We Study Billionaires - The Investor’s Podcast Network - BTC005: Bitcoin & Michael Saylor - A Masterclass in Economic Calculation (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to our Wednesday release of the investors podcast where we're talking about Bitcoin. Today's guest is billionaire Michael Saylor. Michael is the founder and CEO of Micro Strategy, a business intelligence, mobile software, and cloud-based service company. After graduating from MIT in 1987, Michael started the company and still holds a controlling share of the business. Michael made huge headlines in the past quarter when he decided to purchase $475 million worth of Bitcoin on the balance sheet of his company. Within only six weeks later, the value of the purchase had nearly doubled. Now, in the fourth quarter of 2020, Michael went out and issued $650 million

Starting point is 00:00:40 worth of convertible notes. The reason why, you guessed it, to buy more Bitcoin. I've had a lot of conversations through the years with some really gifted investors, but being able to tap into Michael's thought process on what's happening right now is one of the most interesting conversations I've ever had. And for that reason, I'm calling this episode a master class and economic calculation with Michael Saylor. I hope you enjoy. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right, I'm here with the one and only Michael Saylor. Michael, welcome to the show.

Starting point is 00:01:27 Thanks, Preston. Hey, so I, when I'm listening to some of your other interviews and the one thing that really sticks out to me that I think is such an important conversation for people. to really understand is some of your comments around inflation, risk premiums, the impact that this has as you think about it from a business owner and the hurdle rate that you've got to achieve. Talk to us in depth. Don't hold anything back on this particular topic and teach people how you're thinking about things from an economic calculation standpoint as the CEO, the founder of a billion dollar company.

Starting point is 00:02:09 Okay. Look, I think we start with this premise of your CEO, your job is to preserve shareholder value, you know, preserve wealth. It's the same challenge you'd have if you ran a family office and you were responsible for the wealth of the family. The question is, how do I preserve the value of my individual treasury or corporate treasury over time? So let's say I have, a million dollars. So in a hard money environment, if the currency is utterly deflationary, if the Federal Reserve or the central bank was going to print no more currency for the next decade, then I've got a million dollars. Next year, I'll have a million dollars. If I'm looking at the value of my cash, my million dollars, I can presumably have it sit in an account and a decade from now, I'll still have a million dollars of purchasing power because the currency is not being devalued. Now, if the goods and services in the economy are growing at 2% a year and the currency is

Starting point is 00:03:28 flat, then a fixed amount of currency is going to be chasing after an increasing amount of goods and services, you know, in that particular case, the currency is going to appreciate and value. And so the prices are going to fall. And so that's a good thing. It means that all I have to do is just sit on the money and wait and the economy will be larger. The value of my treasury will accrete. If the banks print 2% more currency and the economy grows, 2%, then you've got a net equivalence, the value of my treasury won't accrete, but it won't dilute. So in theory, if you think about the good old days of the gold standard, if gold has a stock to flow of 50, then it's inflating at 2% a year.

Starting point is 00:04:28 And traditionally, the economy of the world and the economy of most large countries grows about 2% a year. And so it's kind of ironic that the 2% gold inflation is offset by the 2% economic expansion and you have a stable gold dollar or a stable amount of value. And over time, that kind of makes sense. So what happens when I start to increase the currency, if I increase the currency 5% a year? Well, now will the economy grow 5% a year? If the economy grows 0% a year, the currency increases 5% a year, then I've got more money chasing after a fixed amount of products,

Starting point is 00:05:18 therefore the price of the products have to keep going up. And they're going to go up 5%. The stuff that you're wanting to get, the scarce stuff. Something that you can manufacture infinite supply of, a copy of a Picasso, a digital copy of a Picasso, that's not going to inflate. But the actual Picasso is going to inflate to the extent that everybody in the society wants that one painting. And of course, what you see is that as you start to print more money, inflation is not distributed equally. There's not really a single inflation number. There's a vector of inflation. In fact,

Starting point is 00:05:58 I can come up with this set of products. You really need linear algebra. You need a vector math to describe this. One set of products that are information rich with no variable cost, like a digital copy of a Picasso and there used to be a million digital copies and now there are a billion digital copies. And even if I print a gazillion percent inflated currency, the billionth digital copy of the Picasso is not going to be any more expensive. In fact, what's going to happen with a certain bucket of goods that are high information content is they're just going to get cheaper over time.

Starting point is 00:06:39 They're deflationary products. And what's a good example of that? Digital music, digital video, digital photos, digital services, running on networks that have a fixed price, a fixed cost. Once you've actually paid to deploy Wi-Fi and LTE networks, and once you've built the routers, and once you've built the electrical power plants, and once you've run all the fiber optic cable, that's all the fixed cost. The variable cost of deploying a Netflix movie to a million people is the cost of electricity. And deploying the Netflix movie to a billion people is the variable amount of electricity. So in essence, that's got to be like 0.1% variable cost.

Starting point is 00:07:30 There is no variable cost. There's no energy content in the product that is say, I mean, the perversity, right, is that it's all energy. It's 0.1% of the value of the product is energy. I'm just shipping electrons and energy is fairly cheap. So with things like that, they're deflationary because the fixed cost is a sunk cost, which is amortized across all of the products. You've got one iPhone, you've got one television, you've got one fiber optic cable to your house.

Starting point is 00:08:10 And therefore, everything I can push to the iPhone and everything I can push down the fiber optic cable, I can deliver at the variable cost of electricity, which starts to look like a product with a 99. point nine percent gross margin. Okay, so what's interesting? Well, in the history of the world, if you roll the clock back 50 years, we didn't have any products with a 99.9% gross margin. 99% gross margin products are a product of modern digital networks. So Apple created a mobile network.

Starting point is 00:08:48 They dematerialized everything you could hold in your hand, and that means that your VCR and your CDs and your cameras and your Polaroid photos, right, and your phones and your tape recorders, you know, and your weather, your Atlas and your maps and little books and reminders and yellow post-it notes. All these things had energy content in them and made a variable cost. I mean, traditionally, variable costs run anywhere from 40 to, 60% of the value of the product. You know, you're like, you have to produce it for 60% of the retail value and you sell it down a retail distribution channel.

Starting point is 00:09:34 And eventually the true margin is like 7% or, you know, Walmart, 3%, whatever it is. And the other 97% gets eaten up. That's what the world looked like. And then what happened with the mobile wave or the last decade is Apple dematerialized all of the mobile products or all the handheld products and converted them from 40 to 6% variable cost to 1% variable cost. And Apple then accrued a trillion dollars of value because it was that network. It's crystallization of sorts. You're collapsing from a high energy state to a lower energy state. And when you crystallize, what energy gets given off. And that energy took the form of

Starting point is 00:10:23 wealth created for the Apple shareholders. Google did the same thing. They pretty much dematerialized every library and every piece of every book and every piece of information and every video and every home video and every VHS and all the music on the earth. And it collapsed into Google and YouTube and the like. And as it collapsed, right, like this is a real library behind me. I'm sitting in a library of books and I don't know. It's a hundred thousand dollars worth of books in this room. room worthless because because you go get yourself a $500 iPad and you can have the entire 100,000 books. And by the way, the 100,000 books on the iPad is more valuable because they'll read themselves

Starting point is 00:11:08 to you. And you can resize the font. I'll walk past like this perfect book. And it's a beautiful book. And I open it up and, you know, it's classic. And it's like in a really small font. And I'm like, can't I pinch and zoom the book? and then I go on a trip and I'm like, I really want to take that book or those 10 books.

Starting point is 00:11:27 They're really heavy. I leave, you know, the books have mass. The books are static. The books have to be shelved. You know, someone can take the book. I might lose the book. Google took every library on Earth, collapsed it, just like Apple's got their eyebooks, right? They collapse these things.

Starting point is 00:11:46 The variable cost goes to zero. So you have all these things that Google touched that became deflationary. everything that Facebook touched became deflationary, everything that Amazon touched. The part that Amazon eliminated, by the way, was like the 40% of the retail supply chain that was the storefront. Well, 40% of everything anybody wanted to buy collapsed into a mobile app on an iPhone or collapsed into a website, 40% of the cost, of the energy cost. And then, you know, it's, you know, conservation of mass and energy, right?

Starting point is 00:12:24 That's, that's thermodynamics. Well, every product you buy, it either has mass, right? Like the books have mass or it has energy. I had to deliver the comic book to the news stand. And I had to some, or pay, I was a paper boy, right? Preston, I was a paper boy growing up. And sometimes I fall into that, like, what about the paper boy? And I was, there's probably no paper boys left on the planet.

Starting point is 00:12:50 That's not a job anymore. Like, who would deliver a paper? If I deliver a paper, you've got the mass, and that's the paper. Paper is made of titanium, by the way. Titanium dioxide is the primary element in paper. There's no pacifier. I got my start in business studying titanium. It's heavy.

Starting point is 00:13:10 I remember carrying stacks of papers around. You know, it's like a hundred pounds worth of information. it had to move through the supply chain. And then there's the energy, mass and energy. The energy was like me with my red wagon hauling 100 pounds of papers on a Sunday morning through the neighborhood and the freezing snow. And you got to, you know, and at some point my angelic mother at getting up at 5 a.m. to drive the family station wagon keeping the heat on while I, you know, while I haul papers

Starting point is 00:13:47 through the neighborhood. I delivered them, by the way, on Wright-Patterson Air Force Base. Where I grew up, I know every single street because I had to get up and deliver a two-pound paper to every house across the entire military base when it was like 20 below zero. So, mass and energy in the news business, I expended the energy, I hauled the mass around. It was quite visceral. It was expensive. It's so expensive, by the way, that no newspaper could afford to hire an adult to do it. Hence, 12-year-old to 18-year-old high school kids hauling newspapers around on their backs. That was the world that we used to live in. And, of course, now it's kind of laughable. No one's going to haul that stuff. Yeah, you probably couldn't get a 12-year-old to get up during. I remember a blizzard. It got to like, it was 60 below zero, Preston. and we're trying to figure how to deliver newspapers on a Sunday morning at 5 a.m. The wind is blowing.

Starting point is 00:14:56 And on the Air Force base, you had a lot of traffic to contend with at 5 a.m., unlike other places. Mass and energy. So, Facebook, Google, Amazon, Apple, they dematerialize the mass and the energy from the products. All the products are information and electricity. And that explains why they're trillion-dollar companies. And that explains why inflation as a metric doesn't work. It might, you know, it's a, it's a 20th century idea. And it might have almost, but I'm not sure it ever worked.

Starting point is 00:15:36 But it wasn't hideously misleading until the last decade. And the last decade, we got to the point where, half of everything you're consuming is pure information with no variable cost. So when you say it's been a hideous metric, you're specifically talking about CPI, right? I am, yeah. You're saying CPI is just not something that can actually measure what in the world's going on right now. I'd say it's a metaphysical metric. It has no relation to reality.

Starting point is 00:16:13 It's been defined almost specifically cherry-picked to define and define in such a way that there will never be any inflation. And so the first irony is we've decided that inflation is a bad thing. And the second decision is we've decided that inflation equals CPI. And the third, you know, irony is we can't find any inflation. But of course, in order to really understand store of value, in order to get to the bottom of investment rationale and make rational investment decisions, you have to first go to first principles. And what I find is 95% of macroeconomist and analyst and the traditional investment community, they rely upon metaphysical abstract. that they learned early in their career or that are repeated to them over and over again by mainstream media. And because they just repeat these metaphysical abstractions long enough,

Starting point is 00:17:22 they kind of convince themselves that there's some veracity to them. And there isn't any veracity to them. But the difference, and this takes me back to MIT, at MIT, they taught you to think for yourself. You're an engineer. If you're trying to say, solve a problem, you're expected to think for yourself. Like, for example, the first class I walked into, it was a class in material science. The professor walked out to all the freshmen. It was our first week at MIT. He said, this is a tile from the space shuttle. It burned off the space shuttle on reentry. Nobody at NASA knows why it burned off. They're not sure what to do about it, but they're afraid the space shuttle is going to blow up if they don't actually solve the problem.

Starting point is 00:18:09 why do you think it burned off and what do you think the solution is? And he looks at it. These are 18 year old freshmen that showed up to school. And you can see everybody's looking at each other like, is there some reading that we missed before this lecture? And then they're thinking, I didn't read the answer to the question. And then there's this horrifying realization that a guy with a PhD with 20 years experienced just asked you a question that nobody on earth. knows the answer to. And he expects you to think for yourself and reason from first principles and solve the problem. That's the scientific way. And there's not a lot of science and there's not a

Starting point is 00:18:55 lot of engineering in the modern macro economic landscape or with mainstream media. They just repeat tropes over and over again as though they're meaningful and they're not. Let's take a quick Rick and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing

Starting point is 00:19:35 together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom

Starting point is 00:20:17 tech and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately.

Starting point is 00:20:54 How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly

Starting point is 00:21:34 to your real business data. This isn't some add-on. It's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, Netsuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI at Netsuite.com slash study. The guide is free to you at Netsuite.com slash study.

Starting point is 00:21:58 NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of

Starting point is 00:22:41 ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions, and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing, sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right.

