Why The Bitcoin Standard Matters

Why don't we kick off this webinar? So this is a webinar called Why the Bitcoin Standard Matters.

It's obviously with Michael Sail and Jeff Park from Bitwise. I'm the CEO of the block,

Larry Sirma. Now, what is Bitcoin standard? I'm guessing most of everyone knows, but ultimately

the simplest definition is using Bitcoin as a primary reserve asset, similar to how gold or

cash is used today. Now, obviously, things have changed a lot, historically. I personally have been

in the industry full-time since 2017, doing research. We've gone from Bitcoin's going to die to

Bitcoin's volatile and waste fall to now. Bitcoin's interesting to macro investors, then

in turn into Bitcoin's now adopted by companies as a reserve asset. Then it has become one of the

key topics in the US presidential election. Now, it seems like we're almost starting to gravitate

towards Bitcoins now starting to be interesting to nation states. There's increased number of

companies, including major public firms that hold Bitcoin in their treasuries. Obviously,

MicroStrategy, Michael Sailer here is a pioneer of that. MicroStrategy is not part of NASDAQ 100.

It's the first public company to adopt Bitcoin as a reserve asset. That was in August 2020,

almost five years ago. It seems crazy, it seems like yesterday. And they now hold more than 500,000

in Bitcoin worth $45 billion. There have been other companies that followed MicroStrategy's lead.

According to Bitwises report, there's now 16% more of Bitcoin in publicly traded companies treasuries,

almost 700,000 Bitcoin worth almost $60 billion. There's 12 new firms that joined since Q1,

including Hong Kong's Mxing and Japan's MetaPlatte. And a lot of these companies are using the

argument of like this is a hedge against inflation and the currency risks. Now we obviously also have

Jeff on from Bitwise. Bitwise recently launched the Bitcoin standard corporation CTF, which is an ETF

that includes companies with large BTC holdings. Obviously MicroStrategy, one of them also Meriton

Riot and a bunch of other companies. Now, I don't necessarily want to blabber here. Everyone's here to

listen to this interesting discussion between Mike and Jeff. So I'm going to give them the time to

start speaking and interview. If you guys want, please ask questions in the chat towards the end.

We're going to have time to ask Michael and Jeff questions about Bitcoin as a standard

Bitcoin as a reserve currency. So please ask any questions and now I'll give it to Jeff to pick up

that interview. Thank you so much everyone for joining. Well, thank you Larry very much for that

introduction and for hosting this incredible webinar. And thank you Michael for joining us. I just

thought maybe I would start off by sharing some stats that many of you may already know, which is

performance of various market indices and stocks year to date. Most of you are not surprised to see

the NASDAQ is down for the year. I see roughly today through down about 13%. And Bitcoin too has had a

rather challenging start down about 10%. As I see it through today from the beginning of the year.

But low and behold, strategy, formerly known as MicroStrategy is actually up 8%. So I think already

within there is some clues as to their kinds of conversations we're going to be having today.

So maybe Michael, I'll open it up with the broadest question, which is the name of our webinar.

Why does the Bitcoin standard matter? Yeah, well, I mean, you could summarize it as every company in

the world is like a type one diabetic that is they're unable to store economic energy or their

capital is toxic to them. They're actually suffering from toxic shock. So the world consists of

right now of two capital assets you could use. You either use short dated treasuries and they're

going to yield two to three percent after tax or you use Bitcoin, which is yielding 50% plus.

And the cost to capital is 12%. Anywhere from 10 to 15% over the long term. But

so if your capital asset gives you 2% and the cost capital is 12%. That means the 10% of your

capital value gets drained out of you every year. In essence, every company is losing 10% of their

treasury a year in real value by using short dated treasuries. It's against regs. It's illegal

for a company to capitalize on a security. And so the general solution would be

I ought to buy the S&P index, but they can't buy the S&P index. So every every company that

generates cash flow right now is left with this awful choice. I either have to dividend the capital

back to the shareholders. I have to buy my stock back, which is surrender the capital. Or I have

to go and do a acquisition with the capital and 95% of the acquisitions are delutive mergers or

disastrous mergers. You end up with these things like a Google wants to pay like 60 times revenue

for a company. So why does the Bitcoin standard matter? For the first time in 100 years,

companies have a capital asset, which is a commodity, not a security, which returns more than

the cost of capital. That's the same as everybody on earth going from being a type one diabetic to

having insulin to actually not being a diabetic. A type one diabetic will eat themself to death.

You can eat continuously forever and you will starve to death. That's because you cannot retain

energy. And companies are in essence starving themselves of capital. They're all negatively

polarized to capital. They reject their repulsive to capital. They destroy all the capital they

raise and they're and they're repelling it. The Bitcoin standard means your company becomes

attractive to capital. You begin to attract it. The more capital you raise, the more shareholder

value you create, the stronger you get. To ask the question, why does it matter? Is

kind of like asking the question, why does insulin matter to a world full of type one diabetics?

