Michael Saylor Responds to Bitcoin Critics

There really is no example of a successful technology investment where you didn't have to weather the 45% draw down and go through that valley of despair. Ours is currently taking 137 days so far. But you know it might take 2 years, it might take 3 years, it might take four years. If it took seven years, congratulations. It's just like Apple computer. The biggest biggest success story of the decade. Everyone wants to hear from him. Michael Sailor, thank you so much for joining me on the show. It's great to see you. You're one of the only bulls left.

>> I think there's a lot of bulls out there. Just uh they're waiting.

>> Well, let's start right there. Bitcoin's price is down. Sentiment is pretty negative. The critics are saying the thesis is breaking. What do they not understand?

Okay, first of all, you know, it's 137 days since the last all-time high. 4 and a half months. Half the amount of time it takes to make a baby. 4 and a half months. Now, we're off 45%, right? The all-time high is like 125. We're 67, you know, 675 or so. So, you know, there's a famous um video of me in 2013 uh speaking about the virtues of the iPhone and Apple, and it went viral for a while.

>> There's not an 8-year-old on the planet that doesn't want an iPhone 5.

And uh if you go back and you look at maybe the greatest company of our era, Apple, and the greatest stock, a stock that made people insanely rich, Apple releases the iPhone in 2007. The PTOE of Apple is 30. The iPhone isn't a success for two years. Around 2009 on the iPhone 3, people start to think, and myself included, I didn't think the iPhone, the original iPhone 1 or two were that useful. There was no app store. There was no cut and paste. They were kind of toys. Around 2009, the iPhone starts working. It's iPhone 3. By 2012, they're around the iPhone 4, iPhone 5. Everybody agrees it's a cool product. Apple stock peaks. Then it crashes between late 2012 and May 2013. Apple stock falls 45%. The same 45% bitcoins fall. Uh the Apple PTE goes to 10. The Ford PD less than 10. It's being valued like a a tired cash cow, you know, utility company. Like no technology, no future. People are down on it. You know how long it takes, Natalie, before Apple recovers to a PTE of 30?

>> From 2013?

>> Seven years.

>> Seven years.

>> In 2020, Apple returns to a PD of 30. So it's 13-year cycle from 2007 to 2020. The greatest company of its era, you know, at at many times the most valuable company, the most successful product, the product that a billion people agree is is something they can't live without. Maybe the most successful product in the history of the human race. Takes 13 years peak to peak to trough to peak. Seven years to recover. And you know what it took for people to give Apple the PD of 30 again? The endorsement of Carl Icon and Warren Buffett.

>> Wow.

>> Two people who probably didn't even use the iPhone that much, if at all. You never would have read a review from Carl Icon or Warren Buffett on the iPhone, did you? Like are they at the top of your technology, you know, advocate list or technology reviewer list. So that's an example of how conventional markets evaluate innovation. And and here's the irony, right? At the point that I give that speech, you know, I'm saying, "Hey, this is an iPhone 5. There's not a six-year-old that doesn't want this iPhone 5." Um, at the point I give the speech, there's general consensus that the iPhone is something you can't live without and no one's got a product nearly as good. And yet the the conventional market's counter trading it.

>> Okay. So, if you got rich in the past decade, you probably bought big tech. You probably bought Apple. You probably bought Google. You probably bought Meta. Maybe you bought Amazon. Maybe you bought Nvidia. Maybe you bought Tesla. There's no way you got rich without buying big tech. Big tech has been the primary screaming success. The stocks are up 10x, 20x, 30x, 50x. But in all cases, you find examples of the conventional market that underappreciates them and underestimates them. With Apple, it was 7 years through the wilderness. With Amazon, I remember Amazon for something like 4 to 8 years. Conventional wisdom was Amazon's an awful company. They'll never make any money. They'll never amount to anything. That you almost could have bought Amazon anytime for a decade while conventional investors crapped all over it. And it wasn't until 2020 during the lockdowns that people go, "Oh, wow. I guess we need Amazon."

>> Mhm.

>> And uh of course just this last week, Amazon's revenue uh surpassed Walmart and Amazon became the largest company in the world by revenue. But when could you have concluded Amazon was going to work? 2010, 2012. It was it was already obvious there was going to be no competitor to Amazon. No one could possibly do what they were doing by 2012, eight years later. You know conventional wisdom is that the same is true with Apple. It's like so Bitcoin at what point do you have the fundamental ability to comp conclude that Bitcoin is global digital capital? Now like what's the indisha? The president of the United States is telling you, right? The head of the Fed, Kevin Walsh, is telling you, the head of the Treasury, Scott Bessett, is telling you, the head of the SEC, the head of the CFTC, eight other cabinet members, you know, all the Middle Eastern sovereign wealth funds are telling you, Black Rockck is telling you, right? My company is 100x its enterprise value, right? When in the history of the capital markets did a company ever buy $55 billion worth of a commodity and then loudly declare that this is digital capital and this is the new money of the world. Never.

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>> Okay, so is a billion enough? Is 10 billion enough? Is 50 billion enough? Right. At what point do you have enough fundamental insight on this?

Well, I would say you had enough to know that Amazon was unstoppable a decade before the world agreed. You had enough insight to know that Apple was unstoppable 7 years before probably 10 years actually in 2009 11 years before the world agreed. You knew it was unstoppable. You have enough information to know that Bitcoin is unstoppable right now. The world's going to eventually come to a consensus and it'll be the Warren Buffetts and the Carl icons of the world that will be what creates that consensus. They won't be first. They'll be last. They won't make a huge amount of money. They'll double or triple their money, right? And they will enter and the PD goes from 10 to 30. They triple their money in a in a 12 month time period. And if you're if you're able to think for yourself and if you're able to weather volatility, you can 10x, 20x, 30x on your investment. But there really is no example of a successful technology investment where you didn't have to weather the 45% draw down and go through that valley of despair. Right? Ours is currently taking 137 days so far.

>> But you know it might take two years, it might take three years, it might take four years. If it took seven years, congratulations. It's just like Apple computer. The b biggest success story of the decade. What do you say to those out there who feel disappointed by the bull market that we didn't go higher than 126,000 and what is your reasoning for why we didn't get to maybe some of those price predictions that a lot of people wanted?

>> I think the market is uh evolving. The entire ecosystem is evolving in seasoning and if you look at all the dynamics, the derivatives market is migrating from offshore to onshore and it is maturing. And so as derivatives in the US regulated markets grow, that strips some of the volatility off of Bitcoin and some of the upside off of it. It damps the upsides. It also damps the downside. Instead of an 80% draw down and an 80 vol you get a 40 or 50% draw down and a 50 ball. So you're seeing volatility damped on the upside and the downside by the seasoning of the markets. But you also have a situation where the banking establishment is embracing Bitcoin at a at a progressive but um a slower rate than people with short attention spans would like. It'll take the banks four years, 5 years, 6 years before they embrace an entirely new asset class. People would like for Bitcoin to be recognized in four months. But if the banks take four years before they start to bank it, extend credit on it, acknowledge it and handle it, trade it, custody it, etc., then that means that what you have uh at the top of the market is $2 trillion worth of uh Bitcoin, probably$1.8 trillion held by retail investors or offshore investors, and they cannot access the traditional banking system. They're in the shadow banking system. So if you had um $1.8 trillion or or more than a trillion dollars worth of capital and no one would give you a loan on it, then how do you monetize it, right? Um, if I posted $10 million of Apple stock with JP Morgan or Morgan Stanley, I could take a $5 million loan at Sofur plus 50 basis points and I could spend it. But but you can't even post $10 million worth of Bitcoin with JP Morgan or Morgan Stanley right now. Therefore, you can't take a loan. Therefore, you have to go to a shadow banking system. You have to go offshore. So, how would you actually monetize it? You either have to sell it, right? The safe way is to sell it, but that damps the upside. Uh, what else can you do? You can, by the way, you can get loans, a very small amount of loans from a few crypto exchanges where they don't rehypothecate your Bitcoin, but but, uh, the sum of that capital is a few billion dollars probably. So maybe there's a few billion dollars of Bitcoin credit that you can tap at sulfur plus 500 basis points or sulfur plus 400 basis points. Okay, this not sulfur plus 40, sulfur plus 400. So it's 10 times as expensive to actually draw down capital. And how much capital? 1,000th of the amount of capital available for securities portfolios. So there's a there's 1% or less of the capital available through the conventional banking system. It's expensive. Okay. What else can you do? Well, uh, I guess you can convert the Bitcoin to IBIT and just in the past six months some banks are starting to extend credit against IBIT and it's it's >> a bit more expansive than Bitcoin credit. It's a bit cheaper, but we're only in the first 12 months and it's still expensive and still it's like limited in uh in its loan to value. Now, there's a third place you can get credit. And the third place is you go to a crypto exchange or an OTC exchange and they'll often times give you a loan at 4% or 3% or 5% or 2%. I've had people offer me uh Bitcoin back credit at 1% or 0%. What's the catch, Natalie?

>> Right, that's the question.

>> There's always c the catch is they want me to transfer the Bitcoin to them so they can rehypothecate it.

