You're listening to Teip. Hey, everyone, welcome to our Wednesday release of the Investors podcast where we're talking about Bitcoin. Today's guest is billionaire Michael Saylor. Michael is the founder and CEO of MicroStrategy, a business intelligence, mobile software and cloud based service company after graduating from MIT in 1987. Michael started the company and still holds a controlling share of the business. Michael made huge headlines in the past quarter when he decided to purchase four hundred and seventy five million dollars worth of Bitcoin on the balance sheet of his company.

Within only six weeks later, the value of the purchase had nearly doubled. Now, in the fourth quarter of twenty twenty. Michael went out and issued six hundred and fifty million dollars worth of convertible notes. The reason why you guessed it to buy more bitcoin. I had a lot of conversations through the years with some really gifted investors, but being able to tap into Michael's thought process on what's happening right now is one of the most interesting conversations I've ever had.

And for that reason, I'm calling this episode a master class, an economic calculation with Michael Saylor.

I hope you enjoy your listening to Bitcoin fundamentals by the Investors Podcast Network. Now for your host, Kristen Cash.

All right, I'm here with the one and only Michael Saylor. Michael, welcome to the show. Thanks for asking. Hey, so I when I'm listening to some of your other interviews and the one thing that really sticks out to me that I think is such an important conversation for people to. To really understand is some of your comments around inflation risk premiums, the impact that this has as you think about it from a business owner and the hurdle rate that you've got to achieve.

Talk to us in depth. Don't hold anything back on this particular topic and teach people how you're thinking about things from an economic calculation standpoint as the CEO, the founder of a billion dollar company.

OK, look, I think we start with this premise of your CEO. Your job is to preserve shareholder value and preserve wealth, that it's the same challenge you'd have if you ran a family office and you were you were responsible for the wealth of the family. The question is, how do I preserve the value of my individual treasury or corporate treasury over time? So let's say I have. A million dollars. So. In a hard money environment, if the currency is is utterly deflationary, if the Federal Reserve or the central bank was going to print no more currency for the next decade.

Then I've got a million dollars next year, I'll have a million dollars if I'm looking at the value of my cash, my million dollars, I can presumably have it sit in an account. And a decade from now, I'll still have a million dollars of purchasing power because the currency is now being devalued. Now, if if the goods and services in the economy are growing at two percent a year and the currency is flat, then a fixed amount of currency is going to be chasing after an increasing amount of goods and services.

And that particular case, the currency is going to appreciate and value. And so the prices are going to fall. And so that's a good thing. It means that all I have to do is just sit on the money and wait and the economy will be larger. The value of my treasury will accrete. If if the banks print two percent more currency and the economy grows two percent, then you've got a net equivalence. The value of my treasury want to create, but it won't dilute.

Right. So in theory, if you think about the good old days of the gold standard, if gold as a stock to flow of 50. Then it's it's inflating at two percent a year, and traditionally the economy of the world and the economy of most large countries grows about two percent a year.

And so there's it's kind of ironic that the two percent gold inflation is offset by the two percent economic expansion and you have a stable gold dollar or a stable amount of value. And and over time, that kind of makes sense. So what happens when I start to increase the currency, if I increase the currency five percent a year? Well, now, will the economy grow five percent a year if the economy grows zero percent a year, the currency increases five percent a year, then I've got more money chasing after a fixed amount of products.

Therefore, the price of the products have to keep going up and they're going to go up five. That the stuff that you're wanting to get, the scarce stuff, something that you can manufacture infinite supply of, like a copy of a Picasso, a digital copy of a Picasso that's not going to inflate, but the actual Picasso is going to inflate to the extent that everybody in the society wants that one painting. And of course, that what you see is that as you start to print more money, inflation is not distributed equally.

There's not really a single inflation number. There's a vector of inflation. In fact, I can come up with the set of you really need linear algebra. You need a vector math to describe this one set of products that are information rich with no variable cost, like a digital copy of a Picasso. And there used to be a million digital copies and now there are a billion digital copies. And even if I print a gazillion percent inflated currency, the billionth digital copy of the Picasso is not going to be any more expensive.

In fact, what's going to happen with a certain bucket of goods that are high inflation, high information content is they're just going to get cheaper over time. They're deflationary products. And what's a good example of that? Digital music, digital video, digital photos, digital services running on networks that have a fixed price, a fixed cost. Once you've actually paid to deploy wi fi and LTE networks and once you've built the routers and once you've built the electrical power plants and once you've run all the fiber optic cable, that's all the fixed cost, the variable cost of deploying a Netflix movie to a million people.

Is the cost of electricity and deploying the Netflix movie to a billion people? Is the variable amount of electricity. So in essence, that's got to be like point one percent variable cost. There is no variable cost, there's no energy content in the product that is say, I mean, the perversity, right, is that it's all energy. It's zero point one percent of the value of the product is energy. I'm just shipping electrons and energy is fairly cheap.

So with things like that, they're deflationary because the fixed cost was is a sunk cost, which is amortized across all of the products. You've got one iPhone, you've got one television, you've got one fiber optic cable to your house. And therefore everything I can push to the iPhone and everything I can push down the fiber optic cable I can deliver at the variable cost of electricity, which gets which starts to look like a a product with a ninety nine point nine percent gross margin.

OK, so what's interesting? Well, in the history of the world, if you roll the clock back 50 years, we didn't have any products with a ninety nine point nine percent gross margin. Ninety nine percent gross margin products are a product of modern digital networks. So Apple created a mobile network. They dematerialised everything you could hold in your hand. And that means that your VCR and your CDs and your cameras and your Polaroid photos. Right. And your phones and your tape recorders and your weather, your atlas and your maps and little books and reminders and yellow Post-it notes, all these things had energy content and nominate a variable cost.

I mean, traditionally variable cost run anywhere from 40 to 60 percent of the value of the product. You have to produce it for 60 percent of the of the retail value and you sell it down a retail distribution channel. And eventually the true margin is like seven percent or Wal-Mart three percent, whatever it is. And the other ninety seven percent gets eaten up. That's what the world looked like. And then what happened with the mobile wave or the last decade is Apple dematerialised.

All of the mobile products are all the handheld products and converted them from 30, 40 to 60 percent variable cost to one percent variable cost. And Apple then accrued a trillion dollars of value because it was that network crystallisation and of sorts. You're collapsing from a high energy state to a lower energy state. And when you crystallize what energy gets given off, right. And that energy took the form of wealth created for the Apple shareholders, Google did the same thing.

They pretty much dematerialised every library and every piece of it for every book and every piece of information and every video and every home video and every VHS and all the music on the Earth. And it collapsed into Google and YouTube and the like. And as it collapsed. Right, like this is a real library behind me. OK, I'm sitting in a library of books and I don't know, it's one hundred thousand dollars worth of books in this room.

Worthless because because you go get yourself a five hundred dollar iPad and you can have the entire hundred thousand bucks, and by the way, the one hundred thousand bucks on the iPad is more valuable because they'll read themselves to you and you can resize the font. I'll walk past like this perfect book. And it's a beautiful book. And I open it up and, you know, it's classic and it's like in a really small font and I'm like, can't I pension Zoome the book.

And then I go on a trip and I'm like, I really want to take that book or those 10 books that are really heavy. I leave the books have mass, the books are static, the books have to be shelved. You know, someone can take the book, I might lose the book. Google took every library on Earth, collapsed it just like Apple's got their eyeballs right. They collapse these things. The variable cost goes to zero.

So you have you have all these things that Google touch that became deflationary, everything that Facebook touch became deflationary, everything that Amazon touched, the part that Amazon eliminated, by the way, it was like the 40 percent of the retail supply chain that was the storefront. Well, 40 percent of everything anybody wanted to buy collapsed into a mobile app on an iPhone or collapsed into a website, 40 percent of the cost of the of the energy cost and the conservation of mass and energy.

Right. That's that's thermodynamics. Well, every product you buy, it either has mass. Right. Like the books have mass or it has energy. I had to deliver the comic book to the newsstand and I had to some or I was a paper boy. Right, Preston? I was a paper boy growing up. And I sometimes I fall into that, like, what about the paper? When was there's probably no paper boys left on the planet.

That's not a job anymore. Like who would deliver a paper? If I deliver a paper, you've got the mass and that's the paper. The paper is made of titanium. By the way, titanium dioxide is the primary element. Paper's no pacifier. I got my start in business studying titanium. It's heavy. I remember carrying stacks of papers around, you know, it's like a hundred pounds worth of information. It had to move through the supply chain and then there's the energy, mass and energy.

The energy was like me with my red wagon hauling one hundred pounds of papers on a Sunday morning through the neighborhood in the freezing snow. And you got to, you know, at some point. My angelic mother getting up at 5:00 a.m. to drive the family station wagon, keeping the heat on while I while I haul papers through the neighborhood, I delivered them, by the way, on Wright Patterson Air Force Base, where I grew up. I know every single street because I had to get up and deliver a two pound paper to every house across the entire military base went.

And when it was like 20 below zero. So mass and energy in the news business, I expended the energy, I hauled the mass around. It was quite visceral. It was expensive. It's so expensive, by the way, that no newspaper could afford to hire an adult to do it. Hence, 12 year old to 18 year old high school kids hauling newspapers around on their backs. That was the world that we used to live in. And of course, now it's kind of laughable.

No one's going to haul that stuff. You probably couldn't get a 12 year old to get up during. I remember a blizzard, it got to like it was 60 below zero, Preston, and we're trying to figure out how to deliver newspapers on a Sunday morning at five a.m., the wind is blowing.

And on the Air Force base, you had a lot of traffic to contend with at 5:00 a.m., unlike other places, mass and energy.

So Facebook, Google, Amazon, Apple, they dematerialize the mass and the energy from the products. All the products are information and electricity. And that explains why their trillion dollar companies. And that explains why inflation as a metric doesn't work. It might it's a it's a 20th century idea. And it might almost but I'm not sure it ever worked, but it wasn't hideously misleading until the last decade and the last decade. We got to the point where half of everything you're you're consuming is pure information with no variable cost.

So when you say it's it's been a hideous metric, you're specifically talking about CPI, right? I am. You're saying CPI is just not something that can actually measure what the what in the world is going on right now. I'd say it's a metaphysical metric, it has no relation to reality, it's it's been it's been defined almost almost specifically cherry picked to define and define in such a way that there will never be any inflation. And and so the first irony is we've defined decided that inflation is a bad thing.

And the second decision is we've decided that inflation equals CPI. And the third irony is we can't find any inflation. But of course, in order to really understand store of value, in order to in order to get to the bottom of an investment rationale and make rational investment decisions, you have to first go to first principles. And what I find is. Ninety five percent of macroeconomist and analysts, the traditional investment community, they they rely upon metaphysical abstractions that they learned early in their career or that are repeated to them over and over again by mainstream media.

And because they just repeat these metaphysical abstractions long enough, they convince themselves that there's some veracity to them and there isn't any veracity to them. But they but the difference and this takes me back to MIT at MIT, they taught you to think for yourself. You're an engineer. If you're trying to solve a problem, you're expected to think for yourself. Like, for example, the first class I walked into, there was a class in material science.

The professor walked out to all the freshmen. It was our first week at MIT. He said, this is a tile from the space shuttle. It burned off the space shuttle on reentry. Nobody at NASA knows why it burned off. They're not sure what to do about it, but they're afraid the space shuttle is going to blow up if they don't actually solve the problem. Why do you think it burned off? And what do you think the solution is?

And he looks at these are 18 year old freshmen that showed up to school and you can see everybody's looking at each other like, is there some reading that we missed before this lecture? And then they're thinking, I didn't read the answer to the question. And then there's this horrifying realization that a guy with a PhD with 20 years experience just asked you a question that nobody on Earth knows the answer to, and he expects you to think for yourself and reason from first principles and solve the problem.

That's the scientific way. And there's not a lot of science and there's not a lot of engineering and the modern macro macro economic landscape or with mainstream media, they just repeat tropes over and over again as though they're meaningful and they're not.

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All right, back to the show. I mean you couldn't provide a better example for what we're seeing right now from an economic standpoint. It's almost like we're seeing parts of this shuttle, call it the economic machine that we're looking at, literally falling, falling apart right in front of our eyes. And you still have many academics with PhDs going on CNBC and talking about, well, you know, are we just don't have any inflation and these types of things.