Why do you need to see? Why do glasses matter to people that are near-sighted? It's so you

can function. That's the revolutionary opportunity here. Very eloquently said, and it's not often

that you get a one cent a centry event happen. I would also note to a more recent event that is

now permitting corporates to actually adopt this journey in a way that is familiar to you having

pioneered the space, which is that for a long time, there were FASB rules that made it challenging

for companies to hold Bitcoin on their balance sheet at the value that they deserved. I do believe

one of the inflections that we're experiencing right now is that there is more standardization being

adopted to treat Bitcoin fairly as an asset that allows companies to begin this journey with not

the due risk that was once upon a time the case where when you had started, for example, perhaps

related to that, many people know you as a champion of the Bitcoin standard, but the reality is your

also a serial entrepreneur. You've been a founder in the space for many years. My question to you is,

as you go out there, talk to other CEOs, other founders, other executives and CFOs,

what are the kinds of those personas that you see are are ready to embrace the Bitcoin standard?

What are the commonalities you see amongst the qualities of these CEOs and founder types that you

think is at the intersection of being an early adopter of the trends that you've been navigating?

I think when you've concluded that your conventional financial approaches and conventional business

approaches are hopeless. I hate to be, what is the word dramatic, but I actually think you need to

get to the point where you believe that it's hopeless to continue along the present path. It's

like asking the question, what's the characteristic of people that embrace a new cancer therapy?

Well, the ones that have concluded they're going to die in 12 weeks if they don't.

If you've got a zombie company or you have a company that's, if you're competing head-to-head with

a big tech monopoly or any kind of monopoly, when would you discover Bitcoin? You run a yoga studio

and the government shuts down yoga studios for the next four years, everywhere in the world and

your revenue goes to zero, then you might discover Bitcoin. If the government shuts down your

business with a law, with a regulation, or when a monopoly forms the mix and impossible for you to

compete, then you've got nothing to lose, everything to gain, you're already going to zero.

So I think those are the people that embrace this, those that realize that they don't have a future

and let's say embrace a new idea. Of course, the trend is hopefully that we can broaden the adoption

to multiple use cases outside of those existential risks in the way that you can diversify your corporate

treasuries. You would imagine that some level may be Ryan Cohen coming into the complex as we know it

with GameStop as none of the less a business that is operating today is pushing the trend towards

different ways to imagine how Bitcoin can be additive to somebody's capital stewardship program.

And maybe related to this too is this question of the board. Every company has a different type of

board dynamic and there may be some correlation between companies that are declining versus companies

that are aspirational improving and the kinds of board make-ups that could exist.

How important is the board buy-in as you've observed from your experience of

also presenting to Microsoft in the past in the ability to shepherd Bitcoin adoption at the

corporate level. You know, I think the CEO has to conclude that the business doesn't have a future

without a radical new idea. Then the management team has to buy in. So it's really the CEO, the

CFO and the general council. Those are the first three. After that, then you need to get the board

to buy in. And if you have one holdout member of the board, they can completely stop the process

for everybody. And less, but you know, again, what kind of person goes to a doctor and gets a

prescription for insulin Jeff? Right. Like, you know, it's kind of if you think of it like that,

you know, then you kind of get the idea. If the company is healthy, like the problem with Microsoft

is Microsoft is one of the seven, the magniffs and seven, but they're called Magniffs and Seven

because of the seven greatest companies on earth. But Microsoft arguably is like the Magnificent One.

You know, if you had to pick one company on earth that is probably the single most powerful company,

they sell software. There's no supply chain. They don't have to manufacture anything. They don't

have to ship chips. They're even right now in the Terra Force. They're the most insulated of the

Magnificent Seven because ultimately, they're pretty much just licensing business process to 100

million companies with a near monopoly. So if there's any company that doesn't have to do anything,

it will be Microsoft. And then if you want the opposite of Microsoft, you know, pick a company

that's like a bakery in Ukraine that sourced its products from China, you know, across a war zone.

And you know, you get an example of the opposite extreme. So I think that ultimately,

the board matters, but I mean, first, first the business matters. You just have to have a business where

where you, you know, they say with paradigm shifts, you know, who embraces a new paradigm? It's the

young or those in time of war, you know, and there's the famous quote, you know, science advances one

funeral at a time. So traditionally, new ideas get embraced by the young because they had to wait

for the old guard to die. And then certain times like those that don't believe in the Air Force,

their minds are turned when they get fire bombed. And then they start to believe that maybe air

power does matter. But in this particular case, yeah, the board is a stopper. They're not going to be

helpful in changing the company. The truth is the CEO is most important in actually putting a

company on a Bitcoin standard. And after that, you know, you, you might have one hold out. My advice

is if you have one hold out, you have to get them off the board. Like you let if you're the CEO and

you care, I have talked to boards, by the way, I've talked to companies. I was like, well, you're a

billion dollar company. If you do this, you'll be a 10 billion dollar company. And if you, and if

you do it right, you'll be a hundred billion dollar company. And one person stops them. And you

have to ask the question, should you allow one person to deprive the shareholders of a hundred

billion dollars? Right. And the answer is you shouldn't. But this all comes down to clarity

and courage. Mm-hmm. Yeah. And I think Peter Teal says he says courage is a much shorter supply

than genius. And he, and that's the most brilliant thing I've ever heard. Like there's plenty,

there's 800,000 geniuses in the world. Mm-hmm. But how many original thinkers are there in the

world that actually are willing to take a courageous stance? It's a lot less than 800,000.

