"Fix the Money, Fix the World" — Michael Saylor's Master Plan (plus questions on Quantum and Ethereum)

🎬 DEBRIEF | Ryan and David break down the episode.

TRANSCRIPT

Michael:
[0:00] The light at the end of the tunnel is becoming clearer, and it's actually getting very simpler. And so here's the very simple idea, right? How do you make the world a better place? You provide a utilitarian value, something valuable to a billion people that everybody just agrees on. With Rockefeller, it's like kerosene gasoline, and everybody just lives a better life. And then with Ford, it was an automobile. And who doesn't want an automobile? And then Jobs gave a billion people on iPhone. So what is the equivalent in the digital asset space? And the answer is, everybody would just like a bank account that pays them more than the inflation rate. Like, how about give me a bank account that pays me 8%. Right now, your bank pays you zero. You know, what we say tongue in cheek is fix the money. We have a chance, in my opinion, to fix the money for a billion people. Not complicated, just requires that one not get distracted.

Ryan or David:
[0:59] Michael Saylor, welcome to Bankless for the first time. Hey, happy to be here. All right, I got to start with the big question that everyone's wondering is, where do you believe the price of Bitcoin will go?

Michael:
[1:11] Well, you know, I think it's going up. Like I've said, I've got a 21-year view. And my 21-year view is that over the course of 21 years, it's going to average about 29%. And ARR, it's going to decelerate. It's been growing a bit faster and it will decelerate to grow a bit slower. I think the past five years, it's like a 37% annualized growth rate. So if it moves from 37% down to 20%, you'll get some blended rate. You'll get a blended volatility. And I think, where are we right now? I think it's oversold. So I would expect that Bitcoin will be much higher by the end of the year than it is right now. But, you know, Bitcoin has a way of making fools of all of us when we try to forecast its 12-week move or 24 or two-week move. It's a bit above my pay grade. So long term, I am bullish. Near term, I'm also bullish. And in the intermediate frame, I'm sure there'll be a lot of unexpected surprises due to unexpected developments that none of us can anticipate.

Ryan or David:
[2:20] Okay, so at that level of growth, like the 20-year time horizon, what price does that get us to for Bitcoin?

Michael:
[2:27] Oh, I think eventually it's going to $20 million, $21 million a coin.

Ryan or David:
[2:31] $21 million a coin. Okay, so what's that, like a market cap of like $400 trillion, something like this? Yeah. $400 trillion. $400 trillion.

Michael:
[2:39] I think it's going to emerge as the dominant digital capital of the world.

Ryan or David:
[2:44] What would shake your confidence in that?

Michael:
[2:46] I haven't seen anything to shake my confidence yet. By definition, black swan, something unexpected, unanticipated.

Ryan or David:
[2:54] I guess the inverse of that question is what has to go right for that to be

Ryan or David:
[2:58] the case? $20 million Bitcoin.

Michael:
[3:01] That's a little bit easier answer. The global embrace of it is a legitimate asset. So as the Americans, the Chinese, the Europeans, the Japanese recognize it as a capital asset that you can hold for long-term investment or long-term store value, that's a big step. The second step is adoption by the banking system. Right now, the Basel rules heavily penalize a bank from holding Bitcoin. I think if they normalize that so that banks aren't penalized for holding Bitcoin as collateral, I think that would be a big step forward. I think the securitization of the asset, the formation of all these ETFs and the amount of capital flows into it is a third step. I think the formation of bank credit networks, like, you know, there's about, call it 450 Bitcoin a day at 70,000 a coin, 30 million a day, about $10 billion a year in organic supply available for sale from the miners. So call that 10 billion a year is one year supply. That's going to get cut in half in two years.

Michael:
[4:14] Every time someone creates $10 billion of credit, they buy the entire year supply. So for example, my company sold about $10 billion worth of digital credit. We bought an entire year's supply on that digital credit. And that's something we created in the past 12 months. But if a bank like JP Morgan starts to extend credit on Bitcoin as collateral.

Michael:
[4:37] Someone posts $100 billion or $50 billion of Bitcoin, JP Morgan offers $10 billion of credit. That $10 billion of credit is one year's supply of Bitcoin. So every $10 billion of credit that's created is one turn on the network. So I would be looking at the formation of bank credit networks and how big they get. Like how much credit will Schwab or Citi or Morgan Stanley or JP Morgan extend on the underlying capital asset? Because the thing that holds the price back.

Michael:
[5:14] Is the need to rehypothecate the Bitcoin in order to generate a loan or get yield. So a lot of people, you've got more than a trillion dollars worth of Bitcoin out there that's unbanked in the shadow banking system. So when I need yield, I'm rehypothecating it and someone's short selling it. And when I need a loan, if you want a conventional loan against Bitcoin, you're paying 11%, 12% sometimes. But if you went to a crypto exchange, they might give you the same loan for 2%, 3%. But the catch is the cheap money requires that you transfer the Bitcoin and they re-hypothecate it. So if someone's pledging $100 billion of Bitcoin as collateral on the crypto economy in order to borrow $10 or $20 billion of cash to spend, then you're short-selling $100 billion of Bitcoin. So you're short-selling 10-year supply of Bitcoin. So I would say probably the thing that's holding the price back is rehypothecation of the underlying crypto asset in the crypto economy. And the thing that will drive the price to the moon is people stop rehypothecating.

Michael:
[6:30] And we call that asset back, we put it in cold storage, and then whoever sold it short has to buy it back and the price moves north. But of course, the reason that people don't do that is because up until now, even today, it's very difficult to get a conforming loan or a conventional loan against Bitcoin. So people are forced into the crypto economy and this dynamic of re-hypothecation.

Michael:
[6:57] So bank credit networks will be very big. I mean, $100 billion or more bank credit could form. And not only will you have less demand to sell $100 billion of Bitcoin, but you will also have people migrating from rehypothecation and non-rehypothecation.

Michael:
[7:13] And that'll create a short squeeze on the other side. The other dynamic is digital credit. So my company is selling STRC, it's digital credit instrument. So the other, like two, three weeks ago, we sold $1.2 billion of it. When we sell $1.2 billion of STRC, we buy back $1.2 billion of Bitcoin. And that week we bought five Bitcoin for every Bitcoin mined or something, some insane amount. If we sell $10 billion of stretch in a year, we're going to buy the entire supply mined by the miners. When we sell $20 billion, we'll buy 2x the supply. So the formation of those digital credit networks will facilitate a huge amount of capital flowing into the system as well. So I would be looking at all those things. And I mean, the last thing is just volatility in general, because as the volatility in the asset comes off, the credit worthiness of it increases. And then the willingness of conventional trad fi banks to extend credit against it increases.

Michael:
[8:17] And, you know, if you want a simple analogy, it's like you live in a city and on one side of the street, it's kind of scary and dangerous and you have to buy the houses for cash and there's a lot of crime. And the other side of the street, it's totally safe. There is no crime and you can get conforming loan from Fannie Mae or Freddie Mac with, you know, a 20% or 10% deposit and the government insures the loan. And then you ask the question, what's the difference in the price of the houses on one side of the street versus the other side of the street? You know, so when people feel safe and the conventional banking system finances the asset, you know, the price of the houses skyrockets. So it's not good for the first time buyer, but it's really good for the owner, right? And so that's the pro and con of these sort of things.

Ryan or David:
[9:09] Yeah. And where Bitcoin is, whether it's on one side of the street or the other, is just a function of where it is on the adoption curve. Sailor, you came on to the scene in 2020, 2021, really pushing for treasuries denominated in Bitcoin, like corporate treasuries denominated in Bitcoin. And you moved the Overton window back then to the point of like companies thinking about, you know, denominating in Bitcoin more than dollars. And since then, Bitcoin has progressed even further on that curve up to the point of even some like long tail central banks like El Salvador and a few in Bhutan, a few other countries putting Bitcoin on their balance sheet. But it kind of feels like we've kind of stalled out on that arc. We have the Bitcoin strategic reserve here in the United States.

Ryan or David:
[9:51] But beyond that, no central banks have really put Bitcoin on their balance sheet. Are we still here?

