Michael Saylor, the CEO Who Turned a Software Company Into a Bitcoin Company

listed equity. Yeah, that's right. And I know we've been talking about the possibility of a Bitcoin e t F for many many years now, it's kind of surprising that that hasn't happened just yet. But you're right, there are a number of public companies that are now a play on bitcoin, and they kind of range from the more I guess you could say outrageous or unusual to um,

the more traditional. So at one end of the spectrum you have a grayscale Bitcoin Trust, which is sort of trying to replicate the e t F structure without explicitly being in e t F. And then at the other end you have remember all those companies like Long Island Iced Tea that changed their name to include blockchain and just sort of jumped on the bandwagon, and those have been going up this year along with the bitcoin price as well. And then of course you have everything in between,

right is exactly right. So some companies are very tangentially related to crypto, or they're like, oh, we're suddenly a blockchain company, even though we used to sell iced tea um. Or some companies they're like, oh, we bought some bitcoin mining rigs and we're going to do something like that.

So there is a range of exposures. But over the last several months, um, really since this summer, i'd say one company has sort of really jumped out from the rest of the pack in the degree to which people view it as kind of a bitcoin play or a real sort of a direct exposure to fluctuations in the coin itself. Yeah, I think that's fair to say. And

that company is of course micro Strategy. We've seen them buy up a bunch of bitcoin, so basically using their cash reserves to buy bitcoin, So instead of holding a bunch of government bonds in their sort of corporate treasury function, they hold something like bitcoin or instead of holding bonds and stocks and gold, they hold bitcoin. And it's been a really interesting development because it's actually meant that the company's share price is basically tracking the price of Krypto. Now, yeah,

exactly right. So, uh and it was a really well timed I mean, I think it was like the middle of the summer, maybe it was August. I think they announced that they were going to buy some bitcoin, a pretty good chunk of it, and then they announced that they're going to buy some more. They recently even UM

sold a convertible note to buy more bitcoin. At the same time, the price of bitcoin is skyrocketed over the last two or three months, shares of micro Strategy have skyrocketed in a concert and so they've really become the sort of the publicly listed bitcoin exposed company. I guess you could say that people are talking about this year

and the company has already also become like legendary. All the bitcoin hardcore bitcoin maximalism fanboys love this company now because they see it as UM sort of paving the way and maybe leading to more companies having bitcoin exposure in their in their treasury. Yeah, and we should know that micro Strategy is also led by Michael Sailor, and he's become a big, big name in the bitcoin community.

I think Baron's called him Bitcoin's most important proselytizer, So that gives you some indication of the regard that he has within uh crypta exactly right. Every all the bitcoin people I follow on Twitter absolutely love it. They love him, and I'm excited that Michael Sailor, the CEO and founder of micro Strategy, is joining us today. So Michael, thank you very much for joining us. Tracy Joe, thanks for having me. Happy to be here. So what is micro Strategy?

I mean, I feel like a lot of people probably first heard about the company this summer when you announced that you're going to be putting some of your holdings into bitcoin, but you've been around a long time. What is what is micro Strategy? What does it do? What's the story? Micro Strategy is the world's largest publicly traded business intelligence software company. We got started in nine and in the early nineties we um invented an approach for

doing analytics against large relational databases. So if you had billions of rows of data your McDonald's or your target and you needed to extract insight like market basket analysis or marketing uplift. If you're a big bank and you wanted to do credit analytics against the portfolio of hundreds of millions of accounts, you needed to do complicated analytics

on a large relational database. Nobody in the world knew how to do it, and we invented an approach and created this software platform too to build those apps, and that was that was our early breakthrough, and we grew on that platform, became public and uh we competed against reporting companies like Crystal and Business Objects and old app companies like Hyperion and s base. And they're probably a hundred different business intelligence companies that came and went, some

went out of business, any of them merge, many were amalgamated. Eventually, our largest competitors were merged into were bought up by IBM, s a P, Salesforce, Oracle, and today we're the pure play business intelligence company and we compete against business intelligence divisions at IBM and Oracle and s A P and like, and so it's enterprise software. We saw it everywhere in

the world. We have about four thousand very large customers, big hotel chains, airlines, governments, retailers, big tech companies, most of the major banks, and uh, we're about two thousand people in twenty seven countries. That's what we do. So unlike many of your competitors, you came through the tech bubble intact. And as you mentioned, you you've grown since then. What inspired you too by bitcoin? Rather something like what

was the thought process that went into it? Because as Joe and I mentioned, it is quite unusual to see a company buying bitcoy in this way. Well, I mean, we ran a very responsible business. We were profitable, We generated a lot of cash. We uh, we spent hundreds of millions of dollars over the past few years buying our stock back and we and we came into the year with about five hundred million dollars in excess cash and our treasury and we kept it for a rainy day.

We thought, let's have no debt, let's save the cash, let's run the business. And and we were running a business where we were we were hiring people and spending heavily on sales and marketing and services activities and um, and then March hit and when the pandemic and by way, we didn't think much about my view of cash was I invested in short term treasuries, and by way, those short term treasuries yielded five percent interest in two thousand

and ten, and then ancient history. I'm old enough to remember when you could get five and a half percent interest on overnight money, Joe, right, you know. So, so I watched that interest rate whittled down until it became nearly nothing, you know, down to like twenty basis points or something, and uh, I kind of stealed myself just to accept that. And we started thinking, well, what are

we gonna do with the money. But then March came and COVID hit and there were lockdowns and you couldn't fly and you couldn't go to hotel and all and all of our marketing events got canceled, and all the traditional ways of doing things changed, and we encountered what I'll call a virtual wave in essence, all of our sales and marketing and services that could be virtualized over

zoom or turned into streaming videos became virtualized. And and first, you know, first we were you know, unhappy and more to hide, right because everybody's mortified in March what's going to happen? And then we realized that our value proposition was intact, everybody wanted our software. We only do business with you know, mega corporations and mega governments, so they're

all fine. They wanted the software more than ever. But the cost of doing business decreased because now even if we wanted to spend millions of dollars on marketing events, we couldn't. And and at that point we realized that a we didn't really need the five million dollars to sell and market and grow the business because you couldn't

throw money at the problem anymore. You're just going to post videos and you're gonna zoom everywhere at the speed of light and then be We realized that we were going to generate a lot more cash in the future than we had in the past because we had thirty or forty million dollars of costs fall out of our business. And so all of a sudden, we go from thinking, well, we've got a good treasury. It's responsible to keep the cash and save it for a rainy day in case

