The Pomp Podcast - #1503 Eric Semler | Bitcoin Is Taking OVER Corporate America

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a

Starting point is 00:00:43 specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by Reed Smith. Their practice of law has the power to drive progress to move businesses forward and support them in achieving their goals. By seizing opportunities and overcoming obstacles, Reed Smith is focused on outcomes.

Starting point is 00:01:06 I personally use them as my law firm and I think that they are fantastic. They know that your time is valuable and that your matters are important. Their deep industry knowledge, longstanding relationships, and collaborative structure make them the go-to partner for complex disputes,

Starting point is 00:01:19 transactions, and regulatory matters. Reed Smith delivers purposeful, highly engaged client service that drives progress for your business. Go to reedsmith.com to learn more about the best lawyers in the game. reedsmith.com, go check them out today. It's no secret that Bitcoin ETFs

Starting point is 00:01:34 have taken Wall Street by storm. With over $35 billion in assets in just one year, it's become the most successful ETF launch in history. My partner, Bitwise, is the first and only Bitcoin ETF provider to openly publish its Bitcoin wallet addresses, allowing anyone to verify the fund's holdings. I believe this level of transparency

Starting point is 00:01:53 is exactly the kind of innovation that only crypto makes possible. Bitwise is also the only ETF issuer that is a crypto specialist asset manager, meaning their team solely focuses on Bitcoin and they have the research, education, and support to help investors navigate the space with confidence. All of that is great, but what I love most about Bitwise is probably their commitment to developers. Bitwise donates 10% of their ETFs profits to Bitcoin open source developers. Bitcoin developers are the unsung heroes, working tirelessly to maintain, improve, and innovate the blockchain. Their efforts ensure that Bitcoin remains true to its promise as a decentralized system that is built to last. Go to bitwisepomp.com to learn more about their ETF and other services.

Starting point is 00:02:35 Once again, that's bitwisepomp.com. As always, remember investing is risky, and carefully consider the extreme risks associated with crypto before you invest. Today's episode is brought to you by Bitcoin OS. Bitcoin OS is the ultimate upgrade to Bitcoin. Bitcoiners can now experience the magic of the entire crypto world, including DeFi, scalability, privacy, and more. But you don't have to give up control of your hard-earned sats. Bitcoin OS is powered by revolutionary zero-knowledge technology,

Starting point is 00:03:07 and they let other blockchains plug into Bitcoin, offering their service to the world's largest digital asset. This lets Bitcoin holders securely move their coins across the crypto landscape, turning Bitcoin into a productive, programmable asset. Putting your Bitcoin to work once meant trusting centralized companies and bridges to protect your assets, a model that's lost crypto owners billions to hacks and fraud. Bitcoin OS lets you be your own BOS, using a system based on cryptography rather than trust, the way Satoshi intended.

Starting point is 00:03:33 Using Bitcoin OS, altcoins are returning home, eager to plug into Bitcoin security, network effects, and $2 trillion capital base. Bitcoin is the first and final BOS of all digital assets and will soon be reborn as the foundation of a united crypto world. Follow Bitcoin OS on Twitter at BTC underscore OS. Again, that's at BTC underscore OS and be early to Bitcoin again. of needing to do something different. You may be a little bit different, right? In terms of why you did this and how the business is set up. So tell us the story of, you know, similar, and then also why did you put Bitcoin on the balance sheet given the business that you have that's non-Bitcoin?

