fantastic michael hey such an honor to have you on um yeah really really great uh to get this time and uh yeah kind of talk to the especially german crypto audience um before we go into the the questions and all this do you quickly want to kind of yeah intro um how did you to me the most important question actually in all this is how did you change your mind on bitcoin because i still kind of have a bit of a picture where i i know that you had a bit of concerns suddenly this changed and to me now you are this white knight um convincing at least in our dream world elon musk on putting bitcoin on the tesla balance sheet and and obviously hopefully many many other ceos so how did this change um yeah you know uh i think that um 2020 was catalytic year and they say that uh paradigm shifts they only take place when a generation changes when there's a new generation or when there's a war so i'm obviously not a millennial millennials are embracing bitcoin in a lot of different uh parts of the world but i think that uh in march of 2020 we kind of had a war break out we had a we had a war on covid and then we had a currency war so in essence uh the pandemic was a global crisis and um it opened up people's minds to many things probably the most most interesting example say is uh is the explosion in adoption of remote work and zoom i think zoom usage went from 10 million people to 400 million people in a few weeks so there are two things that i embraced in 2020 one is i embrace remote work and uh for a decade people had encouraged me to try you know webex this and skype that and i tried them and i fiddled around with them and they didn't work very well you know like the sound would cut out or the line would drop and so i insisted everyone be in the office and i actually fired a lot of people that didn't want to come to work in the office so i was very adamantly against remote work and then when we didn't have a choice well i tried remote work technology one and then remote technology two and remote technology three and i finally found zoom and zoom worked and i mandated it as company standard within the day and then we had 2 000 people using it trained on it the next week so that was a paradigm shift uh necessity is the mother of invention and that the zoom technology was good enough the other technologies weren't that good when the entire world when a billion people locked down and they couldn't move they needed a technology and you learn pretty fast right so i think that um bitcoin is a similar thing uh in response to the currency war um the money supply was expanding at five percent for a decade and in the last 12 months the money supply expanded 25 so the cost of capital jumped by a factor of four or five um this becomes a pretty critical issue and uh you need a solution if if you have assets and um they start losing their purchasing power at 25 a year well you can extrapolate to basically losing 90 percent of all of your assets within five to ten years when when assets are decaying at five percent a year then your half-life is 12 years right so now it's uh 30 years before you lose 90 of your purchasing power and 30 years is a long time away you don't really have to do something urgently when you have 30 years but when you're starting to see something draining away at four or five years then it becomes urgent so just like the lockdowns created an urgent an urgent requirement to embrace a video conferencing technique the currency war created an urgent requirement to embrace a new digital asset or come up with some new strategy to preserve capital so you know just like i went i went on a quest and i discarded a bunch of not good video conferencing techniques and i won't describe all the ones that i don't like because you can probably figure it out i went on a quest uh in order to find an asset that i could put on my balance sheet that would appreciate faster than the rate of money expansion and uh i knew that u.s dollars weren't going to do it so then i considered well will euros do it or pesos or or real or yen and then i realized that wasn't going to work and then i considered derivatives and swaps and i figured that wasn't going to work and then i considered buying real estate and that wasn't practical i considered a market basket of bonds that didn't work and i considered equities after i went through stocks and bonds and real estate i concluded that i needed to find an asset which wasn't a fiat cash derivative and that takes you to scarce art collectibles trophies precious metals and i considered all of those but you can't go 500 you can't go by 500 million dollars of scarce art in an index it's not liquid so that takes you to crypto and crypto i've been aware of but it's it's just like i was aware of that like i was aware of some video conferencing things and you know um it was more of a nuisance and there were some millennials that were into it you know some 20-somethings use skype some 20 somethings use bitcoin but i didn't need it and uh and that therefore i didn't really have to embrace it i think after march i needed it my mind was open i did the research and then i i realized that there was a solution to the problem and the solution the problem was bitcoin and uh first i realized it as a solution to store a value problem a non-fiat derivative safe haven asset you know as time went on and i studied it more i realized that it really was engineered money on the first digital monetary network and so the big idea was it's not just the best engineered safe haven asset that would qualify it to replace gold right that makes it worth 10 trillion dollars if it's the best engineered safe haven asset which is a that's good enough reason to buy it right but if i could take a a billion dollar block of gold and dematerialize it and program it move it at the speed of light and uh and chop it into a million pieces a second you know and run it on a computer that's something better that's actually an open monetary network so what i saw was a good asset that was on the world's first open monetary protocol or monetary network and that convinced me that it was probably worth a hundred trillion dollars not 10 trillion dollars and it was going to become the base layer for the 21st century financed economy so you can you know like a lot of things you go from not needing it and to your life depending on it people didn't used to yeah you probably don't remember the first mobile phones the first mobile phones were bricks this big you know and a few people had them to impress a few other people and then they became more interesting and then and then they became you know like critical and uh that i think that's the case with most technology how did the decision-making especially obviously it's one thing investing personal capital it's another one investing company capital how did the decision making go there is this uh like what i would love to i don't know how much you can walk me through that right uh who who did you go to first did you talk to compliance first finance first legal first the board how did how did you walk this through ah i'm not sure if i'm disconnected sorry can you hear me yeah sorry uh that was a disconnection sorry um can you can you walk mr michael on once you made the decision yourself how did you go about that actually doing this on the company who did you have to go to first did you go to legal compliance did you say oh screw that uh i'll just do it uh we're just gonna do it how how does how how do you get this through um i i put together um a stack of videos that were educational videos on bitcoin along with some documents i distributed them to all the directors and