Starting point is 00:23:18 Back to the show. I mean, you couldn't provide a better example for what we're seeing right now from an economic standpoint. It's almost like we're seeing parts of this shuttle, call it the economic machine that we're looking at, literally falling apart right in front of our eyes. And you still have many academics with PhDs going on CNBC and talking about, well, you know, we just don't have any inflation and these types of things. So this is what I would frame it for you. How would you, Michael Saylor, define inflation today because you still have to do economic calculation as a

Starting point is 00:23:59 as a business owner. How are you looking at inflation and how are you saying, well, I think if inflation's this, that's my hurdle rate plus whatever risk premium. Talk us through how you would define it considering CPI is so broke. I think the way you define inflation is the rate of price appreciation in a basket of goods, services, or assets that you wish that you desire to acquire in the future. So, um, if you live with your parents in the basement of their house and, um, you don't need a house and you don't aspire to a yacht, a plane, a beachfront, uh, property, if you don't, and if you don't intend to ever pay for electricity or utilities, if you borrow your dad's car and if your mom cooks for you,

Starting point is 00:24:59 and you sleep in the basement, you're going to define inflation as the cost of beer, good weed, Netflix, YouTube, I don't know, tender, like whatever, whatever you're going to do when you take girls out on a date, right? That's inflation. That market basket of things that you're going to have to pay for out of your pocket is inflation to you. If your father kicks you out of the basement and says, it's time for you to grow up and get your own place and get your own car, you're going to define inflation as the cost of a car, the cost of an apartment, the cost of food, the cost of the electrical utilities, right? And, you know, and anything else that's discretionary and you have to embrace food and energy and apartment. If you actually aspire to get

Starting point is 00:25:59 a PhD or be a medical doctor or whatever that might be, you're going to have to include in your inflation definition the cost of college education, medical school, etc., and higher education. If you imagine having perfect health, then inflation won't have to be. If you imagine having perfect health, then inflation won't include medical care. If you imagine that you might actually need, maybe you need your teeth fixed. By the way, you know, like Preston, I grew up on an Air Force base,

Starting point is 00:26:34 dentistry and healthcare were free. I was a dependent. My father was an NCO. I needed to go to the hospital. I went to the hospital on the base. Everything was free. Didn't really think. about it. Then there was in, then, then we went through this period where there's health insurance and

Starting point is 00:26:53 you, and you just went in network and everything got paid for. I have noticed in the past 10 years, Preston, that none of the doctors I go to and none of the dentist I go to except any of my health insurance. And I have really good health insurance. I have like world class health insurance, but every place I go, it's like if I really want, if I want good, good health care or good dentistry, they asked me to give them their credit card, a credit card. And I end up actually with a very large bill, you know, from all of these doctors, you know, because they don't expect, they don't accept that insurance. So the insurance money pays for half. And so if you actually want the best medical care, it could be 20 in perfect health. If you want your teeth fixed or you want, you know,

Starting point is 00:27:41 whatever, you need the best medical care, then you got to throw dentistry and doctors not in your insurance network into the inflation calculation. If you get to the point where you're 60 and you've, you've got some medical conditions, you're going to throw all of those more expensive treatments. Once I dislocated my shoulder and, you know, it was a silly accident like I tripped on a wet floor while I had my hands full and I landed. And it did hurt more than anything in my entire life. So I went to I went to the hospital. They reset the shoulder after a while. Then I went to an orthopedist and the guy looks at me and he goes, I said, well, so what do you, what do you, how long will it take before I get this cast off or this, the sling off?

Starting point is 00:28:29 Because I, you know, I'd Googled. It was like a week or something. He goes, oh, no. We need to operate on you. I said, huh? He goes, well, you know, you're a perfect candidate, you know, to have, you know, some shoulder surgery, you know. we should just fix it perfectly. It's like $50,000. He goes, you're a perfect candidate for this. I was a perfect candidate because I could afford to pay the $50,000. Yeah. Or I, by the way, and I said,

Starting point is 00:28:58 no, I'll let it heal. It healed just fine. I'm not going to, it's my left shoulder. I'm not pitching, you know, as a baseball pitcher. I don't really need the $50,000 operation, the six-month recovery and the potential infection and the rest. But, you know, the best medical care was going to be extended to me because I could afford to pay the $50,000. So if you're defining inflation, do you want really good medical care? Do you want your teeth fixed? Do you want a ceramic crown? Right. Do you want, you know, silver in those fillings? Do you want it same day? You know, What quality of medical care do you want? The inflation rate is going to go up.

Starting point is 00:29:42 I guarantee you. Do you want to go to Harvard or MIT? They're not going up at 2% a year. I know. They're going up 7% a year, 8% a year. Now, those are, there's a market basket of products if you sleep in your parents' basement that will be deflationary. You can probably live fairly cheap.

Starting point is 00:30:02 Uber is not going to go up that much. There's another market basket if you're going to live on your own. It's going to go up faster. It's probably, you know, X percent, three, four, five percent. The Chapwood Index starts to indicate. What if you actually aspire to own your own house? Well, if you wanted to own your own house, you know, housing prices have been going up for four, five, six percent, seven percent a year sometimes.

Starting point is 00:30:27 So that inflation rate would look different because that's an asset. Of course, CPI doesn't include assets. Now the question is, where do you want to live? The inflation rate of real estate in my hometown, Fairborn, Ohio is not nearly as high as the inflation rate of real estate in Miami Beach or the Hamptons or New York City, Manhattan. It turns out that there's a differential. Now, why is there a differential? Because the assets are scarcer or the thing that causes price to go up is it's scarce

Starting point is 00:31:02 and it's desirable, right? And so you can't really come up with one price of real estate inflation in the United States because there's a lot of land in Kansas and of what you aspire to is five acres of property and an ice house in Kansas. That's not going to inflate at the same rate as aspiring to a 4,000 square foot apartment in New York City. You can just look at the prices in Jackson Hole. And I know the first time I went out there and looked at the prices. for real estate. I said, why is everything so expensive? Well, then once you realize that the land out there is super scarce because you have all these state parks and everything surrounding it that have created this island of land that's available, you can see why the prices are sky high and

Starting point is 00:31:52 because it's scarce. Now, when you're talking about real estate and you're talking about the inflation associated with it, let's go into equities. Let's go into fixed income and talk about how this quote-unquote inflation is impacting securities. Yeah. So if I want to live on my own as a single person, I want to rent an apartment. And my market basket is food and energy and a nice apartment and a car. If I want to have a family and own my own home, my market basket evolves to be a lot family health care, higher education for my kids, more land for everybody to, you know, play behind

Starting point is 00:32:41 the house, a house, real estate, property taxes, more utilities, appliances, and, you know, and maybe family vacations, right, and the like. So that's a different market basket for the for the middle class family. If I want to be wealthy, then my market basket that I aspire to is a very nice, an elegant estate in the country or beachfront property in a hip cool town like Miami Beach or South Hampton or or Malibu, right?

Starting point is 00:33:26 that becomes a different market basket. And of course, you know, a home in L.A. and Hollywood Hills, that's a different inflation rate. If I want to be really rich, what do the wealthy aspire to? Well, they're aspiring to own Apple stock. They want to own stock, bonds, commercial real estate. You want to own things that produce income. So what's the cost to buy a basket of shares in Apple that produce a million dollars a year in dividends? Well, that cost doubled in 12 weeks, 100% inflation in 12 weeks this year.

Starting point is 00:34:18 The dividend didn't double. The price of the share doubled. therefore hyperinflation in a market basket of stocks. In fact, the S&P, if we look at the S&P index, one of the most interesting metrics is the number of hours that you have to work in order to buy a share in the S&P. Right? And we see that chart and that's doubled, right?

Starting point is 00:34:42 That's shooting up. I've, you know, what are the wealthy one? Well, they want to buy real estate in Manhattan or Tokyo or London. they want to buy, they want to buy dividend producing or income producing assets. They either want to buy rent producing real estate or they want bonds that will produce a good coupon or they want stocks that either will produce dividends or will buy back shares so that they're inherently deflationary or they will grow, right? or they want they want scarce out they want to buy Picasso's they want art or by way or they want to

Starting point is 00:35:26 buy franchises i would like to buy you know the jets i would like to buy a football team i would like to buy a baseball team that's what really wealthy people wish to do or they wish to buy jets or they wish to buy yachts right none of these things are in the cpi basket i mean the presumption of course is that politicians have assumed that no one wants to be wealthy. Huh? Let me say that again. Politicians have assumed no one wants to be wealthy. I guess if you assume no one wants to be wealthy and if you track the things that don't, that the wealthy people don't aspire to, then you won't find inflation and then you won't have a problem. As long as we agree that no one can be wealthy, right? You're never going to get there.

Starting point is 00:36:18 Don't you think that that's a little bit more out of convenience for the fiscal spending that aggressively has become more and more aggressive, that it complements their ability to continue to spend and obligate dollars and try to push some of those dollars into their regions that they are elected? And so by using CPI and pushing it lower and lower, they can just reduce that interest payment and obligate even more funds of taxpayer dollars. I think as long as you define the metric as CPI, and as long as you leave out every scarce asset, every financial asset, food and energy, then you can lock on to a basket of goods that are inherently deflationary. You will never get inflation. Therefore, there will be no check on your

Starting point is 00:37:14 ability to keep printing money. And if you, when you print money, if you call it accommodation, we're providing $120 billion a month of accommodation to make them all. It's fluid, you know, to keep them functioning, right? Then you don't have to say we're devaluing the money by $120 billion a month. And I think that's, it's a convenient thing. at the point that we redefine the market basket as assets, well, we would have immediate inflation and there would be immediate check and balance on the ability of any central bank or any bank to devalue the currency. And so I don't think anybody wants to have a check on their on their abilities. So this has been adopted as a metric. The mainstream media promulgates the metric.

Starting point is 00:38:13 and then I know why I know why someone running a central bank would want to focus on the metric. I just think it's irrational for macroeconomic analysts and investors to fixate on the metric. And so, for example, if you're defining a macroeconomic model that has CPI as an input, you're just engaging in metaphysical musing that is increasingly disconnected from reality. Let's come back to this inflation definition. So I think that you can define a bunch of buckets. And the definition of inflation comes down to what's your aspiration?

Starting point is 00:39:03 If your aspiration is to be a billionaire, then the definition of inflation is the rate at which scarce assets that are going to continue to appreciate are going up in price, right? So what's the best investment idea, Bitcoin? What's, how fast is it going up in price? 200% this year? we have hyperinflation in pure property and pure liquid money, hyperinflation. You know, we have inflation in scarce and desirable assets.

Starting point is 00:39:50 Houses in the Hamptons are up 50% in 16 weeks, right? The price of a house in the Hamptons. What is that? Well, when you buy a house in the Hamptons, you're buying a scarce piece of property on a real estate network. When you buy a Bitcoin, you're buying a scarce piece of property on a global liquid monetary network. Okay, which is better? Well, clearly Bitcoin is better because Bitcoin is liquid global, fungible. I can take it anywhere on earth. And by there's no property tax on it. And I don't have to worry about New York State taxing my property away from me. Right. So,

Starting point is 00:40:33 given a choice between investing 20 million in Bitcoin or 20 million in Hampton's real estate, clearly the rational thing is by 20 million worth of Bitcoin. But if you're a New Yorker and you're and you've decided you need to get outside of Manhattan, well, all the wealthy New Yorkers, they all go to the Hamptons. It's a social network slash real estate network. It's scarce. ergo prices go up by 50% in three months and the transaction volume goes up by 50% and they're you know they're turning over the entire real estate business is up 100% year over a year the real estate agents are doing great is there inflation if your if your aspiration is to live an elegant life of affluence in the new york area then you have

Starting point is 00:41:28 hyperinflation, right, in that, and that real estate market. So, and of course they do, right, go to a, go to a wealthy New Yorker and say, well, you know, there's no CPI inflation, nothing to be concerned about here. You're just going to decide what you want to put in the basket. I think that when you, when you work your way through it, you conclude, you can look at it is like five buckets, right? There's the affluent bucket and you're seeing 20, on average, across all assets, right? It's like that 20 to 24 percent M2 monetary supply expansion rate. So you could say that the inflation rate for just a broad basket of assets is like 20 percent or so this year, 24 percent. That's why the stock market is an all-time high,

Starting point is 00:42:20 because people that have liquid monetary energy, they want to buy those assets and they're all bidding against assets that are reasonably scarce. Not totally scarce, by the way. The reason that those assets aren't going up as fast as Bitcoin, the reason that gold is outperforming maybe the S&P is because the S&P, they're producing more securities. They're producing more convertible debt and more equity. And so it's not quite as scarce. it's harder to produce the gold, but of course it's really hard to produce the Bitcoin.

