MicroStrategy (MSTR +1.42%) is an enterprise software and business intelligence company, and CEO Michael Saylor has put billions of his company's money into Bitcoin and hundreds of millions of his personal wealth into the cryptocurrency.
In this podcast, he and Motley Fool co-founder Tom Gardner discuss:
- Bitcoin (BTC 0.18%) as a hedge against an increasing money supply.
- Environmental implications of mining cryptocurrency.
- The security of Bitcoin's network.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on March 6, 2022.
Michael Saylor: I think if you're looking for something that will be around 200 years from now, the Bitcoin protocol and the Bitcoin network has by far a much better chance than Apple, Amazon, Facebook, Google, any government, any asset, any property you can find anywhere in the world. Because you really have put digital property and cyberspace for the first time in human history. It's Manhattan in cyberspace.
Chris Hill: I'm Chris Hill, and that was Michael Saylor, the CEO of MicroStrategy. In general, we enjoy pretty stable purchasing power here in the United States. But recent large swings in major currencies highlight the appeal of cross-border stores of value like gold and Bitcoin. The price of both are up since the beginning of Russia's invasion of Ukraine and the de-valuing of the ruble. Saylor has put billions of his company's money into Bitcoin. Using these purchases in tandem with stock buybacks. He's also put 100s of millions of his personal wealth into the crypto currency. The Motley Fool Co-Founder and CEO Tom Gardner, interviewed Saylor a year-ago and the conversation is still valuable today, starting with the bulk case for Bitcoin, from a billionaire whose putting his money where his mouth is.
Michael Saylor: If you asked me about Bitcoin in February of 2020, I would've said what, I don't know, it's not for me, I don't get it. If you'd asked me what I thought about business in April of 2020, I would've said this is just the scariest thing I've ever seen in my career. Mainstreet shutdown and Wall Street's already recovered and the cache shaper it's just very odd. By the time we got it in the second quarter, what we knew was this, our revenue wasn't going away. Our business value proposition was better than ever. We're going to generate four times as much cash flow because all of our marketing, sales, and services activities dematerialize, travel on expenses dropped by 98 percent and we started to Zooming everywhere, we started uploading videos to websites. We had all this cash coming. We had a block of $0.5 billion of cash sitting there and we got dragged in the macroeconomics we realized there was worthless. I know investors didn't value it and so we had a problem and we started looking for a solution. I would say Tom, the paradigm shift here is two-fold.
The first paradigm shift is for the first time in 30 years, people in the western world are living in environments where the currency is weakening more than seven percent a year, it's weakening at 15-20 percent a year. That's the first paradigm shift because that changes how you discount bonds, how you discount value stocks, how you discount commercial real estate, and you got to think different. The second paradigm shift is Bitcoin's the first digital monitoring network in the history of the human race. We never in 5,000 years could make money work on a computer network and it wasn't clear it was going to work when it was a billion dollars, but by the time we got to June, it was $200 billion and you guys follow digital networks, Facebook, Amazon, Apple, Google. Every good idea for the past decade has been a digital network and when they get to 200 billion in market cap, they're pretty hard to stop. Our conclusion was, this is like Facebook for money or YouTube for money and we jumped on it today. It's a trillion-dollar digital network. It's the fastest growth toward to a trillion dollars of any network in the history of the world for 12 years. Google took 22 years, Amazon took 24-years, Apple took 42 years, Microsoft took 44 years. Those are the only firms have ever done it. Bitcoin has done it, and so the paradigm shift is digital monitoring network, a solution to everybody's problem and COVID lockdowns, everybody's got a problem. You put those two things together. You have to think different, and that's why we did what we did.
Chris Hill: Putting your shareholders money into a cryptocurrency may sound, among other things, unusual. But here's why Michael Saylor did it.