So this is this is what I would frame it for you. How would you, Michael Saylor, define inflation today? Because you still have to do economic calculation as a as a as a business owner. How are you looking at inflation and how are you saying? Well, I think if inflation is this, that's my hurdle rate plus whatever risk premium. Talk us through how you would define it considering CPI Sjoberg. I think. I think the way you define inflation is.

The rate of price appreciation in any basket of goods, services or assets that you wish that you desire to acquire in the future. So. If you live with your parents and the basement of their house. And you don't need a house and you don't aspire to a yacht, a plane, a beachfront property, if you don't and if you don't intend to ever pay for electricity or utilities, if you borrow your dad's car. And if your mom cooks for you.

And you sleep in the basement. You're going to define inflation as the cost of beer, good weed, Netflix, YouTube, I don't know, tender, like whatever, whatever you're going to do when you take girls out on a date. Right? That's the court. That's inflation. That market basket of things that you're going to have to pay for out of your pocket is inflation to you. If your father kicked you out of the basement and says it's time for you to grow up and get your own place and get your own car, you're going to define inflation as the cost of a car, the cost of an apartment, the cost of food, the cost of the electrical utilities.

Right. And anything else that's discretionary. And you have to embrace food and energy and apartment. If you actually aspire to get a PhD or be a medical doctor or whatever that might be, you're going to have to include in your inflation definition the cost of college education, medical school. Etc. and higher education, if you imagine having perfect health. Then inflation won't include medical care, if you imagine that you may might actually need maybe you need your your teeth fixed, by the way, you know, like press that I grew up on an Air Force base.

Dentistry and and health care were free. There were I was a dependent my father was an NCO. I you know, I needed to go to the hospital. I went to the hospital on the base. Everything was free, didn't really think about it. Then there was. And then then we went through this period where there's health insurance and you and you just went and network and everything got paid for. I have noticed in the past 10 years, Preston, that none of the doctors I go to and none of the dentist I go to accept any of my health insurance.

And I have really good health insurance. I have like world class health insurance. But every place I go, it's like if I really want if I want good good health care or good dentistry, they asked me to give them the credit card, a credit card, and I end up actually with a very large bill. You know, from from all of these doctors, you know, because they don't expect they don't accept that insurance or the insurance pays for half.

And so if you actually want the best medical care, you it could be 20 in perfect health. If you want your teeth fixed or you want whatever, you need the best medical care, then you've got to throw dentistry and doctors not in your insurance network into the inflation calculation. If you get to the point where you're 60 and you've you know, you've got some medical conditions, you're going to throw all of those more expensive treatments. I once I dislocated my shoulder and it was a silly accident, like I tripped on a wet floor while I had my hands full and I landed.

And it did hurt more than anything in my entire life. So I went I went to the to the hospital.

They reset the shoulder after a while. Then I went to an orthopedist and the guy looks at me and goes, I said, what do you what do you. How long will it take before I get this cast? Are this the sling off that I you know, I Googled it was like a week or something. He goes, oh, no, we need to operate on you. I said, huh? He goes, Well, you know, you're a perfect candidate to have some shoulder surgery.

You know, we should just fix it perfectly. It's like fifty thousand dollars. He goes, You're a perfect candidate for this. I was a perfect candidate because I could afford to pay the fifty thousand dollars. Yeah. Or I could buy. And I said no, I'll let it heal it. He'll just fine. I'm not going to use my left shoulder. I'm not pitching as a baseball pitcher. I don't really need the fifty thousand dollar operation, the six month recovery and the potential infection and and the rest.

But the best medical care was going to be extended to me because I could afford to pay the fifty thousand dollars. So if you're defining inflation, do you want really good medical care? Do you want your teeth fixed? Do you want a ceramic crown? Right. Do you want silver in those fillings? Do you want it same day? You know what quality of medical care do you want? The inflation rate is going to go up, I guarantee you.

Do you want to go to Harvard or MIT? They're not going up at two percent a year. I know they're going up seven percent a year, eight percent a year. Now, those are there is a market basket of of products that if you sleep in your parents basement, that will be deflationary. You can probably live fairly cheap. Uber is not going to go up that much. There's another market basket if you're going to live on your own, it's going to go up faster.

It's probably six percent, three, four or five percent. The Chappellet index starts to end. What if you actually aspired to own your own house? Well, if you wanted to own your own house, you know, housing prices have been going up for four or five, six percent, seven percent a year sometimes. So that inflation rate would look different because that's an asset. Of course, CPI doesn't include assets. Now, the question is, where do you want to live?

The inflation rate of real estate in my home town of Fairborn, Ohio, is not nearly as high as the inflation rate of real estate in Miami Beach or the Hamptons or New York City, Manhattan. It turns out that there's a differential now, wider differential, because the assets are scarce or the thing that causes price to go up is it's scarce and it's desirable. Right. And so you can't really come up with one one price of of real estate inflation in the United States because there's a lot of land in Kansas.

And if what you what you aspire to is five acres of property and a nice house in Kansas, that's not going to inflate at the same rate as aspiring to a four thousand square foot apartment in New York City.

You can just look at the prices in Jackson Hole. And I know the first time I went out there and looked at the prices for real estate, I said, why is everything so expensive?

Well, then once you realize that the land out there is super scarce because you have all these state parks and everything surrounding it that have created this this island of of land that's available, you can see why the prices are sky high and because it's scarce. It's now when you're talking about real estate and you're talking about the inflation associated with it, let's go into equities, let's go into fixed income and talk about how this, quote unquote, inflation is impacting securities.

Yeah, so. If I want to live on my own as a single person, I want to rent an apartment and my market basket is food and energy and and a nice apartment and a car. If I if I want to have a family and own my own home, my market basket evolves to be a lot more family health care, higher education for my kids, more land for everybody to play behind the house, a house, real estate, property taxes, more utilities, appliances and and maybe family vacations and the like.

So that's a different market basket for them, for the middle class family.

If if I want to be wealthy, then my market basket that I aspire to is is a very nice an elegant estate in the country or beachfront property in a hip, cool town like Miami Beach or South Hampton or or the or Malibu. That becomes a different market basket and, of course, a home in L.A. and Hollywood Hills Hills, that's a different inflation rate. If I want to be really rich, what what do the wealthy aspire to? Well, they're aspiring to own Apple stock.

They want to own stock bonds, real estate, commercial real estate. You want to own things that produce income. So what's the cost to buy a basket of shares and apple that produce a million dollars a year in dividends? Well, that cost doubled. In 12 weeks. One hundred percent inflation in 12 weeks this year, the the dividend didn't double the price of the share double, therefore hyper inflation and a market basket of stocks. In fact, the S&P.

If we look at the S&P index, one of the most interesting metrics is the number of hours that you have to work in order to buy a share in the S&P. Right, and we see that chart and that's doubled, right, that's shooting up. I've you know what what are the wealthy want? Well, they want to buy real estate in Manhattan or Tokyo or London. They want to buy they want to buy dividend producing or income producing assets, they want to buy rent producing real estate, or they want bonds that will that will produce a good coupon or they want stocks that either will produce dividends or will buy back shares so that they're inherently deflationary or they will grow.

Right. Or they want they want scarce. They want to buy Picasso's. They want art or impaling or they want to buy franchises. I would like to buy, you know, the Jets. I would like to buy a football team. I would like to buy a baseball team. That's what really wealthy people wish to do, or they wish to buy jets or they wish to buy yachts. Right. None of these things are in the CPI basket.

I mean, the presumption, of course, is that politicians have assumed that no one wants to be wealthy. Huh, let me say that again, politicians have assumed no one wants to be wealthy, I guess if you assume no one wants to be wealthy and if you track the things that don't that the wealthy people don't aspire to, then you won't find inflation and then you won't have a problem. So as long as we agree that no one can be wealthy, you're never going to get there, don't you think that that's a little bit more out of convenience for the fiscal spending that aggressively has become more and more?

Aggressive. That it complements their ability to continue to spend and obligate dollars and try to push some of those dollars into into their regions that they are elected, and so by having by using CPI and pushing it lower and lower, they can just reduce that that interest payment and obligate even more funds of taxpayer dollars.

I think as long as you define the metric as CPI and as long as you leave out every scarce asset, every financial asset, food and energy, then you can lock on to a basket of goods that are inherently deflationary. You will never get inflation. Therefore, there will be no check on your ability to keep printing money. And if you when you print money, if you call it accommodation, we're Acom. We're providing one hundred and twenty billion dollars a month of accommodation to make the mortgage fluid, you know, to keep them functioning.

Right. Then you don't have to say we're devaluing the money by one hundred and twenty billion dollars a month. And I think that's that's a convenient thing. At the point that we redefine the market basket as assets. Well, we would have immediate inflation and there would be immediate check and balance on the ability of any central bank or any bank to to create to devalue the currency. And so I don't think anybody wants to have a check on their on their ability.

So so this has been adopted as a metric. The mainstream media promulgates the metric and then. I know why I know why someone running a central bank would want to focus on the metric, I just think it's it's irrational for macroeconomic analysts and investors to fixate on the metric. And so, for example, if you if you're defining a macro economic model that has CPI as an input. You're just engaging in metaphysical musing that that is increasingly disconnected from reality.

Let's come back to this inflation definition. So I think that you can define you can define a bunch of buckets and it all the definition of inflation comes down to what are your what's your aspiration? If your aspiration is to be is to be a billionaire, then the definition of inflation is the rate at which. Scarce assets that are going to continue to appreciate are going up in price, right? So what's the best investment idea, Bitcoin, what's what how fast is it going up in price?

Two hundred percent this year. We have hyperinflation and pure property and pure liquid money, hyperinflation. We have inflation and in scarce and desirable assets. Houses in the Hamptons are up 50 percent and 16 weeks. The price of a house in the Hamptons. What is that? Well, when you buy a house in the Hamptons, you're buying a scarce piece of property on a real estate real estate network. When you buy a Bitcoin, you're buying a scarce piece of property on a global liquid monitoring network.

OK, which is better? Well, clearly, bitcoin is better because Bitcoin is liquid, global, fungible. I can take it anywhere on Earth and anybody there's no property tax on it. And I don't have to worry about New York State taxing my property away from me. All right. So given a choice between investing 20 million in Bitcoin or 20 million in Hamptons real estate. Clearly, the rational thing is my 20 million worth of Bitcoin, but if you're a New Yorker and you're and you've decided you need to get outside of Manhattan, well, all the wealthy New Yorkers, they all go to the Hamptons.

It's a social network, real estate network. It's scarce. Ergo, prices go up by 50 percent and three months and the transaction volume goes up by 50 percent, and they're bet they're turning over, the entire real estate business is up one hundred percent year over a year. The real estate agents are doing great is their inflation. If you're if you're aspiration is to live an elegant life of of affluence in the New York area, then you have hyperinflation.

Right. And that and that real estate market. So and of course, they do go to go to a wealthy New Yorker and say, well, there's no CPI inflation, nothing to be concerned about here. You just got to decide what you want to put in the basket. I think that when you when you work your way through it, you conclude you can look at it is like five buckets, right? There's the affluent bucket and you're seeing 20 on average across all assets.

Right. It's like that. Twenty to twenty four percent M2 monetary supply expansion rate. So you could say that the inflation rate for just a broad basket of assets is like 20 percent or so this year. Twenty four percent. That's why the stock market's an all time high, because people that have liquid monetary energy, they want to buy those assets and they're all bidding against assets that are scarce, are they're reasonably scarce, not totally scarce. By the way, the reason that those assets aren't going up as fast as Bitcoin.

The reason that gold is outperforming maybe the S&P is because the S&P, they're producing more securities, they're producing more convertible debt and more equity. And so it's not quite as scarce. It's harder to produce the gold, but of course, it's really hard to produce the bitcoin. So so what you've got is everybody surging to acquire more assets. The asset supply isn't expanding as fast as the money supply is expanding. Ergo, the price is going up.

That's that is inflation of assets or or asset inflation. I just call cost of capital. So let's talk about that a little bit more, because a lot of the people in our audience are people that are trying to perform economic calculation, they're trying to value a business. And I love this example of M-2 that you're talking about use and using it in a frame of reference as to risk free rate and then talk to us about.

So talk to us about that a little bit and then also talk to us about whatever the risk premium would be on top of this quote unquote, risk free rate. OK. So so our inflation is the vector, so you've got you've got a market basket of stuff that's deflation, areas not inflating in the market basket of stuff, that's probably going up three to five percent. You've got another market basket of stuff that's going up eight percent. But but if you really want the best measure, if your goal is wealth preservation, ie, if your desires to be wealthy or to stay wealthy, wealth preservation, you're either pursuing wealth or you wish to keep preserve wealth.

