Bitcoin Revolutionizes Corporate Finance | Michael Saylor

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[Music]

welcome back to the Bitcoin layer I'm

Nick Bhatia and today we welcome back

Michael Saylor Michael has joined us for

two episodes number one to cover Bitcoin

versus Real Estate and the second

comparing Bitcoin to equities today

we're going to compare Bitcoin to

sovereign debt specifically with regard

to specific investors and how they are

going to treat Bitcoin versus sovereign

debt Michael welcome back to the show

yeah thanks for having me Nick let's

start with the fair value accounting

breakthrough about Bitcoin

and the ability for companies to treat

Bitcoin as a cash metric so can you get

into that and explain it to the viewer

sure

um

uh the accounting treatment for Bitcoin

up until

probably 2024

is as indefinite and tangible and so if

you're a gap accounting company in the

western world

generally what that means is that if you

were to acquire

Bitcoin on your balance sheet

then when it trades down you'll take the

losses

and when it trades up you will not

recognize the gains

and so it's a one-way ratchet function

on a balance sheet you will mark it down

to the lowest price it ever traded at in

the history of your ownership of it

and then you will never be able to

recognize the current price

that it that it is valued at so so it

creates a degree of opacity and

confusion in the balance sheet and then

that confusion in the balance sheet also

washes through to be confusing in the p

l because

if you actually have a if you have a

example where Bitcoin trades down you

take the loss and it becomes an

operating loss

so you could actually buy Bitcoin have a

trade down 50 million dollars and it

would offset 50 million dollars of

operating income and so the p l of the

business that generated 50 million

dollars of operating income would look

like it generated zero dollars

so

you're you're not breaking it out as an

investment gain an investment loss

you're actually combining uh your losses

from the investment in Bitcoin with your

losses from the operation of the

business

and that means that if you're a

objective Observer you can't tell

whether the operating business made or

lost money

and you can't tell whether the

investment made or lost money

you're generally going to be biased

toward presuming that the business lost

a lot more money than it did because

when the business makes investment gains

it won't show them and when it makes

losses it will show them so the

ownership of Bitcoin on the balance

sheet under indefinite intangible

treatment will always be a drain to the

balance sheet a liability of the balance

sheet optically

and it will also be a liability to the p

l

this is the kind of treatment you would

give to a very scary exotic asset that

you didn't want people to acquire

and uh so generally it's the bucket you

put in anything that's new or different

misunderstood or or you just don't have

time to deal with

uh between the years 2020 and 2023

it became increasingly clear to the

accounting establishment that there are

a lot of mainstream companies that

wanted to acquire and hold Bitcoin so

microstrategy was uh the first really

big uh public acquirer of Bitcoin but

but uh block acquired Bitcoin and then

all the Bitcoin miners acquired Bitcoin

and then Tesla acquired Bitcoin and this

became a public issue

it was taken up uh

with a lot of Community Support by fasby

after a very thoughtful process they

came to the conclusion unanimously that

they should give Bitcoin fair value

accounting treatment rather than

indefinite intangible accounting

treatment uh the latest uh the latest uh

communication on that indicated that

they'll make this mandatory for all

public reporting companies as of

December 15th of next year

so as we go into fiscal years that end

after December 15th of 2024 this will be

common practice and between the

beginning of 2024 in the end it'll it'll

be optional I think for companies to

decide whether they wish to adopt it

and the significance of fair value

accounting is

that you account for Bitcoin similar to

the way you would account for a

portfolio of Securities on your balance

sheet it kind of works like this if um

if I buy a billion dollars of Bitcoin

and it trades down 50 percent

then in that period at the end of the

period you'll value it at what a in this

case would be valued at 500 million

you'd be holding 500 million on your

balance sheet and you would have a 500

million dollar investment loss

but you would report the investment law

separately from the operating gain or

operating loss of the core business so

now you would see uh there's an

investment with an investment loss

and the fair value at the end of the

reporting period is this much 500

million now if you go a year further and

you regain that loss and you double it

you would now be showing

1.5 billion dollars worth of investment

gains and you would have two billion

dollars on your balance sheet and the

operating losses or gains of the Core

Business would would continue uh you

know unobstructed or or unmodified so

now you have two parts to the business

you have the balance sheet part of the

business where you have investment

losses and investment gains and you have

the p l or the operating side of the

business where you have investment where

you have operating losses and operating

gains

um

this is uh really critical

because if you have a healthy business

let's say Facebook or apple and you have

a lot of cash flow

you're never going to want to present

the business as though it had no cash

flow or or it had no operating profit

and it was losing money by virtue of

owning a volatile treasury asset

so the volatility of Bitcoin combined

with indefinite and intangible treatment

makes the holding of it toxic

to a conventional company a conventional

CEO a conventional CFO would never want

to hold anything more than a trace

amount

this is one of the reasons why many

people considered it and didn't take it

on their balance sheet and why other

companies that hold it don't want to

hold more than a small amount of five

percent or one or two or three percent

of their balance sheet

so the transition to fair value

accounting means that now they don't

have to worry that the volatility of the

asset will interfere with the

transparency of their operating business

and that's a big plus and the second

plus of course is if I told you you

could invest money in something but you

could never recognize the gains from the

investment that would be a big letdown I

guess a big negative if I'm going to

invest a billion dollars and make 10

billion dollars but no one knows

then then I guess I would rather invest

a billion in something that I could get

compensated for or recognized for

rewarded for so