This speaks volumes to me. I think in many ways what you're alluding to is that the journey

of crypto-abduction between the individual versus the corporate versus the sovereign is actually

more similar than we think. Take, for example, the individuals that were willing to take some

risk with Bitcoin on some margin, they're being radical about that choice at a level where making

different risk preferences versus somebody as you point out who might be complacent in the way

that life, the life of that they built is working for them in the ways that the system supports

same with sovereigns, you know, as the, as the US leads the path in how thinking about the

strategic reserve and then you may find emerging markets actually are more involved because of the

radical approach they need to take to fix their fiscal deficits. So why will we expect any

different from corporates? One, one thing to notice, which is super exciting to see is that the

number of public companies holding Bitcoin has been going up. I think Larry had mentioned it's now

close to 80 plus that exists and it's actually a lot more when you include some of the global companies.

What are, what are kind of the cultural differences if you've noted any that you see and cultural

similarities in the companies that at a global level are finding their path to Bitcoin adoption?

I think generally they have CEOs that are risk takers that are fairly entrepreneurial,

but also they've got a history of struggle, right? They're not, they're not the blue

bloods that were born with everything teed up for them, right? They had to fight their way up so

they're scrappy. I think, you know, if you look at the, at the Russell 2000 and look at the

bottom thousand of the Russell 2000, right? Those are the companies that are kind of the,

what is the word? It's like, they're kind of in this zone where, where there's successful companies

by normal standards, like out of the 400 million companies in the world, they're the top 1%.

But they're not the top 0.01%. You know, Jeff, you make, I feel like it's the second

sons, you know, like who settled the United States? They talk about it. They're like, well,

the second son of nobles, right? The first son inherited the estate and stayed in the old world

and got rich and it was kind of a guaranteed thing. And the second son had to go off, you know,

or the third and had to make their way. So it's like, I, you know, my path forward in the old

world is blocked. But I know I'm just as smart and I'm, maybe I'm harder working than my older brother.

I'm going to get on a ship. I'm going to sail to the new world where I can get like 4,000 acres

in the Ohio Valley. And I'm going to make my way. And so the companies that adopt the Bitcoin

standard, right? This, we say it's on a need to know basis. But yeah, there's no more pernicious

thing to hold you back than, than not needing to, right? Like the vote with the Microsoft

board matter was 99.5% against investigating Bitcoin. Like 99% again, if you're comfortable,

right? If you're comfortable, then you're just not going to. So the first sons aren't likely to

get on the wooden ship for four months and sailed the new world and then risk 25%, you know,

death from this or that and the other thing and then fight. But the second or the third son thinks,

well, I kind of don't have a choice I have to. And so it's the disenfranchised. But, but it's not

to completely, it's not like the 399th big millionth company. It's actually a company that's got

$100 million, $1 billion, it's got actual assets. But the likelihood that it's going to

displace Nvidia or Amazon, like how many companies failed competing against Amazon? How many

companies failed competing against Microsoft? How many companies failed competing against Facebook?

How many companies failed competing against Apple? I can give you 20,000 good companies,

really well run companies. And they all were smashed by Apple or smashed by Google or smashed

by Amazon. Like anybody ever worked in retail? It's like 20,000 good retail companies all destroyed by

Amazon and or Walmart. And they weren't bad people. They were, it was just hopeless.

Well, I think there's something interesting you're mentioning there is the inevitable advantage of

scale, right? And the cost of financing that can also come with large companies that are off

markets to smaller businesses. And one thing Bitcoin does is actually it can turn the financing model

upside down in the ways that you can think about cost of financing differently with Bitcoin access

that could give you an edge differently than the big companies relying on their

income and treasury management functions. And so when I think about what Bitwise is doing in this space,

and for example, launching an ETF that is tracking companies that are buying Bitcoin under a balance sheet,

is the idea that if there are flows to consumers who want to support companies that are involved in

the space this directly, part of what ETFs and indices do is actually they subsidize

cost of capital by allowing your equity to be permitted to grow in ways that reflect consumer

values. And I think about a world in which some CFOs may one day decide actually, you know, inclusion

into an index, for example, will cheapen their cost of capital because it brings new investors that

care about Bitcoin and those things can actually then become more powerful to thinking about a cost

of financing advantage from a treasury service. And that to me feels like a really important

mission that Bitwise can help steward helping companies compete more successfully on the financing

front against, as you mentioned, these big balance sheet companies that have off market terms.

Maybe with that we can pivot specifically to strategy formerly known as micro strategy.

In your vision of capital stewardship, what is your plan as you see where micro strategy is going

to go in the next five years and then let's also kind of close our eyes and imagine a little further

ten years and walk us through the evolution of what you expect strategy to look like.