You wish to preserve shareholder value. Your best surrogate is cost of capital, which is closest to the rate of the broad money supply expansion, which was twenty four percent this year, which as we look out is going to be probably between 10 and 15 percent a year every year for the next five years. And that's that's based upon the Federal Reserve policy, the EU Central Bank policy. You you've had Lentol then estimate that she thought it was 13 percent.

But a lot of the estimates are are optimistic and politically correct that nobody can stand up on television and they can't estimate, well, it's going to be it was twenty four percent this year. It'll stay 20 percent next year and then 20 percent and then 30 percent, because that's like not forecasting a V shape recovery. You know, in March, everybody forecast of the shape recovery. You kind of have to because otherwise you're kind of Cassandra Debbie Downer, politically incorrect.

No one could forecast an L. Shaped recovery that is Main Street's going down and not coming back up again. Have you noticed that you haven't seen anybody talk about the L shape recovery on television? Well, you know, here's the joke, we got a V shape recovery in financial assets, we got an L shaped recovery and Main Street operations and real business, but they didn't call it L shape. They called it cash recovery. So they came up with some, you know, just a nice, pleasant phrase.

Right. K shaped recovery because it doesn't sound as as horrifying as L shaped recovery or no recovery. Right. So I think the forecast as you look out is. I would guess 15 percent, my best guess is 15 percent. I've seen people say it'll be 15. That'll be 20. It'll be twenty five. It could get worse. That would be hyperinflation scenario or it could be better. You know, it's like if we start to run less deficit, but but that will require fiscal austerity.

And that never worked. And it didn't work in Greece. It hasn't worked in southern Europe. It hasn't it didn't work in Italy. We haven't seen it work anywhere in particular. So I wouldn't expect it.

So what does this mean for a company that only makes a five percent margin on their business? Yeah, so let's just work through that model, let's just assume to make it simple that we expect a 15 percent expansion of the money supply for the next four years. That's the cost of capital, that's the risk free hurdle rate or the risk free discount rate, if you want to preserve your wealth or preserve your store of value, then. You're going to have to beat the hurdle rate.

And the risk premium, so let's assume that you have a risk free bond. A piece of sovereign debt write US government debt, that's the closest thing to risk free we can get, there's no credit risk on it. So if I give you that bond and it's yielding five percent. But the money is being evaluated 15 percent or the assets, the assets that you wish to buy are going to be 15 percent more expensive next year. Right, the assets, the assets that you wish to buy are going to be 15 percent more expensive the year after that, too, and then the year after that, because there's going to be more money chasing after the same fixed amount of assets.

So if I give you a bond and it only yields five percent, then that means that you're losing 10 percent of your value a year and you're going to lose another 10 percent the next year, another 10 percent in four years, you're going to lose half your purchasing power. So half of your wealth will be destroyed on a five percent coupon against a 15 percent cost of capital. Now, that doesn't make any sense at all. So you might say to me, why did anybody ever buy any bonds in the last decade?

And the dynamic there has been that the bonds have been yielding two, three, four or five percent. The cost of capital has been about five, five to six percent. The M2 money supply has been expanding about five and a half percent the last decade. And so the bonds aren't quite keeping up with the cost of capital. Well, if you if you can't keep up with the cost of capital, you have to leverage up. And so the equivalent of leveraging up is take the interest rate down so I can make the bond hold value.

If I have a five percent interest rate and I crank it to four and a half percent interest, I'll get a capital gain. And the bond, the bond, the face value of the bond will trade from one hundred to one ten or something and so or one in five. So even though even though the bond is yielding less than the cost capital, I get a capital gain on the face value and so I stay ahead of the hurdle rate.

Now, if that continues, then next year I need the interest rate to click down from 450 basis points to four. Twenty five and I need to click down to four hundred and ninety to click down to three. Three fifty. And so what you've seen in the past decade is a march from five hundred fifty basis points down to the ten year was 50 basis points and we just keep marching down. If you want to hold value in bonds when you get to 50 basis points, then you have to go negative.

So that that's what happened in Europe. That's what happens in Japan, they literally took them negative and in the US, all the people who are bond investors, one hundred trillion dollars worth of money in bonds, they all need the Fed to take the interest rate negative if their bonds are going to hold value. If that if they do take them negative, then they'll get a capital gain and the bond and that will offset the cost of carry, the negative cost of terrorism.

So the question of whether bonds will hold value all just comes down to the interest rate. Click down. And when you get to the end of the line, if they're not going negative, then the bonds are collapsing in value.

Obviously, if if the problem with bonds this year is not only have those two fold, we hit the end of the line with interest rates, they're not going negative anymore. So you don't you don't keep getting a five percent decrease or 10 percent decrease in the interest rate is a 10 percent capital gain. So you don't keep getting that boost in in in the face value of the bond. And the second problem is the cost of capital tripled. I mean, that's the that's the earth shattering problem, right?

Well, and I think it's important to note that this this premium that you're talking about that goes onto the price of the bond in the aftermarket as interest rates drop, it only adds to your ability to outpace this hurdle rate of 15 percent. Like you're saying, if you sell it on the open market and you don't let it mature, if you let it go to maturity, none of that premium that we're talking about due to a drop in interest rates occurs.

You're not able to capture it. That's a really good point, because it's trading above par, I mean, a lot of times you'll see these bonds, they're issued at one hundred and they'll be trading at one ten.

One twenty one thirty is like you look at and you grit your teeth. You're like, why would I ever buy this? Because in six years it's going to pay me back. One hundred. Yeah. It almost hurts, you know, to see these things woolens in the premium that you're getting paid on.

The longer duration ones only further compounds the reason to pile into the longer duration ones because you're most likely going to sell it on the aftermarket and capture that big that big premium that you're getting on the short duration stuff. There's there's no compensation in the price in the in the secondary market or in the market if you try to sell it, because there's just you're not capturing any of that. There's no premium being bid into it because it's going to mature too quickly.

I think you're adequate, I mean, very articulately describing why there is anxiety and the bond market right now. Why if you're holding any of that one hundred trillion dollars worth of debt. You have to have anxiety about store of value, right, and why that if you decide to hold a debt portfolio, you're really you're really a slave to the whim of the central banks, right?

Absolutely.

Pretty much anybody that's a bond portfolio investor, their number one job is just to try to convince the central bankers to keep moving the interest rates down and keep keep them. If the interest rates ever move up, they get destroyed in a heartbeat. But if they don't keep moving down, the bonds bleed off value over the next one to three years. And eventually you're in a bubble and the bubble collapses. Michael, I had it, I have. Edit that.

I've had a ton of people that have told me, well, why is it different this time than in 2008, Preston? And my immediate response is, well, back in 2008, we had interest rates on the 10 year Treasury at five and a half percent, and they had plenty of room to drop it down to offset this risk premium that you're talking about.

Right. If they drop interest rates 100 basis points, the premium that's put on that on that security, on that fixed income security gets bid so high in and you can turn around and sell it for a profit to offset this risk premium that you're talking about. But once you get down to where we're at now, less than 100 basis points on on the coupon that's being issued. I mean, they're at an end game. You can't keep playing this farce unless you start taking things well into the negative territory.

And then people are just going to take their money out and put it into a safety deposit box because they're going to get a higher return than what the then what the negative interest rate bond is, is being issued at. It's it's total insanity. That's the difference between where we're at today and in 2008. And I see you shaking your head. You agree?

I remember specifically in that time frame that I was able to generate five hundred and fifty basis points on overnight cash. Like the repo rates and the overnight rates were like five percent. I didn't have to take a 10 year bet or 30 or bet you could generate five percent interest. On a one month, a three month debt instrument, no risk credit credit grade, and so we've been in a march from from Lebar short term rates of five percent all the way down to zero.

And so now we're at the end of the line because you're right, you have to go negative. But the problem with going negative is the interest rates, the value of time. And so when you turn interest rates negative, you're trying to stop time and make it flow in reverse. I mean, it really it really is kind of declaring war on the passage of time. How is it going to end like like you might as well try to get you know, you got 17 trillion dollars of negative yielding bonds.

It's like trying to move 17 trillion gallons of water uphill.

Like it's natural for water to flow downhill, it's natural for time to move forward, attempting to get time to move in reverse is a very difficult thing. You're attempting to get someone to give you all of their all of their energy. And sacrifice the rest of their life. And pay you for the privilege. So let's let's think about all these store evaluations, you've got three buckets, you've got bonds, you've got real estate, commercial real estate, you've got stocks.

They're all fiat instruments with a bond. It's it's kind of simple calculation. If I don't beat the hurdle rate with the coupon, then I have to leverage up and I have to drop the interest rate. And in order to make that whole value, when interest rates stop going down and the coupon is less than the hurdle rate, I'm destroying value in the current environment. A two percent government bond against a 15 percent hurdle rate means you lose 13 percent of your value every year.

You can do the simple math, right? You get cut in half in five years and you get cut in half again. So you're done. You'll lose seventy five percent of your money in 10 years. At that rate, commercial real estate trades like a bond. The only reason I want to hold commercial real estate like a warehouse or whatever it is for is for the rents and the rents or coupons. And as the interest rates fall, commercial real estate starts to trade kind of like a bond.

You know, the lower the interest, the higher the higher the value of the real estate.

And if you're eight percent and if you own it in a location that has scarce land or resources, then the face value of it would be going up effectively. So it would be a little bit. Yeah, you might you might get a boost for like Marki scarcity value, but I mean I mean, generally, if you told me this is a piece of real estate that generates a million dollars a year in rent or triple net rent after paying expenses and tax and the like, it feels like a bond that yields a million dollars a year.

And then my question is, well, is there like a CPI escalator on it? OK, there's a CPI escalator. It's a million dollars going up two percent a year. OK, well. You're going to give me 10 million dollars over 10 years. But in 10 years, the cost of all the assets I want to buy will have inflated at 15 percent a year for 10 years. Well, at 15, at 15 percent a year, that means in four and a half years the cost of what I want to buy doubles.

And so and then it doubles again. So the cost of whatever I want to buy is going to be five X. So that means that the money I get from the commercial real estate, 10 million bucks is only going to buy me two million dollars worth of stuff. So what I really want, you know, I guess you can either pay me two million now or 10 million over 10 years and they're both equivalent when you have a hurdle rate of 15 percent.

So that means the commercial real estate's going to hold its value proportional to the hurdle rate. When the hurdle rate triples, commercial real estate all starts to look very risky. How do I get ahead of the how do I hold value? I have to grow my rents faster than the hurdle rate. Good luck. Show me a piece of commercial real estate that's going to that's going to grow its rent 15 percent a year, by the way, you've got to tack on a risk premium with a bond.

It's credit risk. And with commercial real estate, it's also credit risk. It's the credit worthiness of the counterparty. So how well how good do you feel about real estate? That's rent it out to a retailer is getting crushed by Amazon, or how do you feel about a bookstore being crushed by Google? Or how do you feel about a newspaper being crushed by Facebook or there's a lot of how do you feel about theater, real estate? You can would you actually take a 10 year lease on a theater or how about a business?

Hotel business travel is down. You want a statistic, Preston? This is interesting, do you know? I think my business travel and my company is down. Ninety eight percent year over year, my God, like we're not talking 50 percent down, we're not talking twenty five percent down. We're not talking. Seventy five percent down. We're talking about ninety nine. Ninety eight percent off. And that's directly, directly coming out of revenues of hotels and airline, a business hotel, a business airline business travel.

And I don't think you're an outlier either compared to other businesses. I think that that's probably maybe 90 percent. Let's, let's just be liberal. I think that most of your businesses are probably 90 percent or ninety five percent. It's so totally destructive, so what you've got is you've got a bunch of commercial real estate and half of it's impaired asset. Yeah, well, I mean, I guess you're getting it.

Occupancy rates, like if you're using whatever occupancy you were using to calculate your coupon as you as you called it earlier, you can't be using those occupancy rates moving forward. There's just no way. I think you have to assume. You just have to assume that large portions of commercial office space, warehouse space, retail space, hotel space travel event, event convention centers, all these things, you know, I mean, every sports stadium has been dark since March.

All of them, every concert hall, dark since March. And so you've got a lot of impaired asset now. It's valued. It's it's it's probably overvalued as far as I can see, because interest rates are all time low. It's been trading like a bond, you know, and people have been able to refinance it. But you're going to end up with, in essence, zombie bonds and zombie companies and zombie real estate, you know, sort of like what happened in Japan.