Starting point is 00:42:54 So what you've got is everybody's surging to acquire more assets. The asset supply isn't expanding as fast as the money supply is expanding. Ergo the price is going up. That is inflation of assets or asset inflation. I was called cost to capital. So let's talk about that a little bit more because a lot of the people in our audience are people that are trying to perform economic calculation. They're trying to value a business. And I love this example of M2 that you're talking about using it in a frame of reference

Starting point is 00:43:32 as your risk-free rate. And then talk to us about, so talk to us about that a little bit, and then also talk to us about whatever the risk premium would be on top of this quote-unquote risk-free rate. Okay. Yeah. So our inflation is just a vector. So you've got a market basket of stuff that's deflationary is not inflating. You've got another market basket of stuff that's probably going up three to five percent. You've got another market basket of stuff that's going up eight percent. But if you really want the best measure, if your goal is wealth preservation, if your desire is to be wealthy or to stay wealthy, wealth preservation, you're either pursuing wealth or you wish to preserve wealth, you wish to preserve shareholder value, your best surrogate

Starting point is 00:44:14 is cost to capital, which is closest to the rate of the broad money supply expansion. which was 24% this year, which as we look out is going to be probably between 10 and 15% a year every year for the next five years. And that's based upon the Federal Reserve policy, the EU Central Bank policy. You know, you've had Len Alden estimate that she thought it was 13%. But, you know, a lot of the estimates are optimistic and politically correct. that nobody can stand up on television and they can't estimate well it's going to be it was 24% this year it'll stay 20% next year and then 20% and then 30% because that's like not forecasting a V shape recovery you know in March everybody forecast a V shape recovery you kind of have to because otherwise

Starting point is 00:45:06 you're kind of Cassandra Debbie Downer politically incorrect no one could forecast an L shape recovery that is Main Street's going down and not coming back up again. Have you noticed that you haven't seen anybody talk about the L-shaped recovery on television? Well, you know, here's the joke. We got a V-shaped recovery in financial assets. We got an L-shaped recovery in Main Street operations in real business, but they didn't call it L-shaped. They called it K-shaped recovery.

Starting point is 00:45:38 So they came up with, you know, some, you know, just a nice, pleasant phrase, right, K-shaped recovery, because it doesn't sound as horrifying as L-shaped recovery or no recovery, right? So I think the forecast, as you look out, is I would guess 15%. Like, my best guess is 15%. I've seen people say it'll be 15, then it'll be 20, then it'll be 25. It could get worse. That would be a hyperinflation scenario. Or it could be better. You know, it's like if we start to run less deficit, but that'll require fiscal austerity. And that never worked in, you know, it didn't work in Greece. It hasn't worked in Southern Europe.

Starting point is 00:46:24 It hasn't, you know, didn't work in Italy. We haven't seen it work anywhere in particular. So I wouldn't expect it. So what does this mean for a company that only makes a 5% margin on their business? Yeah. So let's just work through that model. Let's just assume to make it simple that we expect. to 15% expansion of the money supply for the next four years.

Starting point is 00:46:50 That's the cost of capital. That's the risk-free hurdle rate or the risk-free discount rate. If you want to preserve your wealth or preserve your store of value, then you're going to have to beat the hurdle rate and the risk premium. So let's assume that you have a risk-free bond. a piece of sovereign debt, right? U.S. government debt. That's the closest thing to risk-free we can get.

Starting point is 00:47:23 There's no credit risk on it. So if I give you that bond and it's yielding 5%, but, you know, the money is being devalued at 15%, or the assets, the assets that you wish to buy are going to be 15% more expensive next year, right? the assets that you wish to buy are going to be 15% more expensive the year after that, too, and then the year after that, because there's going to be more money chasing after the same fixed amount of assets. So if I give you a bond and it only yields 5%, then that means that you're

Starting point is 00:47:59 losing 10% of your value a year, and you're going to lose another 10% the next year, another 10% in four years, you're going to lose half your purchasing power. So half of your wealth will be destroyed on a 5% coupon against a 15% cost of capital. Now, that doesn't make any sense at all. So you might say to me, why did anybody ever buy any bonds in the last decade? And, you know, the dynamic there has been that the bonds have been yielding 2, 3, 4, 4, 5%. The cost of capital has been about five to six percent. The M2 money supply has been expanding about five and a half percent for last decade. And so the bonds aren't quite keeping up with the cost of capital. Well, if you can't keep up with the cost of capital, you have to leverage up. And so the equivalent

Starting point is 00:48:55 of leveraging up is take the interest rate down. So I can make the bond hold value if I have a 5% interest rate and I crank it to four and a half percent interest. I'll get a capital gain in the bond. The bond, the face value of the bond will trade from 100 to 110 or something. Or 105. So even though the bond is yielding less than the cost of capital, I get a capital gain on the face value. And so I stay ahead of the hurdle rate. Now, if that continues the next year, I need the interest rate to click down from 450 basis points to 425, and I need to click down to 400, and then I need to click down to 350. And so what you've seen in the past decade is a march from 550 basis points down to the 10 year was 50 basis points. And we just keep marching down. If you want a whole value in bonds,

Starting point is 00:49:54 when you get to 50 basis points, then you have to go negative. So that's what happened in Europe. That's what happens in Japan. They literally took them negative. And in the U.S., all the people who are bond investors, $100 trillion worth of money in bonds, they all need the Fed to take the interest rate negative if their bonds are going to hold value.

Starting point is 00:50:17 If they do take them negative, then they'll get a capital gain in the, bond and that will offset the cost of carry, you know, the negative cost of carry. So, so the question of whether bonds will hold value all just comes down to does the interest rate click down. And when you get to the end of the line, if they're not going negative, then the bonds are collapsing in value. Obviously, if the problem with bonds this year is not only have we, there's twofold, we hit the end of the line with interest rates. They're not going negative anymore. So you don't, you don't, you don't keep getting a 5% decrease or 10% decrease in the interest rate is a 10% capital gain.

Starting point is 00:51:03 So you don't keep getting that boost in the face value of the bond. And the second problem is cost of capital tripled. That's the earth-shattering problem, right? Well, and I think it's important to note that this premium that you're talking about that goes onto the price of the bond and the aftermarket as interest rates drop. It only adds to your ability to outpace this hurdle rate of 15% like you're saying if you sell it on the open market and you don't let it mature. If you let it go to maturity, none of that premium that we're talking about due to a drop in

Starting point is 00:51:43 interest rates occurs. You're not able to capture it. That's a really good point because it's trading above par. I mean, a lot of times you'll see these bonds. They're issued at 100, and they'll be trading at 110, 120, 1.30. It's like, you look at them and you grit your teeth. You're like, why would I ever buy this? Because in six years, it's going to pay me back 100.

Starting point is 00:52:03 Yeah. It almost hurts, you know, to see these things. Well, in the premium that you're getting paid on the longer duration ones, only further compounds the reason to pile into the longer duration ones because you're most likely going to sell it on the aftermarket and capture that big, that big premium that you're getting. On the short duration stuff, there's no compensation in the price in the secondary market or in the market if you try to sell it because there's just, you're not capturing any of that.

Starting point is 00:52:35 There's no premium being bid into it because it's going to mature too quickly. I think you're adequately, I mean, very articulately describing why there is a anxiety in the bond market right now. Why, if you're holding any of that $100 trillion worth of debt, you have to have anxiety about store of value, right? And why if you decide to hold a debt portfolio, you're really, you're really a slave to the whim of the central banks, right? I mean, absolutely. Absolutely. Pretty much, anybody that's a bond portfolio investor, their number one job is just to try to convince the central bankers to keep moving the interest rates down. If the interest rates ever move up, they get destroyed in a heartbeat.

Starting point is 00:53:29 But if they don't keep moving down, the bonds bleed off value over the next one, two, three years. And eventually, you're in a bubble and the bubble collapses. Now, Michael, I have, edit that. I've had a ton of people that have told me, well, why is it different this time than in 2008, Preston? And my immediate response is, well, back in 2008, we had interest rates on the 10-year treasury at 5.5% and they had plenty of room to drop it down to offset this risk premium that you're talking about, right? If they drop interest rates 100 basis points, the premium that's put on that security, on that fixed income security gets bid so high and you can turn around and sell it for a profit to offset this risk

Starting point is 00:54:17 premium that you're talking about. But once you get down to where we're at now, less than 100 basis points on the coupon that's being issued, I mean, they're at an end game. You can't keep playing this far as unless you start taking things well into the negative territory. And then people are just going to take their money out and put it into a safety deposit box because they're going to get a higher return than what the negative interest rate bond is being issued at. It's total insanity. That's the difference between where we're at today in 2008. And I see you shaking your head. You agree. I remember specifically in that time frame that I was able to generate 550 basis points on overnight cash. Like the repo rates and the overnight rates were like five, five.

Starting point is 00:55:09 5% like I didn't have to take a 10 year bet or a 30 year bet you could generate 5% interest on a one month a three month you know debt instrument no risk credit credit credit great and so we've been in a march from you know short from LIBOR short term rates of 5% all the way down to zero and so now we're at the end of the line because you're right you have to go now negative, but the problem with going negative is the interest rates the value of time. And so when you turn interest rates negative, you're trying to stop time and make it flow in reverse. I mean, it really, it really is kind of declaring war on the passage of time. How's that going to end? Like, you might as well try to get, you know, you get $17 trillion of negative yielding bonds.

Starting point is 00:56:05 it's like trying to move 17 trillion gallons of water uphill. Like, it's natural for water to flow downhill. It's natural for time to move forward. Attempting to get time to move in reverse is a very difficult thing. You're attempting to get someone like to give you all of their, all of their energy and sacrifice the rest of their life. and pay you for the privilege. So let's think, let's think about all these store evaluations. You've got three buckets.

Starting point is 00:56:42 You've got bonds. You've got real estate, commercial real estate. You've got stocks. They're all fiat instruments. With a bond, it's kind of simple calculation. If I don't beat the hurdle rate with the coupon, then I have to leverage up and I have to drop the interest rate in, in order to make that whole value. When interest rates stop going down and the coupon is less than the hurdle rate,

Starting point is 00:57:05 I'm destroying value. In the current environment, you know, a 2% government bond against a 15% hurdle rate means you lose 13% of your value every year. You know, you can do the simple math, right? You get cut in half in five years. And you get cut in half again. So you'll lose 75% of your money in 10 years at that rate. Commercial real estate trades like a bond.

Starting point is 00:57:33 The only reason I want to hold commercial real estate, like a warehouse or whatever, is for the rents. And the rents are coupons. And as the interest rates fall, commercial real estate starts to trade kind of like a bond, you know, the lower the interest, the higher the value of the real estate, you know, the 3%. And if you own it in a location that has scarce land or resources, then the face value of it would be going up effectively. So it would be a little bit. Yeah, you might get a boost for like marquee scarcity value. Yeah. But I mean, I mean, generally, if you told me this is a piece of real estate that generates a million dollars a year in rent or triple net rent after paying expenses and tax and the like, it feels like a bond that yields a million dollars a year.

Starting point is 00:58:22 And then my question is, well, is there like a CPI escalator on it? Okay. There's a CPI escalator. It's a million dollars going up 2% a year. okay well you're going to give me $10 million over 10 years but in 10 years the cost of all the assets I want to buy

Starting point is 00:58:42 will have inflated at 15% a year for 10 years well at 15% a year that means in 4.5 years the cost of what I want to buy doubles and then it doubles again so the cost of whatever I want to buy is going to be 5x So that means that the money I get from the commercial real estate, 10 million bucks, is only going to buy me $2 million worth of stuff. Right?

Starting point is 00:59:10 So what do I really want? You know, I guess you can either pay me $2 million now or $10 million over 10 years, and they're both equivalent when you have a hurdle rate of 15%. So that means the commercial real estate's going to hold its value proportional to, you know, the hurdle rate, when the hurdle rate triples, commercial real estate all starts to look very risky. How do I get ahead of the, how do I hold value? I have to grow my rents faster than the hurdle rate. Good luck. Show me a piece of commercial real estate that's going to grow its rents 15% a year.

Starting point is 00:59:50 By the way, you've got to tack on a risk premium. With a bond, it's credit risk. And with commercial real estate, it's also credit risk. It's the creditworthiness of the counter party. So how good do you feel about real estate that's rented out to a retailer is getting crushed by Amazon? Or how do you feel about a bookstore being crushed by, you know, Google? Or how do you feel about a newspaper being crushed by Facebook? Or there's a lot of commercial, how do you feel about theater real estate? You can, would you actually take a 10-year lease on a theater? Or how about a business hotel?

Starting point is 01:00:23 Business travel is down. You want a statistic, Preston? This is interesting. Do you know, I think my business travel and my company is down 98% year over year. My God. Like, we're not talking 50% down. We're not talking 25% down. We're not talking 75% down.

Starting point is 01:00:49 We're talking about 99, 98% off. And that's directly, directly coming. out of revenues of hotels and airline, a business hotel, a business airline, business travel. And I don't think you're an outlier either compared to other businesses. I think that that's probably maybe 90%, let's just be liberal. I think that most of your businesses are probably 90% or 95%. That's totally destructive. So what you've got is you've got a bunch of commercial real estate and half of its impaired asset. Yeah. Well, You're getting at occupancy rates.

Starting point is 01:01:31 Like if you're using whatever occupancy you were using to calculate your coupon, as you called it earlier, you can't be using those occupancy rates moving forward. There's just no way. I think you have to assume, you just have to assume that large portions of commercial office space, warehouse space, retail space, hotel space, travel, event. event convention centers, all these things, you know, I mean, you know, every sports stadium has been dark, you know, since March, all of them. Every concert hall, dark since March. And so you've got a lot of impaired asset. Now, it's valued. It's, it's probably overvalued as far as I can see because interest rates are all time low. It's been trading like a bond, you know, and people been able to refinance it, but you're going to end up with, in essence, zombie bonds

Starting point is 01:02:34 and zombie companies and zombie real estate, you know, sort of like what happened in Japan, when the economy stops, when the central bank starts buying all the sovereign debt, then they draw by all the corporate debt, then they buy the equity index, and then they start buying the equities, and then pretty soon, And by me, it's kind of a nice way of saying, I mean, to say they're buying these things is probably one way to say it. Another way to say, though, they just print a bunch of public money to support all those things that no individual would buy if they were rational. No rational investor would buy any of these securities or any of these properties. So the buyer of last resort becomes a government official.

