Michael Saylor: Why MicroStrategy’s Bitcoin funding is NOT a glitch

MicroStrategy is the world's largest corporate holder of Bitcoin.

We're in Washington, DC to interview its executive chairman, Michael Sayler,

about how his company has catapulted to be one of the most highly valued in America.

Really, MicroStrategy is pioneering a new market where issuing securities

backed by digital capital, backed by Bitcoin.

This whole conversion financial engineering type strategy is often referred to online as the infinite money glitch.

See the misnomer there is, it's not a money glitch, it is a digital transformation of the capital markets.

Meet Michael Sayler, the technology entrepreneur who started MicroStrategy in 1989,

and took it public on the NASDAQ in 1998.

What is an enterprise software company is now better known as the world's first and largest corporate holder of Bitcoin.

In August 2020, Sayler converted $250 million of the company's cash to Bitcoin.

Since then, he's been almost $10 billion USD acquiring more.

Its total worth is now more than $15 billion.

Making MicroStrategy officially a whale, it owns more than 1% of all Bitcoin available.

The strategy has transformed its once languishing share price to a market capitalisation of more than $40 billion USD at the time this video was made.

Its valuation represents a premium to its Bitcoin holdings, about 2.5 times.

While believers think it could shoot higher, some short sellers believe it's only worth however much Bitcoin it actually holds.

Michael Sayler is obviously more bullish.

PCS' company is at the centre of the modern capital flow to digital assets.

To understand how he thinks about the company's future, we flew 17 hours from New Zealand to the United States to interview him at his apartment in Washington, D.C.

It reminded that this show never offers financial advice, but what this interview does offer is an insight into the mind of Michael Sayler.

Michael Sayler, thank you so much for having us in your incredible apartment. It's so good to be here.

Thanks for coming.

You are most welcome. I heard in another interview that you did that you resented people who worked from home, so I felt like we had to come and fly away to do this on him first.

You were just telling me before, but I'd love my audience to hear this.

You spent some time in New Zealand growing up. Tell me about that.

I did. My father was in the United States Air Force, and there was a station down in the South Island in Blinum, and so when I was a child, I guess I arrived around age three.

And I stayed there till age six. I remember walking to school through a wheat field, and every day at school, the highlight of the day was when they delivered our lunch.

It was either fish and chips wrapped in a newspaper, or it was a meat pie, and you could alternate between one or the other.

Sounds about right. It was like the culinary highlight of my childhood. When I came back to the US, the food went downhill from there.

That's amazing. So you actually started school in New Zealand, so I'm going to claim you as a Kiwi for the rest of this conversation if you're right with that.

Okay. Now look, I want to get the figures right. Micro-strategy's Bitcoin holdings, 252,220, is the number of Bitcoin you hold. Is that correct?

That's correct. And if we put that at the current price around $66,000, US dollars, that is the total value of about $16 billion.

Maybe closer to $17 billion right now, but yeah, $16.5 to $17 billion.

Now, do you mind if I personally ask how much you, how many Bitcoin you hold personally, and it's total value?

I have more than $17,732. That was the amount I announced about four years ago. Haven't sold any.

That's amazing. Okay. We're going to come back to that and talk more about the Bitcoin revolution in the latest age of this interview.

But first I want to talk about Micro-strategy, the company that you yourself started decades ago now.

How should investors think about the underlying software company? Because you still operate it, right?

You often talk about Micro-strategy as a Bitcoin development company, but I can imagine the actual software company is quite critical because it succeeds, provides the means to accumulate more Bitcoin.

Well, the way to think about Micro-strategy is three components. We've got a balance sheet, which is the Bitcoin balance sheet.

We've got a software business, a technology business, and that was the springboard for us to get into Bitcoin.

Now we've got an emerging Bitcoin securitization business where we're a Bitcoin development company, and we leverage our Bitcoin balance sheet to issue securities to the public market that no one else could so easily create as us.

So if we look at the software business, well, that's a $500 million year revenue business and it generates consistent cash flows.

And that got us to 2020, and that's still a very healthy business. It's a multinational, and we do business with thousands of companies all around the world, including customers in Australia, New Zealand, and Korea, and Japan, and you name it.

But the best way to think about Micro-strategy of your investor is we have where the largest operating company that holds Bitcoin.

So if you have $17 billion of capital of Bitcoin, that's permanent, so there's no redemption rights of that.

There's ETFs like BlackRock or Fidelity that are comparable to us in size, but those are overnight deposits.

So if you said, hey, I've got $17 billion in deposits, people can take the money out of the bank tomorrow.