Our business model is to securitize Bitcoin. So we're a Bitcoin treasury company that means we

hold Bitcoin as our primary treasury asset and we offer securities to investors that they need to

give them the slice various risks of performance volatility and risk off of Bitcoin. So some people

want low risk, low vol, low performance securities and to them we would sell them a preferred stock

like strife or a convertible preferred like strike or a convertible bond. The convertible bonds

are like 70 delta instruments and strike is a 30 delta instrument and strife is a zero delta fixed

income instrument and one of them looks like a 20 vol and one of them looks like a 40 vol and one of

them looks like a 60 vol and then when we take the leverage from selling those securities,

we feed that back into the equity so that the equity itself ends up being higher vol, higher

performance than BTC. So BTC was a 60 60 type instrument 60 vol 60 performance. We aim to create

a 90 90 equity because some people want 90 ARR and 90 vol and then we aim to give somebody else the

you know maybe we want to give someone else the 60 ARR 40 vol you know with a strike or with a

convertible thing and maybe we want to give somebody else the 30 ARR 30 vol type instrument. So

we're giving people different different tranches of volatility risk and return and then of course

the equity itself is the building block for a whole host of derivatives. So you know you can build

the entire options market and there's like a massive like 70 billion dollar open interest in the

options market and then you can build other ETFs right the levered ETFs the volatility interest

generating ETFs the short ETFs every other flavor of of derivative and our position is

our job is to do what everybody else can't do. So for example you can set if you're a trader you

can sell covered calls all day long. I'm not going to do that because you can. What I'm going to do

is create a convertible preferred stock because you can't. So what we're doing is we're creating

those various securities you know everything from a pure currency swap like for example

if I give you 10% interest and you give me back money and I generate I'm generating BTC yield

and you're generating USD yield that's a pure currency swap. I could do that in Canadian I could

do that in Yen I could do that in Euros I can do that in USD. So that's one type of security

and then above it I can create the convertible you know various flavors of some some yield some

conversion right all the way up to you know pure Bitcoin or high vol high octane high leverage Bitcoin

and I you know for us we're always going to aim to make the equity like 1.5 to 2x Bitcoin and I can

you know it's not clear to me how I get much beyond that but then we leave it to the rest of the

financial market to concoct 2x to 200x leverage by using all of their option interest option tools

etc and at the end of the day the result is everybody gets the flavor of volatility the amount of

volatility the amount of performance the amount of risk that they want in a liquid fashion on a

compliant marketplace right that that's our mission it's not going to change right everything

we're doing you can do at the scale of a hundred billion dollar enterprise or 200 billion dollar

enterprise or 400 million dollar or 800 billion or 1.6 trillion or 3.2 trillion or 6.4 trillion right

it's pretty much the same exact structure you're just creating more of each type of security

and the thing that makes it possible is that you're building on a top of a foundation of a digital

scarcity which is a commodity which itself right Bitcoin can scale from 2 trillion to 20 trillion to 200

trillion so to 400 trillion to whatever trillion right so everything is very scalable in all directions

as long as you maintain a balance in the capital structure between the various instruments yeah yeah

and you know it's funny to see now everyone is copying what they call the micro strategy playbook to

imagine a similar investing wrapper for other crypto assets so we're seeing Solana entering

Derenna in different operating company vehicles to imagine what a levered vehicle structure could

look like there's discussion around a version of Beth Rathiriam and essentially what we're talking

about here is maximizing and optimizing the volatility of the underlying asset to create different

risk preferences that people may seek for yield in ways that are not permissible in other traditional

assets so when you look at a balance sheet right for example you have an asset side on the left then

you have liabilities on the right and the things we're discussing here are innovations on the

liability stack of what you can create from leveraging crypto and Bitcoin's particular as the asset

I want to come back to the liability innovations but first just focusing on the asset side

which is now micro strategy owns over 500 30k Bitcoin it's a steward of the ecosystem

um I think now about 3.3% of the total Bitcoin supply is held by corporates and it's going to increase

and so there's this question of governance I often hear a question of

crypto community investors trying to understand better is there going to be an evolution

from just passive ownership towards more of an active governance model in which people are

going to start to care about the actual ethos of the companies behind representing a stewardship

of Bitcoin and I'm curious to hear your view on where you think strategy fits uniquely

from that perspective yeah well I can't let your previous comment go unchallenged

I'm showing you how to build a hundred story building using steel you know which is Bitcoin

a digital scarcity to equate a theorem and salon at a Bitcoin is like equating balls

of wood and clay bricks to steel and yeah you can also lever them but you can lever balls of wood

but levering yeah you can build lots of things that are steel containers and you can

use rubber bands but it's not the same thing so there's a reason that securities law prohibits

public companies from capitalizing on securities and the reason is because you can lever a security

a hundred to one and so if I actually issued one percent of the float of a security I could take

ten million dollars and create a ten billion dollar market cap company and so you would literally

have ten million in the float and then you would tell yourself you had four billion dollars

of collateral on your balance sheet after you levered it up and then you would start to act that way

and then when the bottom of the structure comes crashing down you get a situation like teraluna

or like FTX both of those were examples of companies levered on proprietary tokens and so Solana

and Ethereum are you know they may not be securities but they're definitely tokens and as tokens

they're not a commodity and so I would caution anybody listening here against levering up on a token

right or proprietary asset because it's kind of like trying to copy my skyscraper and doing it

with bricks or with aluminum or with copper right the entire thing's going to buckle and lots of

people are going to die it's going to be catastrophe and you're going to take out the entire city block

and that did happen it has happened over and over again in the crypto world happens all the time

people think that they discovered leverage and and and what I'm doing is not an intelligent or

brilliant idea because I'm using leverage the reason it works is because I'm putting leverage on

steel I'm doing it with the right material I'm actually using a product which doesn't deflect

right and so Bitcoin is a crypto asset which does not deflect that's why you can lean on it with