Michael:
[9:56] That's like equity. That was the equity stage when you had a lot of public equities, you know, backed by Bitcoin. And now we're in the credit stage. Well, actually, there was a middle stage. First, we did equity. And then the middle period was bonds, convertible bonds. We became the biggest issue of convertible bonds in the world. And we maxed out that market. And now we're in the credit stage where you're seeing the formation of credit instruments like STRC or SATA. And that's really tapping into pure fixed income. And I think that that's actually got much greater legs, like this idea that I'm gonna convert, I'm gonna convert a highly volatile 30 AR asset into a non-volatile 10 AR asset, right? That's a very, very powerful idea. And there's no reason why that can't be billions a month and then tens of billions a month and then hundreds of billions a month. And so I've really got my eye on that dynamic. There's two dynamics, right? The formation of digital credit from public companies. And the second is the formation of bank credit networks from the too-big-to-fail banks, right? Those are the two large sources of capital that will drive the next phase of

Michael:
[11:23] development of the entire network.

Ryan or David:
[11:24] Yeah, let's talk about Stretch. So Strategy has released a bunch of just instruments. You know, you have Strike, Stride, Strife, and most recently Stretch. Stretch, as I understand it, is the newest one, but also the biggest one, which is the most successful out of all the instruments. To what do you credit the success of Stretch? Like, why is this one the big one?

Michael:
[11:41] Here's the idea. If you walk down the street and you ask 100 people, would you like a crypto asset that's got a 50 vol that's been returning 37 or 40% a year for the past five years?

Michael:
[11:57] Like one or two out of 100 will say, yeah, and you have to talk to them for 100 hours. It takes a while, right? If you then ask the people, would you like to buy a Bitcoin-backed bond, a 20-year bond that pays you 10%? Like 20, okay, well, there's some principal protection, but it's a 20-year bond. How many people do you know have 30-year bonds in their portfolio or 20-year corporate bonds in their portfolio? Not so many. And then you say, well, would you like a convertible bond that's got some equity upside and it's a 10-year bond with a conversion rate? Well, that's not a big consumer thing either. I mean, convertible bonds are fairly institutional. There's a segment of the market. Long-dated bonds are fairly institutional. If you say to them, would you like a bank account to pay you 10%? Yeah. And then would you like a bank account to pay you 10% where the tax is deferred and you don't pay city tax, state tax, or federal tax until you sell the underlying instrument? Well, so maybe the 10% is deferred for a decade. Well, I like that even better. Okay, so the Bitcoin pitch is a hundred hour to a thousand hour pitch.

Michael:
[13:18] The other instruments we created were convertible bonds. The problem with the

Michael:
[13:22] convertible bonds are their 144A bonds over the counter. And what that means, that's a euphemism for it's illegal for you to buy them.

Michael:
[13:30] Okay. It's like you can't buy them, right? A retail investor cannot buy a 144A bond. I mean, it's literally illegal. Okay. So you figure that maybe coming up with the security to sell that's illegal for most of the public to buy isn't the best marketing idea. So, then we went to this idea of IPOs and the first was strike, the second was strife, the third was stride, stretch was the fourth, stream was the fifth, by the way. But the idea of strike was a convertible preferred stock that pays you a dividend and with a conversion rate. And it's okay. It was a great transition from convertible bonds and the retail investor could buy it. But it's like, so I'm giving you 10% instead of 5%, but the principal value can change plus or minus two, three, or 4% a day. If you're a normal risk adverse retail investor, or you're just a normal corporate treasurer, you don't want to get paid 5% more per year if the principal might trade down 5% in a week. You see, it's like, now you're back to this issue of saying, you know, just hold it for four to 10 years. It'll all work out fine. But, you know, Bitcoin is buy it and hold it for four to 10 years. It'll work out fine. Let me spend an hour, 100 hours explaining why.

Michael:
[14:53] Convertible preferred stock, strike, strife, stride. They're like, buy it. You'll get paid double or triple or quadruple your money market. But it might like trade down 10%, but then you hold it. It'll trade up. Let me spend 10 hours explaining why.

Michael:
[15:08] Whereas, you know, the thing with Stretch was I have some like non-crypto friends. It's good to have non-crypto friends. They think differently, you know, and they go, you know, why can't you just pay us monthly instead of quarterly? And then another one said, I really like the fact that it pays 10 or 11%,

Michael:
[15:28] but I don't like the fact that these things trade down to 95 from par 100 or trade up to 105. If it trades to 110 and then trades down to 105, you've just lost one year's worth of dividends.

Michael:
[15:40] So what they wanted was just the pure yield. I don't want the duration. I don't want to wait a decade. I don't want, by the way, duration is a benefit to a professional credit investor. Like, for example, if you thought that SOFR was going to go from 370 to 170, then you would want to get out the yield curve and be holding a 10 or 20 duration instrument because it'll trade up 20%. Like something with a 20 duration trades up theoretically 40% when SOFR falls 200 basis points. So if you're that kind of fixed income investor, you like duration, but most people don't, right? Out of a hundred investors, maybe one or two of them is a long duration credit investor. So they don't want duration. They don't want delta. Like, well, you know, like if the stock triples, then this bond is better. They don't want that correlation to the equity markets. Well, don't you want something that'll go up by a factor of three of Bitcoin rallies? No.

Michael:
[16:41] That's not what they want. So they don't want duration. They don't want Delta. They don't want volatility. They just want the income.

Michael:
[16:50] So stretch is interesting because, yeah, you know, there's a saying, Winston Churchill, he said, you know, the Americans will do the right thing after they tried everything else. Okay. Stretch is the thing we did after we did like 19 other deals.

Michael:
[17:06] Like we did an asset-backed loan with Silvergate where we barred against our Bitcoin. We did a senior loan where we had an EBITDA covenant. Then we did a bunch of convertible bonds. Then we did all the long duration perpetual preferreds. And we kept working it until we finally found the sweet spot of the market. But let me tell you the interesting thing about Stretch. Stretch is the simplest, simplest instrument we've ever created from the point of view of the investor. But it's the most ambitious piece of financial engineering from the point of view of the issuer. So it's like we created the car with the automatic transmission or maybe even better. What do people want? They want the car that drives itself. It's like, I just want to get in the car, fall asleep, sip my coffee, and I want it to take me from point A to point B. Okay, that's the simplest idea, but it's the most ambitious piece of automotive engineering. So with Stretch, what we did is we said, let's just make it monthly. Let's make the volatility go away. Let's do everything we can to strip the delta, strip the duration.

Michael:
[18:14] Instead of a 20 or 30 year bond, it's like a one month T-bill. It's like a money market. So can we create a Bitcoin-backed money market instrument?

Michael:
[18:25] And what's the promise? Well, I'm going to give you a monthly dividend. It may not, if I want the principal to stay stable around 100, I have to make the credit spread variable. If I make the credit spread or the credit, if I make the dividend constant, then the principal is going to vary widely. So you can either have stable dividend yield, but unstable principal, or you can have stable principal value and unstable or variable dividend yield. So we created a monthly variable rate preferred stock where the company, the issuer, has the ability to adjust the credit spread, in essence, adjust the dividend rate each month at its discretion. And then we pay it we pay the dividend as a cash dividend each month so what's unique about that that's the first time in the history of the world guys where anyone ever created variable rate preferred stock well if you if you dig through all the preferreds you'll find that normally they're either fixed they pay you a fixed dividend or.

Michael:
[19:38] They pay you a fixed credit spread over SOFR, like SOFR plus 350 basis points. So that's still fixed. I mean, it's called a floater, but it's floating with the standard overnight funds rate. The credit spread is fixed, which means that the value of the preferred is going to vary depending upon the market perception of the credit of the issuer. So none of those would be stable. If you want to create a completely stable preferred stock that trades around 100, then you have to combine a variable credit spread.

Michael:
[20:18] With a adjustable at-the-market shelf registration. So we combine a shelf registration where we can sell STRC into the market or not sell it, and we combine it with the ability to adjust the credit spread every month. So when the market is jittery, like let's say we had this thing at 100 when Bitcoin was 125,000 a coin, and then Bitcoin went on this epic bear market. It went from $125,000 out of $60,000. So the collateral backing the credit instrument was cut in half. And the market gets very jittery. So what did we do? We don't sell it below $100,000. Then we raised capital in the form of cash, and we created a cash reserve in order to improve the credit. Then we raised capital. We bought Bitcoin to improve the amount of Bitcoin backing it. And then we raised the dividend like six times in a row.

Michael:
[21:15] Okay. So we're managing that credit instrument. Now, how many adjustments did I make to the convertible bonds in that timeframe? None. How many adjustments did I make to strike or strife or stride? None, because we can't. I mean, we can improve the underlying collateral, but at the end of the day, the idea of a variable rate monthly preferred stock is the most flexible of a credit instrument in the public market so what we did is manage that with a laser-like focus on having a trade at 100 and and you know if you look at the price right now it says on my screen 100 100 dollars and zero zero cents like it's, Like, look at it. What happened? The vol of Bitcoin in the last 30 days is 55.