>> Right. So, if you have $10 million, you either cannot get a loan from a legitimate bank, or you can get a small loan at a 10% interest rate, or you can get a 3 or 4% loan, but then it gets rehypothecated. So, your $10 million of Bitcoin gets sold once, gets sold twice, gets sold three times. You might have you might actually create 30 or $40 million worth of selling because the Bitcoin that you posted is that you transferred to the shadow bank or the crypto exchange rehypothecated it three times. Okay. So, what's holding down the price? I think what holds down the price of the asset is the lack of a fully formed uh nonrehypothecating credit system. Right? And uh there's a limit to how much you can rehypothecate certain other assets. Right? When you post your home as collateral for a mortgage, the bank doesn't turn around and sell the house on your street 10 times. If they did, the price of houses on your street would be lower. Right? So I I think that uh the lack of a fully formed banking system holds the price back. The existence of rehypothecation in the crypto economy uh damps the ball. It works to both sides, right? When when people want to get short, they might get short 50x >> leverage. When they want to get long, they might get long 50x leverage. So, right now we're in that that uh bare market where you've got the rehypothecation holding back the price and I think at some point it reverses itself. We'll just have to wait.

>> Well, you always say that volatility is vitality. So do you worry that your projections of like Bitcoin 40% ARR could be changing and diminishing or are your bare bull and base cases pretty similar for the next 10 to 15 years?

>> I look out 21 years, you know, and and I expect about 29% ARR over the next 21 years. Um I've always thought that we would have rallies and drawdowns, right? So I I see it as a serpentine pattern, you know, where it's just slightly less than 30% over time, but there'll be periods when it will surge and there'll be periods when it will draw down. Uh that doesn't change. I think you know I if you listen to people um someone will say well you know this weekend there might be some problem in Iran or in the Middle East and if there is a problem in the Middle East and if the US does something with regard to Iran then Bitcoin's the only thing you can sell and then Bitcoin price may crash and we're worried about it and I'll say well you know if something happens in the Middle East Bitcoin will be the only thing you can sell it'll also be the only thing you can high.

>> Mhm.

>> And so that just means that a lot of people that want to trade on the weekend are transferring capital to crypto exchanges so that they can either buy or sell or sell buy sell and buy Bitcoin four times between Friday at 400 p.m. and Monday morning at 9:30 a.m. And yeah, if you're a trader, what does that make this? It makes it the most interesting asset in the world for you. If you're an investor over four years, what the heck difference does it make whether or not it gets bought, sold, bought, and sold this weekend? In fact, here's the difference it makes. There's capital, hot money that's flowing into this this ecosystem, into the Bitcoin ecosystem that otherwise would not be allocated. Right? There's there's a trader. Someone's got $20 billion of capital and their choice is they can either leave it in the bank earning sulfur or they can put it into the crypto exchange system and they can buy and sell and buy and sell and maybe they'll make 4% this weekend.

>> Mhm.

>> Right. When Bitcoin crashes by 5%, there's someone buying >> while there's someone selling. So people are like, "Oh, it fell 5%." Well, someone someone woke up at 4:00 a.m. on a Sunday morning to buy it at a 5% discount. So, someone's going to actually make more money on the weekend than they would make holding holding conventional money for a year. And that capital is not flowing into New York City real estate. It is not flowing into gold. It is not flowing into conventional derivatives. It's not flowing into Nvidia stock. It's not flowing into Apple stock. Why? Because you're not buying and you're not panic selling and rage quitting and buying and capitulating and you know and leaping into the market on these volatility waves. So, Bitcoin is most volatile because it's most useful and you know in the US there's things like reggg t where you can't have more than 2x leverage. Okay, we have laws that prevent you from going to more than 2x leverage. Well, there's no such law, you know, in nature, >> you know, in nature, you know, like they don't have those laws. You see one centipede and then you see 10,000 ants and it's like 10,000 to one and it doesn't seem quite fair. There's nothing fair about nature. If you want to gang up 10,000 to one on the centipede, you get to do it. Just like if you want to trade Bitcoin 50x and crossc collateralize it to another yo-yo token which is 10x and you want to create a 500x machine. You can do it. There's no one stopping you from doing it. Is it wise? Well, maybe 99 out of 100 times it isn't wise. You get wiped out. But the point is if that's the case, the people that do stupid things get wiped out and then in a year they won't be doing it anymore, will they?

>> Mhm.

>> Right. Presumably the people that are trading with 50x crossc collateralized leverage offshore on Saturday morning in response to a Reuters posting and they're panic selling Bitcoin and then they're like, "Oh, well, the world didn't end on Sunday afternoon." Then they're, you know, they're desperately buying it back. Presumably, those people have a reason to do it and they're making money because if they weren't making money, the free market would separate them from their capital, right? There's no quicker way to go bankrupt, right? So uh Bitcoin represents the global capital market and there are people doing things that you can't do that you could that you won't do that you don't choose to do you don't wish to do and they're doing it with that asset and that's what's creating the volatility but that's also creating the gravitational or the magnetic field which is attracting all of the energy all the financial energy of the world's being drawn into this space, all of the political energy, you know, all all all of the digital energy, it's all being drawn into this space because of that utility. And uh I think you just got to make your peace with it. Either you're a short-term and you're a trader. If you're worried about what Bitcoin is going to be in four days or four weeks or four months, you're a trader. Call yourself a trader and then you better have a trading methodology or or trading excellence or be in the trading business or be, you know, neutrally hedge. So, it doesn't matter to you.

>> You're either that or you're an investor, you got a four-year time horizon and then it just doesn't matter. All you know, all you'd be thinking is uh a lot of capital is surging into the space and a lot of attention is being given to the space that otherwise would not be given to the space because of those crazy traders and let's just let them do their thing because I'm an investor. I'm holding for the long term.

>> Well, you know, I'm very passionate about empowering the average individual and Bitcoin is still primarily owned by individuals, but I just had Lynn Alden on and she said that retail really did not participate in this last bull market. Why do you think that is? And what will bring sort of the average retail investor into the best savings technology?

>> I think that the that the retail investors that are passionate and and uh and and committed to digital capital, to Bitcoin, I think they found it already. I think that I think that they've had 10 years to find it. So if you're looking for a non-s sovereign store of value bearer digital asset, I think that sometime between 2010 and 2015, you found it in one of those successive waves and then you bought as much as you could possibly afford to buy. Okay? And that's fine. Um I think that if you want to draw the next uh cohort of retail investors, they don't want uh a 40 v 40 arr asset. What they want is uh something more like a 10 v 10 arr asset or a zero v 8 ar a arr asset. So, I think that the way that we draw the mass of of investors is you offer them something like digital credit like STRC where where we say, "Well, here's 11%. It's tax deferred. We're stripping the ball off of it." Like the one-year volatility of STRC is less than the NASDAQ, is less than the S&P index, it's less than gold. Right? I'm going to give you an asset which is less volatile than conventional stores of value, but it's a but it's kind of a it's a certain right straightforward defined 10% or 11% and you get it monthly. Um, and you can test this yourself, Natalie. I would challenge you to test it. Walk down the street and find a hundred people and say, "Uh, would you rather have 30% a year, uh, over the next 20 years, but you're going to get, um, 40% draw downs and 40 volatility. It'll be three times as volatile as the S&P index, and uh, you know, some years you won't make any money and some years you'll make a lot of money, but it'll be 30%." or would you rather have a bank account that pays 10% where you can take your money out whenever you want but you'll just collect 10% while you're waiting now ask them take the survey I I would think like if you were to say 95% of the market wants a 10% bank account they don't have to pay tax on and only 5% wants the 30% a year.

>> I I think that that's optimistic like like that's probably too pro Bitcoin. I don't think 5% of retail investors want to hold Bitcoin and collect 30% a year tax deferred with a volatility that's double or triple the S&P like I you might find differently. I would I would suspect it's possible that that number is one 2%. Right? So the great mass of the retail investors they want something which is 2x or 3x or 4x better than a bond fund. or they want something that looks like the S&P but without the draw downs of the S&P. And so we're going to attract retail investors to the ecosystem when we um take the best of equity, the best of credit and the best of uh crypto and we put the three together. So what does that mean? uh double equity is doubledigit returns and tax deferred gains. Credit is price stability, principal protection and low volatility and um and a very defined yield like defined consistent cash income. Crypto, Bitcoin is digital innovation, right? Uh transformation and two, three, 4x the productivity of the conventional economy, right? It's massive growth. Okay. So, right now the retail investor, they have to choose between massive growth and a and a roller coaster that's pulling 9gs, >> right? >> That's Bitcoin, right? or they have to take the S&P or the NASDAQ index and accept 50 to 20 V with good years and bad years but over time 10% AR r or better or they have to accept um a credit spread uh from an investment grade bond of 70 basis points which means they're getting four and a half% interest and it's fully taxable as ordinary income. So, you know, you're you're a California resident. You're either getting 2% on your Apple bonds after tax, 2%. but you feel safe or you're getting 10 to 15% on your S&P and NASDAQ portfolio, but you're getting no not much of any yield and you're you're on a a small kind of a a conventional roller coaster.

>> Mhm.

>> Or you buy Bitcoin and you're getting 3x the roller coaster ride. you're getting better performance, but you know, for the last 137 days, people think that you're crazy.

>> Yeah.

