetize the property.
If you have a million dollars, you’re not going to invest it in land if you don’t trust your property rights. For example, I wouldn’t be comfortable making an investment in an apartment building in a city that has shown itself willing to strip landlords of their rights.
You’re holding an apartment building. You can’t charge your tenants to live in the apartment building, nor can you evict them. What’s the logical value of that building? Does it go up or does it go down in that circumstance? If I had discretionary cash am I going to reinvest it in more apartment buildings or not?
The answer is, wherever we see property impaired, the monetary energy in the property is going to flow to an alternative which is better. I think that in the US people are comfortable with the US dollar, and what they’re not comfortable with, or what they’re less comfortable with is maybe risky stocks or risky property investments or say gold, things like that. It’s logical that Bitcoin strips the monetary premium from commodities, securities, indexes, and credit.
My company would normally put 90% of our treasury into sovereign debt, and only $50 million of it, or 10% of it was sitting in cash. What we did is we demonetized the sovereign debt for the most part. We rolled it into Bitcoin.
I think in the developed world, in Europe and the US, Bitcoin is going to demonetize debt, low-grade debt, or low-yielding debt, and credit. It’s going to demonetize savings accounts. By 2020 most people had already given up on savings accounts. What’d they go to? ETFs.
I think Bitcoin actually grabs monetary energy or capital from ETFs, commercial real estate, and debt in the developed world. In the developing world, in places like Iran, China, North Korea, Lebanon, Syria, Iraq, Afghanistan, you don’t have a stable banking system, you’re not even dollarized, your currency is much worse than that.
What you’re going to see is out of about 180 countries, 15 or 20 of them keep their currency privileges. The bottom 100 lose their currencies. I think they’re going to dollarize first. But how do I dollarize? The best way to dollarize is the El Salvador strategy, which is a mobile application that has dollars and Bitcoin on the lightning network. What you want is a currency as a medium of exchange, a coin that is stable versus all of the pricing of the retailers, such as the dollar, and then you want an asset which is an appreciating token that will hold its value over time. That’s Bitcoin. If you wanted to maximize your utility you put 90% of your balance sheet into the asset, and you put the last piece, the working capital, the checking account into whatever is the currency that most of the retailers that you’re surrounded by take.
If I was in Japan, I’d be holding one month worth of Yen. If I was in Italy, I’d be holding one month worth of Euro. If I was in a dollar economy, I’d be holding one month worth of dollars and then the rest I’m sweeping into my long-term asset portfolio, property portfolio.
Maybe I buy a property to live in because it’s a nice house and I want to live in it for the rest of my life and I don’t rent it. Maybe I buy my trophy art. Maybe I buy the car or maybe I buy the boat or the plane, because I want to fly in it, float in it, live in it, whatever I want to do. But all of my discretionary assets I would put into the highest quality property, which is of course Bitcoin.
I think generally what you’re going to see is $100 trillion worth of capital flow out of investment properties in the developed world into Bitcoin and the currencies will get stronger. I don’t mean stronger in purchasing power. I mean you’ll probably see the dollar become the currency you see used in Venezuela, Argentina, and why wouldn’t you see it spread to every country in Africa. Name a currency in Africa that you would prefer to hold in your wallet versus the dollar. None. Is there a better currency in Africa than the dollar?
If I have $10,000 dollars, I’m probably going to hold $50 in my currency wallet, and I’m going to convert the other $9,950 into Bitcoin. That’s my checking account versus savings account. The ideal situation you want to get to is to eventually put 100% of your assets into Bitcoin. And then you have a credit card or credit line which is drawn against the Bitcoin.
I never really sell my Bitcoin in this case. I just generate a debt against my Bitcoin. We’re a little early here, but if your expense ratio is less than your expected appreciation over time, you never have to sell anything, ever. You can borrow against your assets from now until the end of eternity.
Now it requires that you have a Bitcoin banking sector developed. You have to have a credit line against the Bitcoin and we see that developing in different ways around the world. Ultimately that would be the ideal situation, you would want to hold Bitcoin and draw credit lines in the currencies that exist.
I think what we’ll see is that the world reduce down to 10 currencies or to 5, such as the Chinese currency, the US dollar, the Euro. The only way for currencies can exist is for the government to stay viable. There’s no Afghan currency right now right? There’s not going to be one of those…