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What's up everybody? I'm Scott melkor. And this is The Wolf of Wall Street's podcast or twice a week. I talked to your favorite personalities from the worlds of Bitcoin Finance trading, art music, Sports, and politics. Anyone with a good story to tell. Now, one
of the biggest news stories in crypto last year, was
microstrategy a business intelligent company publicly. Announcing the decision to buy 425 million dollars worth of bitcoin with their cash reserves. Since then the Trailblazer behind this company who is today's guest has continued to do what he believes in most, which is buy more Bitcoin rather than just leave it as a
Time purchase. Michael sailor, has put it all on the line to effectively, go all in and what he believes is the future of money and the Catalyst for a better world Beyond just buying Bitcoin. Michael, Michael sailor has become an important figure in the space advocating for improved, mining conditions, open source information, and honest education. He's prepared to fight and die on this hill. Clearly, it's an absolute pleasure to have him back on the show today to discuss all the developments have taken place since he first bought Bitcoin, what his plans are for the rest of the year and its current thoughts on the market. Michael sailor, welcome back, thank you so much for being here again.
No, thank you.
So I just interviewed Vijay boy
potty about his book, the bullish case for Bitcoin. For which you wrote the forward. On the cover is a very intense drawing of a bull in armor with a hammer. So I'm curious if that is a portrait of you,
no comment, it's pretty awesome cover. I'm your Kinder gentler Bitcoin evangelist and Felicia business. Carefully
evangelizing Bitcoin and a non-intimidating.
In fashion to bring hope and good cheer to the general public. Let's hope. So, listen, the
more Bitcoin You by seemingly the more detractors, you accumulate, we keep hearing the argument. That microstrategy could fail. If Bitcoin drops too far that you're over committed to the asset. I'm curious what you say in response to those
comments. Well, the company stock was 120, when we started this
journey and we had sixty dollars
To share in cash and we were under a lot of pressure to return that cash to the shareholders, because, you know, the SPs up forty percent over the year. And so, if you actually sat on 500 million in cash for a year, instead of investing, in the S&P, that's a 200 million dollar
loss. So, so I could see that clearly. I mean, some people don't see that clearly, but it couldn't be clearer. Now, if you look back a for
Percent gain in the SP over 12 months is the message that the currency devalued 40%.
So we had to do something so we could have just returned the 500 million in cash. We would add 60 dollars a share. We would have a
company growing 0 to 10 percent a year with $60, a share and no one would know about
us and the shareholders. I don't think would be
better in that regard. I mean, I'm looking right now at the stock and it's showing
third and seventy-five dollars a share. Okay.
So
11 x. I could have been $60 a share trying to get to a hundred, but we're now at six hundred seventy five dollars a share. So what did we do next? Well, the stock the stock doubled, and then we sold a convertible note, the trade,
it converts, it three hundred ninety-eight dollars. A share
that was unsecured. So that convert is 650 million dollars of debt, but it yields 25-cent
know. 75 basis points
So, you know, I'll take less than 1% of
650 million dollars, five million dollars a year in interest.
Okay, so I agreed to borrow 650 million dollars at five, you know five million
dollars a year. In interest
we're generating we generated a hundred and fifteen
million dollars in cash flow in the last 12 months. Okay,
it's a 500 million dollar company generating eighty a hundred, a hundred and ten million dollars in cash flow a year. So I basically take five million of it. I borrow a
bunch of money and I got to invest in
something now. People think
But the entire world Scott revolves
around people doing debt and Equity, financing, to invest in businesses. Every
building in the world
was debt-financed. Vegas is
debt-financed, right? Every company is
either Equity or debt Finance,
the entire cable industry, the Telco industry, the airline industry, the railroad industry
right there, old debt Finance.
So using debt to grow, a business is business.
- that's why Wall Street exist. That's why there is hundreds of trillions of dollars of equity and debt floating around. So we did the first financing the convert. Then we did the second convert and the second convert was we borrowed a billion, 50
million dollars at 0% interest,
okay? So if I walked up to you right now and I said Scott, I will give you a billion dollars
at 0%
interest for the next six years.
And you can invest in a business of your choice.
You either have a business that you are bullish on or you don't? Right first question, would you take the money? Of course, of course. Of course you take the money, okay. McDonald's. You know, has dead every. I mean, how find me an S&P 500 company that doesn't have some debt like maybe a few but it seems like like if someone wants to wants to loan you a
billion dollars at 0% interest you would
Invest at. So the question is what's the least risky thing? You can invest it in,
I happen to think that that Bitcoin
Bitcoin is digit is Big
Tech without all the risks of big Tech.
So so if I if you if I offered you a billion dollars
and a zero percent
interest, would you buy the S&P 500
Index with it? Not now,
Yeah. Now it's looking risky but if you done it a year ago was probably a good idea. Right? Sure. And and if you would actually done it six months ago, you still would be off. Would you buy big Tech Apple Amazon Facebook? Google well, I mean, you
know, they're all all-time highs right now. I think
so, I think that it's if you asked any investor in the world,
Would you borrow a billion
dollars at 0% interest to invest in your investment strategy?
Like if it was fixed and it wasn't marked to
market? Then I think they would say yes as a
general role. So what what we did
there was was kind of obvious
and then the the last financing we did
was the stock was down, four hundred dollars a share.
And we could have sold 400 million dollars worth of
equity, but it had been ten percent dilutive and bought Bitcoin with it. But instead of that issuing 400 million in debt at six and an eight percent interest,
doesn't dilute the common stock shareholders and it doesn't dilute the convert holders either. And so would you borrow money at
6% interest for seven
years? Well, if you thought that the
The thing you were
investing in was going to go up at more than six and an eight percent. You
would I did a survey on Twitter and I got a hundred and twenty thousand responses
and it was 90%. I asked,
do you think Bitcoin is going to go up more than six and one 8% interest over?
The next seven years? It was very, very
precise happens to be aligned with that Bond. The answer is ninety percent of the people on Twitter, that follow me think, yeah, it is.
So there's the 10% of people that I guess that are, if you don't think Bitcoin is going up
7% a year, then I guess you're short Bitcoin.
It turns out that microstrategy's the publicly traded company. We have gone through a lot of work. A lot of shoulder relations work to rotate our entire shareholder base to be long Bitcoin. There's
there's no one that owns mstr stock that hates Bitcoin, right?
Right by right there. When I started on this journey and August,
And July, I put out a press release and the press release was. We've got 500 million in cash, we think we need to buy some
asset as an inflation hedge.
And so we're going to buy 250 million worth in an asset and we're going to return 250 million worth of cash to the shareholders over the next year. Okay. And then a week 1 by the stock was 120. It traded
20,000 shares a day, no one noticed, no one cared.
We're going to buy 250 million of your stock.
Fact, nobody cares.
Seven days later. We accelerated it. Well. Okay. We have a Dutch auction. We're going to buy 250 million worth of your stock back and up to a hundred and forty dollars a share at a premium.
And we're going, we just bought Bitcoin
now. 20 days goes by everybody that hates
Bitcoin, that short Bitcoin, either got to sell
above 140. They sold between
140 and 150 5 or they got to sell into that tender offer and you get to get off the train. You don't have to be invested in the company. And at that point, we had substantially rotated. Our shareholder base the way. I know we rotate our shareholder basis. We only had 60 million dollars of shares tendered.
If we had 250 million dollars of shares tendered, you couldn't be sure that you bought out everyone that disagreed with the strategy, right?
But if you only have 60
million out of the 250 million tendered at a premium,
Where the stock was trading, 120 the previous week, then you kind of know that everyone that disagreed with you is already sold and you've only got 60 million people that are skeptical. They, they tender. And
at that point, we wrote we've gone along Bitcoin. So my answer to everybody
is
my shareholder base is long Bitcoin.
If you're a Bitcoin hater, you got
5,000. Other companies, you
can invest in, in NASDAQ a nice, you don't have to buy mine.
Strategy. I'm not trying to convince
everybody, they should own Bitcoin. I'm just pursuing
a strategy that where we believe in Bitcoin and if you believe in
Bitcoin and you want to be long Bitcoin, and the person running, the company said, guys, I have a chance to borrow a billion dollars at 0% interest and buy more of the thing that you love, should I?
Well, of course, you should. Because you wanted to own the Bitcoin, if you like Bitcoin and you were going to, you can have a billion dollars of it. And if someone said, I'll give you two billion dollars of it for free.
How do you not like that? So, so it's, I'm pursuing and the companies
pursuing a long leveraged Bitcoin strategy. And
now the question is, am I putting the company at risk? Well Scott, I could go and pledged a billion dollars a
Bitcoin and I could take out a margin loan loan to value, 50% Mark to Market and I could buy Bitcoin.
Heck I could buy Bitcoin on 10 to 1 leverage, you know, maybe if I wanted to twist it.