Michael:
[22:17] The trailing 30-day vol. The trailing 30-day vol of STRC is two.

Michael:
[22:24] Less than two. What is the volatility of every single equity in the S&P 500? Between two and a half and a hundred. So STRC became the least volatile security in the entire S&P 500 universe, right? And now where'd the excess volatility go? It went to MSTR. It went to our common equity. So what we did was we transfer, right? We transfer all of the energy and the volatility to the common equity, and we strip it off of the preferred equity in order to meet the needs of two different classes of investors, right? The credit investor is a retiree and they just want a bank account that pays them 11% that's tax deferred. And it's like, I don't know, I'm gonna get 11% in five years. Maybe you'll be getting 9%.

Michael:
[23:19] But what you do know is that the company is going to use all of its efforts in order to keep that stock trading at $100 and zero, zero cents plus or minus you know the range today the range today is $99.97 to $100.02.

Michael:
[23:40] There's like a lesson in that right it doesn't it won't always be like that knock on wood but, But the bottom line is we discovered Stretch after a five-year journey in the credit market. And we didn't know for sure it was going to be a screaming home run. It was just the fourth thing we had done in the preferred area. And then, you know, we thought it'd be a $500 million IPO. And then it was a billion. There was a two and a half billion. And like in three days, you know, there's the market telling us. And, you know, and, you know, then we put the ATM on it and we didn't know how popular it'd be. But in hindsight, it's pretty obvious people just want pure yield, right? That's what they want. Everything else in the credit market, people are reaching for yield. Like the reason I buy a 20 year bond or the reason I buy a convertible bond or the reason I buy a municipal bond or the reason I buy anything is because the money market is so uncompelling. It's 370 basis points taxable. You're getting 200 basis points after tax. And the entire world is trying to figure out how do I get more than 2% after tax? And I got to go through, jump through these hoops and hold all these other complicated instruments to get there. We just found a way to create that without all those complications.

Ryan or David:
[25:03] I think I understand what stretches then from a financial engineering perspective. At some level, this is about human psychological arbitrage where people hate volatility and they like returns and they like guaranteed returns even more. The returns right now are 11.5%, I believe. Can you explain to that non-crypto friend where the yield comes from? So whenever there's yield, that's always a good question you should ask. I understand with T-bills and money markets, where the yield comes from, comes from the Fed fund rate. 11.5%, where does the yield come from and what are the risks, the underlying risks that I would be taking as a stretch investor?

Michael:
[25:41] This is asset-backed credit. So let's just think about the theory of asset-backed credit. And a capital asset that I hold in my portfolio that I expect to have a capital gain with no cash flows. Here's some examples. Old master's paintings, gold, raw land in Manhattan, timber rights, right? Some asset, it's a capital asset, diamonds, right? It has no cash flows. So on one side of the world, you have capital assets. On the other side of the world, you have cash flowing assets, credit assets. Some people, they would like to own 20 acres of land in Manhattan. And other people would like to get paid $20,000 a month forever. Right? So how do you convert a capital asset into a credit asset? So let's say I want to do this with gold. Let's say you believe in gold. What's the average AR of gold over 100 years? 7% or something? There's a number, right? Pick a number. You can pick your favorite. What do you think is the likely long-term annual performance of gold over a decade?

Ryan or David:
[26:57] Yeah, I'll go with like, we'll go with 5%.

Michael:
[27:01] Okay. So I take a company public. I raise $10 billion of equity capital. I buy $10 billion of gold.

Michael:
[27:09] And now if I just stop there, I've got a gold treasury company and you're just holding 10 billion of gold. So how do you make it interesting? I create a preferred stock and I offer people maybe 65% of the expected return of gold. So I'll give you 3.5% in a dividend, a gold-backed dividend. And I take that public. And if people want 3.5% with principal protection and low vol, they buy the gold credit. And then I take the money, I sell a billion of that. It's 10X over collateralized. Now I go buy a billion dollars of gold. Now I've got $11 billion of gold, but I've only got $10 billion of common equity outstanding. I created 10% amplification on the common equity. The equity holders are going to outperform gold because maybe 5% is not that compelling. Maybe they'll get to 6%. And the credit investors, they're going to get to 3.5% and a dividend. end. And if I just hold the gold, where's the dividend coming from? Over time, you're going to either sell the capital asset or you're going to sell a derivative of the capital asset. So in a world where the market values my company at a premium to the underlying

Michael:
[28:24] assets, I just sell the equity and I remit the cash flow to the credit investors. In a world where the market doesn't value the equity at a premium to gold, I sell some of the gold and I remit the cash flow to the credit investors.

Michael:
[28:39] So now let's do it with an S&P portfolio. You think the S&P is going up 10% a year. I buy $10 billion of S&P stocks. I sell a billion dollars of S&P credit, structured credit. I offer you 7% or 5%. Now, I just hold that for the long period of time. The S&P is going to have a vol of 15. The credit will have a vol of one or two. The credit investors get principal protection, low vol, they don't get.

Michael:
[29:08] They don't get the entire 10% of the S&P. They get 7% or whatever I give them. I take the difference. I buy more S&P stocks. Okay. That's an example of a structured product built on equity capital. In theory, you can do it with a Monet painting. You can do it with $10 billion of real estate, right? So what is the fundamental issue here? You have to decide what do you think as the long-term performance of the capital asset. For example, it wouldn't be good to do this with cotton candy or barrels of oil or soybeans because those aren't good capital assets.

Michael:
[29:49] In 100 years, it's not obvious they're going to go up in value. But if you have scarce desirable property, a good capital investment asset.

Michael:
[29:59] Then you just take the capital return, whatever it is, you cut it in half, and then you pay a dividend equal to half the expected capital return to the credit investor. And then you have a vehicle which is working for the equity investor and working for the credit investor. So if we come back to our company, we think Bitcoin's going up about 30% a year. I said 29% a year when we started the conversation. So can I pay a dividend of 10%, 11%? Yeah, sure I can. That's like one third of my expected ARR. Okay, so how do we pay the dividend? When the equity is trading at a premium and it's almost always trading at a premium to the underlying Bitcoin, we've got a derivative of Bitcoin. Our MSTR is a Bitcoin derivative. So we just sell the equity, take the cash flow, remit it back to the credit investor. If the equity trades at a discount, then you don't. Maybe you sell the Bitcoin itself. You would probably take the highest cost basis of the Bitcoin and you would sell it, capture the tax gain and remit the cash flows. And that's the way you would do it. And you might at some point dabble in the derivatives market where you actually sell out of the money call options or enter into the basis trade or you do swaps against the underlying Bitcoin collateral.

Michael:
[31:23] That you have to consider the tax consequences and the counterparty risk and the economics. But if volatility is high, then you sell the volatility. And if volatility is cheap, maybe you don't. And then finally, as a buffer, you hold two years worth of cash. And if you just don't like the equity markets or the derivative markets or the capital markets, you just use the cash to pay the dividend. But ultimately, the fundamental idea you've got to understand is you're holding a capital asset that you expect over the course of 30 years to go up X 10% a year, and you're paying the credit investor a fraction of that.

Michael:
[32:04] One-third X, one-half X, right? And the capital investor has a long-time horizon. They can hold it for a decade. The credit investor isn't willing to accept the volatility for a week. And so the reason it works is because credit investors will accept a lower return if you can strip the volatility and give them principal protection and over collateralization. And the equity investor wants to outperform the capital asset.

Michael:
[32:36] They want more leverage on that. They want 2x Bitcoin. And they've got a long time horizon. They've got a high tolerance for volatility. And there's a stack of derivative investors, the people that are trading the call options and the put options, they actually want the leverage and they want the volatility because that makes their options more valuable and it gives them more leverage. And so you're creating a derivatives market, an equity market, you're feeding a capital market and you're creating a credit instrument.

Michael:
[33:11] And those are four different sets of investors with four different profiles. And they need a public company that is transparent in order to create those securities. Like they can't create them. A private investor with a Bloomberg cannot create MSTR stock, nor can they create STRC. So we're creating two instruments that are, in both cases, derivatives of Bitcoin that people would rather trade than the underlying Bitcoin because they have a capital mandate or they have a certain view of the world or economic investment policy. Okay.