Starting point is 00:04:31 Yeah, I would say it was kind of the last thing we ever expected to do. We were a relatively small board. Our board owned over 30% of the stock, the shares. I had not been involved in the company for a long time. I was one of the initial investors in it. And it had been around for 20 years before I got involved. It was a public company for 10 years. And I was kind of spending my time as, you know, I ran a hedge fund for almost 20 years and still doing that as a family office. So it was something I got involved in because I had become more of an activist as an investor. And I noticed that Semler Scientific was kind of faltering and needed help and needed more of a focus on maximizing shareholder value, which is something that

Starting point is 00:05:21 I feel like I'm good at doing. So I made a pitch to the board to put me on the board and brought on another shareholder and eventually became chairman of the board just like two years ago. And when we first, when I first got there, the total focus was on doing acquisitions in medical, in the medical area. We're a medical device and software business. So we spent about a year just grinding through so many deals, private deals, mostly looking at companies that might be accretive, you know, for us to buy. And it was really a black box. There's just very little to do and um we were spending our wills and as this was happening um i followed bitcoin closely i've been an investor in it uh and was an investor in microstrategy and was listening like simon just

Starting point is 00:06:10 listening to michael saylor very closely and when i heard him talk about these zombie companies i i kind of thought about you know god is he talking to me like it just resonated it was so um like I felt like we were microstrategy the way he described it in August of 2020. We were half our market cap was in cash and we were making money. We were making about $20 million plus a year in our business and it was slowing down a lot and we were looking for a way to restart growth. And I just, I don't know, I guess it's like I'm going to listen to too many of his podcasts and I went to our board and I said, you guys got to listen to this guy.

Starting point is 00:06:53 I think he might have a solution for us. And I was shocked because none of them owned Bitcoin. They weren't following it that closely, but they were able to kind of get it and saw the kind of the value creation opportunity. So I didn't know Michael Saylor. And I tried to reach him through Tom Lee, who's a close friend of mine from Fundstrat.

Starting point is 00:07:19 And I'm on the board of Fundstrat. So Tom put me in touch with Michael. Michael called me instantly. It was immediate. And at that point, there hadn't been any public companies other than MicroStrategy that were pursuing his strategy. And he explained it to me. It was incredibly generous and helpful. And we ended up being the second US public company to adopt a Bitcoin primary reserve strategy. Actually, very similar. It was almost coincidental with Metaplanet. We were kind of reached this conclusion totally separately around the same time. When you think of putting Bitcoin on the balance sheet, most people will say, well,

Starting point is 00:07:58 that's a good economic decision. But because you have an operating business that's profitable, that is separate from Bitcoin, a lot of Bitcoiners know about you now. And there's a lot of Bitcoiners that work in a lot of different businesses or they buy products, right? They buy medical products. They use medical software. Have you seen a lift in the operating business because of the notoriety of putting Bitcoin on the balance sheet? No, actually, it surprises me. Our customers are huge companies, huge that you've all heard of in this room.

Starting point is 00:08:25 And it has not come up at all. And interestingly, we had some shareholders kind of scratching their head a little bit when we announced the strategy, but the stock did so well that we really didn't get any negative feedback either from customers or from shareholders. I would say that it's, it's kind of been pretty siloed and, um, which I think is great in a way.

Starting point is 00:08:50 I mean, it'd be great to get a lift from it. I mean, we're starting to think a lot about how the two concepts are, are intersect. Like we, what we do, uh, we, we, we, we help people, uh, avoid getting very serious cardiovascular diseases, vascular diseases in some way we're providing you know medical freedom and by owning bitcoin we're you know we we're exercising financial freedom so there's kind of this um cross you know crossover between the two that we ourselves as a company kind of you know view what we're doing we're kind of we were kind of we kind of want to live by the slogan of medical and monetary freedom uh maybe sounds a little bit you know a little bit out there but i think in some ways it's kind of what we're doing

Starting point is 00:09:36 you know we're we're kind of we're promoting medical and monetary freedom when you go and you take a look at how this has played out so far again you guys continue to acquire more and more bitcoin as you're going um what is the tools that you have figured out that are best for you guys each company is different right you guys had cash you've got the profit uh profitability are you just selling equity are you using uh convertible notes like walk us through maybe that the the you know how the sausage is made of getting the capital by the bitcoin definitely you know it's probably just as a preface to that i i follow the stock market extremely closely i have for you know 25 years and i people are so cynical about what we're doing with this idea of a bitcoin treasury