When the economy stops, when the central bank starts buying all the sovereign debt, then they drop by all the corporate debt, then they buy the equity index and then they start buying the equities. And then pretty soon and by it's kind of a nice way of saying I mean, to say they're buying these things is probably one way to say it, another way to say they just print a bunch of public money to support all those things that no individual would buy if they were rational, no rational investor would buy any of these securities or any of these properties.

So the buyer of last resort becomes a government official and then the market mechanism breaks down. So it's nationalization.

It's it's the nationalization of businesses. But they're doing it through a per share basis, which hides it masks what's actually happening versus a country that would just step in and buy the whole business all at once. But the amount of shares that they own in the voting rights that are that are associated with those shares, I mean, they've nationalized their equity markets. It's crazy. And in essence, you eliminate price discovery, you nationalize all these private assets and and then companies that shouldn't exist, that the assets that don't really have any value to society anymore, they continue to soak up the monetary energy of the civilization.

Let's take a quick break and hear from his sponsor.

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But of course, there is no word for hype. There is no word for inflation of assets in the mainstream lexicon. No government official will ever refer to it. No mainstream reporter refers to it. Most of the conventional macroeconomic analysts don't refer to it. Even investors that kind of get it right. And they intuitively know how to invest to make money. They still have a hard time articulating why they they should do what they do because they're missing this fundamental observation that the asset inflation rate is the cost of capital.

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

But what are your odds of being able to buy an apartment? What are your odds of being able to buy a house or an apartment in Manhattan using a salary? I'm not going to happen in the Hamptons.

A two acre property is you know, people are paying 20 million dollars for a house on two acres in the Hamptons. OK, so you go to New York City and what are you making? Five hundred thousand a year. OK, five hundred thousand is a lot of money, like last I checked, five hundred thousand a year used to be like a fortune and people used to aspire to make five hundred thousand a year. You make five hundred thousand a year, pay two hundred thousand in taxes, save one hundred thousand dollars a year.

For 20 years, yeah. OK, and you and you have 10 percent down for your property and you have two million dollars. So if you work as a well paid master of the universe for two hundred years, you can buy a house in the Hamptons. But of course, you can't because it's going up at seven percent a year. It's insane. So the truth is you have to work for two million years. The real point is if you calculate it, you will find that certain assets are completely out of reach of anybody.

There's the only way you can make enough money to buy a house in the Hamptons you make to a millionaire. You can't earn enough to make to buy a house in the Hamptons. You have to actually buy an asset that goes up in price faster than the cost capital. So you have to become an investor and you and you have to either guess right. And buy Zoome or Facebook stock at the right time or Apple or Amazon at the right time.

And you probably have to do with leverage. Because without leverage, so you get 10x your investment. You can't save four hundred thousand dollars and so you save four hundred thousand, you save one hundred thousand a year for four years, you bet it all on something goes up by a factor of ten. You have four million dollars. You know, you close out the trade, you have two and a half million after tax. You still can't buy the house in the Hamptons.

Right. So wait, what you have is this this interesting observation. You have hyperinflation and assets. By the way, I want to make one more point. After the great monetary crisis, 2010, there was a collapse. And real estate values a collapse, and if you look at a map like I remember looking at a map of the U.K., all of the prices of real estate collapse outside of London.

And then they mapped the recovery. And what happened was the real estate prices came back much stronger. And the magic mile, the one square mile in the middle, Chelsie, the middle of Kensington, the middle of London, they came back. And then as you went out in concentric circles, it was like a heat map. They came back slower. And then once you get outside of London proper, they never recovered.

And you had the same dynamic after the crisis in New York and Miami and Los Angeles and in San Francisco, the big cities of the world where they where you're tracking the asset price of real estate, they all like Blackhall. They all sucked in all the monetary energy. The price went through the roof and then everywhere else, all the monitor energy got sucked out of them. And what you could see was massive asset inflation of the desirable assets, the scarce, desirable, what could be more scarce than a nice townhouse in Chelsea.

Like right on Green Park or Kensington or or or whatever, so we had hyperinflation.

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

You ever tracked the price of a football team over 30 years. You know, people on a football team and they would buy it a two hundred million and it would go up in value seven percent a year, 10 percent a year, that is refinancing the asset. And all of a sudden it's worth a billion or two billion dollars. It's a franchise because it's scarce. They got a monopoly on football teams. They got a monopoly on the contract.

And so if you happen to be someone that owned that scarce asset, all the inflation was in that asset. If you own scarce real estate in Manhattan, if you own a sports team, if you own a scarce piece of art, well, then you just hold the asset and refinance it and you never pay taxes. You just keep borrowing against the asset as it goes up in price. And so you've just got this really sweet thing now. The irony is that happens right in front of our face.

And yet everybody says, oh, there's no inflation in Tokyo, there's no inflation. Japan and I think probably the best measure is how many hours you have to work to buy a share of S&P stock or something like that. And that that's informative. So, Michael, I want to transition into a conversation about this big decision that you made, and then we'll talk about the second big decision that you made and to before we talk about it, I want to frame this up and I want to see if you agree with the way I'm framing this.

So you started your company and your company has been profitable for decades and you guys had four hundred and seventy five million dollars of retained earnings. Those are the profits that you guys, as a company collectively made. And you had that in liquid cash. You go out. After 30 years of creating this this treasure chest of cash, you go out, you buy Bitcoin four hundred and seventy five million dollars worth of Bitcoin, and for all intents and purposes, it's doubled in value within six weeks.

Six to eight weeks or whatever it was. And so you you've you've effectively walked through a time warp. Of value creation in I don't know what percent that would be, but I would think it's less than a percent of the time that it took you to create it and you doubled it.

Is that how you see what has taken place since October or September or whatever it was when you first put on this position?

Yeah, yeah, I see that look, I think that. We went through a transition in March where the cost of capital went from five percent to 15 percent, and a rational person has to say, looking forward, the cost capital is 15 percent and the currencies are being devalued at 15 percent. A year in the western world are being devalued at a faster rate rate. And the other parts of the world, that means cash.

Is a liability, not an asset, and it means that. Every fiat instrument based on cash, stocks, bonds and real estate are starting to look like they need to be discounted at 15 percent a year plus the risk premium, so. You know, unless it's a monopoly and there's really no such thing other than US sovereign debt, everything else has some amount of risk on it. And so you're talking about cost of capital that's looking like 18 to 20 percent.

So. We got to this point and we looked at it and we just said, well. We're going to have to do something to remain solvent. Right. And, you know, if you're if you're from a perspective of keeping pace with your buying power when you say the word solvent. I guess yeah, I guess you would say if you want to preserve shareholder value, you're going to have to do something different than hold cash on your balance sheet.

The cash becomes becomes a 15 percent. A minus 15 percent liability per year, reasonably speaking. So let's talk about corporate treasury strategy, so we're we're in an environment now where it's reasonable to think that the hurdle rate is 15 percent and the currency is going to is going to devalue by 15 percent a year for the next four to five years. That's the best guess. It could get worse and might be a little bit better. But but once you crank that assumption in, then you have to say, is cash an asset or a liability?

Well, cash is a liability if you want to preserve shareholder value, which is the same as preserving wealth, which is the same as preserving value. Right. If you wish to store value, then at 15 percent you're going to lose seventy five percent of the value in 10 years. You're not going to be able to buy anything with it, any asset with it. You can't really focus on inflation. Right. You've got to focus on the cost capital now.

If you look at stocks, bonds and real estate, the issue is they've all got a yield on them, but the yield probably doesn't beat the risk premium or probably isn't. I mean, the yield of the dividend, et cetera. Yeah, you're getting three percent or four percent or whatever. But at the end of the day, the risk, the credit risk of holding a bond that yields five percent, you know, is such that you're stripped down to two percent risk free or so.

And so you're still going to be looking at something which is 10 to 15 percent dilutive every year. So stocks, bonds, real estate, they're not going to hold value either. People I think they delude themselves into thinking that they're safe in these things. But but I think we're at the end of the road for stocks, bonds and real estate because they've all been inflated to a max by the progression of the interest rate to zero and by the leveraging up of all the of all the companies to put as much cheap debt as they could in order to get the most amount of leverage.

And at this point, there's not any more leverage you can put on these things. And you can't and you can't put the interest rates below zero effectively. So a reasonable estimate is if you park five hundred million dollars in any of that stuff, you're still going to lose 10 percent to 15 percent a year. Know you're going to think maybe, you know, these traders, they think, oh, I can take leverage and trade this and that.

And I'm a stock picker, you know? But at the end of the day, you know, you're going to make as many mistakes as you make good guesses and you're not going to do the money or the return on the money, which is going to be minus 15 percent. So you're probably staring at the same minus 15 percent. And you might actually get horrifically worse than that. I mean, right. There's worse results than losing 15 percent a year.

Right. If you if you invest in companies, they go insolvent. But the best result is you're just holding a market basket of assets that the Fed is going to buy. And as the Fed and as as the Fed buys them, you've got that inflation. So what are you going to do?

Well, I've got this thought in my head press that I don't know why I have it, but it's just been it's been just in my mind, I'm almost dreaming this thing now. It's. The Road to serfdom. Consist of working. Exponentially harder. In order to earn a currency growing exponentially weaker. It's like if you're an individual, you're that dude in New York and you're working to make five hundred grand a year and then you want to and then you want to raise and you keep taking risk and you work harder and you stay longer and you keep struggling.

But the house in the Hamptons is going up faster than you can work harder. Right, it's the road to serfdom if you if you play that game, you have a company that makes 50 million a year, you're going to make 50 million a year and you're going to try to grow the company faster than the hurdle rate. I have to grow the company 20 percent a year to stay ahead of the 15 percent hurdle rate with the risk premium.

How are you going to do that? You're going to take risk. You're going to you're going to throw money at the problem. You're going to throw people at the problem. You're going to do an acquisition. You're going to do a dilutive acquisition. You're going to do a you're going to do a risky you're going to take a risky trade this system, and you're going to try as hard as you can in order to make money. But no matter how hard you work, you can't you can't grow faster than the rate at which the bank can print money.

So I'll give you another metaphor. You march, you have one of those heart rate monitors and you march up a mountain, when you get to nine thousand feet, you ever check your heart rate? My heart rate's beating 20 percent faster. Like, why is my heart beating 20 percent faster? Well, if you do the the quick altitude check and you know this, you're a pilot, there's 30 percent less oxygen in the air at nine thousand feet or some number like that.

So if I take 20, 30 percent of the oxygen out of the air, my heart's got to pump twenty five percent faster to move the same amount of oxygen in order to keep me alive. Now, if I just keep marching up the mountain ten thousand feet, twelve thousand feet, 15 thousand feet, your heart has to beat faster and faster because the auction's falling out of this out of the atmosphere and eventually your heart burst. Right. But happens all the time, you know.

Fifty five year old dude goes on a ski vacation with his buddies from college and you know, they get up and he skis down the slope and he drops dead of a heart attack. I don't know how that happened. Well, I know how it happened. It happened because your heart's beating twenty five percent faster and you're under stress and you're not as in good shape as you were when you were twenty five, you know, and and so what we're doing is as we crank up the hurdle rate individuals, you either have to work harder.

Twenty five percent harder or you have to take more risk in your portfolio and you keep doing all these risky trades. So what you're really saying is everybody's hypoxic right now. Yeah, what I'm saying what I'm saying is that what I'm saying is that a government official took you into a room and put you on to a hamster wheel.

And then they told you to run as fast as you can. And and they told you that if you run fast enough, they'll keep pumping oxygen in the room and then they started pumping 20 percent less oxygen in the room, and then you're you ever try to run on a treadmill at nine thousand feet, Preston?

That's nuts. I've done it, I mean, and afterwards, you know, you do it by why do they train Olympic athletes like at altitude? It's like twice as hard. So you're on it, you're on a hamster wheel or a treadmill. The ocean is getting sucked out of the room. You're trying harder. Your heart is getting rubbed. And at some point you have a heart attack and you're literally your heart burst. And what is an example of this?

It's like every company that was a low growth company the last decade and they're trying to stay ahead of the hurdle rate. So they take on debt and they leverage up and then and they either there are two ways that companies try to stay ahead of the hurdle rate to keep shareholder value. One way is I do acquisitions. I'm buying a company, buying a company by a company. It's a dilutive acquisition is taking massive risk because it's really hard to integrate two companies together and there's a 90 percent failure rate.