Well, they just basically are a trustee holding the money and they return it when they're asked to return it.

You can't leverage it, and you can't build businesses on top of it.

Micro-strategy has permanent capital. So for example, we can do things like we can issue convertible bonds on top of that capital.

So if you have, you know, we have $16 to $17 billion in Bitcoin exposure, we have $4.2 billion in convertible bonds.

The bonds we can issue fairly cheaply because we have a stock. The stock reflects the permanent capital of the Bitcoin, but that's not redeemable either.

That means that it can generate a premium to the Bitcoin.

So as people trade the stock and they trade the options on the stock, the stock trades at a premium to the asset value.

And when the stock trades at a premium to the asset value, the company issues either equity or convertible bonds at a premium to the underlying assets.

When we do that, we don't just put the money in the bank or in T-bills. We actually invest the money in Bitcoin.

So you can imagine when the company issues, if we were to sell a billion dollars of equity in the market and it's back by 500 million of Bitcoin at 100% premium,

then we buy the Bitcoin and three days later we've generated a $500 million gain for our shareholders in Bitcoin.

So that's very interesting. That's what we call a BTC yield.

Now if we do the same thing with a bond, a billion dollar convertible bond, we don't do it 100% premium.

It might be a 200% premium because the bond comes at a premium to the stock.

So when you go up 40% over a stock, which is 100%, now you're looking at something that looks like more than 180%.

So now a billion dollar bond sold into the market is back by $350 million of Bitcoin.

We buy back the billion of Bitcoin. We capture the $650 million gain, another BTC yield.

So the real operating business of the company isn't the software business anymore.

I mean that's still there. It generates 75 million in cash flow.

But one of those bonds would generate 10 years worth of earnings in five days.

And so really, MicroStrategy is pioneering a new market.

We're issuing securities back to buy digital capital, back to buy Bitcoin.

And then we're buying the Bitcoin back. So what that means is I could issue the bond in one week by the Bitcoin,

capture the $3, $4, $500 million gain, announce it to the market.

The stock would trade up. I could do another bond the next week.

So instead of a traditional model where I raise a billion dollars, I go find real estate in Auckland.

I invest in the real estate. I leverage it up. And in five years you determine whether I was smarter, stupid.

History of our property market, you'd be pretty smart.

It's a five year investment cycle. And if I was smart, after five years I come back to the capital market.

And I say, I'd like to raise another billion. Now I have to find another set of real estate in Auckland or Blenum or Sydney or Melbourne.

And it takes another five years to figure out whether it worked.

So what you have there is heterogeneous credit and you have a slow investment cycle.

Micro strategy has homogeneous credit.

We're going to raise a billion by Bitcoin, show you that we bought Bitcoin that had created Bitcoin per share.

The investors look at it. It's an immediate gain. We just lived through five years and five days.

And then once we've done that fast rapid investment cycle, what's your next idea?

I'm going to do the same thing again. I'm going to buy another billion of Bitcoin.

And so if you look at that against the backdrop of this year, in the first quarter we did an $800 million convertible bond.

We bought Bitcoin, the market liked it. The very next week we went back to the market, did a $600 million convertible bond.

We bought more Bitcoin. It was a creative. The market liked it. So what we do, we went back to the next quarter.

We did another $800 million bond. We bought Bitcoin. The market liked it.

In the middle we sold hundreds of billions of dollars of equity.

And the next quarter we sold more equity. We sold 1.1 billion of equity in Q3.

We basically did that at a massive premium. So we captured a large BTC yield.

We announced that the market liked it. And then very next week we did a convertible bond.

And that became a billion dollar convertible bond. And so what you see is we're running a very rapid investment cycle.

We're developing a city and cyber space. We call that city Bitcoin.

It's like if we were the first public company to show up in Manhattan and we started selling debt or public equity instruments in order to raise money to develop Manhattan.

And everybody else was using cash or going at a slow rate. And if we found that the two innovations are one, we issue public securities to develop Manhattan.

And the second is we can build a building in five days.

So you can't do that in real space. It takes five years to build a building.

And you can't hit the public markets for capital. But in cyber space, I can raise the capital every month.

I can build a building in five days. Our investors are Bitcoiners.

So if you're a Bitcoiner, what do you think? You think Bitcoin is going to go up forever with some volatility. So what do you want?

You want more Bitcoin per share. So how do you know whether the company is succeeding that's giving you Bitcoin per share?

Well, we do the deal. We announce BTC yield. This is how your Bitcoin per share are created. How long does it take? It takes a few days.