Starting point is 00:10:20 strategy right now it's and you can see it in the performance of the stocks um it it doesn't make sense to a lot of traditional players in the market. And so, how we're thinking about it is kind of, we're really differentiated. MicroStrategy is fantastic. Metaplan is fantastic. The rest of the companies that have adopted treasury strategies, I'm not sure. I don't know them well enough and they seem relatively small. And I'm not sure that they are fully on board. I just don't know enough. But from our standpoint, what we're trying to do is accumulate as much Bitcoin as we can. We're the 10th largest corporate holder of Bitcoin now. Up until a few days ago, we had over 300 million of Bitcoin on our balance sheet. What happened? Yeah, what

Starting point is 00:11:12 happened? This is great, though. I mean, for us, I hope. I know it's painful in the short term. But this happened to us when we um first started we we we shot our wad we bought 60 million of bitcoin like out of the gate as soon as the sec finally approved us and and bitcoin dropped 25 percent like instantly because of the uh mount gock announcement of the distribution but we you know we had no idea what's coming and then boom and so it really tested our conviction and it and thankfully our board you know who was new to this was all in and we just kept buying so now we're 300 million. We've done it kind of a third through ATMs, you know, selling our shares to buy Bitcoin. We've also done it through a convert. We did a hundred million dollar convert, which was

Starting point is 00:11:56 really well received. And then we've done a hundred million almost in operating cash flow. So it's kind of a combination of those. And what we're really trying to be is a huge holder of Bitcoin over time, a huge corporate holder. And also we want to be kind of a great dual prong story of, you know, a good medical story and a good Bitcoin accumulation story. What are the challenges with doing this? You know, everyone will say, hey, I put Bitcoin on my balance sheet. My stock price went up. I look like a genius. This is awesome. Everyone go do it. It doesn't come without obstacles, friction, challenges. What would you say are those things that you've discovered along the way? It was actually really hard to do at first. I mean,

Starting point is 00:12:39 first of all, the SEC was a different SEC and they were just busting our balls. You know, it was tough they were just coming back and forth questions and really delayed stuff for us it was very frustrating i think we're probably hopefully past that you know experience for new companies and um i think that i think that there's a lot of accounting and legal stuff it's a public company you have to deal with i'm happy to help anyone who wants that kind of help but uh it's it's uh it's laborious and it takes a few months to kind of get through all of that and it's costly it's expensive. I think, though, that there is definitely a psychological barrier. There's public companies. Most boards aren't going to do this. I'm pretty cynical about larger companies

Starting point is 00:13:25 doing this. Why? I just think that it's very tough for most of these larger companies. Their boards are older people who are looking to just maintain the status quo. They don't want to rock the boat. they don't have that much skin in the game it's a huge risk from their standpoint there's you know obviously with the volatility we've seen right now they're less inclined to do so i would think and and i think that you're gonna need you're gonna need a real contrarian leader at one of these companies especially company that has like voting where there's um you know tight voting control a company like zoom communications i talked about recently in a tweet like zoom's a 25 billion dollar company it has eight billion dollars of net cash it's controlled by one guy

Starting point is 00:14:14 the founder their business is just flatlining their stock has been a horrible performer over several years and they're not doing much about returning capital shareholders they really don't have a great growth future they they're a great example of a company that should do it and they have a guy who's a technology savvy guy uh right as the founder of their business who could make that decision almost single-handedly with his board. You need to find situations like that. And if Zoom Communications decided to go do this, it's huge. I mean, they could accumulate billions of dollars of Bitcoin pretty quickly. Do you think that in those situations, even though they have all the construction and infrastructure and cash and all the things that

Starting point is 00:14:56 you would need to execute this, they got a product that is working just well enough, where it's kind of the classic innovator's dilemma. If the product was worse, that would actually mean it'd be easier to do it but because it's working you kind of are like i should keep investing here i think that's true i think that i think it's that's why it's gonna that's probably another reason why these things just take time but they're probably closer to it than others in in the sense that um they can see the writing on the wall they've they've thrown a lot of spaghetti at the wall to try to you know jumpstart growth they've invested a lot of money that's kind of gotten no return so you know maybe maybe it's too premature to talk about them that