We're not
doing debt, that's Mark to Market
and we're not pledging the Bitcoin, right? So our our
convertible debt is unsecured, so
Bitcoin, Bitcoin could go to zero, the debt, doesn't default.
If bitcoin price goes from 35
thousand to ten thousand to five thousand the debts not in default,
okay so if Bitcoin goes to zero and stays
there forever then our business strategy will not have work.
Then at some point we'll have to do a diluted
financing. We would issue in that case in Bitcoin went down if it went to 20,000 then I would end up issuing equity.
Probably in order to refinance the debt. But but if Bitcoin jerks down 80% overnight,
the difference between
permanent debt and margin loan is a Bitcoin jerks down 80% for one week you get Force liquidated and you get wiped out as a traitor and that's why that's a bad idea.
And is that likely? Yeah, that, I mean, that could happen in the next five years, right? You could have some cataclysmic black Thursday event, right? I'll meteorite or
whatever, but that's not the
same as calculating, the statistical. Likelihood, that Bitcoin jerks down, 80% in stays there forever, right, right. And so they're different
and if you look at the senior debt, we just did, we basically financed the cash flow.
Is of a software company.
So I could either
wait for a decade in or I could wait for for seven years to buy 500 million dollars worth of
bitcoin or I can Finance it up front and
by 500 million now
and pay 6 and 1
8 percent interest to do
that. We pledge the intellectual
property that company and we pledge the
cash flows of a
software company.
And we probably could have done the deal just based on those two and I'm taking a company, which I'm taking a company with cash flow is growing zero to ten percent a year.
And I'm putting it
into an instrument, which is up a hundred, twenty percent a year for 10 years running, that's up to hundred in Eighty percent or two hundred ninety percent this year, whatever it
is. Okay, so is it risky? Sure it is that's why we're the company
doing it and we disclose it in the risk factors and are 10K and
10-q. If you don't want to own Bitcoin then you
don't want to own microstrategy because
Bitcoin is a risk. But you know what?
Is a risk, everything running a
cruise line is a risk running. An airline is a risk,
you know, Tesla Sells Cars, the cart, you know, cars blow up, you know guns, you know, shoot people, you get sued for it. Tobacco, gives you cancer. There are plenty of businesses that
have risk, factors are risk. Factor is
laser-focused fully
disclosed and the risk factor is Bitcoin is not the digital property that everybody needs it. Something
different,
If you, if you believe
that it's digital property, then you by mstr, or you might buy a converter, you might buy our debt.
You get paid to do that. There's a benefit. If you took the risk on microstrategy, the stock went from a hundred and twenty-two 675 in 10 months.
If you took that risk, if you actually take the risk of company owning Bitcoins balance sheet, to
buy our, can our debt,
you're getting paid six, and one 8% interest
companies that didn't have Bitcoin. We're paying 4% interest, the junk bond index is three point. Nine percent interest.
You can buy a company losing money and you can you can loan them money, so they can buy their stock back and get paid
four percent interest. Is that a
Other risk or a lesser risk.
You know, people are loaning money to Apple at 2% or 1% interest. So you getting paid a fat yield in order to own a different instrument and of course with that piece of debt, we actually also we bought 500 million dollars a Bitcoin with 500
million in debt. Well, technically a lot 487 million of Bitcoin with 500 million in debt. There are fees to be paid to the banks to issue.
The debt. And now you've got a collateral package, which consists of you'll probably get paid with cash flows of that doesn't work. You'll get paid with the Bitcoin. If that doesn't work, you get a claim on the intellectual property of
the company, you know,
is the company worth more than 500 million dollars. Well, it's been worth more than 500 million
dollars for 20 years so probably your senior.
So so I guess I laid out. Why why would someone want
to buy the debt or the equity?
Why is it good for the company? Well because
we're financing all these things with in a non mark-to-market fashion over long periods of time
and we're highly confident let's take the total debt. We have 2.2 billion dollars in debt I guess.
And we're paying 6%. What we're paying 35 million dollars a year in interest?
Okay, what's my effective interest rate on 2.2 billion dollars at 35 million? Right? Is that like one percent one and a half percent? Okay so we've got about a five to seven year
loan at one-and-a-half percent interest.
Now let's run the survey if I asked everybody that follows you on Twitter is Bitcoin going to go up more than one and a half
percent a year for the next five years.
What's the vote?
Yeah 99%
Okay so
Under what circumstances people go. Well, you know what? If it trades below, 26,000, okay, so what if it trades, 20,000, okay, what if it trades at 10,000? Well, if it trades of 10,000 in five years, you'll probably read a
headline, like microstrategy refinanced. Its debt by issuing some equity.
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And it's such a superior experience. Do it now doesn't the very fact that people concentrate on those numbers show extreme short term mentality and that they're completely missing the point because it it's assuming that there's a trigger for you to sell just because for one moment you're underwater, which clearly is not the case for any long-term investor, any long-term
investment. Yeah, I think that that Twitter, there's a lot of people on, you know, on Twitter and on the Reddit groups and
and the like and they want to talk about
get rich quick schemes or trading schemes and they want to tell you how to trade this
week,
and I've been pretty consistent. I think, you know, ever and all my
interviews. I've said, I don't really know what will happen this week. This month, I'm not even sure about this year. Like, there's nothing that I would
invest in where I have less than a ten year time
Horizon so I like, I think Amazon was a good investment. When should you have
Never, I thought Facebook was a good investment. I bought it before he came public. When should you have sold it? Never it just hit a trillion dollars. I thought an apple was a good investment. You could Amazon traded down. 95 percent Scott.
I remember it rained on 95%.
Should you have sold it? No, the richest man in the
world. Didn't sell it when it traded down, 95 percent.
What's the difference with all? How about, you know Microsoft? You know, like they got rich by holding Microsoft stock for a
long time. So I think that I think that
Trading is a
very difficult business, 1% of the world can do
it. If you're a good Trader, then, you know, you're a good Trader, presumably you have proprietary
information, flow proprietary models. If you're lucky, you're a market maker and you get in between, you know, you Arbitrage out, you know, some inefficiency. And if you do it, you keep it to yourself.
You know are the like I think fundamentally the big idea that Bitcoin is Bitcoin is
technology. Its
technology to distribute
property rights to 8 billion. People, if I
want to give education to 8 billion
people for free, you don't do it with books in libraries and, and bricks and mortar institutions you do with digital books, and digital lectures on YouTube. And if I want to give joy to 8 billion people, you don't do it.
Steinway pianos and orchestras and CDs and Records. You do it with digital music for free. You pay nine bucks a month to get 50 million songs and you give it and you pay $15 a month and you give it to your family with the family plan and
for three dollars a month, you can give 50 million songs
to your daughter or your wife. That's how you give music to the world
digital music. If you want to give wealth to the world, if you want to make the world Rich, you give them digital.
Property. You cannot do it with gold. You can't distribute an ounce of gold. You can't do it with
land. You
cannot buy three hundred eighty
seven dollars worth of land. You can't take the land with you, the
goal gets seized, it
gets mind,
the property gets taxed. The tax rate in Florida is 2%
a year if you put your money in and land
anywhere the property tax, the property gets
impaired, you cannot move it. You
can't buy a building, you can't give it.
Building to 8 billion people, it's pretty clear. You cannot give physical property to 8 billion. People, you have to give
digital property digital music,
digital books, digital photos, digital Communications
Digital everything. The
reason Facebook's a trillion dollar company is digital right? Google Facebook Apple, Amazon Bitcoin, digital
something. Now in
all of those cases, you have to have a
A 10 year time
Horizon,
you have to basically buy it and wait, 10 years. So when I'm looking at Bitcoin, I'm not a traitor, I shake my head, I feel sorry for the is like to give me an example of a billionaire that made a billion
dollars shorting Apple, Amazon, Facebook, or Google stock was trading, algorithms name one, you can't even name a millionaire probably.
There's like like, you know,
You're going to you're going to short or trade Bitcoin. It's like shorting and trading Amazon stock. Yeah. It's like you can find and cherry-pick a 12
week time period when maybe you got short and you are
correct. I mean I people on Twitter and they post. Yes, a Lori told people to
mortgage their house, sell their house to buy Bitcoin with his 60,000.
Well no I mean first of all I told people to buy Bitcoin was 9500. They leave out that part, you know.
Very famously. You remember what it was like what was like eighteen thousand or so when we spoke last year I mean it must been in the teens. So I've been consistently telling people Bitcoin was a good idea since I bought
it and I started buying it in the mid 9,000 and I've never told someone to sell it and I never told him to
trade it and my position on mortgaging. It's not, you shouldn't sell your house, keep your house, I'd like houses. But if somebody wants to loan you
Money against your house at two and a half percent interest for 30 years without marking it to Market.