we need to spend it. Two, we have more money than we need. Our stock is in the tank, our investors don't value the cash. At one point, we were valued at one time's revenue plus the cash or two times revenue, and the cash was worth nothing. And the investors literally told me to my face, they said, we don't value the money is worth anything. And so that's one dilemma. And the other dilemma is we're gonna generate five million more dollars than we thought we were going

to generate. And then there's a third and that's not a dilemma, that's a that's a development because the virtual wave. And then we watched as the Federal Reserve and the EU Central Bank started printing money, and we realized that

there was massive rampant hyper inflation in assets. There's no inflation and consumer goods that do not include food and energy and assets but like there's no inflation, and YouTube streaming videos and Netflix, you're never gonna get inflation, and that you've got inflation in the ten year bond, the thirty year bond, Hampton's real estate Apple shares doubled, even though the EPs was constant. All the assets and the the energy rich products inflated at a rapid rate and

there was a k shape recovery. And that's when I started looking at the world differently and what I realized was the money supply the end two money supply that had been expanding at about five percent a year for the past decade was now expanding percent a year. And any reasonable person would expect that the money supply is going to expand by ten to fifteen percent a year every year for the next four to five years. And

then I realized we have rampant asset inflation. And another way to say that is the purchasing power of the cash is being degraded. The Federal Reserve is devaluing the currency at fifteen percent a year. And so what that means is if you're sitting on cash, you can expect to lose half your purchasing power in thirty six to

forty eight months, guaranteed. And so I went from thinking I needed the cash and I might get a yield and maybe maybe there's a two percent inflation rate to the real inflation rate is like been running six percent, but now it's about to run And so my cash is a melting ice cube and it's a it's really a violation of my fiduciary duties to watch the cash burn away, like if someone came into your backyard and

started stealing your money every year. I mean, how many years would you wait before you took the cash out of the backyard. So that that's the dilemma, and that's where we went in March when we went down this journey. Well, yeah, so you made the decision to put a big chunk of that into coin. Why not do another possibility of um, you know, like a special one time dividend or something like that, so that the shareholders could in theory allocate

the cash however they wanted. That is a good question. First of all our choices where we could just give it all back to the shareholders, right, we could divdated it out or do a massive stock buy back. Or the second choices, we could do a big acquisition of another company, which a lot of times people do to try to grow our top line. And the third choices, we could invest it in something liquid as a treasury asset, which was going to appreciate and price faster than the

rate at which the central bank printed money. So those are the three logical choices. So so what did we do? Well, we actually went right down the middle. What's the problem with just giving all the money back? Well, Joe, if I give all the money back I decapitalized the company, and then if we have a negative event, were insolvent, Like, why doesn't Harvard give all the money back of the endowment, right? And why don't you take all the money in your

bank account and give it to the needy? Right? The answer is because Harvard wants an endowment, and because you want to have money in case your family needs it, And why doesn't a company might give all of its money back to its shareholders because they might actually have to make good on a contract with a vendor, or pay an employee, or like if I, you know, all my customers are expecting me to be in business for the next twenty years, so if I drained my treasury,

they might lose confidence in me. So you know, giving it all back is decapitalizing the business, and you might as well drain the endowment of every institution on earth. It does. It doesn't make a lot of sense to do that completely. Having said that, what we actually decided to do was embark on a program where we agreed to buy back to spend half of it to buy back stock and the other half to invest in alternative assets.

And we decided we would go look for some kind of inflation hedge, and we put this out on the wire. We announced it to our shareholders because we wanted them to be able to digest that news. And then we went on a pretty intense search, and we considered everything we might invest in our endowment, in our treasury, in and we considered buying real estate, and we considered buying bonds,

and we considered buying stocks. And the problem is, you can't buy any other currency because they're all debasing as fast as the dollar or faster against heart assets. You can't buy bonds because no bond is going to yield a coupon of more than fifteen percent a year. And the only way your bond is gonna hold its value is if it's not yielding fift interest is if the interest rates keep clicking down to go negative. And so if you don't believe interest rates are going negative, bonds

absolutely won't hold their value. And it looks like bonds got to the to the line when the thirty year got to seventy two basis points or the fit you know, the ten years got the fifty basis points or whatever they got to. So bonds don't work. Then real estate doesn't work because commercial real estate trades like a bond. And and how are you going to grow your rents by fifteen percent? The cost of capital literally went from

five percent to fifteen percent. So real estate is not going to hold his value, nor is it gonna have a cash yield of fifteen percent. And by the way, half of it's impaired. And I mean, how do you pick unimpaired real estate, you know, going through the time of COVID. So now you've got to go to stocks. You've got to buy a portfolio of stocks. Well, stocks are fiat instruments that are valued based upon the discounted

value of the cash flows over time. If the monetary supply is expanding at five percent a year, then Google and Facebook and Amazon work because they're growing twenty percent a year. But if you've got a business it's only growing five percent a year, you have to leverage up. You have to borrow money short the dollar, buy your stock back to leverage up your cash flow per share in order to beat the hurdle rate. That's almost possible at five hurdle rate. It's impossible at hurdle rate for

just about anybody. And again the problem is the you know, I can leverage up a corporation, and they've been leveraging up. But with interest rates pegged at zero or near zero, you can't go negative. So it's the end of the line for leverage equity. So we dismissed all three of

those and we went to gold. And the problem with gold is the gold miners produced two percent more gold every year, and gold is centrally controlled and corruptible, and then people print gold derivatives that aren't fully bound by the gold, and so you can expect a two to four percent dedegradation of gold over time over a hundred years. That means you're gonna lose nine of your value. If you invest in gold over a hundred years, you're gonna

losecent of your values. You invest in the US dollar increasing at five percent, are expanding at five percent a year, and of course the real the real likelihood as you lose nine percent of your value because most of the currencies collapse over a hundred years. So that took us to crypto, and we got to crypto. We looked at six thousand, five hundred cryptos and we found that bitcoin

is the dominant crypto asset network. It's times bigger than the next closest thing that looks like it, and it had more than two hundred billion dollars of monetary energy in it. Bitcoin is an essence Facebook for money or Google for money. Uh. It's and this is the nuance most people haven't realized yet. What you have is a dominant digital network that's been engineered to host a safe haven treasury reserve assets superior to gold in all respects.

