Michael Saylor, CEO of MicroStrategy, joins Yahoo Finance Live to discuss how bitcoin is leading the charge and how stablecoins are gaining traction.
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JULIE HYMAN: There was a hearing yesterday on Capitol Hill. Of course, the House Financial Services Committee considering the question of whether and how cryptocurrency should be regulated differently. It was a relatively cordial, friendly hearing, but a lot of attention on it, of course, from the crypto industry. And I want to bring in someone now who has benefited quite a bit, or his company’s shares certainly have from investing in Bitcoin. That’s Michael Saylor, the CEO of MicroStrategy. And he joins us now.
Michael, thank you for being here. I want to start on this question of regulation because it has been such a hot topic within the crypto industry. And some of the folks who spoke yesterday, Sam Bankman-Fried, for example. He said a more clear regulatory structure would actually be helpful. He’s certainly not the only person who has said that. I’m curious where you stand on all of this, whether regulation in the United States specifically is bullish or bearish for Bitcoin?
MICHAEL SAYLOR: Yeah. I watched a lot of those hearings yesterday. And I think the big winner of the Congressional hearings is Bitcoin. It’s pretty clear that there’s consensus at the congressional level in support of crypto. It’s pretty clear that investors want to invest in the new digital economy.
Bitcoin’s universally acknowledged as common property and not a security, so there’s no regulatory overhang on Bitcoin. If you want digital property as a long term store of value, then every nation in the world, China, Europe, the United States, they all acknowledge that Bitcoin is digital property. It’s not a security.
There’s a lot of question about how other security tokens will be resolved and the crypto exchanges and DeFi. And, obviously, there’s a lot of enthusiasm for it, there’s a lot of pressure to move forward with regulatory clarity. I think it’ll happen. But in the meantime, I think the one takeaway that any reasonable investor could have is that Bitcoin is here to stay and Bitcoin is an obvious solution. And there really isn’t any regulatory uncertainty around Bitcoin’s status as property, a commodity, and a store of value. We can debate how volatile and how speculative it is, but the regulatory issues really aren’t outstanding at this point.
BRIAN CHEUNG: Hey, Michael. It’s Brian Cheung here. I want to drill a little bit more on this store of value side of things, as you just illustrated. One of the arguments for Bitcoin and other cryptocurrencies is its ability to usurp the US dollar. But stablecoins caught a lot of attention. And what caught my ear was actually some conversation about how stablecoins could actually entrench the US dollar status. I want to play a clip of Jeremy Allaire from Circle talking about this with Congress yesterday. Take a listen.
JEREMY ALLAIRE: Dollar stablecoins are doing trillions of dollars of transactions, the experimental beta of a Chinese Yuan, which is government controlled in China has done $10 billion of transactions. So the United States is winning. This has potential to grow at a very significant speed around the world and benefit the US dollar and benefit American businesses and households. And so, I think that’s one really, really critical thing to understand.
And I think the primacy of this infrastructure and the development of this infrastructure it is a strategic national security and National Economic priority for the United States. And we need to get going on it right now.
BRIAN CHEUNG: So Michael, I guess, any thoughts on how stablecoins kind of play with the broader goals of crypto? Because it seems like an implicit acknowledgment that while Bitcoin may be attractive, it has other attractive offerings. Means of payment is one that might be better served by stablecoins.
MICHAEL SAYLOR: Yeah. I think it’s a mistake to characterize any of the cryptos as currencies. They really should be thought of as crypto assets. Bitcoin is a crypto asset, it’s a property, it’s not a currency. The IRS determined that in 2014 when they designated it as property.
The dollar is a currency. The digital dollar is a digital currency and everybody in the world wants two things. They want a digital currency and they want the dollar, right? What the world wants $10 or $20 or $30 trillion worth of digital dollars. They don’t want the lira, the peso, the boulevard, the naira. I think that the digital dollar is destined to collapse the hundred weakest currencies in the world.
And the US dollar, which is currently the Reserve currency of the world on 20th century banking rails, is going to be the Reserve digital currency of the world on 21st century crypto rails. I don’t think there’s any dispute about that. And Jeremy is correct, the United States needs the digital dollar, we need stablecoins to spread.