And you have a business, you ought to take the money and invest in your business. And if you, and if you have a portfolio that you believe in, you know, truthfully, it's probably a better idea to take the two and a
half percent money, and put it into a broad Equity index today, given money printing. Then not,
like, I don't think that that Equity is the best store of
value, but I think given a choice between investing a million dollars.
The US dollar and watching it be debased at 10 to 20% a year or investing or taking the million dollar loan from the bank, a 200 percent interest and buying a
diversified portfolio. Of stocks. I would probably do the ladder. I would probably buy. Obviously I would buy
Bitcoin with money that cost me two and a half percent,
and I would probably if I couldn't decide to buy stocks or Bitcoin, I would buy land
Like by your house. I mean clearly like like by someone wants, there are people getting these five and seven and ten
year arms at one-and-a-half percent interest?
So for the for the conventional
person, I mean a consumer
that does not have a
publicly-traded entity. That's
financeable your cheapest, your cheapest source of funds that is simultaneously. Your safest source
of funds is is mortgage.
At, like, you could borrow money. I could borrow money at Libor plus 50 basis points against its stock
portfolio, but it is Mark to Market. And if the stock portfolio
trades down 80%, you will get a margin call, they will force liquidate you, and they will take your your property.
And so that's a cheap source
of funds, Libor plus 50 basis points. But but that's not nearly as good as Libor plus 150 basis points or Libor plus 200.
Has points for 10 to 30 years without Mark to Market.
And so if you understand the
stochastics of this and the volatility,
you know there's probably there's nobody in the
world. I think that has a better source of funding than a two or two and a half percent mortgage against Real Estate because that's being subsidized by Fannie Mae and Freddie Mac and the US government there. Get there, creating subsidized financing
so when someone says you
shouldn't borrow against your house or you know, I'm
going to sell Bitcoin which
Okay, so I'm going to sell Bitcoin, the traded up two hundred, ninety four percent this year so that I can
buy pay off my mortgage. I
basically sold a million
dollars worth of bitcoin lost two hundred, ninety four percent yield so that I could avoid paying 2% or two and a half percent interest.
So I could hold a million dollars which lost somewhere between 20 and
40 percent of its value in 12
months.
Okay, so, so you know the
haters, they just hate Bitcoin, so they want to generate a line, but but
you're telling people to give up an asset portfolio forget about Bitcoin. What if it
was just SP,
would you sell? SP portfolio a million dollars, lose 40
percent gain so that you could avoid a two percent interest rate, so you can hold money that was losing 20% of its value against scarce assets.
You know, I just don't think it's good. So in an inflationary
environment, if you can Finance at a rate that's lower than the monetary and expansion rate when the monetary inflation rate 7% and you can finance a 2%. There's an obvious Arbitrage, when
the ESPYs yielding
10% a year for a hundred years,
if someone was willing to give
you infinite money at 2%
interest,
The only thing you got to do is ask the
question, is it Mark the market
if someone would, let's if someone said I'll give you
a hundred year loan at 2% interest and you and you bought the SP index, isn't it? Obvious that you're going to scrape the 8% Arbitrage with no liquidation risk? Yes,
yeah. So if it's 30 years, probably
Right. So it really just comes down to
Am I borrowing
money? That's Mark to Market every minute of the day and I go to 10x leverage.
Then you got liquidation, which you will probably be forced
liquidated on a, you know, on a crystal ball
if you're doing, you know, some kind of
stochastic forecasting, you pump your pump into your, your forecast, a hundred
thousand possibilities. You probably get Force
liquidated and 98% of them because of some Black Swan
event,
But if you get out to
5 to 10-year, financing or more,
you probably don't. And, of course,
if you're financing an asset, a
house
that is not marked to Market,
okay, how many people have ever told you the
story of my bank
showed up, reassess my property down, 50% called the mortgage and
liquidated and wipe me out and I'm bankrupt. Have you ever heard that
story? No, no, so it's, you know, it's kind of
Silly for people to say, you know, it's a bad idea to take on home equity
loan or a mortgage
loan. I mean, it's much
riskier to take on a mark to Market loan, but, I mean, you can do the truant, right,
30-year
mortgage against
against home. A home
is probably the least risky,
10%
10-year, mortgage a bit more risky. A five-year, to 10-year note against a business,
with no,
No conditions of default, little bit more risky, you know, when you start a
10-year mortgage or five year, mortgage against an asset
portfolio, that gets assessed in
five years, more risky
a mark-to-market up to ten fifty percent loan to
value. That's risky. 10 percent loan to value less risky,
20x, leverage, super risky. You know so microstrategy like we
Really took an uncorrelated asset, our enterprise software business that generates cash
flows, we pledged that
in order to raise debt to invest in Bitcoin. So we're actually very intelligent about the way that we construct the debt and the capital structure. If I, if I wanted to make it riskier, then I would securitize the Bitcoin directly.
And if I wanted to make it
more risky, I would simply post the Bitcoin and I borrow ten percent against it. And if I wanted to make it more risky, I'd run up to fifty percent loan to value, right? And so, there are ways to construct a tower of risk and a capital structure.
But, but most people on
Twitter right there. I
don't see a lot of parsing, I suspect that 99%
of the people that would criticize us.
For doing this, haven't even read the debt instrument or the SEC filings. They do more. They wouldn't understand or they wouldn't understand it if they read it. And I was just going to say I figure average person in this country has a fear of debt, or a lack of financial education, which is not provided by the system. And so you have this sort of binary debt is bad feeling and don't understand that, you know, taking two percent interest on a mortgage and paying the same 2500 dollar payment, 30 years from now as today.
Day
is obviously with inflation of far, cheaper
payment and is the best bet to make every time. And you can take money right now and park it in u.s. DC and are nine percent
with that loan and do
absolutely nothing. And theoretically, if you believe in gaining yield, you can buy Bitcoin. You get six and a half percent, if you trust the platforms and are comfortable at the counterparty risk, I'm curious, if you as a company have explored any of the yield strategies for your
Holdings.
Yeah, I'll I talked
to everybody in the market and I keep
track of what's going on. Believe It or Not, Scott, I'm still in my rookie year. I haven't gone one year in Bitcoin. So this is our first year in our first year, our Focus was do the equity financing to buy Bitcoin, do the first convert convert to do, buy Bitcoin, buy Bitcoin with our cash.
It flows but do the second convert to buy
Bitcoin. Then do the secured financing to buy
Bitcoin and and then make sure that we we communicate and we build institutional
awareness and and we had to educate our Auditors and we've dedicated our lawyers with educate our shareholders. We have to educate the general
public. So in that environment during that time frame Bitcoin
is is, you know, up
Two hundred ninety four percent. So those
yield offerings might have yielded you know what would they yield five four percent on bitcoin on
bitcoin. So I might have got four percent more I go from two hundred
ninety-eight percent to three hundred and two percent.
Right? But I can tell you as a public company
officer my risk and my regulatory headache and my legal headache and my accounting headache would have been 10x higher.
Her.
So II would have you know I would have
put my finance team through 10x as much complexity
in order to get comfortable, the counterparties. First we got to figure out who do we trust? Then we got to figure out what is the risk, then we had to figure out how to disclose that to the public shareholders. Then we have to figure out what the legal issues are, you know, so there's a lot of work to get that last 4% and what what's a more profitable.
Use of time. How about borrow a billion
dollars at 0%? Interest
the billion dollars at 0%
interest was invested in Bitcoin at 20,000 and so or not, not a 20,000. But the 650 million was invested at 20,000. So, you know, we made almost, you know, 500 million off of that or for them. We made a lot of money off of that, some amount of money you can do the analysis, right?
So what we're doing is, we're
We're carefully thinking through
what's most accretive. And then, once best for us, if I was
an
individual and I had five years holding Bitcoin, and I knew, you know, I was much more comfortable in my position and I was a private individual and I had a good Comfort level, with whatever the entity was offering me yield. Then maybe I might enter into that. I think ultimately the first step is you establish Bitcoin position.
You find out how you want to custody it and that's a major debate, right? We could spend hours talking about how you should custody it and then how you should how you should acquire it. I think the second step is banking a Bitcoin do I borrow against it do I'll end it. Do I generate yield on it and its second order it's important in time.
But
I tend to fall in the camp of
the obvious thing to do. If you, if I bought a billion dollars of property in Manhattan, a hundred years ago,
I would have held it for a
hundred years and then I would have mortgaged it and they fed would have printed 7% more money every year
and the value of the property in Manhattan would have
gone up more than seven percent a year.
And then I would have taken loans. Tax, free to live off it. And then a hundred years later.
I would have bought the property for
20 million, it would be worth a billion. I would have 700 million of debt on it after a hundred years out of 200 million in equity, and I never would have generated a taxable event.