Starting point is 01:03:26 and then the market mechanism breaks down. It's nationalization. It's the nationalization of businesses, but they're doing it through a per share basis, which hides. It masks what's actually happening versus a country that would just step in and buy the whole business all at once. But the amount of shares that they own and the voting rights that are associated with those shares, I mean, they've nationalized their equity market. It's crazy. In essence, you eliminate price discovery, you nationalize all these private assets, and then companies that shouldn't exist, and assets that don't really have any value to society anymore,

Starting point is 01:04:08 they continue to soak up the monetary energy of the civilization. And that creates hyperinflation in assets. But of course, there is no word for hyperinfl, there is no word for inflation of assets in the mainstream lexicon. No government official will ever refer to it. No mainstream reporter refers to it. Most of the conventional macroeconomic analysts don't refer to it. Even investors that kind of get it right and they intuitively know how to invest to make money, they still have a hard time articulating why they should do what they do because they're missing this fundamental observation that the asset inflation rate is the cost of capital. Yes.

Starting point is 01:04:53 As soon as you, I have literally had this discussion with people, you know, they talked about Japan. They said, well, you know, central banks don't cause inflation. Like, look at Japan. They don't have any inflation. And I look at them and I think, you know, are you out of your mind? Like, real estate in Tokyo is the most expensive real estate on the planet. What are your odds of graduating from school with an engineering degree going to work and being able to afford to buy a house? Tokyo. What are your odds of being able to buy an apartment? What are your odds of being able to buy a

Starting point is 01:05:29 house or an apartment in Manhattan using a salary? Yeah. Not going to happen. In the Hamptons, a two-acre property is, you know, people are paying $20 million for a house on two acres in the Hamptons. Okay, so you go to New York City and what are you making $500,000 a year? Okay, $500,000 is a lot of money. Like last I checked 500,000 a year used to be like a fortune. People used to aspire to make 500,000 a year. You make 500,000 a year, pay $200,000 in taxes, save $100,000 a year for 20 years. Yeah. Okay.

Starting point is 01:06:10 And you have 10% down for your property. And you have $2 million. So if you work as a well-paid master of the universe for 200. years, you can buy a house in the Hamptons. But of course, you can't because it's going up at 7% a year. It's insane. 15% a year. So the truth is, you have to work for 2 million years.

Starting point is 01:06:37 The real point is, if you calculate it, you will find that certain assets are completely out of reach of anybody. By the way, the only way, you can make enough money to buy a house in the Hamptons, you make $2 million a year? You can't earn enough to buy a house in the Amptons. You have to actually buy an asset that goes up in price faster than the cost capital. So you have to become an investor and you have to either guess right and buy Zoom or Facebook stock at the right time or Apple or Amazon at the right time. And you probably have to do with leverage because, you know, without leverage, you know, so you get 10x your investment.

Starting point is 01:07:22 you know, you can't save $400,000. And so you save $400,000, you save $100,000 a year for four years. You bet it all on something that goes up by a factor of $10. You have $4 million. You know, you close out the trade. You have $2.5 million after tax. You still can't buy the house and the Hamptons, right? So what you have is this interesting observation.

Starting point is 01:07:50 you have hyperinflation in assets. By the way, I want to make one more point. After the great monetary crisis 2010, there was a collapse in real estate values, a collapse. And if you look at a map, like I remember looking at a map of the UK, all of the prices of real estate collapsed outside of London,

Starting point is 01:08:17 and then they mapped the recovery. And what happened was the real estate prices came back much stronger in the magic mile, the one square mile in the middle of Chelsea, the middle of Kensington, the middle of London. They came back. And then as you went out in concentric circles, it was like a heat map. They came back slower. And then once you get outside of London proper, they never recovered. And you had the same dynamic after the crisis in New York.

Starting point is 01:08:50 and Miami in Los Angeles and in San Francisco. The big cities of the world where you're tracking the asset price of real estate, they all like a black hole, they all sucked in all the monetary energy. The price went through the roof. And then everywhere else, all the monetary energy got sucked out of them. And what you could see was massive asset inflation, of the desirable assets, the scarce, desirable, what could be more scarce than a nice townhouse in Chelsea, like right on Green Park or Kensington or whatever. So we had hyperinflation.

Starting point is 01:09:40 All the money, it doesn't find its way into Netflix or YouTube or, or, you know, it doesn't find its way even into the iPhone, Although iPhone kind of marched up a bit. I mean, Apple was able to drive the price up. It doesn't find itself in a lot of these areas. Where it really pulls is in the desirable assets that people with flexibility could buy. And you saw skyrocketing luxury real estate, urban real estate, you see skyrocketing. It finds its way into the asset values of professional sports teams.

Starting point is 01:10:14 You ever track the price of a football team over 30 years? you know, people own a football team and they would buy it at 200 million and it would go up in value 7% a year, 10% a year. They're just refinancing the asset and all of a sudden it's worth a billion or $2 billion. It's a franchise because it's scarce. They got a monopoly on football teams. They got a monopoly on the contract. And so if you happen to be someone that owned that scarce asset, all the inflation, and was in that asset, if you own scarce real estate in Manhattan, if you own a sports team,

Starting point is 01:10:54 if you own a scarce piece of art, well, then you just hold the asset and refinance it, and you never pay taxes. You just keep borrowing against the asset as it goes up in price. And so you've just got this really sweet thing. Now, the irony is that happens right in front of our face. and yet everybody says, oh, there's no inflation in Tokyo. There's no inflation to Japan. And I think probably that the best measure is how many hours you have to work to buy a share of S&P stock or something like that. And that's informative. Let's take a quick break and hear from today's sponsors.

Starting point is 01:11:35 No, it's not your imagination. Risk and regulation are ramping up. And customers now expect proof of security just to do business. That's why Vantza is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a stock two or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving.

Starting point is 01:12:02 Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at vanta.com slash billionaires. That's vanta.com slash billionaires.

Starting point is 01:12:33 Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, Nasdaq, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account

Starting point is 01:13:22 with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes, thanks to the

Starting point is 01:14:02 Fundrise income fund, which has more than $600 million invested in a 7.97% distribution rate, With traditional savings yields falling, it's no wonder private credit has grown to be a trillion-dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. So Michael, I want to transition

Starting point is 01:14:56 into a conversation about this big decision that you made. And then we'll talk about the second big decision that you made. And before we talk about it, I want to frame this up and I want to see if you agree with the way I'm framing this. So you started your company and your company has been profitable for decades and you guys had $475 million of retained earnings. Those are the profits that you guys as a company collectively made and you had that in liquid cash. You go out, after 30 years of creating this treasure chest of cash, you go out, you buy Bitcoin, $475 million worth of Bitcoin. And for all intensive purposes, it's doubled in value within six weeks, six to eight weeks or whatever it was.

Starting point is 01:15:51 And so you've effectively walked through a time warp of value creation. I don't know what percent that would be, but I would think it's less than a percent of the time that it took you to create it and you doubled it. Is that how you see what has taken place since October or September or whatever it was when you first put on this position? Yeah. Yeah, I see that. I think that we went through a transition in March where the cost of capital went from 5% to 15%. And a rational person has to say, looking forward, the cost capital is 15%. and the currencies are being devalued at 15% a year in the Western world,

Starting point is 01:16:41 they're being devalued at a faster rate and the other parts of the world. That means cash is a liability, not an asset. And it means that every Fiat instrument based on cash, stocks, bonds, and real estate, are starting to look like they need to be discounted at 15% a year plus the risk premium. So, you know, unless it's a monopoly, and there's really no such thing other than, you know, U.S. sovereign debt. Everything else has some amount of risk on it. And so you're talking about cost of capital that's looking like 18 to 20 percent.

Starting point is 01:17:20 So we got to this point, and we looked at it and we just said, well, we're going to have to do something to remain solvent. Right. And you're, you know, if you're, if you're from a perspective of keeping pace with your buying power. when you say the word solvent? I guess, yeah, I guess you would say, if you want to preserve shareholder value, you're going to have to do something different than hold cash on your balance sheet. The cash becomes a minus 15% liability per year, reasonably speaking. So let's talk about corporate treasury strategy.

Starting point is 01:18:03 So we're in an environment now where it's reasonable to think that the hurdle rate is 15% and the currency is going to devalue by 15% a year for the next four to five years. That's the best guess. It could get worse. It might be a little bit better. But once you crank that assumption in, then you have to say is cash an asset or liability? Well, cash is a liability? If you want to preserve shareholder value, which is the same as preserving wealth, which is the same as preserving value, right? If you wish to store value, then at 15%, you're going to lose 75% of the value in 10 years. You're not going to be able to buy anything with it, any asset with it. You can't really focus on inflation, right? You've got to

Starting point is 01:18:53 focus upon the cost of capital. Now, if you look at stocks, bonds and real estate, the issue is they've all got a yield on them, but the yield probably doesn't beat the risk premium or probably isn't, I mean, the yield of the dividend, et cetera. Yeah, you're getting three. 3% or 4% or whatever, but at end of the day, the risk, the credit risk of holding a bond that yields 5% is such that you're stripped down to 2% risk-free or so. And so you're still going to be looking at something which is 10 to 15% dilutive every year. So stocks, bonds, real estate, they're not going to hold value either.

Starting point is 01:19:35 people, I think they delude themselves in this thinking that they're safe in these things, but I think we're at the end of the road for stocks, bonds, and real estate, because they've all been inflated to a max by the progression of the interest rate to zero and by the leveraging up of all the companies to put as much cheap debt as they could in order to get the most amount to leverage. And at this point, there's not any more leverage you can put on these things, and you can't put the interest rates below zero effectively. So a reasonable estimate is, if you park $500 million in any of that stuff, you're still going to lose 10% to 15% a year. You know, you're going to think maybe, you know, these traders, they think, oh, I can take leverage

Starting point is 01:20:30 and trade this and that, and I'm a stock picker. You know, But at the end of the day, you're going to make as many mistakes as you make good guesses, and you're not going to outdo the money or the return on the money, which is going to be minus 15%. So you're probably staring at the same minus 15%. And you might actually get horrifically worse than that. I mean, right, there's worse results than losing 15% a year, right? If you invest in companies, they go and solve it. But the best result is you're just holding a market back.

Starting point is 01:21:04 of assets that the Fed is going to buy. And as the Fed buys them, you've got that inflation. So what are you going to do? Well, I've got this thought in my head, Preston. I don't know why I have it, but it's been, it's been just in my mind. I'm almost dreaming this thing now. It's the road to surfdom consists of working exponentially harder in order to earn a currency growing exponentially weaker. Like, if you're an individual, you're that dude in New York and you're working to make 500 grand a year and then you want to raise and you keep taking risk and you work harder and you stay longer and you keep struggling. But the house in the Hamptons is going up fast. than you can work harder.

Starting point is 01:22:00 It's the road to surf them. If you play that game, you have a company that makes $50 million a year. You're going to make $50 million a year and you're going to try to grow the company faster than the hurdle rate. I have to grow the company 20% a year to stay ahead of the 15% hurdle rate

Starting point is 01:22:18 with the risk premium. How are you going to do that? You're going to take risk. You're going to throw money at the problem. You're going to throw people at the problem. you're going to do an acquisition, you're going to do a dilutive acquisition, you're going to do a, you're going to take a risky trade. This is, and you're going to try as hard as you can in order to make money, but no matter how hard you work, you can't grow faster than the rate at which

Starting point is 01:22:46 the bank can print money. So I'll give you another metaphor. You march, you have one of those heart rate monitors and you march up a mountain, when you get to 9,000 feet, you ever check your heart rate, my heart rate's beating 20% faster. I'm like, why is my heart beating 20% faster? Well, if you do the quick altitude check and you know this, you're a pilot, there's 30% less oxygen in the air at 9,000 feet or some number like that. So if I take 20, 30% of the oxygen out of the air, my heart's got to pump 25% fast. to move the same amount of oxygen in order to keep me alive. Now, if I just keep marching you up the mountain, 10,000 feet, 12,000 feet, 15,000 feet,

Starting point is 01:23:37 your heart has to beat faster and faster because the oxygen is falling out of the atmosphere and eventually your heart burst, right? But it happens all the time, you know. 55-year-old dude goes on a ski vacation with his. buddies from college and, you know, they get up and he skis down the slope and he drops dead of a heart attack. I don't know how that happened. Well, I know how it happened. It happened because your heart's beating 25% faster and you're under stress and you're not as in good shape as you were when you were 25, you know. And so what we're doing is as we crank up the hurdle rate

Starting point is 01:24:20 individuals, you either have to work harder, 25% harder, or you have to take more risk in your portfolio and you keep doing all these risky trades. So what you're really saying is everybody's hypoxic right now. Yeah. What I'm saying is that a government official took you into a room and put you on to a hamster wheel. and then they told you to run as fast as you can. And they told you that if you run fast enough, they'll keep pumping oxygen in the room.

