Michael Saylor's Definition of Bitcoin

Takeaways

• Buying Bitcoin is analogous to buying real estate in cyberspace, and Bitcoin itself is an instantiation of the principle of conservation of energy in cyberspace.
  • This escape into digital space is analogous to escaping Earth’s gravity well to move in space, without gravity/atmospheric drag, etc.
• Bitcoin is the first fair, shared, immutable, permissionless ledger the human race has ever had.
• From a moral, ethical point of view, it represents an ideology: permissionless property rights for 8 billion people.
• Bitcoin is an innovation because it represents a digital commodity, as opposed to a digital security.
• The Bitcoin mining network converts electricity into digital energy that is secure for the foreseeable future.
• This digital energy can be moved at the speed of light, friction-free, on a computer, across \$10 billion computers, at high frequency, thousands of times a second. To accomplish this you have to have final settlement that is apart from a credit system or a security itself.
• Bitcoin’s energy use is essential to its status as a commodity. Remove the energy by a PoS transition, what you have represents a coupon, or a security. Imagine removing the energy from an apple, or out of steel, or out of a building, or out of soybeans - the item would no longer be what it was.
• Saylor expects that the market cap of Bitcoin will surpass Gold in the next decade, which implies a price of \$500,000 per coin.
• Saylor believes “Bitcoin is an instrument of economic empowerment. That’s the definition of a Bitcoin maximalist. And, yea, there’s more and more people that believe that every single day.”
  • Saylor notes that Bitcoin purchased in Nigeria is exactly the same Bitcoin as Bitcoin purchased in Manhattan.
• With regard to the broader “crypto” ecosystem, Saylor differentiates between four things driving the space:
  1. Crypto property/digital commodities, like Bitcoin, are an innovation.
  2. Crypto exchanges that trade 24/7, 365 are a novelty for the investing public.
  3. Crypto currencies are US dollar proxies running on crypto rails. Market cap of these will grow because they allow people to escape rapidly-inflating local currencies.
  4. Crypto securities tokens that people spin of quickly and easily are very controversial right now.
• Saylor says the 4-year simple moving average makes sense as a metric for Bitcoin. We’re about at that number now. And Saylor regards current pricing as “stable” due to proximity to the 4-year SMA.

Transcription follows, starting 3:30 seconds into the 29:19 minute video.

[3:30] Saylor: It became a very perilous situation… [MicroStrategy could] either have a fast death, a slow death, or we take a risk, we do something. We decided to do something. I think its kind of like analogous to 100 years ago, if you’re a manufacturer, a mid-sized profitable manufacturer, and you see General Electric and General Motors coming along, and you’re sitting in New York, and you have all this cash. You’re like, what am I gonna do to compete?

[3:58] Saylor: So what we did, we turned ourselves into a REIT. We bought 130 blocks of New York city 100 years ago. And we did it with \$3.5 billion of debt and equity. So we became a cyber-REIT. The idea of MicroStrategy was we’ll go ahead and buy into cyber-Manhattan, and Bitcoin is digital property. I view it as digital energy, digital money, digital property, it’s a very special thing. This idea that you could buy one 21 millionth of all the energy in a decentralized network, for all of eternity, right?

[4:36] Saylor: So what we did is we bought into this thing, and we ended up over the next 24 months, we raised \$2.4 million of debt at a blended interest rate of about 2%. You know junk bonds are about 8% now so we got extremely cheap money. At one point we did a seven year bond issuance where we raised \$1.05 billion at 0% interest for seven years. So we took advantage of cheap debt markets to raise \$2.4 million in debt. We raised a billion in equity. And we put we put it together with about \$600 million of equity that we had, the cash we had. We bought bitcoin. And we converted the company from an enterprise software company that’s a cash cow, low growth, into one part enterprise software company, and three parts cyber real estate trust, where we’re just holding digital property.

[…]

[10:45] Interviewer: I mean, I’m sure the audience here is very curious about, it doesn’t look good for bitcoin, and I’m sure people are curious about what the outlook is in your view. I think you had said when bitcoin hits \$10 million a coin, the it would stabilize and act more like gold. Has it got any shot of getting to that level?

[11:07] Saylor: I think the first thing to note is that Bitcoin is digital energy. Its this idea, you create a digital commodity, its capped to \$21 million, decentralized, running on millions of servers, supported by hundreds of millions of people all around the world, nobody can change it. And so it represents the first fair, shared, immutable ledger the human race has ever had. It also represents this singularity where we finally put energy, or money, or property, or matter into cyberspace. So the thing I can do with a block of a billion dollars of Bitcoin, is I can actually move it between a million computers every second for free, and I can program it. There’s no way to do a million final settlement transactions on a computer network using credit, using a credit card, using a bank, using a fiat currency. So, if you’re a technologist, and I’m a technologist, it represents the digital transformation of energy. It represents the next 30 years of digital transformation because now we’re putting something that is conservative, that represents conservation of energy, into cyberspace, on an iPhone, on a computer. So, I like the technology trend.