But I see companies do this. They're doing acquisitions and then they they fail. The number one reason that all software companies fail. And my entire career for 30 years, I watch this number one reason, bad acquisition. Yeah. Now, the other thing they do is they borrow money to buy their stock back and they leverage up. So I'm going I'm going to borrow Oracle, borrows tons of money, buys their stock back. Now we're holding 40, 50 billion in debt on the balance sheet.

Toys R US. We're borrowing money to buy the stock back. We're leveraging up. That's another way to get ahead. And you want to put these two together. And the most toxic cocktail. I borrow money to buy another company. And so I put them both together. I'm either leveraging risk or I'm or I'm leveraging to take my my shares out of production.

And this is the road to ruin. It's the road to serfdom. And it all starts with somebody on the board of directors or an outside investor saying, you know, you're going to have to generate more than eight percent growth. I need eight percent share growth. Amazon's growing twenty percent. Why can't you grow 20 percent? OK, so here's the last. The last gotcha. Like. Not only do you have to work harder, you know, you're not growing 10 percent a year, you're a loser.

You know, not only do you have to take on more risk, you can't grow 10 percent. Why don't you you're running a bakery. Why don't you, like, launch a bar down the street? Why don't you expand into a foreign town? Why don't you buy your competitor? Why don't you do a leveraged trade on options? Why don't you know? Why don't you do something different? So I have to work harder. I have to do risky stuff.

Like and then the third part is owned, by the way, you have to compete against. Big tech monopolies that have infinite free money and infinite power that have the ability to ship products to a hundred million people over the weekend for a nickel, you get to compete against Microsoft or they have, like every company on Earth is their customer now. OK, so what's that feel like? Well, they can just ship anything they want to every customer on Earth.

Now, you think that's not an advantage? You got to compete against Amazon, you've got to compete against Apple, you've got to compete against Google, you've got to compete against Facebook. So as the bankers are basically printing, they're giving free money to the big corporations. They're also they're also putting you on this treadmill where you have to go faster and faster and and do riskier and riskier things. And those three dynamics. Right. Are a road to ruin.

And that's why so many mid-sized businesses and small businesses are getting crushed by this economic environment.

Wherein do you see Square and people really disrupting traditional Wall Street banks moving forward based on what your understanding of Bitcoin, the fact that they are way out in front of many others in their adoption and integration of that, how do you see that playing out as so finance?

Well, let's talk about that. I talk about the problem. The problem for corporations, right, is, is they're being squeezed toward insolvency by competition and cost of capital and and. The requirement to, like, beat beat this hurdle rate the solution. Is Bitcoin and and how the solution is, I have to either plug my PNL into a monitoring network, an accreted monitoring network, or I have to plug my balance sheet into a monitoring network. So Bitcoin is the world's first engineered monitoring network, and it is an accretive asset.

And it's like an asset growing more than one hundred percent a year versus the dollar, you know. And that's one way financially it makes sense. But it's also a big tech network growing faster than one hundred percent. So if I'm square or PayPal, they're competing against Google and Apple. Right now, you could say, oh, they're big. Well, actually, they're competing on one hand against JPMorgan and and Citigroup and Wells Fargo against monster banks.

But on the other hand, there are competing against monster big tech companies, Amazon, Apple, Google, Facebook. OK, so they're really the upstart challengers and they're in between these two worlds, the old world of banking and the new world of big tech. So what's your best idea there? Well, the best idea is plug your mobile payment app into Bitcoin because Bitcoin needs a high speed payment. Reille Bitcoin needs a stable currency solution to buy coffee square and PayPal solve the problem.

How do I buy coffee with Bitcoin? And they solve the problem and they give you a rapid payment rail to every visa compliant merchant on on the planet. But what they do, what they get for themself is because this is not about Bitcoin. This is about square. Square needs to do this because Square is able to offer all of its customers savings account that yields one hundred percent interest yield tax free on an annual basis.

If I put my million dollars or one hundred thousand or ten thousand, whatever the number is, if I thought one hundred thousand into Bank of America or a conventional bank, I'm going to get twenty five basis points. It's a liability and in five years it'll purchase half of what it would purchase today. So I'm going to lose half my wealth while I get no yield. That's one option. The other option is I put my million dollars into Bitcoin off of the square cash app.

I think they're like whatever, twenty thousand a week or ten days away. So maybe let's call it one hundred thousand dollars. I put one hundred thousand dollars in the square cash app. And it doubles next year and it doubles and it doubles and it doubles, and pretty soon you have five million dollars. And that's how you buy that house, maybe not in the Hamptons, but maybe down the street from the Hamptons, you know, starting from one hundred thousand.

And the thing that makes it compelling is, a, it's accreting at north of one hundred percent. Be all right, eh, it's accreting at all be it's accreting north of one hundred percent, it's hypergrowth and see it's accreting tax free. Right, because you want to give me a bond that gives me 10 percent interest taxable or 10 percent taxable is six percent, five percent in California after tax. I'm taking all the risk. This is why, you know, all the yield farming and chasing after yield and everything doesn't necessarily make sense.

You're you're taking huge risk to get 12 percent interest and you're going to pay six percent or four percent tax and you got six percent after tax. You'd be better off to Hoddle. Just take your Bitcoin or take your whatever. Put it on the net worth. Leave it there. The network's growing up 200 percent this year. Right. But let's say we don't have to be super optimistic. Let's say I just estimated it's been growing more than one hundred percent for a decade.

But I'm going to estimate is going to grow 20 percent for the next decade because 20 percent is one tenth of what it did this year. And it's one fifth of what is done in a year for the most part. And so once I make that decision. I got a savings account yielding 20 percent tax free. That's the same as yielding thirty five percent return consistently taxable. OK, what bank and earth gives you that no bank by which company, which piece of real estate, which bond in which stock?

I'll give you thirty five percent. Dividend, nobody, so now I go back and I say, do I want to keep my money on Apple Pay or Google Pay or I want to put it on square? Well, the answer is on Apple Pay. It gives me zero interest. I'm going to lose half my wealth and three years on square, I'm going to get a. 20 percent interest. Thirty five percent pre-tax tax equivalent interest, and so it's very simple, money is going to go.

Capital is going to flow to wherever you get the highest tax adjusted interest rate. And the beauty of Bitcoin is because I just buy the Bitcoin and hold it. It's a zero coupon bond that's appreciating. It means you don't have all of the anxiety of managing city tax, New York City taxes, you state tax in New York state taxes, you federal tax, federal government taxes. You every other country taxes you property tax. You don't have the anxiety of income tax, you know, all sorts of other types of Medicare, Medicaid, taxes, every other thing, dividend tax rates.

These are all massive questions. And Warren Buffett and any great investor would tell you that 40 percent of the challenge of investing is just the tax efficiency of the investment. If you're perfectly right, you lose 40 percent of whatever just from being wrong on tax or or more potentially. So for Square, this is a game changer. Now, one square that it PayPal's got to do it. It's the same thing. My competitor gives one hundred percent tax free savings account.

OK, the beauty of this is that square and people do this, they bring utility to the Bitcoin network, you know, in Rojava Bachs though, Bitcoin have only got seven transactions, a second or three or four transactions a second. You can't buy coffee with it, right? The point is seven seven transactions. A second is fine because the what is going to be it is going to be square cash moving one hundred eighty two million dollars worth of Bitcoin once per day.

And then they're going to do that settlement and they're going to provide thirty seven million people with with a square cash account and they're going to do one hundred and eighty seven million transactions a day on their network right there, like a second level solution. They're going to do one hundred eighty million transactions a day for thirty seven million people and settle it with one transaction against the block chain. And it's going to scale just fine. Bitcoin wins, square wins. The customers win.

Everybody converts their bitcoin into USD currency at the point of transaction.

I'm already seeing this is this is just out with this foaled card. I don't know if you're familiar with with gold and what they're doing. So I got a debit card from Foaled. I am Bitcoin is literally part of every single transaction I make today.

So with my phone card, I go out and I sound like a commercial right now, but I go out and I spend let's say I want to pay my electrical bill or I want to go to Target and I want to buy whatever. After every single transaction, I get cash back, but I'm paid in Bitcoin. So in an indirect way, Bitcoin is already started because I mean, this thing has just come out. I can only imagine a year from now.

And if I'm getting three percent back on a transaction and Bitcoin goes up to the 100 percent that it has every year since since the past decade, I'm almost getting like a majority of the purchase of whatever I spend. If I spend one hundred dollars paying for whatever, I'm getting a significant portion of that back just in the first year through the through the three percent reward.

And then in a couple of years I'm getting the whole amount back. So I just don't know how things like that are going to they're going to just totally hate the whole transaction payment layer. Well, you just described. You described a company differentiating by plugging into the Bitcoin network to make you love the Fold-out. That's right, we can describe Square and Pal differentiating by plugging into Bitcoin to let you buy Bitcoin in one click. It took me it took me six to eight weeks to buy Bitcoin once I decided going through conventional Bitcoin exchanges.

So eliminating six to eight weeks and turning it into one click and one second. Right. I mean, there's utility to that.

And this is what I'm what I'm talking about isn't even a click. It was it was just happening. It's just happening automatically in the background. And I'm not even having to do anything. I just, you know, every week or so I'll look into the app and see what my the treasury of Bitcoin that I've accumulated in rewards. And it's like, wow, this just is.

And then is the price going it up? It's like, holy crap, this thing just keeps on going up. My rewards just keep doubling. It's it's nuts.

So let's generalize this to corporate strategy for Bitcoin on PNL side. Square and people do this in their payment application, they give you a savings account, that's a big deal, that's a huge deal. If Apple wants to compete, they have to offer that to be at parity and so does Google. Now, what's Apple do next? The logical thing for for Apple is to build a secure element hardware wallet into the iPhone and turn the iPhone into everybody's hardware wallet, because then they can say, hey, we've got secure element.

That would be better than what Square can give you their software. But we've actually put it in the firmware. If they do that, by the way, I think walk away, maybe Samsung might have done this in one of their phones. So it's it's an idea that popped up in the Far East, but Apple hasn't done it. If Apple does that, they can use that to try to to take that bank account from square square. We'll have to innovate.

And then and then Google on Android. They've got to innovate. So Google has got to put that feature into Android and they're going to need Samsung to build it in their hardware. So then you then you've got Facebook and then Facebook thinks they want to be in the money business. But so Facebook gives you a stable coin. That's interesting. But what do you want? Do you want to be able to pay someone with your phone or do you want to be rich?

I think the answer is you want to be rich. And so if Facebook wants to be competitive to square and PayPal, Facebook's going to have to give you a quick on ramp to Bitcoin because the getting rich part comes from investing in an asset that pays you one hundred percent tax free. It doesn't come from paying for coffee.

That's that's completely decentralized. And I think that's a really important point when you compare Facebook's Libra to Bitcoin Libras, not completely decentralized like Bitcoin. And that's why you're saying what you're saying, correct, Michael?

I just think, you know, D.M., which is Facebook's stable coin, it's just another meta thing. I mean, it's not a game changer, the game. But let me just say it this way. The game changer, Preston is making everybody rich. OK, if you're if you can download a mobile app, get rich now and put it on your phone and punch the button, don't you think a billion people are going to want that up?

Yeah.

So it's the incentive structure that's going to drive all of this into everyone has an interest to adopt. This is what you're saying, right? Well, now I just want to make my rounds here, what I'm saying is in big tech, with all these mobile apps, if they don't give you the ability to funnel funnel monetary energy into the Bitcoin monitoring network, you can't tap into the network going one hundred percent a year or 20 percent or 30 percent.

It's the only thing that's accretive in the environment. Everything else is going to be dilutive. And as people start to realize that that really can I buy a million dollars worth of real estate that goes up 20 percent a year off my iPhone and one click. No, no. Can you? We've already gone over the issue, which is Fiat instruments aren't going to be accretive in this monetary environment. There's there's one obvious answer is Bitcoin. That means Google, Amazon, Facebook, Apple, Microsoft.

If they want to stay competitive with Square and PayPal, they have to adopt it now that now they've got their own advantages. I mean, Apple can can actually build the hardware wall into an iPhone. You know, Google needs Samsung to help them do it. So they've all got there. And and Facebook can do some things that neither Apple and Google can do and Amazon can. Amazon can build build Bitcoin support. So they've all got their different assets and there are ways to compete, but they don't have a choice if they want to stay competitive as the Bitcoin network grows, they're going to have to enter that space.