Starting point is 01:25:01 And then they started pumping 20% less oxygen in the room. And then you're Simon, you ever try to run on a treadmill at 9,000 feet, Preston? That's nuts. I've done it. I mean, in athletes, you know, you do, by why do they train Olympic athletes like at altitude? It's like twice as hard.

Starting point is 01:25:21 So you're on a hamster wheel or a treadmill. The auction is getting sucked out of the room. You're trying harder. Your heart is getting rebed. And at some point, you have a heart attack. And you literally, your heart burst. And what is an example of this? It's like every company that was a low growth company in the last decade,

Starting point is 01:25:42 and they're trying to stay ahead of the hurdle rate. So they take on debt and they leverage up. And then they either, there are two ways that companies try to stay ahead of the hurdle rate to keep shareholder value. One way is I do acquisitions. I'm buying a company, buying a company, buying a company, buying a company. It's a dilutive acquisition. It's taking massive risk because it's really hard to integrate two companies together. It's, and there's a 90% failure rate.

Starting point is 01:26:10 But I see companies do this. They're doing acquisitions and then they, they failed. The number one reason that all software companies. fail in my entire career for 30 years. I watched this. Number one reason, bad acquisition. Yeah. Now, the other thing they do is they borrow money to buy their stock back and they leverage up. So I'm going to, you know, I'm going to borrow Oracle buys tons of money, buys their stock back. Now we're holding 40, 50 billion in debt on the balance sheet. Toys R Us, we're borrowing money by the stock back. We're leveraging up. That's another way to get ahead. And you want to put these

Starting point is 01:26:43 two together and the most, you know, toxic cocktail, I borrow money to buy another company. And so I put them both together. I'm either leveraging risk or I'm leveraging to take my shares out of production. And this is the road to ruin. It's the road to surf them. And it all starts with somebody on the board of directors or an outside investor saying, you know, you're going to have to generate more than 8% growth. I need 8% share growth. Amazon's growing 20%. Why can't you grow 20%? Okay, so here's the last gotcha. Like, not only do you have to work harder. You know, you're not growing 10% a year. You're a loser. You know, not only do you have to take on more risk. You can't grow 10%. Why don't you, you know, you're running a bakery. Why don't you like launch a bar down

Starting point is 01:27:42 the street. Why don't you expand into a foreign town? Why don't you buy your competitor? Why don't you do a leverage trade on options? Why don't you, you know, why don't you do something different? So I have to work harder. I have to do risky stuff. Like, and then the third part is, oh, and by the way, you have to compete against big tech monopolies that have infinite free money and infinite power that have the ability to ship products to a hundred million people over the weekend for a nickel. You got to compete against Microsoft. Oh, they have like every company on Earth is their customer now. Okay. So what's that feel like? Well, they can just ship anything they want to every customer on Earth. Now, you think that's not an advantage? You got to compete

Starting point is 01:28:33 against Amazon. You got to compete against Apple. You got to compete against Google. You got to compete against Facebook. So as the bankers are basically printing, they're giving free money to the big corporations, they're also putting you on this treadmill where you have to go faster and faster and do riskier and riskier things. And those three dynamics, right, are a road to ruin. And that's why so many mid-sized businesses and small businesses are getting crushed by this economic environment we're in. Do you see Square and PayPal really disrupting traditional Wall Street banks moving forward based on what you're understanding of Bitcoin, the fact that they are way out in front of many others in their adoption and integration of that? How do you see that playing out as far as finance? Yeah, let's talk about that. I talk about the problem. The problem for corporations, right, is they're being squeezed toward insolvency by competition and cost to capital and the requirement to like beat, beat this hurdle rate. The solution is Bitcoin. And how, you know, the solution is I have to either plug my P&L into.

Starting point is 01:30:03 a monetary network, an accretive monetary network, or I have to plug my balance sheet into a monetary network. So Bitcoin is the world's first engineered monetary network, and it is an accretive asset. It's like an asset growing more than 100% a year versus the dollar, you know, and that's one way financially it makes sense, but it's also a big tech network growing faster than 100%. So if I'm Square or PayPal, they're competing against Google and Apple, right? So you could say, oh, they're big. Well, actually, they're competing on one hand against J.P. Morgan and Citigroup and Wells Fargo against Monster Banks. But on the other hand, they're competing against Monster big tech companies, Amazon, Apple, Google, Facebook.

Starting point is 01:30:54 Okay, so they're really the upstart challengers. And they're in between these two. world, the old world of banking and the new world of big tech. So what's your best idea there? Well, the best idea is plug your mobile payment app into Bitcoin because Bitcoin needs a high speed payment rail. Bitcoin needs a stable currency solution to buy coffee, right? So Square and PayPal solve the problem of how do I buy coffee with Bitcoin? And they solve the problem and they give you a rapid payment rail to every visa, you know, compliant merchant on the, on the planet. But what they do, what they get for themselves is, this is not really about Bitcoin. This is about Square. Square needs to do this because Square is able to offer all of its customers' savings account that

Starting point is 01:31:51 yields 100% interest yield tax-free. On an annual basis. Yeah. You know, if I, put my million dollars or 100,000 or 10,000, whatever the numbers, if I put 100,000 into Bank of America or a conventional bank, I'm going to get 25 basis points. It's a liability. And in five years, it'll purchase half of what it would purchase today. So I'm going to lose half my wealth while I get no yield. That's one option. The other option is I put my million dollars into Bitcoin, off of the Square Cash app. I think they're like, whatever, it takes $20,000 a week or $10,000 a week. So maybe let's call it $100,000. I put $100,000 in the Square Cash app and it doubles and it doubles and it doubles. And pretty soon you have $5 million. And that's how you buy that house. Maybe not in the Hamptons,

Starting point is 01:32:51 but maybe, you know, down the street from the Hamptons, you know, starting from $100,000. And the thing that makes it compelling is A, it's accreting at north of 100%. B, right, A, it's accreting at all. B, it's accruing north of 100%. It's hypergrowth. And C, it's accruiting tax-free, right? Because, you know, you want to give me a bond that gives me 10% interest taxable? Well, 10% taxable is 6%, 5% in California after tax.

Starting point is 01:33:23 Right? I'm taking all the risk. This is why, you know, all the yield farming and chasing after yield and everything doesn't necessarily make sense, you're taking huge risk to get 12% interest and you're going to pay 6% or 4% tax and you got 6% after tax. You'd be better off to hoddle. Just take your Bitcoin or take your whatever, put it on the network, leave it there. The network's growing.

Starting point is 01:33:49 It's up 200% this year, right? But we don't have to be super optimistic. Let's say I just estimated it's been growing more than 100% for a decade, but I'm going to estimate it's going to grow 20% for the next decade. Because 20% is one tenth of what it did this year and it's one fifth of what is done any year for the most part. And so once I make that decision, I got a savings account yielding 20% tax free. That's the same as yielding 35% return consistently taxable.

Starting point is 01:34:28 Okay, what bank in Earth gives you that? No bank. Okay, which company, which piece of real estate, which bond and which stock will give you 35% dividend? Nobody. So now I go back and I say, do I want to keep my money on Apple Pay or Google Pay or do I want to put it on Square? Well, the answer is on Apple Pay, it gives me zero interest. I'm going to lose half my wealth in three years.

Starting point is 01:34:53 On Square, I'm going to get a 20% interest, 35% you know, pre-tax, tax equivalent interest. And so it's very simple. Money is going to go. Capital is going to flow to wherever you get the highest tax-adjusted interest rate. And the beauty of Bitcoin is because I just buy the Bitcoin and hold it, it's a zero coupon bond that's appreciating. It means you don't have all of the anxiety of managing city tax, New York City taxes you,

Starting point is 01:35:27 state tax, New York State taxes you, federal tax, federal government taxes you, every other country taxes you, property tax, you don't have the anxiety of income tax, you know, all sorts of other types of Medicare, Medicaid taxes, every other thing, dividend, tax rates. These are all massive questions. And Warren Buffett and any great investor would tell you that 40% of the challenge of investing is just the tax efficiency of the investment. If you're perfectly right, you lose 40% of whatever just from being wrong on tax or, you know, or more potentially. So for Square, this is a game changer. Now, once Square did it, PayPal's got to do it. It's the same thing. My competitor gives a hundred percent tax-free savings account.

Starting point is 01:36:22 The beauty of this is that Square and PayPal do this. They bring utility to the Bitcoin network. You know, when Roger Veer barks, though, Bitcoin has only got seven transactions a second or three or four transactions a second. You can't buy coffee with it, right? The point is seven transactions a second is fine because what is going to be is going to be square cash moving $182 million worth of Bitcoin once per day. And then they're going to do that settlement and they're going to provide 37 million people with with a square cash account and they're going to do 187 million transactions a day on their network, right? They're like a second level solution.

Starting point is 01:37:14 They're going to do 180 million transactions a day for 37 million people and settle it with one transaction against the blockchain. And it's going to scale just fine. Bitcoin wins, Square wins, the customers win. Everybody converts their Bitcoin into USD currency at the point of transaction. I'm already seeing, and this is just out. with this Fold card. I don't know if you're familiar with Fold and what they're doing. So I got a debit card from Fold. I am, Bitcoin is literally part of every single transaction I make

Starting point is 01:37:51 today. So with my Fold card, I go out, and I sound like a commercial right now, but I go out and I spend, let's say I want to pay my electrical bill or I want to go to Target and I want to buy whatever. After every single transaction, I get cash back, but I'm paid in Bitcoin. So in an indirect way, Bitcoin has already started because, I mean, this thing has just come out. I can only imagine in a year from now. And if I'm getting 3% back on a transaction and Bitcoin goes up to the 100% that it has every year since the past decade, I'm almost getting like a majority of the purchase of whatever I spent. If I spent $100 paying for whatever, I'm getting a significant portion of that back just in the first year through the 3%

Starting point is 01:38:38 reward. And then in a couple years, I'm getting the whole amount back. So I just don't know how things like that are going to, they're going to just totally eat the whole transaction payment layer. Well, you just described, you described a company differentiating by plugging into the Bitcoin network to make you love the fold app. That's right. We can describe Square and PayPal differentiating by plugging into Bitcoin to let you buy Bitcoin in one click. By the way, It took me six to eight weeks to buy Bitcoin once I decided going through conventional Bitcoin exchanges. So eliminating six to eight weeks and turning it into one click and one second, right?

Starting point is 01:39:20 I mean, there's utility to that. And what I'm talking about isn't even a click. It was just happening. It's just happening automatically in the background. And I'm not even having to do anything. I just, you know, every week or so, I'll look into the app and see what my, the Treasury of Bitcoin that I've accumulated in rewards. And it's like, wow, this just is. And then as the price is going up, it's like, holy crap, this thing just keeps on going up. My rewards just

Starting point is 01:39:46 keep doubling. It's nuts. So let's generalize this to corporate strategy for Bitcoin. On the P&L side, Square and PayPal do this in their payment application. They give you a savings account. That's a big deal. That's a huge deal. If Apple wants to compete, they have to offer that to be it parity and so does Google. Now, what's Apple do next? The logical thing for Apple is to build a secure element hardware wallet into the iPhone and turn the iPhone into everybody's hardware wallet because then they can say, hey, we've got a secure element. That would be better than what Square can give you. Their software, but we've actually put it in the firmware. If they do that, by the way, I think Huawei, maybe Samsung might have done this in one of their phones. So it's an idea

Starting point is 01:40:34 that popped up in the Far East, but Apple hasn't done it. If Apple does that, they can use that to try to take that bank account from Square. Square will have to innovate. And then Google, on Android, they've got to innovate. So Google's got to put that feature into Android, and they're going to need Samsung to build it into their hardware. So then you get Facebook, and then Facebook thinks they want to be in the money business. So Facebook gives you a stable coin. That's interesting, but what do you want? Do you want to be able to pay someone with your phone or do you want to be rich? I think the answer is you want to be rich. And so if Facebook wants to be competitive to square on PayPal, Facebook's going to have to give you a quick on ramp to Bitcoin because the getting rich part

Starting point is 01:41:20 comes from investing in an asset that pays you 100% tax free. It doesn't come from paying for coffee. That's completely decentralized. And I think that's a really important point when you compare Facebook's Libra to B. Bitcoin, Libra is not completely decentralized like Bitcoin, and that's why you're saying what you're saying, correct? Michael. I just think, you know, DM, which is Facebook stablecoin, it's just another me-to thing. I mean, it's not a game changer. Let me just say it this way. The game changer Preston is making everybody rich. Okay. If you're, if you can download a mobile app,

Starting point is 01:41:59 get rich now and put it on your phone and punch the button. Don't you think a billion people are going to want that up? Yeah, it's the incentive structure that's going to drive all this into, everyone has an interest to adopt this, is what you're saying, right? Well, now, I just want to make my rounds here. What I'm saying is in big tech with all these mobile apps, if they don't give you the ability to funnel, funnel a monetary energy into the Bitcoin monetary network, you can't tap into the network going 100% a year or 20% a year or 30%. It's the only thing that's accretive in the environment. Everything else is going to be dilutive.

Starting point is 01:42:39 And as people start to realize that every, you know, that really, can I buy a million dollars worth of real estate that goes up 20% a year off my iPhone and one click? No. Can you, we've already gone over the issue, which is fiat instruments aren't going to be accretive in this monetary environment. There's one obvious answer. it's Bitcoin, that means Google, Amazon, Facebook, Apple, Microsoft. If they want to stay competitive with Square and PayPal, they have to adopt it.