the officers of the company i asked them to review them i gave them homework then i met with them individually then we met as a group to convene and we built consensus that way and then we um we assigned the legal the general counsel some legal um projects to do and the cfo had some finance projects to do and uh the team went off and they investigated they came back together again and and we as a group the officers and the directors then came to consensus as to how to move forward um so personally i'm in obviously investing in bitcoin one thing that keeps me from investing everything i own into bitcoin is the risk of black swans is for example what if if satoshi is malign what if there's a bug in the code what if something a risk that we're not considering um how do you approach those risks that are there very unlikely um they're not zero how do you go about those flex possible black swans and and how do you kind of which ones do you kind of consider which ones do you have on your radar where you're like okay i tried to rule out that try to let that how do you go about that well i mean i think it's reasonable for anybody to allocate their portfolio to various assets because because of risks i don't think it's it's constructive to spend time dwelling on black swans by definition they're unknown unknowns so if they're unknown unknowns you're just wasting mental energy if you're concerned that uh bitcoin might go to zero then invest ninety percent of your assets instead of 100 or 50 and then move on when you get in a car it's potentially it's possible for you to get in a traffic accident and you might get hit from the rear you won't see it coming how do you plan for that well if you keep looking behind your you know in your rear view mirror looking behind you you're more likely to get an accident so it's kind of dysfunctional to worry about something that you can't anticipate because you're wasting mental energy so no i don't really concern myself with it um if you're uh if you're an investor and you want to invest in 10 different things you know for example you might want to invest in someone that makes hamburgers and someone that flies airplanes but you don't want the pilot of the airplane to be continually you know worrying about some random meteorite hitting the airplane and checking for a meteorite to hit the airplane every 10 seconds because it'll interfere with the landing you know and you don't want the burger flipper to be you know it's possible you could serve someone a cheeseburger and they'll choke on it and die and sue you and shut down your restaurant how many people who run restaurants worry about that by the way if your waitress walks up to you and says are you gonna choke on this cheeseburger and sue the restaurant how's that for business you know so i just think that uh wouldn't you kind of be angry at the waitress and say i'm not gonna eat at this restaurant why don't you guys focus upon serving the cheeseburger stop worrying about that stuff you can't control that so i think worry about the things you can control by definition you can't control a black swan what do you think are extremely optimistic things that you might have on the radar that the average bitcoin investor out there does not have on their radar where you're like that's probably not priced in yet in the in what you see on crypto twitter on on on the in bitcoin community i think that um that uh most people don't really uh understand that bitcoin is the world's first digital monetary network which means that ultimately it's 100 million people using it going to a billion in five years and eventually everybody with a mobile phone will have some bitcoin on their mobile phone i think that that's a big dynamic i think that is the big um the big tech companies like facebook and apple and amazon and google and app you know as they embrace it i think that's going to drive adoption and i think they'll have to embrace it i think the big banks will actually start to embrace bitcoin as collateral i think that most people haven't really thought most people buy bitcoin they think i'm buying it so i can sell it when it goes up i think what they don't realize is that ultimately no one's ever going to sell bitcoin um as the market matures and as the banks mature you'll buy it and hold it forever you'll give it to your daughter or your son and your son's son and your son's son's daughter there's no why would you ever sell it ever i mean most people sell it to buy a lamborghini right i mean that's the trope i want to sell it to buy a house or i'm going to hold it well why would you if it went up by a factor of 10 and you could borrow against it why wouldn't you just michael thanks so much for uh round two i appreciate it thank you hey um i would actually love to directly connect to what we discussed a bit last time and um yeah we discussed how you got into bitcoin what changed a bit of your opinion i would kind of love to attach on there and and and talk about the latest round maybe i think that's the most recent thing um how how was the decision here to to raise more funds to get uh yeah to get uh more bitcoins onto your balance sheet um yeah let's start there and then i have so many questions on on that and i think we can branch a lot into your belief structures and and and how you see this long term well um we have two corporate strategies one strategy is is to continue to grow our enterprise software business which is business intelligence software we sell it to thousands of companies all around the world and uh that strategy for the most part most part is a cash generating strategy we don't really need a lot of capital uh to execute that it's more uh skill and uh and about polishing the software and then we upload the software and our marketing and sales are primarily via websites and and uh and efficient channels so the second strategy of the company that we actually made clear in our latest 10k is a bitcoin strategy and that's to acquire and hold bitcoin and um so our latest capital raise was pursuant to that second strategy that is a capital intensive strategy because obviously we're buying bitcoin uh and what we've made clear to our shareholders in the marketplace is that we're going to sweep excess cash flows from the business into bitcoin since it's our primary treasury reserve asset so as the business generates cash and we generate cash from quarter to quarter in time to time we just convert that into bitcoin uh and then when then from time to time we may do either equity or debt financings to raise capital to buy bitcoin now we um we in essence we did um an equity offering of sorts back in september when we did a tender offer and we offered to buy 250 million dollars worth of our own stock and a dutch tender and the amount that wasn't tendered we actually converted into bitcoin then um in december we did a convertible debt offering for 650 million dollars of convertible debt those terms were i think a premium of 37.5 percent above the stock price at the time uh and uh a coupon of 75 basis points so that i think the stock was trading in the low 300 range i think it traded at 290 or so the day we did that that convert and the strike price on the convertible bomb was 398 dollars a share so that means that if the stock trades above 398 dollars a share the people that own that bond have the right to convert their bond into shares at 398 and so they have equity participation above it and then below 398 they have a bond and that was a five-year bond so we we issued that bond and we bought uh and we had 650 million dollars in proceeds so we bought 650 million dollars worth of bitcoin around 21 000 