Ryan or David:
[33:54] So like to your point with gold, I mean, this would have worked marvelously with gold. I suppose the bet is the capital asset, the scarce asset that you're accounting on for this type of accumulation strategy. The core bet is that goes up relative to dollars or dollars go down relative to that. I mean, gold from the 1930s to now is up about 120x. So it would have worked very well with gold relative to dollars. But aren't you as well putting some margin in the company itself or in the structure itself? And can't you get bitten by the volatility across those years and decades with too much margin? Like, there's almost a question of how much margin is too much for you to

Michael:
[34:35] Weather multi-year storms. There is no margin. There is no margin in the capital structure. Let me make a point. Margin loans are when I borrow against an underlying asset with the obligation to meet a collateral call on one or two days notice. So margin debt is one day money. And if you actually borrowed against the underlying Bitcoin, if you're a retail investor, you're basically borrowing the money for a day. And when you have volatility, that creates a lot of anxiety.

Michael:
[35:06] When we sell STRC, we're selling equity. It's the exact opposite. If you give me a million dollars for my equity, for common equity, I have the money forever with no obligations. Okay, that's the longest duration money. When you give me a million dollars to buy a preferred equity with a variable dividend, if you read the securities document and you understand what that security is, you're entering into a perpetual swap. I am agreeing as the issuer to give you SOFR, the standard overnight funds rate, plus a credit spread determined by the company. And you are agreeing to give the company that capital forever. And you're not getting the money back. So it's not an overnight loan. There is no collateral call. You have no redemption right. Right. You can't. It's not like you can go to the bank and say, give me the million dollars back tomorrow. In fact, you're not getting the money back ever. Right. It's an equity investment. If you wish to sell the instrument, you can sell it into the market, but you're selling it to other investors. And so the magic of this structure is you're creating a perpetual swap.

Michael:
[36:26] That's got stochastically, if you were to actually do the statistical modeling, it's more like a 20 year duration instrument. So you like the issuer has the money for about 20 years. Right. Not if you were to borrow money from a from a crypto exchange, you have the money for 20 minutes. Right. And if you were to borrow the money in a conventional margin loan, you have the money for 20 hours to two or three days.

Michael:
[36:53] But so, I mean, Bitcoin could fall 95%. It doesn't create any, there is no liquidation. It's not a credit instrument or a debt instrument in that way. It doesn't come due in five years. It doesn't come due ever, right? And so this is the ideal kind of credit instrument for a volatile environment,

Michael:
[37:13] because the way it works for the company is the company is paying a dividend to stabilize it. But in the event that the credit of the company improves, if there's too much demand, the company can reduce the dividend rate in order to decrease the demand. And if SOFR falls, if SOFR falls to 50 basis points, the company's obligation is to pay you 50 basis points. I mean, that's, and what happens if the company can't pay that? Well, by law, you can't pay a dividend on a preferred stock that would create an insolvency event for the issuer. Like the board has to approve the dividend. So you understand like it's literally impossible. It is literally impossible to create an insolvency or to bankrupt an issuer of a preferred stock. Right? So people worry that, but whereas if you basically borrowed a million dollars from an exchange, they wipe you out in one minute, you're gone. But in this particular case, in 27 years after a parade of 947 horribles.

Michael:
[38:21] Right, if the company couldn't pay the dividend without being insolvent, it would suspend the dividend for 12 weeks.

Michael:
[38:28] You know, it's like, okay, so what is the risk? It's an equity risk. It's not a credit risk in the sense of there's no credit instrument that comes due that unwinds the capital structure. The risk primarily is, you know, if you do this and you buy Bitcoin and Bitcoin doesn't go up forever, then what happens? Well, the equity investors aren't going to make a lot of money on that trade, right? If you're paying SOFR plus a credit spread or 10% and Bitcoin goes up 0%, the equity investors and the company didn't make money on that trade. But that's all. It just wasn't profitable to the equity. And if you're wrong for 50 years, well, then there might be a risk to the preferred equity. But you see, we've taken something that would be a risk in the next 50 minutes or 50 hours or 50 days. and we've turned it into a 50-year risk for the credit investor. It's like we literally have 50 years of dividends, right? Like how do you create this? Well, you're over collateralized by a factor of 10, 20, 30. So a lot of times people think they don't really understand the math that well.

Michael:
[39:43] If Bitcoin goes up 2%, we've got a $50 billion equity tower. That means we're making a billion a year. That's the dividends. So the break-even point for us is 2%. So if you don't think Bitcoin is going up 2%, you probably shouldn't be an equity investor in a Bitcoin company, right? So there's no equity investor that thinks Bitcoin isn't going up 2%, right? But if it goes up 2%, we can pay the dividends forever and create shareholder value. If it goes up 10% a year, well, 10 or 11, maybe a little bit less because the math is kind of complicated. We get the benefit of the float. But if you expect Bitcoin to go up 10% over the next decade, it's a screaming home run for the equity investors. If you think Bitcoin's going up 0% a year for 100 years, well, in like 55 years, we have to do something.

Michael:
[40:39] I mean, like we do things faster, right? Like you think I'm going to sit around for 55 years and not do something. Look at all the things we've done in the past five years, right? So at the end of the day, if you wanted to acquire Bitcoin with leverage, okay, the least risky way to do it is you sell common equity at a premium to the underlying NAV of the company. That is so if the equity is trading at two times nab you sell a billion dollars of equity you buy you know you buy a billion of bitcoin backed by 500 million of nab you just captured a 500 million dollar gain up front and it is risk-free forever okay that is the lowest risk way and we did a lot of that right we're that's why people are wondering why did you actually sell equity when you're trading at three times nab and we sold 21 billion dollars of it it's like, why do you do that? Because we made $14 billion risk-free in a matter of weeks. Why wouldn't you do that? What's the second best way, right? Let's say you can't do that, right? I mean, that trade isn't always there. And eventually it dries up. And right now with Bitcoin treasury companies, there aren't any Bitcoin treasury companies trading at two or three times now. So the second best way is you buy Bitcoin with a perpetual, a variable rate, perpetual preferred You enter into what is, in essence, a nearly risk-free swap.

Michael:
[42:08] You're going to give me a billion dollars. I'm going to buy a billion of Bitcoin. I'm going to agree to pay you a monthly dividend, currently 11%. I'm never giving you back the billion.

Michael:
[42:22] Now, over the course of 20 years, what is the average dividend rate on stretch going to be? Well, probably eight, right? I mean, 11.5% is kind of the rate right now while Bitcoin is in a bear market and the volatility is 55 and everyone is concerned and this is a new thing. But don't you think after three to five years after this instrument's been in the market, the ball of Bitcoin comes off, Bitcoin appreciates? And probably, you know, even if SOFR is 370, we won't have an 800 basis point credit spread against SOFR. We'll probably have a 400, 500, 300 basis point credit spread. So if you look out over time, you know, it's like, would you agree to pay 8% or 9% in order to buy an asset which is going up, you think, 29%? Sure. Oh, and what if we're wrong? And what if it goes up 10%? Okay, we'll just make a little bit of money. What if it goes up 0%?

Michael:
[43:24] Well, I mean, anything is possible except for the fact that I just told you there's only $30 million of Bitcoin available for sale every day and we're buying all of it. Like, like we're buying. So, so it's not clear to me that it's going up 0% a year. If I, you know, what's the best way to predict the future? It's to determine the future, right? If we basically buy a hundred billion dollars of Bitcoin, it's probably not going up 0% a year for the next decade.

Ryan or David:
[43:53] I want to learn what your perspective is on micro strategies, strategies, disposition towards accumulation of Bitcoin, of BTC further out in the timeline in 20 to 30 years? Because right now, as I understand it, my strategy is an aggressive accumulator of Bitcoin. Will it always accumulate Bitcoin or will its disposition shift at, I don't know, 5% of the supply, 7% of the supply, 10% of the supply to be a little bit more defensive rather than aggressive?

Michael:
[44:25] Will there ever be a strategy pivot? We're laser focused. We're just laser focused, right? Look, for 300 years, the world ran on gold-backed credit. Like, I have a bunch of gold. I issue credit on top of the gold. That was basically all the sovereign debt. That was all corporate debt. That was all currency. Everything was gold-backed credit. If Bitcoin's digital gold is digital capital, then digital credit on top of digital capital is fine. Like, you don't need a heterogeneous capital structure. Sure. I just described the theory of asset-backed capital. You could do it with gold. You could do it with paintings. You could do it with Manhattan real estate. I think a general principle, though, is if you decide to take a company public and be the Manhattan real estate company, then you're better off to focus on Manhattan real estate and not diversify into ice cream trucks and Monet paintings and gold and crypto assets because the business model is, within reason, infinitely scalable. I guess my question is, we could sell $100 billion of credit or a trillion of credit and buy a trillion of Bitcoin and everything just works better, you see? So diversifying, dilute your focus.

