The Bitcoin Strategy: Futureproofing an Organization with the World's Hardest Money

good afternoon everyone i hope you're

enjoying our micro world public sector

we've had a great morning i'm now

thrilled to introduce our keynote panel

this afternoon the panel the bitcoin

strategy future-proofing and

organization with the world's hardest

money

we will hear from microstrategy's ceo

michael saylor

and microstrategy's president and cfo

fong li

as many of you know about 15 months ago

microstrategy took the innovative

approach of adopting bitcoin as its

primary treasury reserve asset it was

the first publicly traded company to

pursue the strategy and today we have

acquired and hold more than 109 000

bitcoin worth approximately 5 billion

i hope i'm glad you could join us for

this conversation between mike and fong

as they assess the bitcoin strategy over

the last year and discuss how other

organizations can benefit from this

growing trend

fong over to

you thanks ozzie thanks everyone for uh

joining us this afternoon uh thank you

mike for joining us also

i have here mike goldsteller our founder

ceo

and chairman of microstrategy i'm the

president and cfo of microstrategy uh

let's jump right into this mike uh

we've become uh relatively well known

in the last 20 months for

making a significant investment in

bitcoin and

uh standardizing on bitcoin as our

primary treasury reserve asset i want

you to take everybody back to march and

and give everyone sort of a brief uh

introduction into our thought process

and what's occurred between then and now

for microstrategy

yeah i think march of 2020 was pretty

transformational

um

what we ended up with was

a pandemic which severely impaired

operations throughout the business world

and it became very hard

uh to conduct business as usual

and that was coupled with um a monetary

response of lowering interest rates to

zero and beginning to pump liquidity

into

the financial system of the world

and um we didn't know what would happen

in our core business we realized we

could run more efficiently and uh we had

a digital transformation of our core

business and

and we started zooming everywhere and

using the web and using youtube and

using twitter and the like and i think

everybody's familiar with that

what they're less familiar with is on

the balance sheet side of the business

microstrategy had

had cash

of an excess of 500 million dollars we

had a lot of cash probably half of our

market cap was cash

and uh we were investing that cash in

sovereign debt so our cash and credit on

our balance sheet

um it was now yielding zero percent

interest

in the macro economy we saw a k-shape

recovery all the mainstream all the main

street companies had a hard time

operating but all the wall street stocks

and equities and assets all appreciated

rapidly by may and june time frame so

there was clearly something

different going on a delamination

between wall street and main street

and our conclusion in that second

quarter was we were going to be in a an

environment where there was going to be

monetary inflation

and because we had so much of our

capital tied up in cash and credit we're

going to have a negative real yield

on that if we're getting zero percent

interest

and if uh the cost of capital leaps

uh by and triples then we'll have a

negative real yield

as it turns out over the past 18 months

i mean the inflation came in yesterday

or cpi inflation came in like 5.3 or 5.4

percent

and the s p is up 24

and the s p is a surrogate for the cost

of capital and it's also a surrogate for

the monetary inflation rate another way

to say it is our shareholders expect us

to get a 24 yield on that capital and if

we were going to get zero percent and

their expectation is 24

their view is well out of 500 million

dollars you torched 125 million dollars

in shareholder value in 12 months

so we kind of calculated that in q2 and

we realized that if we simply held cash

and credit on our balance sheet for the

next four years we were going to destroy

250

to 350 million dollars in shareholder

value

and we needed to do something and so the

something is either invested in property

that'll appreciate faster than the

inflation rate

or

we need to give it back to the

shareholders

and we really weren't sure what was the

right thing we knew if we gave it all

back to the shareholders would be

decapitalized we'd have no treasury

assets left and so that didn't make any

sense

and we thought well if we just invested

all in something our shoulders might

think we were moving too

aggressively

so we split the difference

and we

announced a 250 million dollar tinder

offer to buy back our stock

and a 250 million dollar program to buy

hard assets

and we searched through everything under

the sun we looked at equities and real

estate and gold and commodities and and

crypto

and we concluded that what we wanted to

buy was digital gold or bitcoin in this

case because it was the dominant crypto

asset network capped at 21 million

and a naturally engineered inflation

hedge

and at the time you could define that by

looking at first principles but it

wasn't obvious to the entire world

that bitcoin was the solution to

inflation and it wasn't obvious to the

world how it'll be treated by the

mainstream media and mainstream

governments

and um

and it wasn't obvious to the world that

inflation was going to run

five and a half percent for consumers

and 24 or more for investors

um all these things were a little bit

murky but we had a strong inclination

that was going to happen

so we made our decision

we bought the bitcoin we did the dutch

auction we ended up with our

shareholders endorsing the decision and

the way they endorsed it is they didn't

tend to their shares they only tended

about 60 million and we had an extra 175

million in capital

so we put that into bitcoin uh and we