in something and then bitcoin continued to appreciate now um our view is you should do the financings in a way that's accretive to the common stock shareholders so you know if the stock is trading in the high twos the low threes and the strike is is a substantial premium above it and if we can buy bitcoin at what we think is a good price then it makes sense to do that transaction so that worked out well and uh bitcoin traded up and eventually it traded into the 40s and uh and then it started to trade in the high 40s so our stock traded up and i think our stock traded past 1 000 and when it was uh in the 1 000 range we had the opportunity to do another financing so this um this financing was convert and i think the convertible price is uh 1438 dollars a share perhaps somewhere in that range you could check it but 1400 and more than fourteen hundred dollars a share and uh obviously the last financing was 398 dollars a share so this uh this is a creative to a uh any shareholder that's holding stock below fourteen hundred dollars plus a share and that would be everybody uh wouldn't be worried about getting diluted and it turns out that the market conditions were very favorable and the corporate debt market the junk bond index dipped below four percent so that means people are actually buying uh corporate debt with no with no warrants just straight debt that pays four percent interest with low degrees of security so what we offered was a bond a convertible bond with in essence warrants above 1400 a share and we were able to do that with a premium of 50 and the coupon or the interest rate was zero and it was six years so in essence um you know we started out offering 600 million dollar bond and there was a lot of demand for it over demand so we were going to price it between 0 and 50 basis points we were able to price it at zero percent yield and our our indicated premium range was 45 to 50 percent premium and we were able to price it at the top and that range 50 and there was still so much demand that we were able to upsize the issue so we upsized the bond issue uh from 600 to 900 million and then there's a green shoe which is an option to exercise an additional amount of the bond that was 150 million to make a long story short by the end of the week the green shoe was exercised and the deal closed we had raised 1 billion 50 million dollars for six years uh at uh a fifty percent premium that fourteen hundred thirty dollar thirty eight dollar strike price please don't figure out the exact number i think it's 38. um we raised that bond and we had the zero percent coupon for six years and um then we proceeded to purchase bitcoin with that so in essence that's an unsecured debt it's not marked the market if um if bitcoin uh is trading less than what it is right now in six years then that's the risk we will have lost some money uh but if bitcoin is trading more than it is right now in six years than we will have made money uh it's not really dilutive to our existing shareholders until the price of the stock gets past fourteen hundred dollars a share and then it's about five percent or so you could calculate six hundred share thousand shares against the fully blue so maybe it's five percent uh of the upside past the strike price so that's the way to think of that it and uh from a strategic point of view um if i uh if i look at the numbers today bitcoin is um bitcoins up 429 percent over the last 12 months and it's up on a comp compounded annual growth rate of a 196 percent on average for the last 10 years so if you're a finance theorist what you would say is we just borrowed money at zero percent interest to invest in it something that we expect to be 196 percent interest and maybe you're not so bullish for the next decade so if you want to be conservative you could say perhaps we'll do one-tenth of that we borrowed money at zero percent interest to invest it at 20 percent but pretty much any number more than zero percent right is a good number right i mean because the the interest rate is so low so that's what we did with that bond issuance and it's an it's an opportunity that a publicly traded company has right i mean bitcoin is a monetary network and it is the best performing asset class in the past decade maybe the best performing asset class in the history of the world what do you need to grow a monetary network you need money okay where is the money the money is sitting in the public stock markets either is equity or equity derivatives or secured debt or unsecured debt so what we're doing in essence is we are uh securitizing bitcoin right i mean there's one way to buy bitcoin which is to buy bitcoin straight well that's the challenge to some people people uh certain investors don't have the relationship with a bitcoin exchange or they don't have the ability to custody the bitcoin and that is a dilemma for them or it's not in their charter or their limited partners don't understand it so it can be challenged by the underlying asset class but there are plenty of uh pools of capital in the world um there are there are you know hundreds of billions if not trillions of dollars of equity investment funds and they can buy publicly traded equities there are other funds who have a strategy of trading publicly traded equity options they can buy the options on a nasdaq or a new york listed stock but they can't buy the underlying stock or they can't buy the underlying asset like bitcoin there are other funds that engage in convertible arbitrage they can buy a convertible bond as long as as long as they can arbitrage it against the underlying equity so they could buy a bitcoin bond but they can't buy a company that owns bitcoin without the bond but if they buy the bitcoin bond they can buy the stock of the bitcoin company uh the company that owns a bitcoin because now it fits into their strategy they raise billions of dollars to execute that strategy that's what they're good at they have they have binomial hedging models that that allow them uh to execute their strategy and they've been doing it and uh and if you give them that security then they can invest in it there are other uh bond funds that are invested long they could buy they can't buy for example a publix company with upside and downside risk but they can buy the bonds the convertible bonds of that publicly traded company because the downside risk is mitigated and they have an option on the upside risk so these are all just pools of capital there are people that have money in retirement accounts and they're allowed to invest or direct that money to be invested in publicly traded equities but they can't direct the money to be invested in bitcoin so you see if you actually believe in uh bitcoin and you want that exposure you need to find the right form of of security maybe you buy the underlying asset maybe you buy options on the asset like bitcoin futures but that's not a very well developed market you can't buy a five-year option on a bitcoin future right now for example but you could buy a microstrategy six-year bond that's a six-year option on bitcoin future with downside protection right so these are all just different securities that give you the ability to invest in the bitcoin monetary network and if you believe that um that the future consists of a digital transformation of money and a digital transformation of balance sheets and if you believe in a digital monetary network you might very well be a fund manager that that can actually buy 25 million dollars worth of a bitcoin bond but it would take you five years to convince your company to let you invest 25 million dollars in bitcoin in fact you could never ever right