10 billion dollars of leverage or a hundred billion dollars of leverage and if you do the same thing

with FTT token or Luna or pick in pick your favorite token if you do the same thing you're going to

find it will buckle at some point and when it buckles there's going to be catastrophe ultimately that

is why this webinar is called the Bitcoin standard mattering and not crypto standards mattering I

for one do agree with you that the hardest money the scarce is capital that we know today is

exclusively Bitcoin and the leverage you can build on Bitcoin is fundamentally proprietary to

Bitcoin versus others so would echo the same sentiment back rights at you you know after 10,000

years people haven't come up with a better material to build a ship with or or a building with and

steel it's like there's a lot of other metals and a lot of other materials and a gazillion million

whatever alloys but but it oftentimes happens in nature that there is one best answer and the best

answer is good for 98% of all the applications and everybody that ever came up with the different

the crystal ship and the diamond ship and the rubber ship and the wooden ship and the aluminum

ship and the whatever and it's just like it was good for a little bit of time and then it hits a

hurricane and it snaps in half and it sinks and everybody dies and they're like well I got you

know never done that before you know so so I caution that degree of innovation right like you have

an answer God gave you the answer you know you can either embrace the answer you can insist on

being different right and I would advise that if you want to build a different city don't innovate

in the dimension of steel keep the steel right pick a different way to innovate maybe make the

Bolivar's wider or something like that right yeah um so coming back to Bitcoin companies I

look I think the key the key with Bitcoin is the protocol itself is is stable nobody can censor

the network it's distributed enough no one can no one can censor or corrupt the protocol no one can

can control the price it is is sufficiently decentralized and global the no company no country

no capitalist has enough influence to be able to put it at risk and and it is the one thing

that we can all agree on in that regard so when we go to the question of companies the

adopt in the Bitcoin standard Jeff I think the the primary guiding principle is you want to do this well

the question is are you going to adopt Bitcoin as your primary treasury reserve asset that means like

flip 90% of your long-term capital the Bitcoin right 5% 2% doesn't really do the job you really want

the vast majority of your long-term capital substantially you want a hundred percent of long-term

capital being Bitcoin and I define that is you've got working capital if you need 50 million

dollars in working capital then you hold that in the in the fiat currency of your liabilities

everything else is long-term capital you flip that to Bitcoin and then after that um

after that right you've got you've got two parts of the business you've got the operating

business and then you've got the the the treasury or you've got the balance sheet part of the

business I don't have any advice to people on the operating part of the business every single

operating business is different the only thing you can say is that point 1% of operating

businesses are good and 99.9% of operating businesses struggle at all times I mean that's the

big piece of wisdom I have for you if you feel like your business is under pressure and it's

difficult and challenging that makes you one uh you know of the 99.9% that feels the same way

the only people that don't feel that way are the ones that run the monopolies that are either

state sanction monopolies or digital monopolies and everybody else struggles and so there's no

simple unlock there I'm going to tell you get a monopoly from the government of the local country

you operate in that's my suggestion or maybe you're lucky enough to be Apple or Google or

Microsoft but if you're if you're not then the operating business is all about finding a monopoly

and it's not easy to fix that it's pretty obvious right it's it's it's quite obvious it's hard to

be better than Amazon or Microsoft or Apple so the real advice is focus upon the balance sheet

where it is very easy to be better than the US dollar standard or the fiat standard company

so that's the part of your business you can fix you can fix your balance sheet and most people

don't like most people don't focus on that they they put 98% or 99% their effort into their PNL

and they're basically pouring 99% of their focus and their energy in a losing cause and they're

not going to win and they're putting 1% into their balance sheet where they're 90 you're 99%

likely to succeed on the balance sheet under the Bitcoin standard and you're 99% likely to fail

yeah in the operating business on the fiat standard but conventional wisdom is to focus on the

operation and dismiss the balance sheet and if you want to escape from that dilemma you have to

invert that and you have to fixate on the balance sheet and you want to play defense with the PNL

you're a dentist you're going to keep being a dentist you're not going to grow 25% a year forever

you're not going to crush Apple and Amazon and Google you're a dentist just run a profitable dentist

practice and then take all the money from the profitable dentist practice and buy Bitcoin with it

and if somebody wants to give you a massive loan against your dental practice borrow mortgage the

dental practice to the help bar $10 million by Bitcoin with it and you'll wake up and you'll be a

billionaire not because you made a billion dollars in dental fees you'll be a billionaire because

you were smart enough to borrow money against a dental practice by Bitcoin and it 10 to 100x from

there yeah I think what you're looking to is that there's so much permutations within financial

engineering that can be done upon the ability to just own Bitcoin and the thing that I'm really

excited about is that there isn't one way to do it correctly I think everyone can do it in different

ways and you for example have built a diversified liability stack of pros per vertex race to convert