So the real micro strategy business is to be the leading public issuer of securities in order to acquire Bitcoin.

And as we acquire the Bitcoin, we're driving up the scarcity of the Bitcoin. We've now bought more than 1% of the Bitcoin.

Now, there's only 450 Bitcoin available for sale from every day by natural sellers, the miners.

So 450 times 67,000 of Bitcoin works out to 20 million in change.

So you can see what happens is if we're raising capital via tapping into the public equity markets and the public fixed income markets.

And we're bringing that capital back and we're structuring our balance sheet and we're buying the Bitcoin, then that's good for Bitcoin.

And of course that leverage that we get via issuing the debt, that's $4.2 billion of debt at 80 basis point.

So we pay less than 1% interest for the $4.2 billion which creates the leverage on the equity.

Because there's leverage on the equity, that creates more performance. It also creates more volatility.

Now, who wants volatility? The option traders want volatility.

So in the options market, we've gone from a $3 million open interest in micro strategy options to some days 40 billion.

So the options traders are trading high volatility. You can think of them as the options traders want 10X leverage on Bitcoin, 10 to 20X leverage.

And maybe they want it long, they want calls, or maybe they want to short it 10X, they just, you know, the haters want to short it, the lovers want to long it.

But then micro strategies like 1.5X Bitcoin. And then if you build a derivative on micro strategy like MSTU or MSTX, they're like 2X micro strategy.

So that's like 3X Bitcoin. And so how well have they done? And like two weeks they raised like $700 million in two weeks, no marketing.

So on top of this stack, if you're looking at spot Bitcoin, either by Bitcoin, or you're by Ibit or FBTC, they're offering you standard Bitcoin returns 50 ARR with 50 Vol, 50 volatility and 50 ARR.

And 100% upside, 100% downside. That is the digital commodity. Micro strategy, the stock is 1.5X. And the way we get to 1.5X is we issue these bonds, which give you half the upside of Bitcoin little downside.

What if I want half the upside 5% of the downside? Well, that's you buy a convertible bond, a senior in the capital structure of a company that's 4X over collateralized.

So people that are risk averse, they can actually buy the bond and get half the benefit. People that are Bitcoin maximalists can buy the equity and get 1.5% benefit.

The degenerates, the traders, they can get 3 to 10X. And then the haters can short the common stock or short with puts. And we have sometimes $15 billion or $20 billion of open put interest.

When I was a younger man, when we first came public, I was in my early 30s and people shorted my stock, I'd be like, eh, they're shorting my stock. I don't like them.

But you still called them degenerates today, though. That's a term I would reserve to people that are trading with so much leverage they might get wiped out on the weekend, but they do it for the thrills in lieu of going to Vegas.

No, but when I was a younger man, I would have been concerned about people shorting my stock. But now I'm not because micro strategy is really just providing a set of institutional instruments that institutional investors can use to tailor a portfolio that's long, short, hedged.

They can sell the volatility, they can arbitrage the volatility, they can arbitrage any instrument against any other instrument, they can generate yield, they can buy insurance.

Some of those people that are short, they'll short a billion dollars of micro strategy and they'll buy a billion dollars of Bitcoin. And so if we didn't exist, then billions and billions of dollars of capital from the traditional finance markets wouldn't be invested in Bitcoin.

Because they can't buy or hold the underlying crypto asset, they can only buy securities or bonds or options or other instruments. So we become an institutional gateway for crypto exposure by all types of investors.

And my real aspiration now is if you really hate Bitcoin, I want you to love us. Like where are the perfect instrument to short? Because I promise you I won't sell it. We're going to be levered long Bitcoin. And if you don't like it or if you just want to hedge it, you get to sell our stock or sell our buy puts.

And the worst thing I could do is to take your side of the trade or to interfere with what you're doing. So I think part of micro strategy's rise to prominence in the space is we have been laser-like focused, we're very consistent, we're very transparent, we're going to buy Bitcoin, never sell Bitcoin, we're going to borrow money intelligently.

If you like Manhattan and if a company said I'm going to borrow $5 billion at 1% interest and I'm going to develop real estate in Manhattan, you might think that that's kind of company you would like to invest in. But if you hate Manhattan and we're 150% exposed in Manhattan, you've got this investment, Tisha, like that's the company I want to short.

And the most important point in the marketplace is you just have to be very pure, true to your focus, have integrity and consistency and transparency because it's not my job to trade hedge arbitrage or construct that portfolio.

There are guys with hundreds of millions or billions of dollars in a Bloomberg and that's what they do every day. So my contract with them is we're going to do what you can't do.