with fair value accounting not only do

you not interfere with the transparency

of the operating business but you also

are able to recognize the investment

gains over time both in your p l you

could show if you're holding a billion

dollars of Bitcoin and it trades up 20 a

year you'll be showing 200 million

dollars a year of investment gains right

and so that's that's significant that

actually will impact your eps

right so so it's going to be accretive

to your earnings per share and it's

going to be a creative to your earnings

in general so that's a plus it's also

going to be a creative to your balance

sheet now you'll be actually you'll show

that your balance sheet grew by 200

million dollars in that period so that's

a big plus

and then um

there are some intangibles here well not

intangibles they're uh they're secondary

benefits

um if you have fair value accounting and

this year you have 10 billion dollars of

Bitcoin but last year you had 5 billion

than when an objective Observer or an

investor looks at your P L's or and your

balance sheets over three years they'll

see you went from two billion to 5

billion to 10 billion and that makes

sense that's logical right that tells a

story in a matter of seconds but under

indefinite intangible treatment

the balance sheet would show two billion

going to 1 billion going to 800 million

over the three years so the story is

actually the opposite of what happened

it looks like you have a lot less money

it looks like it's not the strategies

failing not working and you can't

compare previous periods to current

period

so it's impossible to compare the

strength of one balance sheet of a

company over time with uh indefinite

intangible but with fair value you can

and then of course if you can comparing

two companies

that both hold Bitcoin

one company has 10 billion dollars of

Bitcoin the other company has five

billion dollars of Bitcoin

under indefinite intangible it could

look like the company with less Bitcoin

has more and the company with more

Bitcoin has less

say the company that has the 10 billion

could look like it has 1 billion and the

company that has the 5 billion could

look like it has 2 billion

and so you can't compare One Security to

another security or one investment

opportunity to another investment idea

because you don't have transparency to

the fair value at the end of the period

in question

so you can see as an investor under Fair

Value accounting you can get a snapshot

of performance across various investment

ideas and performance across time

periods and the real-time strength of

the p l and the performance of various

operating businesses versus each other

and you can figure it out in a matter of

seconds

and under indefinite intangible

accounting treatment you would take

hours and hours

to extract the same Insight so something

would be a hundred times or a thousand

times harder and of course if it's a

thousand times harder for me to

understand what you're saying I would

just tend to tune out

right I mean professional investors have

to

they have to compare 10 000 different

ideas every minute of the day they don't

have time to spend a week

comparing one idea to the other ten

thousand ideas right it's the odd the

odd man out or the Oddball so you would

just ignore it so the significance of

fair value accounting coming to bitcoin

is

it uh it makes the asset non-toxic for

an operating company to hold or a

company that uses Gap accounting

it also

um makes it transparent uh the

performance of Bitcoin backed companies

to be transparent and so that's a a

positive feedback loop right when

Bitcoin companies are performing well

it'll be obvious to Wall Street and

they'll want to finance more of them

right so that's a secondary benefit and

the third is um

because Bitcoin is a commodity it's a

financial commodity it can be held on

the balance sheet of an operating

company

where

right now only treasury assets or or

sovereign debt type assets can be held

on that balance sheet as a as a treasury

strategy so

before before Bitcoin there really

wasn't

any good fungible commodity that I might

hold on the balance sheet my choice was

Securities or property but I can't

really hold property on my balance sheet

if I'm a corporation because it's not

liquid I can't buy 247 million dollars

worth of property a week and then

liquidate 121 million dollars in an hour

right it's it's I it takes me six months

to buy a building and it takes me three

years months or a year to sell the

building so that doesn't really work so

well

as a treasury asset and then uh packages

of Securities are fungible and they're

liquid but Securities are discriminated

against by The Regulators and and if an

operating company holds more than 40

percent of its liquid assets and

securities it's deemed as an SEC 40

reporting company or a financial company

and once it gets uh it gets deemed or

designated as an SEC 40 company the

operating Executives lose the rights to

do many things that operating companies

need to do like issue debt take on

Leverage issue options uh cell

volatility

Etc and so that uh that is really not

it's not a possible regime for an

operating company like Google or Apple

to operate in they have to they have to

stay in operating company they can't be

in ICC 40 company

an example of an SEC 40 company we're

all familiar with is like an ETF

but you can imagine if you picked up the

paper and you read that the that the

Bitcoin ETF issuer had just issued stock

options to all the employees and then

just issued a junk bond and borrowed 10

billion dollars

you would say what

huh what

like you don't expect your mutual fund

operator or your ETF operator to do that

sort of stuff right that's just

inappropriate and you can imagine why

that's inappropriate so there are a lot

of protections for investors in SEC 40

companies and the result is

they're good for what they do which is

they're there to acquire to service

trustees and to acquire a set of assets

for investors and and be trustworthy

custodians

but they're not very good at uh

you know you don't you would never read

your gold ETF is just bought a chain of

restaurants

or a chain of trucking companies right

they don't do Acquisitions they don't

you know they don't do volatility they

don't do leverage that's not what you

want from your SEC 40 company you want

them to be very very simple vehicles

um and uh and so for that reason

uh

Microsoft and Facebook and apple they're

they're not simple

they're here to do more complicated

things and they don't want to be deemed

as an SEC 40. uh reporting entity which

means that um as a practical matter when

they acquire uh cash flows they're

either going to buy currency or they're

going to buy sovereign debt with it the

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so when we think about the benefits from