Michael Saylor: We're not crazy. The point is, it's the world's first digital treasury asset. There's $100 trillion worth of treasury assets that are negative yielding debt or zero-yielding debt or cash and that's like an assets minus 15 percent real yield. All the bonds are broken, all the treasury strategies are broken. This is the solution to $400 trillion worth of investors problems. They've all got the problem. It's a solution to 7.8 billion people's problem. They're all generating salaries in cash, which is debasing at 15 percent a year, and it's the most disruptive technology in our lifetime. I've been on your show, you had made talking to you about eight years ago talking about Apple and Amazon. If you recall, you could probably pull the quip. I invested $50 million in Apple and Amazon nine years ago, I made $500 million off of it. It's a ten bagger. Not that hard. I'm not proud of it. All I did was buy these digital networks when 99 percent of the people didn't agree with me when they were unstoppable, and I waited. I swore to myself if I ever saw another one, I wouldn't just do it personally. I would put my company into it. We ran into the biggest crisis of our career in 2020, I had 500 million in capital. I saw digital network, which I think is 100 times better than Google or Facebook. It's Facebook for money.
Tom Gardner: We play a game here on Motley Fool Live, and we've done it all the way back to our radio show on NPR and before, and the game is what happens, and we take both sides of what happens. Here we are going to play the hypothetical with you. Three years from now, Bitcoin is trading at $250,000. What happened?
Michael Saylor: It probably grew slower than I expected. There probably some black swan unknown event stunted its growth and it's grown so I appreciate a slower and then you would expect it to, but that's probably what happened.
Tom Gardner: I don't know if you're going to be able to generate a scenario there on the downside, three years from now, Bitcoin is $4,000, what happened?
Michael Saylor: It's going to be a black swan, a sailing asteroid hits it. A rational, honest person can't discount an unknown so I get it. Right now I think it's a trillion dollar dominant network that's 100 times bigger than the next best thing like it. It's about as likely to Bitcoin disappears as it is the Google disappears in 36 months.
Tom Gardner: Some have described Bitcoin as a check or an evaluation of government spending around the world, so why would governments allow that to happen? What do you see as the risk on the regulatory side?
Michael Saylor: The most important thing to know is, although people call it a cryptocurrency, it's not. It's crypto asset. Money has two flavors. It's got the medium of exchange currency element and it's got the store of value asset element. Bitcoin is a great store of value, digital gold. What's the addressable market? A hundred to two hundred trillion dollars. Half of all the stuff that floats around the system is store of value. People just want to keep their money forever. The other aspect of currency is, I want to buy a couple of coffee a billion times a day. People are going to do that with dollars and yuan and yen and euros and Chinese currency. They're going to do it on Apple Pay and Visa and MasterCard and Square and every other regulated payment rail. The government, as long as it functions in China, the US, or Europe is going to control the currency, and they've given a tax treatment. When I give you a million bucks or a 100,000 and you give it back to me a year later, there's no capital gain tax on it, it's not a taxable event. It makes sense to use dollars as currency.
On the other hand, Bitcoin is property. It's been legitimized as property by the IRS, by the SEC, by the OCC. It's not going away. It's not going to be currency in the US, it's not fast enough and the tax treatment is hostile. It is going to be property. To the extent that people buy it from regulated custodians subject to AML or KYC regulations, and banks like Morgan Stanley where they're buying it now from players like Fidelity. The government is going to make sure that it has the same AML KYC regs and clarity that gold or silver or stocks or bonds or any other derivative instrument would have. It's not threatening to a government if I'm swapping out my gold for Bitcoin. It's threatening to the government if you can move a billion dollars to a private wallet in Sub-Saharan Africa without KYC AML. You can expect that they'll have regs around the latter and that's totally fine. As they clarify those even more, it's just going to be bullish for the asset class, because that's the green light for every insurance company in endowment to buy a 100x more than they bought so far.
Tom Gardner: Industrial advisor and analyst, Motley Fool Bill Mann wrote that cryptocurrencies in Bitcoin as designed, violate the defining challenge of lowering the impact of power consumption. What about the environmental aspect of Bitcoin?