so there so there are people that can do certain things in certain ways and what we've done as a company is we've just in essence uh given them different types of securities that they can use to invest in bitcoin which is to their benefit and to the benefit of people that hold underlying native bitcoin and to the benefit of everyone that participates in the ecosystem so this that's what that that bond issuance was doing i mean that's super exciting um i would love to tag on there um what's the execution afterwards so you get this billion dollars plus miners how do you actually get the bitcoins we have um relationships with institutional grade custodians and institutional grade bitcoin exchanges and so we work over a certain time schedule to acquire the bitcoin generally we do it with uh time-weighted average price algorithm so we'll pick a certain time period and we'll and we will place millions of orders i think we executed 90 000 orders over about five days oh five days so it takes you five days to get the billion dollars in yeah it takes a while oh well five days i would have expected it to take longer so i think five days is actually quite liquid i ever thought it's gonna take you forever like really days days days you can do it slower it all depends upon your time frame and and uh you know your strategy like you could buy it in a day but it would that people would notice yeah and and you could take a month but you would be taking the risk of being short for the month yep and you know so there's there's no right answer to that you just pick the time frame that you want to move in and then i i don't know how much you can share how do you store the bitcoins afterwards how is the i mean you must have a very sophisticated system um yeah to store all that i mean there's a dozen institutional grade custodians of bitcoin you know coinbase stores 90 billion dollars worth of assets fidelity stores billions of dollars of assets and id stores billions of dollars worth of assets genesis stores billions of dollars worth of assets there's a variety you know grayscale stores 30 billion dollars worth of assets and they i mean they all use different strategies generally cold storage multi-sig uh sarbanes-oxley controls audited very careful so um if you're an institution then you're going to do it with an institutional grade custodian you know bitco another example i think they have 30 billion dollars worth of assets under management yeah we are using bitco my company yeah so uh quite a good job yeah um how was the feedback from all the ceos and the companies that participated um on i think february 4th right uh the conference that you guys held for uh institutional kind of uh treasury ideas what was that what was the feedback maybe also what surprised you positively um from from from the entire event like if you had to reflect a bit on it yeah well um our goal was to provide corporations with our playbook what are the accounting issues what are the legal issues what are the regulatory issues what are the execution issues what are the corporate governance issues what um what are the strategies you can pursue to create shareholder value and what are the macroeconomic drivers and uh i i got my phone rings off the hook i probably had um 50 meetings uh in the past three months where people and 50 meetings and sometimes up to 16 different companies at a time on the meeting so i talked to a lot of companies and that's good i don't mind talking to 16 companies at a time but i thought you know life is too short i can't afford to keep doing them one at a time if i have a meeting every hour for 40 hours for 2000 hours a year for 30 years i'm still not gonna get to everybody so we had this idea to add this summit and uh we're gonna we're going to basically curate the you know 10 of the most notable bitcoin vendors in the space and we're going to curate um all the content from our accountants and our lawyers and our executives and i'm going to provide everybody with kind of like this crash course and bitcoin for corporations that i wish i had so that we can save like two months you know like if you're running a company you're the ceo or cfo or treasurer you've got to convince your board of directors and your lawyers and your accountants and your officers and then you've got to go through due diligence and you've got to talk to different different vendors and figure out what to do and then you've got to draft all your documents and the documents get drafted a thousand dollars an hour and they take like 80 hours and maybe someone doesn't want to spend all the money on that so we put that entire package together we upload it to our website and i figured maybe get a thousand two thousand people i thought two thousand and um we ended up um on the day of we had so much demand it it broke the uh it broke the event streaming platform for an hour because we had like 25 000 people show up wow and we had sized it for like 15 000 or 10 000. so it took us like an hour to like add more capacity and uh you know meanwhile some enterprising bitcoiners they got online and they started streaming it on youtube and we had thousands of people watching the youtube stream because i think they were locked up at like 15 000 users or something so the short of it is we ended up with about 10 000 people crowding into the session that day and from 8 000 different companies or something like that and then uh it uh went viral and the bootleg copies went on youtube and it went to 250 000 in the next three or four days and then it went to i think 750 000 people in the last few weeks you know have seen all this stuff and i think just on our own website you know we had like 50 60 000 views on our own hosted version but the youtube versions got you know got copied six seven times and each one of them got 50 or 100 000 views and uh you know all of the the key institutional providers in the space i talked to them and they said all that you know all of their inquiries jumped dramatically afterwards so i think that was really good i mean it definitely accelerated things you know a few days later we did this february 4th february 8th tesla announced that they had bought 1.5 billion worth of bitcoin and that was the an inflection point i think that that bitcoin for corporations became a mainstream media event it was d risks i saw an explosion in media coverage across you know new york times the front page of the wall street journal you know the straits times and you know in asia pacific and australia and ireland and europe it came it hit the front page of the financial times and hit um fortune and forbes and bloomberg and reuters and you know before that people used to be saying oh well it's this odd thing but no one's gonna do this and now what you had nexus you had uh marathon invest 150 million in bitcoin around 31 000 a coin so they made a hundred million dollars or something like that on their investment and that became big news and tesla did it and then uh we announced additional buys and uh square announced they bought another 170 million for their balance sheet so that was more than triple what their previous buy had been and um hut eight announced that they're hauling bitcoin large amounts so i think i think you start to see that we went from you know one company to now more something like six or seven or maybe even up to 10 publicly traded companies and so we're breaking through it's still a small thing but now you have people like gartner group uh doing surveys and gartner said well five percent of company only five percent of companies want to do this but maybe 15 will be looking at it in the next year you know and i'm