Starting point is 01:43:10 Now, they've got their own advantages. I mean, Apple can actually build a hardware wallet into an iPhone. You know, Google needs Samsung to help them do it. So they've all got there and Facebook can do some things that neither Apple and Google can do. And Amazon can, you know, Amazon can build. Bill Bitcoin support. So they've all got their different assets and their ways to compete, but they don't have a choice. If they want to stay competitive as the Bitcoin network grows, they're going to have to enter that space. And that's going to be a benefit to the Bitcoin

Starting point is 01:43:45 network. And it's going to, they're going to plug all the gaps in Bitcoin that the people criticize it for in terms of, you know, Facebook will give you a stable coin, right? DM will be the stable coin, and then Facebook or Apple will give you a payment network. And then they'll give you the political support, right? And all of these things that people worry about that might be risk factors for Bitcoin, they'll be cured by the big tech companies to plug into Bitcoin. Let's talk about, again, let's talk about corporate strategies for Bitcoin. One strategy is build it into your P&L. And you can see the big tech companies moving to do that. And Squarespace, and PayPal are catalyzing it, and I expect that Apple, Amazon, Facebook, Microsoft,

Starting point is 01:44:34 they all have to follow. Otherwise, they're not competitive. Well, there's another group of people. Like, let's look at what's going on with like mutual funds. Well, Fidelity, Vanguard, PIMCO, all these guys, they need to offer Bitcoin funds. If they don't, then all of the money flowing into Bitcoin flows. through who gray scale. Gray scale is the big winner because they're unique in the market. They're offering people simple ways to get into Bitcoin. And they've grown from two billion to

Starting point is 01:45:10 13 billion in assets. So they're super high growth because there's a vacuum in the market. So if you're in the mutual fund business, then you need to build Bitcoin into your product offering if you want to stay competitive. Then you go to the traditional banks. All the big big banks need to build Bitcoin into their business. And what does that mean? Trading, banking, lending, yield, custody. You're seeing that right now. For example, we just saw standard charters moving DBS Bank, Banco Santander. There's a whole set of large banks that are that are starting to creep into the custody space. And they are going to come in at their rate. And then you'll see the much faster, aggressive banks, the Craken, you know, they just got a banking license and Coinbase and Craken

Starting point is 01:46:05 and maybe Fidelity Digital Assets, maybe they'll come their way and Binance will do their thing. So there's a lot of competition there. If these organizations, which to say competitive, they've got to plug into the monetary network with a mixture of product and service offerings. And some will do it fast in an agile fashion. Some will drag their, heels and there'll be followers and some will resist and they'll be marginalized, right? That's what when when someone takes a billion dollars of money out of your bank and they move it into the bank of Bitcoin, how many billions of dollars have to flow out of your bank before you realize that you lost the custody and the yield and the carry on that money? And so that's a wake up call.

Starting point is 01:46:55 And it's starting to happen in 2021. That'll be much bigger. So all these corporations, they need a Bitcoin strategy on their P&L if they want to stay competitive. But now let's flip to the other side of corporations, the balance sheet. Even like micro strategy, we're not a bank. We're not a mobile app company. And so, and we sell enterprise software. It's not immediately obvious to me that people to buy business intelligence.

Starting point is 01:47:25 need Bitcoin built into my hyperintelligence or business intelligence software, right? It's a pretty obvious plug into Apple. It's pretty obvious for Google. It's pretty obvious for Facebook. It's not obvious for enterprise software. It's not super obvious for Tesla, for example. But what can you do? What should you do?

Starting point is 01:47:48 Well, you have a treasury. I have $500 million in cash. So I can either hold it in a depreciating asset. U.S.D, or I can flip it to BTC. So when I flip it to BTC, I plugged my treasury into the monetary network. It's equivalent, Preston, to having done a $500 million acquisition of a company, a big tech monopoly growing 100% a year. Yeah. So think about that. I had a $500 million dollar revenue company selling software that's low growth, maybe growing 5% a year. If I do everything I can work very hard, I can grow one to 15% a year or whatever. It's a low growth. But then there's

Starting point is 01:48:35 a big tech network, which is growing faster than Apple, faster than Google, faster than Amazon, faster than Facebook that's dominant. And you can sort of acquire that. And so we bought 500 million worth of that, and we just hold on to that. And now that basically turbocharges our balance sheet, and hence our balance sheet goes from us owning 500 million worth of cash and Bitcoin to owning a billion dollars worth of cash and Bitcoin. And as long as Bitcoin is accretive, and of course, as long as the Federal Reserve keeps printing money and the money supply expands and this dynamic ensues, then our balance sheet is growing faster than the hurdle rate. Bitcoin is growing 100% a year and the hurdle rate is 15% a year.

Starting point is 01:49:28 All of a sudden, I went from having cash flows growing at 5% while the hurdle rate is growing 15% or is 15% to a company where my cash flows are growing 100%. And so here's the big idea. Any company, any traditional company, any traditional individual, digital that's working for a salary or generating cash flows in fiat currency that's growing slower than the hurdle rate can cure the problem by simply sweeping all their cash flows into Bitcoin. Because, you know, take my company, if we're generating $50 million a year in cash and we save in USD, our treasury is exponentially going to zero and our cash flows in the future

Starting point is 01:50:23 are being devalued by 15% a year, such that in 10 years, the cash is not going to be worth anything, right? So our cash flows are being devalued, our treasury is being devalued. That's a road to surf them. If you flip and you start and you invest all your treasury in Bitcoin and then you sweep all your cash flows into Bitcoin. It's like you have a company that is growing 100%. And so you converted yourself into a big, a big tech dominant network from a bakery or a dentistry or a traditional conventional business. And I think it's important to note when you're talking before when we were talking the income statement side versus now the balance sheet side, when you're making these decisions on your balance sheet, those gains are unrealized gains that don't have the

Starting point is 01:51:16 frictional tax burden associated with them as long as you don't sell, which just compounds, if you continue to be right, compounds it even, I mean, I can't imagine what that frictional barrier of tax, if this was on the income side, how much of a difference that would be. Let me take you through an exercise. I have 500 million in revenue and I generate 50 million in cash flow a year. Let's say after tax to make it easy. Yeah. And I have 500 million in cash in U.S.D.

Starting point is 01:51:54 And the hurdle rate, the cost of cap, was 15%. So I burned 75 million in purchasing power a year. So net net minus 25 million a year, you know, I'm working as hard as I can to lose shareholder value. You know, it's collapsing. I convert to $500 million into Bitcoin. Let's say Bitcoin accretes by 20% a year. Very conservative number, but 20%.

Starting point is 01:52:21 Now I go from having $50 million in cash flow, losing $75 million in purchasing power a year, to having $150 million in cash flow a year. Okay? So because I'm getting $100 million in tax-deferred investment income and $50 million in operating income. So I went for, I tripled my cash flows with that flip. Now, what happens if Bitcoin doubles and it goes to, and it's all worth a billion. Now I have 200 million in investment income a year plus 50 million. Now I have 250 million worth of, um, worth of income. And before I had minus 25 million of income. You see, before I did this, I was at minus 25 million of income. You see, before I did this, I was at minus 25. and now I'm at plus 250.

Starting point is 01:53:12 Now, what happens if I go out and I borrow $500 million against the cash flows of the business and effectively zero interest? Now I've got $1.5 billion in an asset that's invested in a network that's the dominant monetary network growing 100% a year. But let's just discount that. And let's just say to be conservative, it's only going to be 20% accretive. Now I have $1.5 billion that's going to generate three. 300 million a year in tax deferred investment income with the 50 million from the core business.

Starting point is 01:53:46 Now you're up to 350 million. You can see that it's not that much further if it keeps increasing that you end up generating more income per year than the revenue of the company was. Yes. Last year. Now, you can do that with anything. For example, if you're a dentist. As long as you've got free cash flows. Well, as long as you've got any assets at all.

Starting point is 01:54:16 If you have no monetary energy to speak of, well, that's the problem. But let's say you're a dentist and you're making, and you've got a great dental practice. You get 500,000 in revenue a year and you manage to save 50,000 a year. And you have 500,000 in the bank or 500,000 in stocks and bonds and real estate. Sell that stuff, invest in Bitcoin, sweep your excess cash in Bitcoin. It's the same exact calculation. Now you're generating a, you know, three-act your cash flows. Instead of losing capital, you're making it and you're compounding.

Starting point is 01:54:52 And then you're the dentist. So you go and you mortgage your house, take a 30-year-a-mortgage at 3% interest, finance it, take 500,000 out. And now you've got a billion of Bitcoin, you know, or borrow against the dentist practice, right? Now, now you've got a billion on your balance sheet and you're generating $200,000 a year in tax deferred income with your 50,000 from your practice. Now you're making $250,000 a year. Now you're beating the hurdle rate. And so, you know, for an individual, the logical thing to do is you borrow against assets at a very low interest rate.

Starting point is 01:55:32 you invest in an accretive asset that's going to have a high tax deferred yield and you sweep all of your fiat cash flows into the accretive asset because they're just going to, you know, depreciate if you don't. And so that that's the Bitcoin standard. That's what I did. That's what my company did. And we're kind of showing you how to do it. But that's the same as any individual could do if they simply use Bitcoin as a savings account.

Starting point is 01:56:02 So a person who's hearing that, because we have people that listen to the show that look at Bitcoin, they look at the volatility, they haven't done the research that you've obviously done on Bitcoin. And they're saying, this sounds really risky, what you're describing. What's your best advice for that person who's hearing this saying, this guy is obviously smart. I know he's smart. I can hear he's smart. But I just don't necessarily trust Bitcoin. What do you say about the risk? So first of all, with regard to debt, there's intelligent debt and there's unintelligent debt. I would, I think it's pretty foolish to go and buy Bitcoin

Starting point is 01:56:44 on exchange with 10 or 20x leverage on margin loans where you could be liquidated on a big move down or up. Like, you don't do that, right? If you're going to make an investment, you want to match, you want permanent capital or permanent debt that's not marked to market. So, for example, like, would I borrow money for 30 years at 2.5% interest to buy a house? Yeah. Doesn't everybody? Like, is that the American dream? Is that risky? No. What makes it risky? Well, if the interest rate might spike up. If it's not a fixed interest rate, that might be a bit risky. If the house gets marked the market every day and some bankers shows up on Monday and says, I think your house is only worth half of what you paid for it, and now you owe us $400,000. I need to check before I leave.

Starting point is 01:57:44 And you don't have $400,000, you're ruined and bankrupt. That's risky. So if you borrow money against an asset, which is not being marked to market at a fixed or well understood, affordable interest rate and it's not going to come due for a period of time, then it's a lot less risky. So if you borrow money overnight in the repo market like Shearson Lehman did, you know, and then you buy risky stuff, then you might get ruined on a Monday morning when the market moves against you. So, like, I'll tell you how we thought about it, you know, at my firm. It's like, we're borrowing money for five years in a convert. It's an unsecured loan. there are no covenants against it. It can't be called for five years. So we've got the use of the money

Starting point is 01:58:35 for five years. It's not marked to any market. Like it's not marked to our stock. It's not marked to the price of Bitcoin. There aren't any covenants that we have to test against. There's no cash flow covenants to trip over. There's, you know, there's none of these complications. So it's basically a large pool of money. The interest rate's fixed at 75 basis point. So the interest rate is de minimis. And we're buying an asset with it that we believe is accretive. Now, is Bitcoin volatile? It's volatile day to day, but you can't find a period of five years over the history of Bitcoin where it wasn't worth more at the end of the five years, right? There is no, there is no period where you could have bought Bitcoin and it was worth less money five years later, right?

Starting point is 01:59:28 I mean, at this point, some people that bought at the very top in 2017, they had to wait three years. That's the, you know, there's a 1% probability that you might wait three years, but that's in the past. So the volatility of Bitcoin day to day, week to week, month to month, doesn't really have much impact. The only real question is, do you think it's going to? going to go up? Will it be worth more than I bought it in five years? And if it's worth more in five years than it is right now, the leverage is a winner. And if it's worth, you know, the truth of the

Starting point is 02:00:09 matter is from our point of view, corporately, even if Bitcoin was worth less in five years than it is right now, it's probably still a winner as long as it doesn't go to zero. Because if the Bitcoin traded down 10% and it was very volatile all in the meantime, the volatility would be a benefit to my shareholders. I mean, the guys that bought to convertible debt, they're trading the volatility. So as long as as long as the asset doesn't go to zero five years from now, it's probably a winner because we'll probably use the capital, you know, with with common sense to make money over that time period. I think it's really important to highlight as well for people that would be hearing about about you borrowing money to buy Bitcoin, that the face value that's being paid back on this

Starting point is 02:00:59 five-year note, you have double that approximately. You have double that in liquid asset, current assets on your balance sheet to pay back the face value of what you're borrowing today. So that's a really important point when you talk about the health of your company and what you're doing in the position that you had set yourself up in prior to this decision. to be able to do something like this. Yeah. If you look at the analysis of this debt we issued, we had a company unencumbered, no credit lines, no debt.

