The Bull Case for Bitcoin

MicroStrategy ( MSTR -5.74% ) is an enterprise software program and enterprise intelligence firm, and CEO Michael Saylor has put billions of his firm’s cash into Bitcoin and tons of of thousands and thousands of his private wealth into the cryptocurrency.

On this podcast, he and Motley Idiot co-founder Tom Gardner focus on:

• Bitcoin ( BTC 2.55% ) as a hedge towards an growing cash provide.
• Environmental implications of mining cryptocurrency.
• The safety of Bitcoin’s community.

To catch full episodes of all The Motley Idiot’s free podcasts, try our podcast heart. To get began investing, try our quick-start information to investing in shares. A full transcript follows the video.

This video was recorded on March 6, 2022.

Michael Saylor: I feel for those who’re on the lookout for one thing that will probably be round 200 years from now, the Bitcoin protocol and the Bitcoin community has by far a a lot better probability than Apple, Amazon, Fb, Google, any authorities, any asset, any property yow will discover wherever on this planet. Since you actually have put digital property and our on-line world for the primary time in human historical past. It is Manhattan in our on-line world.

Chris Hill: I am Chris Hill, and that was Michael Saylor, the CEO of MicroStrategy. Generally, we get pleasure from fairly steady buying energy right here in the USA. However current massive swings in main currencies spotlight the enchantment of cross-border shops of worth like gold and Bitcoin. The worth of each are up for the reason that starting of Russia’s invasion of Ukraine and the de-valuing of the ruble. Saylor has put billions of his firm’s cash into Bitcoin. Utilizing these purchases in tandem with inventory buybacks. He is additionally put 100s of thousands and thousands of his private wealth into the crypto foreign money. The Motley Idiot Co-Founder and CEO Tom Gardner, interviewed Saylor a year-ago and the dialog remains to be precious as we speak, beginning with the majority case for Bitcoin, from a billionaire whose placing his cash the place his mouth is.

Michael Saylor: Should you requested me about Bitcoin in February of 2020, I might’ve stated what, I do not know, it isn’t for me, I do not get it. Should you’d requested me what I considered enterprise in April of 2020, I might’ve stated that is simply the scariest factor I’ve ever seen in my profession. Mainstreet shutdown and Wall Road’s already recovered and the cache shaper it is simply very odd. By the point we obtained it within the second quarter, what we knew was this, our income wasn’t going away. Our enterprise worth proposition was higher than ever. We’ll generate 4 instances as a lot money stream as a result of all of our advertising, gross sales, and providers actions dematerialize, journey on bills dropped by 98 p.c and we began to Zooming all over the place, we began importing movies to web sites. We had all this money coming. We had a block of $0.5 billion of money sitting there and we obtained dragged within the macroeconomics we realized there was nugatory. I do know traders did not worth it and so we had an issue and we began on the lookout for an answer. I might say Tom, the paradigm shift right here is two-fold. 

The primary paradigm shift is for the primary time in 30 years, individuals within the western world live in environments the place the foreign money is weakening greater than seven p.c a yr, it is weakening at 15-20 p.c a yr. That is the primary paradigm shift as a result of that adjustments the way you low cost bonds, the way you low cost worth shares, the way you low cost industrial actual property, and you bought to assume totally different. The second paradigm shift is Bitcoin’s the primary digital monitoring community within the historical past of the human race. We by no means in 5,000 years might earn cash work on a pc community and it wasn’t clear it was going to work when it was a billion {dollars}, however by the point we obtained to June, it was $200 billion and also you guys comply with digital networks, Fb, Amazon, Apple, Google. Each good concept for the previous decade has been a digital community and after they get to 200 billion in market cap, they’re fairly exhausting to cease. Our conclusion was, that is like Fb for cash or YouTube for cash and we jumped on it as we speak. It is a trillion-dollar digital community. It is the quickest development towards to a trillion {dollars} of any community within the historical past of the world for 12 years. Google took 22 years, Amazon took 24-years, Apple took 42 years, Microsoft took 44 years. These are the one corporations have ever performed it. Bitcoin has performed it, and so the paradigm shift is digital monitoring community, an answer to everyone’s downside and COVID lockdowns, everyone’s obtained an issue. You set these two issues collectively. You must assume totally different, and that is why we did what we did.

Chris Hill: Placing your shareholders cash right into a cryptocurrency might sound, amongst different issues, uncommon. However this is why Michael Saylor did it.

Michael Saylor: We’re not loopy. The purpose is, it is the world’s first digital treasury asset. There’s $100 trillion value of treasury belongings which are unfavourable yielding debt or zero-yielding debt or money and that is like an belongings minus 15 p.c actual yield. All of the bonds are damaged, all of the treasury methods are damaged. That is the answer to $400 trillion value of traders issues. They’ve all obtained the issue. It is a answer to 7.8 billion individuals’s downside. They’re all producing salaries in money, which is debasing at 15 p.c a yr, and it is probably the most disruptive expertise in our lifetime. I have been in your present, you had made speaking to you about eight years in the past speaking about Apple and Amazon. Should you recall, you may in all probability pull the quip. I invested $50 million in Apple and Amazon 9 years in the past, I made $500 million off of it. It is a ten bagger. Not that arduous. I am not pleased with it. All I did was purchase these digital networks when 99 p.c of the individuals did not agree with me after they had been unstoppable, and I waited. I swore to myself if I ever noticed one other one, I would not simply do it personally. I might put my firm into it. We bumped into the most important disaster of our profession in 2020, I had 500 million in capital. I noticed digital community, which I feel is 100 instances higher than Google or Fb. It is Fb for cash.

Tom Gardner: We play a sport right here on Motley Idiot Dwell, and we have performed all of it the best way again to our radio present on NPR and earlier than, and the sport is what occurs, and we take each side of what occurs. Right here we’re going to play the hypothetical with you. Three years from now, Bitcoin is buying and selling at $250,000. What occurred?

Michael Saylor: It in all probability grew slower than I anticipated. There in all probability some black swan unknown occasion stunted its development and it is grown so I recognize a slower and you then would count on it to, however that is in all probability what occurred.

Tom Gardner: I do not know for those who’re going to have the ability to generate a situation there on the draw back, three years from now, Bitcoin is $4,000, what occurred?

Michael Saylor: It may be a black swan, a crusing asteroid hits it. A rational, trustworthy individual cannot low cost an unknown so I get it. Proper now I feel it is a trillion greenback dominant community that is 100 instances greater than the subsequent neatest thing prefer it. It is about as prone to Bitcoin disappears as it’s the Google disappears in 36 months.

Tom Gardner: Some have described Bitcoin as a verify or an analysis of presidency spending world wide, so why would governments enable that to occur? What do you see as the danger on the regulatory facet?

Michael Saylor: An important factor to know is, though individuals name it a cryptocurrency, it isn’t. It is crypto asset. Cash has two flavors. It is obtained the medium of alternate foreign money ingredient and it is obtained the shop of worth asset ingredient. Bitcoin is a good retailer of worth, digital gold. What is the addressable market? 100 to 200 trillion {dollars}. Half of all of the stuff that floats across the system is retailer of worth. Folks simply need to hold their cash endlessly. The opposite facet of foreign money is, I need to purchase a few espresso a billion instances a day. Persons are going to do this with {dollars} and yuan and yen and euros and Chinese language foreign money. They’ll do it on Apple Pay and Visa and MasterCard and Sq. and each different regulated cost rail. The federal government, so long as it capabilities in China, the US, or Europe goes to manage the foreign money, they usually’ve given a tax therapy. Once I offer you one million bucks or a 100,000 and also you give it again to me a yr later, there is not any capital achieve tax on it, it isn’t a taxable occasion. It is sensible to make use of {dollars} as foreign money. 

However, Bitcoin is property. It has been legitimized as property by the IRS, by the SEC, by the OCC. It is not going away. It is not going to be foreign money within the US, it isn’t quick sufficient and the tax therapy is hostile. It’ll be property. To the extent that individuals purchase it from regulated custodians topic to AML or KYC rules, and banks like Morgan Stanley the place they’re shopping for it now from gamers like Constancy. The federal government goes to be sure that it has the identical AML KYC regs and readability that gold or silver or shares or bonds or some other spinoff instrument would have. It is not threatening to a authorities if I am swapping out my gold for Bitcoin. It is threatening to the federal government for those who can transfer a billion {dollars} to a non-public pockets in Sub-Saharan Africa with out KYC AML. You possibly can count on that they’re going to have regs across the latter and that is completely superb. As they make clear these much more, it is simply going to be bullish for the asset class, as a result of that is the inexperienced mild for each insurance coverage firm in endowment to purchase a 100x greater than they purchased to this point.

Tom Gardner: Industrial advisor and analyst, Motley Idiot Invoice Mann wrote that cryptocurrencies in Bitcoin as designed, violate the defining problem of reducing the affect of energy consumption. What concerning the environmental facet of Bitcoin?

Michael Saylor: Folks do not perceive that very effectively. Initially, 99.97 p.c of all the facility used on this planet is utilized by different applied sciences, principally twentieth century applied sciences. The power depth of these applied sciences is 10 p.c. Principally about you place in a dime and also you get out of greenback value of value-added and you’ll take a look at that all over the place. The final three foundation factors, 0.3 p.c of the facility on this planet is used to energy the Bitcoin community. That energy is used to safe a trillion {dollars} value of cash at a price of capital of 20 p.c, that is value $200 billion a yr. It is two billion to a few billion in energy. You are speaking about power depth of 1 p.c versus 10 p.c. It is extraordinarily environment friendly. The ability that use, which is a thimble fall, is on the fringe of the facility grid. It is reclaimed power usually like 2 cents a kilowatt-hour. Each human being in industrial utility pays 11 to13 cents a kilowatt-hour to get electrical energy. So the one energy that is getting used within the community is both inexperienced power, stranded, recycled power. It is crops and capital that will in any other case need to be destroyed. Bitcoin is serving as a world financial battery to reclaim that stranded power or keep away from the capital destruction that will ensue in any other case. 

Must you come throughout geothermal power of the North Pole or a waterfall in Sub-Saharan Africa, or wind that is someplace on this planet that generates infinite renewable power, you can not monetize it in conventional networks since you’ve obtained a 500 mile radius the place you’ll be able to transfer the power and also you lose eight p.c to do it, and batteries lose two p.c of the power a month. What’s your alternative? Your technique or mechanism is you flip that stuff on, you plugging right into a Bitcoin miner, as a result of Bitcoin is an ideal battery, and you’ll drop a billion-dollars of power in a Bitcoin community and maintain it for a 100 years, no energy loss. So Bitcoin might be probably the most environmentally pleasant factor we now have on this earth. It is actually one p.c power depth, and it is going towards 0.1 p.c power depth. As a result of when you get to $10 trillion to $20 trillion of belongings on the community, you have obtained a price and use of two trillion a yr towards what, 4 billion in power? We by no means got here up with a greater use of power than retailer all of the world’s cash. That is fairly good use.

Tom Gardner: How sure are you that the provision cap is impenetrable, unchangeable?

Michael Saylor: I am sure. Look, that is the world’s most profitable decentralized community. It was constructed to be exterior the management of a CEO, an organization, a regulator, a rustic. You could not make sure of it within the first yr or two years. It is just about the superbly designed crypto asset community. You simply obtained to attend 12 years and see will it’s hacked, will it’s banned, will it’s copied? When it was 1, 2, 3, 5, 10 billion {dollars}, I could not ensure. However that was 2012, 2013, 2011, 2015. Right now you may have a trillion {dollars} of financial power in a community extremely decentralized all over the place on earth. There’s no person that may change this factor at this level. The fork wars have been fought. You may see the blood on the road, and it is all been determined. Think about everyone on earth with a trillion {dollars} and also you present up and you are like, I simply need to steal your cash or [NOISE] it up. 

Good luck with that. You are going right into a nest of hornets; it is simply not going to occur. In truth, it is the one factor I see on this planet that I’ve an affordable expectation that it’s going to proceed as an intact community and a protocol for 100 or tons of of years. I feel for those who’re on the lookout for one thing that will probably be round 200 years from now, the Bitcoin protocol and the Bitcoin community has by far a a lot better probability than Apple, Amazon, Fb, Google, any authorities, any asset, any property yow will discover wherever on this planet. Since you actually have put digital property in our on-line world for the primary time in human historical past. It is Manhattan in our on-line world. Hundred million individuals stay there as we speak. A billion individuals will stay there inside 5 years. Inside 10 to fifteen years, I feel you will see 5 billion individuals. It is actually simply a rare factor. Why would not you need to personal considered one of 21 million metropolis blocks within the Manhattan of our on-line world.

Tom Gardner: I pressured you into hypothetical sport about what would occur on this situation, in that situation of Bitcoin. What do you assume will truly occur? What are your projections or what’s your general perspective on, as an instance, Bitcoin wherever 5 to 10 years out from as we speak? I assume you absolutely anticipate holding your place and or including to it right here over the subsequent 5 to 10 years.

Michael Saylor: My view is Bitcoin is the apex property of the human race. Which implies that it is the very last thing you’ll promote. Should you owned a block of Manhattan, you’d maintain it a very long time since you thought Manhattan is at all times going to be precious, however Bitcoin is best than Manhattan. So it is the last word long-duration asset, or in different phrases, an institutional grade treasury reserve asset. You ought to purchase it and maintain it and for those who ever want money, simply borrow towards it.

Chris Hill: The volatility of Bitcoin is well-known. Previously six months, the value of 1 Bitcoin has surged above $67,000 and fallen to about $35,000. However right here is Michael Saylor isn’t frightened about that volatility for the long run.

Michael Saylor: I am not terribly involved with the volatility. I feel there will be accelerations and pullbacks, however the establishments are collaring it on each side. The capital was not shopper leveraged capital of day merchants. The capital proper now’s insurance coverage firms, huge public firms. We’re coming in to purchase it endlessly. Ask me when I will promote it? By no means. I am not going to promote ever. The narrative has rotated long-term institutional deep pockets and asset class has matured, and naturally, the legislation of huge numbers say a trillion greenback entity has extra inertia to it than $100 billion entity, and what do I count on to occur? I count on it should develop aggressively towards gold and it’ll flip gold, after which it should demonetize gold and subsume gold and possibly they’re going to be first $10 trillion and gold is 10 trillion, then it’s going to be 20 trillion and gold will probably be 5 trillion or 4. Gold will finally change into a decorative metallic. Bitcoin goes to suck the financial power off of unfavourable yielding bonds. Tom, I ran a survey on my Twitter, I obtained 65,000 responses two days in the past, I requested individuals the place do the cash come from used to purchase Bitcoin? Forty 9 p.c is shares, 20 p.c is gold, 10 p.c is bonds, 19 p.c is property. 

Principally, shares are going to be unfavourable yielding in case your worth shares as a result of they cannot sustain with the speed of financial growth. Everyone is aware of bonds are destroyed. Ray Dalio simply informed the world they’re all unfavourable yielding. By the best way, he thinks they’re unfavourable yielding versus CPI. The true level is that they’re unfavourable yielding versus the price of capital or the speed of the financial provide growth, which is like 15-25 p.c a yr. They’re screaming worth destroyers. So I feel that Bitcoin goes to 10 trillion and it goes as quick as it will possibly after which it grows 50, 60 p.c a yr towards 100 trillion and it slows down from 200 to 150 to 100 to 80 to 60 to 40. You noticed Google and Amazon rising at 20 p.c a yr off of huge numbers persistently for the previous 5 years. I feel when it will get that huge, it’s going to be rising 20 p.c a yr and finally it’s going to subsume the full adjustable marketplace for treasury belongings after which will probably be rising at an natural fee, 5, 6, 7 p.c of truthful cost-to-capital.

Tom Gardner: Sadly, we solely have two minutes left as a result of I am totally having fun with this. Thanks a lot for sharing your perspective right here with all of our Fools. Let’s discuss actual rapidly, rapid-fire about different cryptocurrencies and NFTs. Different cryptocurrency, do any of them curiosity you? Dogecoin, anything on the market or it is all Bitcoin on a regular basis for you?

Michael Saylor: Bitcoin is the world’s greatest treasury asset, it is a 100x greater the subsequent factor, the danger is 1,000 instances lower than the subsequent factor, the addressable market is 100 instances greater than it’s proper now. It is its personal factor. Every little thing else within the crypto universe is enterprise capital. When you’ve got a enterprise capital portfolio, when you have the wherewithal to put money into crypto ventures and also you need to research it. Nicely, for my part, they’ve 100x much less addressable market and they’re 100 instances extra difficult. However if you wish to do this and you’ve got the capital to do it, have at it. If what you need to do is simply purchase a bar of digital gold and wait, Bitcoin is best than gold on an enormous tech community, you simply purchase a bunch and also you wait.

Tom Gardner: Is there any cause to function MicroStrategy on condition that? Given the potential or I bear in mind Pat Reilly, the coach of Los Angeles Lakers saying at one level that the gamers gathered and stated, why are we spending a lot time practising? It is carrying us down and he realized perhaps they’re proper. He arrange a construction, I imagine, the place in the event that they received, they might outline how a lot follow they wished to do the subsequent day. That down to love 10 minute practices and the idea Lakers after they received these championships was much less work, extra reward and is not Bitcoin probably arrange so that you can get great reward with out a lot effort. So why not the working enterprise in any respect?

Michael Saylor: Nicely, initially, we have got two methods. One is we run enterprise software program and we earn cash and we like it and we have been within the enterprise for 30 years and our prospects want us and we’re good at it. It simply occurs that we’re not rising 200 p.c a yr. However there is not any disgrace. Are you going to disband your loved ones? None of these sports activities groups earn cash, however like so why even personal a sports activities crew? The reply is since you like it and is gorgeous factor. No sports activities crew grows 200 p.c a yr both, Tom. Here is the true existential difficulty, if we eliminate every little thing on the human on earth that is not rising 200 p.c or 100% a yr, it is not rising quicker than Google and Fb, there’s not a lot left on this planet, proper? We’ve got two methods, one is we will purchase and maintain Bitcoin and that is a 200 p.c digital asset community rising and we like it and we made some huge cash. 

We made three billion {dollars} doing that previously six months. However that provides us the flexibility to do the opposite factor we love, which is create nice enterprise software program and to proceed to promote that and develop that. Simply because the 2 companies do not develop on the identical fee doesn’t suggest we do not love them each, and there are loads of synergies to really having an working firm that has a P&L technique tied right into a steadiness sheet technique. So we will hold doing them each. We’re joyful about it. By the best way, it is lots simpler to do the enterprise software program firm when the inventory is shifting up and when each buyer on this planet is aware of who we’re, it is helped our advertising, it is helped our buyer relations, it is helped our worker relations, it is helped our recruiting and they also’re very synergistic.

Tom Gardner: Nicely, I need to thank all of our members on the market for feeding questions in, they’ve helped to border the questions I’ve requested Michael right here. Thanks a lot for that, Fools. Michael, only one final rapid-fire question-and-answer from you. Let’s simulate any individual who’s 62 years outdated, they have a $500,000 portfolio to take a position. What proportion of that portfolio would you place in Bitcoin versus equities versus some other alternate options that they could be contemplating as they’re heading towards retirement. So they’re taking a look at “I am not going to have perhaps earnings after age 65 and I obtained a half million, two million {dollars} portfolio,” what proportion would you place in Bitcoin?

Michael Saylor: Tom, I feel the one most necessary factor you are able to do is estimate the annual fee of cash provide growth yearly for the subsequent eight years. Should you consider that, 15 p.c going to 10, going to 5, going to 2, going to zero, then you are going to stick towards a conventional portfolio. However for those who assume that cash provide growth goes to be 15 p.c constant, then you have to go to scarce belongings. Backside line is I do not assume bonds or actual property work as a retailer of worth in a financial inflation atmosphere as a result of one is a coupon and the opposite one’s pegged to CPI or capped at CPI. I feel that worth shares, you have principally obtained to put money into an index of equities which are going to develop otherwise you obtained put money into scarce belongings. If the expansion fee of the cash provide is 15 p.c, you higher discover a portfolio of fairness that is going to develop 15 p.c or higher if you are going to retailer worth in it. 

In any other case, I might put money into trophy belongings, purchase your home on the seashore that you just need to stay in the remainder of your life, as a result of that may at all times be precious to you. With leverage, I feel you purchase scarce digital, in all probability like Bitcoin. You purchase one thing {that a} wealthy individual goes to need to purchase from you in a decade. Ask your self that query. I am not shopping for your New York municipal bonds yielding two p.c in a decade, and you are going to get a unfavourable 15 p.c actual yield. I might assume when it comes to that trophies, equities, after which scarce belongings and clearly I am biased, I feel Bitcoin is the very best property on this planet. Determine what your threat tolerance is for it, purchase that a lot of it after which diversify the remaining throughout different issues and also you’re snug with.

Tom Gardner: Michael Saylor, thanks a lot for the 30 plus minutes. Hopefully we’ll get you again on Motley Idiot Dwell. You are positively any individual who’s doing what we strongly imagine within the Motley Idiot and that’s getting pores and skin within the sport behind your beliefs, having conviction, and attempting to show the world. Thanks a lot for the half hour and better of luck with you with MicroStrategy and past.

Michael Saylor: Thanks, Tom. I’ve obtained the area, hope.com. I put all my Bitcoin data on it. Bitcoin is hope, if you’d like extra data, attempt that. In any other case, thanks to your time. I recognize it.

Tom Gardner: Hope.com. Thanks, Michael.

Chris Hill: That is all for as we speak, we’re developing tomorrow, we’ll speak about how one can construct an funding thesis by the lens of a preferred language studying app. As at all times, individuals on this system might have curiosity within the shares they speak about and The Motley Idiot might have formal suggestions for or towards. So do not buy yourselves shares primarily based solely on what you hear. I am Chris Hill. Thanks for listening. We’ll see you tomorrow.