And that's going to be a benefit to the Bitcoin network. And it's going to it's going they're going to plug all the gaps in Bitcoin that that people criticize it for in terms of, you know, Facebook will give you a stable coin. Right. D.M. will be the stable coin and then then Facebook or Apple will give you a payment network and then they'll give you the political support. Right. And all of these things that people worry about, that might be risk factors for Bitcoin.

They'll be cured by the big tech companies to plug into Bitcoin. Let's talk about again, let's talk about corporate strategies for Bitcoin. One strategy is build build it into your PNL and you can see the big tech companies moving to do that. And Square and PayPal are catalyzing it. And I expect that that Apple, Amazon, Facebook, Microsoft, they all have to face, they all have to follow, otherwise they're not competitive. Well, there's another group of people like let's look at what's going on with, like mutual funds or Fidelity, Vanguard, PIMCO, all these guys, they need to offer Bitcoin funds.

If they don't, then all of the money flowing into Bitcoin flows through who greyscale. Greyscale is the big winner because they're unique in the market. They're offering people simple ways to get into Bitcoin and they've grown from two to two billion to 13 billion in assets. So they're super high growth because there's a vacuum in the market. So if you're in the mutual fund business, then you need to build Bitcoin into your into your product offering if you want to stay competitive.

Then you go to the traditional banks, all the big banks need to build Bitcoin into their business and that and what does that mean? Trading, banking, lending yield custardy. You're seeing that right now. For example, we just saw standard charterers moving DB as bank Banco Santander. There's a whole set of large banks that are that are starting to creep into the custody space and they are going to come in at their rate. And then you'll see the much faster, more aggressive banks, the Kraken that just got a banking license and and Quoin Coinbase and crankin and maybe Fidelity digital assets, maybe they'll come their way and finance will do their thing.

So there's a lot of competition there. If these organizations wish to stay competitive, they've got to plug into the monitoring network with a mixture of product and service offerings. And some will do it fast and in an agile fashion. Some will drag their heels and come. They'll be followers and some will resist and they'll be marginalized. Right. That's that's where when when someone takes a billion dollars of money out of your bank and they move it into the bank of Bitcoin, how many billions of dollars have to flow out of your bank before you realize that you lost the custody and the yield and the carry on that money?

And so that's a wake up call and it's starting to happen. And twenty, twenty one that will be much bigger. So all these corporations, they need a Bitcoin strategy on their P&L if they want to stay competitive. But now let's flip to the other side of corporations, the balance sheet. Even like MicroStrategy, we're not a bank, we're not a mobile app company. And so but and we sell enterprise software, it's not immediately obvious to me that people to buy business intelligence need Bitcoin built into my hyper intelligence or business intelligence software.

Right. It's a pretty obvious plug in to Apple. It's pretty obvious for Google. It's pretty obvious for Facebook. It's not obvious for enterprise software. It's it's not super obvious for Tesla, for example. But what can you do? What should you do? Well, you have a Treasury.

I have five hundred million in cash, so I can either hold it in a depreciating asset USD or I can flip it to BTC. So when I flip it to BTC, I plugged in my Treasury into the monitoring network, its equivalent Preston, to having done a five hundred million dollar acquisition of a company, a big tech monopoly growing one hundred percent a year. Yeah, so think about that. I had a five hundred million dollar revenue company selling software that's low growth, maybe growing five percent a year.

If I do everything, I can work very hard, I can grow one to 15 percent a year, whatever. It's a low growth. But then there's a big tech network which is growing faster than Apple, faster than Google, faster than Amazon, fast. And then Facebook, that's dominant. And you can sort of acquire that. And so we bought five hundred million worth of that and we just hold on to that. And now that basically turbo charges are our balance sheet and hence our balance sheet goes from us owning five hundred million worth of cash and and bitcoin to owning a billion dollars worth of cash and bitcoin.

And as long as Bitcoin is accretive and of course and as long as the Federal Reserve keeps printing money in the money supply expands and this dynamic ensues, then our balance sheet is growing faster than the hurdle rate. Bitcoin is growing one hundred percent a year and the hurdle rate is 15 percent a year. All of a sudden, I went from having cash flows growing at five percent while the hurdle rate is growing 15 percent or 15 percent to a company where my cash flows are growing one hundred percent.

And so here's the big idea. Any company, any any traditional company, any traditional individual that's working for working for a salary or generating cash flows and fiat currency that's growing slower than the hurdle rate can cure the problem by simply sweeping all their cash flows into Bitcoin. Because, you know, I take take my company if we're generating 50 million dollars a year in cash and waste and we save in USD, our Treasury is exponentially going to zero and our cash flows in the future are being devalued by 15 percent a year, such that in 10 years the cash is not going to be worth anything.

Right. So our cash flows are being devalued, our treasury is being devalued.

That's a road to serfdom. If you flip and you start and you invest all your Treasury and Bitcoin and then you sweep all your cash flows into Bitcoin, it's like you have a company that is growing one hundred percent. And so you converted yourself into a big a big tech dominant network from a bakery or dentistry or a traditional conventional business, and I think it's important to note when you're talking before when we were talking the income statement side versus now the balance sheet side, when you're making these decisions on your balance sheet, those gains are unrealized gains that don't have the frictional tax burden associated with them.

As long as you don't sell, which just compounds, if you continue to be right, compounds it even. I mean, I can't imagine what that frictional barrier of tax I mean, this was on the income side, how much of a difference that would be.

Let me take you through an exercise. I have five hundred million in revenue and I generate. Fifty million in cash flow a year. Let's say aftertax to make it easy. Yeah, and I have and I have five hundred million in cash in USD and the hurdle rate, the cost cap was 15 percent. So I burned seventy five million in purchasing power. So net net minus twenty five million a year. I'm working as hard as I can to lose shareholder value.

You know, it's collapsing. I convert to five hundred million into bitcoin. Let's say Bitcoin accretes by 20 percent a year. Very conservative number, but 20 percent now I go from having 50 million in cash flow, losing seventy five million in purchasing power a year to having one hundred and fifty million in cash flow a year. Yeah, OK. So because I'm getting one hundred million and. Tax deferred investment income, yes, and 50 million in operating income, so I went.

I tripled my cash flows with that flip. Now, what happens if Bitcoin doubles and it goes to and it's all worth a billion? Now, I have two hundred million in investment income a year plus 50 million. Now I have two hundred fifty million worth of worth of income. And before I had minus twenty five million. Of income, you see, before I did this, always at minus twenty five and nine, that plus two hundred and fifty.

Now what happens if I go out and I borrow five hundred million dollars against the cash flows of the business and effectively zero interest? Now I've got one point five billion dollars in an asset that's invested in a network that's the dominant monitoring network growing a hundred percent a year. But let's just discount that. And let's just say to be conservative, it's only going to be 20 percent accretive. Now I have one point five billion dollars that's going to generate three hundred million a year in tax deferred investment income with the 50 million from the core business now I to three hundred fifty million, you can see that it's it's not that much further if it keeps increasing that you end up generating more income per year than the revenue of the company was.

Yes. Last year now. You can do that with anything, for example, if you're a dentist, as long as you get free cash flows, well, as long as you've got any assets at all, if you have no if you have no monitoring energy to speak of, that's a problem.

But let's say you're a dentist and you're making and you've got great dental practice. You make you get five hundred thousand in revenue a year and you manage to save fifty thousand a year and you have five hundred thousand in the bank or five hundred thousand in stocks and bonds and real estate. Sell that stuff, invest in bitcoin, sweep your excess cash and bitcoin. It's the same exact calculation. Now you're generating a three act, your cash flows instead of losing capital, you're making it and you're compounding and then you're the dentist.

So you go and you mortgage your house, take a 30 year mortgage at three percent interest and finance it. Take five hundred thousand out and now you've got a billion a bitcoin, you know, or borrow against the dentist practice right now. Right now you've got a billion on your balance sheet and you're generating two hundred thousand dollars a year in tax deferred income with your fifty thousand from your practice. Now you're making two hundred fifty thousand a year. Now you're beating the hurdle rate.

And so, you know, for an individual, the logical thing to do is, is you borrow against assets at a very low interest rate.

You invest in an accretive asset that's going to have a high tax deferred yield and you sweep all of your fiat cash flows into the accretive asset because they're just going to depreciate if you don't.

And so that that's the Bitcoin standard. That's what I did. That's what my company did. And we're kind of showing you how to do it. But that's the same as any individual could do if they simply use Bitcoin as a savings account. So a person who's hearing that because we have people that listen to the show, that look at Bitcoin, they look at the volatility, they haven't done the research that you've obviously done on on Bitcoin. And they're saying this sounds really risky, what you're describing.

What's your best advice for that person who's who's hearing this, saying this guy is obviously smart, I know he's smart, I can hear he's smart, but I just don't I don't necessarily trust Bitcoin.

What do you think about the risk? So first of all, with regard to debt, there's intelligent debt and there's unintelligent debt. I would I think it's pretty foolish to go and buy Bitcoin on an exchange with 10 or 20 leverage on margin loans where you can be liquidated on a big move down or up like yet you don't do that, right? If you're going to make an investment, you want to match, you want permanent capital or permanent debt.

That's not mark to market. So, for example, like. Would I borrow money for 30 years at two and a half percent interest to buy a house? Yeah, doesn't everybody? Is that the American dream, is that risky? No. What makes it risky? Well, if the interest rate might spike up, that is not a fixed interest rate. That might be a little bit risky if the house gets mark-to-market every day. And some some banker shows up on Monday and says, I think your house is only worth half of what you paid for it and now you owe us four hundred thousand dollars.

I need to check before I leave. And you don't have four hundred thousand dollars for your ruined and bankrupt. That's risky. So if you borrow money against an asset which is not being marked to market at a fixed or well understood affordable interest rate, and it's not going to come due for a period of time. Then it's a lot less risky, so if you borrow money overnight and the repo market like Shearson Lehman did and then you buy risky stuff, then you might get ruined on a Monday morning when the market moves against you.

So, like, I'll tell you how we thought about it at my farm, it's like we're borrowing money for five years and a convert, it's an unsecured loan. There are no covenants against it. It can't be it can't be called for five years. So we've got the use of the money for five years. It's not marked to any market like it's not marked to our stock. It's not marked to the price of Bitcoin. There aren't any covenants that we have to test against.

There's no cash flow covenants to trip over. There's there's none of these these complications. So it's basically a large pool of money. The interest rates fixed at seventy five basis points. So the interest rate is de minimis. And where we're buying an asset with it that we believe is accretive now is Bitcoin volatile? It's volatile day today, but you can't find a period of five years over the history of Bitcoin where it wasn't worth more at the end of the five years.

Right. There is no there is no period where you could have bought Bitcoin and it was worth less money five years later. Right. I mean, at this point, some people that bought at the very top in twenty seventeen, they had to wait three years. That's that's the there's a one percent probability that you might wait three years, but that's in that's in the past. So the volatility of Bitcoin day to day, week to week, month to month doesn't really have much impact.

The only real question is, do you think it's going to go up? Will it be worth more than I bought it in five years? And if and if it's worth more in five years than it is right now, the you know, the leverage is a winner. And if it's worth, you know, the truth of the matter is, from our point of view, corporally. Even if Bitcoin was worth less. And five years than it is right now, it's probably still a winner as long as it doesn't go to zero because of Bitcoin traded down 10 percent and it was very volatile all.

In the meantime, the the volatility would be a benefit to my shareholders. I mean, the guys that bought the convertible debt, they're trading the volatility. So as long as as long as the asset doesn't go to zero, five years from now, it's probably a winner because we'll probably use the capital with with common sense to make money over that time period.

I think it's really important to highlight as well for people that would be hearing about you borrowing money to buy Bitcoin, that the face value that's being paid back on this five year note, you have double that APR, you have double that in liquid asset current assets on your balance sheet to pay back the face value of what you're borrowing today. So that's that's a really important point when you talk about the health of your company and what you're doing in the position that you had set yourself up in prior to this decision to be able to do something like this.

You know, if you look at the analysis of this debt we issued, we had a company unencumbered, no credit lines, no debt. We had a company where we publicly said we expect to generate 60 to 90 million in cash flow a year. So the midpoint of that guidance is seventy five million dollars in cash flow a year or so over five years. We're expecting to generate four hundred plus million dollars in cash flow. We. We had we rolled into this with nine hundred million dollars in cash and liquid Bitcoin asset, so if we borrow six hundred million dollars when the dust settles, we have one and a half billion or more worth of liquidity against borrowing.