We're going to buy Bitcoin, whole Bitcoin and we're going to issue equity and we're going to issue debt instruments and you can't do that.

We're a public company and on the NASDAQ stock exchange in America with the nearly 30 year track record and we have 16 billion of permanent capital that's Bitcoin, right?

So I can create an equity with 80 or 90 vol, I can have permanent capital, we can stand massive swings because of our capital structure, that's what we can do.

What you can do is decide if you want to buy it, sell it, hedge it, or short it.

So let's talk about micro strategies rise there and the past few days it hit $43 billion of 52 week high. All of those functions that you've spoken about are the reasons why you think that your stock can currently command a premium to its net asset value.

43 billion at its high versus that 16 billion and its net asset value being the Bitcoin holdings. Give me the rationale beyond what you've mentioned about those functions.

That you think it may be able to continue to expand to perhaps one trillion US dollars.

Because I mean if you wanted to make it, put it simply, where the only company that can issue Bitcoin back bonds.

So anybody can buy Bitcoin and have all the downside and all the upside and all the volatility. But what if I want half the upside but no downside?

Well, there's a lot of people, if you look at the fixed income market, look at the corporate debt market, look at the preferred stock market, look at the convertible bond market.

People in the convertible bond market, they have to buy a convertible bond. I can sell a billion dollars of bonds in one day to people that have to buy the bond.

They can't buy Bitcoin, they can't buy the equity. So who in the market is the leading issue of convertible bonds? Well, we are.

Micro strategy, we've issued like five billion dollars worth of convertible bonds. And so we've got that credibility and what's going to back the bonds? Bitcoin.

Well, what if I had 50 billion dollars of cash and treasuries and I wanted to issue Bitcoin bonds? It wouldn't work. Why? Because the volatility of a T-bill is five. The volatility of Bitcoin is 50.

The volatility of micro strategy equity is 80. If you want to buy a convertible bond, you want to buy a bond from an issuer that has volatility more than 45.

You want high volatility, you want high liquidity. And of course, you also would like the Bitcoin upside. If Bitcoin, if it doubles, the convertible bond will provide you a Bitcoin return.

But only if it sold to you by a company that's all Bitcoin. So micro strategies, this Bitcoin securities company. And if I want high-vol high performance Bitcoin equity, what you have to have a company is 150% Bitcoin.

If you want high volatility, high performing Bitcoin converts, you need a company that's backed by Bitcoin. If you want to buy a bond that pays 100, 200 basis points more than conventional things, you need a company that can sell you that bond that has a way to generate better than that.

So there's an entire swap market out there where a lot of people would love to get paid 7% interest. Fixed income, retirees. People literally have 100 billion dollar funds and they have to buy bonds that generate fixed income. That's the name of the fund. Fixed income. They can't buy Bitcoin. They can't buy the equity. They might not even buy the convertible bond.

But the strategy we can generate that bond. And of course, Bitcoin's been going out 50% a year. So we have crude capital, digital capital on one side. This is 50% with massive volatility. There's a lot of people that would love 10% fixed income with 10 volatility.

So how do you turn high voltage capital into low voltage fixed income? You need a transformer. So what's the perfect transformer? A company with $10,20,30 billion of Bitcoin. And then I sell a billion dollar bond here that gives you this percentage and this low volatility.

And I invest the money into this, which is high performance, high volatility. And so what MicroStrategy does is we're scraping or stepping down the volatility and we're stepping down the performance.

Now you would think, why would you want 10% instead of 50%. I mean, why would you want that? Well, MicroStrategy has gotten 50% every year for the past four years, but we took 50% vol.

Right. The world's full of people that would rather have 5% and 5 vol or 10% and 10 vol or 15% and 15 vol. So in essence, MicroStrategy's opportunity is to be that leading public company and securitizing this asset class and then providing the derivatives, you know, fixed income, high yield,

convertible, high performance equity. And you can't really do that if you don't have a public company with permanent capital. You can't do it with an SEC 40, an ETF or a trustee. They've got overnight deposits. They can't generate five years duration leverage on some kind of preferred or bond like instrument.

So I guess the last metaphor I give you is, you know, standard oil created the oil business. So I give you a petrochemical refinery and think about what goes in one side. It's crude oil.

What comes out the other side gasoline? Why do you put gasoline in the car because that's only thing that works? Caracene? What do you put that in? Jets. That's jet fuel, right? What? Propylene?

You know, but you mean goes and paint all of those petrochemical products come out this side. The refinery does a lot of work and incomes crude oil.