did it around 10 000 to 12 000 a bitcoin

well bitcoin's price went up our stock

went up we eventually realized that our

shareholders were delighted our stock

went up to the highest price it had been

in a decade

we were able to do uh a convertible

equity a convertible debt offering buy

more bitcoin we bought that at

just below 20 000 i guess bitcoin kept

going up our stock kept going up we were

able to do future financings more

convertible debt more senior secured

debt

more equity issuance and to make a long

story short

our our strategy was initially defensive

we just didn't want to see our balance

sheet crumble to zero under monetary

inflation and a negative real yield it

was defensive then it became

opportunistic then it became strategic

and we realized that

that um we we should be both an

operating company and we should be a

main street company and a wall street

company we have an operating business

micro strategy software

that um

that was growing 10 in the last quarter

or more in the last few quarters and uh

we're committed to that and then we have

a wall street business

uh

acquiring and holding

bitcoin which is the same as acquiring

and holding digital property which is

the same as acquiring and holding

property we became a property

acquisition maybe property development

company you could think of it

in that way

and today you know as we fast forward 14

months

we've now got the 500 million dollar

micro strategy software business which

is generating healthy cash flows because

of our digital transformation

and and back to growth

and we have

about a six and a half billion dollar

bitcoin property business which has been

growing of course much faster

uh than that

and uh we feel like the bitcoin strategy

it helped our shareholders i mean our

stock is up by a factor of five

created billions and billions of dollars

of shareholder wealth

it uh helped our balance sheet we've got

a three billion dollar or more

investment gain on our acquisition so

that's hopefully helpful too

and it helped our core business

because it

injected electricity and awareness into

the brand

and allowed us to reach

new constituents new businesses uh media

uh there are 200 million people that

feel passionately about bitcoin so we

tapped into

uh a digital transformation zeitgeist

which is uh which has been helpful for

employee morale customer morale and

marketing and sales

so that's great so i i think anyone who

looks at our financial results looks at

our stock price can see

uh the asymmetric reward risk reward

profile of bitcoin and the fact that we

got in

uh our first tranche was eleven thousand

one hundred eleven dollars a coin i

think our cost basis now is about twenty

seven thousand dollars a coin and we've

seen that more than double uh and we've

made to your point over three trillion

dollars or three billion dollar

shareholder value that's very clear to

folks and uh

i think what is maybe misunderstood you

you describe bitcoin as hard money the

title of the session uh is you know

partially the world's hardest money and

you also talk about bitcoin being

digital property so there's a reason

that bitcoin increased in such value and

it's the underlying fundamentals can you

explain that a little bit to the

audience so they understand

sort of it's not just a great you know

investment but there are certain

underlying fundamentals that make it

such

if you have a pile of money say you have

a billion dollars and you're in an

environment where interest rates are

high and and the central banks aren't

printing any more money well you could

take the billion invested at five

percent or six percent interest and if

it's and if

if the money's holding its value then

your savings account works

if you have that billion dollars and the

money supply is expanding at 10 or 15 or

20 percent a year then the way to

protect yourself is to convert that that

currency into a hard asset

you either buy a billion dollars worth

of buildings or a billion dollars worth

of land or a billion dollars worth of

oil or a billion dollars worth of gold

um you know that the problem with buying

gold is gold miners keep produ producing

more gold so over 30 years the gold

supply doubles and so your money is

losing value at two or three percent a

year and nobody wants to rent the gold

it's hard to it's hard to borrow against

it it's hard to to to generate yield on

it it's a dead metal that's why people

oftentimes go to like real estate and i

buy buildings and hotels and land and

farms and timber land rights well now i

can generate some yield and maybe i can

borrow against it i can mortgage it but

you know it's kind of that's a 20th

century idea right you know the idea of

owning land and buildings has been

around for a long time

um

the 21st century idea is what if i had

the best of both worlds what if i could

create a digital gold that you could

never make any more of that had no

weight that i could move at the speed of

light

and then what if i could actually loan

it out to bankers anywhere in the world

and get a yield on it or what if i could

borrow against it

so

bitcoin is is capped at 21 million

it's decentralized network so no ceo no

company or no government can change that

we don't even know how to change it it's

protected by millions and millions of

computers spread all over the world and

you know if you held a gun to someone's

head and said you've got to change it no

one could

so

the power of a decentralized crypto

asset network like that

is durability and integrity over time

over a hundred years i want to know that

no one will ever create any more you can

create more gold you can create more

buildings you can you know you could say

well i can't create more land but but

yeah you can't create more land on

central park but you can create more

land in kansas or the great west and so