>> Right. And so those are your three choices. I think that the way that we break that log jam is we simply engineer digital credit. That's that's why that's been my passion for the past year. Can I actually take a 45 V 45 AR asset which is Bitcoin and strip 80 to 90% of the volatility off it. Strip 80 to 90% 90% of the risk off it. And let's give you something four to five times over collateralized. Let's create a double-digit yield. Let's do it in a way that's a return of capital. So you get tax deferred uh or you get you get deferred tax treatment. So you get the benefits of equity, you get the performance of equity, you get the principal protection of credit or a bond, you get a defined yield, you get paid monthly in cash. If you want to reinvest it, you just reinvest the dividends back in the principal and it becomes like a consistent 11% tax deferred growing asset. And when when you want to get off the roller coaster to pay your kids' tuition or pay a tax bill, then you just withdraw your money or you or you sell, right? And for that to work, you can't you can't have the volatility and the draw downs of equity. You can't have the volatility the draw downs of of Bitcoin. You need some credit instrument and you need an issuer that's going to overcolateralize it. and you need to actively manage that credit instrument so as to create price stability. And so I I think uh STRC or digital credit in my opinion is the way that we draw the next cohort of retail investors into the space. And I I don't know why we couldn't draw 10 to 100x as many. I I would think, you know, if if 2 to 4% or 2 to 5% of retail were able, by the way, if you find 5% of retail that like Bitcoin, they're not going to allocate 100% of their capital to it, right? They're going to allocate some portion. So, I think if we got 2 to 4% the first go around, I think we'll get to 20 to 40% with digital credit. And I I think that that is a that that is in a way one of the killer applications of digital capital.

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Out of all the preferreds you've issued, it seems like you're most excited about Stretch and you've been using it more in order to accumulate Bitcoin. Is there a strategy behind that?

>> Yeah, if you if you look at all the credit instruments, um, you know, what are we doing? We're stripping volatility off of Bitcoin and extracting yield and eliminating currency risk and and eliminating capital risk. So, uh, Bitcoin is like 45 V over the past year. With Strike, we managed to get that down to like 38. With uh, Stride and Strife, we got it into the mid20s. With stretch. We got it down into the teens or the low teens, even for a while, down into the single digits. And uh and then all that volatility we stripped off then flows into MSTR, the common equity, which is 80. So what we're engaged in is volatility engineering. And um if you ask if you ask the average person, right, do you want um a bank account that pays you 10% or do you want a 30-year bond that pays you 12 and but you got to wait 30 years? Well, most people just want the 10%. They don't want like they don't want an extra 2% if the volatility doubles. Like do you want 24 V and 12 or do you want 10% 10 V and 10? Most people just want the truth is what they want is they want 10% and zero V.

>> Mhm.

>> I want zero volatility, zero duration. Give me double or triple the money market or quadruple the money market. So, you can overthink this, but if you look at all of all of our credit experiments, and we've done, I don't know, almost 20 different fixed income deals, okay? We we did uh senior credit, you know, with Ebida Covenants, and that was not scalable. So, X that off the list. Then we did uh a Bitcoin back loan with Silvergate, but that creates too much, you know, collateral coverage risk and margin call risk. So, X that off. And then we did convertible bonds, many of them, but they're all 144A offerings, which means it's illegal for retail to buy them, right? We c we can, you know, try to put lipstick on the pig and say, "Oh, it's 144, it's over the counters, whatever." Let me translate it. It's a it's an illquid market with about two or three dozen participants and it's illegal for you to buy it. How is it in any sense a good idea to create a product that's illegal for normal people to buy?

>> Right?

>> That's stupid. Okay. So, X that off the list, right? All the by all those things are 10x 20x over collateralized. They trade like triple junk. Okay. So, the market's broken.

>> Right. Right? Like the market's broken. A bond that's got $70 of collateral for every $1 of liability trades with a credit spread like a going out of business junk company. It's like it's broken. Why is it broken? The market's broken. You can't buy it. It's over the counter. What is over the counter? It's like 16 people get together in a back alley to trade with each other and there's one dude making the market with a bid ass spread of 300 basis points and they meet, you know, on Friday afternoon from 4 to 5 in the afternoon and we call that 144a over the counter. It's it's an illquid, broken, non-transparent, crippled market. Okay, make that go away. So after you've gone to all that, now you start think about, well, how do I take it public? Well, it makes no sense to take a bond public. Like selling a 5-year bond and then taking it public as a listing makes no sense. Why? Well, because in four years, the bond's only got 12 months left. It's not a perpetual instrument. Okay? So that means that you've got this theta decay. You've got a decay in the value of the bond because of course at some point it's only going to have 30-day useful life. Why would you create a public security that eventually dies? That's stupid, right? It's like silly. So, you have to create a perpetual instrument to take it public. Erggo preferred stock. So, then we we basically think, well, we'll create a perpetual preferred stock. And then we started by doing the straightforward thing. we'll just pay a 10% dividend or we'll pay 8% with a conversion rate. So those were two ideas, strike and strife. And uh they were very successful. They were 10x more successful than all the other preferreds. And we learned a lot. But then what we realized is people don't want duration and they don't want complexity. So how do you value a convertible preferred stock? It's just too complicated for people to figure out.

>> Okay. What what is the duration of um of a 10% preferred that yields 10% forever?

Well, you can come you can calculate the Macaulay duration. It's a theoretical construct. It it works out to be about 10 years when it's trading at par. So, it's like a 10-year duration instrument. That's the same as like a 15 18year government bond. You following the bond math here, Natalie? It's kind of complicated bond math, right? If the bond has a 10 duration, then that means when interest rates fall 100 basis points, the bond should trade up 10%. How many retail investors understand that?

>> Not many.

>> Not many. Right? Duration math on a bond is complicated, but but let me tell you what the problem with it is. If I have a duration of 10 and and the forward interest rate expectation falls 100 basis point the the principal should trade up 10%. But when the forward interest rate falls or goes up 50 basis points the bond falls 5%. So that means every time Jerome Pal is giving a speech the theoretical value of a 10 duration instrument is moving plus or minus 10%. How many retail people want their assets to fall plus or minus 10% during a Fed press conference? You know, when the perceived risk uh like if Bitcoin falls, the theoretical value of the collateral falls. So, it's another way of saying that a long duration instrument has a lot of volatility. Okay? So, I'm going to give you 10% instead of three, but the but the per the security might fall 20% or 10% over the next 3 months. That's what we created, Natalie. Okay, who wants that? But by the way, it's a screaming home run for a credit investor. For example, if you think that sofur is going to fall 150 basis points and if you believe that uh Bitcoin is not going to zero but it's going to trade sideways or it's going to appreciate 10%. The theoretical credit spread on something like STRF or STRD or STRK the theoretical credit spread falls to 100 basis points or 50 basis points. Right now you're getting 6 7 8 900 basis points. What does that mean? That means if you actually believe in Bitcoin and you think interest rates are falling and the company's misunderstood, you're going to buy that instrument at 100 bucks and it's going to trade at 250. Not look at your eyes. You're going to buy Strike at 80 and it's going to trade to 160 because it's a long duration instrument.

>> Okay. What's you what's the theoretical value of an instrument that's currently trading with a market credit spread of 900 basis points that should be valued with a credit spread of 300 basis points right it should trade up to the 100 200 300 400 so who wants the long duration credit instrument it's someone that actually has a long view a pro Bitcoin view

>> If if Bitcoin is really rated as collateral by the Basel under the Basel rules. If banks start to custody it, right? If the credit if the credit rating agencies rate these things, then those long duration credit instruments have a capital gain potential of doubling or tripling.

>> Wow.

>> Okay. But it's like, well, what do you think about sofur? What do you think about the forward yield curve? What do you think about the credit rating agencies? What do you think about the future of Bitcoin? So that is an interesting investment. But notice how long it took me to talk about it.

>> It's hard to understand.

>> Yeah.

>> Now let's move to retail. What do I want? I want to put my money in a bank. I want them to pay me 10%. I don't want the government to tax it. Okay. How long was that conversation? That was like 12 seconds.

>> Okay. Well, what if the what if interest rates fall? It doesn't matter. What if the credit of the company improves or falls? Doesn't matter.

>> Well, what if Bitcoin quadruples? Doesn't matter. What if Bitcoin gets cut in half? Doesn't matter. What matters? Well, I'm getting paid 4% or four three and a half% and it's taxable and you know, and the government keeps half. So, I'm getting 180 basis points on my money market or I'm getting 11.25% 25% and the government doesn't tax it. Do I need to know anything else? Not really. Okay. Well, what's the risk? Well, uh, Bitcoin might go to zero forever. Okay. So, you've got existential risk to Bitcoin, right? And then you have to trust this company strategy. Okay. Well, how much capital do they have? Yeah. Well, we just went and raised $9 billion to support your credit instrument. Right.