Michael Saylor: People don't understand that very well. First of all, 99.97 percent of all the power used in the world is used by other technologies, mostly 20th century technologies. The energy intensity of those technologies is 10 percent. Basically about you put in a dime and you get out of dollar worth of value-added and you can look at that everywhere. The last three basis points, 0.3 percent of the power in the world is used to power the Bitcoin network. That power is used to secure a trillion dollars worth of money at a cost of capital of 20 percent, that's worth $200 billion a year. It's two billion to three billion in power. You're talking about energy intensity of one percent as opposed to 10 percent. It's extremely efficient. The power that use, which is a thimble fall, is at the edge of the power grid. It's reclaimed energy normally like 2 cents a kilowatt-hour. Every human being in industrial application pays 11 to13 cents a kilowatt-hour to get electricity. So the only power that's being used in the network is either green energy, stranded, recycled energy. It's plants and capital that would otherwise have to be destroyed. Bitcoin is serving as a global monetary battery to reclaim that stranded energy or avoid the capital destruction that would ensue otherwise.
Should you come across geothermal energy of the North Pole or a waterfall in Sub-Saharan Africa, or wind that's somewhere in the world that generates infinite renewable energy, you cannot monetize it in traditional networks because you've got a 500 mile radius where you can move the energy and you lose eight percent to do it, and batteries lose two percent of the energy a month. What's your choice? Your strategy or mechanism is you turn that stuff on, you plugging into a Bitcoin miner, because Bitcoin is a perfect battery, and you can drop a billion-dollars of energy in a Bitcoin network and hold it for a 100 years, no power loss. So Bitcoin is probably the most environmentally friendly thing we have on this earth. It's literally one percent energy intensity, and it's going toward 0.1 percent energy intensity. Because once you get to $10 trillion to $20 trillion of assets on the network, you've got a value and use of two trillion a year against what, four billion in energy? We never came up with a better use of energy than store all the world's money. That's pretty good use.
Tom Gardner: How certain are you that the supply cap is impenetrable, unchangeable?
Michael Saylor: I'm certain. Look, this is the world's most successful decentralized network. It was constructed to be outside the control of a CEO, a company, a regulator, a country. You couldn't be certain of it in the first year or two years. It's pretty much the perfectly designed crypto asset network. You just got to wait 12 years and see will it be hacked, will it be banned, will it be copied? When it was 1, 2, 3, 5, 10 billion dollars, I couldn't be sure. But that was 2012, 2013, 2011, 2015. Today you have a trillion dollars of monetary energy in a network highly decentralized everywhere on earth. There's nobody that can change this thing at this point. The fork wars have been fought. You could see the blood on the street, and it's all been decided. Imagine everybody on earth with a trillion dollars and you show up and you're like, I just want to steal your money or [NOISE] it up.
Good luck with that. You're going into a nest of hornets; it's just not going to happen. In fact, it's the one thing I see in the world that I have a reasonable expectation that it will continue as an intact network and a protocol for 100 or hundreds of years. I think if you're looking for something that will be around 200 years from now, the Bitcoin protocol and the Bitcoin network has by far a much better chance than Apple, Amazon, Facebook, Google, any government, any asset, any property you can find anywhere in the world. Because you really have put digital property in cyberspace for the first time in human history. It's Manhattan in cyberspace. Hundred million people live there today. A billion people will live there within five years. Within 10 to 15 years, I think you'll see five billion people. It's really just an extraordinary thing. Why wouldn't you want to own one of 21 million city blocks in the Manhattan of cyberspace.
Tom Gardner: I forced you into hypothetical game about what would happen in this scenario, in that scenario of Bitcoin. What do you think will actually happen? What are your projections or what is your overall perspective on, let's say, Bitcoin anywhere five to 10 years out from today? I assume you fully anticipate holding your position and or adding to it here over the next five to 10 years.