Starting point is 00:15:33 way, but it's absolutely right. You do need a business that is kind of clearly, uh, you know, not, they've given up hope. Let's talk about, uh, leverage. You all, I think are more than two times from a leverage equity kind of ratio than a micro strategy. I think you guys are 22, 23%. I think they're closer to like eight or nine. I don't know about meta planet, but talk about how you think of that leverage percentage and is higher, better is lower, better and kind of what the pros and cons Yeah, I think that's also a really important difference between us, MetaPlanet and MicroStrategy. For better or worse, we are much more levered. And so when people want to talk about a premium, what should we trade at a premium?

Starting point is 00:16:15 If you believe in the upside of Bitcoin, then yeah, we should. We should. We're a levered play on Bitcoin, you know, and MicroStrategy is levered, but not nearly, you know, not nearly the extent we are. And same with MetaPlanet. They have small amounts of leverage, but they don't, it's not long term. they're not really a levered business. And so I think that that is another distinction. We're kind of this dual-pronged story of medical and Bitcoin. Plus, we are, I think, a legitimately

Starting point is 00:16:44 levered business on Bitcoin. We have a $100 million convert, which we treat as debt. And we have a market cap in the $400 million range. When I think of this whole world, the biggest question that i get from people what is your average cost of bitcoin uh it's in the 80s okay so let's just say for hypothetical situations call 85 000 yeah if bitcoin's price falls below that 85 000 mark what happens and how do you think about what you need to do or not do once you get the bitcoin price below kind of the average cost of a bitcoin uh treasury company We buy more. We just hopefully get aggressive and buy more. That's my hope. But in terms of our debt, our debt's five and a half years. It's due in five and a half years. There's no put

Starting point is 00:17:38 that they can't be put back to us before that. So we have until like 2030 to pay off our debt. So it's not something I'm concerned about. Now, if you take that a step further, at lunch recently, somebody said, well, let's take it to the extreme. And they said, okay, your Bitcoin goes below that average price. Shareholders see that. And whether they're sophisticated or not, they say, ah, that looks bad. And they start to sell down your stock. If your stock market cap begins to collapse, now all of a sudden that leverage percentage goes up. Is there a doomsday scenario? Or is there something where you said, hey, if I look at this, this is the thing that would be the biggest issue we could possibly face in

Starting point is 00:18:20 a downside kind of crisis situation? No, zero. I think in some way, I mean, Saylor talks about permanent capital. We don't have permanent capital, but our debt is five and a half years out. We don't have any short-term issues with our debt or interest. We have cover that through our operating cash and through cash on our balance sheet. So, no. But it's interesting. I mean, I remember those days as an investor in my strategy phase these day. So I'm very aware of how investors think and what types of scenarios they could throw out there. But being on the other side now, I really don't have any concerns. I don't mind it. I obviously want our stock to go up every day. But I am a long-term holder. I've owned the shares in

Starting point is 00:19:08 this company for 20 years. And so I hope to own them for a lot longer. And I don't have any real concerns about short-term stuff like that i think it's going to end up working out for us we also own you know close to 300 million dollars of bitcoin that's got to be worth something right so when um when you see this uh playing out is there a world where you are price sensitive to buying so as bitcoin is volatile is that 109 000 it goes to 85 it's back to 90 are you all sitting there and you've got a model and you're like okay we should wait a day or do you have a secret technical analyst sitting somewhere and you're like, ah, it's going to drop 10%. Let's wait. Or are you basically just saying, hey, every second we get our hands on cash, we're just buying and we're

Starting point is 00:19:51 not sensitive whatsoever to that price? I think we're kidding ourselves if we're not sensitive to that. I mean, I think a lot of people say, no, you can buy it at any price. I don't necessarily agree with that. I think that it's great at any price, but I'm not going to necessarily buy it at any price. So I would try to be a little more crafty about it than that. I wish we had been more craftier, but you can't always control that. You know, when you when unfortunately, when we've had cash available, Bitcoin has kind of near its peaks. You know, it's it just it's the way it's worked so far. But I think you have to decide, you know, am I going to buy it over a day, two days, a week, three weeks, a month?