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Now with regard to Bitcoin, Bitcoin is digital property. The world needs digital property to hold their money for a decade or a century. They need the digital dollar as a medium of exchange to move money back and forth, day by day, week by week. Both of those are going to be big winners in the coming crypto era. There’s no doubt in my mind.
BRIAN SOZZI: And, Michael, as we’ve seen more institutions enter the crypto verse, will more institutions getting involved, will that bring a threat to the financial system?
MICHAEL SAYLOR: No. The only thing that’s threatened by Bitcoin is gold. Here’s what’s happening. People are exchanging their weak currencies for strong currencies, and that means they want to trade the Turkish lira for the dollar or the euro. They want to trade. There’s no African currency or South American currency which will survive.
People don’t even want to hold the Chinese RMB, right? If they could trade the CNY for the US dollar, they would do it. That’s what the Chinese have capital controls. So the first dynamic is the trade from weak currency to strong currency as a medium of exchange.
The second trade is weak property and weak assets to strong assets. Gold is a weak property. You’re better off not to buy a second investment property, you’re better off not to hold negative yielding bonds. What you want to do is hold a strong property that’s going to appreciate in value, at least at the rate of monetary inflation.
So you can expect that Bitcoin can grow from $1 to $100 trillion in market cap just by replacing gold, silver, and demonetizing real estate and negative yielding bonds and other monetary indexes, these are assets. I think you can expect the US dollar is going to expand from $170 billion worth of stablecoins to $1 trillion to $10 trillion, maybe $20, $30, $40, $50, $100 trillion worth of US dollar stablecoins.
No. I mean, it’s not a threat. In fact, I would turn it around and say if the US dollar is going to remain the world’s Reserve currency, it needs to move as a stablecoin throughout the entire world. And the government doesn’t care whether you sell your goal to buy Bitcoin, it’s not an issue. In fact, the best thing you could do is sell all $10 trillion worth of gold and buy Bitcoin. Gold is a dead rock, it’s the worst performing asset the past decade, bar none, no debate, and there’s no hope for it.
JULIE HYMAN: Michael, you and a lot of other folks who are Bitcoin believers, and I use that word not lightly, right? You have this philosophical basis, you have sort of a systems-based basis for your thinking. You don’t often hear a lot of people talk about risks to Bitcoin. Are there any risks? Are there any significant risks to your thesis that you’re concerned about?
MICHAEL SAYLOR: The only legitimate risk is a black swan, an unknown unknown. Otherwise, Bitcoin is the best engineered asset to serve as a digital property in the 21st century. And we’ve got 12 years of history. Has it been hacked? No, it hasn’t been hacked. Is it going to be banned? No, it’s not going to be banned. Can it be copied? We copied it 10,000 times, every copy has failed.
So yeah, I suppose unknown, unknowns. But if you look at the tangible risk of- you want to own Turkish lira right now if you’re in Turkey? What’s the Afghan currency? You want to have a hotel and in the middle of Africa? Every other form of property and an asset has a higher risk right now.
And there’s an incredible need for a non-sovereign store of value that will move at the speed of light on technology networks. And Bitcoin happens to be the strongest, best dominant, best engineered asset to meet that requirement in the world today.
BRIAN SOZZI: Well then, Michael, does that make the case that prices for Bitcoin are likely to go up forever?
MICHAEL SAYLOR: Yeah, Bitcoin’s going up forever. That’s my belief. I’ve said it before, Brian, Bitcoin is going up forever. It’s a simple- but let me be more articulate. The price of Bitcoin is going to be driven by adoption. And as more and more of the world adopts Bitcoin, that’s going to create demand for it. It’s going to be driven by technology as it gets built into Facebook and Google and Apple.
It’s built into Square and PayPal, you know? And so, as you build in technical utility, that’s going to drive more adoption. It’s going to be driven by inflation. And the monetary inflation rate in the US is probably 15% to 20% for the next four to eight years. But the inflation rate in Turkey and Argentina is 40%, 50%.
So monetary expansion in a Fiat frame of reference is also going to drive up demand for a scarce desirable Global Asset. And all three of those drivers are with us for the next decade. So there will be volatility, it’s not going to go up uniformly in a perfect exponential curve. But I don’t think we’re going to see a world where technology slows down. And I don’t think we’re going to see a world where currencies don’t keep inflating.