And I probably you know, maybe I would rent it, maybe I'd rent you know, like maybe I'd have a rental business there and I'd be doing financing and I'd be thinking about managing the property but you know that that's a that's the way to think about that.
So, I wanted to point, I'd make, please, it's interesting.
If I could, if you roll the clock back one year. Now, we have hindsight, if you had a
million dollars or if you are sitting in a position
where you could have
invested a million dollars a year ago or in a hundred thousand, pick any amount and maybe you could borrow a hundred thousand against the house a year ago
and you think about what you could have done with it. What are the, what are the mistakes?
If you borrowed
$100,000 and you bought
gold, you lost
two percent of your money, you would have 98 thousand worth of gold. If you
bought $100,000 borrowed
$100,000, a year ago and you bought
long
duration, government debt 10 and 30 year, government debt.
You would have lost 12
percent of your money. That was an awful idea, pretty stupid, right? Why would you ever buy debt and and alone the federal government?
Money for 30 years for 1.2 percent interest, for 30 years, right? I mean,
hopefully no one would
buy 10 year and 30-year debt? Ten years were yielding 70 basis points or 50 basis points in the like
so those are two mistakes.
If you borrowed the money
and you just held it in cash, you would have the money and you would pay 2% you know and so that's that.
But what if you've done everything else, right? If you bought a house with the money,
Single-family houses were up 24
percent according to headline, The Wall Street Journal last week.
Okay, so if you bought a house 12 months ago, that was smart, you know, not a bad idea. Why you bought a scarce asset, if you bought a portfolio of S&P, stocks, you have
40%. So you would have had a 38% Arbitrage, you would have made 38% on the, on the loan. If you bought big Tech, Europe 47%,
If you bought Bitcoin, you're up to 94%. You
know, you could probably list a whole set of meme stocks. It did even better and
probably some cryptos. It did even better,
they all have more risk that, you know, it's like take a, take a flyer if you did it. Great, myself, like,
I'd like to invest in things that I can hold a decade.
I wouldn't be holding AMC stock or GameStop stock for a decade. Even
you know, you could have made money on Carnival Cruise Lines and the
airline trade. But I mean I just wouldn't
do it because I want to
buy something and hold it for a decade.
But but generally the, what's the one mistake? I mean, unless you were going to buy gold or long-dated sovereign debt with
the money that you borrowed, the one mistake would be not to a borrowed, the money.
That's the biggest mistake because you almost couldn't, you almost couldn't lose
money investing in anything.
Right? I mean I mean I'm sure people did. How do you
lose money? You
you trade it right? You basically buy games. Start your short Game. Stop on margin, or you do some kind of short-dated trade and I've lost money on short trades. Like
there is nobody in the world that here's what I think about that. No one in the world so smart, they can guarantee
your short-term trade is going to work.
And any trade no matter how intelligent it is, can be made to look scary if I compress the time frame enough, if I zoom in on your face with 10,000 of one magnifying glass, I'll find a
blemish. And if I track the most stable
thing down to the one second, gyration
I will find anxiety in a one point I made to people is
if you took a million dollars and you bought a house
and then you went to everybody, you could find in the world every minute of the day on Saturday night while you're drinking tequila and you said, well, you buy my house for me for more than I paid for it.
You would probably find someone at some point there was say no.
You're probably find someone that will
say, I don't want your house, I'm not going to pay you anything for it. Or someone else will say, I'll give you half
and if you then said to yourself, oh my God. I lost half my money. I found someone that was willing to give me half. You would just give yourself a heart attack, if you
keep oversampling, if you sample, everybody all the time,
you're going to create anxiety. And the problem with Bitcoin and crypto is in general, is
there sampling
Anywhere in the world all the time. And so if you fixate on it, it's going to give you anxiety. And, and the only thing you can do
is buy or sell, right? And so if you buy and hold, that's good and end at any point, in the history of Technology, if you would sold, you made a mistake.
Right, with the one caveat you have to buy the winter, you have to buy the category killer, you have to you by Facebook,
Google Amazon, Apple, Microsoft.
And so the question is, how long do you got to watch them when
before you decide their the winner?
May I think 30 years is a bit late if you got to wait for
30 years before you pick the winner, right? You probably won't get out sighs returns
but you could have watched them when for
10 years and bought them and still made a lot of money.
And that would be Bitcoin under 4,000
dollars last year. Yeah, I would say.
It's got the Lindy effect. I mean, it's been in existence long enough that, you know, that it will continue to be in existence. So it is an apt analogy to say, it's like buying Amazon, 10 years, it,
I waited 10 years. Like, I mean, like if you bought it in 2013, you were inspired and you took a lot more risk and there's a lot more question, mark.
But waiting until 2020.
Like what, how about 20 21? I mean, really like are you still going to? Are you still going to
classify it? I mean it's it's
certainly more stable and more successful than Facebook
was in
2012.
Or Google, if you look at the market
caps and and the stability of Facebook and Google and Amazon and even Apple, you can find that was 98% skepticism on those stocks ten years after they had established their business model.
Even more volatility and more volatility than Bitcoin in many cases.
Like, yeah. I mean, Facebook was the idea that I'm going to collect and Channel
all the social energy and the world on a digital Network, dematerializing, friendships and Communications. And, you know, the like and it was a totally revolutionary idea but it's worth a trillion dollars this
week.
Tipped.
Well, I want to I want to Pivot a bit to China because I think we both agree that they're making a Monumental mistake cracking down on Bitcoin mining. As I mentioned, I talked to Vijay boy potty and he posited that it was about bureaucracy and actually the Communist Party disallowing lower level members to profit from Bitcoin and not really about energy, which is the narrative. Since, you know, Szechuan, we know is largely using an excess of hydroelectric. Power, I mean can you talk about the situation in China? Why do you think it's happening? I know that you believe it's a trillion.
Steak, especially in context of the timing. So what do you think the real story
is there? Look, the real story is that is capital controls in China, the China, the Chinese don't want Capital to flow out of the
country, they want to keep that they've got a closed economic system. You know, for
example,
stocks in the Chinese stock market would trade with a pde of 30 when they were trading with a PD of 15 in the US Stock Market.
I remember going to China. I so a business people. Okay? And they would say yeah, well you know, you should take your company public on the Chinese talk more because you would get a 40% 40 multiple instead of a 10 multiple like, okay. But they're like, yeah. But the one
problem is you can't like get the money out of
China.
Okay, it's closed system you know and then the problem their problem is they
can't get money out of China.
So this has been the case in
China for ever.
The Chinese currency is pegged to the dollar and has been pegged the dollar, but the only way to keep it pegged to the
dollar was to prevent the capital from from
flowing. I think that at some point,
the Chinese decided that there was too much potential for Capital flow
Go out. One way to evade, the capital control is to buy Bitcoin mining equipment, and then mine Bitcoin. And you've got hard currency, the other way would be to trade OTC Bitcoin.
So, I think you had a lot of
people in China, that had a lot of Bitcoin,
a lot of capital, like what what do you want to do? If you're Chinese
billionaire or you're a Russian billionaire, what do you want to do? You want to get your money out of the
country, right? Why did the
Russians always own yachts and
And because it's floating
capital. I put the money in the boat, I float the boat out of the country, you know? So there's this
this issue there. I really think that the number one thing
is they want to control the capital,
and they want to use that to control their markets.
The number. The number two
thing is, is the environment, 70% or more of Bitcoin mining and China is is coal-powered. So I think they use that as an excuse, but I really think the environment is always the excuse any kind of concern like that against the primary issue which is just controlling the economy. Now, I think
that the rest of the world is different because the
Chinese, have a hard
Peg.
I mean see and why is pegged like six and a half to the dollar and there's all
sorts of speculation. The euro is not
hard pegged to the dollar and so if you have free or floating currencies with the pound, the Euro other currencies that that don't have, that kind of hard pegged to the dollar. They don't have the same kind of requirement,
I think, as long as the cap, by the way that I don't think they've actually outlawed owning Bitcoin, I think they've, so you could own it.
I think generally politicians look at
this and they want to, they say,
they want to protect the tax base
and if they have Capital controls, they have to defend the capital controls.
So, so any country that has
Capital controls, you can look at will, eventually eventually put tighter restrictions on bitcoin trading. You know,
the problem in China
is are they going to convert Bitcoin to tether and have tether can cross National boundaries?
He's then they've got porous Capital controls and you can't you can't have a capital control policy and allow people to freely trade pass that. So you have to clamp down on the exchanges that would allow that and that's what's going on. Do you think any of its related to the development of the Central Bank? Digital
currency
Not really like if I had ten
billion dollars in China and it was investing in Chinese stock market and I wanted to sell it and I wanted to put it in the United States at JPMorgan and by the S&P 500 they wouldn't let me right.
Like I mean the first order issue is they want the money.
Like if there's hundreds of billions, or if there's hundreds of billions of dollars in China, they do not want anybody in
China to move that Capital the New York or London. They want to keep capital in their system.
And so that's the Chinese wall. The Chinese wall
is an is a internet wall and a capital wall. It's not
new. For example, the Chinese band Facebook, the Chinese band Twitter, the Chinese been Google, the Chinese won't let you have data outside of their country. So those are very hard wall and and the Chinese don't want you to move capital and Bitcoin just happens to have gotten to the
point where his material it was immaterial
They'd already, you know, they shut
down conversion of Fiat shot,
CNY currency to Bitcoin in 2017, right? You right? You know that you followed that story, right?
And so they just left this
loophole, I guess where people were trading,
I think they shut the retail trade out and they left the institutional trade functioning
And probably what you had was a lot of very wealthy powerful people in China. Probably that had control of provincial governments and they were mining Bitcoin and trading it and they and they had that opportunity whereas the billion people and the consumer working class did not have that access and
the Chinese close that loophole
the entire China Exodus is
really forced Rush.
Exodus of capital from China,
I got a billion dollars of Bitcoin, I have to sell it and I have to sell it in a hurry before I get audited by the Chinese government or be before someone comes and ask me why I'm holding this. And I need to convert it into local CNY.
So the Chinese have a
history of providing amnesty. So you have three months to clean up your act
just like the u.s. you know that, you know, at one point they said well, you know, if you have money in Swiss bank
account you have
Three months to declare it and pay tax on it. And after that, we're going to bring charges against you and lots of people declare it and get clean and the other ones don't and they get prosecuted. So this happened, it happened in
2017. The country gave people some number of months to move their exchanges
out.
You know, there's okay coin and there's oke X, right? And they split and I'll because you couldn't be trading fee on to Bitcoin in China.
So, they gave them a mistake. I think they gave me another amnesty. I think you saw this kind of rolling
rolling, Exodus of Mining and exodus of capital.
Who are the big Winners? Look, my company buys Bitcoin at 35,000, I would have paid seventy thousand Scott. If this had not happened then Bitcoin would have gone sixty to seventy to ninety to a hundred. We'd be paying a hundred thousand so people buying Bitcoin in the 30s, got Bitcoin at a discount, you got two types of people. You got the long-term people that said but for the Chinese Exodus,
we would have had to overpay and you got the short term people. That said ha ha.
You're so stupid. You bought it at 650
thousand and now it's 35,000. Huh? You should have shorted. It
while shorting is like shorting electricity it's like no I don't think
so. If you think
it's a this is a
Rorschach test. If you understand that Bitcoin is digital property rights for eight billion people going to change the earth. Then you think this is just volatility and it's a buying opportunity and it's
A windfall and if you think Bitcoin isn't is a random speculative gambling, asset of no consequence with no undermining underlying value, then you think it's like you were stupid. You shouldn't have bought it and
obviously the technologists that understand it. We think we think it's a decentralized sound
digital property Network that can serve as the basis of
The 21st century economy.
This is a trillion dollar mistake for China because they had 60 percent of Bitcoin mining. It was worth 12 billion a year plus all the Bitcoin and it was
doubling every year and it
was going to a hundred trillion dollars and they could have had trillions and trillions of dollars and instead they held a gun to the
head of their holders. They,
if I said to you Scott 15,
Years ago, if you own half of Google and Google was worth 50
billion dollars and I said
you have to sell all your stock in Google.
How much would you have lost
billions and billions of dollars like kinds of First
Nation, right? It's a forced liquidation of the dominant digital property Network on Earth they forced themselves out of the business. So that's why it's a geopolitical mistake. It's a
tragedy for the people in China, that own Bitcoin. I feel awful for them. Like, it's a
tragedy now. They got a
But for the Bitcoin miners in North America, it's a windfall, right? Their revenues are going to double their costs are the same their margins of quadrupled or coin toppled.
Right. It's like in any business, right? If I, if I went to a, if I went to Pepsi and I said, guess what? I'm going to Outlaw,
Coca-Cola and obliterated, all their factories worldwide. What do you think?
It sounds like it's a good thing for Pepsi.
That's kind of what happened here, right? North Americans were a bit behind.
The big fight in the market was oh
yeah Bitcoin is dirty while. 75% of the the power in China was was Cole. So the China was the dirtiest minor Bitcoin. The next fight is China. Might take it over. That's not happening the next flood. Was they dominate mining? That's not happening. The next flood was it's a secret to undermine the Dollar by the Chinese. That's obviously not the case.
So now that you're through the China
Fudd and you're through all the
Bitcoin is China coin type, ridiculous narrative. Now the next question is well as Bitcoin good for
the world. Well it's good for the rest of the world,
right? It's good for the dollar. What you can see here is they've your free-floating currency, then you're going to see the US dollar float to 5 billion, people's mobile devices, and Bitcoins going to be underlying protocol
to synchronize all five billion
devices.
And if you don't synchronize on bitcoin as a settlement, not work, you'll synchronize on Lightning as a transaction that work or you'll
synchronize on another
layer to a proprietary layer, to controlled by buying answer, coinbase, or Square, or PayPal, or Apple or Google or Facebook that then in turn, settles on the underlying Bitcoin settlement Network. And so, the architecture of the world is kind of is becoming clearer and Scott. You know, when I,
when I wrote the book The
Mobile wave. What I said was, and I said by Apple, Amazon, Facebook and Google because they're the dominant digital networks in the Western World. China closed off China to Google
and Facebook and Twitter and Amazon and the like through Capital controls and information controls and then they created their own version Ali. Baba, WeChat right, Ali pay. Right so
So weibo
so China, created its own little world. And what you saw was the Western at which consists of Western Europe, the United States,
the rest of the world that became one ecosystem China with their, with their billion, people became the other ecosystem and then you saw the category Champions and both
ecosystem, But ultimately, you know, like yeah I would rather on
Google than own the equivalent in China,
especially because at least Google
You right to property, which you can take the Sicily, or Paris, or London, and you can live in a free economy, whereas if you've got all your wealth and your business trapped in China, it's a closed system. You have to stay within China, you don't have access to the rest of the world with it. You can't take your capital
and so ultimately, they close themselves off,
which, you know, it works in the near term but on the long term,
Are you going to bet against Google?
Well, I'm not.
You know, like I don't think I want to do that. Right? Like so, so you know, that's what I think about that. That's helpful.
It is, it's interesting. I mean China is obviously an example, an example on one pole of what we could see from governments but then we have countries like El Salvador, obviously they're adopting Bitcoin is legal tender talking about mining volcanoes, where do you think that most countries in
the world will fall,
you know, between those poles as they start to actually
Address
Bitcoins little, I think that you're, I think you're going to see
digital property, digital currency and digital applications got, and digital property
is is Bitcoin.
It's, it's like the, the block of cyber Manhattan. And it will be based on a proof-of-work network and it will be mind
and digital currencies. They're going to be
Stable coins and see bdcs. They're going to be with digital property. You
optimize it for integrity and durability.
Well you want it to last for a thousand
years like like the city block in Manhattan. It's fun. Granite Manhattan's built on granite.
That's because that's why it's
still there. 300 years later because you can build something. It's still there. You don't build on Sand. You don't build on Clay. You build on granite. You want to do you want it to move
fast? No.
You don't need to move fast, this need to be functional. No, it needs to be inertial. If I'm going to lean on
something I need to know it'll be there in a hundred years. What happens if you build on Sand? Well, what happened at? Surfside in, Miami Beach, two weeks a week ago, right? That's what happens, right? It's riskier, you build on granite,
you build a steel. It's heavy. That's property. The
currencies are going to be optimized for compliance and compatibility. You got to do,
Anne's actions and you're going to hit, get KY, caml regulation.
And I think you can expect most countries, they're going to wrap
any exchange and any functionality around stable coin with AML kyc because it's just natural because they want to make sure the capital doesn't evade their tax or there or there regs. And then, I think you've got digital applications, the smart chains, smart contracts, defy
all the functionality. Well,
Vacations are optimized for
functionality and performance. I need to do a million transactions a day. I need to a million a
minute, I need function, I need touring complete. I need to do flash loans, I need to do stuff. What it, what what are they trying to do? Whether if they're a platform, they're wanting to be the
building on the city block in cyber
Manhattan.
It's like, because what can I do with a building? The Rockefeller
Center is standing in Manhattan. It's nearly a hundred years
old.
The city block is a thousand years old.
You know, the Rockefeller Center. Probably
stand another hundred years, but maybe not much longer than that. A
lot of businesses have come and
gone in the Rockefeller Center over that a hundred years insurance. Companies Banks discotheques restaurants membership
clubs condos. So digital applications are either a platform or there an application. And the
question is, are you making an investment for a hundred year time frame?