Starting point is 00:20:30 You know, there is definitely pressure from the Bitcoin community to go out there and buy it all at once. And, you know, that's I I respect that. but i also think that you need to be reasonable and you need to be methodical and so i would say that you just got to use common sense you know and and if you if you do if our board or whoever's doing this feels like there's something to be worried about and we should wait a little longer than we should wait what happens if you sell bitcoin meta planet sells bitcoin or strategy sells bitcoin i think a big part of why people are interested in this is they're basically like these are you know diamond hand companies they're only buying bitcoin it's like they have no sell

Starting point is 00:21:12 button yeah but for some reason either you change your mind um you have to sell you know something whatever the thing could be but these companies sell even one bitcoin yeah it kind of violates the whole narrative of long only never sell what do you think the market kind of reaction to that would be i think they'd puke yeah i think the market would puke i would puke no one said eric's So no, absolutely. I think no one has that expectation that we're going to sell any Bitcoin. I think they expect us to buy more Bitcoin. I think that for us, the reason we wouldn't sell it truthfully is that we think Bitcoin is worth at least the price, the value of gold. I mean, it's pretty simple, right? Like if you think that Bitcoin is worth probably more

Starting point is 00:21:59 than gold because it's digital and other factors, then it's got 10 times or more upside now. Right. So like, why would you, why would you sell it? It's got so much upside and you don't have to sell it. Why wouldn't you just buy more? And so that's, that's how I think about it. It's very simple. And I think that that is such a powerful concept. It's so simple, but that's what gets a lot of CEOs potentially interested because they always say, I can't value it. It has no cashflow, but there's a really good, there's a really good valuation disparity that you can take advantage of. And I think that's why it's such a great investment.

Starting point is 00:22:37 So people say, oh, they're just copying microstrategy or they're playing a financial game or whatever. It's bullshit. I just believe in the value of Bitcoin. I want to own a lot of it because I think there's tremendous upside in it. And if they're not going to give us a premium for that, I don't care.

Starting point is 00:22:53 We're going to make a lot of money owning Bitcoin. So I just love the valuation story. And I love the fact that it's becoming more institutionalized. And so that's kind of where I stand on it. Talk a little bit operationally very quickly. How many people are working on the Bitcoin strategy versus the rest of the company? And is it like, hey, we need three people and that's it, and we can do this forever at any amount? Or is there like, hey, for every billion dollars, we think we need another person on payroll?

Starting point is 00:23:19 Or how do you think about operational support? That's a good question. We don't have that many people working on it. It's pretty easy to do with just a few people. We're lucky we have a great CFO. she renee cormier has just been amazing and she's very sophisticated and is good at modeling and we definitely have models we can go back earlier but we do have kind of a model of where we want to of ratios of how we think about buying bitcoin relative to where our stock's trading

Starting point is 00:23:46 so she she manages that for us uh and and we we do a lot of math and a lot of modeling around it but we don't we don't need a lot of people it's i'm interested though like as as it becomes as I don't know where Bitcoin's going from a, you know, a financing standpoint as we, maybe we get into preferreds and we get into other, you know, areas of, of capital raising. It may require, you know, more people. We may need, we don't have a PR firm. We don't have a marketing machine or anything. You know, we're not, we haven't had to really do that for our medical business. Maybe at some point it requires that, but, um, I, right now we don't have any plans to, to expand. Ladies and gentlemen, Eric Semler. Thank you.

The Pomp Podcast - #1503 Eric Semler | Bitcoin Is Taking OVER Corporate America

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.