Transcription
Today's number: $6.2 million. That's how much a crypto entrepreneur paid at a Sotheby's auction for a banana taped to a wall. Ed, what did the banana say to the vibrator? What? Why are you shaking? She's going to eat me. [Music] How are you, Ed?
It's time for banter. I'm doing pretty well. How are you? Where are you? I have never seen this background for you before.
I'm in the guest room of our rental in Belsize Park, which is a suburb of London. We are moving out of here back into our real home in Marlow.
Oh, okay. I'm hoping that will lift my mood from a 2 to a 3 because I'll be near Marlow High Street, and I'll get to walk and go to Granger's and get my coffee and go to Ted's and get cleaned up. But Caroline Shagan, the producer on our other podcast, said that my room looked very, very sad.
It does look a bit sad. It's very, very plain.
Yeah, I feel like you kind of like that aesthetic, though. Sort of no decorations, sort of muted colors. That's sort of your vibe, right?
Yeah, I like severely depressed Northern European architect. That's the look I'm going for.
But why are you renting? What's going on? Are you renovating?
No, but why are you down? Why aren't you at your mall event place?
So, we bought it about, when did we buy it? About two and a half, three years ago, and we've been renovating. By the way, just so you know, renovating always comes in under budget and on time. It's just such a really pleasurable experience. Plus, the British economy has just boomed, so I'm sure I'm going to make just a ton of money now.
We like buying homes and fixing them up and enjoy furniture and renovations, and it's a good way to make money, mostly in a booming real estate market. You know, you start to believe that it's you and you have some great aesthetic. But anyways, we're moving back, and I'm super excited. It's across the park because everything's about the dogs now.
But do you know Marlow? How knowledgeable are you on London?
Yeah, I know Marlow. You like it?
Yeah, I like Marlow. Pretty good. It's sort of become the new sexy borough in London, I would say.
Yeah, that's because El Senior Dog Sone is there right now.
Yeah, I like it a lot. I didn't pick it.
Jesus, this is fascinating banter. Get to the headlines.
Oh, it's the chemistry. It's the chemistry that makes this pod.
That's right. We like Joe and Ma. If they weren't having some...
Yeah, exactly. Let's get to the headlines.
Intel CEO Pat Gelsinger resigned after the board expressed doubts about his ability to turn around the company. The stock rose more than 5% when the news broke, but then it ended the day down 0.5%.
President-elect Trump has threatened the BRICS nations with 100% tariffs unless they commit to the US dollar as their reserve currency. Trump is demanding they abandon efforts to create an alternative currency and pledge not to back any other currency. The dollar strengthened on that news.
And finally, you may remember that back in June, we discussed Tesla's shareholder vote on Elon Musk's $50 billion pay package. Well, here's an update on that story. While the shareholders did vote in favor of the package for the second time, a Delaware judge upheld her decision to strike it down.
So, Scott, your thoughts starting with Pat Gelsinger's resignation as CEO of Intel?
CEOs get unfairly compensated up and down, but after four years, after I think revenue was down 30%, he absolutely deserves to be fired. This would be an interesting time to maybe be looking at taking the company private. Their largest shareholder is Vanguard with 9%, BlackRock at 8%, and State Street at 4.5%.
So one of the complaints people have about our economy is it's so concentrated. Here you have essentially a small group of shareholders that kind of control the company. They can block it if 215% decided to vote together one way or the other. They kind of control it because the way it works in a takeover or a take-private is it's like an election. The shareholders show up, and they're supposed to have one vote unless it's a two-class voting structure, which I don't think this is.
And 20% doesn't show up because it's under some mattress or it's in a custodial relationship, and you know people just don't show up or fill out the form and vote. So about 80% shows up. To win, you need 40%, and if you already have 21% of the bag, that means you just need to get about 18.5% of the remaining 60% to win, which means you're probably going to win.
So essentially, these three shareholders control any sort of take-private with Intel. I'd be curious what kind of premium someone would need to come up with, but I love this as a take-private. Mr. Gelsinger is going to be fine. I'm sure he had some sort of golden parachute or made really good money to rise to the CEO position at Intel. He is a very talented guy, so he's going to be just fine. This is a great brand with great relationships. I like this company a lot. I'm actually thinking about buying some shares in it.
You have any thoughts?
Well, he's done a really terrible job just by the numbers, and we can go through them here. I mean last month, Intel reported a $17 billion loss, which is their largest quarterly loss in the company's history. A few months before that, he suspended the dividend for the first time since 1992. He's cut 15% of the workforce, or 130,000 employees, and since he's taken over as CEO, Intel has lost three-fifths of its value, which is just pretty remarkable.
And in that same time, the semiconductor industry as a whole, which Intel is a part of, if we look at the semiconductor index, it has almost doubled. So yeah, it's time. One data point that I found kind of interesting here is that Gelsinger is the 119th American public company CEO to be pushed out of the company this year, and that is an all-time record. So 119 CEOs, Ed, in 2024. That's up 3x from 2017. From the time that this has been recorded, this is the biggest year for CEOs being pushed out.
And my question to you is, why do you think that's happening?
A lot of this is simply the fatalities, if you will, of CEOs or CEOs being out. It's time because coming into the pandemic with $7 trillion in stimulus, it was a pretty good time to be a CEO. The stock market went crazy, and it's hard to fire a CEO or you don't want to fire a CEO when their stock is up because everybody's making money.
So what you had is this unnatural sugar high, and some of the underlying revenues or the underlying businesses couldn't support this unnatural artificial sugar high of stock prices. The stocks have come down, and when shareholders and board members know somebody or an investor in another company that's booming, they're like, "This sucks."
And how do people take out their anger? It's pretty simple: they vote them out of office. So it's not surprising that you're seeing record turnover. I think it's a good thing. I think we need more churn, and I'm especially... this isn't going to get me on any more boards. I think there needs to be a pretty harsh review of CEOs because CEOs are traditionally the fraternity or sorority rush chairmen. They're usually really likable people, and they're usually very smart at becoming friends with the board members.
I purposely don't play golf with them. I don't hang out with them. I'm like, "I don't want to be a friend. I want to be objective and sober and be a fiduciary for shareholders." And every year I said we need to do a review of the CEO because these guys—and it's almost always guys—make so much money, and they have so much impact on all the other stakeholders that you really only have two jobs as a board member: when to sell the company and when to hire and fire the CEO.
