Emergence Of Bitcoin As A Treasury Reserve Asset

Joining me is Michael Sailor. He is co-founder and executive chair of

MicroStrategy. Of course, MicroStrategy often seen as a bitcoin

proxy. It holds a lot of it on its balance sheet. Michael, great to see you.

Thank you so much for joining us. Obviously, there has been so much

anticipation and frankly, a lot built in, I think, to the price of bitcoin

of this idea that spot ETFs are finally going to come.

What's the next catalyst for bitcoin if and when that happens? How much

further can it be pushed upward?

Well, I think you can't really underestimate the significance of the spot ETFs.

It's not unreasonable to suggest that this may be the biggest development on Wall Street in 30 years.

I mean, the last thing that was this consequential was the creation of the S&P index and the

ability to invest in all 500 S&P companies via one trade at the same time.

So, this is very eager and anticipated, but most of the money in the in the bitcoin market right now

is the hotlers and the traditional crypto investors. Mainstream investors,

mainstream retail, mainstream institutions have not had a high bandwidth compliant channel to

invest in this asset class until these spot ETFs. So, I think in January, the approval of the

spot ETFs is going to be a major catalyst. It's going to definitely drive a demand shock.

And then that will be followed in April with a supply shock because there are about 900

bitcoin a day available for sale by natural sellers, the miners. And that number is going to be

cut to 450 bitcoin a day in April. So, it's a pretty big deal.

And that puts bitcoin where a year from now?

Higher. There's a, you know, we could probably keep a bunch of

economists and and modelers working all day long to calculate the supply demand and price

the elasticity of this. I don't think we've ever seen, you know, a two to 10X increase in demand

combined with having and supply in a scarce desirable asset that people want to hold for a

long period of time. So, I think we're expecting 2024 is going to be a major bull run for the asset

class. We just don't know how far the asset's going to run at this point.

Well, and to get to micro strategy specifically, as I said, obviously, big holder of bitcoin,

given what you just told me about how a spot ETF is going to make it perhaps easier

more appetizing for retail investors, institutions to get crypto exposure via that product,

why would someone still need to be a buyer of micro strategy? Is this actually something that

is going to end up working against you? You know, the ETFs are unlevered and they charge a fee.

Micro strategy is an operating company, so we're fairly unique because we can generate additional

bitcoin via our operations, either via P&L operations or capital markets operations.

And we can take advantage of intelligent leverage like we can borrow money at 0% interest for

many, many years and we did that with a convert and then we can use it to buy bitcoin.

So you can really think of the ETFs as like shipping lines, very efficient long haul,

carry a lot of capital. Micro strategy is more like an airline. We don't have the cargo capacity

in our capital structure that a container ship has, but we can go faster and we have higher performance.

So we provide you leverage and we don't charge a fee. And so if you can dig into our capital

structure, you get comfortable with that. We offer sort of a high performance vehicle for people

that are bitcoin long investors. Well, if it is ultimately for people who want to be long bitcoin,

and we are seeing bitcoin as you anticipate continually be pushed upward by some of these

developments in 2024, what does that mean for your plans around holding and whether there are

entry points at which you would want to buy more, perhaps not? Well, we will absolutely

continue to acquire bitcoin. Our strategy is to acquire and hold a bitcoin and we will acquire it

by a variety of different means as long as they are creative to our shareholders. So our goal

is always to find a way to pursue more bitcoin per share for our shareholders. And sometimes we do

with debt, sometimes we'll do with equity, sometimes we'll do with cash flows from the business,

and of course the volatility in the market just creates more opportunities for us as an operating

company. And our particular business strategy allows us to harvest that volatility to the benefit

of our shareholders. Well, and let's talk about how you account for that as well, because obviously

last week the financial accounting standards board passed new rules that will apply to micro strategy,

essentially means you get to capture all the highs and the lows of your cryptocurrency holdings.

Technically that doesn't actually go into effect until 2025, but you could adopt it earlier.

When is micro strategy planning to do that? Well, we're still evaluating that and I leave that

decision to our finance people, but what I'll say about the accounting is I think fair value

accounting is a giant step forward for the industry. And up until now corporations have had to

invest all of their spare treasury reserves in sovereign debt. Sovereign debt normally has

compound annual growth rate of a few percent. The cost to capital for most companies is 10 to 12 percent.

Bitcoin's got a compound annual growth rate of 40 plus percent over the past four years and even higher

in the more distant past. So having a digital money like Bitcoin as a treasury reserve asset

allows you to beat the cost to capital and it turns your balance sheet into an asset

instead of a liability. So we think this is a real game changer for corporations.