It's pharmaceutical grade gold. If God gold as a treasury reserve asset to hold for a hundred years, he would create twenty one million gold coins. He'd make it impossible to make anymore. He would make it possible to audit it anywhere on Earth from any node every ten minutes. He would make it. He would make it unhackable and uh. And he would make it an open architecture that's programmable, so you could build it into an iPhone or Square

or PayPal or any other exchange without permission. And he would distribute it everywhere on Earth with these with these crypto shaw to fifty six miners, so that no company controls it, no ceo controls it, no country controls it, no regulator controls it. So that's kind of the perfect synthetic safe haven asset, and that's what we found in

our search. So you touched on this earlier. But corporate treasuries are generally supposed to be full of liquid assets because, as you mentioned, you don't know when the company might experience some sort of emergency event where it actually needs cash on hand. How liquid is bitcoin? And also how did you go about buying it? Because again, as we mentioned, you built up a pretty big position, So I'm curious, like,

buying it up, what was that like? And then in your mind, what would selling it all in an emergency scenario be? Like? Well, I mean it's a good point. Bitcoin is the best treasury reserve asset on earth for

anybody at our scale. It might not be the ideal asset for someone that needs to store a hundred billion dollars at a shot, like a like Apple or maybe a nation state, but for a billion dollar company or a multibillion dollar company where you're going to move ten to a hundred million, two hundreds of millions at a time,

it's ideal. How liquid is it? It trades seven three sixty five every minute in every country, in every language, and nearly every currency pair over Thanksgiving, Apple Stock, Amazon Stock, most all the all the US capital markets shut down at four pm on Wednesday. They traded nine thirty am to one pm on Friday. They didn't reopen again until

nine thirty am the following Monday. That means over one hundred and thirteen point five hours US capital markets function Three and a half hours three point one percent of the time was the banking and the capital market system working for treasury. Bitcoin was functioning all one hundred thirteen point five hours trading, mark the markets, every country, every currency. It's really it is the global asset of choice. If what you unted was transparency, marked the market and liquidity.

On average, uh, it normally trades about two billion dollars a day. UH. Sometimes it trades a bit harder than that three billion. You could reasonably liquid a hundred million dollars over a few hours on a Saturday afternoon. During weekdays, the volume increases and you could probably do it faster. So in that size or scale, it's fine. I mean, if again, if you wanted to liquidate fifty billion dollars worth of stuff, it's a little bit too small because

the network is about three or fifty billion dollars right now. Liquidity. But you put your finger on an important point, which is the value of bitcoin is to serve up liquidity. As the price goes up, the liquidity goes up, the value the use case goes up. The value and use goes up. When bitcoin goes up by a factor of ten, it will be ten times better, and when it goes up by a hundred, it will be a hundred times better. And so you have a positive feedback loop as a

treasury asset. And what you see right now is people are starting to adopt it and plug their treasuries into this network. It starts with small, mid size, then high net worth individuals, small mid size companies, and it will roll to larger and larger institutions over time as people start to discover it and as the network is bigger. Let me let me ask you a question. I wanna you know, I wanna sort of said to the sort of bigger strategy in a second, but I want to

press you on one thing. And you're talking about fifteen percent inflation or degradation of the dollar value. But just to be clear, I mean your costs. I mean you run a business, and so you have salary and computer you know, technological infrastructure, spend and rent for your offices, uh travel when travel exists, those class haven't been surging fifteent of years. So when you say that, it's not actually consumption, right, you're talking about financial assets rising, not

actually purchasing power of day to day business needs. You know, I'm gonna be fairly brutal about this. I'm gonna say that everybody on Earth, all three hundred trillion dollars worth of investors, are going to lose half their wealth in the next forty eight months due to the currency collapse. And that's in the that's in the Western world and

US and Europe. It's much worse. It's loss. If you go to Argentina, Brazil, Venezuela, Nigeria, South Africa, Turkey, Lebanon and the like, there's a billion people where the currency is literally collapsing. Everybody in the Western world is just gonna lose half their wealth if they don't start paying attention. Now, let me, I just want to say now to our producer, we're definitely rebooking Michael for December fIF team uh two to talk about that, all right, So keep going, keep going.

But I just want to make sure that we follow up. Okay, I'm gonna make another important point. Inflation is an irrelevant metric as defined by the central banks, central banks and the FED, and most of the mainstream media refers to inflation incessantly and laments the lack of inflation, and their definition of inflation is a market basket of goods and services that do not include the highly volatile food and energy. And then nobody ever questions that in mainstream media, or

at least they don't really think hard about it. But first of all, there is no planet where anybody can live without food and energy, and so tracking a metric that does not track food and energy is entertainment, but irrelevant when you're contemplating the future of the economy or an investment. My second point, if you added food and energy such that you did not starve to death, it

still wouldn't be the proper metric to track. If you're actually an investor, the appropriate metric to track would be cost a capital or asset inflation, which is the rate at which a market basket of assets that are desirable by rational people, or the rate at which goods and services that are desirable by rational people go up in price. And if you were to actually put into that basket things like early retirement or social security. How about how about a stipend to live, you know, for the rest

of your life on fifty thousand a year. That used to cost a million dollars when bonds yielded five percent, and then it costs two million dollars when bonds yielded two and a percent, And today that would cost you four or five million dollars when bonds or yielding that it would cost you six million dollars with a ten year bond yielding ninety bases points. So there's definitely rampant hyper inflation and annuities, and there's hyper inflation and other assets.