So so this is a loan to value of 30 to 40 percent versus liquid assets. Plus, it's backed by the cash flows of of of an enterprise software company that's stable. And if Bitcoin went to zero, but Bitcoin went down by 50 percent. Right. We still can pay off the loan. Right. If Bitcoin went to zero, we've still got cash and cash flow. We've probably got cash and cash flow equal enough to pay off the loan at Bitcoin went to zero.

And if Bitcoin went to zero and we stopped generating cash, there's no other debt on the company. So you've got FirstLine against an enterprise software company with thousands of customers and intellectual property. A very fine portfolio of domain names like Hope, Angel, Hope and Usher and Courage and Wisdom and Strategy and the like. So there's a lot of assets, a lot of patents, a lot of customers, a lot of revenues. And so we were basically a very credit worthy company.

And we we took this debt to market, and if you were on the other side of the table. And like, why, what did you buy this debt like, if you like Bitcoin, you have the ability that that's not just yielding seventy five basis points. The debt comes with with warrants, basically the ability to get paid in shares above three hundred ninety eight dollars a share. So. What we are doing is giving the debt holders participation in the upside.

And we're giving them security on the downside, so if you wanted to buy Bitcoin, you could buy this debt. You have all the upside of Bitcoin. Bitcoin goes to the moon. You're going to get paid off because you have the equity participation in Bitcoin goes to zero. You're going to get paid off because you've got the security of enterprise software and bitcoin just simply yo yos back and forth and it goes up and down. These guys are going to arbitrage the stock.

They're going to short it when it goes up. They're going to go along. When it goes down, they're going to trade the volatility and sell the volatility. And that's good, too. So, in fact. There's really why wouldn't you do that, right, like I said to some of these guys, if it was me on the table, I would club all my competitors on the head and I would take the entire deal for myself, like it's a very straightforward thing.

Do you think that let's say big tech starts trying to do a similar move? Do you see them being able to come in at an even lower yield coupon of 75 basis points? Let's say Apple wants to do something like this and they say, you know what, we're going to share the money for zero.

They could they could borrow the money for zero. And if they have some type of convertibility into common stock at whatever strike they could, they could basically drop the coupon down to nothing. If they say they're buying Bitcoin with it. Do you see that as a real possibility in the future?

You know, I, I, I think we've got to take this in steps, right? I mean, the first thing that's got to happen is people understand that public companies can buy Bitcoin and then they see that not only can you buy Bitcoin with the Treasury cash, but you can also use that to buy it. Right. And as people start to see this, then I think.

Then I think there's just a wall of money, I mean, there's an avalanche of money, but but like, is it a Apple doing? Look, Apple could go and they could borrow fifty billion dollars at zero and buy Bitcoin. But the truth is they wouldn't need to. They have 50 billion in cash right now. They have one hundred billion in cash, which is the diluting and 15 percent a year or being devalued at 15 percent a year.

So before Apple went to borrow money, the first stop would be why don't they just actually convert their their cash that's debasing under Bitcoin.

I want to double down on this. I want to take this even a step further just to hear what you think about this extreme example. Yeah, I think that there's going to be so much demand for this at a certain point in the future. Call it one year from now that if you're a person, if you're a company that's going out there and saying, I'm trying to raise money, I'm going to buy Bitcoin with it. And we all understand the restrictions for people that are investing in the fixed income space, but they can't invest in other things.

But yet we got one hundred trillion dollars in this particular pool of money. Right. That's trying to chase after yield.

So could could we see a scenario where it's so competitive to to buy this issuance?

I mean, I'm just looking at the issuance that you had. You were going after I think it was like four hundred and fifty million. It was oversubscribed. Hundred million. You were going after 400 million. It was oversubscribed to 650 million. Right. So does does this change to I'm going to I'm going to issue of a note, a bond, whatever it is. Right. As far as duration goes, I'm going to issue it at negative 100 basis points just to keep the oversubscription to the to the point where the amount you were actually going after.

Is this where we think you're enthusiastic? It's possible.

But look, I think what's more likely is, is you've got a wall of institutional money. Yes. Hundreds of billions of dollars that's sitting in fiat, instrument stocks, bonds, sovereign debt. And they have to just get over this mental block of maybe I should buy Bitcoin. And you saw that with Guggenheim. You saw that with rough roughen or whatever. You're starting to see blocks of five hundred million dollars. They're just sitting out there that will flow.

Then I think you're going to see private companies and they've got a wall of money. Then I think you're going to you know, the next step is just for public companies like Square and PayPal and the like. I mean, they've got billions and billions of dollars in cash. There's five trillion dollars or something in corporate treasuries, some large amount that's sitting in cash. Once they realize that they can put it into Bitcoin and keep it liquid, then you'll just see a wall of that money.

They don't have to borrow to do it. They're just, you know, you're going to see before they borrow money to do it, they I mean, Apple's got one hundred and twenty billion or some God awful amount. So first they'll just put fifty billion of that and or Tesla's got twenty billion dollars. They've already borrowed it. So if Tesla put you know, you don't need to come up with this idea of Tesla raises money at a negative interest rate.

If Tesla took the twenty billion that's that's basically melting right now and put ten billion into Bitcoin, they would triple it and they'd make 30 billion dollars in the trade in a hurry. So how about a simple idea, which is Tesla? Just take the money that's melting and put it in Bitcoin and triple it. And then at that point, everybody else does it. And it's and then there's there's other people that can do other things. But that's just such a simple, simple idea right now.

That's right in front of his face.

Well, I agree with you on that. I guess this is this is the lens that I'm looking at it in. So I buy into the stock, the flow model, the stock, the flow model suggests we're going to be over a hundred thousand, call it September to October or whatever timeframe, end of twenty twenty one. We're going to be at one hundred thousand on this. I'm looking at how the market's already reacting to just us breaking. Twenty thousand.

We're seeing headlines on CNBC. Is is the dollar doomed with crowns on Bitcoin? Right. All of these things we had Paul Tudor Jones, all these people are owning it right now. The headlines out there. Twenty thousand. What in the world is going to happen on the 24 hour news cycle? On the twenty four hour business news cycle, one bitcoin goes through one hundred thousand potentially here in nine months to ten months from now. And so when when I look at that and I say and I see that you're already putting out the example, you're not doing it with one or two percent of your off your balance sheet.

You're doing this in an all in kind of such an example to what the power of this really is. Right.

And so. When I look at all the money that's pent up in fixed income yielding nothing. And it's to the tune of one hundred trillion dollars, and it's almost like the barriers to get that money out of there is so high and so difficult for them to get the money out of that pool. And there's a way to do it. And pretty much the only way I can find to do it is through a corporate balance sheet kind of move by issuing debt that's convertible.

I just don't know how you're going to be able to keep the lid on that type or the genie in the bottle on that trade come a year from now if Bitcoin is going through one hundred thousand.

Well, let's let's think about the ways that this money is going to move and all the let's talk about the layer cake of money. OK, so there is there's individuals, family offices, you know, and tech entrepreneurs. And privately they can go buy Bitcoin and they're the early movers. Then there's the hedge funds, you know, like the Guggenheim of the world and. After they get their head around it, Paul Tudor, John Stanley Druckenmiller, been they'll Miller, they can put it in their charter and they'll buy some.

And I talk about one percent, two percent, three percent, and they'll start to move. But you know, something that keeps them from buying 10 percent or 20 percent the first year, they'll dip their toe in at one or two percent next year.

They could amp that up by a factor of two or four, so in twenty twenty one, the simplest way we grow is at some point Bill Miller and Paul Tudor Jones and Stanley Druckenmiller say, you know, this worked really well, but why did I buy three times as much gold as I bought Bitcoin? Because Bitcoin performed 200 percent up and goal was like up 10 percent or 15 or something. So when you when you transition from that idea that Bitcoin is a great idea to the idea that it was really stupid of me to invest in something which underperformed, you would see two, three, four or five weeks that money coming from those investors.

Now there's another pool of money. The next pool of money is, is people that can buy publicly traded stocks. And, you know, money's locked up in retirement funds. Like for one case, there's a lot of investment funds that can buy public stocks and they can buy a BTC. They could buy matter that they can't buy Bitcoin. They just can't. OK, lots and lots of that money ask what can what are they looking for? Companies with Bitcoin exposure.

PayPal Square. Greyscale, MicroStrategy, you know, there's a dynamic there, and the dynamic is while big companies that have a Bitcoin strategy either on their balance sheet or on their P&L or both, like MicroStrategy is strong on the balance sheet, square is strong on the P&L. You know, there will be other companies that will Coinbase will come public. Right. They'll be strong on the P&L, maybe. Interesting question is, will Coinbase actually put Bitcoin on their balance sheet?

Big question. Coinbase can do an IPO, raise billions of dollars and buy Bitcoin with it. Well, they. This is my plug, Bryan Armstrong. I hope you do you're nuts if you don't, but, you know, you're going to see more and more of that happen. That's another part of the layer cake. Then you have companies that can do debt easily and invest in debt. There are a lot there are two hundred convertible funds and they invest in debt.

That's all they can buy. They can't buy the equity, quote unquote. Too risky. By the way, people that buy equity, if they have asked about Bitcoin, say, oh, I can't buy Bitcoin, quote unquote, too risky. OK, so at the end of the day, at the end of the day, you know, one layer is the hardliners with their private keys, you know, running their own nodes. And there's a lot of people say, oh, that's too risky.

And there's another group of people buying Bitcoin on square cash and on PayPal or buying it through Coinbase. Less risky. And there's another layer buying Bitcoin through institutional funds like greyscale or the like, less less risky, but still too risky for the equity people. Then there's another layer of people that will buy the ticker like Square and PayPal or Matara GBC. Then there's another layer of people that will buy the debt, the convert debt, and then there's also secure debt.

Maybe at some point people will start to do secured or convertible debt that is invested in Bitcoin. All of these are different buckets of money you've got. You know, you've got insurance companies like MassMutual and they've got the 230 billion in their general fund. Now, if they decide they can start to buy an investment grade asset and anoint Bitcoin, is that investment grade asset, then there's no reason that number can't go up by a factor of one hundred or thousand.

Right. So so what we have is, I guess, about seven layers of money. And and I've met guys like, you know, Olmeda, I'll meet a person that runs a hedge fund that invests in publicly traded companies, so they're like, well, you know, I like Bitcoin, but but I'm not allowed to buy Bitcoin per my charter. I have a billion. I've I have ten billion dollars. But I can't buy bitcoin like to change.

That requires I change the minds of a committee of twenty four people. It's a twenty four month process. We got to go back to all of our limited partners and we got to redo our charter. And that's, you know and and that's a three year process. So they like bitcoin but they can't buy it. But if they like they like a public company, Neisser Nasdaq listed stock, they can buy that. And so it's not really a matter of right or wrong or orthodoxy.

You just got to give them the onramp for the money to flow. And then I you know, I literally met I met people on my convertible bond road show, not a road show, but when I had my meetings, person goes, Yeah, I've owned bitcoin since twenty thirteen. I love the idea. Yeah.

We're in the twenty million bucks. Sixty seconds. Forty five minutes. I'm going to give you 20 million dollars. Yeah. You know, why don't you buy bitcoin. That'll take me three years and we can't do that. Yeah. Three.

I mean you have to move a mountain to buy bitcoin but they can buy it, they can buy the debt in thirty seconds. In fact that's what I was telling you.

I'm telling you the rates are going to go negative. You got in a year from now, the rates are going to go negative because the oversubscription is just going to there's only so much demand for it is going to be nuts.

It's we're just doing the work of providing people the on ramps. Yeah. You know, when when Fidelity provides a bitcoin and Bitcoin fund for consumers that you can you can put your 401k into, then billions can flow. When they provide an institutional fund, then billions can flow when companies come public. And they offer you a stock ticker, then billions can flow when you issue debt and they're all just different ways to carve a channel from the asset ocean to the Bitcoin pond.

And we're just carving that channel and we're making it easy for people. And it'll take some time, but as people get more comfortable with Bitcoin as an investment grade Treasury Reserve asset and that's the key thing, then there's a hundred trillion dollars worth of problem here. I mean, one hundred trillion dollars of assets that needs to find a safe haven home. And people have been using sovereign debt as a safe haven. So history has taught us when a currency fails, it fails in a spectacular way, in a way where speed is of the total essence.

If this hundred thousand mark that we were talking about earlier happens in twenty, twenty one, I just don't know how.

I just don't know how you're going to be able to keep the lid on it. I don't know how speed isn't going to just fear is going to just take over the market.