buying Bitcoin versus sovereign debt for

operating companies where can we start

obviously there are we can start with

the risks of sovereign debt but what

else can we do uh to compare Bitcoin to

sovereign debt with regard to operating

companies and uh the use for that

working capital as you suggest

holding on to that cash is actually

dilutive to shareholders

so you know yeah you're right to focus

on operating companies right there are a

lot of people that have to decide

whether to invest in Bitcoin or invest

in sovereign debt right you've got

endowments you've got retail investors

you've got nation states you've got

institutional investors and you've got

operating companies

so we'll leave aside those other

investors we'll focus on operating

companies operating companies they're

they have a couple of challenges one is

they um

they have this 40 percent

um cap from The Regulators they're

they're not allowed to buy a bunch of

liquid securities

so they are allowed

to acquire a lot of property

it's okay for if you've got a billion

dollars in in working capital you can

buy natural gas with it or oil or Timber

Lumber soybeans

you can buy land

buildings

you can buy Bitcoin

or you can buy sovereign debt

now if you think about your treasury

strategy

um the treasury strategy of an operating

company is we want something which is

liquid and fungible and low risk

so traditionally the most liquid

fungible low-risk financial asset is

just the dollar

the local currency maybe the Euro maybe

the dollar

and

and so that's the that's the obvious

thing to do I collected uh 100 million

dollars this month I put it in the bank

now the problem with that is that the

dollar doesn't generate a yield

and the dollar is is a depreciating uh

debasing financial asset

so in a world where the dollar gets

inflated seven percent a year if the

money supply of U.S currency increases

seven percent a year and it has over the

past hundred years

then a billion dollars in cash is going

to cost you 70 million a year in

purchasing power and of course at seven

percent a year over the course of 10

years you'll cut your asset value in

half

so it doesn't take a rocket scientist to

figure out that that a treasury strategy

based just on currency isn't awesome

um it's dilutive

um

the question here is what's the next

best thing well the next best thing is

sovereign debt

sovereign debt is is debt issued by a

government so you've got the most credit

worthy counterparty maybe the United

States government you don't really think

they're going to default

and that's the advantage of sovereign

debt

you might take on duration risk if you

buy long-term bonds when the interest

rates are low and interest rates go up

then the bond will trade down and you

could get wiped out that way that

happened to a bunch of banks about a

year ago Silicon Valley Bank and the

like they bought long dated credit

instruments and interest rates jump from

zero to 500 basis points

um and then the entry and the the debt

traded down 10 or 15 or 20 and when that

happens you're insolvent technically so

there is duration risk but you know if

you buy three month T bills yielding

more than 500 basis points then now

you've got some yield

you're not concerned about the credit

default risk you're not really concerned

about the duration risk

and so what's the benefit well 500 basis

points is better than zero basis points

and uh on the other end what's the

problem the problem is it's taxable

so it's 500 basis points taxable it

might only be 300 or 350 basis points

after tax so let's say you get to 350

basis points after tax or three and a

half percent interest

now the question is what's the real cost

of capital

well the risk-free cost of capital for

an operating company is set by the

central bank that controls the currency

that it does business in

so if all of your revenues and all of

your cash flows are in the dollar

and if the supply of dollars increases

by seven percent a year

the risk-free interest rate or the

risk-free cost to Capital the hurdle

you've got to get to a seven percent

and um

in this particular case generating uh

three and a half percent interest

against the seven percent cost to

Capital means that you're burning 350

basis points

every year so that's not uh it's not

ideal it's dilutive and um of course

companies are are actually expected to

generate not the risk-free cost to

Capital they're expected to generate the

cost of capital plus a risk premium

so if you're investing in apple

or in any company

um Apple's not the best example because

apple is a digital Monopoly and

everybody knows apple is going to

dominate but if you just took the middle

company the s p index number 250 and you

would say

is there risk to that business sure

there's risk of that business right the

Chinese might embargo this the the