If you look at the last decade, the cost of capital is about five and a half percent. That's the end to money money supply expansion. And it turns out that you know, the S and P was was appreciating it about seven to eight percent. And you you will look and see the cost of the cost of buying labor intensive highly desirable things people want is going up

faster than one or two percent. For example, none of my employees are willing to keep working for me if their salaries increased by one percent a year on average, it's about a seven percent increase in costs to keep to keep talented people from quitting your company. And so if you're tracking technical labor, that's about the rate at which the prices go up. If you look at the chap would index prices go up across the board undesirable things. Real estate in the Hampton's went up in sixteen weeks

this year, sixteen weeks. Look at any desirable real estate. Look at any scarce asset that the FED can't print, anything that is not if it's energy intensive, if it's labor intensive, or if it's if it's a true financial instrument. It's inflating somewhere in the last decade, easily at seven percent a year or so. And the problem is it's just doubled or tripled because the FED is is pumping

so much more currency into the economy. If you double the amount of currency and you keep the goods and services constant ergo, it goes to reason that things that are scarce and desirable will double in price. The things

that won't double in price. Our YouTube streaming videos, information rich things with the variable cost of electricity or one to five variable cost, or maybe if you've got if you've got a high fixed cost, like I spend two billion dollars to design the iPhone twelve and I stamp out you know, a hundred million of them the fixed cost or are high, the variable cost or low. You typically don't track inflation on those things. You're gonna track

inflation on energy intensive goods and services. And where are you going to see the real inflation is. You're gonna see it on scarce assets. For example, Bitcoin is up a hundred and seventy in twelve months. Okay, let that sink in. It's the ultimate scarce asset. Gold is up, the SNP is up six, Apple stock is doubled, and yet EPs of Apple is not doubled. The the P

T E ratios are blowing out. If you calculate the number of hours you have to work, the amount of labor you have to actually perform in order to buy a share of the SNP five, it's doubling. If you calculate the number of hours you have to work to buy real estate or residential real estate, and Tokyo. Since the central Bank started printing money very rapidly, you realize that that ordinary people can't ever make enough to buy these things, So you won't get any inflation on on

low variable cost information rich items. In fact, you will get deflation. You're going to get inflation and assets. And that's that's the basis of the k shape recovery. So let's come back to my fighter siay responsibility as a CEO.

But the answer is, I have five million dollars. It will go to zero and be worth nothing and buy nothing, or I can find a way to invest it in something that's going to appreciate against the dollar, and if it appreciates more than against the dollar, then my purchasing power will stay at parody. If it appreciates faster than that, then my purchasing power will outstrip the dollar and I and I will appreciate and therefore I will create shareholder value.

So this entire exercises how do I actually grow my balance sheet or grow my cash flows faster than the rate at which the money supply is expanding? Amazon, Facebook, and Google. This is why all those stocks performed so well in the last decade, their top lines growing, their cash flows are growing. The FED is printing money at five percent a year, they're creating at more than the risk free cost to capital, and they're effectively monopolies. And

so if you're holding something like that, you're good. The problem is that, you know, but the FED, if they triple the cost to capital, the companies can't beat that. And if you want to see it illustrated in a more brutal fashion, go imagine yourself starting a company in Argentine, where the paso traded with dollar to a peso, then it went ten dollar ten pacos to the dollar, then it went twenty pasos to the dollar. We rolled into this year, it said the forty paces to the dollar.

Now it's eighty paces to the dollar. And by the way, the black market rate is a hundred and forty paces to the dollar. You know, there's no way you can grow a company fast enough. And by the way, it's a hundred and forty paces to the dollar and the dollar is only worth half as much against scarce assets. The same story is true in Mexico. You can't. Mexico went from ten pacos to the dollar to twenty paces

to the dollar. The dollar lost half of its asset value against scarce assets, so you lost of your wealth. I want to jump in here because you mentioned fiduciary duty, and you know you were going to get to it earlier, and I think this is an important point. But what

did your discussions with investors actually look like? Because I imagine for the vast majority of them, they put our money in a business intelligence firm, a software firm, they're not necessarily expecting that firm to go out and buy bitcoin in this way. That's true. So let's let's put the put the dilemma here. I have a company that's may be able to grow five percent a year. It's cash flows. It can generate fifty to seventy five million dollars in cash flow. It's got five million in in

in cash. The US Federal Reserve is debasing my treasury at the same rate as my company as a creating cash flow. So in essence, all of the work of the company is for not and then they triple they triple the cost the capital. So it's imp it's impossible, reasonably speaking, to grow the cash flows a year without taking excessive risk in a competitive marketplace. So we're struck

with the dilemma, what are my choices? Well, I can attempt to grow faster than the rate at which the Fed prints money, and I will probably fail and they'll suffocate me to death or choke me to death. Or I can simply invest in a monitoring network that's appreciating it or more against the dollar and go about my business. And so those are the two choices. One of them

well and bye. This is the choice that every business faces, and this is the choice that every individual faces, and and you can see one of them is like, you continue to do your work in Venezuela, working harder as the currency collapses, or in Argentina. The other choice is you invest in a treasury asset that's going to go up a hundred percent a year. It's easy to say, well, why don't you just give the money back to the investors. What the answer is, We're still going to suffocate. We're

still going to choke to death. You've got to consider everybody on the planet is going to freeze to death or suffocate if we keep sucking the oxygen out of the room as as we monetary value out of the currency. It's creating a life or death situation for everybody. Now let me come back to your point, because you ask me a question, I want to answer. What I did was I went to the investors and I said, we

believe we have to have a treasury. We're going to invest it in some asset that will actually appreciate faster than the rate of the mind of the currency collapse, the rate of collapse of the dollar inflation rate, the asset inflation rate. And then I also said, and we're gonna start buying the stock back. One week later, we tendered for two or fifty million dollars worth of stock.

Our our stock was trading about one, and we did a Dutch auction and we offered to buy back two fifty million dollars worth of the stock at a premium up to one. And so we also then announced we bought two fifty million dollars worth the bitcoin. Why because it's the best performing asset of the decade, the last five years, the last two years, the last one year, the last three months, it's up four thousand in five years, it's up a one year. Because it's the best treasury

reserve asset that you could buy. So that's why we did that. We tendered, We waited twenty days. The stock traded up first below the tender, then above the tender price. Anybody that didn't like bitcoin was able to sell their stock between one forty and one fifty one. They all got a premium if they didn't want to take that risk. Then some people tender their stock. We had sixty millions

share our sixty million dollars tendered. We bought all that stock, and then the stock of the company started trading north of the tender price because we had rotated our shareholder base from people that had invested in an enterprise off a company, two people that understood that it was wise for us to invest our treasury in an asset like bitcoin,

and they were comfortable with it. And from there the stock traded to one sixty two hundred twenty to fifty two eighty three hundred and above three hundred because there are there are a lot of people that agree with me and they like the idea of investing. By the way, would you rather invest in a company that's growing its cash flows a percent a year or growing its cash

flows five a year? Because what we did was invest a bunch of cash in an asset that has traditionally, over the last decade grown faster than a hundred percent a year. You can see that's what we did, and that was the investor base we had when we finished that exercise. You know, absolutely, So looking at your chart, I mean, obviously the stock has done phenomenally well, you know, as you mentioned, you know, going back to this jill in July, it was just over a hundred dollars to