thinking well five percent of four thousand companies is a mat four thousand publicly traded companies is a massive amount so it's kind of breaking into the consciousness and people have to address it now you know they're asking they're asking you know janet yellen what she thinks they're asking bill gates what he thinks they're asking the ceo of uber and the ceo of general motors are you going to buy bitcoin it doesn't have any money they're not asking them if they're going to buy gold they're not asking they're going to buy silver they're not asking them if they're going to buy anything else are you going to buy the s p index you know at this point bitcoin for corporations and corporate treasuries has become part of the conversation and i think people are increasingly realizing across the mainstream media and across the investment community that traditional treasury strategies are broken they're intellectually bankrupt they're not really justifiable anymore you can't with a straight face invest corporate treasury funds and debt yielding one percent or or you know the short-term treasu libor rate is still like zero you can't invest billions of dollars at zero percent interest while the cost of capital is 25 percent and the cost of capital the best surrogate for it if you um if you want to uh to check something let me see if i can find this would be the s p 500 index which is 26.37 percent
that's the cost of capital it used to be that number was eight percent for a decade so if you could invest uh money at uh four percent or five percent you know against an eight or nine percent cost of capital your negative yield is three percent but then um those interest rates went to one two percent and now your negative real yield is six minus six minus six means that you're going to lose half of your corporate treasury purchasing power in 12 years minus two means you're going to lose half of it in 30 years okay so at minus two you can just hang out in treasuries at minus six you couldn't so people started taking on debt and leveraging up but at minus twenty-five percent at minus twenty-five percent you're boiling everybody you know you're gonna lose half your shareholder value in three years okay so everybody's getting uncomfortable like i i know i have a real problem now and um if you're um if your big tech high growth maybe you can afford to burn billions and billions of dollars of shareholder value maybe but it's still uncomfortable embarrassing to burn that much and if you're if you're a a thoughtful thinker and a little bit of if you have a little bit of courage and a little bit of clarity like say elon musk you realize this is [ __ ] that's what he said this is [ __ ] it's like like i'm holding this cash and someone is basically is devaluing it at 20 a year and so you know you go out and start to do something about it and that's kind of your message and you do it to send a message and you know it's worth 500 million or a billion dollars you know when bitcoin trades up so you send a message and you make some money and jack dorsey does the same thing at square and then um on the other end if you're a value stock if you're a company that's generating if you're a billion dollar company generating a hundred million a year in cash flow and if you have uh 500 million in cash in the bank okay now you've or a billion in cash now you're you've got a different issue it's like okay your billion in assets is being devalued to zero at 20 a year and then your billion in cash flows over the next 10 years are going to be worth 10 percent or 20 so if you're if you're a a value stock you're getting cut by a factor of five or a factor of 10 is like the you know the bankers have declared war on you it's currency war okay so what are you going to do well the dysfunctional thing to do and by the way the conventional thing to do if you don't think hard is i'm just going to divide in the stu the cash back to my shareholders or or give it back okay think about this i'm going to give a billion dollars back to my shareholders so they can invest it in bitcoin while i go bankrupt i'm okay well why are they gonna invest in bitcoin because they're gonna go bankrupt they're gonna lose all their wealth if they don't so if i give a billion dollars to my shareholders so that they so that the financial investors can rationally protect their interest and not see it go to zero and invest it in something that beats the cost of capital well that's kind of like me committing economic suicide okay well if you want to commit economic suicide you do that if you really want to commit economic suicide you borrow a billion dollars you finance your forward cash flows you borrow a billion dollars and then you buy the stock back and so now not only are you one billion you gave back your billion in cash flows or your billion in cash that's one billion closer insolvency then you borrowed a billion so you're two billion closer to insolvency it reminds me of the stories when all of the doctors bled george washington to death to save his life it's like okay well i'm sick what are you gonna do we're gonna bleed you to death we're gonna take all your blood because the blood you know blood is capital so if i give you all my capital and then i borrow and then i take on debt and i give you that capital i've literally bled myself to death you know running on a razor thin margin of equity it's like well if you hate the company and if and if you're more if you have no value to society if you don't care about the product you produce the employees you employ the community that you support if you don't care the country you pay taxes to then you can do that that's rendering your company to be insolvent that is conventional treasury thinking borrow money buy the stock back dividend the capital back and there are literally people that would suggest you do that but i just think it's the most foolish thing right if you think about it right if you hate the company and you want to destroy the jobs and destroy the products that destroy the company and destroy the capital then you can do that if you actually happen to think that the company matters and you want to create good products and create good jobs and support the community you know and support the country then the then the answer is the opposite you should take the capital the billion dollars you should buy bitcoin you should forward finance the cash flows the next billion and then you should buy bitcoin and then you will have two billion dollars of bitcoin and when bitcoin doubles you will have four billion dollars and then you will have a strong capital base and you can continue to create good products continue to pay your rent continue to make good on your counterparty obligations continue to pay your employees continue to pay your taxes and continue as a going concern now that's advice i would give to you and your family julian if you were to ask what should i do should i give all my money up and uh and work exponentially harder forever to earn a currency growing exponentially weaker and hope that i'll be able to put my children through school or buy a house in 10 years even though the price of everything is going to go up at 10 to 20 a year that's one possibility if you think you can generate a salary which goes up 25 a year forever then maybe you can get by but it's a lot of risk to assume right so i wouldn't tell you to do that i would tell you to convert your capital into a non-sovereign store of value so that you can protect yourself and your family for the next decade or in the next hundred years if you were running a university or an endow if you had endowment for any charitable