>> Right. We'll sell we will raise a billion dollars a week if necessary. Right. Well, what did they say? They said they said they're targeting a h 100red bucks. What are they going to do if it doesn't trade at 100 bucks? They're going to raise the dividend rate. Have they done that? Yeah. Five times. Okay. So, why are we focused on STRC? Well, because at the end of the day, there's a $300 trillion credit market, and that $300 trillion credit market is collecting 4 to 500 basis points, and it's all taxable. And in order to get to 450 or 500 basis points, you have to accept credit risk of a junk bond. You have to accept the credit risk of an investment grade company. You have to accept the illquidity of private credit. The Blue Owl is currently in the news right now. They suspended redemptions and people are freaking out over, well, what if I can't get my money out again? So, you're either ac accepting ill liquidity or liquidity risk or you're accepting credit risk or you're accepting duration risk. I'm holding, you know, Google just sold a 100red-year bond. You have to wait a 100 years to get your money back. Who bought that? Why did they buy that? Okay. So, duration, credit, liquidity, right? And then currency risk, right? You might have to accept, you know, you might get a higher yield in a certain currency and then you're accepting the currency risk to the dollar itself. You're accepting all those risks in order to get what do you get? You get a 70 basis point spread for investment grade. You get 70 basis points more than the US government would pay you if you buy a bond from Microsoft or Apple. Or you get 275 basis points if you buy a junk bond, right? Or you get maybe 350 basis points if you buy private credit, which is illquid, which is invested in a heterogeneous portfolio of private companies with 10,000 pages of like complicated contracts that may or may not work out for you. Okay? So that is the credit market. Now ask the question, right? You're the retail investor. Do you want duration risk? No. Do you want currency risk? No. Do you want credit risk? No. Do you want Do you want to be able to get your money back? Yeah. Do you want volatility? No. What do you want? Give me two to four times more than the money market. And I don't want to pay tax on it, right? I want tax I want I want good tax treatment. I want the same deferred capital gains tax treatment that I get from holding a long-term investment. So give me a fair tax treatment so I can compound my assets and my investments over time. Give me some stability and strip away all these other things. So what what that tells us is is strategy. At the end of our journey, we realize that there's no point in creating bond type credit because a bond's always going to be short-lived, inefficient, illquid, and it's always always going to be fully ordinary income taxable. So it's it's tax inefficient. It's market inefficient. No point doing it. It's not a benefit to the investor. No, you know, these longer duration instruments, they're for professional investors. If you're a credit investor with a 10-year horizon and you have an opinion on Bitcoin and the Federal Reserve, you could double your money by buying one of our longdated credit instruments. Is it a good idea for you? Absolutely. Right. It's a you know you can you can collect 10 12% for a 100 years on a credit instrument and if the credit spreads compress you'll double or triple your money but retirees right 75year-old retired chief master sergeants in the air force they don't want that right and um I guess the last point I'll make is in this journey we kept iterating we're like well let's get rid of the defects of senior bonds. Let's get rid of the defects of asset back bonds. Let's get rid of the defects of convertible bonds. Let's get rid of the defects of of perpetual preferred. And then people were like, well, you know, can I just have the money monthly? You know, it's like, what do they want? They want stability. Give me a stable price. Give me monthly cash income. Why? Why monthly, by the way? Because we couldn't do weekly or daily. Like if the NASDAQ or the conventional market supported daily or hourly, we'd be doing that. That is uh that's an upgrade that a crypto entrepreneur can put in. You you can create a stable coin or a savings a savings coin maybe like a buck token or something like that where maybe you'll actually stream the dividend hourly or stream it daily, right? And that's interesting. is just we couldn't do it in in the container of a NASDAQ listed preferred security uh efficiently. So we created the most efficient stream of fixed income. We created the most taxefficient stream of fixed income. We created the simple simplest possible instrument. And the five-year journey for the company is this is Bitcoin is digital capital. will spend a thousand hours and you'll agree with me, but you'll still have to deal with brutal 45% draw downs and you know for some periods everyone's going to hate and make fun of you. Right? That's one extreme. And the other and I'll spend hundreds of hours to explain why Bitcoin is economic freedom and empowerment and financial sovereignty and a breakthrough and digital energy and the greatest thing in the history of money. And after I've done that, 95% of conventional investors still won't quite understand it. and the Warren Buffets and the Carl icons of the world, they probably won't necessarily jump on that freight train with 10 or 20 or $50 billion in their capital rate. That's one extreme. The other extreme is, you know, would you like a bank account that pays you 11% that's tax deferred? STRC. Okay, that was a that was that was a thousand hours. This is 10 seconds. Okay. So, you at the end of the day here's what I realize, right? The world doesn't want you to write 10,000 pages of history to explain what's going on. They don't have time to read 10. They don't have a thousand hours to read it all. Okay? The world doesn't want that. The world doesn't necessarily want 150 hours of explaining why they should get on the crypto roller coaster and accept exhilaration, you know, and beatdowns and everything in the middle and endure the toxicity. The world just wants the answer and they don't want the answer even in 10 seconds. They want the product.

>> They want the iPhone, right? It's like I want air conditioning. It's like we were talking about, you know, like how much time do you spend thinking about the water you drink or the cool air or the electric light? It's like someone just gave it to me. Do I think about it? Not at all. Do I like it? Yeah. Give me a pill. I take it once a day. I don't know how

You manufacture it. It makes my problem go away. And in this case, you know, the greatest product in the world. It's like, like if I could cast a spell on you, Natalie, you'll be happy and indestructible and immortal and have, you know, omniscience and you'll be omnipotent and all powerful and you'll never want for anything ever again, and everyone will love you and agree with you. Well, how long that's going to take? Five seconds. Okay. Well, sign me up.

>> Yeah.

>> Just give me that. Just give me that. What, what is STRC? Oh, yeah. You buy it, it pays you 10 or 11. It pays you double-digit dividend. It's tax-deferred. If you give it to your heirs, then the basis steps up again. And so, you can collect dividends for 10 years without paying tax. And then they can collect dividends for 10 years and not without paying tax. And what do I have to worry about? Nothing. Okay. Well, that's what you want. You know, that's what you want from Coca-Cola. That's what you want from American Airlines. That's what you want from Boeing. It's that's what you want from Apple. That's what you want from whatever. Just, just give me the solution. And you know, like how many people want to study petrochemical engineering for 10,000 hours and then set up their own oil refinery in, in their backyard? It's like, or their own nuclear reactor. Nobody. How many people want infinite free electricity forever? Everybody. It's like the, the value, right? The commercialization is take the technology, put it into a package that is simple, that's straightforward, give it to the public. You know, it's like, well, okay, but we're going to have to trust you. Yeah. Like you had to trust Kellogg cereal. Like you had to trust Kraft ketchup. Like you have to trust. You know why they called it Standard Oil? Because it was this, the oil that didn't catch fire in the lamp or, or didn't, uh, clog the engine because it was standardized.

>> It was, it was, uh, always the same purity, the same quality. It's, it's like, what is this ketchup? This is the ketchup where if you actually, uh, put it on your food, it doesn't give you disease. It doesn't give you food poisoning. It's like, safe, right? And so, is there a precedent for consumers trusting companies to give them things that they, they live, uh, that they love? Yeah. DuPont's, uh, slogan, "Better living through chemistry." And when chemistry became politically incorrect, it became "Better living through technology," right? It's like, you know, it's like we make fun of all that and then you're like, well, then there's polyester and there's Lycra and there's nylon and there's, and you know, and there's all the, all these petrochemical products and turns out we built the world with them. And, uh, so I, I think that Bitcoin is growing up and we're moving from the early adopters, the hobbyists, the, you remember it used to be people like radio. They're like ham radio operators and they have a little antenna in their backyard and they have a ham radio setup in their workshop and they would study the semaphores and they would study the, uh, the physics and, and they would form clubs and then they would get into their workshop and then they would broadcast, you know, over the radio network and people thought that was just great. And, and then eventually you got to the point where six-year-olds have a mobile phone in their hand and like, no one does ham radio anymore, right? Like that. But that's how the industry started. And it used to be that you had to be a, you had to be very technically astute,

>> right?

>> In order to participate. And how did we commercialize radio? Oh, we, we put six billion mobile devices into the hands of teenagers and we gave them TikTok and that's how we commercialized radio. And we were so good at it that now we have to actually pass laws to stop people from using the radio. Like now, now we're upset that they spend too much time playing with their radio.

>> And I think that Bitcoin will go through the same transition. We'll go from hobbyist and ideologues and technology visionaries to eventually the point where 8 billion people, they just have the digital assets, the digital capital. It's all on their phone. And it's like, oh yeah, well, we just move it around. But we move it around in a savings coin, a stable coin, a, a security, a, you know, a crypto asset. It's like,

>> yeah. Well, most people don't understand how the internet works, but they obviously use it every day. They don't understand how their iPhone is put together, but they use it. And it is like that video you mentioned of you holding the iPhone, saying, "Everybody's going to want this." Um, and Stretch seems to be that product that addresses the main market need of not wanting volatility but wanting a stable, um, cash dividend. You have a two-plus year runway for it with cash. MSTR is still trading at a premium. You guys still are buying Bitcoin, but yet every time I see you on these news programs, it seems like they're expecting Bitcoin to go to zero and you've gone from hero to, oh my gosh, what's happening? Bitcoin's dying. Um, do you ever feel like they're rooting for you to fail? And how do you deal with like that swing in, in sentiment?

>> The struggle is real. The struggle is real. But, you know, uh, to be more serious, uh, when Bitcoin is hitting all-time highs, all-time highs, there's a sense of exuberance and, and all of the media terms positive and it's glowing and people are doing high fives. And when it draws down, there's a gloominess to it. And then the, and then people over forecast to the negative. I think that that, it's the volatility that drives the engagement and the interest and the speculation and, and there's something to talk about and they're talking about us. You know, what they're not talking about is that they're not talking about, you know, real estate on the upper east side of Manhattan. They're not talking about timber rates. They're not, you know, like peop people, they, they talk about all these non-volatile assets. Well, non-volatile assets means there's no news. And if there's no news, there's no interest.