so the problem with other assets is

they're not scarce

and the other problem is they're in the

real world and as you know we live in a

21st century cyber economy

so what would you rather have

um a billion dollar hotel

in vegas

that is 70 occupied that charges vegas

rates

or a billion dollar digital hotel that

you can decompose and you can rent the

rooms in any city in the world and you

could rent the rooms by the hour

and you can recompose it again and you

can move at the speed of light and you

don't have to worry about any damage or

maintenance cost to it and you could if

you had that digital property that would

be interesting to eight billion people

with mobile phones and that would be

interesting to high-speed high-frequency

traders

at some point if i can

convert the physical hotel to a digital

hotel and then i can rent out the rooms

by the room minute

to a hundred thousand different places

with a computer you can see how the

rates go up the utilization goes up i

can develop that property much better

than i can develop land you know in the

midwest

it's and it's interesting to everybody

if i had the best land in istanbul or

the best land in paris or the best land

in new york

when it comes time to borrow against it

only the bankers in that city will loan

me money when it comes time to rent it

or lease it out only people that want to

be in that city will want that property

and when it comes time to sell it you

know maybe i can sell it to the richest

person in istanbul or a richest person

in paris but

but with bitcoin bitcoin is a city in

cyberspace

and when it comes time to sell it

everybody on earth will want it they do

want it it's global

and you have you

you have these interesting possibilities

to uh to use it as collateral with a

hundred thousand different

counterparties or to to develop it with

a hundred thousand different businesses

so we see we see bitcoin as not just

digital gold we see as digital property

and that makes it a very valuable

commodity

to build the 21st century cyber economy

on and it's a it's a technology play

as much as it is a macroeconomic

investment

and that's what makes it really

compelling from a shareholder point of

view

yeah really when you think about it as

digital property it's the perfect

analogy but it's not really an analogy

it's actually the perfect form of

property so it's more than just a

comparison to analog property is taking

property

improving it improving it until you take

away everything that you don't like

about physical property it's perfectly

decentralized there's a finite supply is

perfectly liquid it's global it's

infinitely divisible so

i don't like the idea that it's an

analogy i like the idea that it is a

superior form

and and so let's start let's take that

premise or that definition of bitcoin

and let's take it to you know we have an

audience here that is public sector a

lot of folks from the federal government

right um how does this change or why

should they care

about bitcoin and

bitcoin is digital property in the

public sector whether that be a local

government a state government u.s

government a government somewhere else

around the world why does this matter

well following on your on your

observation

you know uh

can be thought of as uh just a

speculative asset and it's and it's it's

irrelevant to government it's just uh

the tale

of some random you know

uh creature right in a show

and when you start thinking of it as

digital gold it becomes interesting to

macroeconomic investors

but you realize gold's not the right

metaphor because because you just park a

billion dollars of gold in a volt

and then you think of it as digital

property and it becomes more powerful

because now you realize it generates

yield and you can mortgage it and now it

becomes a

something that has a hundred trillion to

200 trillion of impact but to your point

what is property property is matter

einstein said you can either destroy

energy or destroy matter or create it

matter becomes energy energy becomes

matter

if i take digital property and i

oscillate it to 60 megahertz and i

decompose it into a million pieces every

second and recompose it and there is no

power loss it's not proper anymore it's

energy

it's digital energy the and and

theoretical austrian economists might

might say oh it's digital money but

money's too complicated a term so if we

come back to an engineering observation

as digital energy

well it's digital energy is a major

profound breakthrough and what does that

mean well i can power any device with

digital energy i can power one day cars

and phones and i can i can power a city

or state or a government or a

corporation or a trust or family on

digital energy

digital energy is um

is a major disruption in the world we

talk about bitcoin being maybe the most

disruptive force in the decade well many

people think it's the most disruptive

force in the century

and i'll give you some examples

um

we have 66 countries that have

dollarized their currencies have

collapsed so they need dollars but the

traditional banking system is very

inefficient at delivering dollars so in

el salvador two-thirds of the population

didn't have access to banks but they

don't have a native currency

and so bitcoin

because it's not just uh it's not just

an asset but it's a network bitcoin

served as the underlying monetary

network to deliver digital dollars and

uh and a savings account to three

million el salvadorian citizens in three

weeks

so three million people download a

mobile app and they have a checking

account with dollars in it and they have

a savings account that's been yielding

130 interest for the past decade

and

what was the variable cost for that

not even the phone they've already got

the phone the variable cost was a a one

minute or two minute download of a

mobile application to a phone they