Bitcoin some may choose not to do some of those instruments or all of them in different ways this

discretion but also on the asset side you mentioned Bitcoin bank as one of the journeys that strategy is

on and that means actually the assets have to start maybe becoming productive too right we're talking

about the idea of actually making even more incremental yield on the provisioning of the assets and

you can start imagining different companies approaching that yield bogey in a different way maybe it's

some kind of lending business maybe it's some kind of volatility harvesting business on top of

the asset ownership maybe it's actually doing things in the layer two side chain ecosystem of Bitcoin

as it continues to grow out as a security model and there's all these kinds of clever tooling

that companies can start doing and it'll actually I think come to a world where everyone will say

I'm a Bitcoin standard company but then if we're all doing our homework if we're all leveling up

the next question will be asking well what kind of Bitcoin standard company are you and then those

are the things I think that could be really interesting over the next few years as more companies adopt

to it in terms of the asset side do you think strategy or one day do more things with the Bitcoin to

have it yield productivity or do you like the fact that it's a clean, noble kind of cold custody proxy

Bitcoin risk for the market to feel a security guarantee that you think is actually better relatively

I think all the re-hypothication experiments have all crashed and burned over the last decade so I

don't think I don't think they've got a good track record I think that all the layer two type

applications they're always very interesting to programmers but no one's figured out how to scale them

without without some technical instability you run into massive amount of technical problems massive

amount of security issues and then mass amount of regulatory issues to do that so I think that the

best way to generate yield and generate a return is you buy the Bitcoin you hold the Bitcoin and

coal storage and then you sell equity at a premium that's the risk you know when you're selling

equity at three times nav you're literally selling dollar bills for three bucks all day long

you have a money printer okay it's a risk-free money printer so why would you do anything else

if you could literally sell dollar bills for three dollars all day long and so the basic the

creation of high volatility high optionality public equity and then bonds convertible bonds fixed

bond corporate bonds or preferred stocks all of those are by far the best lowest risk way to

generate yield off of the underlying Bitcoin they solve the compliance issues right because you're

selling on you're selling a compliance security on a compliant exchange so you don't you don't

run into this issue where you did something really cool that is illegal in the state of New York

right or it's illegal somewhere so so they solve the compliance issues and then they also solve

the scale issues if you have a if you have a good bond someone will buy I've had meetings where

someone gave me a five hundred million dollar order after the meeting yeah like can you sell

fifty million dollars of something in twenty minutes I've sold two hundred fifty million

dollars of something in twenty minutes so if you want to if you want to scale the business if you

wanted to be compliant if you want to if you want to generate substantial material yields

then I think you want to do it by issuing securities and of course there's one

latter of securities in Japan which are different than securities in America or US which would be

different than Brazil it would be different in France different in the UK different in Germany

different in Switzerland right different everywhere in the world in Canada so basically

securitizing Bitcoin in some kind of wrapper you know it could be as simple as okay here's an ETF

but it could be here's a 2x ETF it could be here's a Bitcoin back bond ETF it could be here's the bond

it could be something else it could be here's the option those are all the but the but the most

compelling ways I think I think the reason that certain people in the crypto industry don't embrace

it is they don't have they don't have the technical financial capability to create these

compliant instruments in these markets so they go for the crypto token approaches or what

I'm called crypto native but the bottom line is the crypto native approaches are only one

percent of the opportunity and their hundred times as hard and so the real money here is going to

be made by more conventional financial firms that are going to issue a hundred billion dollars

worth of Bitcoin back bonds and then a trillion of Bitcoin back bonds and then when people go

well a trillion I guess it's saturated then they're going to issue 10 trillion of Bitcoin back bonds

and and people watching are going to complain that it just seems too simple

right? It's like and and what I see a lot Jeff in this market is I run into crypto people that

have been the business for a decade and they have very complicated ideas that don't work yes

and and I offer them a simple idea like like here's an idea you're a public company sell your

equity by the Bitcoin they're like no that'll never work okay well I guess it might work well

what if the Bitcoin goes down well blah blah okay I guess it worked you know and you know

what the latest pushback is Jeff the latest pushback is well it worked for you and it worked so well

that you're the winner and there's no room for another company to do it in the market

so we literally went from I don't think it'll work at all to it might to it did oh it worked

too well that's my excuse for I am not going to do it yeah and people just come up with these

gigabrain excuses for why they don't want to do the simplest thing in the world and the reason

it works by the way is everybody wants to be able to buy the equity and borrow against the equity

from their existing wirehouse like MSTR you can borrow against it from a big bank they want to be

able to sell the volatility to generate yield on us you can do that by selling the covered calls

right they want to be able to they want to solve the custody issue I you know I want to

call my Merrill Lynch broker and buy 10 million dollars worth of it in like 15 seconds

so if I can you know it's convenient I make the appliance you know it's it's conservative it's simple