>> You know, um, when, um, I operated, uh, public company, I, there was a period when we rage quit the capital markets when we were just so unhappy with the way that the capital markets treated us, we just stopped participating. So I don't know how it was, many years where we would put out a press release each quarter saying, this is the results, but we didn't do a conference call, we didn't do television, we didn't do interviews. Like, well, just read the numbers, value the company as they will. And, uh, in a conventional company, you have, um, information released once a quarter. So there are four times a year, four windows a year where there might be information where you might trade the stock.

>> Four days. And, and, and, and you're expected to not surprise the market. Which means that if you're a well-run conventional company, you give guidance and then you hit the guidance plus or minus and it's really not very interesting. And so someone could pretty much value one of those companies by making a decision once a year. So once a year, I decide to buy, to hold the stock, and how much to hold. And then, like, no news is good news and there's nothing else going on and that's boring, not liquid, not volatile. And then when we got into, into Bitcoin, we realized, well, we're, we're holding this asset. And guess what? You know, our website updates every 15 seconds, Natalie. Okay. So, think about this cycle. We went from updating the financial markets with material news every 12 weeks, once every 12 weeks, to updating the financial markets every 15 seconds. Okay. So, yeah, you're going to have weeks where, where, uh, Bitcoin is going to be down. Every time Bitcoin moves $10,000, the company makes or loses $8 billion, $7 billion, right? $1,000 is $700 million. Okay, let me put this in perspective. It used to be the company worked for an entire year to make $70 million. It's so crazy to think.

>> So every $100, every $100 fluctuation in Bitcoin is the equivalent of one year's work. So what we've done is, is we have plugged a, a, uh, energy source, a volatility generator, or an economic energy generator directly into the balance sheet. And, and the Bitcoin cycle drives a news cycle. The news cycle drives Bitcoin trading. Everybody is obsessing. So, you're on television and someone's obsessing. Well, could it go lower? Well, there's someone who's a skeptic that's thinking, maybe I should short the stock. I think I'm going to go and take a $100 million out of my piggy bank and I'm going to short, and I'm going to short it $100 million. But, you know what? They have to buy that back, right? Unless they're lucky enough to short a stock which goes immediately to zero forever, it's a, it's only a question of when are they going to have to buy a $100 million back, right? They're going to have to buy it back. So, you're attracting some group of people that want to trade short. But there's another group of people. They're like, "Well, this is totally overdone and Bitcoin is definitely going to go back to where it was." And so, I'm going to get in and I'm going to crack my piggy bank open. I'm going to buy $100 million. Now, if you didn't have the volatility, the, the, the short seller would have not bet a hundred million on your company and the long player would not have bet a hundred million on your company. And the market makers in the middle and the, and the options traders, they wouldn't have traded both. And then the Susuanas of the world, they can create derivatives. I'm, I'm going to give you a call option to go 100 million, but only post 5 million in collateral. I'm going to give you a put option so you can go a hundred million short and only post five million in collateral. I'm going to make a million dollars doing that. Either way, everybody's making a financial market in this. Okay. So, the, used to be the Wall Street Journal. They would only write about you if you're a public company. They don't write about private companies. Why? Because you can't, because every story is irrelevant. I can't buy or sell the thing you're, I'm reading about. Why would I read about something if I can't buy it,

>> can't

>> sell it,

>> leverage it, gamble on it, make money off it. Right now, the word is interesting. The classic word in the English language for "I have an interest in that company" is "I own." "I have a interest in the company" means "I own X% of the company." "I have an interest in the company." I've shorted it. If, if you're short the company, the last thing you want to read is good news. It's terrifying to you. So someone says, "Oh, some great thing just happened at Strategy." Okay, you got to read it. If you have a long interest in the company, what you want to hear is good news. Okay, the Bitcoin price doubled, right? How do you make a company interesting? Okay. Well, first of all, you take it public. But I just, that's first order interesting because now there's a ticker. But I just illustrated if you're a well-run conventional public company, you're only interesting once a year because, or once every 12 weeks, because you never say anything otherwise. So, you know, like there's news one day out of a hundred. 1% of the time you're interesting if you're a conventional company and you're not supposed to be that interesting. You're supposed to never surprise me. So the number of companies that can surprise me to the upside every quarter, 40 quarters in a row, Natalie, that's one in a hundred. So 1% of the time you're interesting and 1% of 1% of the time you're interesting in the right direction, you know, which is one in 10,000, right? 1/100th of 1% of the time, will that turn out well? Okay, that's the conventional playbook. Now, how do you take a company and make it interesting every day? How about how do you make it interesting every 15 seconds? You take it public, then you put a lot of Bitcoin on the balance sheet and you let the Bitcoin vibrate, right? Oscillate and that makes the company 100x more interesting. No, a thousandx more interesting, maybe 10,000 times interesting. Now, if you go to our website, one thing on our website is it updates. You know, you find out we made or we made or lost a billion dollars every few minutes.

>> Yep.

>> Right. It's like every few minutes, right? That's more news than we generated in the first 20 years of the company. Natalie.

>> You make us feel better about our portfolios.

>> Okay. It's like, whatever. $10,000, $7 billion plus or minus. Okay. What's, what's a $50,000 draw? Oh, $35 billion. Okay. Okay. So, it's a $35 billion drawdown. I guess that's going to arouse interesting passions. But here's the other point. If you go to the charts tab, you can actually chart all of these securities and all these assets versus each other. And one of the cool metrics we've got is is open interest divided by market cap. And we benchmark, you know, open interest of MSTR versus Tesla versus Nvidia versus, um, Google or Apple. Do you care? Do you care to guess which company has the highest open interest versus market cap out of that entire MAG7 group?

>> Strategy?

>> Our company.

>> It's not even close, Natalie. I bet.

>> It's not like where 80% of the market cap is open interest and some of these other companies are these, these are the seven greatest companies in the world, Natalie.

>> Yeah.

>> 4%. 5%. Not interesting. Not the greatest companies in the world doing the most important thing in the world. An order of magnitude less interesting. If you look at average daily trading volume, the liquidity per market cap, who do you think's number one?

>> Strategy.

>> We are.

>> Okay. How, how did we manage to become the most liquid, most interesting company? It's, you know, it's very simple. It's like, it's like back to Iron Man. You know, that the idea of the Iron Man super suit is really cool, but you need the power source to actually power up the Iron Man suit. You need an extreme power source in the balance sheet of the company and the power source is Bitcoin, right? It's digital capital. So, you know, when you go on these things, it's, it's tough, you know, taking your beatings during the bear market and you just have to be cheerful and constructive and keep pointing out, no, actually, we're fine. It doesn't matter. We'll be good, you know, we're just, it's all going to work out very well, you know, and, and, uh, you have to explain why and then you have to keep coming back. And, uh, having said all that, they wouldn't want to talk to you if you're a conventional holder of non-volatile assets. When's the last time you had, you saw someone representing a, a real estate investment trust of, uh, a diversified portfolio of Midwestern real estate on television talking about the bear market in real estate and how they're going to weather the storm?

>> Couldn't name them.

>> Like, you don't, you can, you even name one? Can, can you name a REIT?

>> No.

>> They're well managed with diversified portfolios of non-volatile assets. Do you care? No. Are you interested? No. Okay. So, so it's pretty critical that you be interesting. And the reason people want to talk, right, the reason you draw this toxicity, you, you draw the highest highs, the lowest lows, the greatest extreme is because it truly is interesting. And, um, and the breakthrough of the crypto economy is to create a financial asset which is interesting globally 24 hours a day, 7 days a week. Because you see, if I want to, a financial asset here, let me show you how I, it. I make it illegal for anyone outside the US to buy. Right? That's your first step down. Then I make it impossible for you to, uh, trade except 9:30 to 4. That's the second step down. Then I force you to go through all sorts of AML KYC and, and take three months to set up the account. So I make it very difficult. Fourth step down. Then third and, and then I maybe limit you and require you of $100 million of capital and be a qualified, you know, investor to buy it. It's not another step down, right? If I just keep stepping it down, right, I, I access to maybe then I take it off the exchange. I make it a private instrument.

>> Mhm.

>> I make it 144A or I make it totally private and it's, and it's another, uh, crippling step down. By the way, then give it a, a six-letter ticker instead of a four-letter ticker. Hard to remember people. Yeah. Can, can you name any publicly traded stocks with a five or six-letter ticker?

>> Metaplanet.

>> It's like, it's hard, right?

>> Yeah.

>> Like one in a thousand, one in 100. It's hard.

>> Yeah.

>> How about if I give it a QIP number? What if it was like a KO197442?

>> So, there's a lot of ways to make something uninteresting, right? Make it difficult. And yet the crypto industry went the other direction, right? What if everybody on Earth, what if anybody, uh, can trade this thing in 60 seconds by downloading an app to their mobile phone? How do you actually give access to the instrument in, uh, in China? You know, by the way, we had a bank holiday the other day. It's illegal to buy or sell, you know, publicly listed securities. It's like, what happens when the government of whatever country just decides to unilaterally declare 60 days to be holiday? You can't trade on Saturday. You can't trade on Sunday. You can't trade on President's Day. You can't trade on the 4th of July. You can't trade. You can't, can't, can't, can't, can't, can't, can't, right? They're all crippling. They all, the financial markets, right? And the point that I made that day was on a bank holiday, you know, you can move any amount of Bitcoin for 44 cents. A billion dollars for 44 cents in a few minutes. And so what we have here is a digital revolution. If you get it, you get it. It's so obvious. It's, it's money wants to move at the speed of light 24/7 365. You know, waterfalls don't stop on bank holidays. Electricity, lightning doesn't stop on bank holidays. Gravity doesn't stop on bank holidays, right? Guns, they don't get deactivated on certain holy days, right? They work all the time, right? The things that are actually changing the world, whether it's an iPhone or running water or electricity or airplanes, they work regardless of, you know, the opinion of a politician that would like to intervene to make them not work.