product there might be tariff there

might be strikes right now there are

strikes with all the auto companies uh

there might be an embargo or a trade war

between you know one region and another

it might be the European Union might

designate you as a monopoly and put a

and put some fine on you or put some tax

on you so no matter what company there's

risk competitive risk embargo risk War

risk tax risk labor risk Etc and for

that reason normally what you want is

not seven percent the risk-free rate you

want an extra four five six percent so I

mean probably the right number is 14 is

where you have to get to but but just

generally everybody would say at least a

five four to five percent risk premium

so 12 percent

so the investors are looking for you to

generate 12 return

you're getting zero percent on your cash

you're getting three and a half percent

after tax on your sovereign debt

so what what really happens with

operating companies well

generally most CFOs and CEOs that are

sophisticated they look at this and they

realize that if I generate a hundred

billion dollars of cash flow

and if I hold it in my treasury in

sovereign debt then I'm generating three

and a half percent after tax yield

instead of 12 after tax yield

and that means that I am short eight

eight and a half percent

and so I'm under performing

by call it eight and a half billion

dollars a year

this is a problem for the shareholders

the shareholders are going to say if if

Apple computer

accumulated a hundred billion dollars of

sovereign debt yielding 500 basis points

the shareholders would start to say

well this is dilutive

and uh and you're actually missing out

on an opportunity you're not generating

12 to 14 returns you're generating three

to four percent returns for me give me

the money back I can do better

okay and so

the result is an operating company

strategy or treasury strategy is

normally this you either dividend out

the cash flow you pay a dividend

apple pays a dividend or you buy your

stock back you do a buyback Apple does a

buyback

or you do Acquisitions and you take the

cash and you acquire another company

Disney for example is famous for doing

Acquisitions they bought Pixar they

bought Marvel they bought Lucas Films

right and that was considered to be

reasonable even though they paid a lot

for those for those assets Facebook did

some Acquisitions Oracle does lots of

Acquisitions they've been doing

Acquisitions for 20 years

so conventional wisdom for operating

companies is take your cash and do

Acquisitions issue dividends or do stock

share BuyBacks and of the three the

preferences generally either share

BuyBacks invest in yourself or

acquisitions

go go buy some other asset which is

undervalued like Microsoft right now is

doing this big Activision acquisition a

very big one

and why do they do those things

it's because the monetary policy of the

Central Bank forces them to get rid of

their cash if if the monetary inflation

rate was Zero

if there was no monetary inflation rate

in the Euro or the dollar

then you could simply put your money

into Cash

and it would get more valuable over time

you could probably sweep your money into

debt instruments and it would get more

valuable over time and so this hurdle

rate wouldn't be seven percent the

hurdle rate would be zero percent and it

would change your view of saving toward

invest versus investing

but we live in a world where there's

always systemic and endemic inflation

in uh in the weaker Nations it'll be 14

percent monetary inflation and the

stronger currencies it'll be seven

percent

and when you tap when you attack on top

of that the risk premium that means that

um a stock value an equity share cannot

hold its value unless you can grow the

cash flows per share

faster

than that inflation rate right if you

want to if you want to avoid losing

value you better grow EPS earnings per

share faster than seven percent and if

you want to actually accrete value you

better grow it double that or triple

that

and um

how many companies can do that

organically

somewhere in the name neighborhood of

one or two percent right a very small

number out of the S P 500 you'll only

find a handful that can grow faster than

that inflation rate organically

and so how do you grow your EPS fast if

you're not getting organic growth and

the answer is you either get rid of the

shares right reduce the denominator from

100 million shares of stock to 50

million shares of stock that'll double

your eps

or

you buy another company

with cash or with debt

and especially with cash and that's a

creative because you didn't issue any

more shares but you got more earnings

right now um oftentimes this is coupled

with one other strategy in addition to

dividends BuyBacks and Acquisitions and

sweeping my cash flows into those three

things the other thing that an operating