cause if you're trying to protect a park or protect a kindergarten or to support anything you know anything honorable ethical valuable over time and you needed money i would say invest your endowment in a non-sovereign store of value like bitcoin now if you were to say to me no mike i read in the newspaper i should give all the money back to the donors so they can invest in bitcoin and i'm going to just work hard to ask people to give me more money in five years even though the money is collapsing in value and they're all losing their jobs i would say that's pretty stupid too right so i think people unders if you're an investor and you had a billion euros to invest and someone said well julian why don't you take the billion euros and give it back to the investors and you should just go ahead and invest one euro and try to you know make that work i would say that's pretty stupid strategy too so i think investors know it's stupid to give the capital back i think that endowments and charities and non-profit foundations know it's pretty foolish to give the capital back i think that families know it's pretty foolish to give up all your capital i think countries know this too i think countries know they can't afford to have all their capital flee and yet there are still people you know shareholder activists or or critics that think that they should that they should tell ceos they ought to give all the capital back borrow money and dividend it all back if they can't generate the cost of capital and their treasury and they're only allowed to buy bonds that have zero yield if you so if you think about it it's a moral hazard telling the companies they can only buy zero yield bonds and the cost of capital being 25 or else they should give the capital back is literally like a doctor telling you that they're going to bleed your child to death because they shouldn't have blood flowing through their veins because the blood is toxic what makes the blood toxic right is is you know injecting that poison into your vein what makes the capital toxic is the fact the cost of capital is going to 15 to 20 to 25 the antidote to the toxic currency is to convert your currency into bitcoin is to convert it in into something which is non-sovereign and cannot be uh debased and so i think the the hodlers the bitcoin supporters they understand this i think that private companies are doing this aggressively i think a thousand companies did this in the last 12 months march was a catalytic event march of 2020 drove the price the cost of capital from eight percent to 24 percent not everybody perceived it that it kind of went 8 to 16 but over the next six months it was clear as 24 so the cost of capital tripled the yield on conventional risk-free investments went to zero the heat got turned on and rational people started to act year one was uh march of 2020 to march of to february of 2021 february 8th was kind of the end of year one and it's like you know the people that are gonna move fast now we're kind of entering year two of institutional adoption of bitcoin bitcoin touches a trillion dollar market cap it was less than 200 billion before you know when this uh you know just after this pandemic crisis when i got involved and um you know where does it go from here i think it just continues to steadily march up there'll be some day-to-day volatility there always is it'll move forward it'll retrace it'll move forward it'll retrace but it's the solution to every corporation's treasury problem it's the solution to every every um conventional company if your company's not growing at 24 a year or more the top line and if you don't do this you're going to destroy shareholder value or bleed it at two percent one to two percent a month that's that's kind of what's happening you're just being beat to death if you can't grow more than 24 a year but even if you do grow more than 24 a year if you're growing 20 a year all you're doing is keeping up with the rate of monetary expansion so if you want to win you have to adopt a bitcoin strategy on your p l and you have to build it into your products and your services and you have to adopt a bitcoin strategy on your balance sheet you have to sweep your cash flows or or or forward finance your future cash flows via debt and then convert it into uh something which is not debasing at the rate of the us dollar the problem is every currency is correlated to the dollar the euro is correlated to the dollar the yen the wand the peso the only question is you know are they weakening at uh at at the same rate of the dollar or the weakenings faster or slightly slower but but you have every currency correlated and that means every stock is you know is uh trading based upon in part or in whole based upon an expectation of the discounted value the future cash flows and uh every bond is trading based upon the discounted value of the coupons and every piece of commercial real estate is trading based upon the discounted value of the rent and all of the commercial real estate contracts have a cpi cap in them in fact most long-term contracts have a cpi cap in them and so if cpi is capped at at one or two percent and is going to be and if the rate of and the monetary inflation rate is 20 percent and it's going to be at least 15 percent this year is 24 but if it goes at 15 percent what you're looking at is a negative real yield you know you've got a discount real estate contracts dividend yields and bond coupons at 15 so you take your spreadsheet you crank that in and by that's the best case now anybody holding portfolios that are substantially commercial real estate or bonds or equity they tend to have a very optimistic view that um we're just going to solve all these problems in the next six months interest rates will return to i don't know what they're thinking interest rates will return to normal well if they return to normal your bonds crash if interest rates don't return to normal we have to keep buying bonds which means we keep flooding the market with currency so they've got some kind of view that we're going to pull a rabbit out of the hat and we're going to start running surpluses and not deficits and we're going to have normal interest rates and the economy is going to start growing effectively and there will be no problem with all this but i don't know how that's going to happen and uh so i think that if you have a realistic view you have to crank in some estimate of monetary inflation over the next four to eight years the conclusion would be all conventional assets right cash or cash derivatives derivative stocks bonds real estate they're all going to be they need to be more heavily discounted than they are currently discounted and as the marketplace becomes rational there will be increased flow of money out of that fiat universe of 400 trillion dollars of assets into the one trillion dollar universe of bitcoin that's going to drive the price of bitcoin up that's going to return priced it's going to return price discovery to these other asset classes to bonds to stocks to real estate prices return the return of price discovery is a very polite euphemism for those prices are going to fall those prices will fall so that the dividend yields increase the coupon yields increase and the real estate yields increase because they need to right and if they don't if they don't increase government has to keep printing more more money and that additional money has to find its way into assets and the most compelling asset is going to be something which is ultimately scarce the most scarce most desirable asset in the world is bitcoin can you answer a question that a lot of crypto twitter