[12:26] Saylor: And I also think from a moral, ethical point of view, it represents an ideology, and the ideology is property rights for 8 billion people that don’t have them.

[12:38] Interviewer: What about this piece, too? It’s climate week, and you talked about expending energy, and I’m sure a lot of people think about Bitcoin as proof of work, expends a tremendous amount of energy. How should those who are trying to think of being greener, think about Bitcoin in that context? Especially since Ether just shifted over to PoS?

[13:01] Saylor: The reason that Bitcoin has value is it’s backed by a \$20 billion dollar network of Bitcoin miners that are taking electricity and they’re running it through a SHA-256 protocol in order to hash it. And that \$20 billion worth of electricity every four years, it’s like \$5 billion of electricity a year, and that \$20 billion of hardware, that represents the network that decentralizes Bitcoin, secures it, keeps you from being able to hack it, and makes it impossible to, kind of, cheat it. Now, the innovation here, is the creation of a digital commodity, as opposed to a digital security. Its very easy to put a coupon, or a security, on a database. There are 100,000 coupons. There’s 100,000 securities. They all ultimately require a bank, a company, a government, in order to run them.

[13:56] Saylor: But if I wanted to create something that is scarce and desirable for the next 100 years, and I don’t trust the CEO, I don’t trust the company, I don’t trust the bank, I don’t trust the government, I don’t trust the city, I want it to transcend all those things. I somehow need to come up with a way to run the network that doesn’t use software.

[14:17] Saylor: And so, the Bitcoin network runs on proof of work. And it converts that electricity into a block of digital energy, which is secure, potentially for the next 1,000 years. And why is that important? That’s important because, if I wanna move billions of dollars of money, in hundreds of millions of transactions, at the speed of light, friction-free, on a computer, across \$10 billion computers, at high frequency, like 40 times a second, or 40,000 times a second, you have to have final settlement that is apart from a credit system or a security itself. So, that’s what Bitcoin represents. And I think it’s quite profound.

[14:57] Interviewer: So, I think people here, as well…

[15:01] Saylor: Let me make one more point. If I take the energy from a commodity, if I take the energy out of an apple, or out of steel, or out of a building, or out of soybeans, its not a commodity anymore, it’s a security, it’s a coupon. If I took the electricity out of Bitcoin, and I used software, I would have created a software company issuing coupons that circulate around a network. And the best case is, it’s a security that’ll be regulated by the SEC, because the software engineers can control whether or not you get to use it. And the worst case is, it’s just a coupon. And so, the electricity in the Bitcoin network is the price you pay to have a commodity, and a commodity is critical if you want a neutral, international, open monetary system. Or global money that is permissionless and neutral.

[…]

[18:09] Interviewer: \$65,000, when are we gonna get back to that for Bitcoin, in the short term.

[18:12] Saylor: Sometime in the next four years.

[18:14] Interviewer: Four years.

[18:16] Saylor: I don’t have short-term price predictions.

[18:16] Interviewer: So then take me out to 10 years then, especially since you said holding should be thought of in a 10 year period.

[18:25] Saylor: I think the next logical stop for bitcoin is to replace gold as a non-sovereign store of value asset. And gold’s a \$10 trillion asset right now. Bitcoin is digital gold. It’s 100X better than gold. You can’t inflate it, the half life of money in Bitcoin is forever, you can move it on billions of computers at the speed of light. So, if Bitcoin goes to the value of gold, it’s going to \$500,000 a coin. And I think that happens this decade.

[18:54] Interviewer: This decade?

[18:55] Saylor: Sometime, yea.

[18:56] Interviewer: So, 2029.

[19:00] Saylor: I think this is the decade where Bitcoin institutionalizes, from 2020 to 2030. It’ll be a wild ride. There’s been like three cycles in 24 months. But, over the long-term, yea. I think first it becomes the trillion dollar asset in the crypto world, then it becomes the \$10 trillion replacement for gold as precious metal, and over time, people start to see it as a superior property to real estate or physical property, because I can’t move a billion dollar building from New York to San Francisco, but I can move a billion dollar block of Bitcoin from New York to San Francisco.

[19:37] Interviewer: So in 2029, it’s gonna be \$100,000, \$200,000, \$300,000?

[19:43] Saylor: I can’t give you an exact date, but I think that it’s going to progressively move with cycles up until it subsumes the market cap of gold. And then it will move beyond that, right? Because it is property, right? Bitcoin represents crypto property. And if you live in Africa, and I gave you \$50,000, there is nothing you would want to buy anywhere in Africa for \$50,000 that represents a superior property to buying \$50,000 worth of Bitcoin.