Are you wanting to
own the building for the next 50 years? Are you wanting to own the business, that might be good for five years? There's some
businesses that lasted,
you know, 50 years. Not
many.
Right. So so I would say it's like property is a 500
year. Timeframe a building or a platform is a 50 year time frame. A business is a five-year timeframe or 10-year, time frame.
They've all got different
risk-reward. It takes a lot more
Capital to own the property its capital
intensive.
You can start a business in New
York City today and you can rent the space for a year, right?
It doesn't take a lot of
capital to start the business. The, to build the building is intermediate Capital.
So how much Capital do you need? What's your time
frame? What's your risk
tolerance and Bitcoin will be regulated as
property and you'll pay property taxes on it and you'll have to disclose
I cannot transfer, you know, a billion dollars of property from here to Africa privately without paying taxes on
it. Of course, right.
On the other hand, an
application. If you're gonna get the insurance business and
you're going to sell life insurance on a defined Network to a
consumer, you're probably going to get your door knocked on by a insurance. Regulator that's going to say, you sold life
insurance and you violated the following, you know,
Life insurance restrictions, you're overcharging or undercharging or whatever you're doing.
And if you're going to trade stocks, if you want to trade
Apple, Apple stock as a token on Saturday night in the United States of America with quintuple leverage, the SEC is
probably at some point. Going to say, it looks like you're an exchange.
And since we've already said you can't trade with that kind of Leverage on exchanges, we have a problem with you doing it,
or if you're going to trade
Commodities, the cftc
is going to say. If you're going to let you know,
American citizens trade Commodities in competition with the cftc.
You know, there are rules, right, like everybody's got their regs. So if you want to trade Eagles
music on an nft Network,
Applied for him and you're actually going to upload it. Try uploading an evil and Eagles music video to YouTube and see how long it lasts before they rip it down.
Even like well that's fair use can I
just use the, you know, the music from the Eagles in on the in the beginning, track of my
podcast? The answer is no, you can. Okay? So I think that that as you build application
functionality, you're going to invite Apple application Level regulation from the from the jurisdictions where you do business and it's going to be
slower.
I was going to take a while for people to figure out what they think
about it and it's going to be very asymmetric and Jagged, right? Like some
jurisdictions will move
more aggressively faster than other jurisdictions because of their political sensitivities.
So that's kind of what I think will happen. And if you are making Investments, you kind of have to, you have to figure out, you know, what, jurisdiction
of my end,
right? El Salvador said, we're
not going to charge you tax.
If you transfer Bitcoin?
Okay, well if you're an El Salvador citizen
that's a great thing for you. But if you're a United States citizen, you're gonna have to surrender your passport and be an expat for ten years
before that's going to be a good thing for you, right? So everybody's got their different thing. I don't really think that Bitcoin is going to be
currency in the US ever,
nor do I think it should be. I really think logically it should be treated as property.
It's like owning a building or owning a bar of gold
Gold or owning a share of stock its property.
And and what it's doing is it's D monetizing, other forms of property if you have a million dollars and you have to choose whether
you buy Collectibles or a house or a second house or an ETF or a share of our Apple stock or start a business, you know, or by art
or by a bar gold.
Or buy Bitcoin. That's the fungible
decision. You have to make. Where do you want to store your monetary energy?
And clearly my message I even posted today is like gold is no longer a store of value for monetary energy. That's why it's sub
zero percent in a year where the S&P 500 is up, 400%,
it's pretty clear. The
marketplace thinks that stocks are a better store of value than gold
and the mark
Place thinks Bitcoin is a better store of value than stocks.
So ergo.
Digital property is D monetizing, it's the monetizing other
traditional assets. And
I think that the way the world over revolve is eventually they'll figure the best architecture of a digital property. As proof of work, decentralized
Bitcoin, mining ore mining in
general and I think that the architecture the world is going to adopt for
applications is proof of stake of some sort.
You know, lightning is a proof of stake, not work. It's just steak with Bitcoin, you know these other staking networks, their steak with something. I happen to think that it's if you're going to have a steak Network, you're better off to steak with a financial asset that is uncorrelated to your network. So, for
example, for example,
I staked, my, my debt instrument my, $500,000,000 along with cash flows from Enterprise
I software, right? And then I bought Bitcoin. So I created
an uncorrelated asset, Bitcoin
miners, steak dollars, they use dollars and they use technology mining Rigs and they
use political Capital. So technical Capital Financial Capital Fiat, Capital political Capital, engineering, capital, and human capital. They use people to create a mining operation. That's takes
the Bitcoin Network, right? And they use energy to
right? So five different
Flavors of capital to
stake Bitcoin. The lightning Network uses Bitcoin to stake it.
You could even argue aetherium 2.0 will be using aetherium 1.0 which is a state which a which they proof-of-work GPU mine network
to stake it. You see
so to the extent you know if you were going to spin up your own application, you know, square cash and PayPal. They have layer
to application staked with
Bitcoin.
Financing coinbase
have application stake with Bitcoin and microstrategy issues
stock and convertible debt and straight
debt, which is a derivative staked
with Bitcoin and other, and political capital and other things, right? So so the way that you get stability in a network
is hopefully you're open to another form of energy.
So that so that you're not in bread self-referential, if you create, you know, yo-yo coin and you create yo-yo, not work and you give you a little coin to yourself and your friends and you stake, your yo-yo network with yoyo coin to create, you know, virtual security. So that you can do virtual functionality, you just create a second life, but I'm not even saying it's not valuable like second, life, and Fortnight are valuable, right? You
Created a, you've created a virtual gaming ecosystem. Farmville. You can have FarmVille with Farmville dollars and steak and by, you know, by skins and the like,
it's a question of on the
Continuum from game
to casino, you know, I go into a casino, I buy a bunch of chips, maybe they're not redeemable, they're
only good, you know,
for the casino, but they're invaluable. Oh my God. From the game, to the casino, to the
application.
To the to the, to the bank to property. I think that if you want to create properties, good for a thousand years,
Then your best architecture is one that uses political Capital, energy, Capital, external Financial Capital, semiconductor capital, and and to engineering Capital that are all external to the network that you're attempting to steak and to securitize. Yeah, a hundred percent agree. It'll be treated as property as it already is. My only fear with that is that if the world ever does move to a bit,
In standard that your D incentivised to actually spend it when it's needed, obviously by a cup of coffee with Bitcoin is a bad idea right now because of the tax and I
don't think you ever need. Look. I don't think you should spend property. I think that this is a fundamental misconception.
People have they keep thinking they have to spend or it has to be has to have a use utility for it to have value.
The reason I think that is because they never been rich, like, I mean, it's really non rich people. That think that
For example, if my family had bought up 20
blocks of Manhattan, 200 years ago,
would I have to
spend my real estate on coffee for the this Manhattan have to have
value.
Like like isn't it obvious that owning all of Manhattan and not giving
away any of it for 200 years is probably a better investment on a better idea,
right? It's property. Like how about Robert Kraft? He owns, you know, the New England Patriots, does he spend 1% of the New England Patriots to buy coffee?
Does he give it away every year? So we'll have value? No, he owns it. Has he given, what's he going to do with it? Give it to us kids, If he, if he can write, it's a dynastic thing. The United States doesn't give away its land to foreign countries to buy coffee. So if you have real wealth, if you have a franchise, if you own Manhattan, if you actually own like
Jeff Bezos didn't get rich by spending Amazon stock
on call.
Jeff Bezos got rich by not spending Amazon, stock,
Larry Ellison, still owns Oracle. You know, how did he do it? He borrowed against it,
right? Rich family's rich countries, they borrow or they, or they they generate yield on it, right? If I own Manhattan, I can either borrow against it or I can let you build a building on it, but I keep ownership the underlying property,
a lot of the property and in Europe the noble
Please like, the Prince of Wales, whatever, they own the
land underneath London. And then
people that have buildings, they don't own
their land. They have a 100 year lease, or ground lease, or 200 year lease or a 50-year lease, but they don't actually own the property,
right? Sometimes the
government owns the property and in
UAE, it's illegal for a foreigner to
buy land on the
beach. I think all of the prime
beachfront property
It's impossible for a foreigner to bite. It's against the law. So, so if you think once you understand property, you understand that, if I gave you a billion dollars of property, you could pretty much just
stay Rich forever and you don't have to spend the property, all you're going to do,
borrow money at 2% interest against the property,
invest it in the SP that yields 10% scrape. The eight percent yield
never sell the
Stock never sell the land.
Just live your
living off of rent or Arbitrage off the energy and
that that's I think I think DJ understands that but Vijay would say is the reason that Bitcoin is good money is because there is no utility value
for it other than as money,
like if gold is not a good thing to monetize because it has value is jewelry.
