Bitcoin Adoption Is Being Driven By The Progressive Global Loss Of Confidence In Fiat Currencies

Joining us now exclusively is MicroStrategy Co-Founder

and Executive Chairman, Michael Staler.

Michael, great to have you on the show, welcome.

Yeah, thanks for having me, Morgan.

All right, so let's talk a little bit about earnings

because in your core software business,

software licenses revenue climb 23%,

subscription services revenue of 46%,

but really the focus from the market as per usual,

since MicroStrategy is the largest publicly traded holder

of Bitcoin is the fact that your impairment loss

for Bitcoin was so much smaller than it has been

in recent quarters, walk me through the results

and the flywheel between these two companies

within the company.

Sure.

We have progressively built up a Bitcoin position

up to 140,000 Bitcoin over the past two and a half years.

When Bitcoin traded from six to six thousand

all the way down to 16,000,

we took an impairment loss.

And in the course of the last 12 weeks,

that Bitcoin position has traded up $2 billion

in fair market value.

So of course, when it's trading down

there are tax consequences and indefinite

tangible write offs, but when it's trading up,

we reverse some of the tax accounting.

The indefinite and intangible treatment hasn't changed any,

but I think the short of it is that software business

is very stable and it's a cash cow

and we use it to pay our interest on our debt

and to acquire more Bitcoin.

And the Bitcoin itself is our belief

that Bitcoin is the ultimate digital scarcity network.

And because Bitcoin has been moving up about 50% a year

on average over the last three years,

the real key with Bitcoin is just to be able to hold onto it

and stomach the volatility.

And we have conditioned our shareholders

and our bondholders to understand

that we're long-term hotlers.

And because everybody is aligned in that interest,

we're able to weather that volatility

and wind up doing very, very well as Bitcoin recovers.

Yeah, and Bitcoin is recovering though.

We're still well off the all-time high.

Is it up something like 70% since it started here?

What do you attribute that recovery to?

I think right now there are two twin drivers, right?

There's the macroeconomic concern about inflation.

And as inflation takes place,

people lose confidence in fiat currencies.

And that means they start to realize

that everything valued on cash flows

is a currency derivative.

And Bitcoin is not valued on cash flows.

It's in a digital scarcity.

The failure of the banks, silver gate banks,

signature banks, Silicon Valley bank,

not first Republic bank,

causes people in the Western world

to start to lose a little bit of faith

in the banking system.

And they remember that Bitcoin is a bank in cyberspace

run by incorruptible software.

So the phrase B-uron bank

has emerged as an investment idea in the United States,

but it's really a matter of financial survival elsewhere.

And so the combination of that concern about inflation

and counter-party risk with banks

is driving Bitcoin's adoption.

It's also being driven by the way

by the crypto crackdown.

And as people lose faith in crypto exchanges,

crypto securities and crypto currencies,

there's a natural migration of capital

from those crypto ecosystems into Bitcoin

since its view is the risk off

safe haven asset of the crypto space.

Yeah, and certainly it's being handled by regulators

a little bit differently at least right now,

still being classified as commodity

whereas the SEC is starting to look at

more aggressively other cryptocurrencies as a security.

You mentioned the banks.

We do talk about the three banks

that failed, including most recently first Republic,

but as you mentioned, silver gate,

it doesn't always get brought up.

I think in part because it voluntarily liquidated,

but it was really the first example

of a highly specialized bank,

massive uninsured deposit base, mismatched duration,

questions around interest rate risk management.

And it arguably set the stage for the SVB run

that we saw just a few days later.

I wanna go back to comments that you made

about a month before that happened,

the last time you and I spoke, take a listen.

The institutions that were improperly constructed,

collapse the alamitas, the FTXs, the voyagers,

the block fives of the world.

But in fact, silver gate was a responsible bank.

They were able to meet their redemptions.

And if you consider the loan terms we have with them,

we're nearly 4x over collateralized

by 25% loan to value.

And the irresponsible crypto banks

were doing under collateralized loans.

So I think they do banking the right way

in responsible fashion,

and they're a good citizen for the ecosystem.

Your thoughts now?

Well, you know, I think what happened

to Silvergate is unfortunate.

I'll notice, I'll note that they weren't seized

by the regulators, they're not in receivership.

They actually were able to return all their deposits

and they're working out of that situation

in responsible fashion.

And so my hat is off to them.

It's, I think it's very, very difficult time

for any bank that had a large portfolio

of long dated bonds and interest rates surging

from almost nothing to 5% and 12 months,

I think is largely responsible for the difficulties

that the banking sector is undergone.

Yeah, and you did have that retirement

of a silver gate loan at a 22% discount.

But with silver gate out of the picture,

with signature now essentially out of the picture,

or at least reclaimed by another bank,

what does it mean for the banking landscape

for micro strategy and for others in the Bitcoin space?

How does this now evolve and change?

I think for those that are acquiring holding Bitcoin,

it doesn't make a big difference.

I think the real significance of these on ramps

to crypto being shut down is that as people lose faith

in certain stablecoins, or they lose faith

in crypto exchanges, or if they lose faith

in crypto asset securities,

like the crypto tokens that the SEC is currently going after,

they exit those positions, and since they're not gonna withdraw

their money back into Fiat banks,

because there are no off ramps,

the natural trade is to trade all those crypto assets

for Bitcoin and put their monetary energy

into the Bitcoin network.

So I think this is all fairly bullish for Bitcoin.

People are trying to figure out what they can trust

and Bitcoin is the most trustworthy crypto asset.

It's the most trustworthy crypto network.

There is no second best.

Michael Seller, always great to get your thoughts

on this topic.

Appreciate the time today.

The micro strategy up 130% more than 130% year to date.