you know we're just solving these very simple ideas it's like well how about this one I just like

to buy the upside with no downside like our convertible bonds are outperforming Bitcoin right now

like the list so why wouldn't you buy something which performs which outperforms Bitcoin but

you have you have a credit guarantee and and you're senior in the capital structure so there's

the simple ideas are working simple compliant ideas the hyper complicated ideas

they're a hundred times as hard they're 1% as valuable they're not working and my advice to anybody is

don't try to do those things focus on the simple ideas I love what you said there I think so much

of the crypto journey for companies and people begin with a little bit of a profit motive in wanting

to make money and then that's tooling to start understanding what's actually happening underneath

the hood right and you know we talked so much today about the financial engineering innovation to draw

investors in because that's kind of what Wall Street cares about they care about these numbers and

it's it's it's a little bit of like a mouse trap but in the end what they're going to walk away

realizing is that there is a very strong values commitment to the Bitcoin standard too so

to the pushback you've gotten around companies saying hey you know I can't succeed now because

you're the game in town so why would I do it what I would challenge back and why I think it's so

important that Bitwise leads the mission with the Bitcoin standard corporations ETF and index is

because there's going to be a moment where consumers actually start caring about the companies that

they support in the ways that they buy products from I truly believe much like the ESG movement was

a way to appeal to a generation to care about a particular ethical or political topic Bitcoin

will play the same role and so for example when you see companies like you know Heritage Distillery

which makes a tasteless liquor called vodka that you know no there's basically no difference

between these brands you may as an end consumer now recognize hey Heritage Distillery is a Bitcoin

standard company and so I'm going to buy their vodka and that is I think a momentous time in which

the Bitcoin standard can really also give a lot of subsidy a boost to their businesses to compete

differently which is going to move away from just the financial engineering thing that you've

so focused on innovating to bring the people in but eventually it'll evolve into something bigger

less monetarily driven and something more societally important I agree with you the biggest no

brainer for every single company in the world is just flipped their treasury to a Bitcoin standard

I mean immediately they get the benefit of becoming capital attractive or or positively

polarized to capital and they start making money off of their capital but the secondary benefit

is it really improves their brand improves their marketing effectiveness and and the tertiary

benefit is it'll get them into these indexes right it gets them into the crypto indexes so

cost the financing and it'll be a virtuous cycle and the cliche thing would be to say it's an IQ

test but again back to Peter Thiel it's really just a courage test it's do you have the

a bit or do you have the courage to to actually take a risk to 10x your company stock you know and

and you kind of just have to look at the people running the company and ask does that see

EO have the courage to take a risk and then and to your point the CEO is only as good as the board

so like when Steve job's when he took over Apple computer again he required that the existing

board resign and he appointed all of his own board members so if you have a leader running a

company and if they have a supportive board then they have this opportunity which is just to flip

the polarity on their company and make their shoulders a lot of money and then the question is

do you do you want the money more than you want to avoid being embarrassed

right and and the world's full of people it's like do you want to win or do you just want to not lose

and a lot of the people in the world just want to not lose right a lot of a lot of very successful

famous rich people that you know they just don't want to lose and because they don't want to lose

they give up the chance to win great great framing and I love the comments of our courage

for what you demonstrate as such early commitment to I know we're kind of cutting close to the

hour limit here and we did have some questions so Larry I'll pass it back to you to see if we can

draw up some from the crowd and our community absolutely yeah I appreciate it we received

like close to 100 questions so this is going to be tough but the time that we have

but the one that was kind of repetitive for Michael was is there a ceiling that

MicroStrategy hasn't mine in terms of how much Bitcoin it can hold or you know is it kind of

unlimited and really depends on what is happening in the market no we'll just keep buying

right the price is going to go up it's going to get exponentially harder and the price is going

to go up exponentially higher and we'll just keep buying and at some point you know if

if we get to 5% of the supply Bitcoin's probably going to be a million of coin and if we get to

7.5% of the supply Bitcoin will be 10 million of coin and then we'll be you know if I'm lucky enough

to grind to 10% of the supply Bitcoin's going to be 50 million of coin and someone will be whining

that whatever we have too much Bitcoin but other people will have 400 trillion dollars of wealth

you know so you know our view is it's a ratchet and we're just going to keep turning a cranking

on the ratchet and there's massive leverage here and I think everybody's winning if we do that

and I can't quickly touch on how you plan to make some of the assets productive directly under

balance sheet or is there any plan I know we touched on it previously but I don't think you were

the point is they are productive that's what people keep missing like we generated 12 billion

dollars a BTC gain last year that's like earnings to the to the common stock investors we've

set a target of 10 billion dollars or more a BTC dollar gain this year that's like earnings

it is productive right and what how is it it's kind of like the frustrating thing is say I owned

a hundred acres of Manhattan and I owned it and you put buildings on it right and then you said

well when are you going to make the hundred acres productive well they're holding the buildings up