So think of MicroStrategy as we take in crude capital. There's no doubt it's the best performing asset in 15 years. It's theoretically the best digital, the best form of capital is digital capital.

It's just scary to a lot of people. It's too volatile. It's too difficult to manage. So they want someone that can, you know, domesticate it, step it down, package it in safe components and then connect it into the fixed income market, the high yield market, the, you know, the convert market and the public equity markets and MicroStrategy.

You know, we inadvertently, we just inadvertently backed into that because to do what you do what we did, you have to start with a very small company, a billion dollar company and then we become a 40 billion dollar company and now we're 150% Bitcoin.

So if you take another billion dollar company and do what we're doing, you can't catch us because at this point we can, we can grow $5, $10 billion a year in capital or faster.

You can't catch us if you start with the same thing. But if you take a big company like Google or Meta or Microsoft or Apple and they took 50 billion and they bought 50 billion a Bitcoin, well that would be good for Bitcoin and that would be good for their shareholders and if Apple did it a lot, they might add a trillion dollar to their market cap.

But it would be a trillion on top of three trillion. So at the end of the day, Apple would be an enterprise 25% Bitcoin 75% Apple.

MicroStrategy is an enterprise 150% Bitcoin. So how do you create a company which is 150% Bitcoin that can sell billions of dollars of fixed income instruments or billions of equity into the market?

With a permanent capital base that's going to oscillate, it's going to vibrate with the frequency of Bitcoin.

That is, I'd love to say we had the idea four years ago and that's what we're trying to do. No, we just kind of stumbled on to just a really great business.

I do want to get to Apple and how you perhaps plan to convince companies like that to follow your Bitcoin adoption strategy playbook. But this whole conversion financial engineering type strategy is often referred to online as the infinite money glitch.

But I wonder if it is infinite or not. And if it's not, do you perhaps see it running into more of a supply issue first or a demand issue first?

Demand being perhaps there might not be potential buyers of all of those other options like bonds or supply that if you create too many shares and can make too many conversions from your stock that investors, existing investors will be diluted too much that you'd be running to a sort of cap with that. Or can this just get going forever Michael?

See the the misnomer there is it's not a money glitch. It is a digital transformation of the capital markets. When when you have a system that moves from a higher energy state, a more disordered state to a lower energy state, lots of energy gets given off.

So if you look at the capital markets, you've got $800,900 trillion of wealth in the capital market. And you've got this wealth. You've got people invested in all these things.

It's not a heat glitch, but what what and what happens when you add heat the ice becomes water the water becomes steam. So if you look at the capital markets, you've got $800,900 trillion of wealth in the capital market. And you've got this wealth. You've got people invested in all these heterogeneous assets.

Why do 98% of the companies in the S&P 500 not perform? How come 1% of all the returns come from like seven companies? What I talked about with if you study the convertible bond market, someone issues a convertible bond, it takes them five years for the investors to figure out whether it worked.

And then when they come up with a new convertible bond is a different credit proposition. It's very inefficient. If you think about preferred stocks, very inefficient junk bonds, very inefficient private credit, very inefficient fixed income, people get very low yields.

What if I'm getting this yield and I'm taking all this credit risk and counter party risk. So of the 900 trillion in capital and the global capital markets, half of it is just long term, store of value, long term capital.

That is pure capital. People with money just want to keep their money. Rich just want to stay rich. I give you an organization of billion dollars in the endowment. You just want to not lose the billion dollars.

Precisely.

So that 450 trillion is invested in buildings that are rusting. It's invested in cars, it's invested in fleets, it's invested in things that suffer from 20th century risk factors.

Credit default war, tariff, tornado.

Text.

You had a good business at Kodak and your family had all their money in Kodak and what happened? Or you own Xerox and what happened? Then you own the best business in Ukraine and then it's war.

I could give you 10,000 examples of risk factors that destroy wealth. So you've got that 450 trillion on one side and then you've got one trillion, digital capital.

It's like well I had a building, I get rid of all the things that make the building a problem and I make it an invisible, immortal, indestructible, teleportable digital building.

That'd be cool.

Okay. Well that's what Bitcoin is. So this thing that people think of as a glitch, it's not that, it's energy flowing from a steam state, from highly disordered, inefficient bouncing into each other.

Into a more ordered state, right, it's moving from a year in Africa, I give you a billion dollars. I say go invest in any real estate in Africa and anything you want, any country hold it for 30 years.

There's not a single thing that you would want to invest in and I say well, would you rather own a billion dollars of real estate in Africa or a billion dollars of real estate in New York City?

