Transformation Of The Crypto Industry Into A More Stable And Scalable Marketplace Of Digital Assets Based On Bitcoin

Well, this week, MicroStrategy reported third quarter results beating gross profit and

revenue estimates and an aims, of course, to buy more Bitcoin.

It continues to be the largest publicly treated holder of the cryptocurrency and joining us

now.

I'm thrilled to say we have MicroStrategy executive chairman Michael Sayler and Michael,

I do want to get to the earnings reports, but we got to get to the crypto story of the

day.

And that is finally a verdict in the Sam Bankman-Fried FTX case being found guilty on seven

counts of fraud.

We'd love to hear your reaction to that ruling and what it potentially means for the crypto

industry going forward.

I think it's an important milestone in the growth and the maturation of the industry.

The crypto industry has been plagued by inexperienced entrepreneurs like Sam, unreliable custodians,

like FTX, incompetent creditors, a dozen went bankrupt in the last year or two, unscrupulous

promoters.

And there are failures in necessary right of passage for the industry that's going to

lead to a new, more stable, more scalable ecosystem that will be based on Bitcoin, public

companies like Block, MicroStrategy, Marathon, a dozen Bitcoin miners that are public, institutional

money managers like Fidelity and BlackRock and regulated banks when they eventually become

custodians.

The offshore crypto exchanges, the stable coins, the crypto tokens, the DeFi projects,

they're going to shrink, fade into the background and decouple from mainstream and institutional

digital assets marketplace that will be based on Bitcoin.

And Michael, you bring up BlackRock, you bring up Fidelity and of course both of those firms

have applications in for a spot US Bitcoin ETF, something that hasn't been approved yet,

but there's a lot of speculation, a lot of optimism that it could be soon.

What would that mean for MicroStrategy?

Given that, I mean you've been on the record too saying that MicroStrategy shares are

a proxy for Bitcoin.

If you're able to get that through a physically backed ETF, would that lessen the premium

that MicroStrategy enjoys?

I think it's critical for there to be a spot ETF for mainstream retail investors and

mainstream institutional investors to participate.

So it's going to lay a base layer that's going to allow large amounts of capital to flow

into the industry.

MicroStrategy is a special investment for Hickol for Bitcoin, long bulls.

We're different from an ETF because we don't charge a fee.

We can use intelligent leverage.

We barred 2.2 billion at 1.6% interest by Bitcoin.

And we can generate attacks deferred Bitcoin premium either by using cash purchases or by

capital markets activity.

So we're not for everybody and in sovereign wall funds that want to buy 50 billion dollars

worth of Bitcoin can't fit into the MicroStrategy capital structure.

But if you want leverage and this tax deferred yield and no fee, then we're an interesting alternative

for people in the space.

With regards to building up that position, that crypto position even further than what

you have, does the introduction of those ETFs would that create competition to increase

asset class, asset size, excuse me?

I think it's going to help everybody in the space.

They're going to accelerate education efforts and adoption.

Already you can see fidelity analysts are making a huge impact on the digital asset space.

So as you see Wall Street analysts from all these ETF firms and you see their education

and marketing efforts come into the space and as they provide the rails for traditional

institutional investors and endowments and the like to engage, they're going to expand

the entire ecosystem.

But they're not an operating company.

They can't take on leverage.

They can't not charge a fee.

I mean, we literally don't charge a fee and they can't, they can engage in cash purchases

with operating income like we can in order to generate that tax deferred Bitcoin premium.

It's interesting to see some of the moves in Bitcoin this year.

Obviously, the volatility is still there, but not necessarily to the extremes that we

saw in prior years.

And I'm wondering if the introduction or the broadening out of the user base will

reintroduce that volatility or have we kind of moved past that?

Are we kind of in a different era now?

Well, I think we've reached a nice point, but you know, when Bitcoin plus passed $100,000

to $200,000, maybe it'll trade from $250,000 down to $175,000 and people are going to be

screaming the end again.

So Bitcoin is compounding at 40 to 50% annualized growth rate for the past three and a quarter

years since MicroStrategy got into the space with a lot of volatility.

I think an analyst Timmer from Fidelity pointed out it is got the highest volatility of any

asset, but it's also got the greatest return.

And so as I've said in the past, volatility is vitality.

I'd rather have the volatility and the performance than get rid of the volatility.

Gold's not volatile, but it's also down 1% in three and a quarter years.

So that's not what we're looking for.

Well, Michael, I want to talk a little bit more about the user base of crypto.

Who's actually buying?

Because of course, if you take a look at the trading market, you've seen trading volume

absolutely fall off the clip.

And the narrative I keep hearing is that you've had all these retail players flushed out after

what we saw with FTX a year ago.

So maybe a spot Bitcoin ETF is in the offing, but do you think that that would actually bring

back in those marginal buyers, those retail players, or have they been burned too badly?

Yeah, I think that during this crypto meltdown, the crypto bros offshore and the leveraged

hedge funds, they exited the space.

They were all bankrupted for the most part.

Right now, the natural buyers in the space are Bitcoin hotlers, the maximalists, the

people they're sweeping there and criminal cash flows into Bitcoin.

It's almost impossible, very difficult for mainstream investors and mainstream retail

to buy Bitcoin because they're just very few on ramps.

So the natural sellers are the miners, the natural buyers are the hotlers, the trading

volume has diminished quite a bit.

This is the law before the storm.

Once we get these ETFs in place, that will open up the gateway for mainstream retail and

mainstream institutional capital to flow.

And the halving in April is going to cut the available supply in half and it's going

to eliminate half of the natural selling.

So this next four month period is very pivotal to the asset class.

I want to talk about your own Bitcoin holdings.

And I have a very detailed question for you.

I have to give credit to Tom Contilliano in our newsroom for this.

You take a look at page 21 of the latest 10Q.

It mentions that micro strategy could raise just over $600 million in ATM equity offering.

Is that something you're thinking about tapping?

You take a look at the shares right now.

They're up over 200% year to date.

Could you use that to add more to your Bitcoin funds here?

We have raised more than a billion dollars in the past via ATM offerings.

And whenever we did it, it was accretive to our shareholders.

This $600 million vehicle will allow us to engage in more capital markets activity.

As we're selling stock at a premium and then buying the underlying Bitcoin, we're capturing

a tax-deferred Bitcoin premium for our common stock shareholders.

So we're very thoughtful about when we do that and how we do that.

And sometimes we'll do it.

Sometimes we won't.

It depends on market conditions and where everything trades.

All right, Michael.

It's always great to catch up with you.

Really appreciate your time on this Friday after earnings.

That is Michael Saylor, MicroStrategy Executive Chair.