Ryan or David:
[45:41] This isn't a question about diversifying. This is a question about is accumulation fundamental to strategy Or will there become a target that you hit? Or maybe not a target, but just a period of less aggressive issuings.

Michael:
[45:56] But to understand, I'm describing the business model, which is we issue credit, we acquire capital. If we stop issuing credit, we'll stop acquiring capital. But there's $300 trillion in the credit market, which is currently yielding SOFR plus a spread. And the spread is like 80 basis points to 200 basis points. So consider what if we just wanted to convert 5% of that, right? You're getting to $15 trillion of credit. And can you pay better than 280 basis point credit spread? Sure, you can. So if you issue the credit, in order to actually make good on the credit, Remember I said, where's the dividend coming from? It's coming from the capital appreciation.

Michael:
[46:43] The real brilliance of the business model is you're acquiring a capital asset that you're holding in perpetuity and you're never realizing the capital gain on it. If you pay the dividend by remitting the unrealized capital gain back to the credit investor, the dividend becomes a return of capital dividend, which means it is also tax deferred. So the basic principle is I'm entering into a capital investment that I expect to hold in perpetuity, and I'm paying a dividend on the unrealized capital gains through issuing a derivative instrument that allows the credit investor to collect dividends for a decade, tax deferred.

Michael:
[47:32] And should they die and pass that credit instrument to their heir, they get a step up in the basis. So you could be a retiree, collect dividends for 10 years, not pay tax, pass it through to your heir. They get a step up and they get 10 years of dividends that are also tax deferred. So the thing that makes the entire structure work is that you're making a capital investment for a credit investor. And you're absorbing the uncertainty of the future and the volatility of the present on the balance sheet of the common equity in order to strip the risk and strip the volatility from the credit investor's portfolio.

Michael:
[48:14] And the credit investor is paying you handsomely for that, right? And everybody's getting what they want, right? The capital investors in Bitcoin get a benefit. The equity investors and strategy get amplification of Bitcoin. And the credit investor gets that stripped down low volatility digital, you know, instrument, digital yield instrument. And so you don't really want to stop. If someone were to give you $10 billion and you didn't buy Bitcoin, then you actually lose the 30% ARR that's paying the dividend. So now you have to find something else to invest in that's going to perform 30%. And so what is that something? And the answer is, here's the answer. I don't think there's anything better, right? I think that that's the best long-term capital investment, but it doesn't really matter whether you agree with me or not. The point is I run a public company and all of the equity investors in the public company are Bitcoin maximalist, right? And so the people that hold MSTR believe that Bitcoin is going up.

Michael:
[49:32] More than 10% or 11%, and they want to outperform it. So when we're selling the credit to buy the Bitcoin, we are aligning with the equity investors. We're giving them what they want, which is more Bitcoin per share. We're supporting the Bitcoin ecosystem by buying the Bitcoin, providing liquidity. And then we're backing the credit with over-collateralized Bitcoin, like 5X as much Bitcoin as the credit. And if you're the credit investor.

Michael:
[50:05] You're able to assess the credit risk by plugging in the price of Bitcoin, the volatility of Bitcoin, your opinion of the future ARR of Bitcoin. That spits out a credit risk for you. And if you go to our website, you'll see we've actually published that credit model. It's a very transparent credit model based upon the BTC rating of the credit instruments. BTC rating is the degree of over collateralization. So a dollar of credit backed by $5 of Bitcoin is a BTC rating of five. So it's a long-winded answer to your question, but the point is the credit model is predicated upon a homogeneous collateral base. The equity model is predicated upon a homogeneous capital base, right?

Michael:
[50:54] And that allows all of these investors to invest. Now you might think, well, you're 100% all in on BTC. Well, yes, we are. But let me make one more point. The equity portfolio of the professional investor isn't. So if you're an equity investor, you might decide that you want 1% of your money invested in Bitcoin equity. Or you might decide you want 1% of your money invested in Bitcoin credit. So we are a pure play, transparent, understandable set of securities. And that way, the investor can make intelligent decisions, whether it's to allocate, to hedge, to short, to go long, because we've given them this pure Bitcoin credit and this pure Bitcoin equity. If we were to diversify, if we were to hedge, we would be creating an opaque security and obscure credit risk. And now it becomes very difficult to assess the risk. And so the issue is.

Michael:
[52:05] It doesn't matter to me that the equity investor loves or hates Bitcoin. What matters is that they need to know that they can short $100 million of our security or go long $100 million and know that we're not going to obscure the credit risk or the equity risk, you see. So for us, we have created a pure play digital credit company.

Michael:
[52:31] And to the extent that you don't believe, if you think Bitcoin's radioactive going to zero tomorrow, you don't want to touch any of this. But to the extent that you believe that Bitcoin is a real asset and you have an opinion on it, whether it's negative or positive doesn't matter. If you have an opinion on it, you can rationally invest in it. You can trade it, you can arb it, you can short it, you can go long. And so that's why we're always 100% focused on Bitcoin as the backing capital structure for the equity and for the credit. And we don't need, look, if this was New York City, you're like, well, what happens when you bought up all of New York City? What do you do next? Well, it might be a more complicated thing, but Bitcoin is global digital capital. It's not a little city. I'm not going to run out of Monet paintings to buy, right? It's the most pure manifestation of a capital asset. It's just pure economic wealth, right? Capital. So there's no reason to diversify. The more Bitcoin we buy, the better it is for the entire ecosystem, the less risky it is, And the less uncertain it is for all of the various investors, whether they're capital investors, equity investors, or credit investors that

Michael:
[53:58] are involved with our company.

Ryan or David:
[54:00] Let's talk about a possible threat to that collateral or that capital asset, which is quantum. And Google released a quantum paper this week. They talked about a 20x reduction in the number of logical qubits required to break ECDSA, which underpins Bitcoin, cryptography, as well as Ethereum and some other chains, of course. So their caution to the community was, they said, we urge all vulnerable cryptocurrency communities to join the migration to PQ, to post-quantum, without delay. They also ran a scenario where there is a certain percentage of supply of Bitcoin that could be quantum attackable. 6.9 Bitcoin currently vulnerable. 2.3 million of that is dormant and possibly unmigratable. This is kind of the lost keys, the Satoshi supply. They said there are a few things that could be done about this. Even if Bitcoin does implement post-quantum algorithms, there's something to be done with that $2.3 million in supply. You could either do nothing, you could burn it. They have another approach that is kind of a moderated approach, which is an hourglass approach, limit the rate that dormant coins can be spent. They have some other options as well. What do you think should be done about this? What should the Bitcoin plan be with respect to quantum? Well, let me

Michael:
[55:15] Start with some basic philosophy. There are three types of people in this world. There are the optimist, there are the pessimist, and there are the alarmist. Okay. So optimists are people that think the world, the future is uncertain. Lots of things are going to happen. And when those things happen, we'll figure out how to create the greatest degree of prosperity with it. If it's a threat, we'll deal with it at the time. If it's an opportunity, we'll find a way to harness it. Most new developments will be both an opportunity and a threat. Quantum computers, what happens if computers get better? Well, I happen to think that what happens if computers get better is that smart people find a way to make money off of computers getting better. And if you're in the digital capital business and computers get better, we'll probably figure it out. The optimists always look at the world in a constructive, cheerful way. I happen to be an optimist. I believe in the Bitcoin community. I believe in the crypto community. I think there are a lot of smart people. They're thinking about all of the things they're going to develop in the world. They'll come up with the best way to solve a problem if it's a problem. But there are other people who are going to think about a way to harness it to make money or create more utility, and that's good too. The pessimists always enumerate all the negatives, all the parade of horribles. I can give you a list of 100 things that could go wrong, 1,000 things that can go wrong.

Michael:
[56:44] We could talk about that for hours and hours and hours.

Michael:
[56:48] I'm okay with pessimists. We need pessimists because if we don't think about all the things that might go wrong, then we won't be ready. But on the other hand, if I give you a list of 100 things that could go wrong, it's very important that you have a stochastic view of the world. You have to master probability statistics. And you have to ask the, for example, you're walking across the street, looking the wrong way, worrying about the quantum threat.