Michael Saylor: My view is Bitcoin is the apex property of the human race. Which means that it's the last thing you will sell. If you owned a block of Manhattan, you would hold it a long time because you thought Manhattan is always going to be valuable, but Bitcoin is better than Manhattan. So it's the ultimate long-duration asset, or in other words, an institutional grade treasury reserve asset. You ought to buy it and hold it and if you ever need cash, just borrow against it.
Chris Hill: The volatility of Bitcoin is well-known. In the past six months, the price of one Bitcoin has surged above $67,000 and fallen to about $35,000. But here is Michael Saylor is not worried about that volatility for the long term.
Michael Saylor: I'm not terribly concerned with the volatility. I think there'll be accelerations and pullbacks, but the institutions are collaring it on both sides. The capital was not consumer leveraged capital of day traders. The capital right now is insurance companies, big public companies. We're coming in to buy it forever. Ask me when I'm going to sell it? Never. I'm not going to sell ever. The narrative has rotated long-term institutional deep pockets and asset class has matured, and of course, the law of large numbers say a trillion dollar entity has more inertia to it than $100 billion entity, and what do I expect to happen? I expect it will grow aggressively toward gold and it will flip gold, and then it will demonetize gold and subsume gold and probably they'll be first $10 trillion and gold is 10 trillion, then it'll be 20 trillion and gold will be five trillion or four. Gold will eventually become an ornamental metal. Bitcoin is going to suck the monetary energy off of negative yielding bonds. Tom, I ran a survey on my Twitter, I got 65,000 responses two days ago, I asked people where do the money come from used to buy Bitcoin? Forty nine percent is stocks, 20 percent is gold, 10 percent is bonds, 19 percent is property.
Basically, stocks are going to be negative yielding if your value stocks because they can't keep up with the rate of monetary expansion. Everybody knows bonds are destroyed. Ray Dalio just told the world they're all negative yielding. By the way, he thinks they're negative yielding versus CPI. The real point is they're negative yielding versus the cost of capital or the rate of the monetary supply expansion, which is like 15-25 percent a year. They're screaming value destroyers. So I think that Bitcoin goes to 10 trillion and it goes as fast as it can and then it grows 50, 60 percent a year toward 100 trillion and it slows down from 200 to 150 to 100 to 80 to 60 to 40. You saw Google and Amazon growing at 20 percent a year off of large numbers consistently for the past five years. I think when it gets that big, it'll be growing 20 percent a year and eventually it'll subsume the total adjustable market for treasury assets and then it will be growing at an organic rate, 5, 6, 7 percent of fair cost-to-capital.
Tom Gardner: Sadly, we only have two minutes left because I'm thoroughly enjoying this. Thank you so much for sharing your perspective here with all of our Fools. Let's talk real quickly, rapid-fire about other cryptocurrencies and NFTs. Other cryptocurrency, do any of them interest you? Dogecoin, anything else out there or it's all Bitcoin all the time for you?
Michael Saylor: Bitcoin is the world's best treasury asset, it's a 100x bigger the next thing, the risk is 1,000 times less than the next thing, the addressable market is 100 times bigger than it is right now. It's its own thing. Everything else in the crypto universe is venture capital. If you have a venture capital portfolio, if you have the wherewithal to invest in crypto ventures and you want to study it. Well, in my opinion, they have 100x less addressable market and they are 100 times more complicated. But if you want to do that and you have the capital to do it, have at it. If what you want to do is just buy a bar of digital gold and wait, Bitcoin is better than gold on a big tech network, you just buy a bunch and you wait.
Tom Gardner: Is there any reason to operate MicroStrategy given that? Given the potential or I remember Pat Reilly, the coach of Los Angeles Lakers saying at one point that the players gathered and said, why are we spending so much time practicing? It's wearing us down and he realized maybe they're right. He set up a structure, I believe, where if they won, they could define how much practice they wanted to do the next day. That down to like 10 minute practices and the theory Lakers when they won those championships was less work, more reward and isn't Bitcoin potentially set up for you to get tremendous reward without much effort. So why not the operating business at all?