That's kind of really your two things. Now, the chair of the audit committee is there to make sure that nothing funny goes on, but those are really the only two things the board member should do. I've always taken myself off of boards after four years because you can't help but be weaponized once you're on a board for longer than four years by the CEO.
Let's move on to Trump and this threat basically against the BRICS nations that he is going to put in 100% tariffs on goods that they import. And just to clarify, what are the BRICS nations?
It technically stands for Brazil, Russia, India, China, and South Africa. It now also includes Iran, Egypt, Ethiopia, and the UAE. It's sort of just a coalition of nations that have talked in the past about potentially creating their own currency because they are so dependent on the US dollar.
And I think what Trump is really alluding to is a statement that President Lula of Brazil made last year where he pitched creating a new reserve currency for all of the BRICS nations—a BRICS currency.
And the thing that I think Trump is... why I'm a little confused by this is that he's not really recognizing that no one really took that proposal seriously at all. I mean, most of the other BRICS leaders played it down. I mean, Putin obviously would love for a BRICS currency because he hates the fact that the US has this sanction power over Russia, but you know, most of the leaders were like, "No," and the markets barely reacted.
So it is a little strange that he's getting very riled up about this issue specifically.
But perhaps you'll see... you see something else. What are we? We're only about 5% of the population, but we're almost 2/3—58%—of global reserve currency now. Why is that important? Basically, to transact in, you have to come through a US institution or you have to come through one of our networks, and we get to track the flows of power. We know where money's going, where it's coming. We can more easily impose sanctions. We can stop dollars from being transferred.
And also, when you're doing business in dollars, you're kind of subject to our decisions around interest rates. The dollar is really important, so he has that right. But it's not as if it's under threat.
And I would argue that no one likes to be threatened. It's sort of... I have found, generally speaking, when you threaten people, especially powerful people, they're more inclined to do what it is you don't want them to do.
Yeah, it's like, "Don't push this button." I didn't even know that button existed.
Yeah, if you do this, I'm going to do that. It's just sort of like the dollar is doing really well on its own, and when you try and tell China, the second biggest economy, India, I don't know whatever it is, the fourth or the fifth, Brazil and wherever Brazil is, but together these are a pretty big group.
It feels to me like all you're doing is creating a reason for them to go back to the drawing board and actually create another currency. So I don't get this. I think this is a dumb move. I think it's all bluster—unnecessary bluster.
To your point, the big inconsistency here is if there is a threat to the dollar—and I don't think there really is—but if there is one, is it the BRICS? Is it the euro? Is it the yuan? Probably not. The biggest threat, if there is one, is Bitcoin. You know, that is the currency that has been touted as the new global currency. The whole thing is predicated on issues of rising inflation and spiraling debt and ultimately the potential collapse of the dollar. That's sort of the whole point.
I mean, inherent to Bitcoin is an assumption that the dollar cannot hold, and so to protect yourself against that collapse, you buy Bitcoin instead. So the entire premise of Bitcoin is very anti-dollar. And if Trump really cares about this issue of dollarization—and to be clear, I think he probably should—then he should really be taking another look at his position on Bitcoin because if anything is threatening the dollar right now, or at least trying to threaten the dollar, I think it's that.
I mean, there are some weird things about a fiat currency, and Michael will talk about this. Every fiat currency in history has ultimately failed because of the short-term political pressure to feed your people and give them back more than you're getting in the short term and print money and give in to a populist movement and create huge deficits that ultimately become no longer sustainable or result in runaway inflation.
And that basically the currency you get—the wart Republic—and the currency becomes kind of useless. Every fiat currency has failed, and that's one of the arguments around Bitcoin. They claim that once we get to 21 million coins being mined, we stop the currency trade wars.
We're punching well above our weight class.
And I don't know, do you have any data around whether that 58% number has gone up or down recently?
Well, I don't have dates in front of me, but what I can tell you is that 60% is actually... I mean, a lot of people say it's come down. You know, it used to be around 75% way, way back in sort of like the early 1900s, but it's also come up from the 80s. It was around 50% in the 80s. It's now around 60% the USD as a percentage of global currency reserves.
So my issue with that whole argument is people say, "You know, the dollar is losing power. It's no longer the world's reserve currency. It's down from 75%." It's like, "Well, it's also up from 50%."
Let's move on to Elon and this compensation package that was struck down by Chancellor Kathleen McCormick. We've been discussing this story for a long time now. I actually made a prediction about this back in June. I think what I can say with certainty is that whether or not it's yes or no, this vote is basically meaningless because here's what will happen: if the vote is approved, it'll go back to the Delaware Court of Chancery. It'll go back to Chancellor McCormick, who will open up that briefing and she's going to be like, "Hold on. I adjudicated this case before. Actually, I looked at this case basically two months ago, and I made my decision very clear. The answer is no."
And I feel like what Tesla is forgetting is that if you read her opinion, she actually didn't care whether the shareholders were fully informed or not. Granted, she said they probably weren't, but it had actually no bearing on her actual decision. You know, she believed that the package was inequitable and that as a court of equity, she also believed that she had the power to rescind it, and that was it.
And now here we are again, and we've got the same case on her desk, so nothing's going to change here.
You not only got that right, I think I got it wrong. I think I disagreed with you, and you're like, "Listen, listen to you, old sad man."
What? I don't... I'm mixed on this. I think that I don't think any individual—I'm going to sound very Bernie Sanders here—I just don't think any individual should be worth a third of a trillion dollars. I don't see how that's healthy. You know, power corrupts, and absolute power absolutely corrupts.
And I would argue that Musk is a case study in absolute corruption. Having said that, I think the way you solve this is through tax policy, not by limiting compensation. And I do think of the shareholders as the owners of an asset—the company—and the owners of this company get to decide what they pay the managers.
And it strikes me that the owners have decided here to pay the manager a hundred-plus billion dollars. What she is claiming, my understanding is now, is she's saying there was faulty information in the communications to the shareholders before the vote.
I think this is important to clarify here: that was a piece of the case. She said, "I don't think that the voters were fully informed on what was happening," but that wasn't the main conclusion. Her main conclusion was that $56 billion just made no sense, whether or not the shareholders believed it.
And that's the part that I think Tesla just... I think they didn't even read the opinion because that was my point—that it's not about... they thought, "Okay, we'll revote, and we'll prove to you that the shareholders were informed." Her point is, "I don't care whether they were informed or not. This just doesn't make sense."