Michael:
[57:15] But the thing that really could go wrong is you get hit by a truck. And and so the real threat is you get hit by a truck because you're not looking both ways while you cross the street and you're worried about something that is a hypothetical threat some number of years out that may or may not happen that may or may not be solved before you have to do anything about it it turns out that you know i i think people are very focused upon quantum because they ran out of all the other things to worry about we used to have the energy problem, we used to have the China problem, the miners weren't going to mine, the miners are going to mine too much, the energy is going to be too expensive, there won't be enough energy, we'll be shut down, the government will ban this, the government won't ban this, you know, Wall Street won't want it, people won't buy it. I could list 100, right? Satoshi worried, you know, people asked Satoshi back in the day about the quantum threat. And what Satoshi said, he said, we can upgrade. Okay, so my short answer on the threat is we can upgrade. My more thoughtful answer is.

Michael:
[58:21] The optimists are comfortable. The pessimists are writing these papers. The alarmists are just seeking to aggrandize power and influence and money by amping this way out of proportion. I'm not an alarmist. I don't think people should be alarmist. I would caution anyone from making decisions based on alarmism because there's a tendency see in this world for people to consider a hypothetical risk that somewhere in the future, amp it up by a factor of 10,000 and then ask you for money. And normally, that's how I raise money. Like if I'm trying to finance my quantum startup, I'm like, you know, quantum's a big threat. Why don't you give me a lot of money? In politics, it happens. It's like, well, you know, if such and such gets elected, you know, they're going to, you know, shut down this business. Why don't you give me a lot of money. So you see this in politics. You see it in venture capital. You see it in medicine. It's like, well, you know, like your three-year-old might hypothetically get this disease when they're age 57. So why don't we just go ahead and vaccinate them out of abundance of caution right now? I think that the thing to always keep in mind, you know, you guys remember the Hitchhiker's Guide to the Galaxy?

Ryan or David:
[59:36] Oh, yeah.

Michael:
[59:37] What's on the back of the book don't panic don't panic i i think that by the way that was douglas adams and that was what 50 40 years ago very good words it's okay to consider all these things it's okay to even study them and think them through i think that the real the real mistake the fatal mistake to avoid is panicking. And panicking means rushing into a cure for a hypothetical disease before you really understand the nature of the threat and the proximity of the threat. Because, and Nicholas Taleb makes this point a lot, you know, it's like.

Michael:
[1:00:22] The side effects on a vaccine, you know, it's like, oh, the vaccine, it creates awful side effects to 1% of the people that take it. The likelihood you'll get the disease is 0.01%. You know, it's like, if you rush into every cure and every treatment, you over vaccinate. And Robert F. Kennedy made this point very articulately not so long ago. I think that with insurance, it's the same thing. It's like, you know, I want to sell you insurance against slip and fall on a sidewalk. It'll cost you 1% of all your wealth. It's only 0.01% likely to happen. But, you know, if I can sell you 100 micro insurance policies, then I take 100% of your money and I insure you against 1% of the risk. And so the real issue here is how should one react to a hypothetical threat when and how much expense should you incur? Because, yeah, hypothetically, there might be a quantum computer and hypothetically, it might be a risk. And if so, you might need to do something. And then the question is, what is the something and how fast should you do it? And if you rush the cure now, you know, you guys know the word iatrogenic?

Michael:
[1:01:47] Iatrogenic is a word you should know. I get it was made famous by Nicholas Taleb. Yeah, that seems like a Taleb word. When the cure is worse than the disease, okay? The world is full of iatrogenic solutions to hypothetical problems or theoretical problems. And generally, most civilizations fail because they get rich and successful and arrogant. And then the people that run them start to react to hypothetical problems in an iatrogenic fashion, such that they inflict more damage on the civilization than the hypothetical risk. It's like over-insuring.

Michael:
[1:02:32] You become a hypochondriac. That's one word for it. People that imagine diseases and then they treat themselves for imagining diseases. Another word is is autoimmune disease is the biological example is is you know i'm reacting destructively to something that shouldn't kill me but it's going to kill me because you know allergies where you actually overreact to the peanut and you go into anaphylactic shock or something and you die the peanut shouldn't have killed you the peanut didn't kill you your body killed you because you were hypersensitive to the pathogen. And so in this case, I think this is why when people talk about Bitcoin and they say it doesn't move fast and that's a feature, not a bug. Moving too fast is like being hyper allergic or hypersensitive. It's like I give you a parade of 100 horribles and you have to cure them all? And the answer is no, you don't. Because if you actually react to the next 100 things I'm going to enumerate as a risk factor, you'll destroy yourself.

Michael:
[1:03:43] And that is as old as time immemorial. So my view is consensus will form over time. And there will be consensus over the proximity of the quantum threat. And there'll be consensus about the right solutions. And there'll be consensus on post-quantum encryption packages. And there'll be a huge amount of money spent by a lot of different organizations. And with a lot of these things the right answer is you should not move too soon you should not move too late you should move at just the right time and you know i think calvin college i think is attributed to this quote he said if you see 10 problems or 10 troubles coming at you down the road, the odds are nine of them will drive themselves into a ditch before they get to you. So, you know, out of 10 things you can imagine, one of them will get here. And when the one thing gets here, you have to deal with it. But the other nine will never make it. They will be hypothetical, you know, theoretical problems that an alarmist market it.

Michael:
[1:05:04] You know, Al Gore marketed like, you know, the climate change problem and how the world was going to end. And that was full on 2003. And we're 23 years later. And none of it happened. But the climatologists and the ESG people made billions and billions of dollars marketing that climate alarmism. And I could list you 100 other examples of alarmism where there are a lot of people that want to get rich and powerful. They'll want to win elections. They'll want to raise money and they'll want to nag you. They'll want to get under your skin and create insecurity.

Michael:
[1:05:42] And the rational thing to do is take all that in, but then assess, you know, how realistic is the risk and what is the proximity of the risk? And is the prescribed cure worse than the disease? By the way, a simple cure is you just sell all your investment assets and you buy gold. That's what Peter Schiff would tell you to do because there's not any quantum risk there. But my view is human beings, alarmists are very loud. And when you post alarmist stuff on Twitter or X, it goes viral. If you say there's a hurricane in the Caribbean, it's going to actually sink Miami under a wall of 20 feet of water. It's going to go viral. Everyone's going to read about it. You're going to become famous. None of it's likely to happen. And on the other hand, the more likely thing to happen, by the way, we did that once. Once, you know, there was a Twitter cane, 2018. People got really worked up over this. And they actually evacuated Miami Beach. They declared martial law and they evacuated large parts of South Florida over the hypothetical, theoretical hurricane that was going to sink the city.

Michael:
[1:06:54] They created more damage, tens of billions of dollars of economic damage, and probably more loss of life in the reaction to the fear than if they'd ignored the tweet, right? And that's a classic iatrogenic example. And I think that if you sold all your assets to buy gold, the likelihood is that if they do develop a quantum computer, they'll use it to figure out how to synthesize gold and the price of gold will go to zero. So I have a lot more likely to that. So look, I have a vivid imagination as much as anyone. I can give you 10 million threats. I can also give you 10 million opportunities. I think that in general, the mistake that people make is to panic. The panic, and by the way, the alarmists want you to panic. The alarmists are saying, well, you know, you don't have a plan and you need a plan. Well, actually, by definition, the plan is going to do more damage to the patient than the careful consideration of the risk. And so I think the Bitcoin community is pretty rational here. There's a lot of smart people thinking about it. They're thinking about all the pros and cons, all the tradeoffs. Like, do I want to go to these post-quantum signatures or not? What is the impact? Am I gonna introduce a new attack surface?

Michael:
[1:08:18] But I'm of the opinion that if you rush, if you rush and panic, you will probably introduce a greater risk than if you just think about it really hard and move with a mature.

Michael:
[1:08:33] Measured, responsible, progressive progression. And so I'm a progressive there, and I'm sure that we will arrive at the right solution in due time. Right now, you just have a lot of Twitter trolls that just like to make a lot of noise, and they're alarmist. And I think that's not helpful, and I would not encourage anyone to confuse getting clicks because, with actually making a constructive contribution. By the way, I have found, and I study it, you guys must have studied it too, the stuff that runs hardest on X is the not truthful stuff. Like if you're inflammatory, enraging, or you just make it up, it runs 100 times harder. If you actually post that there's a storm over the Caribbean, but it's only 0.1% likely to have negative impact on Miami, no one's going to retweet that. Yeah. And, you know, if you posted, you know, we might develop better computers and the better computers might threaten cryptography. And there's a lot of people working on this and, you know, people at Apple and Amazon and Facebook and Google and Meta and 37 other organizations are considering what the pros and cons are of this thing is very interesting. It's like, you know, most people on Twitter can't read the third sentence in the post.