company does in treasury management is

it borrows money

so you're going to issue bonds you're

going to issue corporate debt you'll

issue junk bonds or you issue some other

form of corporate debt or you'll do

you'll get a term loan from A bank an

asset back financing

or you'll do an lbo right a leveraged

buyout and so companies like Apple

they pair their dividends and their

BuyBacks with corporate borrowing

you know and an Oracle would do the same

thing

and other companies would do the same

thing so what happens if I'm holding 10

billion dollars in in treasury assets

one billion in cash 9 billion in

sovereign debt

but I have a hundred billion in

corporate debt that I've issued

see at that point you have negative

treasury a negative treasury or negative

working capital in a way that is instead

of having 10 instead of having a hundred

billion dollars of capital

you actually have minus 90 billion

dollars of capital you borrowed 100

billion you're holding 10 billion that

you're using

and your minus 90 billion in capital so

instead of having a positive endowment

you have a negative endowment

and the logic of having a negative

endowment is

since

um a hundred billion dollars of of

assets

invested in sovereign debt would be have

a negative real yield of minus four to

ten percent a year

then if I borrow 100 billion it is a

positive real yield a plus four to ten

percent a year so by being the borrower

I'm actually getting cheap Capital if my

stock is uh has as appreciating at a

rate of 14 a year

then I might as well borrow a hundred

billion dollars and pay four percent

interest

and then buy back a hundred billion

worth of my stock which is 14 yield and

then I'm scraping 10 percent yield off

of that right I mean the 14 versus the

four and

um I found a way to actually accrete 10

billion dollars of value a year to my

shareholders by taking on Leverage

so

so the status quo for operating

companies is I don't want an endowment I

want a negative endowment right I don't

want to I don't want to retain capital

I want to I want to distribute Capital

if I can't reinvest it I have to give it

I have to de-capitalize and give it back

the consequence of this is a bunch of

Highly indebted operating companies

everywhere in the world even why would a

company like apple which is the

healthiest company in the world why does

it have so much debt

why would you in debt a healthy company

because if they don't and if they don't

take on the debt it's diluted to the

shares it's bad for the equity

well why is it that you have to actually

and decapitalize the company

and take on negative capital or take on

huge amounts of debt in order to avoid

tanking your stock

and that's because of the monetary

policy of the currency

so when the more inflationary the

environment the more important it is to

be indebted if you were in an

environment like Argentina where you had

hyperinflation the only way you stay

wealthy is to take on a huge loan

in pesos when the peso is 20 to the

dollar and when the peso ends up 800 to

the dollar

right you pay back the loan in in

massively devalued pesos right so you

get rich by getting in debt

so most companies are pretty intelligent

the CFOs are intelligent and they figure

this out

but what's the problem

the problem is

a they de-capitalize by giving all the

money back so they don't have any

Capital so if they run into a crisis

like uh covid uh where the world shuts

down you know the the cruise lines got

shut down for a year the hotels got shut

down for a year when you run into a

crisis you don't have any capital and So

you you're under capitalized and you may

go bankrupt that's the first problem

the second problem is

if you compound it with taking on debt

even if you don't run into a crisis if

if you simply have a bad quarter where

your cash flows are 20 less than they

were the previous quarter you're still

making a ton of money but you trip all

your debt covenants and the debt comes

due and you're insolvent

so you know it's you know it's it that's

that's another massive risk you're

putting a totally healthy company at

risk by loading it up with a ton of debt

so that you might destroy it even though

you had your revenues could be off two

percent from expectation and you could

bankrupt the company

Marvel Comics for example was bankrupted

because it carried too much debt even

though you know people still love the

comics and so so that's the second

problem

the third problem is

you're encouraged to do all these

dilutive Acquisitions and in my

experience in 30 years in business or 30

years of running a public company all of

my competitors were destroyed or failed

because they did bad acquisitions the

number one reason for a software

companies to fail is they did bad

Acquisitions they bought companies for

too much that weren't worth that much

because they were desperate

to buy something to support their own

stock and so it you know if I tell you

you know go out and buy something

expensive by the end of the day you've

got till five o'clock and otherwise you

lose all the money

you know you know you're running around

and you walk into a Persian rug shop and

you and you try to buy the Persian rug

and the guy wants eighty thousand

dollars for it you know it's worth four

thousand dollars and if you can wait for

three days you'll get it for four

thousand but you're bidding against

yourself in a hurry so you pay 42 000

for it

and you tell yourself it was a good deal

because you were going to lose the 42

000 anyway

so

so the existing uh rules

they force everyone to make irrational

decisions take on debt they shouldn't

take on by companies they shouldn't buy

uh issued dividends they shouldn't issue

and buy back shares they shouldn't buy

back and uh

the significance the significance of

Bitcoin

is uh is

in two ways first of all

CFOs and CEOs starting in 2024 will now

have the option to buy Bitcoin instead

of buying treasury bonds

so now you can buy a commodity that's

liquid and fungible on your balance

sheet

and and that commodity is a scarcity and

because it's a scarcity

that means you can expect it to accrete

in value more than seven percent

probably fourteen percent a year over

the long term even after

I think after we've gotten through the

bull run and after the early adoption

boost which will cause Bitcoin to

appreciate it rates faster than 14 in

the long term over the course of a

hundred years starting a decade or two

decades from now you could expect it to

appreciate it 14 a year if the money

supply or the currency Supply is

appreciating at seven percent a year or

are expanding at seven percent a year so

you've got an asset which will

appreciate in price versus Fiat

and of course bonds don't right bonds

never appreciated in price for the most

part against Fiat you're you're buying

them at par

in in order to get the taxable yield

so that's that's a big deal right

it's not comparable to buying a

portfolio of soybeans or silver or gold

or oil or natural gas because those are

true Commodities and the problem with

commodities

and Bitcoin doesn't have this problem

this is why people have to have to we

should really call it a scarcity rather

than a commodity the problem with

commodities is there's a dysfunctional

systemic

endemic inflation built into the system

not only

is uh is it possible for someone to

create more oil

it is a certain thing that when the

price of oil triples they will create a

lot more oil and no one is concerned

about keeping the supply of oil in check

over the long term there's this

dysfunctional competition

um you can try to create a cartel like

OPEC but uh people that aren't in the

OPEC like the frackers in Texas they're

not in OPEC and they're going to Frack

oil and they're going to bust that

cartel and and all of these Commodities

find their cartels broken and

the goal miners want to produce more

gold the silver people want to produce

more silver soybeans want to produce

more soybeans so Commodities aren't

scarce

and and I want to distinguish between

that kind of uh ungoverned inflation or

dysfunctional inflation versus the

governed inflation of equities

you know Apple computer or any any

company in the S P 500 can also issue

more stock

and if if you buy infinite amounts of

the s p index you'll get a lot more

stocks they will issue more stocks

during you know during the height of the

market boom in

2021 when you had GameStop and you had

all the meme stocks you saw all these

people printing a lot of equity and

selling it to the market

and that's uh and that's the danger of

those assets but at the end of the day

Tim Cook doesn't want to print infinite

Apple stock I mean Tim Cook understands

and his board of directors understand

that if they want to maintain The

credibility of the corporation they have

to maintain some control over the amount

of shares they issue and the same is

true at Microsoft and the same is true

at Google they may print more Equity but

it won't be ungoverned and dysfunctional

but imagine there were a hundred

companies called Apple

and they could all print Apple stock

and people want Apple stock so maybe Tim

Cook wouldn't but the Apple competitor

number four in Timbuktu they could and

they could sell Apple stock

well in that case they're all going to

print as much as they can to drive the

price down because they're ungoverned

and and in fact they have an incentive

to sell the stock and so that's what

it's like in the Commodities business

somebody somewhere has an incentive to

drive the price of that commodity down

and they will sell as much as they can

get their hands on and so that being the

case

there's never been a commodity like