The word I find is a lack of veracity or usage in a capitalist society as it relates to compensation is fair. And her, you know, and I don't know if this is her argument, but basically an argument might be he's not an entrepreneur. He doesn't own 50% of the company. He doesn't control it. He's management, and there should be some reasonable kind of fairness or equitability test.
But that's for me where I run into trouble in that is if the owners of the company have approved this, where's the line in fair?
Let me send you... come over. I'm going to give you the compensation of a bunch of CEOs, and then come over and we'll smoke cigarettes and eat ice cream and talk about the meaning of the word fair.
I mean, just to slightly steal man her argument, or I'll just say her argument, which is that he was pressuring the board, and the board was a board of scants, and that's definitely true. And ultimately, the board decided to give him a compensation package the likes of which no one has ever seen before.
You know, and they said that the reason they're doing it is because they need to properly incentivize him. And her argument was, "You don't need to properly incentivize this guy. He was already incented."
So it is my opinion as a judge—not a court of law, but a court of equity, as my uncle told us on this podcast—it is my job to discern what is equitable to shareholders. And even if they said, "Yes, we're okay with this," I do not believe that it is an equitable compensation package.
And I think the thing that people are struggling with is should the judge of the Delaware Court of Chancery have that power to determine what is fair and what isn't fair? And there's that word again.
In capitalism, the owner of the asset or the majority of the assets get to nominate directors who get to decide correctly or incorrectly the compensation of the CEO. And the moment someone weighs in and starts using words like "fair" or "unfair" and overrides the decisions of the people voted in by the owners of the company to make these decisions, in my view, you have government overreach.
Having said that, a key component of a healthy capitalist society is that we have an equitable, fair taxation system to redistribute capital back into the middle class, which is not a naturally occurring organism. It's the greatest innovation in history, but it requires investment to ensure that there aren't, you know, one out of three veterans aren't homeless, to ensure that people who do struggle with opiates, single parents, Pell grants, the Navy—all these wonderful things that we need that pay huge dividends—investing in DARPA and the internet, which all these huge companies have made billions from, not acknowledging or trilling from that it was middle-class taxpayers that paid for this.
You need a progressive tax system, and now we no longer do. So what would be my suggestion? This isn't about Elon's compensation of $120 billion; it's about the following: I believe anyone who makes over a billion dollars should pay 60%, 70%, or 80% alternative minimum tax. Because at the end of the day, what do you want? Why do we have all of this? Why do we have capitalism, the tax structure, governance, the Delaware Court? You want to create a society where people feel happy and rewarded and healthy.
So I believe the equity and the fairness part comes in around taxation. But if you start using the word "fair" in compensation, come over, and I'm going to tell you about the CEOs I deal with, and you tell me what is fair or not fair. It's just... that's an impossible argument.
I just... a prediction has come to me. I feel like this brings up very, very big questions about our legal system and how our legal system should work. I think what we're going to see now is, I mean, one, we're going to see an appeal. I think we'll maybe see some pretty serious lawsuits. I would bet this makes its way up to the Supreme Court, and I would bet that we see a Supreme Court decision or Supreme Court lawsuit with SCOTUS making a decision on these sort of questions.
But this is one of those situations where you can begin to make a pretty decent argument that the way our system is set up gives government a little too much power.
Yeah, but the mechanism here is... I don't think it's not like the traditional court system.
This is... but then they'll take it to the traditional court system if they don't win. I mean, he's going to get the money. He will find a way.
You think eventually?
Okay, I think that's a good bet.
He has to. But just the mechanism here is I believe they can appeal it once to the Delaware Supreme Court. I don't think this specific case will end up in the Supreme Court. He would have to, I guess, sue the Delaware...
Yes, he'll file a new suit.
I think that is what will happen. He'll file a legal suit, not with the court of equity, but the court of law, and I would bet that this makes its way up to the Supreme Court.
Also, I think the way around this, actually, Ed, is I don't... I think the board could figure out a way. Shareholders have said we're down with a hundred-plus billion dollar compensation. I think the board can figure out a way to compensate him differently that will avoid the Delaware Court.
I think there's a rational argument, and I don't know if you've picked up on this, but I'm not a huge fan of Elon Musk. But there's a rational argument that if you went to Tim Cook right now and said, "Okay, we're at three trillion. If you can grow Apple to 20 trillion, we'll give you a trillion," I think the shareholders of Apple would say, "Oh, that's insane—a trillion dollars? But sure, we'll take that deal if you can increase our stock price six or sevenfold. We'll give you a trillion dollars."
And that's kind of what Musk and the board said to shareholders.
I just... it feels alien to be supporting more money for Elon Musk, but I don't think... I think they got it wrong here. I think boards are allowed to make stupid decisions as long as they're approved by the shareholders, which they largely have been here.
And I agree with you. I think ultimately he ends up getting his money.
We'll be right back after the break for our conversation with Michael Saylor. If you're enjoying the show so far, hit follow and leave us a review on Prof G Markets.
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Welcome back. Here's our conversation with Michael Saylor, the founder and executive chairman of MicroStrategy.
Michael, thank you so much for joining us on Prof G Markets.
Yeah, happy to be here.
You've been everywhere recently. I mean, you're all over my news feed, and I just want to give sort of the Michael Saylor story in 2024 very quickly. So you're the founder and chairman of MicroStrategy, which was originally a business intelligence firm, but over the past few years, you've shifted it into this Bitcoin treasury company.
So MicroStrategy now holds nearly $40 billion worth of Bitcoin. That's roughly 2% of the total global Bitcoin supply, and it also makes MicroStrategy the largest corporate holder of Bitcoin in the world. And in the past year, as Bitcoin's price has risen, so too has MicroStrategy. So MicroStrategy stock is up 600% over the past year. It's just remarkable.
So I'll start with this, and we'll get into it, but what has drawn you to Bitcoin, Michael, and what was sort of the impetus for this very radical pivot at MicroStrategy towards Bitcoin?
I think in the middle of 2000, the summer of 2000, what drew us to Bitcoin was desperation and frustration. So initially, we had $500 million in cash. It was worthless. It was generating 0% interest. The company wasn't growing. We were under lockdowns competing against Microsoft. So, you know, the only thing that we had in our world that was a bright spot was we had $500 million in cash, and we thought maybe it was worth something.