Michael:
[1:09:59] It's like I've noticed most critics, they can't read a paragraph, much less three paragraphs, much less 10 pages, much less 100 pages. So at this particular point, I think that the one thing you could say about the Bitcoin community is they're thinking about everything all the time, very loudly and transparently. Whereas at Microsoft, they're not publishing the internal transcripts of their thoughts about quantum risk to Office 365. So you tend to have this disproportionate amount of attention to this one network. And maybe that's a plus. Maybe it's a plus if we just get all of the smart people thinking about everything for us. But I got to tell you, the place where it becomes dysfunctional and unhealthy is when people start thinking that they need an immediate solution to the parade of horribles that the opportunistic intellectuals or the alarmists want to throw

Michael:
[1:11:02] out there online in order to get clicks.

Ryan or David:
[1:11:04] Michael, I want to ask about your relationship to Ethereum, your thoughts about Ethereum, because as I understand it, it kind of started off just pretty outright dismissive and it's adapted over the times to be a little bit more open to Ethereum. What do you think about Ethereum today?

Michael:
[1:11:19] I think that the crypto market has really evolved into various segments. And one segment is digital capital, just long-term economic assets, store of value asset, and without cash flows and without utility other than just to preserve its own scarcity. And that's what Bitcoin is. I think that there's another evolving segment, which is these staking networks. And, you know, the use case is tokenizing of securities, tokenizing of currency, tokenizing of other assets, tokenizing of commodities, right? And you need smart contracts and you need bandwidth and functionality to do it. It looks like.

Michael:
[1:12:07] Ethereum is the early creator of that, and there's going to be competition between Ethereum and Solana and Hype and other, you know, Sui and all these other coins. Ethereum clearly is the leader in that space right now, and all of the other proof-of-stake networks are going to be competing, you know, to tokenize securities and tokenize currencies and the like. I think that the idea of tokenizing securities and other real world assets is strongly legitimized post the last election, right? I mean, this administration, Paul Atkins at the SEC, Selig, you know, at the CFTC and the new White House, they have legitimized the idea of tokenizing assets. And so that was a big boost. It was a much more difficult future to see two years ago than it is today. At this point, I would say there's still a lot of uncertainty about the utility that you can provide to a tokenized currency, tokenized security, or tokenized commodity, or just the creation of a token. There's a lot of uncertainty there. And we're hoping for the Clarity Act to clear some of that uncertainty away. But there's no question that there's a consensus that there's a consensus.

Michael:
[1:13:32] That there is utility in being able to tokenize securities, tokenize currencies, tokenize commodities, right? Create tokens, right? The perfect world is you can issue a crypto token to raise capital for a small mid-sized business and it takes like two days and 40 bucks, right? Like the ICO on steroids, what if 40 million companies could all issue their own token to raise capital, right? That would be good for the world. And it's pretty obvious that if I could move money at the speed of light in the form of digital dollars, you know, like a stable coin, and if it had all the utility of, you know, paying yield and the like, that'd be great for the dollar, right? There'd be $10 trillion of demand for that.

Michael:
[1:14:18] And I think there's consensus that people would like to be able to do digital exchanges, DeFi, right? We'd like to be able to enter into trades, you know friction free permissionless speed of light you know if i want 50x leverage you know in a flash loan on sunday morning right against any two any two asset pairs cool and i think you need these uh you know you need these tokenizing networks and and i think ethereum led the charge on that. So I think that's being recognized by the marketplace. And I think the big staking networks have achieved kind of de facto legitimate status in the eyes of the regulators. And I think we're waiting for the Clarity Act to make that du jour.

Michael:
[1:15:12] And what we'll see going forward is we'll see a market competition, who can bring the most utility to the market, who's got the most stable network, who's got, you know, I look at these things like, how technically sound is it? How economically sound is it? How ethically sound is it? You know, I don't think there'll be one winner, but the winners in the future will have a a sound economic basis, a sound technical basis, right? A sound ethical basis. And the market is going to sort all that out with the wild card being that the regulator, you've got the market, the ultimate arbiter, I like this and not that.

Michael:
[1:15:56] And that'll be expressed by users and capital locked up in these networks. And then you've got the regulators who are making decisions, you know, about what use cases are acceptable or not acceptable and how, you know, where they're going to draw those lines and just how functional are you allowed to make all those digital assets. And then the final boss is the legislators, right? And they can pass a law saying you don't get to give yield or you don't get to do an ICO or you don't get to take self-custody, right? And I would say for all the staking networks, and especially, you know, Ethereum especially, the last two years have been pretty instrumental. They've moved from, I would say the previous administration looked at those use cases as illegitimate. And this administration and the consensus that's formed is, this is legitimate.

Michael:
[1:16:56] That's all good. and now there's a lot of uncertainty about.

Michael:
[1:17:02] You know, where the regulars will draw the lines, where the legislators will draw the lines, and then what the market will decide. So it's exciting. Interesting.

Michael:
[1:17:11] There's a future there. You know, how big it is?

Michael:
[1:17:15] Like, look, guys, if it was up to me, and it's above my pay grade, no one's asking me, but if it was up to me, I would define digital currencies that could pay yield and move at the speed of light, and there'd be $10 trillion of stablecoin out there issued by reputable parties backed by currency equivalents. And it was up to me, every small midsize business could issue a digital token over the weekend, and they could articulate, this is the promise we're making, we're accepting civil and criminal liability for misrepresentations, et cetera. And they would be able to raise capital and they would be held liable and we would eliminate the two years or three years of friction.

Michael:
[1:18:04] Right now, it takes three years to come to public. It's ridiculous, right? It takes a year to raise a small amount of money. The amount of money people spend on lawyers is greater than the amount of money that they need to raise in most cases. So yeah, I would have a digital token which people could use to raise capital and we would have digital exchanges that you know, work 24-7, 365 that were friction-free, that, you know, had massive functionality and the AIs would trade with the AIs a billion times a minute, right? And we would be able to tokenize every security. So every single security would be tokenized and be trading 24-7, 365 with self-custody everywhere in the world. And the world would be a better place.

Michael:
[1:18:48] And I published that, you know, I think March I went to the White House summit And I published A digital assets taxonomy I posted it on my Accent on my webpage, That would have been March of 2025 About a year ago, the point is, it's above my pay grade, right? No one's asking me. And I don't think we're going to get 100% pure, you know, digital assets moving at the speed of light with all of the guardrails taken off. I think there's a tension between TradFi and the established financial structures and the established banking, established securities, established law, established whatever. And the crypto ethos, permissionless, self-custody, friction-free, perfect everything. And so I think, you know, to come back to your last question, Ethereum's in the middle of all of it right now. And I say two years ago, the future was bleak. Now, you just got to fight for the best future you can get. And it'll be determined partly in the market and partly in Congress and partly in the global, you know, the global economy. Yeah, I know a previous guest, Tom Lee, has been on here.

Ryan or David:
[1:20:16] And he said that he was very inspired by your work at Strategy to come up with

Ryan or David:
[1:20:19] his Ethereum digital asset treasury. And he's certainly grown that a lot. Maybe as we move to the close, Michael, and thank you for joining us. It's been a pleasure to chat with you and catch up on all these things. I'm struck with the fact that if you're right about Bitcoin in terms of its price appreciation, what it does in the years and decades to come, Strategy becomes an incredible company. And an incredibly important asset, both for the world and also for America. I mean, you will have created the largest Bitcoin reserve in the world at $400 trillion. I mean, quite obviously, Bitcoin would be a global reserve asset, far exceeding what gold does. What's the end game for strategy in that world? I mean, do you see a scenario where strategy, like one day there's a financial crisis and strategy gets nationalized by the US government? Or do you see yourself playing a role like JP Morgan in the 1907 financial panic where he was organizing to help save the banking industry in the US? I mean, that world where Bitcoin is the global reserve currency asset or store of value, let's say, what role does strategy play? And how is your future shaped by that?

Michael:
[1:21:34] You know, very motivated by the opportunity that we've been given. And I'm very humbled by it. And I feel very blessed. And the truth is, guys, we just got lucky. Like you've followed this entire art, you know, since 2020, you've been here. I didn't start down this path. We started out of desperation and frustration. And for a while, it was opportunistic and it was very uncertain. But at this point, I think.