And corn is not a good thing to monetize because there's value is food and a house is not
Not a good idea to monetize it because as value to live in you
want to monetize
something which has which is 100% monetary premium and
and to be a 100% monetary premium. You don't have to spend it. I think that the big the big idea that people just
don't get is they don't understand that under
inflation.
Money. Decomposes into a currency and an asset.
So in a non inflationary environment, this is first principles reasoning. If the US dollar was never printed. If
the US dollar was not inflationary, then it would be a store of value and it would be a medium of exchange and would be a unit of account. But when I decide to print 10% more dollars, every year,
it becomes a medium of exchange, a unit of account, but the store of value
disappears, and it drifts and the
store of value, becomes sovereign debt.
Or gold, or,
or S&P 500
stocks, or Equity, or Bitcoin something. So, when the, when the dollar
inflates 20% a year, it's pretty clear. The currency is no longer a store of value when the currency inflates that eighty percent a year, it's not, you know, it's losing its value within six months, you know. And so it starts to just totally break down
if you understood that
Once you want, once you get that idea, you realize that for Bitcoin to have value, you don't have to spend it, you have to hold it.
And and the way that you execute your life, is you you fund your your checking account or your you find your working capital by borrowing or generating yield off of your asset.
So I have a million dollars, a
Bitcoin, I borrow $10,000 against it. I don't sell the Bitcoin. I pay 3% interest Bitcoin goes up 10 or 20 percent a year.
Keep funding, our USD checking account against my BTC savings account and then the asset will go up faster than my rate of expenditures
for that to
work. All I need is a bank that will either generate yield for me or will give me low interest loans. So you need Bitcoin Bank
every rich person in the world.
Every wealthy person they have billions of dollars
or hundreds of millions of assets, they have Banks and the banks are going to give them financing at Libor plus 50 basis points against their Equity portfolios, or Libor plus 200 basis points against their yacht or Li border plus, plus a hundred basis points against this or their financing, their business at the junk bond. Every business can borrow money at 4% interest and the junk bond market.
Right. And so or they're going to Banks, they're saying I have a billion dollar building and they're refinancing it with a building construction loan at 3% or 4% interest. So they're all continually financing their assets with a mixture of debt instruments in order to avoid capital gains in order to avoid income tax and in order to avoid shrinking their asset portfolio. Because
if I have
Billion dollars of real estate.
And if you can predict that the FED is going to print 7%, more money a year, and if
the real estates in New York and it's scarce, can't you reasonably assume that the real estate is going to go up by 7% a
year course?
And doesn't that mean that you're ten billion dollars of real
estate is going to be worth an extra seven hundred million dollars next year. And doesn't that mean that you can refinance it and you can take a hundred million dollars a year.
Out of that at 2
percent or 3 or
4% interest tax free forever.
Yes what about for a poor person who has a
hundred dollars in Bitcoin and can't find somebody to lend against it. It's
this the principle is the same at all scale.
Which is
you want to divide your assets into a savings account? That's in an appreciating asset BTC and a checking account, that's in a depreciating currency.
The same scale. And
look, if you're, if you're a poor person, the only
way you generate wealth, is you have to generate assets. So how do you do it? You either create a company issue yourself to
stock, or you have to save money
at another
job. And then when you save money, you go buy something. You can buy a house with leverage. So if
you can make enough for a down payment, then you can buy a house and the house goes up 7%.
Year. And then you can generate home equity. And, and lots of people did that right?
Lots of middle-class people generated wealth
by owning their own home because they were able to buy it with leverage. You can't do it without leverage your. It's hopeless without leverage. Now, once you've done that, right, I mean the classic thing is I get a job. I get a down payment, I buy a house.
It appreciates. I flip it, I buy another house on. I get more debt, I pulled their money out and then I make an intelligent investment, the stock market, or intelligent investment in a business that appreciates. Now, you have assets right now, what don't you ever want to do you? Don't ever want to shrink your balance sheet?
Ultimately, what you want to do is construct the balance sheet of the highest and the greatest amount of high quality assets.
Definition of high quality asset. One that a wealthy person will want to buy in 10 years. That's a good definition.
Common sense, a house in the Hamptons is
Picasso what? You know, how about, you know you bought a hundred acres in the middle of Kansas and you paid a lot for it? Well, maybe it doesn't seem scarce. It doesn't seem
design.
Horrible, it's not going to appreciate as fast.
So find scarce, desirable assets. The other thing is find something which is not going to force liquidate you,
you know, you buy Dogecoin, you know on margin and you might get wiped out before you make your money on it, right? So some things are riskier than other
things.
I think ultimately, you know, the
big disservice we do is we tell people, you know, you have to spend something for it to have value. You don't have to spend shares of Apple stock for dead value. I mean,
like, it's such a freaking stupid thing to say. You don't, you don't have to
Mark Zuckerberg. Never spent a share of Facebook stock to be rich,
right? Okay. I got a billion dollars of Facebook stock. I'm in real deep trouble because I can't spend it on coffee. No, I go. I pick up the phone, I called
Bank. I save a billion dollars of Facebook stock and they bought
and they loan me. A hundred million dollars at one percent interest and I spend a hundred million dollars over the next ten years. I never pay income tax. I have no capital gains tax and the only question is, is Facebook going to go up or down over time? And if Facebook is a is a franchise
then when am I going to sell it? The answer is I'm never going to sell it.
You just, if you look at John, Malone's Life, John Malone, is one of the great businessmen, you know, he's one of the, the true
genius cable billionaires, and if you read the story of his life, it was all about. I bought this business. I did a tax-free merger with that business. I leveraged up that business. I sold the AT&T and attacks for did a tax-free spin-off. I leverage that business. He still owns all of these cable companies and these cable,
Looks after 50 40 to 50 years, never selling. And the
number one reason is he never wanted to incur a tax?
Write that I mean it's the tax, the
kills you
especially capital gains tax and so you just want to buy assets and you want to find a way to build up your asset portfolio, however, you can with and generally. What what's the best thing?
Long-term patient, low-cost
financing.
10-year debt, 20-year
debt.
It's like if you don't believe and
if you don't believe what you're investing in and you borrow money against it, you're going to get wrecked.
Okay, so maybe you don't want to
launch a bakery or a restaurant. How about just by the S&P 500 Index with long-term debt, I bet you
I bet you if you did the analysis for the past
40 years and you considered if someone were to basically take a home equity loan and then reinvest it in the S&P 500, just roll that forward for decades. You probably would be fine. Right shortly like that. One at. That would have been a simple.
Thing, simple thing, leverage up your house. Take as much
Equity, you can't out of your house and by the SP index, and you probably in the ESPYs up 10% a year for a hundred years. It's up a lot more right now. I think generally you might find one year when it might have been ugly, but if you just hold that position for your entire life,
This simple idea borrow money cheap and buy and buy a diversified portfolio of company. Stocks is not an awful idea. So the average person is going to eventually have to borrow against their
Bitcoin.
Yeah, I think either daughter generate yield, you'll either have to go
to a yield strategy of you have to borrow against it.
But and again, some
people live in fear of that view, if you're really hyper conservative, you get a job and you live off of your earnings from your job. And then you let your your Bitcoin appreciate on
leveraged. But I don't think you can find. I mean, I don't think it would be
untrue to say that 95% of the businesses and 95% of wealthy individuals have some debt
I think I bet you, I bet you'll find that that most of these sports team owners, 80 90 percent of the sports team owners. And on these franchises, they all have dead on them worse, right? So, they're not afraid of it. I mean, their viewers find find an asset that's not getting marked to Market.
Right? And find a friendly bank that will loan me money against it. And you know, so leverage it up, fifty percent, 30 percent, 20 percent, 80 percent
If I bought a house right now and someone offered me two and a half percent interest. Yeah, I put dad on it, I mean light. Right, why wouldn't I put dead on it? The cost
of capital is 40 percent this year. That's the key, the caught the, the best surrogate for cost of
capital for an investor. In my opinion is the S&P 500 Index.
it's just a broad portfolio of desirable assets and if you look at it, if you're not, if you can borrow money at less than
that,
Then you can always buy the index, right?
Yeah, of course.
Yeah, I guess the question is then when do we have a reliable bank that will allow us to borrow against our
Bitcoin? Why you see that banking? You see the Bitcoin
banking industry, evolving, right block fi ambra. They are all, you know, and Celsius. They're all bringing out offerings and they're all pretty material, pretty big players for Consumer loans.
I think I'll Brew announced that they would give you as
0% loan up to
10% of your of your loan to value or 4%
Lon they're all offering, two, three, four to be anywhere between
one and eight percent or 1 and 9 percent. The catch is really just how much cloud or do you want to post.
So like I could if I post a
million dollars, I could borrow $100,000.
From nothing. Yeah, for free. They will take it and they will lend it out.
But if you try, if you think that Abra is is a reliable counterparty, you can
have a loan for a hundred thousand, four zero interest.