[…]

[22:20] Saylor: I like Bitcoin. I think it’s good for the world. Property rights for 8 billion people, digital energy. It’ll change the world.

[22:30] Interviewer: So, I’m sure you know, people here, the audience here, are also wondering, are you a Bitcoin Maximalist? Is there any other digital asset that you think is feasible? Do you have an issue with Ether?

[22:46] Saylor: If you believe that Bitcoin is an instrument of economic empowerment, that is, a way to give property rights to everybody with a \$50 Android phone on earth, and give them something they can own, that can’t be debased, that they can carry with them the rest of their life. Give them property, which gives them pari-passu rights. If you live in Nigeria right now, and you own \$100,000 dollars of property in Nigeria, and it’s Bitcoin, your Bitcoin is no different than living in Manhattan. you have the same rights, the same economic interest. But if you have a \$100,000 house in Nigeria, its not the same as a \$100,000 house in Westchester, New York. So, I believe that Bitcoin is an instrument of economic empowerment. That’s the definition of a Bitcoin maximalist. And, yea, there’s more and more people that believe that every single day.

[23:35] Interviewer: So you’re not going to endorse or recommend any other coin.

[23:40] Saylor: Well, I think with regard to many of the others, there’s three things, four things going on here. Crypto property is an innovation. The invention of a digital commodity, that is not a company, is an innovation. Even Gary Gensler of the SEC has said that, even Janet Yellen has said that, that’s well-understood.

[23:58] Saylor: Crypto exchanges are trading 24/7, 365. That’s an innovation, a lot of people like the idea of being able to trade something on a Saturday afternoon. We’d love to trade Apple stock on a Saturday afternoon. We can’t. So crypto exchanges are interesting to people.

[24.15] Saylor: Cryptocurrency is like Tether or Circle, the US dollar stable coin. 8 billion people in the planet want that on their smartphone. Everybody in China wants it, everybody in Africa wants it. Everybody in Turkey, Lebanon, Argentina, want it. The market for that is about \$150 billion right now. But that’ll go to a trillion and eventually to many trillions over time. That’s an innovation. I think that, that’s really exciting.

[24:43] Saylor: And then there are crypto securities. People spin up tokens, that are kind of equity tokens, and they do it fast and quickly. That’s very controversial right now, so I’m not gonna endorse any security. I’m not really endorsing an equity. I’m a technologist, and I believe Bitcoin is interesting because its a commodity. And I believe these other technologies are interesting because they move money at the speed of light. And that makes for a more efficient economy.

[25:09] Interviewer: Really quickly, where’s the bottom for Bitcoin in this current crypto winter, if you want to get into that.

[25:16] Saylor: I’m not a trader, and my view is a decade is a short period of time. 100 years is a logical period of time if you’re trying to create something great in the civilization. But, if I was looking at a metric, the metric I’d look at is the simple moving average over the course of four years. The four year simple moving average makes the most sense. We’re about at that number, like its a \$19,000, \$20,000 number. And its touched that a few times.

[25:40] Interviewer: So you think this is stable?

[25:42] Saylor: I think this is stable.

[…]

[27:16] Interviewer: Do you see Bitcoin getting used day-to-day in 10 years, and how?

[27:23] Saylor: I think that Bitcoin is going to be viewed as everybody’s long-term store of value, their savings account, and I don’t know why you wouldn’t. The killer app, the viral app, is an Android/iOS wallet that supports lightning, that holds BTC for a long-term savings account and holds USD as a short-term, medium of exchange. I think that when someone cracks the code and puts that out, that’ll spread to hundreds of millions then billions of people, and yea, that’ll be used every day. But, the US dollar won’t go away. The that’s gonna go away is the weakest hundred local currencies. Everybody’s gonna dump those local currencies, roll into the dollar. The dollar will be used as a medium of exchange every day. Bitcoin will be used as a long-term store of value for people that wanna protect their money and give it to their kids.

[28:12] Interviewer: Are you trying to tie, technologically-speaking, Microstrategy closer to Bitcoin?

[28:18] Saylor: Yea, Microstrategy’s doing lightning development right now. We’re building lightning wallets that can be deployed to the enterprise. Say, you can give it to 100,000 of your employees in an afternoon. Or, lightning wallets, where you can wrap your websites with a layer of digital energy to protect your website from denial of service attacks or cyber security attacks using this digital energy as your security. So we’re interested in cleaning up cyberspace and continuing to spread Bitcoin, and we’re gonna use our enterprise software skills to do that.

[28:48] Interviewer: Have you disclosed that? Have you talked about this before?

[28:52] Saylor: Just a little bit.

[28:56] Interviewer: So its a little scoop? A mini scoop.

[28:56] Saylor: A mini scoop. We’re the first enterprise company doing Bitcoin lightning development.