Mhm.

>> The reason Bitcoin is winning, the reason that digital capital is winning is because things that move at the speed of light, friction-free 24/7, 365 globally, right, that can be programmed by an AI, that can be vibrated or transformed a million times a second are going to displace in a brutal Darwinian fashion, right? They're slower, clumsier, you know, antecedents or precedents. You know, it's like the things that came before, right, are going to be squeezed out of the economy and out of the marketplace because, because the thing that comes later is just better.

>> Before we start to wrap up, I want to cover a really important topic, which is quantum. We have that saying in Bitcoin, "Don't trust, verify." But a lot of people are just not technical enough to be able to verify. Is quantum actually an existential threat? I know you guys made an announcement recently, a strategy with regards to quantum and the future, making sure that Bitcoin is quantum-proof. Can you kind of explain to people why you don't see this as such a risk that seems to be priced in at some point?

>> So first of all, the consensus of the cybersecurity community broadly held is that quantum risk, if it exists, is more than 10 years out. It, it's not a this decade thing. Whether or not there will be a quantum threat or a quantum risk is, is a question that is yet to be decided. But there's certainly no consensus that there is any threat right now or that there will be a threat materializing anytime soon. Should a quantum risk materialize, at that point then you're going to see an upgrade in the software that runs the global banking system, the global internet, consumer devices, all the crypto networks, the Bitcoin network, everything digital, the AI networks, all, all of those networks that we rely on today, whether they're governmental or financial or consumer or defense related, they're going to get upgraded with post-quantum resistant cryptography. It won't be a surprise. You'll see it coming. We will all see it coming. Bitcoin software, right? Bitcoin Core version 30. Right now, we're debating over upgrading from version 29 to version 30. The software does change. If you've got 30 versions of Bitcoin Core in an asset which is 17 years old, do the math in your head and figure out how long it takes for versions of this stuff to roll out. The nodes will upgrade, the hardware will upgrade, the wallets will upgrade, the exchanges will upgrade. How will they upgrade? Well, wait 10 years. There will be global consensus about the best way to deal with it. There is no global consensus right now because there isn't a credible threat right now. Right. So why do I not worry about it? Well, because everybody with anything at stake, whether it's Google or Microsoft or Apple or Coinbase or BlackRock or Strategy or the US government or the Russian government or the EU government or the Chinese government or JP Morgan or Morgan Stanley, they all have to deal with the same issue. We all have digital systems that would be, that would be at risk if there was a credible quantum threat. Um, when it, when and if and when it materializes, I expect that there will be some software or hardware or both reaction to it. The, the crypto community is actually the most sophisticated cybersecurity community. If you look at, um, the cybersecurity pro, the security protocols that are used to move crypto around, right? They're all multi-factor authentication with hardware keys, you know, etc. If you consider the security protocols used to use, used, uh, to move bank wires around or used to trade stocks, they're orders of magnitude weaker right now. I'm not going to elaborate on them for obvious reasons, but anyone that's actually engaged in a stock transaction or bank wire transaction or a credit card transaction or a check transaction or any kind of consumer finance transaction or communication transaction knows that the steps you go through in order to move Bitcoin, you know, out of cold storage or to transfer it to someone else, especially when you're moving it at scale, are extremely sophisticated. So I think that the crypto security community will be the first, you know, to perceive the threat and to react to the threat and they'll be leading the way. We, we have announced a Bitcoin security program. Uh, Coinbase obviously has a security program. In fact, a lot of the money that I contribute early, early to the Bitcoin, uh, core dev, to the, to the Bitcoin development process was actually to Bitcoin security programs,

>> you know, like the MIT Bitcoin security program. So, I think that all of us that are large Bitcoin holders or users are in the industry, we know the security of the network is paramount. But I, I don't actually think that qu, the quantum, you know, narrative is the greatest security threat to Bitcoin right now. I don't think it has been. People joke, they've been concerned and talking about it every two years for the past 15 years. I actually think that it's that there are a hundred, you know, narratives that people discuss that might be a security threat. You know, is there a bandwidth problem? Is there a nation-state attack vector? You know, does it have enough functionality? Does it have too much functionality? Is it evolving too quickly? Is it not evolving fast enough? Right? Is it sufficiently decentralized? Etc., etc. Should we make it easier to run on an iPhone? Should we make it not easier to run on an iPhone? You would, the, the number of debates about what's good for Bitcoin, uh, you know, are mind-numbing and there are many of them. They will continue. Quantum will be one. It used to be, you know, there's a debate, well, you know, the Chinese will, they'll control all the mining. Then it's like, the Chinese control the mining equipment. Oh, there might be a back door in the mining equipment. Oh, no, the Chinese ban Bitcoin mining. Chinese ban Bitcoin mining equipment. They don't, you know, Chinese don't like Bitcoin anymore. It's like, like the debates, they, they vary from there's a risk to, oh no, there isn't a risk. Oh, if there, you know, why don't the Chinese like Bitcoin, right? And, and at some point it gets silly because it's a hundred of them. I, I would say, uh, at this point, the reason we're talking about quantum is because all of the other risks did not materialize. A decade ago, people were fought the block size wars. The entire block size war, there's books written about it. You can go back and the, and the narrative was, Bitcoin will fail because it doesn't have enough bandwidth.

>> Okay.

>> And people fought bitterly over this and a few days ago, I posted a screenshot, you know, of Clark Moody's dashboard, and it showed that the fee structure of Bitcoin was one sat per byte for instantaneous performance. One sat, one sat, one sat, one sat. In essence, there is no bandwidth problem in the Bitcoin network. A decade after the block size wars, people fought and died over that narrative. It was a non-issue. Eventually, the free market solved the problem, right? And, and, and at the end of the day, you always have this dynamic between the, the, the alarmist, the ambitious opportunist, or, or the, the idealist out there, if you want to be charitable, the idealistic intellectuals. You could call them that. You could call them the ambitious opportunist if you like. They posit, you know, Bitcoin will boil the oceans. Bitcoin will fail because you can't self-custody. Bitcoin will fail because of bandwidth. Bitcoin will fail, blah, blah, blah. And then, you know, this follows, it pops up as, we can't use nuclear energy. It'll blow up the world. You know, we can't have nuclear power. We're going to boil the oceans. They're climate alarmists. They're, they're whatever alarmists. There's 150 narratives that people spin up and every one of them is a way to accumulate, uh, to, to glean interest and engagement. I, I, I want influence or I want capital or I want power. And so I had, it's very important that we vaccinate, you know, every three-year-old on Earth at the cost of $10,000 a vaccine shot against, you know, yo-yo disease, the one that I just found that hypothetically might well be an issue. And so please give me a hundred billion dollars and let's declare martial law and let's make it, you know, illegal for parents not to do this. Because I'm here to save the world. And so it's this God complex or intellectual save the world context. It's been going on for thousands of years, Natalie. It's in the political process and the crypto process and the Bitcoin process. So the fact of the matter is, none of the narratives that were going to stop Bitcoin or threaten Bitcoin ever panned out. They all turned out to be incorrect. The scalability, we have to stop spam. Oh, no, we didn't. We have to create smart contracts to create scam. No, we don't. We have to double the blocks. No, we didn't. The miners, the, the miners are going to go bankrupt. No, they didn't. No one will mine Bitcoin. Yes, they will. The Chinese will stop it. Yes, they did. No, they didn't. Yes, they did. No, they didn't. They need to endorse it. They can't endorse it. Right. It needs to be private. No, it doesn't. Right. All of these things, they're all narratives. It used too much energy. No, it didn't. It'll, it'll boil the ocean. It didn't. Quantum will hack it. No, it won't. Right. And what is it that people are missing here? Well, first of all, 99 out of a hundred of these narratives, they benefit the ambitious opportunists because now they become famous. You know, Al Gore makes hundreds of millions of dollars preaching that the climate is going to collapse, right? And 25 years later, it didn't happen. Somebody gets rich. ESG worked, but it didn't happen. But the point is, if I wasn't preaching it, how am I getting rich, right? So, the point is, it's a business. So, so what you have is this economic and political amplification of, of, uh, alarmist narratives because it benefits the politician. It benefits the entrepreneur. It benefits, uh, those that have a will to money or power, right? And I, and how am I supposed to get rich if I don't, like, we p, we basically at one point we decided that you had to stand six feet away from each other and wear a mask and the government needed to buy a hundred billions of dollars of masks, you know, and if you didn't wear the mask, you're going to jail. And it's like, someone sold the masks, right? And so there is, there is a very powerful feedback with these narratives and once you realize that, you realize that 99 out of 100 narratives are just a way for someone to accumulate money and power and you ought to be skeptical of those narratives. And the last point, the famous president said it. He said, "You see 10 problems driving down the road at you. Nine of them are going to drive themselves into a ditch before they get to you."

>> Right?