already had running over mobile lines

so why should a government care about

this

well

uh bitcoin is likely

the network that spreads across the

entire world it spreads the us dollar to

six billion people

yeah it would spread to eight billion

people the chinese didn't try to block

it right but it will spread everywhere

in the world to africa to asia so

so bitcoin is spreading

uh spreading the us currency the u.s

dollar is going to strengthen because of

the bitcoin monetary network running on

a protocol called lightning

lightning allows you to move uh any

amount of money effectively for free

instantaneously

so for example fong you can't send fifty

dollars via apple pay to a friend in

paris right now

you can't you can hardly send it to

canada you can't send it to mexico you

certainly couldn't send it to your

mother you know if she was living in el

salvador

this is a big deal for countries right

it's a geopolitical deal because in el

salvador what that means is they're

paying 400 million dollars to western

union and taking four to eight hours to

move money and they can't move it except

nine to five

and so

bitcoin and lightning and that network

means that you now have a technology to

deliver

free instantaneous

remittances to billions and billions of

people everywhere in the world for the

cost of a mobile phone download

so that's very interesting

the second reason essentially the

government is that bitcoin is technology

to deliver property rights and property

rights are in are are basic to america i

mean that's this country was founded on

property rights

and

two and a half billion people don't have

if you live in zimbabwe

or if you live in

venezuela and if the currency is

collapsed by 99 or there is no currency

and you have 300

how do you save it for a year

you can't get dollars because you don't

have a bank

there's no way that the us banks are

setting up in a lot of these countries

you can't get a banking account so that

means you're living hand to mouth and in

the 30 30 days after you lose your job

or you can't find food you're going to

starve and your family's going to starve

so

bitcoin

is interesting to government

because bitcoin is an economic

imperative to anybody that wants to

maintain their wealth or property that's

500 trillion dollars

that's why senator lummus says bitcoin

is a better store of value than the us

dollar well you know it's definitely a

better store of value than the

venezuelan boulevard or the argentine

peso or what's the currency in

afghanistan right so she sees that

but the big tech companies like square

and paypal

they see it as a technology imperative

because we can now give a bank to eight

billion people for in one minute you're

gonna do more you're gonna spread your

bank faster in three weeks in el

salvador than you did in 300 years with

conventional banking

so

you know what happens when apple and

amazon facebook and google plug this in

well this is this is major technical

geopolitics because the chinese

obviously don't want apple and google

and twitter and facebook

to spread through china

right they want their own chinese wall

so there's a geopolitical technology

interplay here

and then finally

as i've as i've laid out if you take the

technology and you and the underlying

protocol you've created a technology for

property rights for the human race which

means this is a moral imperative and if

you're if your goal is to erase poverty

for billions of people if you don't have

a bank you don't have property if you

don't have property you don't have

property rights if you don't have

property rights to put this in a

biological metaphor it's like you're a

type 1 diabetic it means you can't store

fat it means you can't conserve economic

energy for more than about a week to a

month which means there is no security

for your family for your village for

your city for your company

if if you if i literally zapped all of

your assets from your bank account

tomorrow which by the way it's just what

happened in lebanon

last year they lost 90 percent of their

value in their currency and then the

banks locked their us dollars in and

seized them they lost everything

if i took everything you have

how do you have an aspiration for the

future right how do you how do you build

anything for your family for your

community for your country you pretty

much stripped hope from the world

and so hope is you know very american

america was founded on the premise of of

the american dream come here and build a

better life for your family you know for

yourself

bitcoin's hope

bitcoin is a very american thing

and you have you have a technology which

is simultaneously a moral imperative a

technical imperative and an economic

imperative embracing it elevates the

united states

as a world power it will strengthen

america

and and then rejecting it

is just like rejecting electricity

or rejecting the internet or rejecting

fire or rejecting steel or rejecting

satellites or airplanes it won't end

well for the society that rejects

technology

awesome

we're done

uh we covered a lot of ground

bitcoin is a great investment as digital

property as digital energy as a global

moral imperative and as hope

i think is a good summary

this is just the appetizer uh the entree

happens in about five minutes where

we're gonna have a crypto round table

that includes mike and include some

luminaries in the space from the public

sector i'm super excited about that join

us in five minutes and then i'll give

you a preview for dessert

if you haven't had enough and you want

to come back for more go to

microstrategy.com and look at our

bitcoin site go to hope.com bitcoin is

hope we host hope.com and we have a lot

of information for you to learn even

more about bitcoin but uh hopefully

we'll see you all in five minutes thank

you mike

thanks for