Starting point is 02:01:35 We had a company, you know, where we publicly said we expect to generate 60 to 90 million in cash flow a year. So the midpoint of that guidance is $75 million in cash flow a year. So over five years, you know, we're expecting to generate $400 plus million in cash flow. But we had, we rolled into this with $900 million in cash and liquid Bitcoin asset. So if we borrow $600 million when the dust settles, we have one and a half billion or more worth of liquidity against a borrowing. So this is a loan devalue of 30 to 40% versus liquid assets, plus it's backed by the cash flows of a enterprise software company that's stable. And if Bitcoin went to zero, but at Bitcoin went down by 50%, right, we still can pay off the loan, right?

Starting point is 02:02:41 If Bitcoin went to zero, we've still got cash and cash flow. We probably got cash and cash flow equal enough to pay off the loan. at Bitcoin went to zero. And if Bitcoin went to zero and we stopped generating cash, there's no other debt on the company. So you've got first lien against an enterprise software company with thousands of customers and intellectual property, a very fine portfolio of domain names like hope, angel, you know, hope and usher and courage and wisdom and strategy and the like. So there's a lot of Assets, a lot of patents, a lot of customers, a lot of revenues. And so we were basically a very credit worthy company.

Starting point is 02:03:27 And we took this debt to market. And if you were on the other side of the table, you're like, why wouldn't you buy this debt? Like if you like Bitcoin, you have the ability, the debt's not just yielding 75 basis points. The debt comes with warrants, or basically the ability to get paid in shares above $398 a share. So what we were doing is giving the debt holders participation in the upside, and we're giving them security on the downside. So if you wanted to buy Bitcoin,

Starting point is 02:04:02 you could buy this debt. You have all the upside of Bitcoin. If Bitcoin goes to the moon, you're going to get paid off because you have the equity participation. If Bitcoin goes to zero, you're going to get paid off because you've got the security of enterprise software. Bitcoin just simply yo-yo's back and forth and it goes up and down, these guys are going to arbitrage the stock. They're going to short it when it goes up. They're going to go long when it goes down. They're going to trade the volatility and sell the volatility. And that's good, too. So in fact, there's really, why wouldn't you do that, right? Like I said to some of these guys, if it was me and the other side of the table, I would club all my competitors on the head and I would

Starting point is 02:04:43 take the entire deal for myself. Like, it's a very straightforward thing. Do you think that, let's say big tech starts trying to do a similar move? Do you see them being able to come in at an even lower, a coupon of 75 basis points? Let's say Apple wants to do something like this. And they say, you know what, we're going to issue. They could borrow the money for zero. They could borrow the money for zero.

Starting point is 02:05:09 And if they have some type of convertibility into common stock at whatever strike, they could basically drop the coupon down to nothing if they say they're buying Bitcoin with it. Do you see that as a real possibility in the future? I think we've got to take this in steps, right? I mean, the first thing that's got to happen is people understand that public companies can buy Bitcoin. And then they see that not only can you buy Bitcoin with your treasury cash, but you can also use debt to buy it, right?

Starting point is 02:05:39 And as people start to see this, then I think, then I think there's just a wall of money. I mean, there's an avalanche money, but like, could Apple do it? Look, Apple could go and they could borrow $50 billion at zero and buy Bitcoin. But the truth is they wouldn't need to. They have $50 billion in cash right now. They have $100 billion in cash, which is diluting at 15% a year or being devalued at 15% a year. So before Apple went to borrow money, the first stop would be, why don't they just actually convert their cash that's debasing into Bitcoin?

Starting point is 02:06:19 I want to double down on this. I want to take this even a step further just to hear what you think about this extreme example. I think that there's going to be so much demand for this at a certain point in the future, call it one year from now, that if you're a person, if you're a company that's going out there and saying, I'm trying to raise money, I'm going to buy Bitcoin with it. And we all understand the restrictions for people that are investing in the fixed income space. They can't invest in other things. But yet we got $100 trillion in this particular pool of money, right, that's trying to chase after yield.

Starting point is 02:06:53 So could we see a scenario where it's so competitive to buy this issuance? I mean, I'm just looking at the issuance that you had. You were going after, I think it was like $450 million. It was oversubscribed. $400 million. You were going after $400 million. it was oversubscribed to 650 million, right? So does this change to, I'm going to issue a note, a bond, whatever it is, right, as far as duration goes, I'm going to issue it at negative 100 basis points just to keep the oversubscription to the point where the amount you were actually going after.

Starting point is 02:07:32 Is this where we see? I think you're enthusiastic. It's possible. But look, I think what's more likely is, is you've got a wall of institutional money. Yes. Hundreds of billions of dollars that's sitting in fiat instruments, stocks, bonds, sovereign debt. And they have to just get over this mental block of maybe I should buy Bitcoin. And you saw that with Guggenheim. You saw that with Rough, Rough In or whatever. you're starting to see blocks of $500 million. They're just sitting out there. That will flow. Then I think you're going to see private companies and they've got a wall of money.

Starting point is 02:08:15 Then I think you're going to, you know, the next step is just for public companies like Square and PayPal and the like. I mean, they've got billions and billions of dollars in cash. There's $5 trillion or something in corporate treasuries, some large amount that's sitting in cash. once they realize that they can put it into Bitcoin and keep it liquid, then you'll just see the wall of that money. They don't have to borrow to do it. They're just going, you know, you're going to see before they borrow money to do it, they, I mean, Apple's got $120 billion or some god awful amount. So first, they'll just put $50 billion of that in, or Tesla's got $20 billion. They've already borrowed it. So if Tesla put, you know, you don't need to come up with this idea of

Starting point is 02:09:01 Tesla raises money at negative interest rate. If Tesla took the $20 billion that's basically melting right now and put $10 billion into Bitcoin, they would triple it and they'd make $30 billion in the trade in a hurry. So how about a simple idea, which is Tesla just take the money that's melting and put it in Bitcoin and triple it. And then at that point, everybody else does it. And then there's other people that can do other things, but that's just such a simple observation. simple idea right now that's right in front of his face. Well, I agree with you on that. I guess this is the lens that I'm looking at it in.

Starting point is 02:09:38 So I buy into the stock the flow model. Stock to flow model suggests we're going to be over $100,000, call it September to October, whatever time frame, end of 2021, we're going to be at $100,000 on this. I'm looking at how the market's already reacting to just us breaking $20,000. We're seeing headlines on CNBC is the dollar. are doomed with crowns on Bitcoin, right? All of these things, we have Paul Tudor Jones, all these people are owning it right now. The headlines out there at 20,000. What in the world

Starting point is 02:10:11 is going to happen on the 24-hour news cycle, on the 24-hour business news cycle, when Bitcoin goes through 100,000, potentially here in nine months to 10 months from now? And so when I look at that, and I see that you're already putting out the example. You're not doing it with one or two percent of your balance sheet. You're doing this in an all-in kind of such an example to what the power of this really is, right? And so when I look at all the money that's penned up in fixed income, yielding nothing, and it's to the tune of $100 trillion. And it's almost like the barriers to get that money out of there is so high and so difficult for them to get the money out of that pool and there's a way to do it and pretty much the only way I can find to do it is through a corporate

Starting point is 02:11:07 balance sheet kind of move by issuing debt that's convertible. I just don't know how you're going to be able to keep the lid on that type or the genie in the bottle on that trade come a year from now if Bitcoin's going through $100,000. Well, let's think about the ways that this money is going to move, though, and all the, let's talk about the layer cake of money. Okay. So there's individuals, family offices, you know, and tech entrepreneurs, and privately, they can go buy Bitcoin. And they're the early movers.

Starting point is 02:11:40 Then there's the hedge funds, you know, like the Guggenheims of the world. And after they get their head around it, you know, Paul, Tudor, John Stanley, Drucker, Bill Miller, they can put it in their charter. they'll buy some, and I talk about 1%, 2%, 3%, and they'll start to move. But you know, there's something that keeps them from buying 10% or 20%. The first year, they'll dip their toe in at 1 or 2% next year. They can amp that up by a factor of 2 or 4. So in 2021, the simplest way we grow is at some point, Bill Miller and Paul Tudor Jones and Stanley Drucken Miller say, you know, this worked really well.

Starting point is 02:12:24 but why did I buy three times as much gold as I bought Bitcoin? Because Bitcoin performed 200% up and goal was like up 10% or 15 or something. So when you transition from that idea that Bitcoin is a great idea to the idea that it was really stupid of me to invest in something which underperformed, you would see two, three, four, five X that money coming from those investors. Now there's another pool of money. The next pool of money is people that can buy people. publicly traded stocks. And, you know, the money's locked up in retirement funds, like 401Ks. There's a lot of investment funds that can buy public stocks. And they can buy a GBT. They could buy MSTR, but they can't buy Bitcoin. They just can't. Okay. Lots and lots of

Starting point is 02:13:15 that money. Ask, you know, what can, what are they looking for? Companies with Bitcoin exposure, PayPal, Square, gray scale, micro strategy. You know, there's a dynamic there, and the dynamic is, well, companies that have a Bitcoin strategy, either on their balance sheet or on their P&L or both, like micro strategy is strong on the balance sheet, Square is strong on the P&L, you know, there'll be other companies that'll come, Coinbase will come public, right? They'll be strong on the P&L, maybe, you know, interesting questions, well, Coinbase actually put Bitcoin on their balance sheet. Big question. Coinbase can do an IPO, raise billions of

Starting point is 02:13:57 dollars, and buy Bitcoin with it, will they? This is my plug, Brian Armstrong. I hope you do. You're nuts if you don't. But you're going to see more and more of that happen. That's another part of the layer cake. Then you have companies that can do debt. Companies that can invest in debt. There are 200 convertible funds and they invest in debt. That's all they can buy. They can't buy the equity, quote unquote, too risky. By the way, people that buy equity, if they invests about Bitcoin, they say, oh, I can't buy Bitcoin, quote unquote, too risky.

Starting point is 02:14:31 Okay. So at the end of the day, you know, one layer is the hoddlers with their private keys, you know, running their own nodes. And there's a lot of people say, oh, that's too risky. And there's another group of people buying Bitcoin on Square Cash and on PayPal or buying it through Coinbase, less risky. And there's another layer buying Bitcoin through institutional funds like Grayscale or the like, less risky, but still too risky for the equity people. Then there's another layer of people that will buy the tickers like Square and PayPal or MSTR or GBT. then there's another layer of people that will buy the debt, the convert debt.

Starting point is 02:15:14 And then there's also secured debt. Maybe at some point people will start to do secured or convertible debt that is invested in Bitcoin. All of these are different buckets of money. You've got, you know, you've got insurance companies like Mass Mutual and they've got the $230 billion in their general fund. you know, if they decide they can start to buy an investment-grade asset and anoint Bitcoin is that investment-grade asset, then there's no reason that number can't go up by a factor of 100 or 1,000, right? So what we have is, I guess, about seven layers of money. And I've met guys,

Starting point is 02:15:58 like, you know, I'll meet a person that runs a hedge fund and invest in publicly traded companies. They're like, well, you know, I like Bitcoin, but, but I'm not allowed to buy Bitcoin per my charter. I have billion. I have $10 billion, but I can't buy Bitcoin. Like to change that requires, I change the minds of a committee of 24 people. It's a 24-month process. We've got to go back to all of our limited partners and we've got to redo our charter. And that's, you know, and then that's a three-year. process. So they like Bitcoin, but they can't buy it. But if they like a public company nice or NASDAQ listed stock, they can buy that. And so it's not really a matter of right or wrong or

Starting point is 02:16:42 orthodoxy. You just got to give them the on ramp for the money to flow. And then I, you know, I literally met, I met people on my convertible bond roadshow, not a roadshow, but when I had my meetings, person goes, yeah, I've owned Bitcoin since 2013. I love the idea. Yeah, we're, we're in 20 million bucks. Okay, 60 seconds, five minutes, I'm going to give you $20 million. Yeah. You know, why don't you buy Bitcoin? Oh, that'll hit me three years. Like, we can't do that. Yeah. Three, I mean, you have to move a mountain to buy Bitcoin, but they can buy, they can buy the debt in 30 seconds. In fact, that's what I'm telling you. I'm telling you, the rates are going to go negative. You got in a year from now, the rates are going to go negative because the over

Starting point is 02:17:27 subscription is just going to, there's going to be so much demand for it. It's going to be nuts. We're just doing the work of providing people the on ramps. Yeah. You know, when Fidelity provides a Bitcoin, a Bitcoin fund for consumers that you can, you know, you can put your 401k into, then billions can flow. When they provide an institutional fund, then billions can flow. When companies come public and they offer you a stock ticker, then billions can flow. When you issue debt, then billions can flow. They're all just different ways to carve a channel from the asset ocean to the Bitcoin pond. And we're just carving that channel and we're making it easy for people. And it'll take some time. But as people get more comfortable with Bitcoin as an investment

Starting point is 02:18:16 grade, Treasury Reserve asset, and that's the key thing, then there's $100 trillion. worth a problem here. I mean, $100 trillion of assets that needs to find a safe haven home. And, you know, people have been using sovereign debt as a safe haven. So history has taught us when a currency fails. It fails in a spectacular way. And in a way where speed is of the total essence, if this 100,000 mark that we were talking about earlier happens in 2021, I just don't know how, I just don't know how you're going to be a able to keep the lid on it. I don't know how speed isn't going to just fear is going to just take over the market. Look, I'm an optimist. I'm an optimist there. So, look, if you're living in

Starting point is 02:19:05 the Weimar Republic and you're, there is no alternative. You've got Ymart marks, then you're going to have a complete collapse. But in fact, if you're living in a modern society where people have options, what's more likely to happen is as Bitcoin price goes up, money flows into it, price discovery returns to these other markets, there's a check and balance on behavior, and then people start to react to it, and they start to act more rationally. So I would like to think that in a marketplace where there are rational alternatives, that Bitcoin is a stabilizing influence, and people go, oh, for example, example, when a bank sees a billion dollars go out the door, they say, I guess I better treat my

Starting point is 02:19:53 customer better. Why is that they're leaving me? Oh, I'm not offering Bitcoin. So I'll offer that. And then when a hundred billion flows out the door, people notice. And when a trillion flows at the door, someone says, why is a trillion moving? Oh, well, because the currency is collapsing. Maybe we ought to do something about that. Maybe we should stop printing money. So, you know, I'm going to continue to print a trillion dollars a year and buy bonds. because there is no inflation. Well, if the money starts to move and people start to see that that's a dynamic, maybe I'll slow down on the money printing.