>> And so, how do I get rich, Natalie? Well, I, I convince you that it's possible that you're going to trip on a rock and, uh, and break your leg and not be able to work. And so I sell you trip on a rock insurance. What's that cost? Uh, that's going to cost you 1% of your annual income. The trip on a rock insurance. And then I, someone else comes along and says, "Well, you know, you might, you know, get a sneezing attack, Natalie, and I'm gonna sell you sneezing attack insurance. And what's that cost you?" That's going to cost you 1%. Because if you get the sneezing attack thing, then you won't be able to work. And so another guy comes along and he convinces you that, you know, there's a hypothetical chance that your children will have autism and so we're gonna sell you, you know, the autism vaccine, whatever, and that'll cost you 2%. And then someone else comes along and they're like, well, you know, it's quite possible that you'll be driving the car and something will happen and you'll wreck the car, you won't be able to work again. So, here's like, uh, you know, vocational insurance for driving of the car. And I come up with like a hundred possible things and each of them is 0.01% likely and the collective all of them is 1% likely to happen to you. But I sell you insurance that sucks up 100% of your income. So if you insure for every one of these parade of horribles, every hypothetical possible thing, you're bankrupt. So you are 100% likely to be bankrupt because you bought insurance against 100 things that were 1% likely to happen. And, and by the way, if you had bought insurance against none of them, a decade would have gone by and you'd be like 1% likely to have one of them. And you would have just like upgraded your iPhone software and the problem would have gone away.

>> You know, and it's like, but the person that's selling you the insurance isn't going to make a billion dollars if you just wait 10 years and upgrade your iPhone software and it goes away. How am I supposed to get rich on that? Like, how, how am I supposed to get elected to be governor of a state if, you know, if I don't spin up a narrative that is a doom narrative. And so what the, the danger is when anything gets weaponized by an entrepreneur, it's like, I want to raise money so I can hire a bunch of quantum-resistant developers or I want you to sell Bitcoin and buy quantum-resistant yo-yo coin.

>> Or I want to be elected mayor and the problem is that there's hypothetically radioactive something. You know, in 10 years, the water, the drinking water will be radioactive if we let nuclear reactors get built somewhere in the state 5 years from now. And that's why you should give me all of your money so I can be elected mayor now so I can pass a law to prevent the hypothetical problem 8700 years from now. And of course, what you see of course is when you have enough of these issues, like I, I've had lawyers, I've had lawyers say, well, you know, you can't do that because hypothetically in 15 years, after 15 appeals, like there might be, you know, a quasi liability if you were to do this and that and the other thing. I'm like, well, you know, we're going to go out of business next month if we do what you said, but in 15 years, hypothetically, there's a 0.01% 0.01% chance that we might have to pay 0.01% of our money to solve the problem. But they're like, "Oh, well, I guess if you look at it that way, then I guess you're right." It's like, and that, and that is pretty much the legalistic view. And, and so politicians tend to be lawyers. Idealistic intellectuals tend to be thinking that way. Ambitious opportunists think that way. You know, I can basically point to the fall of the British Empire. I can, I can point to the fall of a whole bunch of states. I can point to Easter Island. I can show you the fall of the Roman Empire, the fall of the Carthaginian Empire. Every great city, every great mercantile network, every great empire, every, every great corporation, it all starts to collapse at the point that someone's like, "Well, you know, out of an abundance of caution, maybe we need to prevent this or we need to do that." Right? And I would say this entire quantum fear is just the latest quantum fun because there's nothing else to talk about. And I, I can no longer raise money by saying that I, that Bitcoin needs to be more scalable or have smart contracts or whatever. So this is the only way to be relevant and get attention. And so, you know, when this one falls, someone will say, well, you know, like at some point, you know, we're gonna, and we're gonna upgrade to nanobots in the head and hollow bands and Bitcoin's not hollow nanobot ready and we're gonna need to invest a lot of money in, you know, hollow band nanobot chains because, you know, otherwise your Bitcoin is going to be worthless. And it's like, someone will say it. I guarantee it because that's the story of humanity since time immemorial and ultimately you're either going to have a constructive optimistic view which is, you know, something will happen and we'll just take advantage, upgrade the software or upgrade the networks, take advantage of the new technology and we'll all be richer and happier and live happily ever after. That's one view. Or something's going to happen and we're just too stupid to figure out how to react to it and we're just going to lose everything. And so therefore, I should just give all my money to this ambitious opportunist, you know, who's preaching that the world's going to end. Why don't I just give all my money to them because I'm too stupid? And it's like, it's like, it's silly, but it's predictable. And what I would say is, you know, the back of the Hitchhiker's Guide to the Galaxy, right? It's like, don't panic. At the end of the day, lots of things will happen in the future. The human race will react to the things. The people that chose to put their money at a bank in cyberspace, they will probably upgrade the hardware and the software and the methodologies that protect the bank in cyberspace when they feel they need to. And until that time, there's a hundred other things. You're probably better off to use that bandwidth worrying about look both ways when you cross the street because you don't want to be that egghead intellectual that walks in front of a truck because they're worried about the 0.01% likely quantum threat that would be easily deflected with an iPhone update,

>> right?

>> Or a, a 20-second click on this and negate. You know, it's, it's not even, even that difficult because Natalie, you're not going to have a choice. When, when and if there is a cybersecurity threat, your business software is getting upgraded, your bank software is getting upgraded, the government software is getting upgraded, the crypto network software is getting upgraded. I, it's almost going to be damn near impossible. Did, did you ever make a decision to upgrade all your systems to Y2K friendly? Do you even recall that?

>> I do recall that time period and everyone was terrified and it ended up being nothing.

>> So,

>> It, everybody in the world was terrified. The war was coming to an end and it was nothing.

>> But you know what? Billions of people didn't do anything. Couldn't have done anything. Couldn't have stopped it. It was a non-issue. And it would just be one of 10,000 examples of nothings, you know, that get, get arrested, you know, that, that, that get, uh, overcome by the human race every few years.

>> Okay. So, I have an interesting question for you. What do you think is the strongest argument against Bitcoin right now? And why do you reject it?

>> The strongest argument against Bitcoin right now is, is it's novel. It's new and as new, it's not, you know, it's only been around for a number of years and maybe I want to, before I trust my entire life to it, I want to see it around longer. Right? It took, uh, 30 years for people to embrace electricity. Bitcoin's been around for 17 years. So, so someone might very well say, okay, well, you know, did I wait until 17 years after the airplane got invented, right? The airplane is 1903. How many people had flown in a passenger jet or passenger airline by 1920? You know, maybe it's still early and I just want to see more people, you know, than me try it out first and then I'll follow it. So, will it take 20 years? Will it take 30 years? Will it take 40 years? Uh, the world's full of, you know, of profound innovations that eventually were embraced by everybody, but it took more than 17 years. And, and, and I think the answer is time, right? The, the early pioneers. It's like, how many years after the automobile was invented, before the Model T Ford comes along, and how many years before, you know, after the Model T before everybody had the car. It's like,

>> Mhm.

>> It, there's a natural process of taking, taking innovative technology, uh, building it into a consumer device or an industrial device, right? And, and then having enough of a track record that people are willing to bet their life or their, or their reputation on it. And I think we're in that process of commercialization now.

>> That's, that's fair. So, before your final thoughts, um, I just was curious, you don't seem bothered at all by cost basis and a lot of people right now are trying to find the bottom and obviously a lot of people are looking at the technical charts, but you just seem unfazed. You're just buying at any price. Um, can you sort of address that for those especially who are like, well, if maybe you think it's going to go lower, why not accumulate at a lower cost basis?

>> Well, you could think of us as dollar cost averaging, but, but, but the key point is we're using equity. We're not taking, we're not taking out a loan. Okay? So if, when we're buying Bitcoin, uh, if we sell equity and then we buy Bitcoin, then we bought the Bitcoin at $100,000 a coin. If we bought the Bitcoin at $200,000 a coin, by selling equity, we're simply swapping. We're doing a perpetual risk-free swap. We're swapping equity for Bitcoin, right? Um, when should you swap equity for Bitcoin? Whenever it's accretive, right? If, if, uh, Bitcoin traded up 10% but our equity traded up 25%. Then it's accretive. It's, it's profitable to swap the equity for the Bitcoin. If Bitcoin then trades down 20%, are you glad you did it? Sure you are. Because you wouldn't have had the Bitcoin otherwise.

>> Mhm.

>> And, you know, Bitcoin falls 10% or equity falls 20%. You, you see at that point you've actually derisked the equity, right? If, um, there's less risk to the equity if you're actually putting a stable asset underneath the equity, especially if you're doing the swaps at a premium. So, so the only real question is, is it accretive? Like, is it profitable to the shareholders to actually do the swap, right? There's a level at which it's profitable to swap preferred stock for Bitcoin. There's a level at which it's profitable to swap, um, equity, common equity for Bitcoin. Once you, when you've done that, it doesn't really much matter. It is irrelevant what the, what the future trajectory of is of Bitcoin. If you're swapping common equity for Bitcoin, because there is no, uh, continuing liability for the next thousand years, right? There is, there is a theoretical, um, path where it was diluted to swap preferred. So, for example, if I'm paying 10% dividends on the preferred and Bitcoin returns 5% for the next hundred years, then swapping preferred for Bitcoin over a hundred years will turn out to be dilutive to the common stock shareholders. Right? So, there, there's a more complicated calculation for swapping digital credit for Bitcoin.

>> The calculation for swapping common equity for Bitcoin is fairly simple. Now, if you swap debt, if you, if you swap debt, uh, that comes due in 10 years that cost you 5% for Bitcoin, well, then you need Bitcoin to appreciate more than 5% over 10 years for that to not be dilutive.