You seem to I'm an optimist. I'm an optimist there. So I look, if if you're living in the Winmar Republic and you're there is no alternative, you've got Winmar Marks, then you're going to have a complete collapse. But in fact, if you're living in a modern society where people have options, what's more likely to happen is as Bitcoin price goes up, money flows into it, price discovery returns to these other markets. There's a check and balance on on behavior.

And then people start to react to it and they start to act more rationally. So I would like to think that in a in a marketplace where there are rational alternatives, the bit that Bitcoin is a stabilizing influence and people go, oh, for example, when a bank sees a billion dollars go out the door, they say, I guess I better treat my customer better. Why is that? They're leaving me? Oh, I'm not offering quite.

So I'll offer that. And then when one hundred billion flows out the door, people notice and when a trillion flows out the door, someone says, why is a trillion moving? Oh, well, because the currency is collapsing. Maybe we ought to do something about that. Maybe we should stop printing money. So, you know, I'm going to continue to print a trillion dollars a year and buy bonds because there is no inflation.

Well, if the money starts to starts to move and people start to see that that's a dynamic, maybe I'll slow down on the money printing.

I like a bit Islamic Republic.

There was no Bitcoin, right? I mean, that's why that went to zero. But there's Bitcoin here and Bitcoin is an antidote to a problem. And so I think an optimistic view would be as the price goes up, it becomes more appealing and then more people adopt it and will keep going up. Price discovery will return the markets. People will start to act more rationally and the political sphere and a lot more rationally and the investor sphere and a constructive, peaceful fashion, that would be a good outcome.

I totally agree with you there that this needs to take place in a manner that's controlled in order for there to to avoid the whole civil unrest and all that kind of stuff.

But as far as the the governments around the world being able to pull back on their printing as soon as I mean, you know, I know the printing is going straight into the fixed income market, which is keeping the interest rates low. If interest rates start coming up, the value of everything on the whole planet starts to erode in a rapid way. Right. So my argument against not that I want this to happen, but I guess what I'm trying to do is frame the reality of what I think's going to happen.

I don't necessarily know that the government can become responsible with their monetary policy because it makes the value of everything unwind. Right.

I don't I don't know. I don't think it's that constructive to speculate about the zombie apocalypse that I like.

I think I think we should just focus upon what's constructive right now. And what's constructive right now is Bitcoin is a monetary network. Apple Computer can make one hundred billion dollars if they plug into it. Tesla can make twenty billion dollars if they plug into it. The individual dentist, Dr. Baker, lawyer that's struggling to to protect their economic well-being and create prosper in the future can benefit by plugging into it. As more and more companies and individuals plug into Bitcoin, their lives will improve, their lot will improve, and they'll be able to escape the path to ruin, which comes from attempting to grow faster than the rate of monetary expansion.

And I think what we should be doing is we should be giving people a clear, peaceful, constructive way for them to save their companies and to save their their businesses and to and to protect their families and protect their well-being. And and the Bitcoin monitoring network. Is that constructive, you know, exciting thing, right?

I mean, I don't think we're going to get to the point where governments collapse and taxation ceases and we all have to go get a rifle and ammunition and antibiotics and operate on ourself. You know, I don't I'm not really planning for that. I don't think it's that relevant. I think what's relevant right now is the Bitcoin is big enough for like billion dollar funds to take a position in it for you to take a billion dollar position. When it goes to fifty thousand, you can do it with two or three billion.

When it goes to one hundred thousand, you can do it with ten billion. Right. At companies like Apple and Google, when they start to see I can move ten going in and out of it in a day or two days or three days, then they're going to they're going to get interested. And as it marches up, it's going to be a solution to bigger and bigger companies. Then it will be a replacement for sovereign debt. It's not a replacement for safe haven sovereign debt now because you can't buy two billion dollars of it in a minute.

For example, I've done a trade. I've done trades on the thirty year debt, and I've done one hundred and fifty million dollar trade on thirty year debt where I shorted it. I did it in March. I shorted it when the swap rate was seventy two basis points. OK, someone's going to loan me money for thirty years for seventy two basis points. So I thought ok I'll take that trade. It was one hundred and fifty million dollars in trade and it took 15 seconds, Preston, and it didn't move the market one basis point.

Yeah, I mean, it was seventy two, maybe seventy one, but that was and that was my margin for what I wanted to move. So if you could buy one hundred and fifty million dollars worth of something and not move the market one basis point, that's liquid. So the sovereign debt market has that liquidity bitcoin as it gets bigger. Right. The number you want to keep your your your eye on is what's the daily liquidity like you can you can you buy and sell four billion a day, eight billion a day, one billion a day, 20 billion a day.

As the daily liquidity gets larger, it's safe haven investment grade asset status gets better.

When you're a big insurance company, you're going to want to want to be able to buy a billion of it or liquidate a billion of it quickly without moving the market easily. And so we're I think what's going to happen is it's going to grow at some rate. And it you either need to solve the problem of on ramps for consumers, which is what Square and PayPal will do and what Apple and Facebook and Google can do. When that happens, a billion people can buy it.

When the mouse click or with a finger click, that probably that's Mark Cuban's like criticism like show me.

It's easy to use. Right. Well, the answer is, have you checked out square Mark? I mean, Square and PayPal and Apple. And they're going to make it easy to use that are MAGNES user. So that's one thing that has to happen. And on the other side, what has to happen is just these hedge funds and these institutional investors, they need to take a billion dollar position. And I can count like three or four of them that are out there now.

And once you get to the point where you've got 20, 30, 40 funds have taken a half billion or a billion, our position, bitcoin starts to trade in an area where there's five to ten dollars billion of liquidity a day and the volatility goes away when I can go and I can sell a billion dollars of it in an hour and not move the market, then that's the point at which the Facebook's, the Googles, the Amazons, the Apples of the world will say, I guess we can do that Treasury operations with this.

They probably won't be the first, but unless they unless they really Tesla might be because they take risk maybe. But more likely, it'll be midsize companies that have five hundred million, two hundred fifty million, eight hundred million lying around. And they'll start to move into this because this is accretive to them. And we'll get this positive feedback loop in. I like companies will do it, their stocks will go up, other people will say maybe it's not so scary, they'll do it.

The hedge fund guys will do it, they'll make money and then they'll then they'll they'll go from fear to greed. First they thought, I'll do a two percent and I made a bunch of money. I'm afraid it'll work out badly. Then they'll go, crap. I lost money on ninety eight percent of my portfolio because I invested in garbage and maybe instead of two percent good. Ninety eight percent garbage, I ought to actually move to 10 percent good and 90 percent garbage.

Right. And I mean by 10 percent good. Ninety eight percent garbage would be five times as much money coming from institutions as are coming now, right.

Yeah. So all that starts to happen. And as that happens, as all of these companies and investors buy into the network, you're going to get their lawyers and their lobbyist. And there are lawyers in there, lobbyists are going to defend the network and I mean, you've got PayPal, it's going to protect the networks. Square's going to protect the network. Right. You know, you're going to have anybody that ever invested if you have a billion dollars of Bitcoin, you think you're not going to pick up the phone and call your congressman or senator and say, don't f with this so that you know that happens and then that political dialogue is going to evolve.

And right now there's one view of the world. But but but Bitcoin is going to, in a constructive way, infect everybody's minds. And hopefully it will get them thinking about a different view of the world and and and that'll be a good thing. So I'm optimistic. That that as this spreads, this could be a force of good and and there's no reason why it won't grow faster, but it'll be progressive, people will have to get over the technical challenges the charter challenges.

One one narrative we hear a lot is guy runs a billion dollar fund or a multibillion dollar fund. He likes the idea. First, he's going to buy some on his own account to get his feet wet to get used to it. How does this work? OK, now I'm comfortable. Now I'm going to bring my fund into it. Like me, Michael Saylor, what did I do? I buy it personally, I understand how it works.

I get comfortable. Then I go back and I talk to my board and I talk to my officers. And then we do all of the due diligence and we work through the accounting and the regulatory issues and the corporate governance issues and the research to figure out how operationally security, how we do it. Right. That's a 12 week. Twenty four week delay. And so a lot of these things, there's a three month, six month, nine month, 12 month delay, there are there are funds that have, you know, hundreds of billions and trillions of dollars they've got on their agenda.

Like somewhere in February, they're going to have a meeting to discuss Bitcoin, you know. And so when they have that meeting to discuss Bitcoin, then three months after that, six months after that, they might start to move. And that's not a bad thing. It's a good thing. Right, because everyone listening to your podcast has a chance to continue buying the stuff. Right. You're going to get in a head of a wall, successive walls of money that are going to come wave after wave.

And, you know, when when it gets to the point where it's 10 trillion dollars, it starts to work for, you know, for small nation states. And when it gets to 50 trillion dollars or one hundred trillion dollars, it starts to work for countries.

And countries, institutions, endowments, corporations, everybody has the same problem, a different level, but some of them don't recognize this is the solution yet it's human nature. You have to make it easy for them. And you have to give him a role model. So when when I have a role model, when another company like me did it, like MassMutual did it, MassMutual did a little bit, the next hundred insurance companies will say maybe we should look at it.

And MassMutual scales up by a factor of 10 other companies come in. Each of these is a little it's a little brick and the road to something better. And so I think I think we, we kind of get to sit back and enjoy the way it evolves and it's going to and each of these things that happen, they're going to be good for the network. Like every single time a new constituency plugs in the Bitcoin network, they're going to plug a functionality gap in the network.

When, you know, when a fidelity comes aboard, there's a there's a pool of money that couldn't invest in Bitcoin except through fidelity. In our coinbase is another pool of money. When Coinbase comes public, there's another poll money that couldn't get into it except through Coinbase is public offering each of these things is is another another extension of the network. The Bitcoin block chain is the core base settlement layer and there's going to be hundreds and hundreds of call the member banks.

They're all just kind of member banks. And Bitcoin is the central bank and cyberspace. And, you know, there's there's someone doing business in Nigeria. Well, that someone probably won't be my company. You know, in every country is different. They've all got political requirements, regulatory requirements, technical requirements, cultural requirements. You can almost think of Bitcoin is like it's it's the most it's a massively franchise, it's a bank, a bank franchise or a bank franchising company, ultimately decentralize.

Anybody can start their own bank. If you're a dentist, it's a bank for your family. If you're a small time operator in Nigeria, it's a bank for, I don't know. Forty seven people in your village. If you're square or PayPal, it's a bank for one hundred million people. If you're Apple, it's a bank for a billion people. If your fidelity it's a bank for institutions. There's someone that's going to bank pension funds and endowments and other types of money.

They're all just different banks and they all cater to a different clientele who all have different requirements except that they all share one requirement. They all want to store their value forever. There's no one that will tell you I want to lose all my money. Right. So everybody's got the problem. The answer is different. And and what we see in front of us is we see this Cambrian explosion of innovation, all sorts of companies solving the problem in different ways with different instruments.

And the market is going to sort out the winners and the losers. Some people are going to fail because they can't execute. Other people are going to try to bring a product to market. And and the customers don't want it. Other people are going to create a really good product and some regulator is going to shut it down. It works in Wyoming, but it won't work and pick another state. In some case, I'll do this thing in Nigeria or Zimbabwe and they're going to they're going to cut me off.

And, you know, the market will migrate to the next solution that works in Zimbabwe. Maybe we'll go from a centralized exchange to a decentralized solution for Zimbabwe because the politicians are hostile and maybe the politicians won't be hostile. And it's going to be happening in twenty thousand places every month differently as fast as it can happen. And that's really the beauty of Bitcoin. Michael, all I can say is my pencil was going crazy throughout this, I was taking a lot of notes.

I thank you for your time and I know our audience to be able to basically step into your thought process and to hear all these ideas around economic calculation, how you're thinking about it from a business perspective is so valuable and just you're so giving with your time. And I think that's the thing that not only I'm deeply thankful for, I know everybody who's listening to this is also thankful. So thank you for coming on the show and I would really love to do this again in the future.

Preston, thanks for having me. I think you're doing great work and I just share your passion in educating the community. I think 20, 20 is a catalytic year. It's full of challenges, but it's also full of opportunities. You know, and Bitcoin is such a paradigm shift in the history of money that I think this is a year where it's incumbent on all of us to do everything we possibly can to catalyze constructive change. I think so many people can benefit by plugging into this network.

If we show them all the different ways you can plug in the network, then I think we can call it a good year. Thanks for having me.

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