obviously has um how how did the entire interaction between you and elon musk happen i mean what people saw was elon trolling on dogecoin him tweeting on is it even possible to buy that much money in bitcoin you answering sure it is let me show you how and then uh there's these rumors on february 4th that he had people there from tesla at your conference and then february 8th uh tesla announcing buying bitcoin uh you know what is there anything you can share behind the scenes i i talk to a lot of officers and and directors of publicly traded companies and a lot of people want to know my thoughts on bitcoin and macroeconomics and and as you can imagine uh normal acceptable etiquette is public company officers can't speak about conversations with other public company officers so uh if it's if it's on twitter it's on the record you can see what has been said but i mean all my conversations with any kind of public company officer would be off the record and i can't know them that's more than fair um obviously a lot of people are now expecting many many other companies to follow suit i mean i think the ideas you're sharing they are so spot on i would be surprised if not more and more public officers decision makers understand that what do you see as the timelines um from your experience like how long do you think our company's gonna take to where a decision maker goes and says okay let me actually convince legal compliance the the finance and until this is actually gonna be executed how how do you see those timelines a it playing out and i'm talking more about the larger companies right now right the the public larger companies yeah well i think that the the institutional investors um especially the fast money institutional investors what happens is those managing directors and partners they move first with their own money so you have high net worth individuals that move first because they just have to convince themselves then you have private companies right so uh a guy owns a billion dollar private company first he invests his own money he'll go and he'll buy millions of dollars of bitcoin to get familiar then he'll talk to two or three people in his private company or she will and they will go and um and they will buy bitcoin and you uh they're not gonna announce it they'll just do it for the company and uh when you have institutional investors it's the same dynamic demand the limited the managing partners the general partners will buy on their own account then they will socialize it with their team then oftentimes what they'll do is they'll say i'm gonna buy one percent or two percent because they don't have to get permission from their limited partners to buy one or two percent they can just do it so you'll hear about well we have a small allocation i have 10 billion dollars of capital and we'll have a one or two percent allocation they'll do that and that it and then they'll play with it and they'll let that go for about a year and then they will go and start to communicate to their limited partners that yeah we did it and it worked really well and uh the limited partners go okay well since it's working well then the the pension funds and the endowments right the big ivy league endowments the big pension funds they're like okay well we'll crawl in and we'll put a we'll put a little bit of our money in and they'll start to they'll start to bless a more aggressive move by the institutions so then you'll hear about the 700 million 800 million dollar buys they'll get more aggressive now public companies they they have the most hoops to jump through because a public company you have the ceo has to get the the officers on board so the the general counsel the cfo the finance team they have to get comfortable so they have to get educated then the board of directors has to get comfortable so you'll see companies that are generally run by technology technology executives jack dorsey elon musk michael saylor or a company that's uh that's a technology forward company they will move first because normally they have the best communication channels with uh the board of directors and also those companies understand you have to turn on a dime if you want to keep up with trends if you don't actually take an aggressive stance you'll miss the wave so you'll see them and um and you know normally a public company it's going to be massively fast would be three months fast is six months you know square tesla microstrategy marathon hut 8 some of those companies they could be massively fast they're the leaders six months is more conventional i think you'll start to see see uh more coming in the three to six month time frame after you know february 8th and then then the leader is 12 to 24 months and then you know when you get to the bigger conventional companies 24 to 48 months because they'll have a board of directors with 20 people on it you know and and uh they'll have 40 people that have to get involved and they'll meet once every three months and they'll have tens of billions of dollars or hundreds of billions of dollars and they're more like aircraft carriers right so so like i have a 100 billion dollar entity and this is very exciting idea can you talk to our executives we have a slot for you in two months from now and then if we like that we'll study it for three months and then in six months we'll bring it up and then you know next year it'll be an agenda item so i think that uh they'll move a bit slower but i think it's good because there's a phrase in bitcoin right everybody gets bitcoin at the price they deserve that's i i really i've never heard that one i love it i'm gonna i love that look if you you know if you looked at it you made the decision you could have bought it at ten thousand you knew as much then as you know at twenty thousand and when we got to twenty thousand the people that weren't convicted they're afraid it's all-time high i'm afraid some people buy to twenty thousand some people waited till it was thirty thousand decide that it was okay and then there are people that bought it at 30 and some people wait till 50. it's gonna keep going up and uh you're gonna have you know 100 billion dollar entities buying it at 250 000 and then they'll be buying it to 500 000 and they'll be buying it a million and the good news is you know if you're the individual and you can do the work and uh do the thinking for yourself and engage in in that exercise then you get a one two three year advance on everybody else so i i think that uh for five years you're going to see progressive adoption institutionally you know that we'll see 10 20 public companies in the next 12 months then it will double then it will double right and it'll just go like that just like we just crossed 100 million bitcoin holders and i think uh you know we'll go we'll probably go through 200 million by the end of this year and then we'll go to 400 million and then we'll go to 800 million i think we'll we'll break a billion holders in five years and uh and when it's a billion it'll still be kind of a new thing but uh but uh people will start to understand it then and uh that's what keeps uh that's what keeps the price kind of moving on a steady curve where you know you have an opportunity to to get an investment edge once a billion people have it and want some a thousand big companies are invested seriously then it will start to mature and then it'll start to become it'll yield like the long-term money yield rate so it'll it'll go from 200 a year to 150 to 100 to 75 to 50 to 30 to 20 you know to 10 to 9 to 8 to 6 and i'll be clipping along right it's like the money index always positive not negative over over like