share one twenty share. It recently peaked around three forty share. It's come back a little bit. But um, how does your You have over two thousand employees who up until a few months ago, we're working in for a business intelligence company sort of standard uh cloud, Uh, you know, software company, who now have in some sense their fates, the fates of these over two thousand people tied in what is kind of a sort of a levered play

on bitcoin. And so I'm curious, Um, you know it's worked out well because bitcoin has really rallied over the last few months. What are the internal communications like a sort of all the employees sort of realizing that the fortunes of their company is a typed to bitcoin. And two, you know, you obviously as the CEO, you spend a lot of time focus on bitcoin. You talk about on Twitter, you have some amazing uh sort of analogies that you use. I think called it the hive or something like that,

the electric hive. How do the what's the internal feeling? Like all these people suddenly their careers associated with a levered bitcoin play all of a sudden. Let's start with one observation. It's not a levered bitcoin play until last week. Last week we did a convertible debt offering which added some leverage to it. It was an unleveraged treasury decision

until last week. And um, by the way, it's the same reaction your family would have if they were all going bankrupt and going to starve to death because the currency was collapsing, and then use in Argentina or Nigeria or Brazil or even in the US. If you know, if your family said, we're gonna lose half our stuff and be bankrupt, and if you said, I invested it in bitcoin, and by the way, we just doubled our money and now we're rich, Like, how would your family react.

It's like we we had we had five third million dollars that was going to zero, and now we have eight hundred million worth of bitcoin which has been appreciating a hundred percent a year. So first of all, there's a collective side of relief. Now we have an endowment which is actually appreciating faster than the rate of currency collapse. So that's a good thing. Second, the stocks up, a lot of the shareholders, a lot of them have options.

Of course they're delighted about that. Third, the you know, the company had a massive jolta of electricity shot into it. Bitcoin is hope. If you're living in a country Nigeria, Argentina, Brazil, wherever, and the currency is collapsing and you're going bankrupt and you're going to start to death, they're you're hopeless. And so the ability to actually buy a liquid asset which is going to appreciate and protect you against the currency collapse.

It's like getting on an art right. We say bitcoin is like an arc against you know, to avoid drowning in a currency flood. Right, It's like wouldn't you like

a life raft? I mean, it's pretty motivational to know you're not going to drown when the macro economy is collapsing, you know, and you might you know, there's a certain set of people that own stocks in this in this country and they think it's all fine, but there's a lot of people that aren't really owning all those assets that have bounced into k shape recovery, and it's not fine for them. Right, There's a there's a quite a macro economic dilemma right now around the world, and seven

point eight billion people have collapsing currencies. The best they're collapsing at ten to fifteen percent a year. The worst are collapsing faster. Every investor has a problem. So my employees. The employees are happy because stocks up. The awareness of the company is up by a factor of ten thousand, right, I mean, everybody is aware of what we're doing. We've had million, million, millions of hours of video on YouTube.

People know the company, they know about micro strategy, business intelligence. Our customers like it. You know. By the way, every company with a treasury has the same problem. Guys like you can you can paint me as like this crazy guy taking a risk. But on the other hand, it's not a risk if I told you you're going to freeze to death in forty eight months, it's not a risk to step out of your house and try something new. And so every company that we do business with is

thinking about these things. So we've actually taken a leadership position with our customers, are partners, are vendors, are employees. The brand has been created, everybody knows more about the brand, They know more about the stock, they know more about the product, and everybody, you know, how do you think employees at Tesla field? They like working at Tesla, They like working on a for a company that's doing progressive things that are going to improve the planet. Everybody likes

the mission. And so micro Strategy was a very focused business intelligence company. In February, we were faced with a challenge our challenges. We could either basically decapitalize the company and struggle against a currency collapse, or we could craft ourselves a bitcoin sale, turn our ship into you know,

into the wind, catch the wind, and start sailing. And so what we did is a transformation on the balance sheet of the company in order to instead of suffering from the devaluation of the currency, we wanted to benefit from the devaluation of the currency and uh and that's been very motivational for everybody, and it's it's providing us with lots of opportunities on the business side too. So

I think it's it's generally been quite positively received. So we mentioned at the outset of this conversation that somewhat surprisingly, there isn't a bitcoin e t F in existence just yet. Some people have been saying that your company, now given the bitcoin holding resembles and E t F on bitcoin,

or at least to play on on on bitcoin. What do you say in response, because I saw you tweeting a little bit about this recently, but what's your response to people who say that micro Strategy is now just a Bitcoin e t F. We're not a bitcoin e t F. And E t F is an investment company per the forty Securities Act, and and that means it has the whole securities and it's a company that's fashioned to hold securities like stocks or bonds. First of all,

we're not an investment company. We're an operating company. Second of all, bitcoin is not a security. I mean, Jake Clayton just went on TV two weeks ago it was very emphatic about that bitcoin is property. It's like owning land in Texas. You cannot it's it's it's property. You can own land without being uh an e t F. So we have a treasury. We could own cash. We chose to actually invest our treasury in in some property that we thought was scarce that would appreciate faster than

uh than the rate of monetary inflation. So that does mean that if you invest in micro strategy, you have some exposure to bitcoin. But again we're not an E T F, right, I mean, those are very special purpose vehicles. People are you know, you're buying gold shares of i AU and you're hoping that the company will balance you know, the assets under management to the share account and we're not engaged at anything like that. Is there any regulatory limit like to how much you could lever up do

sort of? Does there get to be a point where the company lawyers get concerned that maybe a regulator could view you as an e t P that or an E t N or an e t F that's not filed properly, Like does that potentially create any risks? Now I tweeted this out and you can see my tweets. I wanted to clarify it. It's quite It's quite clear, you know, an E t P and an E t F our investment companies. They're very special vehicles defined defined

precisely by the Securities Act of forty. Bitcoin is not a security nor nor is it a commodity under the definition of the E t P. It's just property, and you and own as much of property as you want as an operating company. You know, you don't trip these things until your owning security security as a share of stock or a bond or something. So that's a different thing.