But when Jerome Powell said it's worthless for the next four years, we lost that. So we had to do something. Our initial foray into Bitcoin was defensive or just frustration defense. It's either that or sell the company. So if you're not going to sell the company, you can die slowly, you can die quickly, or you can do a transformational acquisition. You can take a risk, and that was our transformational acquisition.
What if you could buy a $500 million company growing 60% a year, which looks like its own digital monopoly, and you could bolt it on to a company that's growing, you know, zero to 5% a year that's not a monopoly? So we did that. Then Bitcoin surged, and we could opportunistically raise money via the convertible bond market, and we raised $650 million at 75 basis points, and then we raised a billion paying 0% coupon.
At that point, I would say that state is opportunistic. Like, someone wants to give you billions of dollars of free money to actually invest in your business. Why wouldn't you? We got on the roller coaster. It went up and down. It surged, it crashed, it surged, it crashed.
And I think by the beginning of 2024, it became strategic, and we realized, like, "Hey, we're just doing this because we've got an operating company and we can do it." And between 2021 and 2024, we raised about $10 billion of capital. So we started with $500 million, we raised another $95 to $10 billion more, and now the question is, "Well, what's going to happen with crypto, and what's going to happen with Bitcoin?"
And you got the ETFs approved in January. I mean, 2024 is like year zero of institutional adoption. So the ETFs are approved in January. Everybody wrote us off and said, "Well, MicroStrategy is unnecessary now." What they didn't realize is the ETFs are like overnight deposits. Like, you put money into BlackRock, but you can take it out of BlackRock the next day.
MicroStrategy, that $40 billion, that's our money. That's permanent. You can't take it out. We have $40 billion of permanent capital. And so what we realize is our real great strategic franchise here is we can securitize Bitcoin.
So I can issue fixed income instruments, bonds, especially bonds and fixed income preferred stocks, or high volatility equity, and those are all products the capital market wants. They want Bitcoin-backed securities. They either want 3x to trade, or they want one-third of the risk and one-third of the volatility to hold in a portfolio.
So we announced on October 30th that we were going to basically raise $21 billion of equity and debt, and that was well received by our shareholders. We just kind of said, "We're going to be the leader in the industry. If you want to invest in a company like ours, we're the company."
And then a week later, we just had a red sweep, and November 5th was pro-crypto Congress, pro-crypto Senate, pro-crypto White House. Bitcoin surged, our stock surged, and I guess I boil it down to it took us four years to get $10 billion, but by the way, it took me 30 years to get $500 million.
It took me four years to get the next $10 billion. It took us four weeks to raise $13 billion more, and that's because the product you're selling is capital. I mean, you're selling a security. If a rich person looks at the iPhone, how many do you want? One? You want one Tesla, one iPhone? But if I offer you a security that gives you twice the performance of the S&P, how many of them do you want? Like, all until you hit your risk rail.
So now I would say we're a Bitcoin treasury company, right? Our operation is we take crude crypto capital—Bitcoin—that's a commodity, and then we sell you an equity which is like 2x vol, 2x Bitcoin, and then we get to 2x by actually selling bonds and selling fixed income instruments that are half x or half of what we're doing, and we strip the performance and the risk off the bottom of the capital structure. We put it onto the top, and that way all the degenerate traders get what they want, and all of the risk-averse investors get what they want, right?
And we're just the institutional gateway sitting in the middle.
It sounds like the way that you're describing this stock now... I mean, MicroStrategy was a software company. The way you have described it, it sounds like MicroStrategy is a financial product. And the way that you describe that you are securitizing Bitcoin, which I would assume you see as maybe a commodity, but it sounds like the business that MicroStrategy is in now is selling a financial product.
We're a treasury. We're a treasury company. Like, we're not a retail bank. We don't have retail deposits. What we do is we issue securities. We borrow billions of dollars from the bond market at 0% interest, and we lend it to the crypto economy at 60% interest.
You see, I raise money. I raise billions by issuing equity to the equity capital markets, and I invest it in Bitcoin, and the difference between them is a spread. You know, if I issue a billion dollars of equity, I'm capturing a 65% spread. We make $650 million on the arbitrage in one day.
And then when I do the bond market, it's an 80% spread. So what we're doing is we're taking cheap capital from the traditional capital markets, of which there's $300 trillion of it, right? There's a lot of money in the capital markets. We're funneling that capital into the crypto economy, into the decentralized economy. It's like I'm lending it to the nation of Bitcoin, but there's no counterparty, right? Because there's no company, there's no individual, but I'm getting back 60% return each year.
And so as long as I can borrow the money for less... if you can borrow money for less than the S&P return, and if you can loan it out for more than the S&P return, you can rinse and repeat that trade ad infinitum because there's infinite money that's getting less than the S&P that wants more.
A lot of that is predicated on the fact that you are borrowing money at 0% interest, which is very unusual. Could you take us through for our listeners how that is possible?
Okay, here's the big idea. The S&P volatility is the VIX. It's about 15. The return of the S&P for the past four years is about 15% annually. So think of the cost of capital for every traditional investor as 15%—5% VIX, 15% ARR. Bitcoin is 60% AR—60%, all four times the VIX, four times the S&P. It's been that way for a decade. It's been that way for the past four years.
Okay, if you're a convertible arbitrager, there's an entire convertible bond market. What they do is they buy your bond and they sell your equity, and they extract the premium for that trade. There's a $340 billion market that does it for that trade. To work, they need your volatility to be 45% or more, so you need to be 3 or 4x the S&P.
And of course, MicroStrategy's got a beta of 100 to 15, and that's because we lever Bitcoin, which is a vol of 60. So if I take 60 and I double it, I'm at 120. So we have extremely high volatility.
What else do you need? Liquidity. What else do you need? Durability. Right? GameStop's interesting, but it's not durable. You see, sometimes there are meme stocks that are very liquid and volatile, but only for a week.
What if I could... volatility is like fire. I'm starting a fire. I'm burning the fire for a long time. So the way we borrow money for zero is we're selling a convertible bond, and the imputed interest rate of the bond, of course, is not zero. The arbitragers are getting 20%, 30%, 40% risk-free yield. They're betting nothing and getting... I mean, they might buy a $50 million bond and make $10 million in a few minutes risk-free. Why wouldn't you?
