← Tom Bilyeu's Impact Theory
Tom Bilyeu's Impact Theory
Michael Saylor on The Bitcoin Revolution: Why Bitcoin at $13 Million Is Inevitable and Will Dominate the Global Economy | PT 1
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by Grainger for the ones who get it done. I'm Tom Bilyeu and this is Impact Theory. Bitcoin just hit 100k and let me tell you, we are standing at the edge of a financial revolution. And if you don't understand what's happening right now, you're not just going to get left behind. You are going to miss out on one of the biggest opportunities of all of our lifetimes. My guest today is the ultimate trailblazer in the world of bitcoin. He's not just predicting the future, he's creating it. And he's led his company, Microstrategy, to become the largest corporate holder of bitcoin, making moves that most people would not dare. It is dizzying to watch what this man has done. And if you're ready to understand what's been happening to bitcoin since the election, what's coming next, and most importantly, how you can position yourself to win, this is the episode you can't afford to miss. So, without further ado, I bring you the legend Michael Simon Saylor. Michael Saylor, welcome back to the show.
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A
Happy to be here.
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B
It is very good to have you. Now, at the time of recording, bitcoin is over 100k and has been for quite a while at this point. So I think the question of is bitcoin real? Is dead. But now the question becomes, how does bitcoin go from where we're at at a little over 100k to the 13 million a coin that you consider the base case?
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Yeah, I think I've always said it's either something or it's nothing. If it's embraced as an Institutional asset. If it's legitimized as an asset, then it's not going to zero. And if it's not going to zero, it's going to a million. And I think the short answer to your question is education. And with education comes adoption. And at this point you just have 95% of the world that still doesn't quite understand what it is. And that means, I mean, the way bitcoin marches from 100,000 to 13 million. And by that's for your listeners, you're referring to my long term forecast. I gave that forecast in Nashville in July of this year. And it's based upon the Bitcoin 24 model. So the Bitcoin 24 model is an open source macro model of bitcoin adoption and macroeconomic development over the next 21 years. Anybody can go to Google and they can Google Bitcoin24. They'll find it on GitHub. You can download that model, you can plug in all your own assumptions and you can check what we thought. But my forecast is Bitcoin. In essence, it's growing 60% a year for quite a while now. And I'm forecasting it will decelerate to 20% a year over 21 years. But that means on average it grows about 29% a year. ARR. And that 29% a year for 21 years gets you to 13 million a coin. And so what do I expect to happen? Well, I expect lots of high net worth individuals that previously thought it's too risky or it's too scary. They see it legitimized by BlackRock. Now BlackRock is giving guidance that you could have 2% of your portfolio in Bitcoin. And they're seeing the ETFs like iBit, and they're noticing that these are the most successful ETFs in the history of the world. And BlackRock has got the most successful ETF ever launched. And now they're seeing the world's largest money manager, BlackRock, with more than $11 trillion of money managed. They're seeing them publish scholarly, thoughtful, responsible white papers on portfolio allocation. And Instead of the 6040 model with 60% equity and 40% bonds, now you've got 2% that they're saying you might want to put into a crypto asset like BitCo. So I think that you've got that group of people that are finding it. I also think you've got institutional investors that are moving into Bitcoin more frequently now. A lot of them are big investors in microstrategy a lot of them trade MicroStrategy options and they have. MicroStrategy has been the most successful stock in the S and P index. We're not in the S and P, but we're more successful than all 500s and P companies for the past five, four years, I think this year too. So we're getting the attention of mainstream investors and that's bringing a set of new investors to the asset class because when they buy our stock, we buy bitcoin with it. I think the third driver is a bunch of bitcoin standard companies. A lot of companies are recapitalizing their balance sheets on Bitcoin. MicroStrategy was the first, but Mera has done it. M a R a and Riot just announced they're doing it R I o T and the most successful company in the Japanese stock market this year is Metaplanet. And they just did it. And similar scientific just did it. And they tripled their stock in very short order. So you've got like a half dozen companies that are recapitalizing to the bitcoin standard, but you've got 60 companies that have bitcoin. And there's a lot of companies that are getting more heavily involved. I think recent, recently Hut 8 announced Hut H u t and then Rumble R u M and so a bunch of public companies that are kind of, they're innovators and they've got a fairly open mind and they're flexible. And the really important thing about that, Tom, is when a public company adopts bitcoin, they start sweeping their cash flows into it. But then after that they may start issuing equity and then after that they can borrow money. So Riot just this week issued a $500 million convertible bond and then they bought bitcoin with it.
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B
And Mara, is this Riot Games?
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No, Riot. Riot. Bitcoin mining. R I o T Riot. And so Mera did the same thing. They did a billion dollar convertible bond deal and they bought bitcoin and then they did another $850 million bond deal two weeks later. And MicroStrategy, when we announced we were going to pursue a bitcoin treasury company model, we, we announced that October 30th of just this year and we've raised, you know, something in the range of $15 billion in the last six weeks. And so you're talking about large sums of money that are flowing, I mean, much larger sums. It took us 30 years to accumulate $500 million in order to buy Bitcoin in 2020. It took us four years to accumulate $10 billion. And we bought Bitcoin over the next four years. But then it took us like, four weeks or five weeks to accumulate the next 15 billion. So you would check off that box, which is company adoption. Then after that, you've got, like, institutional adoption. You know, the endowments and the pension funds. You know, there's now. There's now pension funds that are starting to allocate to bitcoin. And they'll be big univers, university endowments and 501C3s and insurance companies. And so that's another driver. And then you've got nation states. And of course, the news of the week is the United States Strategic Bitcoin reserve. And the US already has about 1% of the Bitcoin. If they don't. If they don't sell it, that's a big deal. And Donald Trump said, never sell your bitcoin. And then he was elected president. But now you have Senator Cynthia Lummis advocating for a US Strategic Bitcoin reserve. You have a very supportive cabinet, lots of cabinet members that have been pro bitcoin. And then Senator Lummis just posted a tweet just a few hours ago, having met with the incoming Secretary of the Treasury, Scott Besant, saying that she looks forward to working with him on this. And presumably that means that he is also supportive. And we know that the Trump White House and Trump is supportive. He was asked on the New York Stock Exchange floor, I think, yesterday by Jim Cramer about it, will you do something like this? And he said, I think so. I think we need to lead. So I think that that's also positive. So let's just say there's a lot of different entities in the world with capital. I mean, who doesn't want to keep their money? Who doesn't want more money? Right? Everybody wants to either keep their money or they could use more money. And so bitcoin is digital money. It's the greatest digital monetary network in the world. But maybe it's the first example of what I call digital capital. It's money just so I can help people not be confused. Money is a generic term, but it decomposes in the modern world into two elements, currency and capital. Currency is the dollar and the peso and the euro. That is the medium of exchange asset. It is designated legal tender. That means you can swap it without paying a tax bill on it. And it means it's liquid and fungible, and probably it's good for paying taxes. And everybody prices things in it. That's not going to change. The world reserve currency is the dollar. The dollar's been the world reserve currency since just after World War I. And in different forms. The dollar is getting stronger, not weaker. But there's another aspect of money. It's store of value. If I had a liquid fungible asset that was a store of value that I could give to my children's children, well, nobody thinks that's the dollar. And nobody thinks, well, Nobody in the US thinks it's the dollar. Rich people in the US don't have 50% of their assets invested in dollar bills. And what they do think it is in the modern world is they think it's the S and P index, like the Vanguard 500 or SPY or some index fund. Or maybe they think it's real estate. And real estate's a store of value, but it's not liquid and fungible. So it's a little bit different. It's difficult to swap it out in units of a million dollars every day. And so it's not. But it is capital in that regard. And gold for 5,000 years was kind of capital. It was a bar of gold bullion, was that long term store of value asset that people use. Bitcoin is emerging as digital capital. And people, they're not going to use it as a medium exchange to buy a cup of coffee. But if you want to buy something to give to your granddaughter that she can't mess up even though she's three years old, and you just want, and you don't want to worry about it every day and you don't want to trade it, and you don't want to worry about antitrust and whether or not there'll be rent control on the building or renting it out. You just buy her one bitcoin and you put it in cold storage and then 60 years from now, she'll be rich. Because the one Bitcoin will probably be worth 50 million or $100 million, right? And so what's going on right now is the emergence of bitcoin as a digital capital network for the world. And the thing driving it from 100,000 to 13 million over the next 21 years is the adoption of it as a capital asset by people that have the wealth, have the capital.