Well, you know, if you if you want a four percent loan, you can get that and I think the loan-to-value tranches 20% 35 %, 50% this if you want to if you want to borrow half a million against the million in Bitcoin, they charge a eight or nine percent.
So yeah I'm not a big fan of getting
to leverage, right? Like if you figure the Bitcoin could draw down 50% then you don't want to be at a fifty percent loan to value because you're on the
edge. But, you know, twenty percent loan to value. You know, could you live there? You just want to keep it below that. I mean again the
it's not quite as good as what we've done because if you get an 80% drawdown once you could still get Force liquidated,
you know? So
The other hand 10 percent loan to value 10%. So okay. Yeah you participated I think that the market will evolve to the point where they'll be other banks that will just give you a
loan where they don't require custody. You just
like there there are banks where if
you just represented them you own the property and they look at your balance sheet to like okay, well you have 10 million dollars worth of bitcoin. I'll give you a million dollar loan or $500,000, loan eventually Med. That's what I meant like you borrowing against a yacht. The bank
doesn't take your yacht until you pay back your loan. They know that you have the
yacht. And you know what, there is one bank that will that will if you take the top five banks in the United States. There's one that makes most of the
loans and there's three that won't make a yacht loan. I don't care how much money you got, right? If you would find the right thing, you walked in here, a Bill Gates or Jeff Bezos. They still wouldn't loan you money against the yacht because they just don't trust the collateral.
And so, you know you
got to keep in mind that these are asset classes that that some players are willing to finance and securitize and lend against and ensure and others just won't. Right, you'll see a wide discrepancy in views.
So with Bitcoin you would expect that they'll be some banks. Some people that will get very comfortable with
their Bitcoin, you know, generally,
you know, if I post a million
dollars of Apple stock as collateral. I've got
banks that are getting very comfortable with giving me a margin long because they they are the custodian of the shares but if I said I'm not going to post the shares, they would be much more skittish
and that's with regard to stock simple stock. So you can expect the same thing with Bitcoin.
But I think we're still early on,
right? I mean, I think like the, the error of institutional acceptance of Bitcoin started in March of 2020, right? That was years hero. And then year, one was like, February of 2021.
So we're kind of like in the, you know, the year
one. Or the second year, maybe, you know, that if that was the first year the second year and it'll be 10 years and, you know, each year for
Years. I think Bitcoin hardens and matures is an asset class. People get more comfortable with it. The terms will get better
and like, right right now I'll give you example. Like if you had half a million
dollars,
you could buy half a million dollars, a
Bitcoin, and you could buy half a million dollars of greyscale, some banks will give you a loan against grayscale. Some won't, you could buy half million dollars of microstrategy stock some, you know, MST.
Our stock would be marginal bowl and in JPMorgan account or, you know, a typical conventional banking account. There are some banks that are not likers, right, that that wouldn't actually let you hold mstr in their account.
But most would, so you have, you have certain
companies like my company is a Bitcoin derivative and you could borrow money at Libor plus a hundred basis points. You know, via a to traditional wire house and a margin account.
Whereas you couldn't borrow against underlying Bitcoin. So what we're
doing is we're gradually spreading exposure to bitcoin,
two different classes of investors.
You know microstrategy you know brought Bitcoin to institutional Equity investors
are converts bought Bitcoin to institutional
convertible Arbitrage funds.
And that's secured financing. We did bought bit come to bitcoin to institutional fixed income funds and then when the Bitcoin ETFs come out that will bring another type of Bitcoin.
And I think that as that
happens you know the banking issues will become more common and I think the difference in terms and rates will start to narrow. And at some
point Bitcoin, Bitcoin is better collateral a million dollars a
Is better collateral than a million dollars of Apple stock way better.
Because on a Sunday afternoon, if there's a catastrophe, there's no liquidity in Apple stock, right? But there is liquidity in Bitcoin. So, if I'm a risk manager and I'm a loan officer, evaluating the risk of this portfolio of collateral against the loan of extended to you
Bitcoin should be a better collateral, it's
just going to take a bit of time for it to for it to metastasize or for it to
Bread and it is spreading, right? I mean, if you look at the terms
and the engagement,
you know, coming out of Auburn, block, Phi and Celsius this year versus 12 months ago. I mean they've come a long way
and I think I've seen, I mean, listen, you saw a square applied and they got a banking license
and they're getting into small midsize financing trade financing and you saw PayPal set up, you know their system where they said you could pay and do
Dollars in funding Bitcoin. Well, the next thing is square and PayPal get in the business, maybe of giving you credit lines against your Bitcoin, it's
kind of inevitable, lots of these
companies are offering a credit card,
like they're offering block fires, got I
think a credit card coming, I saw one. So if they give you a credit card or a debit card, you're not that far from. You're just living off of a credit line secured by your assets.
And you know again if the asset goes up at
20% a year and if the interest rate is 4% a year, you can you can actually calculate if you have a million dollars and the assets going up at 20% a year, right? Then you can calculate that you can reasonably spend $40,000 a year.
I never run out of money.
Just keep rolling forward to debt, right?
So so it's gonna it's
kind of a simple thing. You can, you can spend five percent of your assets forever. As long as your assets are going up at 10 percent per
annum
So I don't think people are, you know, everybody's been in the business for a decade. They've, you
know, they remember a different world, right? Okay. Well,
the last decade it, you know, people that came
to America in the first hundred years they all died on the banks of the Potomac River. Go, you know, read the history of the Jamestown Colony and and all of the other Colonials and 1500
Etc. Was
that doesn't mean it's like that to live on the
Comic River today. Yeah, there's a point at which you go from the wild west
to
a safer in a regular environment and I'm not, I'm not saying we've completely turned a corner and volatility, but this is 50% downdraft. We had 80% downdraft. And, you know, I think that we are seeing a lot more stability.
As we go forward, and it's indisputable, you can see more institutions entering the space.
Absolutely agree and I know that we've gone 30 or 40 minutes over R times. I will let you go any parting, thoughts or anything. You'd like to share where people should follow you after this conversation,
you know.
My part, my final thoughts. I really think that the best way to
understand Bitcoin is its
digital property for
8 billion people, and it's going to demonetised other forms of property in the same way that digital books sucked, the information out of libraries, and actual books, and universities. And the same way that digital
music sucked, the
music out of your CDs, and your records, and your phonograph, and your piano and the
orchestra.
It's a simple collapsing
of the economy from a high energy state, where it's very energy intensive and and mass intensive and and difficult to provide this thing to 8 billion people to a low energy State. And when anything crystallizes lots of energy gets given off, just like the energy, when you go from Steam to water to ice the energy, that's collapsing.
Because wordy monetizing gold. It's hard to move a billion dollars of. Gold is 30,000 pounds. It's hard. It takes you. Five million dollars to Move It from place, a to place B. It takes five dollars to move
Bitcoin, from place, a to place b. As you as you demonetized
property and dematerialize. All of these things in the economy that we live in the 20th century, you're creating extreme value, the value is going
Going to accrue both to the underlying asset and it's going to accrue to all the applications that adopt the asset microstrategy adopted Bitcoin for a treasury Square adopted Bitcoin by Nance and coinbase adopted Bitcoin. Every place that this digital property is plugged into is going to benefit and then owning the property is the benefit.
So once you understand that you understand it's going to be a process that runs 10, 20, 30 years.
I mean, the first, the next decade is going to be big, the last decade was clearly big. You just got to look at it as a, as a technology Trend and then
obviously, invest invest money that you can hold for the long term. I mean,
not money that you need to have next Thursday because you'll get wrecked or wipe down on Leverage.
And if you don't understand what I said,
Go to hope.com. There's a free course on
bitcoin for
everybody there's another there's another set of
lectures by Gary Gensler at MIT
there's another course there's 10 hours
of discussions that I've got with Robert Breedlove on Energy Systems and Engineering.
There's every book on
bitcoin, they're all the
influencers and a ton of leaders and Bitcoin. This podcast on bitcoin, there's tons of video on bitcoin study it until you
Coated that you hate the idea or you like the idea. Because
if you're not sure and you're living in fear and anxiety, it's pretty stupid to risk your life savings. After two hours of study it took you a
lifetime to get the money. So
it's funny that people will work a lifetime and they'll make investments in one hour.
How about you worked a lifetime? Spend $100 or $200, or $500.
After you've spent 500 hours thinking about it.
Maybe then, you know, you make long-term decisions and you'll feel good about it, you know why you did it.
So I definitely encourage that. And then the third thing is,
follow me on Twitter and I share on their everyday and I thank you for the platform and thanks for the chance to talk Scott and I always appreciate seeing you. Thank you. Yeah, I can't wait for round three because I probably could have done this for another three to five hours, so I do.
I appreciate your time and we will do it again. Thank you so
much. Okay, all the
best.