Well you can see you'd rather swap the New York City risk for the Nigerian risk and then I say well, would you rather own a billion dollars of real estate in New York City or a billion dollars of Bitcoin or a billion dollars in Cybermenhattan?

There's no mayor in Cybermenhattan, there's no property tax in Cybermenhattan, there's no storms, there's no weather in Cybermenhattan.

Everybody lives forever in Cybermenhattan, you can teleport Cybermenhattan 60 times a second, you can program it as an AI.

So what you see is it's not a glitch, it's simply capital flowing from a disordered economy, like in Argentina and Nigeria they have hyperinflation.

So if I happen to be there and I'm selling pesos and buying dollars and the peso used to be one peso to the dollar and today it's like 1,400 or 1,200 pesos to the dollar.

Was that a glitch? Or was that...

That's basically the free market, it's capital flows to where it's treated the best and so if I have capital in Argentina I would put it in the US

and if I have capital in the dollar, let's take the dollar, 100 years ago in Miami Beach, an acre of land on the waterfront costs 10,000 dollars.

Today, 10 million dollars.

The dollar lost 99.9% of its value against real estate, waterfront property in Florida.

Is that a glitch? Right? And the peso lost 99.9% of its value against the dollar in 20 years. Is that a glitch?

That's really just capital flowing from a weak asset to a middling asset, to a stronger asset.

And Bitcoin's advance is capital flowing from 20th century analog assets, financial and physical assets to the 21st century digital economy.

And it's going to go fast early on, it went really fast the first decade, it's been going 50% a year, ARR for the past four years.

But as the 1 trillion equalizes with the 400 trillion and this becomes 200, when this becomes probably this 450 trillion will become 700 trillion but this one trillion will become 100 trillion.

And so as this becomes a fraction of the 20th century economy, the difference between the cost of capital and the Bitcoin universe, which is 50% right now.

And the cost of capital in the dollar universe, which is about 12 to 14%, look at basically that's the return of the S&P.

So the S&P sets the cost of capital for traditional conventional assets and Bitcoin is the opposite. And so Bitcoin is like three and a half times the S&P.

And it's also three and a half times the volatility, look at the devol, Bitcoin volatility, 55 versus the VIX.

And so if you look at the two, it's not a complicated thing, it's a thermodynamic idea that any physicist will tell you, this is a hot fluid, this is a cold fluid, I pull up the gate and I mix the fluids and how hot is the bathtub.

It's somewhere in between, right? The temperature is going to be in between, scalding hot and freezing cold. And in the middle if there are some ice cubes in this one and I have released scalding hot water here, some of the ice cubes are going to melt but you're going to end up with a warm bath with the exception that there's always going to be, you know, if you look out, if you look out 10 years instead of 50, 50 vol versus 15 vol maybe it'll be 45.

45 to 40 to 38 to 36 to 32 to 28. This volatility is coming in, this ARR is coming in. Now this comes up because what happens when, like when Apple and Google and Microsoft and Facebook or whatever when they buy Bitcoin?

What happens when you could take the bottom 98% of the S&P 500 if they bought Bitcoin, their performance would start to approach the big tech. And so the performance of the S&P index will move toward Bitcoin as they put Bitcoin on the balance sheet. Bitcoin performance will move toward the S&P as we move from, you know, a 100 to one ratio to a 10 to 1 ratio to a 5 to 1 ratio.

And these things equalize but if you understand it as thermodynamics and collapsing into a more efficient energy state, like how is it not more efficient to be able to teleport a building 60 times a second between New York and London?

That's efficient versus your family made an investment in London 30, 40 years ago and they changed the law last month and now you're going to lose all your wealth. That's inefficient, right? So Bitcoin is the digital transformation of capital.

Micro strategy is just a business taking advantage of the digital transformation. But if I was talking to Apple, I would say don't buy back 100 billion of your stock. Buy 100 billion of Bitcoin, it will go to 500 billion. You'll have a 500 billion dollar business growing 20% a year. You'll make 100 billion investment gains a year.

Your investors will look at it and they'll add a trillion or two trillion dollars to your market cap and now the company will be valued 60% based upon the operating business.

40% based on the balance sheet, right? And the risk will shift because the risk in a conventional company is the balance sheets worthless and the company's value based upon the P&L.

And so if you make a billion dollars a quarter, I basically value it at 20 p to e. So I take the quarterly result, I multiply by 80. And I say, oh, you're worth 80 billion dollars because I took one billion, I multiply by 80 and the balance sheets worthless.