Michael Saylor: Well, first of all, we've got two strategies. One is we run enterprise software and we make money and we love it and we've been in the business for 30 years and our customers need us and we're good at it. It just happens that we're not growing 200 percent a year. But there's no shame. Are you going to disband your family? None of those sports teams make money, but like so why even own a sports team? The answer is because you love it and is beautiful thing. No sports team grows 200 percent a year either, Tom. Here's the real existential issue, if we get rid of everything on the human on earth that isn't growing 200 percent or 100 percent a year, it isn't growing faster than Google and Facebook, there's not much left in the world, right? We have two strategies, one is we're going to buy and hold Bitcoin and that's a 200 percent digital asset network growing and we love it and we made a lot of money.
We made three billion dollars doing that in the past six months. But that gives us the ability to do the other thing we love, which is create great enterprise software and to continue to sell that and grow that. Just because the two businesses don't grow at the same rate doesn't mean we don't love them both, and there are a lot of synergies to actually having an operating company that has a P&L strategy tied into a balance sheet strategy. So we're going to keep doing them both. We're happy about it. By the way, it's a lot easier to do the enterprise software company when the stock is moving up and when every customer in the world knows who we are, it's helped our marketing, it's helped our customer relations, it's helped our employee relations, it's helped our recruiting and so they're very synergistic.
Tom Gardner: Well, I want to thank all of our members out there for feeding questions in, they've helped to frame the questions I have asked Michael here. Thank you so much for that, Fools. Michael, just one last rapid-fire question-and-answer from you. Let's simulate somebody who's 62 years old, they've got a $500,000 portfolio to invest. What percentage of that portfolio would you put in Bitcoin versus equities versus any other alternatives that they might be considering as they're heading toward retirement. So they are looking at "I'm not going to have maybe income after age 65 and I got a half million, two million dollars portfolio," what percentage would you put in Bitcoin?
Michael Saylor: Tom, I think the single most important thing you can do is estimate the annual rate of money supply expansion every year for the next eight years. If you think of that, 15 percent going to 10, going to five, going to two, going to zero, then you're going to stick toward a traditional portfolio. But if you think that money supply expansion is going to be 15 percent consistent, then you've got to go to scarce assets. Bottom line is I don't think bonds or real estate work as a store of value in a monetary inflation environment because one is a coupon and the other one's pegged to CPI or capped at CPI. I think that value stocks, you've basically got to invest in an index of equities that are going to grow or you got invest in scarce assets. If the growth rate of the money supply is 15 percent, you better find a portfolio of equity that's going to grow 15 percent or better if you're going to store value in it.
Otherwise, I would invest in trophy assets, buy your house on the beach that you want to live in the rest of your life, because that will always be valuable to you. With leverage, I think you buy scarce digital, probably like Bitcoin. You buy something that a rich person is going to want to buy from you in a decade. Ask yourself that question. I'm not buying your New York municipal bonds yielding two percent in a decade, and you're going to get a negative 15 percent real yield. I would think in terms of that trophies, equities, and then scarce assets and obviously I'm biased, I think Bitcoin is the best property in the world. Figure out what your risk tolerance is for it, buy that much of it and then diversify the rest across other things you know and you're comfortable with.
Tom Gardner: Michael Saylor, thank you so much for the 30 plus minutes. Hopefully we'll get you back on Motley Fool Live. You're definitely somebody who is doing what we strongly believe in the Motley Fool and that is getting skin in the game behind your beliefs, having conviction, and trying to teach the world. Thank you so much for the half hour and best of luck with you with MicroStrategy and beyond.
Michael Saylor: Thanks, Tom. I've got the domain, hope.com. I put all my Bitcoin information on it. Bitcoin is hope, if you want more information, try that. Otherwise, thank you for your time. I appreciate it.
Tom Gardner: Hope.com. Thank you, Michael.
Chris Hill: That's all for today, we are coming up tomorrow, we'll talk about how to build an investment thesis through the lens of a popular language learning app. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against. So don't buy yourselves stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