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B
All right, A lot of people in my audience are not going to understand why you can't just store your money in dollars. I have a whole tirade about it, but I'd love to hear why. How do you explain to people why you can't just Put your money in a bank account or under your mattress in dollars.
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The simple answer is the supply of dollars expands about 7% a year, every year for the past hundred years. And what that means is that if you want to buy something that is a very scarce, desirable asset that the government can't make more of and that manufacturers can't make technology and capital and machinery and robots can't make more of it, it's scarce and desirable. Here's an example. An acre of beachfront property in Palm beach or a beachfront house in the Hamptons or waterfront property in Miami beach, that's a desirable place to live, you can't make more of it. And if you go back 100 years, you'll see that the value of that acre was $10,000. And you go forward 100 years, and that is about $10 million. And for those who are very quick at math, they'll realize that works out to 7% increase in price every year for 100 years. And that's why, you know, that's why people buy houses for $100 million on the beach in Palm Beach. And my house, the house that I'm in right now, it was sold in 1930, and I have the deed on my wall, and it was sold for $100,000 in 1930. If you'd put that hundred thousand dollars in a vault and you kept it safe and sound for the 90 years, and if you took it out, it would pay about 8 to 12 weeks of my property tax on this house. Like you literally couldn't keep the house for eight weeks.
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Go ahead, say it in my way. Tell me if this resonates with you. The reason that you can't store your money in cash is that the government steals your buying power by printing more of it. I find it's very sobering to look at it as theft. Does that resonate with you, or do you think I'm being hyperbolic?
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A
No, you're correct. In essence, the inflation of the dollar supply means that your wealth is cut in half every 10 years. If you hold all your wealth in cash. And it's just. It's the rule of 72, right? You divide 7% into 72. That's the half life of the asset. So the half life of Your wealth is 10 years if you store it in cash. If someone gives you an asset you can invest in that goes up 7% a year, you're keeping up with inflation. You're not getting wealthier, but you're not getting poorer. You're just treading Water, you know, and if you're beating that hurdle rate, then you're getting a bit wealthier. So once you understand that, you can see that you can't preserve your wealth for long periods of time in a fiat currency. And the best fiat currency in the world, Tom, is the dollar. But in most other currencies, they inflate at 14% a year, and that means the half life of your wealth is five years. But in a weak currency, like in Turkey or Syria or Iraq or Venezuela or Argentina, it used to be for 20 years. The inflation rate looks more like 28% a year or 30% a year. And we take example, the peso. The peso went from one peso to the dollar to a thousand pesos to the dollar over 20 years.
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B
Jesus.
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A
Okay, so I don't. You know, in America, you got to keep in mind, you're an American, you live in the greatest country of the last hundred years. America won every war, right? We were the winner of World War I. We got richer. We were the winner of World War II. We never lost a war. We were the winners of the century. Our currency lost 99.9% of its economic power over the hundred years. But if you went to Nigeria or like Germany, the currency crashed like three times. Two or three times, right? In Japan, the currency crashed, you know, in Russia, it crashed 3. Last time, the Russian currency crashed in 98. The Brazilian currency crashed completely 25 years ago. The Argentine currency crashed about 4 times in 100 years. So if you're an Argentinian and you're 30 years old, you already know what it's like to have hyperinflation because you live the entire cycle. It's just Americans don't. And so when you're. If you're taking advice from an American business person like Warren Buffett or Charlie Munger, well, I mean, they didn't live through the Weimar Republic. They didn't live through the collapse of the current, by the way. The currency collapsed in Venezuela, it collapsed in Argentina, it collapsed in Brazil, it collapsed in Cuba, it collapsed in Russia. It collapsed in every single country in Africa. You see? And so foreigners actually get it a bit better, right? It's like the bank's going to take your money, the currency is going to zero. The government's going to promise you it'll be okay and tell you to put your money in the bank. Then they're going to inflate the currency, freeze your bank account, crash the currency and then tell you it's worthless. That's what happened in Cyprus. Not too long ago, if you want to go and Google that. And so the real promise of Bitcoin is very simple. It's a bank in cyberspace that won't steal your money. And it's an asset that you can store your life savings in that nobody can debase or corrupt. And those are two powerful promises. For the first time in the history of the human race, no one ever gave you those two promises ever before.
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Now, quick break, but stay tuned. Michael Saylor is just getting started.
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That's why Grainger offers millions of products in fast, dependable delivery, so you can keep your facility stocked, safe, and running smoothly. Call 1-800-GRAINGER Click grainger.com or just stop by Grainger for the ones who get it done. All right, we're back. Let's get into it. The thing that and a lot of this started with me getting to know you, researching cryptocurrency, realizing the just absolute devastation that even in America is happening with inflation and understanding this difference that you're now talking about in a really clear fashion, that until I started researching you for this episode, I'd never heard you delineate it this way. That money is bifurcated into those two elements. You've got the money that you spend, cool. But then you've got the money that you're trying to preserve your wealth over time. When I tell people the way you should think about your house is not something that's going to go up in value over time. You should think of your house as something that you pay an insurance policy against. The upkeep, the property tax as a way to match inflation, which is unless your area becomes disproportionately desirable. And that does happen. So, like, Austin went up in value because people just flooded into that area. But for the most part, what you're going to see is actually just keeping up with Inflation that as the dollar is devalued, it looks like the price and the value of your house is going up, but it's really not.
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A
Now, I think that's fair, by the way. I think that's, that's definitely a good way to think of it.
