One key investor and proponent of Bitcoin is Michael Sala, who turned his software business
of micro-strategy into one of the world's largest public holders of Bitcoin.
At the end of March, the company had over 129,000 Bitcoin valued at nearly $3 billion.
Sala has bet big, borrowing millions from crypto banks to buy more, but recent declines have raised questions
over whether it is Bitcoin or BUST.
Michael Sala, CEO of MicroStrategy, joins us now.
Michael, great to have you on the show. Let's just rule that out to begin.
Can we say no matter what the level of Bitcoin, there will be no BUST?
We're in here for the long term. Bitcoin is going to outlast all of us. I'm quite sure of that.
And what about sitting on paper losses of what $1 billion in the Bitcoin portfolio?
Can I just confirm you've not sold any? So it is paper losses. It's not been crystallized.
No, no. We're not a Satoshi. We're committed for the long term.
I think you've got to step back and look at the big picture.
The S&P's got the worst start since 1970. So we're witnessing the birth of a new industry during the worst financial crisis of 50 years.
If you were old to clock back to 1900, there were 3,000 car companies.
When Spendletop was discovered in Beaumont, Texas in 1901, 1500 oil companies were launched in a single year.
Lots of them went BUST, 99%, but the rest is history. We've got cars, oil businesses, a huge business, a change the future of the world.
If you look back 100 years, no one's going to remember who made money or losing money building New York City.
I think that people understand Bitcoin understand that this is the same thing. This is a totally new industry.
There's many comments I could make there. I guess the great financial crisis could be argued to be the biggest financial crisis that we've seen over the last 50 years.
But I think the bigger point here is that this is going to hang around for longer. What you said is that people understand that, but the pogmas many people don't.
If you look at some of the events that we've seen over the past month, it plays into all the stereotypes of this being the Wild West, deeply unregulated, over leveraged.
Can you sympathize with those that look at this and say, and never understood it, it's obviously going to zero and it's completely corrupt and this proves it. The bubble popped.
From first principles, Bitcoin is digital energy. It's incorruptible, indestructible, programmable. It lasts forever.
The average person has to sift through thousands of stocks, thousands of coins, thousands of investment properties. All of these have risk. There's a lot of confusion.
But one thing we're not confused about is that Bitcoin is 100 times bigger than the next digital energy network. It's the dominant one.
If you're looking at it as an investor, what is your choice? You can't dollar-cost average into commercial real estate. You can't stockpile oil for the next decade.
Bitcoin, on the other hand, is something that you can accumulate monthly. You can keep it for your entire life. It's fundamentally different than anything that's come before it.
I understand everything you're saying. The big sigh ahead of you saying that said everything about the questions that I'm asking.
Again, I'd go back to the people that have never invested in this and that's the vast majority of investors out there still.
They look at this and say, just because Bitcoin as an example is way bigger than the other, what 19,000 digital currencies or tokens out there, doesn't make it a good investment prospect.
I guess I ask the same question and you have to give me a different answer and I apologize for that. Does Bitcoin go back up and does it take regulation of all kinds to get us there, to rule out some of the obvious criticisms that have been pushed over the last two months?
I think it's clear that people are confused and regulation will be constructive because clarity will help the market mature.
The people are confused about what's the currency, what's the commodity, what's the security, what are tokens. There's 19,000 cryptos out there.
I think we can see in the crypto crash that the average investor has been taken advantage of by traders and by Wildcat crypto banks.
As the regulators come in and they clear up this confusion and they introduce rules of the road, it's going to be good for mainstream investors.
It's going to be good for corporations. It will catapult the industry from the entrepreneurial offshore anything goes stage into an institutional mature asset class.
You said something really important there, I think, which is a lot of people got taken advantage of through this period.
If the argument then to be made until this regulation, this should be for sophisticated and I hate the word but I'll use it.
It's sophisticated investors only. Actually retail participation here is too high risk.
I think the challenge is if you wait for a decade for everything to be cleared up, the price of Bitcoin is going to be 10 or 100x more than it is right now.
You have to choose whether or not you want to enter knowing that there are about a dozen things that are going to mature the asset class and make them more transparent or whether you want to wait for all those things to take place and then pay a much higher price when it does.
Everyone has to decide where they're going to land there. But, Joy, let me make one big point. The flight to safety is a grand illusion.
You don't have the choice to do nothing and comfortably move forward. For example, the true inflation rate in all of our currencies runs 7% in the best years, 14% in bad years and 20% or more in a crisis.
The yen has strengthened, sorry, as weakened against the dollar 19%, the Great British pound 12%, in the year 10%, just year to date.
So if you put all your money in a currency bank account and then you had to go by oil, which is up 33% or wheat, which is up 32%.
What you found is the safe risk-free strategy is resulting in you paying 50% more in local currency for the things you have to eat and you have to use in order to keep from freezing to death.
So there's no safe haven.
But I would argue Michael in this situation, Bitcoin certainly wasn't a safe haven this year either.
You could make a bigger point about investing over a period of years, but on that comparative basis, Bitcoin's had a shock or two.
Yeah, if you're looking for something in the next three months, clearly you have to sit in currency, but you're losing 20, 30, 40% of your value sitting on the currency.
Bitcoin's gone through three boom and buff cycles in the last two years.
But if you zoom out, look at the five year picture, Bitcoin's up 50% a year in the last five years, 50% a year for the past two years, 120% a year in the past 10 years.
That's 10x better than NASDAQ. That's five to 10x better than pretty much any other option. So if you're if you're wanting a piece and calm in the near term, there is no safe haven.
The long bond is down 23% year over year.
What you have to do is decide, are you going to stay on a sinking ship or are you going to get on a lifeboat and be tossed about on the stormy seas?
And Bitcoin represents that lifeboat and its hope for everybody in the world if you can take the long view and focus on the fundamentals.
Yeah, I mean, you raise a great point about capital preservation, never mind capital return in this kind of economic environment and financial market environment too.
And I mentioned at the beginning in the introduction that you borrowed money in order to invest in Bitcoin and there's been all sorts of questions over margin calls and the commitment of the lenders.
Can I just ask whether they've put any constraints on the use of the money that you have? There's no risk of them calling in the loan earlier.
And just in general, how do you shareholders feel about your your ongoing commitment to this because it was a huge shift for the business.
It remains that case and you're sort of doubling down by saying we're sticking with it.
So Julia, if the currency collapses by 90% over the course of a decade, then the smartest thing you can do is have debt on your balance sheet.
So what micro strategy did is bar a 2.2 billion dollars that have blended interest rate of 1.8%.
The junk bond yield rate is 8.5% right now.
So and the inflation rate is running 8% CPI but probably 15% or more if you look at other assets and 30% against commodities.
So we took a debt position paying effectively 1 to 2% interest on long term debt.
Most of it in fact none of that debt I mentioned is is collateralized by Bitcoin. It's not marked a market debt.
We have a very thin layer like 200 million against a multi billion dollar balance sheet which we have to collateralize and we're 10X over collateralized.
So our balance sheet is great. Our position is when the inflation rate is running dramatically higher than the interest rate, you're better off to be a debtor than to be a creditor.
And that's cheap debt in this environment too. Very quickly yes or no. Have you bought more in recent weeks?
We will buy more over time. We don't sell. We just keep accumulating and we do with our cash flows. So as we generate more cash flows, we buy more Bitcoin.
Great to have you with us. Thank you Michael Sala. See you of my Christchurchy there. Thank you sir.