I'm getting paid rent like I'm holding the buildings up it is productive if if the Bitcoin

serves as collateral to the convertible bonds to the preferred stock and to the equity and to the

options market it is productive right that that's why we're succeeding because we're able to see

it in a different way than other people you don't need the re-hypothicated you don't need to

it's like you don't need to juggle the granite blocks you could just put the building on the granite

block and it would be productive so we're using it as collateral and you know you're like well how

valuable that well if it's worth 10 billion last year or more then at the point it's worth a hundred

billion year aren't we making more money than everybody else in the entire financial world just

by using it as collateral why do you need a second idea I mean it's perfectly fine now

we also receive a bunch of questions about proof of reserves overall as a concept what do you

think about it but also in context of micro strategy actually eventually having one

any of there are some limitations when it comes to public companies actually having a life

proof of reserves system I think we're studying that I mean we're studying zero you know how we

might use zero knowledge proofs or use of various architectures to do that in a way that don't

create security risks there's no way that we want to expose wallet address information or

things like that because it creates security risks but but if we get to the point where we decide

there's an architecture that we like to make it available that passes all of our own internal

security controls and compliance controls and accounting controls and I think that we could

probably do that it'll probably happen at some point but the question is with what

architecture and on what time frame one more recurring question was about nation states and

their exposure to to Bitcoin overall there have been some central banks like the central bank

of check with public and a few more they have publicly said they want to get exposure to Bitcoin

I'm guessing you're also part of some of the private conversations are happening they're maybe not

let's lay public yet can you tell us a little bit more about the trend that you're seeing on that

side I know we talk more about companies just people talk about it as I just said the people

that embrace Bitcoin are either the young that have everything to gain nothing to lose or the hopeless

and that's happening that happens at the individual level the family level the corporate level

and the same would be true with the country the hopeless or those with nothing to lose maybe

right now people will talk about it but I don't I don't know there's much more to be said than that

maybe one last question there's one that asked about your thought for Bitcoin and store of value

Jack Dorsey previously said that it has to also be medium of exchange and you know has to be

slightly more productive than just store of value what's your opinion on that personally

I don't agree like a gold is not a medium of exchange and it's worth 20 trillion dollars real

estate is not a medium of exchange and it's worth 300 trillion dollars the S&P index or you know

equity is not a medium exchange art Picasso's are not meetings exchange and there worth a lot of

money so the world's full sports teams are not a medium exchange and there's a lot of money in fact

one could argue that every rich person on earth is rich because they own something that is not

a medium of exchange right name one person that's rich name a name a person you know is

anybody that where the majority of their wealth is holding an asset that is an a medium of exchange

so I think there's you know a thousand trillion dollars worth of stuff in the world it's not a

medium of exchange and it has value because it has it's capital so in this particular case my

position is Bitcoin is capital and what's the value of it the value of it is that there's people with

500 trillion dollars of wealth that want to keep their money right and right now their money is

being destroyed at the rate of three to five percent a year think about every single capital

asset on earth right now that's being debased by inflation by tariffs by war by chaos by entropy

so right now that's a ten trillion dollar a year lapse if you could avoid losing ten trillion

dollars a year right what would that be worth to you a lot so I think that I think it is

in but it's important that you be able to settle peer to peer like I think it's important to you be

able to self-custody Bitcoin I would agree on that I agree I I agree that any of 400 million

companies should be able to custody Bitcoin settled Bitcoin trade Bitcoin but I would stop short

of saying it needs to be a medium of exchange I think the medium exchange is simply a currency

application and I think that maybe you know the value of that is ten trillion dollars or something I

think the value of capital is five hundred trillion dollars so I think the store of value is so much

greater than the medium exchange that that it's a mistake to focus upon medium exchange I think I

think that's a very competitive market right you know the yen the euro the dollar the rubble the

real are all going to compete it's a competitive market and it's not worth nearly as much

and also I think that if you're a company if you're a company or if you're a citizen

you can you can hold a store of value asset comfortably but aren't our no Jeff Bezos Bill Gates

you know Mark Zuckerberg right and Elon Musk they can all hold a hundred billion dollars worth

of non-medium of exchange assets and be wealthy and powerful and influential and it's non-controversial

so the issue is do you want to win or do you want to fight if I do is what you want to do is you want

to win right as a I'd rather win and not fight then fight and not win yeah law said I think you're

also living to the fact that the medium of exchange by definition cannot be volatile and most

wealth creation activities tape volatility and that is a fact in the ways that the monetary system

exists you know one thing I would just maybe plug at the end as we wrap things up here is that the

Bitcoin standard as first coin by safety and moves really in his book envisions this idea of Bitcoin

promoting a world that's more stable and it's more free and it's more prosperous and it's all

grounded in these principles of individual sovereignty that Michael you just talking about including

deflationary principles and I do think part of the mission that we're all on together year as a group

as it does an industry is to continue promoting the broad adoption of Bitcoin at the corporate level

so they two as companies can steward the right ethos into the consumers their customers and their shareholders

so we're very excited about this and I'm just super excited that we get a chance to continue

promoting the space with you see Michael thank you so much for all the work you've done in the space

yeah thanks for having me and I appreciate your attention today thank you Michael thank you Jeff

thank you everyone pretending asking good questions and see you on the next one but are thanks