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B
Yeah, I think so. My thing, my own company, when I start talking about this stuff, my employees look at me a little bit like I'm crazy because I'm so aggressive about getting people to understand. And it'll be very interesting to have this conversation with you that ultimately the stock market is gambling. And once you understand that people have been forced to become gamblers based on inflation, that you have to find a way to outpace inflation, otherwise you lose your money. And the really smart among us look at the capital system, look at, look at the equities market, and they go, oh, cool. I have a really complex way that I can find arbitrage, basically in these moments where if I find an area of risk that I think I understand better than the next person, I can come in, I can buy that asset, it goes up in value compared to what I can sell it for down the road, and I'm able to sell it for a bigger win than inflation. And, and that forces everyone to play that game or to just have their buying power stripped away from them, which, of course, is what happens to the vast majority of, call it normal to undereducated. They're just going to get eaten alive because they don't have the time, energy, or intellect to figure out this relatively complicated game. Okay, so with all of that as the structure of why even the average person should care about this to a screaming degree. There's an idea that you say, but you go by quickly, that I think if people understood, it's really going to help them. So you, you've said, I want to see the entire world recapitalize in Bitcoin. Now, when you say recapitalize, is what you mean, hey, that part of your wealth that you want to store to maintain purchasing power over time, all of that, instead of being in real estate, instead of being in treasuries, instead of being in equities, that should move over to bitcoin. Is that what you mean?
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A
Yeah, that's a good way to say it. You've articulated that quite well. Yes. Recap, Bill? Yeah. Build your house on a firm foundation. Don't build it on sinking sand. Don't build it on a swamp. Build it on a granite rock, on granite, on schist. And I guess If I could give the math, the risk free rate of the dollar, if you're capitalized on US Dollars and you were to say, buy treasury bonds, the risk free rate is something close to SOFR or the standard overnight funding rate. And you know that ranges. But after you, after you get paid that rate and you get taxed on it, you know, you might get paid 5%, you get to keep 3% after tax. Maybe if you're tax free, you get 4.5% and if you're taxed, you get 3. So the risk free rate of return of your capital on that dollar standard is like in the 3% range. The risk free rate for bitcoin, as I just described it to you, 29% over 21 years, about 30%. So the way I look at investments is when you're pitching me an investment idea, I say, well, I've got a lot of money in bitcoin and I'm expecting about 30% risk free for the next 20 years. You have to actually pitch me an idea that generates more than 30% plus the risk premium, plus the tax efficiency. If you told me, here's a thing that'll make me 50% a year, but it was gonna be taxable, that might be 40% a year or 35% a year. And I'm like, well, after the risk, it's still not as good as my risk free rate of 30%. So if you're capitalized on bitcoin, if you understand it, and if you understand, if you have a long time horizon, if you're gonna hold it more than four years, you don't care about the volatility. All you care about is the annualized return. The annualized return.
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B
Hold on. Because there's a lot of assumptions in there. So I know a lot of people are clutching their pearls right now about bitcoin being referred to as risk free. So can you break down for us the difference between that volatility and then how you can have the confidence to look at this and say no, no, the, the risk is merely a timeline question because I think a lot of people will, will take exception to that.
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A
Yeah. So. Well, the dollar is zero. ARR. Zero volatility, that is to say, the doll percent against itself each year, and the dollar is zero volatility against itself each year. So if you're on the dollar, you're living in flatland and you're a stationary person in flatland, a pedestrian in Flatland, Bitcoin is going up 60% a year against the dollar. How long well, since MicroStrategy made its first investment four years ago, it's 60%. But if you stretch back six, eight, 10 years, I think it's also 60%. So like a decade. But you can measure it back a decade and you see it's going up 60% a year and it's 60 volatility, it's a 60 volume against the dollar. So you should think of bitcoin as an asset. It's like you're on a speeding train going 60 miles an hour and you've got a flywheel spinning 60 RPM and the pedestrian on Flatland is standing on the plane watching the train go by, thinking, this is scary. It's going to suck the oxygen out of my lungs. And they're thinking my money isn't an asset because it goes up 0% a year. So they have a different view toward money than the view of someone on the bitcoin train. The person with a million dollars of cash is going to have a million dollars of cash in a decade. A person with a million dollars of bitcoin is going to double their capital every 18 months if they just hold on to it. Right? And so they're going to double it once, twice, three, four, four times at that rate. Right.
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B
The volatility really does come down to. Sorry, and I'll let you get back to that. But this, this does come down to a belief that when you look into the future, that the it have the 60% ARR is going to continue. Because I look at this and I say the only reason that it has that kind of reward is that it is volatile that, that there are question marks. Because if there were no question marks, everyone would flood in near instantly. It would hit homeostasis and that would be that. And so I, I do, I think bitcoin is anything but risk free. But I do think that the volatility is advantageous for the people who are going to be right about the. If people are right about the upside, that's the most fair way to say it. Why do you think the best way to conceptualize this is as risk free?
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A
Howard Marks would say volatility is not risk. Volatility is volatility. Right. A merry go round, you know, or a carnival ride or roller coaster is volatile. The risk part is if you fly off the roller coaster, right? If the merry go round stops working, et cetera. So the fundamental risk of bitcoin is the existential risk of an extinction level event. And bitcoin, right. If space aliens come down and say, we're taking your bitcoin away from you, then I guess there's risk. If some evil genius finds a way to create a cyber virus that infects and destroys bitcoin network instantly, irrevocably, that is the risk. So, but that's kind of like the, that's the existential risk you take when you get on the airplane, if it crashes. That's the existential risk you take when you cross the street. That's the existential risk you take when you put a piece of food in your mouth. And I say, and you say, well, can you imagine that hurting me? And I say, yeah, if I put poison in the food, you're dead. Okay, so do you trust me? When do you trust the waiter? When you put the food in your mouth. Right. So yes, there is some risk in life. And the existential risk is that extinction level event.
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B
You don't think there's another layer of risk in that? Not, not existential because you're saying the risk free return of bitcoin is 60%. But I think there is. It seems strange to me to not allocate some percentage of. Maybe it doesn't grow that fast. Maybe it doesn't remain 60%. You yourself say over the next, whatever, 21 years it's going to come down, it'll average out over about 29%. What if that accelerates and the return ends up being substantively less than that? So I get saying that this has a better chance of having a higher annual rate of return than say the S P500, which maybe we clock at 15%. We say, Nah, we might not hit 60, but we're probably not going to drop below 15. Therefore 15 is our hurdle rate. It's going to be something north of that. But I think where people trip up with your language is this idea of the inevitability of the 60%. What would you say to that?
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A
So we're dealing with three concepts. Risk, volatility and performance. Okay, so I've, I've addressed the risk issue by pointing out that there is existential risk in your given network or frame of reference. And I just want to make that point that once you understand that risk of being in that frame of reference, then you have to figure out what's the source of the volatility and the performance. And if you don't understand why the asset does what it does, if you don't understand the economic physics involved, then you'll think it's random and you'll, and you'll feel like It's. The performance is risky, but I want to give you an example of a physical metaphor.
- [32:13]
B
Hang tight. We'll be back with more from Michael Saylor. All right, let's pick up where we left off.