So we're tapping that market because we have a volatile, liquid stock that's transparent. But it doesn't require a zero coupon for this to work. We borrowed money at 6%. If you borrow money at 6% and invested at 60%, you're still scraping 90% of the game. I'm still making 54% yield on whatever I borrowed.
So it works at 6%. It works at 12%. It works at 15%. It just happens that a very easy pull of capital is convertible bond capital, where you can borrow the money at zero, and you can do it in size.
Can I make one more point? Our bonds are the most lucrative bonds sold in the last decade, right? I mean, the bonds all doubled and tripled. No one ever triples their money on a bond normally. But the other point is if a conventional company borrows a billion dollars in the convertible bond market and they go and buy a building, and they build a building, or they invest in a product, or they fund an operation, it's a five-year investment cycle, and it's not clear how it will turn out.
So after five years of developing a billion dollars of Chicago real estate, you go back to the capital market, borrow another billion, and you've got to do it in San Francisco. Another five years goes by. But what we're doing is building a digital building. I borrow a billion dollars, I buy Bitcoin, I announce it two days later, it's immediately profitable because I'm generating a yield to my common stock shareholders.
So imagine I could borrow a billion, build a digital building in five days, announce that I made money on it, and borrow another billion. I can do that every week, and that's exactly what's happening in this market. We're basically accelerating the investment cycle from five years to one week.
Bitcoin is the unique radical actor here because Bitcoin is the first product that's a commodity—that's a legal definition—an asset without an issuer, and it's economically a scarcity. That is a common sense definition. It's a commodity that you could only make 21 million of for the next billion years.
So there is no legal commodity that's also a scarcity other than Bitcoin. And if you don't have a commodity that's a scarcity, you can't do this with 100% of your capital in a public company.
Yeah, like you can't do this with a security. Like, I couldn't do this trade with Nvidia stock, even though it's a great company. Nvidia stock is a security, so I could never own 100% of my liquid capital or have it invested in Nvidia.
So if you wanted to do this before Bitcoin, you had to do it with gold, soybeans, oil, or real estate, and they all underperform the S&P, and they all have less volatility than the S&P. So if your hurdle rate is 15% and you're showing me real estate, which is 10%, the trade doesn't work.
And so what we're doing is totally rational and simple. It's the simplest thing imaginable if you accept the premise that Bitcoin is a real asset, that it is a commodity, and that it's 21 million. Right? And once you get that idea, everything else follows naturally. And until you get that idea, you just think it's crazy magic.
So Michael, it's always good to see you. And I should point out the first time we had you on the pod, you off mic said, "Scott, just put some of your assets in this. Trust me on this." And I think Bitcoin was like at $8,000, and I'm like, "I'm going to wait till it goes down to $4,000."
So if I understand this correctly, it's sort of this incredibly deft capital markets arbitrage where you're able to issue zero coupon bonds where no cash flow leaves your balance sheet. You don't have to pay interest on this, so you get to borrow money not for free, but cash flow free.
Your cash flow comes off your balance sheet, and because of Bitcoin's acceleration and the volatility you talked about, you're able to issue the convert—the price that the bonds convert out at a fairly high price. So you've essentially engaged in this kind of arbitrage where people think your company has the credibility in the space. You have the ability to borrow against this, but there has to be underlying cash flows to support the claim that those bondholders might have should Bitcoin go down substantially in price.
So is that security built on just a pure belief in Bitcoin, or are the underlying cash flows from your core business important to that?
The performance of the underlying asset is such that the bonds never get paid back other than they just get equitized. And if you look at my situation right now, I have about $40 billion of Bitcoin. I have about $7 billion of bonds. 4.2 of them are already equity. I mean, they're already effectively equity because they're trading not just above the strike price; they're trading above the call price, which is 130% of the strike price.
So we could, you know, generally sometime in the future, just call them all for equity and equitize them all. So there's about $3 billion of a convertible bond on a $40 billion structure, which is zero coupon, which there's some theoretical risk that there might be more dilution than the minimum strike.
But the other point to make is these are no recourse unsecured notes. There's no lien, there's no claim, there's no EBITDA covenants. I think we pay like $30 million, $30 to $35 million in interest on $7 billion in debt, Scott, a year. But I don't even have to generate the cash flow for the $30 million. I could actually sell equity in order to pay the $30 million.
And we have raised $10.5 billion. We've been generating a billion dollars of equity a week. I mean, a billion dollars of income and equity a week. So the real magic of this is you need an asset which is going to outperform the S&P that's also going to stay more volatile than the S&P.
And then you need a company—a public company that's 100% Bitcoin. And when you sell securities backed by Bitcoin, you need to buy the Bitcoin with it. And because you're actually feeding back the capital back into the system, it's like a triple amplifier because it's driving up your assets, it's driving up your volatility, and it's driving up the price of Bitcoin.
My understanding is there's no such thing as risk-free return, and I'm just trying to paint out a doomsday or a downside scenario here. Bitcoin, as you reference, is highly volatile. A year ago, it was 70% lower than it is now. Five years ago, it was 90% or 95% lower. Volatility means it goes way up, it goes way down.
Bitcoin goes to $5,000, and the underlying value of your Bitcoin holdings no longer represents the claim or the assets it once did. Your stock goes way down. It is way below the strike. You have to issue massive amounts of dilutive share price. The stock crashes, and you're not able to issue more debt. Isn't that the downside scenario?
There may be more upside here, but there is a doomsday, right?
Well, the best way to say it is the risk that you're accepting is Bitcoin extinction risk. Like, if Bitcoin goes to zero tomorrow, the entire business is a Bitcoin extinction risk. So if you think there's an x% chance of Bitcoin extinction, then probably you don't put 100% of your portfolio into my stock or into my bond, right?
But what if it goes to $10,000? What happens? I'm sure your bankers have modeled this out.
The answer is Bitcoin goes to $10,000, the bonds are going to pay off at par. You know, you might not get three extra money on the bonds, but you're going to get your money back because the company has enough assets and enough equity that will just equitize the bonds, and it'll be diluted to the common stock.
Just press pause there. The business intelligence side of the business creates enough cash flow to support the bonds even if Bitcoin declines dramatically?
No, the point is you don't need cash. The bonds are free. I mean, you don't need cash flow to pay the interest. If you're talking about the principal, the principal of the bonds converts to equity, right? You're basically paying out equity.