But the next quarter, I say, well, my billion went to zero. Well, that's 80 times a billion dollar change. You've got a massive whipsaw. That's why these companies stocks crash. If the company had 40 billion dollars of tangible assets on the balance sheet. And it was, that puts a floor on the equity. And really what you want is you want a well balanced company where, it's like Harvard University or Yale.

They're not valued based upon the earnings of this semester of freshmen entering Harvard. They're valued because they have 18 billion in the endowment. And if they close the university is still rich, they have 18 billion in the endowment.

So micro strategies just pioneering, it's kind of common sense. Your family wouldn't give away all your money and just say we're going to work harder. And a university wouldn't give away all its money and say we're going to raise tuition, cram the money.

And the class is cut the teacher salary and work harder. But conventional wisdom and finances, your company ought to divin it out its capital, it ought to buy back its stock. It shouldn't actually hold any capital on the balance sheet. And it should just raise its prices until it's employees to work harder and cut its cost.

And that in a nutshell is why 99% of the companies in the world underperform the magnificent seven and why they all could benefit by just adopting Bitcoin as their Treasury Reserve standard.

That was an interesting point you made about analyzing and coming to the evaluation in terms of analyzing the performance of a company, right? Investors historically as you meet and just look at a price to earnings, forward looking ratio, or look at the profit and loss.

How should investors analyze micro strategy? Because if you mentioned that to give you a metaphor, micro strategies, the tap to that capital flow, as you mentioned, there's nothing else like that. Like are you a Bitcoin bank? Do we value you similar to, do we analyze you similar to a bank? Or do we, I've seen a simplification perhaps is analyzing micro strategy like a reach, like a real estate investment trust? But that feels too simple. I mean, is there anything we can compare it to micro?

I think you got to look at the balance sheet and say, okay, that's one component. They've got this much Bitcoin. And then you got to look at the P&L and say, well, how much investment income can they generate?

So if the company gets to $50 billion of Bitcoin and a Bitcoin goes up 20% a year, the company generates $10 billion of investment income. And that compounds 20% a year.

So if I said to you, hey, here's a big tech company that makes $10 billion a year and they're growing that 20% a year. How would you value that?

Through the roof, right? There you go. So it's not very complicated. The thing that's helped people back is we've used indefinite and tangible accounting for the last four years.

And it's not until 2025 that you actually start to do fair value accounting. And when you start to do fair value accounting, you can actually see investment income. And you can see the income potential.

And so it's not complicated to figure out what the balance sheet is. Everybody knows you know 252,000 Bitcoin.

The complicated thing is to grasp the idea of a company that's security that issues securities back by Bitcoin. And the real franchise the micro strategy has is we're the leading issuer of Bitcoin back securities.

So the question is how much capital can we raise? How much permanent capital we have? And the second question is how much leverage will we use and how intelligent will it be?

And the third question is what's your forecast for Bitcoin? Right? I mean, and so there's three variables there. If we borrow $10 billion at 7%, and we invested in Bitcoin and Bitcoin returns 21%, then we scrape 14% arbitrage on $10 billion.

And then we're going to make $10 billion in the swap. We roll that into the business. And then 10 years out, you've got $50 billion business, $50 billion in capital. And you're generating $10 billion of investment income just off of that. One piece, right?

So what comes down to what's the nature of the capital? How much can we get and raise? And then how will we invest it? And we'll be responsible.

So the haters think, well, Bitcoin's just going to go up 0% a year. So of course, from their point of view, the balance sheet's going nowhere. And if Bitcoin goes 0% a year, you can't raise any capital.

So if that's your forecast, you're not that interested. You know, my view is Bitcoin's going to appreciate 29% a year ARR for the next 21 years. Right? That's my base.

What's the dollar dollar figure on that? 13 million.

Per Bitcoin. Yeah. Okay. And so what do you think my shareholders think? Well, my shareholders are pretty bullish on Bitcoin, right?

I think there's no one buying micro strategy that hates Bitcoin. No, they're shorting it. Yeah. So at the end of the day, I mean, the methodology would be figure out what's your forecast for Bitcoin.

But you can go to Google type Bitcoin 24 and you'll find the Bitcoin 24 open source model. It's a 21 year model. You can download it. It's a spreadsheet. You can put in your forecast for innovation rate, inflation rates, all the asset class, monetization, demonetization, Bitcoin assumptions.

Supply. Yeah. You can put that all in and you can run your model and you get your own answer. Right? So do that. And then you just got to consider how much capital do you think that my

strategy will raise via securities offerings? And after you do that, you decide, are we responsible custodians? And then you create a five or 10 year model for our investment income and you figure out how much income can we generate and how fast can we grow?