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A
I'm a hiker, and I come across a mountain lake. And the Mountain Lake has 500 trillion gallons of water in it. And, yeah, I don't know how it got there, but it's there. The water's chilly, it's clear. And I look down, and there's a waterfall coming off the mountain lake. And the waterfall, you know, it's very beautiful. And. And it's very turbulent, right? Water is turbulent in a waterfall. Water is not turbulent in a glassy lake. So the. The turbulence is volatility, right? And the. And there's waterfall. And then I look at it. And now if you look and you say, I don't know why that water falls downhill. You know, I don't know if it'll keep falling downhill, but I hate the volatility, then I guess you can take a selfie in front of the lake, go swimming, get cold, and leave. But if. Let's say you're not a tourist, but you're an engineer, so you come across the same lake, and you see the waterfall, and you see the 500 trillion gallons, and you think about gravity, and you think about sunlight. And now I know how the water got there. The water got there because the sun shone on the ocean. The water evaporated from the ocean. It rose up in the clouds, the wind blew it against the mountain, it condensed, and it rained into the mountain, and the. And the water ran off the mountain into the mountain lake. I know how it got there. And then I think, well, if I create a dam near that waterfall, I build myself a dam. I put a turbine on the dam, and then I drop a billion gallons of water. I channel a billion gallons of water through the dam, drop it 60ft, and then I plug that into a hydroelectric power plant. I spin the dynamo, I make electricity, and then if I'm really smart, I run the electric power line to a village down in the valley, and I light up the village or I light up the city. Now, someone can come along that doesn't understand physics, and they can say, good idea, Junior, but what are you going to do when the water stops flowing downhill? Well, I'm like, well, I actually think the water's flowing downhill because of gravity. Newton solved that for me. And then someone else comes along and says, good idea, Junior, but what are you going to do when you run out of water in the lake. I'm like, well, there's 500 trillion gallons and I take on my calculator and a billion gallons or whatever, it's going to last a long time. Like, well, it's eventually going to run out. I say, well, you know, the sun keeps shining on the ocean and the ocean keeps lifting the, you know, the water out of the ocean and it drops it on this mountain. And that's why there's water in the mountain. But you're right, there's some kind of natural limit and I suppose there's a limit to the amount of energy I can pull off of this dam. But it's a large number. It's a lot more than your donkey cart and it's a lot more than your steam, you know, wood stove and it's a lot more than your coal power plant and maybe it's a lot cleaner than burning, you know, gasoline. So I'm an engineer and you're seeing, you're seeing performance, thinking it's random and that's why it's going to stop. And you're seeing volatility and you're thinking it's random and maybe it'll stop. And here with Bitcoin, the reason Bitcoin's performing is, is A, it's volatile, but B, it's more energy. It's a more energy efficient state. The water is flowing down 5,000ft because it's more, it's a lower energy state a thousand feet below the mountain. You know, it's a, it's a low energy state. You've got potential energy in the water and it wants to go to ground. And that's just physics. The 500 trillion gallons of water is $500 trillion. And the $500 trillion of assets are sitting in real estate and currency and sovereign bonds and corporate bonds and artwork and equity. And they're invested in the stock of a company in Africa that's going bankrupt, right? They're invested in real estate in Cuba, in Venezuela, in Nigeria. They're sitting in a warehouse that's crumbling. It's got a 40 year life. And so entropy and inflation. You invested $100 billion in a war zone and then a war broke out and your asset got devalued. All of the things going on in the world, the war, the chaos, the competition, the inflation, the entropy, the passage of time, economy, the hurricane, the COVID you know, vaccine the COVID virus, all of these things impaired the value of your assets. The reason bitcoin is going up it's not an accident. It's because capital is, is economic mass. It is flowing from a high energy state, the mountaintop, to a lower energy state to a more efficient state. It is steam condensing to water, condensing to water, condensing to ice, giving off energy. Just like in any chemistry lab, you would learn this. And at the same time, there's this volatility driver, Tom, which is you have an open capital market. And on Saturday night when there's a missile crisis, someone can make a $10 billion short bet levered up 100 to 1 and panic, and they can do it in Bitcoin. And then on Sunday morning, when the missile crisis has passed and nuclear war did not break out, they can go long and they can reverse the trade. And bitcoin's the only asset where you can sell a billion dollars of it in a minute at 100 to 1 leverage and you can buy a billion back in a minute with 100 to 1 leverage on Saturday night and Sunday morning. If you could do that with your Upper east side apartment, then property values in the Upper east side would also be more volatile. And if you could do it with Picassos, that would be more volatile. Because if people get drunk and they panic and they short your asset 100 to 1 and change their mind 6 hours later when they get up with the hangover, you're going to have volatility. So the volatility is a feature, it's not a bug. It's because it's the most useful thing in the world from a capital market point of view. And if, and if it is that useful, then a, a Bloomberg jockey and in Singapore is going to raise 20 billion in capital and they're going to make it available for you to trade one Saturday night or they're going to make $10 billion of credit available to you on Sunday morning because they're getting paid an obscene fee to do it. And once you understand the assets appreciating because it is thermodynamically sound and it represents a lower, more efficient energy state for capital or for money. And once you understand it's volatile because the network is more useful and more leverageable, it is basically the number one, it is the number one source of credit or leverage in the world for everybody, all the time. And once you understand it like that, you see the volatility and the performance are a feature of the engineering and the technology. They're not a happenstance, they're not accidental. They're going to continue in the same way that water will flow downhill. And you know, just like the normie that sees a fire and it's like, I'm going to harness the fire and I'm going to sell it. And the normie goes, well, what if the fire goes out? And the engineer goes, I'm actually going to create a machine, an internal combustion engine with eight cylinders and the fire is not going to go out. And don't you see how the 6 year old boy scout like the fire goes out and then Henry Ford creates a machine such that the fire doesn't go out. And when you get on a jet airplane and fly across the Atlantic for 12 hours, do you realize that your life depends upon the fire not going out in the jet engine? And you're surely dead, you will freeze to death before you happen to suffocate should that fire go out. And engineers solve that problem for you. And so the difference between fear and risk and anxiety and competence and commitment is understanding the physics and the engineering of the money involved.
- [41:18]
B
Okay, I think treating it like physics is brilliant. I think the more we can get out of the metaphor into the reality, the better off we're going to be. So let me set the stage and I'm going to walk us through some of these beats of the non metaphor version of this. So you just made a presentation to Microsoft to get them to recapitalize using Bitcoin and they voted against it. So was 0.55% of people were for it, the rest were not. So when we, when I listen to you, I often get the sense that you really have come to understand the nature of capital flows in a way, certainly as it integrates Bitcoin better than anybody else. And so I feel a bit like I'm talking to the future. Um, so I really do want to map what you just said about it being the physics. I thought the, the waterfall analogy is really, really brilliant. Um, I'm curious to see if you think this is a water, if the waterfall is the better metaphor or if a siphon cup is a better metaphor. Um, so let me walk through what I'm understanding. So when you say high energy state of money, I assume you mean high entropy, that, that there's so much chaos happening. The goal would be to get out of a high chaos environment with inflation, money, printing, all of the chaos that that reeks on one's ability to store capital. This is where again people need to differentiate between currency and capital. So we want to move that into what you're calling a low energy state. But it's basically, there are fewer influences on it. It is, it is going to be there. It has the volatility which we'll get to in a minute. But in terms of a place to store your capital, once you're not in a short term time horizon, you're in a longer term time horizon, there's just less influences on it. So far so good?