Starting point is 02:20:29 Like in the Weimar Republic, there was no Bitcoin, right? I mean, that's why that went to zero. But there's Bitcoin here, and Bitcoin's an antidote to a problem. And so I think an optimistic view would be as the price goes up, it becomes more appealing, and then more people adopt it. It will keep going up. price discovery, return to the markets. People will start to act more rationally in the political sphere and they'll act more

Starting point is 02:20:55 rationally in the investor's fear in a constructive, peaceful fashion. That would be a good outcome. I totally agree with you there that this needs to take place in a manner that's controlled in order for their to avoid the whole civil unrest and all that kind of stuff. But as far as the governments around the world being able to pull back on their printing, as soon as, I mean, you know, I know, the printing's going straight into the fixed income market, which is keeping the interest rates low. If interest rates start coming up, the value of everything on the whole planet starts to erode in a rapid way, right?

Starting point is 02:21:32 So my argument against, not that I want this to happen, but I guess what I'm trying to do is frame the reality of what I think's going to happen. I don't necessarily know that the government can become responsible with their monetary policy because it makes the, the value. of everything unwind, right? I don't, I don't know. I don't think it's that constructive, you know, to speculate about the zombie apocalypse. I like that. I like that. I think I think we should just focus upon what's constructive right now. And what's constructive right now is Bitcoin is a monetary network. Apple computer can make $100 billion if they plug into it. Tesla can make $20 billion if they plug into it, the individual dentist, doctor, Baker, lawyer that's struggling to

Starting point is 02:22:21 protect their economic well-being and create prosperity in the future can benefit by plugging into it. As more and more companies and individuals plug into Bitcoin, their lives will improve, their lot will improve, and they'll be able to escape the path to ruin, which comes from attempting to grow faster than the rate of monetary expansion. And I think what we should be doing is we should be giving people, you know, a clear, peaceful, constructive way for them to save their companies and to save their businesses and to, and to protect their families and protect their well-being. And the Bitcoin monetary network is that constructive, you know, exciting thing. right? I mean, I don't think we're going to get to the point where governments collapse and taxations ceases and we all have to go get a rifle and ammunition and antibiotics and operate on ourselves. You know, I don't, I'm not really planning for that. I don't think it's that relevant. I think what's relevant right now is the Bitcoin is big enough for like billion dollar funds to take a position in it, for you to take a billion dollar position.

Starting point is 02:23:38 When it goes to 50,000, you can do it with two or three billion. When it goes to 100,000, you can do it with 10 billion. Right. Companies like Apple and Google, when they start to see I can move 10 billion in and out of it in a day or two days or three days, then they're going to get interested. And as it marches up, it's going to be a solution to bigger and bigger companies. Then it will be a replacement for sovereign debt. It's not a replacement for safe haven sovereign debt now because you can't buy. $2 billion of it in a minute. For example, I've done a trade, I've done trades on the 30 year

Starting point is 02:24:15 debt and I've done $150 million trade on 30 year debt where I shorted it. Like I did it in March. I shorted it when the swap rate was 72 basis points. Okay. Someone's going to loan me money for 30 years for 72 basis points. So I thought, okay, I'll take that trade. It was a $150 million trade. and it took 15 seconds, Preston, and it didn't move the market one basis point. Yeah. I mean, it was 72, maybe 71, but that was, you know, and that was my margin for what I wanted to move. So if you could buy $150 million worth of something and not move the market one basis point,

Starting point is 02:25:00 that's liquid. So the sovereign debt market has that liquidity. Bitcoin, as it gets bigger, right, the number of, you. you want to keep your eye on is what's the daily liquidity like you know can you can you buy and sell four billion a day eight billion a day one billion a day 20 billion a day as the daily liquidity gets larger it's safe haven investment grade uh asset status gets better when you're a big insurance company you're going to want to be able to buy a billion of it or liquidate a billion of it quickly without moving the market easily. And so where I think what's going to happen is it's going

Starting point is 02:25:46 to grow at some rate. And you know, you either need to solve the problem of on ramps for consumers, which is what Square and PayPal will do and what Apple on Facebook and Google can do. When that happens, a billion people can buy it with a mouse click or with a finger click. That by way, that's Mark Cuban's like criticism, like, show me it's easy to use, right? Well, the answer is, have you not checked out Square, Mark? I mean, Square and PayPal and Apple and they're going to make it easy to use that are making easy use. So that's one thing that has to happen. And on the other side, what has to happen is just these hedge funds and these institutional investors, they need to take a billion dollar position. And I can count like three or four of them that are about there now. And once you get to the point

Starting point is 02:26:34 where you've got 20, 30, 40 funds that have taken a half billion or a billion dollar position. Bitcoin starts to trade in an area where there's five to $10 billion of liquidity a day, and the volatility goes away. When I can go and I can sell a billion dollars of it in an hour and not move the market, then that's the point at which the Facebooks,

Starting point is 02:26:54 the Googles, the Amazon's, the apples of the world will say, I guess we can do the Treasury operations with this. They probably won't be the first, but unless they really agree, Tesla might be because they take risk, maybe. But more likely it'll be mid-sized companies than have 500 million, 250 million, 800 million lying around, and they'll start to move into this because this is accretive to them.

Starting point is 02:27:20 And we'll get this positive feedback loop, you know, like companies will do it, their stocks will go up, other people will say maybe it's not so scary, they'll do it. The hedge fund guys will do it, they'll make money, and then they'll go from fear to greed. First, they thought, I'll do a 2% and I made a bunch of money. I'm afraid it'll work out badly. Then they'll go like, crap, I lost money on 98% of my portfolio because I invested in garbage.

Starting point is 02:27:45 And maybe instead of 2% good, 98% garbage, I ought to actually move to 10% good and 90% garbage, right? By the way, 10% good, 98% garbage would be five times as much money coming from institutions as they're coming now. Right? Yeah. So all that starts to happen. And as that happens, as all of these companies and investors buy into the network, you're going to get their lawyers and their lobbyists. And their lawyers and their lobbyists are going to defend the network. I mean, PayPal is going to protect the network. Square's going to protect the network, right? You know, you're going to have anybody that ever invested, if you have a billion dollars of Bitcoin, you think you're not going to pick up the phone and call your congressman or senator. and say, don't F with this. Yeah. So that, you know, that happens.

Starting point is 02:28:37 And then the political dialogue is going to evolve. And right now there's one view of the world. But Bitcoin is going to, in a constructive way, infect everybody's minds. And hopefully it will get them thinking about a different view of the world. And that'll be a good thing. So I'm optimistic that as this spreads, this could be a four. some good. And there's no reason why it won't grow faster, but it'll be progressive. People have to get over the technical challenges, the charter challenges. You know, like one narrative we hear a lot is

Starting point is 02:29:18 a guy runs a billion dollar fund or a multi-billion dollar fund. Okay, he likes the idea. First, he's going to buy someone his own account to get his feet wet, to get used to it. How does this work? Okay, now I'm comfortable. Now I'm going to bring my fund into it. like me, Michael Siler, what did I do? I buy it personally. I understand how it works. I get comfortable. Then I go back and I talk to my board and I talk to my officers and then we do all of the due diligence and we work through the accounting and the regulatory issues and the corporate governance issues and the research to figure out how operationally, security, how we do it. Right. That's a 12 week, 24 week delay. And so a lot of these things. There's a three months, six month, nine month, 12 month delay. There are funds that have, you know, hundreds of billions and trillions of dollars.

Starting point is 02:30:12 They've got on their agenda like somewhere in February. They're going to have a meeting to discuss Bitcoin, you know? And so when they have that meeting to discuss Bitcoin, then three months after that, six months after that, they might start to move. And that's not a bad thing. It's a good thing, right? Because everyone listening to your podcast has a chance to continue buying this stuff. Right? You're going to get in ahead of a wall, successive walls of money that are going to come, wave after wave. And, you know, when it gets to the point where it's $10 trillion, it starts to work for small, you know, for small nation states. And when it gets to $50 trillion or $100 trillion, it starts to work for countries. And countries, institutions, endowments, corporations. Everybody has the same problem.

Starting point is 02:31:02 them a different level. But some of them don't recognize this is the solution yet. It's human nature. You have to make it easy for them. And you have to give them a role model. So when I have a role model, when another company like me did it, like Mass Mutual did it. Mass Mutual did a little bit. The next 100 insurance companies will say maybe we should look at it. And Mass Mutual scales up by by a factor of 10. Other companies come in. of these is a little, it's a little brick in, in the road to something better. And so I think, I think we, we kind of get to sit back and enjoy the way it evolves and it's going to, and each of these things that happen, they're going to be good for the network. Like every single time a

Starting point is 02:31:52 new constituency plugs in the Bitcoin network, they're going to plug a functionality gap in the network. When, you know, when a fidelity comes aboard, there's a, there's a pool of money that couldn't invest in Bitcoin except through Fidelity. You know, Coinbase is another pool of money. When Coinbase comes public, there's another pool of money that couldn't get into it except through Coinbase's public offering. Each of these things is another extension of the network. The Bitcoin blockchain is the core base settlement layer. And there's going to be hundreds and hundreds of call them member banks. They're all just kind of member banks. And Bitcoin is the central bank and cyberspace. And, you know, there's someone doing business in Nigeria.

Starting point is 02:32:37 Well, that someone probably won't be my company. You know, and every country is different. They've all got political requirements, regulatory requirements, technical requirements, cultural requirements. You could almost think of Bitcoin is like it's the most, it's a massively franchise. It's a bank, a bank franchise. or a bank franchising company, ultimately decentralized. Anybody can start their own bank. If you're a dentist, it's a bank for your family. If you're a small time operator in Nigeria, it's a bank for, I don't know, 47 people in your village.

Starting point is 02:33:17 If you're Square or PayPal, it's a bank for 100 million people. If you're Apple, it's a bank for a billion people. You know, if your fidelity, it's a bank for institutions. There's someone that's going to bank, you know, pension funds. endowments and other types of money. They're all just different banks and they all cater to a different clientele who all have different requirements, except that they all share one requirement. They all want to store their value forever. There's no one that'll tell you I want to lose all my money. Right. So everybody's got the problem. The answer is different. And what we see in front of us is

Starting point is 02:33:58 we see this Cambrian explosion of innovation, all sorts of companies solving the problem in different ways with different instruments, and the market is going to sort out the winners and the losers. Some people are going to fail because they can't execute. Other people are going to try to bring a product to market and the customers don't want it. Other people are going to create a really good product and some regulators are going to shut it down. It works in Wyoming, but it won't work and pick another state. in some case, I'll do this thing in Nigeria or Zimbabwe, and they're going to cut me off. And, you know, the market will migrate to the next solution that works in Zimbabwe.

Starting point is 02:34:37 Maybe we'll go from a centralized exchange to a decentralized solution for Zimbabwe because the politicians are hostile. And maybe the politicians won't be hostile. And it's going to be happening in 20,000 places every month differently, as fast as it can happen. And that's really the beauty of Bitcoin. Michael, all I can say is my pencil was going crazy throughout this. I was taking a lot of notes. I thank you for your time.

Starting point is 02:35:07 And I know our audience to be able to basically step into your thought process and to hear all these ideas around economic calculation, how you're thinking about it from a business perspective is so valuable and just you're so giving with your time. And I think that's the thing that not only I'm deeply thankful for, I know everybody who's listening to this is also thankful. So thank you for coming on the show. And I would really love to do this again in the future. Preston, thanks for having me. I think you're doing great work. And I just share your passion and educating the community. I think 2020 is a catalytic year. It's full of challenges, but it's also full of opportunities. And Bitcoin is such a paradigm shift in the history of money. that I think this is a year where it's incumbent on all of us to do everything we possibly can to catalyze constructive change. I think so many people can benefit by plugging into this network. If we show them all the different ways, you can plug in the network, then I think we can call it a

Starting point is 02:36:12 good year. Thanks for having me. Thank you for listening to TIP. To access our show notes, courses, or forums, go to The Investorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC005: Bitcoin & Michael Saylor - A Masterclass in Economic Calculation (Bitcoin Podcast)

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