BRIAN CHEUNG: So, Michael, and obviously all this kind of fits within what you’ve been doing over at MicroStrategy, which we’ve been talking a lot. But you do have a day job over there as the CEO. Wondering how that fits into everything. You just tweeted out earlier this morning, you’ve actually purchased an additional 1,400 bitcoins.
That means you’ve got, what? You acquired about $122,000 for $3.6 billion. What does that mean for the strategy of the company? And is it hard to message all of this to investors, to people maybe inside your own c-suite with regards to why a tech company, a Cloud services company is getting into Bitcoin to the degree that you?
MICHAEL SAYLOR: In an environment where the money supply is expanding at 20% a year, you have to take any value stock and you have to discount the future cash flows with a 20% discount rate. So I think you don’t have to be a rocket scientist to figure out that unless you’re a digital monopoly and you can grow your cash flows more than 20% a year, it’s hopeless to hold value in your equity.
So any kind of operating company that isn’t a digital monopoly with a super high growth rate can’t survive. It’s not going to long persist, unless you have a property strategy or a balance sheet strategy. And the balance sheet strategy is you invest assets into a property that’s going to appreciate faster than the rate of monetary inflation.
So the micro strategy on the P&L is 2,000 people selling enterprise software. And we’re growing 5%, 10%, some growth rate. But we’re not growing north of 20%. And then on the balance sheet, we’ve just swept our treasury into Bitcoin. And in the first month or two months, it took a lot of communication. Now, I think our investors understand that we’re long Bitcoin. In fact, we’re leveraged long Bitcoin.
So we’re going to acquire and hold Bitcoin for the long term. And we do it with our cash flows. We do it with equity assurances. We do it with convertible debt. We’ve done it with senior secured debt. And, in essence, we’re short the dollar, we’re long Bitcoin. And if Bitcoin continues to appreciate, its appreciated 160% a year for the last decade. So you could figure out that we’re kind of borrowing money at 1% interest and we’re loaning it out to the Bitcoin network at 160% interest. And we’re scraping the arbitrage.
And that’s what puts value in the stock, the MSTR stock then becomes a derivative of Bitcoin. And we become the first digital property company that we’ve seen in the world. And we think that’s a really good strategy in a world where digital property is universally desirable.
JULIE HYMAN: Michael, by the way, we’re about 30 seconds from the opening bell of the good old fashioned stock market, I should just mention, that’s going to start trading in just a second. We’re looking right now at a chart of the correlation between your stock in Bitcoin. And it’s not a one-to-one correlation this year, but it’s up there, right? At times, it gets to a 0.8 a correlation.
So I don’t mean to be flip here, but why bother with the software part? At some point, what’s the endgame here? At some point, are you just going to be a derivative play on Bitcoin? Are you just going to be effectively a digital property company and not have the rest of it?
MICHAEL SAYLOR: No, it’s a huge benefit for us to be an operating company as opposed to like a SCC 40 Finance company. As an operating company, we can generate cash flows and sweep those cash flows into Bitcoin. We can finance the cash flows at low cost to capital, and that’s another benefit you have as an operating company.
We have flexibility to pursue financing strategies of selling volatility. If I was at ETF, no ETF can go bar $2.2 billion at 1.5% interest to lever up. So we have a lot of flexibility on the balance sheet side and on the operational side. And each strategy is mutually complementary.
Our employees are happier, our customers are happier, our brand has accredited by 100x since we assumed the Bitcoin strategy. So the enterprise software business is more profitable and it’s got better prospects because of Bitcoin. And then, of course, on the Bitcoin side, we only started with $500 million in capital and we invested $250 million in capital.
And we figured out how to acquire $3.66 billion in capital to buy Bitcoin with it. And so, you can see, you need to be an operating company to do that. And we’re unique in the world as that synthetic Bitcoin miner and that operator.
JULIE HYMAN: Indeed you are. Michael Saylor, really interesting to get your thoughts and perspective here this morning. Hope you’ll come back again and chat with us. Michael Saylor is the CEO of MicroStrategy. Thanks again. Appreciate it.