So the risk, if you assume Bitcoin goes down 90%, is to the equity. It's the MSTR, right? They're the ones that are taking the risk.
The bonds are going to pay off, and so look, Scott, the point is if you've got... if you put 100% of all your wealth into our bonds or, you know, or into our equity and Bitcoin goes to zero, then you will lose money, and you're not suggesting anyone does that.
Yeah, and then if you ask the question, "Well, how does MicroStrategy look at it?" My answer is I'm selling the volatility. So for example, if I sell a billion dollar bond, I'm capturing an 80% spread up front, so I'm making $800 million in Bitcoin.
If Bitcoin crashes by 80%, then I was neutral, right? So if Bitcoin went to $20,000 tomorrow, you could say, "Ha, you didn't make any money on that." But if Bitcoin doesn't crash 80%, I made $800 million.
Now, if Bitcoin goes down 20% or 30% or 40%, Bitcoin's volatile. My stock is twice as volatile. I'm going to refinance it and sell the volatility, and the theoretical value of having a billion dollars of a volatile asset is like $100 million a year.
Like, for example, all I have to do is hold the billion dollars and then sell the vol, and we probably make another $500 million to a billion dollars even if Bitcoin doesn't go up—even if it goes down.
So it's a no-brainer for us as a corporation because we're getting the float, and we're getting the volatility, and then we can equitize or refinance the volatility between now and when it comes due.
If you want me to say, "What's the doomsday scenario?" Well, it's the same scenario you have, Scott, which is if you walk out your door and you get hit by a truck or a meteor, you're dead.
So it is possible you could get hit by a meteorite, and then you're dead. And it is possible for an extinction-level event to happen to Bitcoin—a meteor. And if it does, everything is definitely levered to that.
But if it happens, it needs to happen quickly, immediately. Like, for example, if Bitcoin goes to zero tomorrow forever without incontrovertibly, right? That's not good for our business.
But if Bitcoin simply trades down and stays volatile, if Bitcoin was cut in half and stayed as volatile, well, there's a lot of people that will want to buy MicroStrategy stock and MicroStrategy bonds, and they'll want to buy if Bitcoin was $50,000.
There would be a massive demand for people for a convertible bond struck at $50,000 for people to ride the upside and avoid the downside of that. We would sell that one, you see?
So our business kind of works no matter what happens as long as Bitcoin continues to be interesting, volatile, etc.
Stay with us. We're back with Property Markets.
I just want to rewind to something you said earlier. You said, "You know, it's great for us if the price of Bitcoin goes up," but the thing that more importantly you said is that this all hinges on Bitcoin remaining interesting—the idea that people are interested in this asset and want to be exposed to it in some way.
And I think that is the statement that I understand your position on, but I'm not fully bought in because I think that that statement is quite a speculative statement to say, you know, with the level of conviction that you have that this asset will remain interesting and then to build this giant trade off of that premise.
And I think that that's what some people would take issue with is, like, "Well, why is this thing going to remain interesting?" You know, we can talk about the volatility, we can talk about the financial dynamics and the technicals of Bitcoin, but why do I care about Bitcoin? What's actually interesting about it other than the price going up?
It's a good question, but I actually think that if you want to spend a few hours studying it or researching it, you'll find that it is the most interesting thing in the world. I mean, I don't even think it's debatable. I don't think there is a second most interesting thing—the most interesting financial asset, the most interesting asset in the world by far.
So why is it so interesting to you personally? From a personal level, when you learned about Bitcoin and started studying it, the more important question: why is it interesting to everybody else on the Earth? Right? There's 650 million crypto people. It's the center of the 650 million crypto people.
There's 1,500 crypto exchanges you can trade it on. Any company on Earth can trade with any other company with Bitcoin. It's the only place to get a billion dollars of credit. If you wanted to panic sell or take a billion-dollar short position because of an Israeli missile crisis, it's the only thing you can sell a billion of on Sunday morning.
If you want to reverse the trade, it's the only way to reverse the trade, right? Nvidia is not trading on Saturday. I mean, think about the... by the way, Bitcoin is the seventh biggest asset in the world by market cap. It's $2 trillion. But think about the ones above it: Microsoft, Apple, right? Nvidia.
Yeah, these are not useful or interesting to most of the world. No Chinese company is going to capitalize on Nvidia stock. Gold's at the top. You can't move $1 billion of gold from New York to Tokyo or short it or go long.
So literally, what I do is turn it around to you and say, "If you don't think it's the most interesting, tell me what asset in the world is more interesting right now to more people," because I don't think you could name one.
Well, I think it's interesting because of all of the conversations that it sparked and the way that it's become very political, and it really brings out the emotions of everyone involved, either positive or negative.
But the things that you mentioned there about why it's interesting—like, again, a lot of it has to do... I mean, you mentioned the fact that it trades on weekends, which other assets don't. But the idea that it is...
Okay, Ed, Ed, come on. First of all, the number one performing stock in the S&P 500 is mine.
Yeah, we're up 30x.
Yeah, that's three times more than Nvidia. That's interesting. How about the number one options market in the S&P 500? Mine.
Yeah, we have the most intense options—like 130% of market cap. The most profitable convertible bonds in the marketplace? MicroStrategy's right.
It's interesting because people are making money off of it. Everybody in the $2 trillion of market cap or of wealth has been created in 48 months for hundreds of millions of people. It's changing every minute of the day.
But in that sense, isn't what's interesting that the price is going up? Because you said, you know, it's nice when the price goes up, but what I'm also hearing is the interesting part is the price going up—the fact that it has become such a valuable asset class.
And I guess my point would be if there comes a time when the price starts going down, suddenly it's not so interesting anymore. And then I feel that it could all... all of that fire that you described can poof a lot more quickly.
By the way, it was pretty interesting when it went down too.
It's... I give you the crypto winter. It's interesting because it's useful. It's useful because it's the hardest money in the history of the human race, right? It's interesting and useful because it represents property rights and monetary security or economic security for 8 billion people.
That's interesting in the same way that electricity and clean water and steel and airplanes and fire and nuclear power are interesting because it's the single biggest way to improve your quality of life, right?
And otherwise, it's interesting because it is a global real-time... it's so... it's changing all the time, every second. It's literally changing now.