Bitcoin that was scarce

the closest thing

to something like Bitcoin would be

um acreage in Palm Beach

or acreage in Miami Beach not not the

square footage but rather the underlying

dirt because there's only so many linear

feet of beachfront property in Palm

Beach for the last 100 years and no

amount of money Printing and no amount

of capital and no amount of technology

and no amount of manufacturing know-how

creates more beachfront property in Palm

Beach

so when you look at that scarce

desirable property that you can't create

more of you can see that actually does

go up in value that's gone up by a

factor of a thousand in the last hundred

years

thousand X and that appreciates at the

rate that the money expands

but the problem is

it's not a treasury asset I can't buy

and sell square feet of Palm Beach every

day in the market I can't liquidate It

On Demand so the kind of property that I

would want to hold I can't hold as the

CFO of a publicly traded company the

kind of stuff I can hold

sovereign debt it isn't scarce and it's

a currency derivative

and so Bitcoin is this new thing it is a

digital scarcity that's liquid that's

fungible that gets commodity treatment

that I can hold on a balance sheet as a

treasury asset and while the currency is

not generating a yield and the bonds

aren't trading up in asset value and

they're generating taxable yield and

with a negative real yield

Bitcoin will appreciate in price

tax deferred

and so what you've got is that is you

have the opportunity of your Apple

computer

to buy a hundred billion dollars worth

of an asset which will appreciate

fifteen to twenty percent a year with no

tax load

so you're picking up a 20 a 20 billion

dollar shareholder gain

as an investment income

right with a very favorable tax

treatment

and what's the second best idea

well I mean the second best idea is

I allocate 10 of my treasury to the s p

index

and I don't get the Fourteen percent

gain I get a seven percent gain

and I can't ever have more than a small

amount

because otherwise I'll trip those SEC

Covenants

but that second best idea isn't all that

compelling because the Institutional

Investor looks at that and says you

could have just given me the money and I

could have put it in the s p index

you know so you're not really doing

anything I can't do

and uh and you're not really getting

that much of a yield you're not using

any strategic advantage that you have

uh in order to generate uh something in

excess of the s p return

so

fair value accounting opened the door

for Bitcoin to serve as a treasury asset

for an operating company

and

the first order

action of that would be

I'm a CFO and I start to allocate some

of my Capital from treasury assets to

bitcoin

maybe instead of 90 treasuries ten

percent cash I go 10 Bitcoin 80 treasury

10 cash

and then of course maybe then 20 Bitcoin

70 treasuries Etc so we start to see a

creeping up of allocation from

treasuries uh to uh to bitcoin

but the second order effect which is a

much more profound effect

is to basically turn the entire theory

of Treasury Management on its head

instead of dispersing all my cash flows

to my investors via BuyBacks

instead of buying my my stock back I buy

Bitcoin instead of doing Acquisitions of

other operating companies I do an

acquisition of Bitcoin instead of

dividending out my cash flows which

generates a taxable event

for my investors I actually buy Bitcoin

which is tax deferred asset appreciation

for my investors and I'm doing something

for them which is beneficial to them

because they can't necessarily do that

themselves

right and so that's a benefit to them

and

I'm strengthening my core business

because I'm putting a strong Capital

Foundation underneath it so instead of

people worrying that I might get

liquidated or I might uh I might trip a

debt Covenant I'm now deemed to be an

extremely well capitalized company with

a longer a longer duration longer time

Horizon and I can invest the earnings

from that balance sheet back into the

core business or I can use them for

strategic Acquisitions in the future or

the like

so

I think I think we're at a a very

important inflection point

where it was

for 50 years

and since 1971

we've been in an inflationary

environment and so from 1971 to 2024

your treasury strategy is to

decapitalize generate a negative a

negative treasury right negative capital

in order to debt finance and then just

do BuyBacks and Acquisitions and that

was a it's an environment that creates

fragile companies

that are highly likely to fail

doing bad deals

right uh with a short life expectancy

and uh did we see that yeah absolutely

every single competitor of microstrategy

went out of business in 20 years

everyone out of 100 a hundred public

companies every one of them failed

except for us because of their treasury