- [43:08]
A
Yeah. Yeah, so far.
- [43:09]
B
Okay, so I think what makes that metaphor so powerful is that if I'm understanding you, I'm going to use a siphon metaphor instead of perhaps the more complete waterfall metaphor. I'm not sure yet. So let me use the, the siphon metaphor and see if I'm understanding where you're going. Here's what I read when I, if I were going to make a, a bull case for why this is going to play out exactly like you're saying, I go, everybody who's awake and paying attention to capital markets is going to watch people get their 60arr. Year after year after year after year after year. For people, I know you said the stats, but for if people really understood what you did with Micro Strategies, taking it from a company where you're like, well, I guess this is to being perhaps the most valuable stock on the stock market. Insane. And we'll talk more in a minute about how you did that. But the siphon effect is capital paying attention. So it will first be smart capital who actually understand what's going on. They'll move first. This is obviously what we're seeing play out. Then all the adoption stacks that you walk people through and then it, it. And this is why I say it's a siphon. It just gets to the point where you can't justify the money not going into it. And so now it's just by. You no longer need people to understand what's happening. Just, just in the same way that there are bonds of water, there's sort of bonds of narrative about where one should be preserving their capital. And of course people are still going to preserve their capital in buildings and in art to some extent. You've mapped this out for people. You estimate that. I think it's. I have the exact numbers here but. But there's a percentage of capital that people store into. So 450 trillion. This is rough numbers. 450 trillion in assets are held for utility. So buildings, things like that. It's not going to change. But there's 450 trillion. That's long term capital, pure store of value. And so the siphon becomes. Everyone will see over time that by moving out of this chaotic state where there's inflation, et cetera, et cetera, down into the low energy state of Bitcoin, where there is not that over time you will approximate, and I don't think you would ever say a hundred percent, but just for simplicity, you will approximate a hundred percent of that long term store of value capital going to the most efficient, highest return place. And as of today, there's nothing even close to Bitcoin.
- [45:46]
A
Yeah, I think that's reasonable to say. I mean, I'm not saying 100% of long term capital becomes Bitcoin. What I'm really saying is long term capital is like 450 trillion. I think there's 3% entropic lapse. There's 3% loss in that capital every year, either due to inflation or entropy, whether it's a financial asset or it's a physical asset. And that works out to 13, you know, 13 to $15 trillion a year of inefficiency. And that's just people or institutions owning things. And the building falls down, the company fails. Right. Et cetera. I think I, I would liken it to. Well, I mean, all the water's in the lake and all I got to do is carve a channel and the water's going to flow downhill. And why? Because that's just the law of physics. If I took all your money, like, I don't know, how much of your money do you have stored in a bank in Africa right now? Tom, what percentage of your wealth? What if I took it?
- [46:57]
B
Zero.
- [46:57]
A
What if I took it all? What if I'm Dr. Evil and I took all your wealth and I moved it into a random bank in Africa? And then I said, hey, April Fool's, Tom, I moved your money here. But here's the key. You can leave it there or you can move it back to the U.S. would you leave it there or might you move it back?
- [47:21]
B
I would be moving it back.
- [47:22]
A
Yeah, but so would I have to force you to move it back? I mean, wouldn't there be a natural tendency on your part to move the money to a place where you feel more secure with the money? Like human nature is such that there's a lot of people in the world. Do you know that if you went to China and you gave everybody in China the option to move their money to the U.S. not all of them would, but a lot would. Enough so that the Chinese government makes it illegal to do so. The reason there are capital controls. There's a limit of $50,000 a year is because if people could, they would. So there's a natural tendency of people to want to move their capital from a less secure, more chaotic, more uncertain place, maybe where their property rights are left less. I mean, you remember the, you know, remember in Cuba when the boat people, when everybody wanted to leave Cuba and come to Florida, right? People generally want to move from the less secure to the more secure place. They want to move their person, they want to move their money, et cetera. It's human nature. I think if we come to this siphon analogy, well, there's just so much energy that gets released when you move from an uncertain, unsafe environment to a more certain, safer, more sound environment that sometimes you don't have to convince people. Like, for example, a lot of times, if. If the head of the household could leave a war zone, don't you think they'd bring their entire family with them? Like, the kids might not want to go. My dad made me go to places I didn't want to go. You know why? When I was growing up, because his job. You know, how many children go to a place they don't want to go because their. Their parents get a job? They're chasing money. So people, you know, why. Why did everybody come to the new world? Money. You know, everybody comes up with different ideas. It was all about property rights, and property rights was money. That's why the DuPonts came. That's why everybody came. So. So generally, you will find. Why did people go west? Money. They went. They went west for land. They went. They went less west for property. So if you come back to MicroStrategy stock. Well, MicroStrategy capitalized on Bitcoin, and our stock started working. So people started buying the stock, and it was volatile. Well, it's so volatile that we have $100 billion options market that's formed on top of our stock. So our. Our company went from $1 billion market cap to $100 billion market cap in four years. Our options market went from zero to $100 billion in four years. Our volatility went from 20 or 15, very low volume to 120. Okay, you can look at that as a negative or a positive, but here's the positive. 120 is like hot money. It's like fast RPM.
- [50:46]
B
Tom.
- [50:46]
A
It's only risk if the volatility comes from doing risky things, if it comes from gambling or doing stupid things. If I go into a casino and I play a game where the odds are against me and I'm winning, well, my. I'm also going to be volatile, but I'm volatile by taking risk. Maybe stupid risk, but if I build a centrifuge or a flywheel and I spin it really hard, I might be volatile. It might look volatile to someone that doesn't understand polar geometries or doesn't understand physics. But it's not risk. It's just, it's just a machine that's, that's creating motion or kinetic energy. So when MicroStrategy created that 120 volt. And to be clear for your listeners to put that in perspective, if you stacked up all of the s and P500 companies, 120 volume would mean you're the number one most volatile company in the S and P index.
- [51:51]
B
Okay, just to oversimplify here, or not even oversimplify it, but to state it as plainly as possible, it means that you are doing wild swings up and wild swings down very rapidly. Yes, in price.
- [52:04]
A
We're oscillating. We're oscillating maybe in an unpredictable way. It's, it's like, you know, like if I do this with a piece of balsa wood, it's like a kid's propeller toy. Like it's a little toy. You know, maybe those things that scare away the mosquitoes that you're at your tropical barbecue. If I do this with a five pound weight, it's a weapon or a weed eater or lawnmower or something, right? I mean, it's, it's a piece of farm machinery. If I do this with $40 billion, it's a turbine, it's a flight. It might move your jet across the Atlantic Ocean, right? There's, you know, there's £15,000 of trust thrust in a jet engine.
- [52:57]
B
But it's more like, why is it a turbine? What, what is the. God, this is where, I don't know physics. But what is the energy output? Is it that money is moving from one person to another? I mean, that's all I think about. When I think about volatility. You get one guy panics, he bought high, he sold low, and then the next guy comes in and buys low and sells high. And so one wins, one loses.
- [53:19]
A
It's. If I give you a stock option on the dollar bill and I say, tom, the dollar bill is zero volatility. But I'm going to give you an option to buy 10 more dollar bills for $1 for the next year. Well, what is the option worth? It's nothing, right? Because the dollar is going to be worth the dollar. I mean, so a Stock option with no volatility is worthless. The black Scholes equation is the conventional way to value a stock option. Suffice it to say when the stock, when the volatility goes to 15, there's a little bit of optionality. When it goes to 60, there's a lot of optionality. When it goes to 120, you know, the options exploding in value. And let me give you, let me give you the practical value of it. If, if you had $1,000 or a million dollar, let's say a million dollars, you have a million dollars in the bank. Well, with zero volatility you can probably get paid sofr. So you're getting paid 4% to take the risk of holding dollars in the bank. 4%. When you hold that money in the S and P index with the volatility of the Vix or 15 you get, you might get paid 12 to 15% interest to take the risk of holding one share of spy the index. When you hold a share of Bitcoin via IBIT or a Bitcoin the volatility is 60. You might get paid 70%, 80% to hold that million dollars in Bitcoin and you're taking the downside risk, but you're getting paid that call rate when you hold a share of MicroStrategy. If you were holding a million dollars of MicroStrategy and you were selling the calls at with 120 volume, you could get paid 200% annual interest. You might not even know what it is. You don't know what Bitcoin is. You don't know what MicroStrategy does. All you know is that if you, if it's not going to zero in the next 12 months, someone will pay you 200% interest. So your break even point is six months, right? It's like if I can hold it for six months and it doesn't go to zero, I'm getting paid 200%, I'm getting paid my money back. My break even point is six months on something I don't understand. There was an options trader on television today, he was saying, yeah, I mean none of them really understand what MicroStrategy does. By the way, like understanding what we do takes an hour. Understanding what bitcoin does takes 100 hours. They don't know that. Here's what they say. While the share of stocks about $400 and we just sold a $700 call option for 180 bucks for one year. And so someone's going to pay us $180. And the worst case is MicroStrategy rallies and we'll double our money and we'll get taken out of the trade. But we're thinking that it'll, whatever it'll do unless it gets cut in half immediately and goes south from there. Even if it does get cut in half, we still made money. Right. So you, so this is indicative of your, your point, which is when there's enough performance and enough volatility, you don't just attract the smart money. You're. You can attract the bitcoin maxis, the people that have spent a thousand hours and their view is, hey, MicroStrategy is 2x Bitcoin. I'll buy it. Well, you might also attract the, the investors that say, hey, I don't know what it is, but it's up 120% a year for the past four years. Might as well buy the hot thing. But you may attract the volatility traders and they're like, well, I don't know what it is, but I trade volatility and it's got. And I need volatility. You can't trade dollar bills today for dollar bills in the future and make money off of that. So what, I guess it's akin to being you're in a crowd and everybody starts surging toward an exit. You're going to go with them or you're going to get trampled or you get caught up in the crowd. And that's a dynamic. But to be clear, that's not what I endorse. What I would say is bitcoin is the first perfect money, the first monetary instrument in the history of the world that is a properly engineered store of value. The second best money is gold. And the second best money has a half life of 30 years. And the first best money has a half life of forever. And so the first best is so much better. Of course, intelligent physicists, economists that understand physics, or capitalists that understand physics are going to discover that. And as they discover that, they're going to buy it and build an industry around it and recapitalize on it, and they're going to draw concentric circles of other investors that, that I basically channel billions of dollars into the bitcoin ecosystem, Tom, from investors that don't understand bitcoin, they just want to do convertible arbitrage or they want to do option trading. There are a lot of people that hate bitcoin and they come into the ecosystem because they just want to short my stock. So they short my stock and buy Bitcoin and create demand for Bitcoin, you see. So those are all secondary and tertiary investors. They, they have capital, they have money and they want to play some game, whether it's short, long trading, fixed income, people that have bought my bonds and they just wanted interest on the bonds and they indirectly funded Bitcoin. So my company is an actor to recruit other investors. Anybody else in the ecosystem is recruiting other investors. But the fundamental physics of this equation is this is the world's first perfect money. That's bitcoin the asset. And Bitcoin the network is, is the greatest global open capital network in the world. It is free digital capital, 24, 7, 365, 1500 crypto exchanges are plugged into it. And it is the number one source of credit, you know, and capital access everywhere in the world right now. And so that's why it is performing, that's why it's attracting capital.
- [60:13]
B
Okay, so what you've done with MicroStrategy I think is really fascinating. Let me explain it in a simplistic way. Tell me if this is accurate. What you guys have done is essentially replicate the financial markets with Bitcoin, which was, at least for a while, completely out of reach of institutional investors. So you could do calls, puts, bonds, like all kinds of financial instruments, but all with Bitcoin as the essential element. Is that correct?
- [60:47]
A
We issue securities backed by bitcoin. And the 500 trillion dollar capital market I'm referring to, they have to buy securities, they need option regulated options, they need regulated derivatives, they need regulated equity or they need regulated fixed income securities. That means it has to come from a publicly traded regulated company like MicroStrategy. And we are unique because we were the first company to build a large pool of Bitcoin as collateral. So if you actually accumulate $40 billion of Bitcoin, then you can issue these tranches of high performance equity or low risk fixed income instruments. And then all of the other traders, they can construct all of their various trades and all their derivatives based on those instruments. And they can do it on the NASDAQ or the CME or the New York Stock Exchange from their compliant institutions. And they could not buy Bitcoin and they cannot trade on crypto exchanges, they can't trade on Durabit or Binance, and they can't trade offshore. And they can't hold the underlying commodity either because it's illegal or because it's against their charter. And, and they promised their executives, their board of directors and their limited partners and investors that they would Only trade public company equity options, fixed income, convertible bonds. So that's what they do. That's what they need in order to function. And what, and what we do is we convert crypto capital, crude crypto capital, we convert it into refined traditional securities. And in the process, we strip away some of the volatility, we strip away some of the risk, we strip away some of the performance. And that stuff that we strip away, that they want stripped away becomes leverage for our common stock. And we give it to the company and the common stock shareholders. That's how we outperform Bitcoin. And that's why we're more volatile than Bitcoin, because we took the volatility away from the fixed income investors that didn't want it and we gave it to equity investors and derivative investors that need it. And we are just that gateway sitting in the middle, managing that.
- [63:23]
B
Okay, so many people speculated that when the spot ETF was granted for Bitcoin that MicroStrategy would not be relevant anymore. But that didn't come to pass. Why not?
- [63:36]
A
Because the ETFs are Sec 40 companies. That makes them investment trusts. And so a trust company is a special vehicle. It's constructed to own an asset and hold it in trust and not do anything other than hold it. So if what you wanted to do was buy a bar of gold, you might want to buy GLD or iau. Those are gold trust. And they're allowed to take your money and they buy gold and then the asset's dead money. It's a dead asset. Just, well, let's say a stationary asset in custody. And you have the shares. And if you were to sell your shares or redeem them, they have to then sell the gold and give you your cash back. So think of them as like overnight depository banks. I could have $100 billion in that bank. It's overnight deposits. I invest it in gold or soybeans or oil. And then when you want to redeem, I sell the soybeans and the oil and the gold, I give you back your money and I charge you 20 basis points fee every year. MicroStrategy is an operating company. We're regulated by the SEC 33 Act. An operating company can raise permanent capital. We can actually sell a billion dollars of equity to take risk. And so if I sell a billion dollars of equity and I buy a billion of Bitcoin, it's not an overnight deposit, it's a permanent investment. So you've got the equity forever and I've got the bitcoin forever. You don't have a redemption, right? You can't just show up and say, here, take my microstrategy shares back and give me cash. No, it's permanent equity and I have the bitcoin. So we don't have $40 billion of overnight deposits. I'm not a bank with $40 billion of somebody else's money that I got to give back, making 10 basis points a year. I'm a guy with $40 billion. It's mine, okay? Now if I'm a company or I'm an entity with $40 billion, I can go and I can borrow $3 billion from the convertible bond market for five years and agree to pay them 0% interest. But I have to pay back the 3 billion in five years in either equity or in cash. Okay? That's a risk they take. They give me the 3 billion. It's an obligation I take and then I take the 3 billion. By the way, if I took the 3 billion and I bet it on black in a casino and I lost it, I took a stupid risk, I lost your money. The equity holders are hurting. You know, I'm going to have to dilute the equity or come up with the 3 billion some other way, right? So I can do something irresponsible. You are trusting the management team of an operating company to not do stupid things. But let's say I take the $3 billion and I buy bitcoin with it. And let's say you're an equity investor and you just gave me your money and you like bitcoin. Well, what I just did was I just borrowed billions of dollars for free to buy the thing that you like. And if you think bitcoin is going down, you're not owning my stock for a minute. You're not long my stock. The only people that are long my stock are people thinking bitcoin is going up. So if, if you have any forecast for bitcoin, whether you think it's going up 3%, 5%, 50%, 100%, all circumstances. It's smart for the company to borrow money for free and buy bitcoin, right? It just doubles. It increases your performance. So operating companies, we can do things like I can borrow money from the convertible bond market and I can sell the. When I do that, I'm basically posting shares that are valued at four times the underlying bitcoin that I own. So if I were to do a billion dollar bond deal, I would be selling a billion dollars of securities backed by $250 million of Bitcoin I'd then buy a billion dollars of bitcoin. I would capture in the arbitrage $750 million of Bitcoin yield or bitcoin gain. The beneficiary is the common stock shareholder, right? The guy that bought MSTR stock. So I'm doing a cash. I just generated $750 million in like three days. You see? So you're saying, what is it that I can do that a trust can't do? They can't make $750 million in three days. If I go sell a billion dollars of equity and my equity is trading at three times the underlying asset, I'm selling a billion dollars of Equity backed by $333 million of Bitcoin. But I'm buying back a billion dol and I'm capturing $666 million in the arbitrage. So as an opera, if I were to go borrow a billion dollars and just pay 6% interest on a junk bond, well, then you're just getting a billion dollars of bitcoin. And if bitcoin goes up less than 6% a year, that was not a good risk. I would lose money on that. But if bitcoin's going up 60% a year, I'm going to scrape a 54% yield and I'm going to make, make, you know, $540 million a year for my shareholders by taking that swap. So I just gave you really fast. I want to.
- [69:22]
B
I want to anchor. I want to anchor this down for people. So when. When I think about what the stock market is and why the rich get richer and the poor get poorer, a substantive part of this is that this is an extremely complicated game that as many times as I've researched you and followed this, I'm just now beginning to put all the pieces together of how this all actually works. But there is this incredible opportunity that, you know, like you said, if you've got somebody that really understands the economics and the physics of it all, there's an opportunity that's staring everybody in the face. You guys have built in a layer that the way the analogy that you use of turning crude crypto money into refined capital equities, or equities. Excuse me. Absolutely brilliant. And so you guys have set up a. What I think of, and you didn't say one way or the other, if this felt right to you, but it continues to feel right to me, is you've taken a microcosm of the entire equities financial market. All the ways my words that People are able to bet on equities and backed it by bitcoin. Allowing people this incredible, again, my words, casino layer on top of bitcoin so that people can take the kind of risk that they're comfortable taking, that their, the governance bodies of their organizations force them to interface in that way. I mean, just absolutely brilliant. So now my question becomes, given the freakish success that you've had with this, that one, at least I look into the future and say, okay, this is going to keep going for a while. Were you shocked when Microsoft voted against and I know you were not presenting them to do the full casino layer, my words on top of the bitcoin. But were you shocked that even just getting them to think of recapitalizing in bitcoin was, was so soundly rejected? Did you just look at that and say, they're stupid, they don't get it. Like, what's happening.
- [71:21]
A
We say in bitcoin that bitcoin's on a need to know basis. So the people that get bitcoin get bitcoin because they need to. If you're wet, freezing to death, and you walk past a fire, you're going to stop, throw a log on the fire, and you're going to dry your clothes because otherwise you're going to freeze to death. You have a need to know it. If, on the other hand, you're a rich man and you have, you know, a massive ski chalet in Aspen with 10 people working for you and modern heating and air conditioning and a chef, you know, and three cars and a helicopter in the back, you know, and you've got a dinner party planned and you're walking past a little flickering fire, you're probably going to think, I should put it out. You know, I'm gonna, I'm probably gonna step on that, that fire because it looks like a threat to me. Microsoft is probably one of the five most successful companies in the world out of 50,000 publicly traded companies and 400 million private companies. They're not exactly the shivering, naked, starving dude running through the forest on the mountainside, right? They don't need it. It's quite optional for them, right? The people that discover Bitcoin are when you live in Nigeria and the bank or Lebanon or, and the bank freezes your assets and you're either going to starve to death and be bankrupt or you're going to have learned about Bitcoin. They have a need to know if you live in a hyperinflating economy in Russia or in Venezuela or in Argentina, you're going to know if you remember your family fleeing Nazi Germany in the 30s and losing everything. If that story's been told to you by your grandfather or your great grandmother, right, Then that resonates and you think, I think I'd like to be able to flee with my money, you know, when the government goes bad on me. So I think that the message of this is shareholders in a well run public company do whatever management tells them because they're not looking to pick a fight. And if you're an affluent investor in the first world, you're ingrained in your conventional wisdom and you don't have a need to know. It's not that you're not smart. I mean, the world's full of very charismatic and brilliant, hardworking, rich, powerful people. That is not the criteria for discovering a new technology. The analogy I give you here is Led Zeppelin, a bunch of teenagers and 20 somethings pick up electric guitars and they create Led Zeppelin and rock and roll. And there were probably some very genius classical musicians in Carnegie hall around the same time. And if you ask the music critics what they thought and the music professors what they thought and the classical musicians what they thought, they would said, you know, this will never amount to anything. This is, you know, this is bad for the society. Every generation gets a new set of technologies, right? You're a podcaster, but you know, 60 years ago, you know, as Walter Cronkite and it was a different media thing and 100 years before that it was William Randolph Hearst and a different media thing. And so Bitcoin is an opportunity for the new generation. It is the people that embrace new technology. They're either the youth, the 20 something to 30 somethings at the beginning of their career that have everything to gain, nothing to lose, and no, and no chance, by the way. No, no chance if they stick with conventional technology, right? It's, it's like my advice to you is don't create symphonies. You know, Mozart and Beethoven kind of did it, you know, piano, listen to Chopin. Between Chopin and Beethoven or Mozart, they kind of did most of the stuff people want to hear, right? And so if you really want to make a name for yourself, make fame and fortune, you pick the new technology, right? And then the other group of people that embrace new technology are people in a war zone, right? People dismiss. Remember World War I and we had horses and cavalry and like, oh, that doesn't work. And then people dismiss. The Air Force, the Air Force, they, they court martialed Billy Mitchell, I guess air power. That'll Never mean anything. And then people start, stop dropping bombs on your head and you become a believer in air power, you know, and so I think, I think the, the real phrase from Max Planck and he said it in the history of science and the study of science, he said science advances one funeral at a time. It's like the old guard doesn't have a need to know. They're going to reject it. The younger generation, they do have a need to know. And then, and then people that are under duress, that are fighting for their life, they, you know, maybe, maybe you'll start the war not believing in airplanes and not, and believing that we should fight with horses, you know, and swords. But you won't end the war with a general that believes that, right? You'll replace the first general with the next general. You'll scramble to embrace the new technology. And, and the side that embraces the new technology is going to, is going to win. The side that channels power most effectively is the winner. That's the story of history. But the other story of history is the people that got to where they are with a different technique. They become entrenched in that technique. That's part of their self image. I don't blame, look, you're the world's greatest piano player and someone invents an electric guitar and you're 70 years old and they say, what do you think about the electric guitar? And you're like, it's a brutish instrument, you know, for long haired hippies.
- [77:59]
B
When I talk to people that really understand Bitcoin, you go deep into those rabbit holes, you start getting people talking about how do we secure the network when we mine the last coin. So what's your take on that? How are, how are we going to secure it?
- [78:18]
A
Well, the network reward is a function of the block rewards of the miners. And they will continue between now and the year 2140. And the transaction fees. And the transaction fee economy is, is an open free market economy. If you want your transaction to be processed in the next 10 minutes, you have to be the high bidder. And there's only 5,000 slots. And so the most important 5,000 transactions in the world are going to get to the top of the queue based upon the transaction fee of the broadcaster. This is why it's important to have scarce block space. Because as long as the block space is scarce, the transaction fees will trend up over time. And as more people want to do more transactions, they will bid up the transaction fees. And right now they're a small fraction of the rewards. But I think 10 years from now, there'll be the majority of the rewards for sure. And I think by, you know, by 2035 and onward, most of the revenue that comes from the miners will be based on transaction fees. And transaction fees are a durable business model forever. I mean, every real estate company, you know, every financial service provider, they all work on transaction fees. I mean, it's, it's, it's fine. Like, I want to move a billion dollars from point A to point B. Would I pay 10 bucks? Of course I would. Would I pay a hundred bucks? Sure. If you wanted to buy a billion dollar building and take clear title of it in Manhattan, what do you think the transaction fees are on that?
- [80:05]
B
Right.
- [80:06]
A
I mean, you could spend a million dollars to move a billion dollar. You could easily spend 10 basis points. How about the last time you sold your house? What's the transaction fees to sell a house to someone else? And how long does it take, by the way? Right. So when you think about it that way, like if I could sell my house in 30 days and it was a million dollar house, would I pay 1, 2, 3, 4% interest and fees? Yeah, I would. If I paid 1% fees. I think that's cheap. Well, 1% fees on a million dollar transfer of bitcoin, right. That's going to support the network. So the beauty is, I don't think the transaction. I think bitcoin's always going to be 100 times to a thousand times more efficient to transact in than other instruments. But I do think there will be transaction fees. I think the fees will support the mining network and the mining will continue forever because there's always going to be stranded energy and there's always going to be stranded capital. And so if you're sitting at the edge of the grid and you have a dam in the Himalayas, well, you're going to want to run bitcoin mining with the dam and Himalayas because that's the highest bidder for your electricity.
- [81:27]
B
You're saying that'll get us to the end of the blocks themselves, but when?
- [81:32]
A
No, I'm saying that'll go on forever. I mean, the transaction fees will go on for a million years.
- [81:37]
B
I see. You're saying that there will always be somebody willing to do the work for the securing of the network based on that's the highest bidder for the electricity.
- [81:50]
A
There are no block rewards for selling houses. Why does, why does that, why is there a real estate industry? They're all based on transaction fees. Why do banks give you Mortgages because of transaction fees, you see.
- [82:04]
B
But what about gold? So when I think about this as a static thing that I'm using to store my capital, you just think that there's going to be enough, once it's global, there's going to be enough reason for enough people to be selling their long term capital assets at any one time that we're still going to have a constant desire to have those 5,000 blocks filled.
- [82:24]
A
I'm saying that the airlines operate on transaction fees and if people decided they didn't want to go from New York to Singapore, I guess there would be no airline from New York to Singapore. And I'm saying that if I have a billion dollars of capital and bank in Singapore wants to borrow that capital or they want, they want to lend me $1 billion of capital, I will be happy to pay a transaction fee to move it from their bank to my hands. I'm saying, why do Visa and MasterCard work? They charge transaction fees. So what I'm saying is everything in the finance industry runs on transaction fees.
- [83:09]
B
So I'm just, I, what I'm hearing you saying is that you don't have a question concern on that because ultimately you think there's going to be enough velocity of transactions that transaction fees are going to handle it. And anybody that's paranoid that there won't be enough movement, they're just incorrect.
- [83:26]
A
Of course, it seems obvious. It's like saying, well, how about every other service on earth, they all run on transaction fees, right? So what's the most important service you could offer? Right, this, the service of moving money. I mean everybody pays money, pays fees to move money. It's a massive business, right? Visa, MasterCard, the entire, the worldwide banking establishment, it's all based on fees, all of it. So yeah, I mean I think, I think when you get to the point where you have trillions and trillions of dollars of capital, then people are going to pay a fee to do the transaction. We do it now. When I buy Bitcoin, I have to pay a fee to receive the bitcoin. Then I have to pay another fee to move it in cold storage. If I ever want to sell it or if I ever want to pledge it, or if I ever want to do anything with it, I have to pay a fee to move it on the blockchain. So transaction fees are going to continue.
- [84:35]
B
That's it for part one with Michael Saylor. But trust me, we're just getting started. Make sure to come back for part two tomorrow. Until then, my friends, be legendary. When you manage procurement for multiple facilities, every order matters, but when it's for a hospital system, they matter even more. Grainger gets it and knows there's no time for managing multiple systems, suppliers and no room for shipping delays. That's why Granger offers millions of products in fast, dependable delivery so you can keep your facility stocked, safe and running smoothly. Call 1-800-GRAINGER Click grainger.com or just stop by Grainger for the ones who get it done.