Think about all the other financial assets. Conventional wisdom says, "I create diversified portfolios of bundles of 20th-century things like 187 real estate apartments or a bundle of preferred stocks or a bundle of corporate bonds." They have no volatility because they're engineered literally to be uninteresting.
They're literally engineered so that on Saturday afternoon, there is nothing that could happen that would change their value to you.
So you see, the fact that Bitcoin is engineered so that it does change value, someone is doing something—that's actually what creates all the volatility.
But let me make one more point. Do you know the call rate? If you hold a dollar or hold a million dollars and you're wanting to hold it for 30 days, you're getting... the 30-day SOFR, you're getting about 4.8% interest.
If you actually hold a million dollars of the S&P index and you sell the call 30 days out at the market, you're getting like 15% interest. If you're holding a million dollars of Bitcoin, IBIT, and you sell the 30-day call, you're getting 100% interest.
And when you're holding a million of MicroStrategy and you sell the call, you're getting 220% interest. So when I say interesting, I'm using the classic sense: people are financially invested in it, and therefore when it changes, there's hundreds of millions of people that all of a sudden feel it up or down.
I'm also pointing out you can literally generate more interest on this thing, and so there are more ways to actually make money on it, and that's why the tickers on CNBC. CNBC is not showing you things that aren't interesting. They're not showing you the soybean price every day.
They're not showing you... they're not going to show you the price of a diversified portfolio of real estate assets that are maturely and scientifically constructed because the construction of the portfolio was to make it boring.
And Bitcoin is... and by... when you make it boring, you strip the performance out of it.
And so the point is, let's come back to fire. Volatility is fire. If you're a normie, you run away from fire. If you're Henry Ford, you put the fire into an engine. You put it in a horseless carriage, and you create an automobile.
And now people can go, and then you put it into a plane, and that's good. So engineers are putting... you know, you're a nuclear reactor in the spaceship. It's scary in the submarine, but Bitcoin is like the financial fuel. These things are crypto reactors.
It's a technically better way to do this, and it's the volatility that's actually the motor that's driving the portfolio or the treasury forward.
If you were advising the administration, as far as I know you are, there's a tension between... so Trump's threatening the BRICS nations, saying, "If you dollarize and the dollar is no longer the default currency, I'm going to raise tariffs."
Because there's an advantage to being the reserve currency. We control 58% of reserves are in the dollar. We get to see flows. We get to have more teeth in our sanctions.
And if Bitcoin goes to a million dollars, a $21 trillion asset class, it's hard for me to see how it wouldn't at least bring reserve currency percentage from the dollar way down.
How would you be advising the government to think about the advantages of the dollar's reserve currency versus Bitcoin increasing in value and subsequently playing a larger role and perhaps replacing the dollar as a reserve currency?
There are some simple, straightforward things that are good for the United States and probably good for the world too. First of all, just to observe that money decomposes into currency and capital. Currency is the medium of exchange that we use to price everything in the world. The US dollar is definitely the reserve currency.
The US dollar is also used as reserve capital, but in the form of treasury bills. Bitcoin is capital. Bitcoin is not currency. Gold has been used as capital; it's not currency anymore.
The very simple thing that the US ought to do is they ought to sell the gold and buy Bitcoin with it and buy 20% of the Bitcoin network. It's very simple. Just swap the gold for Bitcoin.
If anybody actually swaps out their treasury bills for Bitcoin, then the US is going to own it all. It's kind of like just getting Alaska or the Louisiana Purchase for free. They could pretty much have 20% of the network for free overnight just with a swap.
They could even print the money. You know, I mean, they could buy it for next to nothing. The only alternative to the treasury bill for anybody is Bitcoin.
And so just buy... do that, and Bitcoin becomes the world reserve capital network, and the US will own both sides of the equation. They'll own the currency and the capital.
But the second observation is the US ought to just standardize stablecoin legislation and let people issue digital currency backed by US treasuries, like Tether, like Circle.
If the United States created a digital assets framework and they just let corporations and banks issue digital currency, and you just say, "If you want to issue digital currency, you have to back it with US dollar equivalents," which means T-bills, right?
And a US custodian. If they did that, the digital currency market would grow from $150 billion to $10 trillion, and that would create $10 trillion worth of demand for US Treasury assets.
What will happen is we'll collapse every other currency in the world, Scott. We'll collapse the ruble, the CNY, everything in South America, everything in Africa, even the euro.
99% of the demand for stablecoin is in Europe, is the dollar, not the euro. So if the US really wants to make sure that the dollar remains the reserved currency, the real crippling defect right now is it's hard—it's not easy to send digital dollars at the speed of light on a mobile phone, and people want to do it.
So they ought to actually normalize that. And if they want to make sure that the United States owns the capital of the world, they just ought to buy 20% or 30% of Bitcoin. They'll have it all.
And then when the Chinese and the Russians dump all their real estate and all their gold, and if they dump their treasury bills or whatever they dump, they'll buy Bitcoin. The price of Bitcoin will go through the roof.
So just as we wrap up here, Michael, I want to pivot to something a little bit more existential or personal. I've known you for the better part of 20 years. We're about the exact same age.
What's left for you? You're obviously economically secure. You've obviously built a company that's performed, as you said, best performing stock in the S&P. Like, in five years or ten years from now, you look back and think, "Okay, that's a box I wanted to check that I hadn't checked."
What's left for you? What are you hoping to accomplish over the next decade?
Well, you know, Scott, in 2020, I was very frustrated and a bit depressed. I don't think I was alone. A lot of people were frustrated and depressed during that time period. And I was, you know, my company was worth $600 million enterprise value, and I'd worked 30 years, and I could not break through against the Microsoft juggernaut.
And I couldn't figure out how to grow it. And after ten years of trying, I figured maybe I should just retire and go gracefully off and just call it a day. And I think I, as I said, I discovered Bitcoin out of frustration and desperation.
And first, it was just something to do, and then I realized it was a good technology. I went from, "I'll buy it because I don't have a choice to do anything else," to "I'm an investor," and I started thinking Bitcoin is like Facebook for money, or it's like a dominant digital monetary network.
And I started becoming a tech believer in it, but then I emerged as a maximalist, Scott, which is, you know, you wrote your book about the four, and at the end of the book, you know, you basically... you're a little bit jaded. You're like, "These guys got too much power. They abuse their power, and the world's not a better place for that."
That's because they're companies. And if Bitcoin was a company, if it was a big digital banking network, it probably also gets corrupted.
What I realize is Bitcoin is a decentralized protocol. It's a commodity. It's ethically superior to a company. It's ethically superior to these big tech companies because it represents a protocol of economic empowerment for 8 billion people.
And everybody on Earth, regardless of your views, and so I basically went from opportunist to investor to maximalist, and now I'm of the opinion that the human race moves forward through clean energy, clean food, clean money.
And human misery was our water was dirty, our food was dirty, we didn't have energy, we had dirty clothes, we had doctors with dirty hands and dirty instruments and the like, and we had dirty money.
And for the last 500,000 years, all of our economics have been broken, and their human misery has taken place because copper tokens and giant stone coins and glass beads and silver coins and gold—none of these things were perfect capital assets. They were never a settlement network, and they were never a non-deflationary asset.
Bitcoin represents clean money. It represents economic energy and economic empowerment. So my mission at this point is I would just like to spread it to 8 billion people. I actually think you can... Bitcoin is hope. I think you can fix a company, fix a country, fix a family.
It won't solve the other problems. It doesn't cure cancer, and it doesn't make you a good basketball player, and it doesn't resolve political differences and religious differences. I'm not... I get that.
What it does is it gives people a working economic fluid that doesn't drain 10% of their economic energy per year out, you know, out the back door. And so I'm a big advocate for digital capital in the same way that 150 years ago, maybe I could get really excited about spreading electricity to the world.
But I'm to... you know, if you found fire, you would want people to know about fire. And you know, Henry Ford, as I said, he put the fire in an engine, and he gave us wings. He let us fly.
And so the world's a better place with the automobile or the plane or aluminum or steel or computers or AI or whatever it is. I just think the world's a better place with digital capital or clean store of value money, you could say.
It's a fair and equitable way for us to settle our differences, and there's something nice about that.
Michael Saylor is the founder and executive chairman of MicroStrategy, a publicly traded business intelligence firm and holder of Bitcoin. He's also the founder of Alarm.com, named investor on 48-plus patents, and author of the book "The Mobile Wave." He founded the Saylor Academy, a nonprofit that has provided free education to more than 2 million students. He holds dual degrees from MIT in aerospace engineering and the history of science.
I've known you for 20 years, Michael. One of the things I think the space has unfortunately suffered from is a lack of, like, I don't know, thoughtful, nice people. And whether people disagree with you or not on this specific asset class, I've known you for 20 years. You've never not been willing to meet with me, provide me advice.
People don't know this about you: you are a nice, generous person, and that's good for the asset class.
I think it's lacked that.
I really appreciate your time, and congrats on all your success.
Thanks, Michael.
Yeah, thanks for having me. It's always a delight to talk.
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So, Ed, what do you think? What do you think?
I feel you got... I think you got worried a little bit that we were getting a bit too combative at the end there.
No, maybe just... just because I appreciate you wanting to keep it real in the pushback. I have a bias towards Michael because I know him personally, and I like him. He's like... he's generally a good, decent man.
And the thing I like about what he's bringing to this conversation, you know, he's definitely a cheerleader. There's definitely a lot of rah-rah there, but at the same time, he will also say he's not going to tell anyone to put all their money in this.
He doesn't tell them to do that.
He told people to mortgage their houses and use the money to buy Bitcoin.
Well, there's that.
I like him for a lot of reasons. To me, that's not one of them.
Well, let me let me go to the optimistic tone then. If you compare him against the other figures in this asset class, one, he's not in jail, and two, he doesn't go on Twitter and start insulting and attacking people who don't support his narrative.
And early in my business career—not early, early in my reinvention of my business career—I would go down to his place, and I would outline my business, and he would, like an AI before AI, go, "These are the three problems with your business. This is what you should focus on. Do you want to have lunch now?"
You know, he just... he would summarize my business in about 30 seconds and tell me what I should be doing.
Look, I really enjoy that conversation with him, and I do respect him. I don't think that he gave me a great answer to the value of Bitcoin and what makes it interesting beyond the fact that the price goes up.
I share a lot of your skepticism about the asset class. It's always made me, quite frankly, it's just always made me uncomfortable. I've never been able to wrap my head around it.
I think there's a lot of negative externalities to a currency that doesn't... I mean, there's positive externalities about no government oversight or a lot about not being able to track its flows and bad actors that might be able to transact.
I mean, I guess, yeah, if the US lost its ability to do that, we'd be... in so many ways, we can imagine.
So I'm like you. I share some of that skepticism.
The reason I really respect Michael is that if the institutional market had said, "This guy's crazy," and fled the stock and the stock crashed and he'd been fired, he would have gone down as like this cautionary CEO tale, right?
That what happens when your CEO loses their... literally, and 499, I think, of the S&P 500 CEOs—maybe 498 if you include Musk—would take that kind of risk reputationally, and he took it.
Yeah, he certainly has balls of steel, and he certainly, as you mentioned, he loves risk and he loves volatility. I mean, we spent the first 20 minutes talking about how the most volatile asset class in the world is Bitcoin, and that's what makes it so great.
I mean, you can either run from it or put it in a car.
That was good.
That was good.
I'm going to use that.
It's great.
That was good.
Just... I can see, you know, he's a maverick, and he's addicted to that. And he, as you said, he said he was depressed and didn't know what to do when his company was stuck at a valuation of $600 million.
I mean, stuck. Stuck at $600 million. What do I do now? I have to do something.
Run! Here I am in this sad room where it gets dark at 4:30 talking to you.
But he was stuck.
That's right.
So he ran into the entire eternal fire that is Bitcoin.
Do you have any ending advice for us, Scott?
I'm a big believer in diversification, and I can see this going to a million. I can also see this going to a thousand. I think it's probably more likely it goes to a million than a thousand, but it's definitely a legitimate asset class now.
I would just say if you're under the age of 30, don't put more than, in my view, 20% or 25% of your net worth in any one asset. And if you're over the age of, you know, 40 or 45, don't put more than 10%.
And a lot of people who are very wealthy will tell me that that's being lame and that, you know, Bill Amman says that, you know, diversification is a lack of conviction.
My attitude is get rich slowly, and when you get there, it's going to be very rewarding. And along the way, it's fun, and it has less heartburn and anxiety.
Thank you for watching this version of Property Market. Check out our pod feed for office hours on Wednesday, and we'll be back with a fresh take on markets every Monday.
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