Michael:
[1:22:01] The light at the end of the tunnel is becoming clearer and it's actually getting very simpler. And so here's the very simple idea, right? How do you make the world a better place? You provide a utilitarian value, something valuable to a billion people that everybody just agrees on. And so, you know, with Rockefeller, it's like kerosene, gasoline, and everybody just lives a better life. And then with Ford, it was an automobile. And who doesn't want an automobile? And then Jobs gave a billion people an iPhone. Nobody just wants an iPhone, you know? And then we had like electricity, you know? And so we all, we like those things. So what is the equivalent in the digital asset space? And the answer is, everybody would just like a bank account that pays them more than the inflation rate. Like, how about, give me a bank account that pays me 8%. Right now, your bank pays you zero, right? The money market pays you 3.7% before tax. If you live in Japan, it's 50 basis points. If you live in Switzerland, it's nothing. So what is the idea? Well, I would just like social security or I'd like to live comfortably ever after. What we say tongue in cheek is fix the money.

Michael:
[1:23:20] How do you fix the money? Well, Bitcoin people have been thinking about how to fix the money. And I think what we've realized is the way to fix the money is to integrate the promise of technology. What does Bitcoin represent? It represents digital, capital, digital, something that moves at the speed of light to a billion people, capital, scarcity, right? It represents a capital asset with integrity. So how do we fix the money for a billion people? And what we realize is the answer is not convincing a billion people to adopt Bitcoin as the currency instead of the dollar or the yen or the euro. And the answer is not getting them to, you know, throw away their bank, replace the government, rethink their world, you know, disclaim interest in all corporations and self-custody. These are all crypto ethos things. And it's not that I'm not negative on them. They're all valuable. But I think after five years, and believe me, I preach Bitcoin to more people than anybody.

Michael:
[1:24:30] It's a thousand hours and you're going to convince one, two, three percent of the people to put five percent of their money into this asset. You're not going to convince 75-year-old retirees, right? Nor should you. So, you know, What's the great product idea? Wouldn't it be great if I just bought a product and it paid me money for the rest of my life? I just want 10%, a bank account that pays me 10% or 8%. If the natural organic inflation rate is seven, and I think you can make the argument, and I've made this argument with you guys probably in the past, over 100 years, the natural currency debasement rate is about 7%. And so if your money is paying you more than 7%, then you're keeping up with the cost of living. And if you're getting 2%, you're getting debased and you're getting poorer. So how about bank accounts that pay 8% to a billion people, right? That's the product. How do you create that? So we create a credit instrument. We strip the vol off of it. We offer 11, but if you're a bank in Australia, you could just take that 11 and you could pass through eight, convert it to AUD. And if you're a bank in Europe, you could offer 6% or 7% in euros.

Michael:
[1:25:53] So we basically create digital credit and we offer it to Deutsche Bank and JP Morgan and Commonwealth Bank and Morgan Stanley and BlackRock and Vanguard.

Michael:
[1:26:04] And if people, if you think of it is just high-powered money. What is high-powered money? It's a unit account, a store of value, a medium of exchange. Well, stable coins prove that they were medium of exchange and unit of account. But if we cripple their ability to pay yield, they're not a store of value. So I want something that's stable to the dollar, but I want it to appreciate, ideally tax deferred, more than 7%. So, and this is.

Michael:
[1:26:35] Basically, this is me drawing inspiration from the entire crypto industry, right? The stablecoins taught us something. Bitcoin taught us something. Digital exchanges taught us something. What's the big idea? The big idea is give people this digital money market type instrument. Maybe we're not the money market. Maybe we're the digital credit layer. Bitcoin is a digital capital layer. And the third layer is digital money and the banks and the financial advisors, they create the digital money. It's like I meet with the Emiratis and I said, okay, you got a bank. What if your bank just offered people 8% on their dollar deposits?

Michael:
[1:27:24] Okay, well People want to overthink this thing It's like you see fire Some people run away from the fire, Some people want to juggle the fire They're fools They want to juggle the fire And then some people put the fire into the car or the plane And they create a jet airplane or a car It's like most people juggle the fire, Like you're trading Bitcoin and trying to be right and wrong It can be juggling the fire Here's the idea The big idea, The bank in the UAE pays you 8%. You wire $100 billion. They pay you 8%. They get the $100 billion. They keep 100 or 200 basis points. You just double the gross national product of the country. Okay, what did you do? Not that complicated, right? The irony is, and this is what drives people nuts, They're looking for a complicated solution When in fact the obvious simple solution Is right in front of them And that is this.

Michael:
[1:28:32] You just step digital credit down to zero vol, convert it to the currency of choice, give people a bank account to pay 6% in yen, 8% in euros, 8% in dollars. The money flows into the bank, then it flows into digital credit, then it flows into digital capital. Digital capital is scarce desirable and cannot be debased. The price of the digital capital goes up the collateral goes up right we remit the a derivative the cash flows from the capital gain back to the credit investors so what is the end game let's give a billion people a bank account that pays them eight percent like what what is the best product in the world like and in my opinion the best product in the world is a product that you buy once that brings you utility forever, right? What is the universal word in the English language for utility? Money. What's the best product? I'm just going to give you four times the monetary yield of the bank, four times the risk-free rate. What do I got to do? Nothing, right? I could be blind. I can be deaf, right? Even with an iPhone, right? You need hands, right? Right? You got to, If you're blind and you don't have hands and you can't see or whatever, then maybe the iPhone is not the best product.

Michael:
[1:30:00] You know, guys, we're getting to a world where there are going to be perfect products. I'll give you three off the top of my head. One, a digital bank account that simply pays you more than the inflation rate with all the volatility stripped off of it for the rest of your life and for the life of your children's children's children. That's one. That is something like digital money, digital credit. Here's another one. Self-driving car. You see people doing this with Teslas now. I buy a car. I get in the car. I tell it where I want to go. It gets me there. It parks itself. It's stress-free. I can sleep in the car. If you can be blind and sleep in the car, that is closest thing to a perfect automobile. Do you want one? Of course you want one. And then the last Intelligent robot I get the robot It does all of my work forever Without complaining Everything I don't want to do.

Michael:
[1:31:01] Okay, what do all three have in common? I spent $20,000, $50,000, $100,000. I bought something once, a one-time purchase, and they have digital intelligence or digital assets, something digital in them that makes them work forever. Okay, so we are on the cusp of some of these revolutionary products. Like, what's a robot worth? It's a trillion dollar. I could say it's a trillion dollar idea, but it's worth more than a trillion, right? In fact, NVIDIA and Tesla, they know it's a $10 to $100 trillion idea, okay? And what is self-driving cars worth? It's like worth more than, like Elon's charging $100 a month for self-driving right now, right? It's worth more than all the other cars. Who wants a car that doesn't drive itself? Why would you want that? The average rich person spends $100,000 a year to have a driver to drive them. It might cost you $250,000 a year in order to have a car drive itself. And so what's it worth to a billion people? $250,000 a year. So maybe they're only going to pay $1,000 a year, but it's $1,000 times a billion a year, right? And then what's it worth to have a bank account that pays you 8% forever, no stress?

Michael:
[1:32:28] Can quantify that. Right now today, there's 300 trillion in credit, 100 trillion in equity investments. If you get 10% of the market is $40 trillion, right? So what do we want to be?

Michael:
[1:32:43] We spent nearly $58 billion in order to create a crypto reactor to create digital credit. Like people talk about all the money spent on AI and all the money spent on an airplane. I used to think spending 10 or 20 billion on an airplane was a lot of money. We spent $58 billion to create a crypto reactor. What do you do with it? For every dollar of equity, you can create 10 cents to 20 cents of credit per year. So we basically created a $50 billion thing to be able to create 5 to $10 billion of credit a year. And now we can scale that 30 to 50% a year. We just want to be the company that brought digital credit digital money to the world and if we do that it's worth trillions and trillions and yeah it would be a it'd be a good product you know will it be as important as electricity or oil i i don't know but it's like,

Michael:
[1:33:44] To my mind, it's worth devoting one's life to if you have even a small chance of success. And so that's why we're monomaniacally focused on this because fix the money, fix the world. We have a chance, in my opinion, to fix the money for a billion people. It's not complicated. Just requires that one not get distracted.

Ryan or David:
[1:34:09] The one and only Michael Saylor. Michael, thanks for joining us today.

Michael:
[1:34:12] Yeah, thank you for the opportunity. Always enjoy our conversations.

Ryan or David:
[1:34:16] Gotta let you know, guys, of course, none of this has been financial advice, although an 8% a year bank account forever sounds pretty good. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey.