Michael Saylor & Microstrategy adopt The Bitcoin Standard
Saifedean Ammous: Hello, welcome to The Bitcoin Standard Podcast seminar. In today’s special seminar we have a very special guest, Mr. Michael Saylor, the CEO of Microstrategy, a publicly traded company that has just announced the purchase of more than $400 million worth of Bitcoin, to use as their primary treasury asset. Mr. Saylor has very gracefully and thankfully accepted my invitation to come and join us in this seminar so we can discuss his company’s move and how it relates to Bitcoin and The Bitcoin Standard, seeing that he publicly said this was an attempt to put his company on a Bitcoin standard. So I think we’ll hopefully find a lot to discuss, and a lot of common ground. Thank you so much Michael for joining.
Michael Saylor: Thanks for having me. I appreciate it.
Saifedean Ammous: Thanks a lot. So, from a selfish perspective, and from the perspective of many other people in this seminar, I guess we could probably begin by asking you: we know that you’ve read The Bitcoin Standard, but what did you think? What were your impressions?
Michael Saylor: Well, I will say that I read the book, it blew my mind, and I thought that you put together all of the technical and economic, motivational, and related issues better than anything that I’ve seen. I guess the best compliment I can give you is I read your book and I invested $425 million in Bitcoin. But actually, you know there’s some people that read about Bitcoin and they decide they’re gonna buy some, and there’s some people that read about it, you know, first it’s a speculation—I’m gonna buy some, and then some people read and think, I’m gonna buy a lot, and some people read about Bitcoin and they think it’s cool technology, and they wanna get on the train. I think that The Bitcoin Standard is amazing, because it got me over those hurdles to realize that it’s not really about buying a lot, it’s actually about inverting the balance sheet of the company. What we were doing was that we were inverting the balance sheet such that we’re floating on a Bitcoin sail, on a crypto sail if you will, and as the liquidity and the monetary system gets pumped up, we want it to float, rather than sink, on that pool of liquidity. And I think that lots of other people in the Bitcoin industry have written a lot of stuff that is very interesting, but I thought that your book put it all together in a very compelling way. And so, it was probably the most impactful of all the stuff I’d looked at on our way of thinking.
Saifedean Ammous: Well thank you very much.
Michael Saylor: I liked the book, it was a work of genius. Ok. Good.
Saifedean Ammous: Thank you.
Michael Saylor: It shattered my illusions about money. At the point in the book where you say that in the last decade, the monetary system has been expanding by 7% a year: I think we’ve been conditioned to think, well, 2% inflation — therefore 2% monetary expansion, and it never registered with me that even in normal times, you were getting 7% monetary expansion, or 8%, and then once I saw that, it all clicked for me, and I realized that a lot of the problem that we had was we were sitting on too much cash, and if you have $500 million in cash, and you make $500 million in operating income every year, then you have $35 million in after-tax cash-flow, which is equal to 7% of your cash balance, which meant that our asset purchasing power was deteriorating as fast as we were generating income, and we weren’t gonna get ahead, no matter how hard we worked, and it was a big epiphany. And that was before 2020. Obviously, after 2020, things changed.
Saifedean Ammous [04:40]: Yeah. I was really intrigued by your discussion with Stephan Livera in his podcast on inflation. It’s a drum that I’ve beaten for many, many years. But I thought your idea of saying that inflation, that there are three types of goods within an economy: (1) the goods that drop in price every year — technology, and goods that require heavy or high initial costs, initial fixed costs, and then low marginal costs — these tend to decline in price, and then you have (2) the goods that rise at a small rate—labor and land, basically undifferentiated labor and land if you want, not the most skilled labor and not the most desirable land and property — these things appreciate at around 1%, 2%, 3% every year, and then there’s (3) the desirable, truly scarce things that people compete for, and these are the things where the inflation is 6%, 7%, 8% and maybe even up to 20% a year. And I think that was really an eye-opening way of thinking about it and I had not thought about it before. I’m wondering if you’ve written something about this somewhere, or if you’ve come across it somewhere, because I think it’s a very useful framework that I intend to use in my next book, so where do I cite that?
Michael Saylor [05:56]: The truth of the matter is, again it’s back to this propaganda rule: we can’t tell people what to think, we can tell them what to think about. If we keep repeating, “Inflation is CPI…CPI…CPI,” and then everything’s CPI — we didn’t get 2% — oh, there’s no inflation — everybody’s waiting for inflation.
The big misconception is that a number is a scalar, and of course, anybody in engineering, if you’re studying fluid dynamics, there’s not a number. It’s a vector. And a vector could be a stack of — if I stacked up a hundred different things I can give you a hundred different inflation rates. And I could give you a two-dimensional vector. And I could give you a three-dimensional vector. And vector calculus, and fluid dynamics — it gets pretty complicated.
If I said to you, Look at this swirl of the water in a whirlpool, and you asked me, well what’s the velocity of the water? I would say, Well it depends—it’s a vector. It depends upon which component you pick out. So the truth is, I bought into the lie of CPI until I read your book, Saifedean. And then at that point it was like, Oh it’s going up 7%. And then I thought, Wow, everything that I really want to buy is going up.
You know, my MIT education went up more than 2%, healthcare goes up more than 2%, I’ve got a house on Miami beach on two acres, cost $100,000 in 1930, it would cost you $20 million today. You know, it didn’t go up 2%. And then I started thinking, Well, everything’s scarce, and then I thought, Hampton’s real estate doesn’t go up 2%, Manhattan real estate doesn’t go up 2%. And then it tripped to this horrific observation that a $1 million bond yields $50,000 in 2010, and then a $1 million bond today gives you $5,000. So a bond went up by 1,000% in ten years, and then you back solve that — that’s 22% inflation per year in the last decade, and that’s before we hit the financial crisis.
And then I realized, the inflation rate is the thing that you choose to track, so we know that — when I wrote The Mobile Wave in 2012, my thesis was, mobile networks are dematerializing products and services. And that means, if you dematerialize a camera, or you dematerialize a photo, or you dematerialize a DVD or a CD or a tape recorder, and on your iPhone, you’ve got a tape recorder, and you’ve got a camera, and you dematerialize a credit card, I mean all these things they’ve dematerialized, they’re deflationary and they’re going to zero.
And the reason Apple’s the most valuable company on Earth is because they can ship a dematerialized product to a billion people for a nickel. There’s never gonna be any inflation if you wanna measure that — put that in your market basket — because there’s no variable cost. And then you just have to come up with a vector of all these things, and of course, What’s got a variable cost? Well, if I give you a piece of paper that gives you the right to never work again the rest of your life and have as much money as you want? Would you like that? That’s scarce — that’s going up.
Because Apple can’t dematerialize infinite power and money forever. And that’s what Bitcoin is, right? Power and money forever. So what happens? I mean, you point out in your book, and I read all your papers after your book — you kept me up late, Saifedean, the last two nights. And I’m reading, Anything that goes up in price, mankind can manufacture, given enough time and money, and chemistry.
[09:56] So you think well fracking, right? The solution to the oil crisis was not to go to war in the Gulf. The solution to the oil crisis was: Let the price of oil go up. And when the price of oil got to $100 a barrel, then Wall Street raised $50 billion worth of capital, put it into fracking, invented fracking and doubled the oil production in the United States, and the problem that was a hundred-year-old problem that everybody kept talking about—the scarcity of oil — became a non-problem.
So, the real question is, across all this array of products and services, you know, you want your nails done? You want your hair cut? You want caesar salad prepared table-side? Caesar salads table-side by a person with a tuxedo with a nice hair-cut, that’s polite and speaks your language? It’s gonna be more expensive. So the real issue is, can I manufacture with a robot — by the way, if I can, what’s the variable cost? And as the variable cost falls, and as the capital intensity increases it becomes less deflationary and of course, the companies that are worth more money than God right now?
Microsoft, Apple, Amazon, Facebook, Google, all have the same thing in common: they’re manufacturing products and services with a zero variable cost.
[11:41] If everybody at Google went on vacation for the rest of the year, and didn’t show up to work — every single one of ‘em — you probably wouldn’t notice. Like, YouTube would keep working, Google would keep working, there’s not a single person involved in the delivery of the value proposition. The only thing they’re doing is creating the next version of the information factory.
So you would notice in 2021 when they don’t add a new feature to YouTube, but in fact the variable cost of Google is electricity and data — it’s the data center, it’s the electricity and the server spinning. So, you know really, once you come to that conclusion there’s a vector — let’s just make it a one-dimensional array.
I described three buckets, but Saifedean the really interesting thing is, would anybody have guessed that the most inflationary, the best asset is a government bond yielding 3% interest. That seems the stupidest thing you could possibly buy, right? If you’re a rational person. But the long bond index went up by 22% this year. So, you’ve got 25% inflation, S&P can show you 8% inflation, I can find you, you know, New York, Manhattan — you want a penthouse on Central Park that’s 8,000 square feet with a perfect view? Seems kind of scarce. It is scarce but if you go to $100 million and Ken Griffin offers $100 million, they will build you a hundred-story skyscraper on a pad—and they built a bunch of ’em on Billionaire’s Row — and they’ll sell you one apartment for $100 million. At a certain price, and there’s floors 20, 30, 40, 50, 60, 70 — there’s a lot of scarcity if you build up.
So, there’s an entire theory of inflation, everybody says, Well you’re only inflating 2% a year or 3%, well asset inflation is a vector too. S&P went up 8%, bonds went up 20%. That’s a vector. You know, gold didn’t go up as much, right? So gold was an asset that inflated differently. So once you’ve done that, now there’s a concept we’ll call Cost of Capital. [14:35] I’ve got $500 million in my treasury: what’s my cost of capital? Well, you’ve gotta norm it against the asset inflation rate of something. I could peg it at 8%. It’s a simplistic notion. It’s definitely not 2%.
But of course, now every product and service as defined has an intrinsic buoyancy. Everything has a buoyancy, so there’s a multiple: the Fed prints a trillion dollars. Bonds inflate immediately. Stocks to a lesser extent. Gold to a certain extent. Farmland to a lesser extent. Luxury real estate in the Hampton’s? A lot. But real estate in Ohio? Not so much, right? Hair-dressing and restaurants, not. So they talk about the Cantillion effect, being close to the money. But there’s an entire array, a vector of coefficients you can calculate, and it’s a function of the construction of the product. Because the construction of a caesar salad next to my table is very labor intensive, capital intensive.
The construction of a 30-year bond is something altogether different. So really, the K-shaped recovery we see is: half the world is sitting on top of financial assets that are floating on the pool of liquidity. Are you heavier than water? Or are you lighter than water? You want a simple thing? It’s like, Yeah, I told you there’s a flood coming and everybody’s gonna drown, you’re gonna be under a hundred feet of water — what would you do? Build an ark, right? So you build something that floats, you have to weigh less than the water. By the way, if I take block of granite or a block of concrete, it’s 30% buoyant, so if it weighs 1,000 pounds, it acts like 700 pounds under the water. If I want to really hold something down underwater I drop lead. Lead’s denser.
Maybe that’s the theory: What’s the economic density of any product or service, and how does it respond when you blow liquidity on it?
And a chemist would say, well everybody’s got a different coefficient. And the economists want to tell you that everybody’s coefficient is the same. And then they just want to pick everything with a low inflationary coefficient, and they want to put that in their basket and they want to measure it. And the horrific observation I think you’ve made is, if I have the ability to re-balance the market basket, there will never ever be inflation, ever. You know, we had 22% inflation in the bond for a decade before COVID, and the world thought there was no inflation. There’s no inflation if you wanted a pizza, but if you wanted to retire at age 30 and work on your art or your writing or go to school or take care of your family, that inflated 22% a year.
The American Dream, I’m using a cliché, you know, retirement, that was inflating at 22% a year running away from you while the pizza was flat. The bottom line is: No I didn’t write anything. You’re the writer. You are the best writer in the entire industry, Saifedean. Let me say, like, I put the $400 million, the money, into Bitcoin because I kind of went down the rabbit hole and figured it out. But I actually, in a sneaky way, I maneuvered not just to say we were speculating Bitcoin or holding it as an asset or investing in it. I made it a treasury reserve asset, and then I had to—we went through a tender offer where we had to let the investors decide whether they liked that idea or not like that idea. When we bought $250 million worth of Bitcoin we agreed to buy $250 million worth of our stock back.
The stock was trading at $120, we tendered at $140. So I’m inverting half the balance sheet, and the other half — I had $500 million that I didn’t need for working capital. So we took half of it, put it in Bitcoin. The other half, we said, Look if you don’t like this we’ll buy you out at a premium. We waited 20 days. The stock traded above the tender price. We got $60 million tendered to us. I have $175 million extra, and some change. What am I gonna do with that?
Saifedean Ammous: More Bitcoin!
Michael Saylor [19:36]: Well, first I’m gonna call a board meeting. Because the next thing I’m gonna do is get the board to adopt the fact that, No, we didn’t just agree to buy $250 million worth of Bitcoin, we’re gonna actually implement a treasury policy. The big idea, the Bitcoin Standard, for a corporation—and I think we could be a model — is: we do business in 25 countries. In Yen in Japan, we have working capital in Japan in Yen, in Won in Korea, in Euros in Europe, in Pesos in Argentina, in Real in Brazil, in Dollars in the US. We were on a Dollar Standard, we had a bunch of USD sitting all around in USD accounts.
Our working capital was $50 million a year — maybe I can convince my CFO we’ll need less, we’ll see, but we have about $50 million in working capital in our operating accounts, we had $700 million worth of other stuff, we started buying our stock back, and then we started thinking about the Bitcoin standard, and the conclusion is: You sell products and services in fiat, you hold operating accounts in the local fiat accounts — that’s your working capital, you sweep your excess working capital into your treasury, you convert your treasury into Gold, if you’re on the Gold Standard, or Bitcoin, if you’re on the Bitcoin Standard.
In the future, should you ever need to purchase property, purchase products or purchase services in excess of your operating accounts, you convert your treasury back into fiat, in the currency you need. If you’re generating cash positive, if you’re making $50 million a year, you just keep sweeping $50 million a year into your treasury. Then you have a choice: Do you buy your own stock, or do you buy Bitcoin? Well, our treasury policy is: We do one or the other subject to market conditions.
The outside investors would say, Why don’t you just give us the $500 million back? Well, if I give you the $500 million back I de-capitalize the company, it’s like you giving all your life savings to your favorite charity. Well you’ll feel good for a while, but if you lose your job, your children will starve. And if you care about your children, if you care about your customers, your employees, your counter-parties, your integrity — I signed a 10-year lease, I’ve never missed a payment in my life.
I’ve been CEO for 31 years. I never missed a payroll, I’ve never missed a payment. I look at a customer in the eye, I swear to them, I will maintain the software. That’s a matter of integrity. I do business with governments, banks. Everybody under the sun. They have to trust me. I have to be able to make good on my promises. I can’t de-capitalize the company. So yeah, I’ll buy the stock back from time to time, if it’s mispriced. If someone wants to short my stock, have at it. As long as you have a strong treasury, you’re not afraid of a short seller. What do you do, drive my stock to $20 a share? I buy it all, go private, thank you. Do that.
Saifedean Ammous: Absolutely, this was one of the questions that I wanted to ask you: How alien is this concept of keeping a cash balance in business these days? How much of a pariah have you become by telling people that keeping cash balances is important?
Michael Saylor: You know, I went through this — I like Steve Jobs. He’s a great figure, and he had a near-death experience at Apple. Michael Dell said, Give the money back to the shareholders—the company is dead. Apple almost went bankrupt back in the late 90s. And so, when Apple was successful he started accumulating cash. No dividends, no buybacks, just accumulate cash. And he did it because it was a formative experience, you know, you live through the Depression, you almost starve you accumulate cash, you’re very conservative.
I did things that I regret when I was a younger CEO, I borrowed money, my stock got shorted, we spent more than we generated in revenue. At one point we went to within 10 days of being de-listed. I got to within 5 days of bankruptcy and de-listing. My stock went from $333 a share to 42 cents, because I borrowed some money in a convertible preferred security, and the guys that issued the security were shorting my stock as they were hedging their security, and they shorted me, Saifedean, from $100 a share, to 42 cents. So you think you can’t get beat to death? That’s a 99.8% top to bottom fall. And by the way, I’m not blaming the world. I got the flesh flayed off my back.
At the time, maybe I felt sorry for myself. Now I look back on it and I realize, You shouldn’t spend more than you generate, and I shouldn’t have borrowed money from someone in a convertible preferred, knowing that they were going to short it against me. And you should be responsible and save your pennies. So, that was 2003. I got conservative and we built up $700 million in cash, but everybody else thought, you’re just crazy. And this is where I thought I was right but I was wrong, and they were right. It’s a moral hazard, right, you point out.
They were right because the cost of capital, according to Saifedean, in The Bitcoin Standard, is 7%. The inflation rate on assets is 7%. If I take $700 million and I’m yielding 1% or 2% — and that’s the best I could do on short-term treasuries — I’m losing 5% every year on $700 million. So what I should have done, what you should do, is build a company so that you’re sure that you’re gonna generate cash-flow, I know easier said than done, right?
Build a company so you know you’re gonna generate cash-flow, and if you’re not sure, you put a certain treasury balance, but you have to invest the treasury balance in something that yields better than cost of capital. Which means: no cash, no short-term government bonds. You might as well put it into the S&P 500. By the way, Saifedean, I wrote a book, The Mobile Wave in 2012, you can go read it. If you Google me you’ll find a 2-minute clip on YouTube no-one watched, 700 people watched, me sitting in my office in 2015 saying, You know Amazon’s gonna de-materialize and destroy 20,000 retail companies.
There’s just no reason to buy anything else. Okay, no one cared. I wrote the book, and the theme of the book is: Apple is gonna de-materialize everybody. And Google, Facebook and Amazon are gonna crush everybody. If you bought the stock, you would’ve made 10x-20x your money. It was a very simple thesis: they’d already destroyed everybody. They’re $100 billion networks that are de-materializing stuff, they can print products and services for zero variable cost, and they’re just gonna get stronger and stronger and stronger. The bottom line is, I made $50,000 on the book—you know, you can make $500 million buying the stocks. And the lesson that was taught to me —
Saifedean Ammous: Don’t write books!
Michael Saylor: — was like, if you know the future, why write the book? Buy the thing, and then Tweet about it. You know, I have a lot of opinions, but like, by the way, my hat’s off to you: it’s pretty obvious in hindsight to figure this stuff out now. In 2020, I look at it and I’m like, well okay this makes sense. You wrote what you wrote 2 years, you must have been thinking about it 3 years ago, right?
Saifedean Ammous: Yeah, I wrote it 3 years ago, but I’ve been thinking about it honestly since before Bitcoin came around. Bitcoin was the solution to a problem that I’d thought about before that.
Michael Saylor: So writing the book’s good, but, invest in the thing.
Saifedean Ammous: It’s very fascinating what you’ve been thinking about, and I have so many questions I want to follow up on. With regards to holding cash on the balance sheet, I’m wondering, do you have plans for moving into using Bitcoin in your day-to-day transactions as in making payroll in Bitcoin, accepting Bitcoin as payment and so on?
Michael Saylor [28:03]: Here’s my thinking on this, and I Tweeted about it today: I mean, all the Bitcoin Cash guys, they’re fanatic about It’s gotta be a medium of exchange. Roger Ver has been Tweeting at me, It’s gotta be a medium of exchange. My view is, there’s a $250 trillion ocean of assets: stocks, bonds, precious metals, real estate, derivatives — no one’s buying a pizza with any of that stuff. No one ever took a share of Apple stock and walked into Starbucks and complained and bitched and moaned about not being able to use Apple stock in order to pay for their Starbucks.
You have a house? Try using your house to pay for pizza! What do you think is the transaction velocity on a house? Put it on the market, wait 6 months, get a buyer. “I wanna buy your house.” “It’s 30 days.” It takes 30 days and the transaction fee is 6%. You wanna sell a million dollar house? It’s $60,000 in 30 days from the point that someone swears they wanna buy it. So somebody’s running around in there saying, Well we gotta drive the transaction cost down. We gotta drive the transaction speed up. You need to be able to move the asset from point to point, peer to peer, as a settlement network. You need that. You need that for freedom.
It’s like I say to you: Saifedean, you can go anywhere in the world, you’re free. That doesn’t mean you should go to a different place every day. Now, having the freedom is not the same as using the freedom. Just because you can do a thing, doesn’t mean you should do a thing—Stoic philosophy, Marcus Aurelius, 2,000 years ago, or whoever else did it. So, I look at this and I think, it’s nice, but you should sell your products and services in fiat, and you should sell your property in fiat.
You should buy your property, your products and services in fiat, and the Yen, the Won, the Euro, the whatever, because that’s the way that 99.99% of the people do it. You should sweep the excess monetary energy into your treasury, and you should convert it to Bitcoin.
So, just one last point on this, and you’ll get it: the Parable of the Lions. A bunch of lions are chasing after a bunch of antelope. There are some lazy lions, they can’t catch the antelope. They complain to the zookeeper on the game reserve, “The antelope are running around too fast. It’s too hard for us, we can’t catch them. Slow them down.” The zookeeper solves the problem by hobbling the antelope. The lazy lions catch the antelope. The lions eat the antelopes. The antelopes all die. Then the lions all die. The zookeeper blames it on the weather, and gets another job. That’s the story of transaction fees and transaction rates on a crypto network.
That’s why the Ethereum, the Bitcoin Cash, all the other forks. You know this, you’re the one who told me: it’s a billion times more expensive to do it on a proof of work network, or a trillion times? When it gets to be a billion times more expensive, that’s enough, right? It’s a billion times more expensive to do transactions on the network. The reason that you want crypto is you want sovereign immortality. I want to put $100 million on the network, and I want it to last for 100 years, and on the other end I want it to come out $100 million, even though half the governments failed, and everybody debased and destroyed everything. I want to put it in and I want it to transcend time and domain, time and space.
By the way, that’s a pretty good application for putting $250 trillion worth of stuff. But it doesn’t have to move fast. I do think there are some interesting things that our business will look at in Bitcoin: we’re standing up a full node, and we’re looking at the data coming off of Bitcoin, and we’re looking to see if we can’t thread the data sets and information from Bitcoin into our intelligence offerings, in order to provide that. But I don’t feel the need to buy anything in Bitcoin or sell anything in Bitcoin, and it’s a billion times less efficient to do it that way. So, why do people get wrapped around the axle with the medium of exchange, they’re trying so hard. Only 1%, you know a typical rich person, a wealthy person, spends 2% of the wealth every year. 98% of their wealth just sits there.
The richest man in the world, I guess it’s Jeff Bezos, is rich because of a bunch of assets including Amazon stock, that’s hardly moving ever. And by the way, if you have any wealth, the thing that doesn’t get said is, it’s so tax inefficient to sell it, and guys in New York realize this — there are families in New York City, they own a city block, they’ve owned it for a hundred years, they have real estate on it. They never sell it. You just refinance it every year, they’ve never made any money, Saifedean. I have $100 million worth of an asset: it’s going up 7% a year because the asset inflation rate on real estate in Manhattan is going up, probably more than 7% a year, right?
Every 10 years I refinance it, I borrow some more money, it’s tax free, I live off of tax-free debt, a hundred years later, the family’s got $1 billion worth of real estate, $700 million worth of debt, they’re paying 0% interest on the debt, they’ve never made any income their entire life. Why would you ever generate operating income that’s taxable? Everybody’s just gonna borrow against their assets as their assets inflate. You know, I can borrow money from a bank, at LIBOR, I can borrow money for a yacht at LIBOR plus 200 basis points, Saifedean. And LIBOR is like, what? What’s LIBOR? I can borrow money against a liquid asset like a stock, at LIBOR plus 50 basis points. Why would you ever sell anything? And so this idea of moving around Bitcoin, it’s like taking the billion-times-harder way around the field. I gotta run around the field a billion times to score one run.
Saifedean Ammous [35:46]: Yeah, and I entirely agree, obviously. The way that I was thinking about it was, if you were going to be using it, you won’t be using it on-chain. As I think you Tweeted about it a few days ago, what was it, 99.8% of Bitcoin transactions would happen off-chain. This is something that people miss when they talk about scaling, because whatever asset you’re talking about whether it’s another digital currency or a physical gold or a government money, you’re not gonna perform final settlement with every cup of coffee. It’s just not gonna happen.
The final settlement is gonna come at a much slower rate than the transactions, and the day-to-day transactions are going to happen between people who are within networks that you have repeated business with one another so that if your credit card bounces at the coffee shop they’ll know you the next day and they’ll tell you Hey get a new credit card or stop doing this. Their bank will contact your bank or their credit card company will take away your credit card. There are these mechanisms for the smaller payments, and that’s how Bitcoin scales. People misconstrue the Bitcoin network as a payments network and they compare it against VISA or Mastercard on top of Bitcoin and Bitcoin will be the final settlement asset, but it will be much better and faster final settlement than you would get with national currencies.
Michael Saylor: I think that it’s 100,000 to 1. You know, let’s take Jeff Bezos again: doesn’t he have like $200 billion worth of Amazon stock? He’s got $200 billion, and that’s worth all that Bitcoin is—the entire Bitcoin network is $200 billion. How many transactions do you think Jeff Bezos has done to sell his Amazon stock in his life? I’d be willing to bet you, he picks up the phone once a quarter—about ten times. He’s probably picked up the phone about ten times, and he said to one guy, Uh, well why don’t you sell a million shares of Amazon for me? Click. And he put the phone down. Maybe he did a hundred transactions, okay? He’s just fine. That’s the way it works.
You’re gonna sweep your excess capital into a working capital account, and it’s gonna be on Square or PayPal or ApplePay, or in some random bank. By the way, I don’t trust my bank in Argentina for a hundred years. I mean, I had it fail ten years ago. I lost $1 million in Argentina. One day it was in dollars in Bank of America. The next day by edict it was in Pesos at 1:1 in Bank of America. The next day it was devalued to 10:1 in the same bank, and I got back $100,000 and I started with $1 million, and it was gone. The only two places in the world I ever lost money in a bank was Brazil and Argentina. You don’t forget those things. Having said that, I do business with banks in Brazil and Argentina today. I don’t trust them for a hundred years — you gotta trust them for a hundred days. And so, you just put the amount of money into the banks that you can afford to lose.
Saifedean Ammous: Yeah, that’s very powerful.
Michael Saylor [39:01]: A million times faster! So it’s like, how about take 1% of your money, and put it into an exchange like Binance. Watch Binance: the thing is incredible. Put it into a centralized exchange, or put it into a centralized mobile wallet, it’s gonna run a million times faster than the best idea on any crypto network, you’re gonna trust it. By the way, do you really care whether Square Cashapp goes bankrupt in 6 months or not, if you have $100 on it? Put the money on it, if it goes bankrupt, you’re just gonna move to Google Pay, then Amazon Pay, then ApplePay, whatever. People are Tweeting at me like, Oh you didn’t read the whitepaper. I read the whitepaper, but they probably say it to you too, because you have an entire section where you —
Saifedean Ammous [40:32]: No, they don’t Michael, because I’ve figured out this incredibly powerful trick which you really should start utilizing, it’s called the Block button.
Michael Saylor: Okay, I am learning. And life is too short, Saifedean, to try to convince a fanatic to change their mind. The world’s got 7 billion people in it, and if you go on my Twitter and you’re rude, or uncivil, or a jerk, block, block, block. I’m not gonna — I’ll take one second, but you don’t get to hang out. But to your point, you said, electronic cash in a classical format, so that I’m making cash delivery in settlement, this is back to the Stoic issue: you need the ability to have peer to peer payments in order to have freedom and sovereignty. You need the ability.
Just because I have the ability to move $1 or $1 million or $1 billion worth of Bitcoin, I have the ability to send it to anybody anytime, and it’s gonna cost me a few bucks, and 30 minutes. Just because you can do a thing, doesn’t mean you should do a thing. The fact that you have the ability to do it 1 out of 100,000 times, means that it’s a harder form of currency, and a better money than anything else. There’s a phrase: a foolish consistency is the hobgoblin of small minds. People get wrapped around the axle of doing a literal interpretation. They’re like, Well that’s not what Satoshi said.
Here’s where Nicholas Taleb has a good insight here: A semantic representation of a sophisticated idea may not be adequate. If you come into my restaurant and you ask me what’s on the menu and I say “Cold, dead fish,” you might be horrified by that. If I said it to you in Japanese you wouldn’t even know without translating it. If I wrote a book on it, you might understand it better. If I just put it in front of your face, you might think it’s pretty good sushi. Just because the words don’t resonate doesn’t mean the thing isn’t a good thing.
So, it’s a 9-page whitepaper, and if you interpret it through a certain lens, you understand — by the way, it doesn’t even matter if he understood what he was saying or not. It’s putting a lot of weight on one dude or a group of guys 10 years ago to extrapolate how the world was going to evolve later. So I think they had a vision, and the vision works well as a settlement network, and for people who are clinging to an orthodox interpretation of that vision 10 years later, they choose to imbue those semantic representation with their ideology, and it’s crippling to the future of Bitcoin because they wanna do something — I want to make one more point: if I move $1 from point A to point B, versus $1 billion from point A to point B, isn’t it obvious on its surface that the value in use of moving $1 is a billion times less than the value of moving $1 billion? So they’re chasing the long tail down to something which is exponentially less valuable, and they’re making it a priority on a network, and that’s long-tail foolishness.
Saifedean Ammous [44:36]: Yeah and absolutely, Nakamoto doesn’t have an ownership over Bitcoin, he can’t force people to use it in a certain way and I think the history of science and technology is full of all of these inventions that ended up used in ways where the original inventor didn’t forsee. The Wright brothers, after inventing the airplane, they said, one of them, I can’t remember which, he said, It’s impossible that an airplane will ever cross the Atlantic. And so, what, do we ban flights across the Atlantic because the Wright brothers said it can’t happen? Viagra was meant to be a heart drug. Do we ban it now for other uses because the original vision of the founder was “this”? You know, technology finds its way based on what people want and not on what inventors say and think, and I think that’s completely midguided.
One question I wanted to ask you is a topic that I will focus on in my next book The Fiat Standard. In that book I’m trying to do to fiat money what I did to Bitcoin. When I wrote the Bitcoin Standard the idea was, How do I get this to an intelligent reader with no background? How do I explain to them how this Bitcoin thing works and why it matters? And do it for someone who has zero background as to how this monster works?
And I think that kind of framework would be more useful to apply to fiat money because fiat money is a hundred times more complicated than Bitcoin, and I think a lot of people could benefit from trying to understand that. And so, as I started to think about fiat money as an engineer, trying to explain how it functions in the same way that I did with Bitcoin, one mechanism of understanding how it works is that, under a gold standard, if you find a way of making more gold in the world, you’re going to take advantage of it, you’re going to start digging up the gold and selling it because that costs you less than what the price of gold is on the market.
Similarly on a Bitcoin standard people are trying to mine more Bitcoin. But on a fiat standard, everybody is trying to mine fiat, and the way that it works on a fiat standard is, you mine fiat by issuing debt, so you can mine it by printing pieces of paper, but that’s really the old fiat standard. Today, the vast majority of money is not pieces of paper, it’s debt that’s issued by banks. Everytime a new financial institution makes a new loan, new fiat money is created.
Michael Saylor: Saifedean, can I just stop you right there? I think the metaphor of a bank as a fiat miner is the most brilliant, breakthrough metaphor. I read that in your paper last night, I was up late reading it, and I got to whatever, page 30 and you got to some point where you said banks are in essence mining fiat and I thought, Oh my god, that is just the most — like, no one has ever said that before! But, once you get that idea you’re like, Now I know why I wanna run a bank, and now I realize why the world is so screwed up because they’re out of control. So keep going, but I just wanted to say, I think it’s unique, seminal, brilliant, I’ve never heard anybody ever express it that, but it explains so much once you have that metaphor in your head.
Saifedean Ammous [47:59]: Yeah, it’s why everybody is in debt, because every time you get into debt, you’re allowing somebody else to mine fiat, effectively. So if you want to buy a house for $1 million with cash—that’s one thing, but then if you take the cash from a bank, well the bank gets to create $100,000 or $200,000 or $300,000 of new fiat out of this process. So, they’re gonna give you a better deal on it than if you buy it with cash, and that’s why you get into debt for your house and for your business, and for everything.
You know, individuals and corporations and governments—everybody is up to their eyeballs in debt because getting into debt is mining fiat. So I think this might be the most vivid way in which Bitcoin fixes the world, this might be the most powerful way, because this allows us to monetize something other than debt. We don’t need to keep mining debt in order to have money, we can start mining a hard asset that has no counter-party liability, and that is much more solid, whereas, you can build a financial system on it because you know that the value of this Bitcoin is not dependent on counter-parties making this financial obligation.
But currently, the choice that you would’ve faced with your reserves before Bitcoin was, you had to put them either in cash and watch them get robbed of purchasing power every year, or you had to put them in debt and then take on the counter-party risk of the governments or the agencies or all the bonds that you’re using, and primarily it’s government treasuries that people use the most.
The interesting thing to think about is that if Bitcoin leads to a reduction in the demand for debt, a reduction in the demand for treasuries—because people like you are using Bitcoin as a reserve asset rather than holding bonds, then I think there’s another factor that goes in, because Bitcoin is, (a) it’s leading to a reduction in the demand for dollars, but (b) it’s also leading to a reduction in the supply of newly mined fiat dollars because it’s reducing the demand for debt. Or at least if it increases significantly, you know — we’re gonna see a hundred Microstrategy(s), that means less demand for government bonds.
So in a sense it kind of cancels each-other out: Bitcoin is not just taking the demand away from the dollar—it’s taking the demand away from the dollar and reducing the supply of the dollar, which I think is an optimistic way of saying we don’t have to have hyperinflation. We can witness this thing continue, whereby, the supply of the dollar declines and the demand for the dollar declines while the value of Bitcoin rises and the demand for Bitcoin rises.
Michael Saylor: I think that this is one of the reasons why Bitcoin should be positioned as an asset — a crypto-asset — and not as a currency, because you have multiple monetary systems: you’ve got the fiat monetary system—and as we’ve said, if you put $100 million into fiat, you’re gonna lose 99% of your money over a hundred years. And then you’ve got a gold monetary system: you put $100 million in gold, you’re gonna lose 80% or 85% or 90% of your position over a hundred years, because it’s inflating, and it’s got counter-party risk.
And then you’ve got a stock monetary system: you’ve got like an equity monetary system — that people are worshiping at the altar of NASDAQ right now. And they’re basically floating into Apple, Amazon, Facebook, Google, because they think that these are indestructible utilities that’ll go on forever. So you put it into those, and I think you’re gonna lose value because at some point they’re gonna get regulated and they’re gonna actually get chopped into pieces by well-meaning politicians. One way or the other. But that system has captured all the value, right?
All of the wealth on Wall Street has surged: first it moved into bonds and then it moved out of bonds into the equity markets over the past 3–4 months. The only way you stay in bonds — by the way, there’s a bond monetary system. If the interest rates are gonna keep going down, the bonds will keep going up, so you put your store of value into bonds. And the only way that keeps working now is interest rates have to go negative. If interest rates don’t go negative, the bond monetary system stops working for the wealth of the world, so they go to equity.
And that’s why the Big Tech is a crowded trade, and why the NASDAQ has gone to all-time highs—and the S&P. Now, at some point that stops working, because the P/Es blow out and you’re valuing Apple at 3x — you’ve got companies that are a hundred times revenue that are trading on NASDAQ now. So at some point that de-laminates, and now, what you really wanna do is position Bitcoin as another digital asset, and then you have all the people with their money in Apple, in Amazon, in Facebook, in Google, surging into Bitcoin as the store of value, right?
There’s a good story—this is why you don’t want to curry the narrative of: well this is for privacy and fighting the government and escaping regulations and censorship and off-chain and “We hate Wall Street, We hate institutions, We hate institutional custodians” — if you’re basically going down that narrative, you’re inviting every government to outlaw you. And the number one issue, Saifedean, of—can we have a peaceful transition from a debt economy to a Bitcoin economy — is: are they gonna outlaw Bitcoin? Okay? If they think that Bitcoin is Apple stock, the answer is no. If Bitcoin is Apple or Bitcoin is Google or Bitcoin is Amazon, they’ll bounce it around a bit but no one is walking around saying We need to pass a law to stop you from owning Apple stock.
On the other hand, when you start talking about, I wanna do things to evade regulators and the like, it’s like in Russia they said you can’t use it as a currency, you can use it as an asset, that was the law. What you wanna do is you wanna position Bitcoin as an asset, and then people will just sit around and say, Am I gonna put my money in real estate or gold or silver or Bitcoin or Apple stock? And then it’s kind of an easy decision, isn’t it? I mean, as soon as you know it’s not gonna blow up and fail—if Bitcoin was a company, or whatever, I think you’d see a surge.
And for us to see a peaceful transition, we need to not have a situation like in Venezuela or a Zimbabwe where they pass a law and they say, You can’t have it. You don’t wanna go back to—you saw with the 1934 Gold Act, right? You don’t want the government to seize your gold, and you don’t want them to seize your Bitcoin. [54:54] And so, to the extent that they just view it as another asset that people choose to hold and is non-threatening, I think that you’ll see a migration to it. To the extent that they see it as trying to replace the US Dollar, then it becomes a different thing. So, that’s what I think on that.
Saifedean Ammous [55:17]: Yeah. What do you think of the idea that Bitcoin can potentially be the final — be the way that we get rid of QE? Right now all Wall Street companies, they constantly face liquidity problems whenever there’s any kind of problem in the market and then that requires an endless amount of liquidity intervention. But if they had a proper cash reserve on their balance sheet, they wouldn’t care about these liquidity problems, you know? Bitcoin would hold its value and it would appreciate now and then.
Michael Saylor: I agree with your idea that Bitcoin is the fiat vigilante, or the currency. I agree with that. I think that, as it gets stronger, the number one benefit of it is it keeps everybody else honest. Right? It spreads, it keeps people honest. If the government — let’s take Argentina — if the government of Argentina knew that every wealthy Argentinian, everybody in Argentina had their treasury in Bitcoin, they would think twice before they print kazillion amounts of additional currency, right? It will create a discipline, because the citizenry has some power, the citizenry can choose not to participate. So as it spreads I think it will create rationale. I think, if you have no alternative—in the absence of an alternative — I think the politicians start to overreach.
Saifedean Ammous: Absolutely. Yeah, I used to live in Lebanon up until very recently, and if you’ve heard the news, Lebanon’s banking system is in tatters now and the currency’s been destroyed, and after I left, I realized that banks were giving insanely high interest rates to people on their savings accounts, and for me the amazing thing about Bitcoin is that all of those years I’d lived in Lebanon and I never borrowed a cent or lent a cent to my bank, basically.
My paycheck comes into my bank, and I use it just for day to day transactions and then never had to worry about what’s going to happen with the Lebanese government and their solvency and all of the bonds and all of that stuff. And it’s amazing to think that if in 20 years time, everybody else in countries like Lebanon and Argentina had that option, then there’s very very little scope or room for the government to rob people.
The peace of mind that comes to me from the fact that, no matter what happens in all of the world’s banks, and all of the world’s central banks, and all of the world’s governments, they’ll never be able to destroy more than a small part of my wealth which I happen to keep in any particular bank at any particularly point in time. And this is just amazing, you know? It’s a one-time solution to make sure that you will never be Lebanon’ed, you will never get the Argentina Special, you will never get that inflation. It’s amazing. And I think it’s only a matter of time before more and more people figure out this solution.
Michael Saylor [58:23]: So, Saifedean, I gotta go in a moment because I’m being called away to my next meeting, but I just wanted to leave you with a couple thoughts. While I’m sitting, for days at a time, and I’m trading and I’m buying this Bitcoin, and I watch “money”—$500,000 of cash — become, whatever, 50 Bitcoin, and I’m watching these kind of things happen, I had this epiphany that the destiny of money is to be encrypted. Every time I did the trade I thought, I just took $500,000 of cash — that someone can burn and steal — and I put it into a vault of encrypted energy, and now they can’t get at it, and I just had this massive dopamine hit, that this felt so good to encrypt my money. The destiny of money is to be encrypted — in Bitcoin—not any encryption. The second observation is, I just think your book is brilliant, and your work is brilliant, and you should publish again. I’m in favor of it, let me know if I can help. And that my third observation is, if you do call it The Fiat Standard, I’m not converting all of my money to fiat.
Saifedean Ammous: The plan is the opposite!
Michael Saylor: The first one worked, the second book’s probably not going to flip me back. But you go for it anyway. I appreciate it, I’d love to chat with you anytime. Call me back, if you’d like, and hopefully this was what you were looking for.
Saifedean Ammous: This was amazing, thank you so much, I really appreciate your time, and thank you for your insight. Thank you so much for joining us.
Michael Saylor: Okay. Thank you. Thank you everybody.
Saifedean Ammous: Cheers. Take care.