If you wanted, uh, if you wanted to review all the literature on it, you know, I could send you some stuff, but I think you the digging, you'll find it's quite black and white. Right. We're not a a t F. We're not an a t P. There's no limit, right, I mean people see to think like I'm getting away with something because what because I'm not losing money, Like because I happen to own a lot of assets, right,

I mean, it's a company that owns assets. You know, presumably if we owned a million acres of land in Texas, that wouldn't make us an E t F or an a t P either, right, we would just have assets on the balance sheet. This is this is a piece of property that our treasury is invested. And so one thing I'm really curious about um, and I remember there was a lot of discussion about this among retail investors in bitcoin when we had some of the earlier pops

in price. But how do you actually go about paying taxes on on bitcoin gains? Because I imagine for a company it might be different, or it might be um even more difficult to calculate that tax. Right, Bitcoin is property, So you buy it, there is no tax on it until you sell it, and if you sell it, you pay the short term or long term capital gains tax,

depending upon the holding period. So for a treasury asset like this our use cases, we simply buy it, we put it in cold storage, and we hold it likely forever, right, I mean highly likely we never sell it. This is this is the ultimate long duration safe haven treasure reserve asset. You're buying it. You're buying it to hold for a hundred years. Now when under what circumstances would you sell it? Probably never because you don't want to generate a taxable event.

I mean, people hold a block of real estate in New York City for a hundred years in their family and they never sell it. Right, what if you needed cash? If you needed cash, you borrow against it, right, I mean it's just like if I have a billion dollars of assets and I needed twenty million dollars, I would go and borrow against the asset, you know, at the best rate that I could get, like any other asset.

And there's no tax on a borrowing. It's just it's just a loan, right, So if you were to sell it, you would pay capital gains tax based on the period, just like another asset. But otherwise, you know, it just sits on your balance sheet. So you referenced this already, but you recently went to market with a convertible debt offering explicitly to raise cash and to buy more bitcoin. So a I'm curious, um, what that conversation was like actually getting people to lend you money to buy bitcoin.

But more importantly, can you just talk a little bit about the mechanics of the trade, because it's how smooth it was to buy several hundred million dollars of bitcoin without front running yourself by making the announcement without creating too much of a ripple, and the price how sophisticated is the trading aspect of it, or the acquisition, so that you're not driving the price up like crazy as

you move cash into bitcoin. Okay, So if you want to buy bitcoin, and if you want to buy it and stize like you would, you would line up an institutional broker and there there are a bunch of good institutional brokerages that you could go to and uh, you would do your diligence and pick the one you like. Generally, they all have trading algorithms and you can have a computer sit there and trade every three seconds for you

for two days in a row. You'll just put a time weighted algorithm out there and it'll just sit and it'll run across every market seven three subject to your order. So it's programmatic acquisition. You know, there are other ways to buy and sell it, but but the logical way, the way that Square did it, the way that we did it, is just on a t WAP algorithm over time, and that's not that hard. You just have to you just have to choose, uh, your broker that you're going

to use. By the way, Square and PayPal are using something similar to that to sell bitcoin to people that use Square in cash or Paypals mobile wallet, and they're buying billions of dollars of it. I think Square about one point seven billion in the last quarter, So they're buying a hundred million a week or two hundred million a week of this stuff and they're just running it

via computer algorithms. So that's not terribly difficult. With regard to the second question, there are different pools of capital. So one pool of capital are progressive, forward thinking companies and high net worth individuals and family offices and hedge funds that want to buy bitcoin directly, and so they would go and set up those custodian and institutional relationships, you know, with night Egg or coin base or Genesis

or or gray Scale, and they would buy it. They would either buy the underlying asset or they would buy a fund like gray Scale and buy into the funder. And and they have those choices. Um. The second pool of capital are are people that have just you know, raised money to invest in in uh US equities or equities in general. Right, they can buy a nastac or a nice listed stock. They can't buy bitcoin is not in their charter, their limited partners would never allow them.

They can't buy bonds. They can buy stocks. Sometimes they can only buy tech stocks, right, I mean whatever, So there's a lot of pool of capital there for those people. They can buy ms tr right, So our company is is one thing they can buy. They you know, in theory, they could also buy GBTC, right, they could buy the gray scale thing they might buy as other PayPal and Square people been buying them. PayPal stock traded up after they announced their bitcoin strategy, for example. So so there

are some companies that are on the bitcoin network. Right. Bitcoin is a monetary network. You can plug into it. We plugged in our treasury to it, but Square and PayPal plugged in their mobile apps to it. And then Square plugged in fifty million of their treasury to it. Googgenheim, you know, they plugged in there, you know, part of their asset fund to it. So so that's one way

you can plug into it. And uh, and there are a few public toy traded companies that are plugging in the network right now, and I think that will grow over time. Now, let's go to converts and the bond market. Well, there's a lot of funds that the raised convert bonds. There are convert funds there either convertible arbitrage, and they exist to arbitrage convertible debt versus equity, and that's their strategy and that's all they do. And they're good at

it and they have models. And there are other people that have convert long funds. It's like we would we will invest in a company, but we want to buy the convert we don't buy the underlying comment three types of volatility, right and risk. I can buy the bitcoin, but that's hard to buy, and I've got to change my charter, and I got security issues. I'm you know, how do I secure it in the custodian And I gotta work through that issue. We figured all that out.

There's another set of companies. They're gonna buy the equity, but the equity might go up, they might equity might go down. That's another risk reward idea. And then convert, well, maybe I go convert long and like I buy the convertible bond. Like if you were to buy the micro Strategy convertible bond, you have a bond with the security of an enterprise software company with reliable cash flows okay,

and a long tenure history. So we in essence borrowed against an enterprise software company that's stable, has good cash flow, that's low growth, and we then we then also had eight hundred million dollars of extra liquidity in the form of bitcoin and cash. So someone wants to loan US four hundred million dollars and we've got eight hundred million liquidity, that would be a loan to value of thirty three against our liquid assets. Plus we're gonna generate four hundred

million in cash flow over time. So that's that's the second credit benefit. And then the third is you have first lean against an entire software company with no other debt on it. Right, So if you're if you're a debt a bond holder, you're thinking, okay, that's three forms of downside protection. And then your upside is the company makes a creative investment. If I borrow money at one percent and I invest in something that yields a or

ten percent or right, it's a creative that's good. Or maybe maybe um I get benefit and MSTR stock because people like the stock better because we become even more prominent in the bitcoin world because we have more exposure. If you like the bitcoin before, now we're gonna have double that exposure or more whatever the number is, depending on what we buy. And then the third is we're carving a channel between the convertible debt market and the

bitcoin market. This is a bitcoin convert which means that's a creative to bitcoin. We were making bitcoin and investment great asset. If you like the bitcoin, By the way, you could buy a convertible bond where the downside is protected by an enterprise software company and just have the upside right like you know, under certain circumstances. I joked, I said, you know, guys, if I was on the other side of the table, I'd buy the entire thing. I would club everybody over the head and take it.