if you take a four year time horizon i think you got to look at a 200 moving week average if you look at it as a 200 moving week average think of it as a monetary battery it's just spinning up with monetary energy or it's charging and if you know if you fixate on it every minute or every hour or every day or every week you know you get yourself worked up but if you step back and you just keep your eyes on the 200 week moving average and if your four year time horizon then just it'll be a relaxing process you don't have to worry about all these other things that are coming and going all the time which can cause people anxiety um i want to ask you two last questions because i know i want to be respectful of your time one is how is this going to play out for government um on the one hand obviously we have those stories the media loves to spin that oh all these public companies buying bitcoin the government's gonna step in there's gonna be heavy regulation there's gonna be additional taxes uh they're gonna punish those companies and then obviously you have the counter side that says no no no governments are actually gonna get in in the entire game and and they're going to actually start holding it themselves how do you say see this playing out i think i think the forward thinking progressive governments are going to embrace it and they're going to benefit from it and i think backward-looking governments are going to fear it and they're going to suffer from the lack of it bitcoin is mona it's pure monetary energy on the first digital monetary network it's like electricity so you know if i said to you everybody really every company in the us wants to plug into electricity you could probably find someone that was afraid of electricity saying this is going to burn all our buildings down and this is bad for our cities it'll cause fires and you might even find a country that would ban electricity you know like look china banned google they banned twitter they banned facebook okay great you think they're better off for not having google lion you lose google maps like i don't think they're better off so there will be governments you know that will uh you know there will be forward forward thinking now this would be backward thinking i think the politicians in the western world will realize and they do realize that uh bitcoin is the fundamental underpinnings of the 21st century finance system a block of bitcoin is like a block of of uh light that has dematerialized monetary energy in it we found a way to dematerialize money and move it at the speed of light and make it a a million if not a billion times more intelligent so what does that remind you of that reminds you what if i told you i could put a thousand horses into clean electricity and i could shoot it to you over a small little wire and you could use it to run a motor to lift a million pounds like would i want that well i might want it my elevator you ever ride an elevator up to the hundredth floor it's like imagine putting a thousand horses in the basement of a skyscraper to run an elevator it's like electricity is fundamental to civilization we use it uh in our refrigerators to keep our food from spoiling we use it in our air conditioners in order to make life livable in the tropics in florida all of florida is uninhabitable as a state without air conditioning right life expectancy is 20 years less without refrigeration we use it to move hygienic water we'd all be dead without it we use it to make new york city habitable take away the electricity from the city right how do you get up and down 57 floors before electricity every building in the world was limited to five floors five is the most floors you can actually have without an elevator i got you know and again we could probably put a mule in the basement to operate an elevator and you could have a 10 floor elevator but if you actually want to have a modern civilization you need to channel energy and uh everybody understands electricity most people don't understand that bitcoin is monetary electricity it's monetary energy and i can move the equivalent of a billion horsepower around the earth maybe at the speed of light once i plug the layer two solutions into the underlying layer one block chain if you listen to the to the discussion of the regulators i think they're very smart they understand it i think that uh our secretary of the treasury understands it i actually think that that all the regulators coming into the biden administration understand it if you want the united states to dominate the financial technology market in the 21st century you have to have bitcoin if you want to dominate any industry right turn off the internet and turn off electricity and tell me what your strategy is to you know to avoid sliding back to the stone ages it's not going to work you know we're not going to abandon satellites we're not going to abandon air you know space and air and aerospace technology um we're not gonna abandon uh crypto technology we're not gonna abandon bitcoin because it really is the trillion dollar dominant digital monetary network it's going to be a big benefit to to any country that it embraces it and it's going to be a detriment a liability to any country that blocks it they're just falling further behind in the race uh to dominate the 21st century civilization um beautiful okay very nice interesting let's see which country develops that or picks it up first uh i love that idea um last question for me and uh if a time traveler came in a year's time and then in 10 years time so 2022 and one in 2030 and will tell you about the bitcoin price which answers from that time traveler wouldn't surprise you at all in a year's time and in 10 years well look i think it's harder to predict what happens in the next 12 months because you have near-term volatility uh i wouldn't try to predict it in 12 months i think in 10 years we're going to see billions of people with bitcoin on their mobile devices you're gonna you're gonna see bitcoin have definitely flipped gold and be and gone beyond it so i i wouldn't be surprised see bitcoin at a million dollars a coin in 10 years i mean that would be double gold it's at least it's gonna at least be double the value of gold i expect over time it will rapidly approach the value of gold and then it will approach aggressively the 100 trillion dollars which is the value of of store value debt store of value monetary indexes uh cash balances held in treasuries savings accounts and and uh and precious metals so um i i think that that's a fairly straightforward future because i think it's the answer to every company's problems every investor's challenge is and i don't think there's anybody on earth that doesn't want to own their own monetary energy right i mean who doesn't want money like my money is monetary energy it's life so ultimately if you have a choice would you like to have your life force under your control so that you know you're not going to starve to death and you can protect your family and live for the rest of your life and comfort or would you like to have your money controlled by a bank controlled by a politician controlled by a government maybe interfered with by another government and maybe it will have value and maybe it won't and maybe you can access it and maybe you can't i don't think there's any human being that really wants to give up all their monetary energy everything they have to a person behind a person behind a person that may or may not give it back to them so so i think that the future is clear the future is a world of billions of people with bitcoin under their control controlled by either c
2021-03-06