>> Right? Now, if I swap Bitcoin for margin debt, like if I simply borrow the money, uh, to buy the Bitcoin at 10x leverage, say I buy a billion dollars of Bitcoin, post $100 million of collateral, and I do it on an exchange. If Bitcoin trades down 10%, you get force liquidated, you lose your hundred million. So, so why is that risky? That's because you're borrowing the money for one minute. So the real issue is what's the duration of the swap? Are you actually taking a one-minute flash loan to buy Bitcoin? If so, then the price of Bitcoin that you, you paid versus where it is now matters a lot.

>> Did you borrow the money for a decade? Well, then it will matter in a decade. Did you borrow the money perpetually so you're never paying it back ever? Well, then it's not, it's not clear how important it is, right? I mean, and so the, the ma, the financial math varies. And the very simple way to think of it is if you swap common equity for Bitcoin, it doesn't matter what the price is. It just matters what the, what the, uh, premium or, or what the relative valuations of the swap were when you enter in the transaction. If you swap preferred equity for Bitcoin, it, it somewhat matters whether Bitcoin appreciates over the course of 30 years. But there are scenarios where Bitcoin could appreciate less than 10% a year for 30 years and we would pay a 10% dividend and it's still profitable to the common equity, right? Because there are second order, third order, and fourth order dynamics that people don't,

>> Yeah.

>> quite calculate. So in fact, in fact, um, we have 20, 30 years to be right when we're actually selling digital credit to buy Bitcoin. If you're selling corporate bonds or convertible bonds, well, then the duration of those instruments is much shorter, four years, three years. Then you have to be right quicker, right? And then of course, when you're taking margin loans, these are one-month loans or one-day loans or one-minute loans. So, so the thing that most retail investors don't get is the only credit they have is margin credit, which is one-minute credit. And if they're wrong, they're getting liquidated over the weekend, right? Whereas the, the credit we're using, we could be wrong for 30 years, Natalie.

>> Mhm.

>> Like, I, I could literally, like, I, I can paint you scenarios where we pay 10%, Bitcoin returns 8%, we're wrong for 30 years and it's still a good idea for the common stock. Okay, that people,

>> it would take us a few hours, a totally different podcast and it would, it would take delving into the, to the first order, second order, third order financial dynamics and the harmonics

>> of the entire monetary network for me to explain that to you.

>> Wow.

>> But, uh, but the truth is, you know, it doesn't matter what Bitcoin does for the next hundred years if it's common equity and we've got a 10 to 30 year time frame for us to be right if it's digital credit, right? And, uh, you know, and we don't engage in the other types of debt, so it just doesn't.

matter. So that's why you know our average price doesn't make any real difference, you know, uh, and uh, what really matters a lot is, is uh, the nature of the security swaps we're doing there. There's a difference between selling a billion dollars of STRC, which is a monthly variable rate, versus selling a billion dollars of ST TRF, which is 10% at par forever, versus selling a billion dollars of common equity. Right? They, they have different dynamics and the mathematics is, um, more sophisticated than one can explain in a tweet. And I guarantee you, no critic of any of this has ever thought through the second-order consequences, much less the third, fourth, and fifth-order harmonics of what we're doing.

There were some people who were very concerned that Bitcoin and the core developers were named in the Epstein files. People are very upset about the Epstein files. Um, was that a concern for you?

It's a non-issue.

Why not?

It's just, it's, it's just, I guess they were getting, uh, tired about the quantum FUD and they moved on to the Epstein FUD.

Yeah. I mean, in the mainstream media, they, they said it was Epstein trying to influence Bitcoin. Obviously. Epstein might have used Apple phones and might have ordered something from Amazon, and he might have at some point, you know, used Linux, and he might have funded a Democrat or Republican. And if Epstein was involved with a Democrat or Republican or Apple or Google, or if he ever did a Google search, it's like, okay, I'm keeping, I'm keeping my Google stock. You know, if I'm a Democrat, you're still a Democrat. If you're a Republican, you're still a Republican. You know, he lived in America. Natalie, shall we all leave? Like, like, this kind of contagion is, is just, um, colorful for engagement. But, you know, like, I know people that still live in New York, even though he lived in New York. And I know people that are still staying in America, even though he's American. And the Republicans and Democrats are going to keep their party affiliation. And, uh, and Bitcoin is Bitcoin.

Well, be controlled.

You can audit the code.

Yep. Right. So it's like, it's, it's, it's the same reason, like, it doesn't matter who Satoshi was. You don't need to know Satoshi. Do you need to know who Prometheus was, you know, in order to decide not to set yourself on fire, right? Fire. You know, Prometheus doesn't matter. It's fire. It's a chemical reaction. You know, you can study chemistry. You can figure it out. You can study thermodynamics. Bitcoin's a force of nature. Anybody can use it. There are people that I don't agree with that may have, you know, used it. There are people that I don't agree with who talk about it or use it, or who came along before me, or will come along after me. And, uh, it's, you know, we're speaking the English language. There are a lot of people that you disagree with that also spoke the English language. Natalie, some of them even contributed words to the English language. Some of them even wrote books in the English language. Some of them were even English.

And, and at the end of the day, it's a protocol, just like, you know, fraudsters, right, use Arabic numerals, right? And, uh, and criminals use English, and, and every movie's got a car chase in it. Mhm.

And sometimes you hope that the person gets away, and sometimes you hope they get caught, right? And you're still using the car, right?

And so I just think it's a distraction. We shouldn't get worked up over these things. We should stay laser-like focused on the big picture. And since this is my last question, I'll return to laser-like focus. Bitcoin's digital capital. It's a revolution in the capital markets. It's a profound, you know, once-in-humanity innovation. It allows us to tightly bind economic energy to the human being, or to the corporation, to any entity. It's, you know, the ability to tightly bind economic energy to the individual is as profound as fire, electricity, or even the formation of fat in mammals. It's, it's a fundamental building block of life. And it's just the basis of it. On top of that, we can create digital credit like STRC. We can create something better, digital money. You can create a bank account that pays you 8% with no volatility, right? How many people have that? Nobody. How many people want it? Everybody. What's it worth collectively? You know, conservatively, $300 trillion. Okay. So there's $300 trillion of credit, and everybody's got garbage credit with no yield, with awful tax treatment, with massive risk, credit risk, duration risk, currency risk, very difficult. So you have a world which is not served well by the 20th-century conventional finance assets and finance structures and finance ideologies and finance protocols. You have a new world, a digital world with digital protocols, digital assets, digital capital, digital credit, digital money. Is it going to solve all the problems? No. There's going to be a lot of problems in the world that we're not solving with digital money, digital credit, and digital capital. However, walk down the street and ask a hundred people whether or not they'd like more money. Every one of them is going to say, "I'd like more money." So, there's an obvious, you know, unequivocally utilitarian opportunity for us here. It's straightforward. The money's not going to fix itself, right? The money is not going to fix itself. Bitcoin was capital. You're going to have to build credit on top of it. You're going to have to build money on top of the credit. You're gonna have to go and market that. You're gonna have to get regulators to approve it. You're gonna have to put it in an ETF container, put it in a crypto token container, put it in a private fund, put it in a public fund, get the Japanese to approve it, get the Emiratis to approve it, get the Americans to approve it, get the Europeans to approve it, fight with, you know, the Chinese regulators to approve it, the Australians to approve it, the Canadians to approve it. Then people are going to stare at it and say, "Yeah, it looks too good to be true. I don't trust it." And then you're going to have to explain why it's trustworthy. And then they're going to disagree with you, and they're going to keep scorning on you. And then you're going to have to keep coming back because that's just the way the world is. And 30 years after this podcast, everybody will go like, "Oh yeah, digital money. Of course. Of course we want that." Do you like electricity? Yeah. Do you like cars? Yeah. Do you like fire? Yeah. Do you like antibiotics? Sure you do. Right. Do you like television or radio? Yeah. How about airplanes? Sure. Was there a time when all of these things were in disrepute and created incredible fear, uncertainty, and doubt? Every one of them.

Right. And this is just the latest technology transformation. It's coming. It's, as, as William Gibson said, the future's already here. It's just not evenly distributed. In, in 30 years, it'll be consensus. But, you know what? You won't have a job and I won't have a job because it'll be uninteresting because everyone will have embraced it like water, electricity, fire. It's like, yeah, of course, right? There's no opportunity once everybody agrees with you. It's not interesting when everybody agrees with you. They don't interview people to ask whether or not your company's going to be installing running water in the new corporate headquarters, do they now?

No.

So, I, I think we're very fortunate to live in interesting times and have an interesting opportunity, and onward and upward.

Well, that was very well said. I love when you call it a protocol for prosperity. And if it's not going to zero, it's going to a million, right? Thank you so much, Michael. It's been great to chat with you.

Anytime.

Thank you so much for checking out this episode of Coin Stories. Make sure you're subscribed to the show so you don't miss any new episodes. If you can, turn on those notifications and leave us a positive review. They really help the show grow organically with new listeners. We have a free weekly newsletter. You can sign up at the newsblock.substack.com. This show is for educational and entertainment purposes only. Nothing should constitute as financial investment advice, and you should always do your own research. I'm always open to feedback and guest suggestions, so please feel free to reach my team at info@talkingbitcoin.com. I'll see you next time.