Because where do you get to buy a bitcoin and have downside protection at the same time. Now that's the convert longs. If you're a convertible arbitrage player, they're what they're doing is they simply want to buy the convert and then they want to short the common and as long as the common stock has volatility and it goes up and down, they make money. That's their strategy. They're not they're not expressing a pause, a short or a

long sentiment. There is arbitraging the volatility against the bond. So they need a bond to arbitrage against the stock. And now guess what what, How do arbitragers make the most money? They need volatility what creates volatility Bitcoin. Okay, so if you plug a high volatility asset, and if you're gonna say we hate bitcoin is highly volatible, Well tell me who in the world wants volatility more than a bond arbitrager, right, that's actually a volatility engine for them.

So what we did was we went to the market and we offered we offered UH investors in common stock a company which had bitcoin exposure, you know, after going through our tender offer and after all these announcements and we we were able to attract new capital the believed in bitcoin and liked that idea. And then we went to the debt market and we offered the debt markets an instrument and convertible debt that offered them exposure to bitcoin and and the credit worthiness of a responsibly run

enterprise software company. And we were rewarded with an over subscription. We were going to raise fourn million. We had massive demand, and so we upsized the deal to five fifty million, and we had a green shoe, and then we executed the green shoe the next day and it became a

six fifty million dollar deal. Because because this is the only UH convert doable debt instrument in the market in the world where you could actually have the upside bitcoin, the volatility a bitcoin, and the downside protection of a credit worthy company that's got like double or triple collateral coverage, and so like, why wouldn't you like that deal? I mean, people say, they're like, well, who would blown your money at seventy five basis points because that was the coupon.

And the answer is, well, it's got great volatility, it's got it's got warrants with great upside opportunity, and it's got good downside protection. And what are their choices? Can I jump in here and ask, because we've been talking for I think a little over an hour now and we've been entirely focused on bitcoin, I'm curious, how do you feel about other cryptocurrencies and would you consider an investment in non bitcoin something else. Look, I think bitcoin

is the investment grade, long duration safe haven asset. It's the best purest synthetic treasury asset invented in the history of the world. Now what does it take for it to be that good? Well, it needs to be the dominant network, so it needs to be fifty times bigger than the next thing, and it is. It's fifty times bigger than bitcoin cash or bitcoins. To total vision, it needs to go through ten years without changing the architecture to be Lendy secure, and it is. It needs to be.

It needs to have a history of not being hacked. It needs to be adopted with a political contingent, a senator, a congressional caucus. It needs the endorsement of the I R S D SEC right when, for example, when J Clayton was on television, he said bitcoin and ethereum are property, they're not securities. He was silent on every other crypto. So you understand where I'm coming here. Every other crypto may or may not be a security and and uh,

and I don't know. I'm not an expert. But what I would say is, if you wanted to say segment the market of crypto, you have one asset which is three or fifty billion dollar guerrilla juggernaut, dominant digital network, the monetary network, the most powerful thing that I've ever seen, a hundred times more valuable than Facebook, a hundred times more valuable than Google. It's the money network, right, that's Bitcoin in the world doesn't understand it. Everybody needs it.

It's the solution to everybody's problem on Earth. Everybody needs to not lose their wealth and not have the economic energy sucked out of their currency and all their investments. That's bitcoin. There is no comparable asset. You have another category, call it unicorns. I put a theoryum in there. It's a unicorn, like an Airbnb or you know, or an uber. It's a big it's like fifty six billion in market cap. People are excited about it. It's it's complicated, it's compelling.

There are a lot of people enthusiastic about it. And then after that, you've got a bunch of venture capital investments, a bunch of crypto networks doing different things, very exciting. There's going to be a high failure rate. There's like ten thousand cryptos launched right, so it's like who's gonna be Instagram, who's gonna be What's Up? Who's gonna be Facebook? And then what are the other ten thousand? And maybe one of them will become Snapchat and then maybe them

will go away. I don't know. I would bucket your money into this is my treasury reserve asset. Massachusetts Mutual will put a hundred million in a bitcoin it's a treasury reserve asset. It's institutional grade asset. I would bet five million on this. The next thing, you know, soft bank may buy a big piece of of a theory. Um, they buy a big piece of Uber Airbnb. You know that's you know, we were right, that's a soft bank play. And the last is venture capital. You know, you bet

venture capital. You expect massive gains. You except risk. It's it's all uncertain and complicated. And that's how I feel about the crypto space. Let me, you know, wrap up soon, but let me ask you. You know, I mentioned you tweet a lot about bitcoin. Uh, extremely compelling case for it. How much of your sort of like mental, sort of

like capacity is focused on it? And are you still active in the sort of day to day business intelligence business of micro strategy, Because bitcoin, I mean, it definitely takes over people's minds and I see it. I know a lot of people who are intuited. Becomes their thing. It becomes like the main focus of their energy, it becomes their obsession. You're clearly very into it, um are do you are you also like running the sort of

the software company. Let's say I'm kind of at the Larry Ellison stage, where Larry was responsible for technology, he delegated sales and services and marketing to to the president. So fond Lee is the president of the company and sales and services and marketing that he's running the day to day operations of the business. I'm the CEO and the chairman. About half of my time is spent on

business matters, technology initiatives, corporate initiatives, other business things. Probably half of my time is spent on on corporate marketing, corporate balance sheet and communication of around bitcoin and the like. So I'd say fifty percent of it is balance sheets stuff which is increasingly macroeconomics and bitcoin. Other is, you know, being the CEO, but I'm not day to day running every deal and running every operation. Fong does that and

he does it very well. Could you see yourself, could you see micro Strategy starting a a bitcoin related or bitcoin specific business in the future. Are there, for instance, software opportunities that you could provide for crypto, bitcoins and monetary network and everybody figures out how plug into it? Right? So in our case, all of our assets are around business intelligence. So we've been exploring how we might bring bitcoin intelligence, uh to the to the bitcoin space and

blockchain intelligence, and and we're looking at different options. And if we find a way to plug the plug the blockchain and bitcoin related things into micro strategy, then we will release that. We're we're going to release some some cool analytics um to the community to help them evaluate alternative investments and all and to make treasury decisions. But I think it's more of a marketing benefit to us. So we'll get marketing benefits, we get some QA benefits.