And of course, all those things are very integrated. And you know, if the more you know about the capital markets, the more enthusiastic you get because we look and we say the convertible markets are inefficient.

The preferred stock markets inefficient, the high yield markets inefficient, the corporate debt markets inefficient, you know, the real estate markets inefficient.

So, you know, our view is we kind of want to be the Amazon of fixed income. We want to build a better product direct to a new distribution channel.

And I don't blame people for not necessarily understanding that because sometimes you have to see it. And in the absence of, you know, fair value accounting and the like and three or forecast and those, you know, don't exist.

It's a lot for people to grasp right now. Well, you've even had to come up at micro strategy with your own measurement to measure the success of the strategy. You already mentioned it earlier on in this chat, the BTC yield.

Currently, you'd a date that's around 12.2% that yield. But over the next three years, according to your most recent quarterly report, you're targeting something between I think 4 to 8% is that correct?

So that, so that then implies a diminish, a diminishing in that yield. So once it decreases or compresses that yield, what happens then? Do you need to come up with another means to convert?

Let's just focus on BTC yield for a second. What is it? It's the rate of increase in Bitcoin per share.

So if I think we're getting close to almost an 18% like 17% BTC yield for the year so far. That means that between January 1st and today, you've gotten more than 17% more BTC per share.

If I gave you a company and I said it's going to a dividend yield of 17%, and I give you another company said it's going to a dividend yield of zero.

It's like, well, you would value the second one based upon the underlying asset. But you're not going to need more. But the first one, you would actually take the underlying asset.

And then you would take the yield and then the question is, how long will they generate that yield? And what's the average yield over the lifetime of my holding period?

So in that case, I mean, you could say, if I expect 4 to 8% yield, you could put a 10, 20 or 30 pte on that. Sometimes people will, you know, it's basically your earnings per share in a way.

But we can't really call it that because it's a non-gap measure. And it's a Bitcoin per share type measure that's valuable to people that love Bitcoin.

But when you think about it that way, the simple model there is the company should have a premium equal to the multiple of the yield.

If you think the multiple should be 20, and if you think the yield will be 8%, then you could say the company should trade it at 160% premium to the underlying asset.

So the ability to generate that yield will justify that premium. And it's a simple model, but it's not the whole model. The real issue is how you're generating the yield.

And the way you're generating the yield is through issuing securities to the public market, you know, that generate that yield. And one way to do it is by issuing equity at a premium.

That's a simple way, the most simple way imaginable. Right? Another way to do it is to issue convertible bonds at a premium to the equity, which may or may not be at a premium to the asset.

It's a slightly less simple, but still kind of straightforward way to do it. A third way to do it is I just issue a fixed income instrument that pays 7% and I buy Bitcoin with it that yields more than 7%.

Which is what you're done.

Well, technically, that's not exactly what I'm doing right now. What we're doing right now is we've issued equity at a premium and we've issued convertible bonds at a premium.

You know, if the company in the future were to issue preferred stock that had a fixed thing or issue bonds corporate debt or something that had a fixed coupon, then you would be swapping the fixed for the, you know, for the Bitcoin return.

Of course, in that case, look, if your, if your forecast for Bitcoin is to go up 7% a year and your, and the company's paying 7% for the capital, there's no yield. You see, right?

If your forecast is to go up 21% a year and the company pays 7%, there's a big yield. Right? And so, so if you use BTC yield, then you just think about what's the company going to do to get to it.

We've just got lots of different tools to get to it. We can, and there's other things. There's a thousand things you could do, right? I just, I'll keep it for the sake of our interview to just those few because they're simple to discuss.

And, you know, our guidance, you know, our target is 4 to 8%. We've done more than double 8% this year.

So it feels pretty conservative then.

I think we try to be conservative in our guidance because we don't want to disappoint our shareholders.

But clearly, you know, we will, we will pursue our objective, you know, as rapidly as we can in a prudent fashion.

Should we talk about the Bitcoin revolution?

Yeah.

You already spoke.

It's all Bitcoin.

In part two of this interview with Michael Sayler, he explains what could be Bitcoin's next big moment.

Banking is just the next logical step.

And is that not exactly what Bitcoin is don't want to have?

Right, like at the end of the day, you, you have an OG crypto community. It's very hard to core about it.

But if you look at where all the money is, 99.9% of the money is actually in the traditional economy.

And in the war for the future of money, the war is going to be won with money.

Now, now go and put your money to work.