We might release some some software that does blockchain analytics, but we haven't really determined that yet. We're really kicking the tires in an R and D stage there, Like we're not going to go into bitcoin mining just I mean, just people think because you buy bitcoin, that means you're gonna love everything bitcoin. But you know, if you run data centers and you have free electricity and you own electricity,

then maybe you should think about mining. But if you don't have free electricity, and if you don't own data centers and that's not your thing, you know, it for PayPal and Square to plug their mobile payment apps and the bitcoin totally rational. They have mobile payment businesses, right, I don't I won't go into that business. Every you know, if you run an investment fund, it makes sense for you to create a bitcoin investment fund and marketed institutions

because that's your business. So everybody finds they're part of the economy. It's very competitive. It's the most competitive economy I can imagine, because anybody can compete in cyberspace from anywhere on Earth, and so you better be the best in the world at whatever you decide to bring to market. So so I would say, we're looking at it. But you don't have to change your product offering or your service offering to plug into the network. You can plug

your treasury. If you're a dentist, you can still be a dentist. But what I would tell you is the value of your cash flows for being a dentist. You're gonna go down ten percent a year every year for the next decade, and so you might want to sweep those cash flows into treasury, put that in bitcoin, so they go up a dent a year, so that you are a wealthy dentist in a decade instead of being a poor, starving dentist in a decade. So that the easiest way for most people to plug into bitcoin is

to plug their treasuries into bitcoin. It's a monetary network. It's it's a straightforward thing before we go. I mean, you say you're never the goal is never have to sell. It could be something that micro strategy holds for a hundred years. But if bitcoin go is to a hundred thousand, are you gonna throw a wild party or what? I will throw a wild party. I agreed to do that for John Wallace. You know, he hit me up. He said the Hornets won a party at a hundred thousand

where you host. So I feel like I have that obligation that I've committed to and so yeah, okay, and you're invited. I was just gonna I was just gonna say, Tracy and Tracy and I are very excited about joining you at your party. I'd love to have you and I appreciate you on your show today. Yeah that was great, this is We appreciate you joining us. Said fantastic conversation, and I wish you the best of luck. Thanks same to you by Tracy, by Joe. Thanks Michael, Thank you

really appreciated that. Thanks Michael. That was great. Yeah, that was a lot of fun. Take care. Oh well, here's a very uh energetic prose would say, I think that's a fair characters trying to figure out exactly the right way to put it. I'm kind of thinking what the party would be like, but you know, a lot of fun I imagine um and a lot of talking as

well about bitcoin. Um. Okay, here's one thing that I was thinking at the beginning of the conversation, which is I I hadn't necessarily thought about what So I've been thinking a long time about low economic growth, and uh, you know what that means for companies, and this idea that in an environment of sluggish economic growth, you kind of have to engineer profit growth in one way or another. So lots of companies have done that through M and

A deals. Others have done that through buybacks and dividends. But the theme overall is that a lot of companies have a lot of cash. I hadn't really considered that that problem has grown more stark in the COVID area era and Michael laid out a really interesting description of it.

This idea that you know, sales are still going to the through the roof for a software company, but at the same time, expenses are down quite a lot, and so they're swimming in cash at the moment, and you get back to the age old problem of what to do with all that corporate cash. Yeah, I mean, you know, some companies obviously will reinvest it and their businesses are

just going so strong. I mean, if you're like, you know, some of these really hot you know, if you're like a snowflake or one of these like really hot enterprise software companies that people are crazy about, there's probably kinds of reinvestment opportunities, fast growth. You know, a business intelligence company has been a round like what they say, like almost thirty years, maybe not as many opportunities to do that. You know. I would just say, like I I disagree

a little bit. I would say with maybe some of Michael's characterization of the macro economy and the FED or measuring inflation or the value of the dollar. But you know, who knows, We'll be back here in four years and forty eight months to see if the dollar has collapsed.

But on the other hand, I think he is on ironically, genuinely a very good articulator of many of the bull cases for bitcoin, the characterizations property, the network effects, the always on nous of it, the increasing liquidity, the flywheels such that the more the market value grows, the easier it is to transact in it. There were a lot of like sort of like big ideas that when he puts it sort of some of the macro and fetch

stuff aside I found compelling. Well, my mind, it gets back to that growth point, which is one of the ways to achieve growth in the current environment is to try to select the asset that's not going to I guess he would say be debased in the future, right, But I guess what I'm getting at is like there's a lot of money out there at the moment, and they're all chasing a pool of assets, and to some extent, the value of those assets is being driven by flows, right,

So identifying the asset with the most flows and the most potential for upside makes some sense in the current environment. Although I think a lot of people in the traditional investment community are still wrapping their heads around bitcoin and they don't necessarily see bitcoin as the asset um that's going to be the most successful. But for sure you

can see it getting those flows at the moment. And you know what, I'll just say that it's like there's people like me and other people although like not technically the definition of inflation or you know, it's like what ever, But it's like, to some extent the future crypto aside, bitcoin of side, the future belongs to people that are

really excited about a story. And the people who say, like, well, that's technically not how inflation are measured, they're like, you know, they do podcasts, tweet and stuff, and their journalists for a living. So I risk, even if I like would poke some holes in his view, I actually think probably like the long term winners are more people like that than people like me. Does that make sense? Do you

get what I'm saying? No, it does. I think this story about hopes and dreams and fixing the world is definitely more compelling than the story about actually you should think about inflation in this way and and here's how we construct an inflation that's not technically debate. Yeah, yeah, yeah. The future does not belong to people who did pick about inflation index construction. Um, so we leave it there, all right, Yeah, let's leave it there. This has been

another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allowa. I'm Joe, why Isn't All? You can follow me on Twitter at The Stalwart. Follow our guest Michael Sailor on Twitter. He's at Michael Underscore Sailor. Follow our producer Laura Carlson. She's at Laura, I'm Carlson. Follow the Bloomberg head of podcast Francesca Levi at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.