Bitcoin's no longer this, you know, fringe speculative asset
anymore. You're starting to see nations
talk about it, including the nation with the reserve currency
of the world, right? the United States is now talking
actively about it. They're looking at adopting this
digital capital for themselves to strengthen the country.
MicroStrategy is like a vacuum, just sucking up all Fiat
liquidity and refining that dirty cash into Bitcoin.
That sounds like an extremely profitable business model.
MicroStrategy having to be be the leader, really the first
company to take this step to say what if we pivot some of our
focus away from what our core business model has been.
What if we could take our model and we could apply leverage to
our business to acquire more Bitcoin in excess of what we
could get just purchasing our cash and what if we could
engineer enhanced volatility. So I think 2025 is really going
to be the year where we see this accelerate.
Hey there, I want to ask you for a quick favor.
Over the past few months I've had over 50,000 returning
viewers and listeners to this podcast, but over 65% of you
haven't subscribed yet. So if you enjoy.
What I'm doing and you find my content valuable.
Please subscribe on YouTube or follow me on your favorite
podcasting platform. This will help me fuel the
algorithm and spread the message on Bitcoin even further.
I really appreciate your support.
Now let's dive in to this episode.
All right, Ben Workman, welcome to Bitcoin for Millennials.
I appreciate it bro. I'm glad we're able to make this
happen. I know we we had some struggles
here along the way getting the schedule, but I'm glad we're
finally here. We made it.
Yeah, we made it. Well, you had a good excuse.
You went to Michael Saylor's 100K Bitcoin, the New Year's
party. So, OK, I'm I'll, I'll forgive
you. But yeah, man, I'm super excited
to chat. And yeah, I was thinking like
the goal of this conversation. I was thinking, let's just take
people along, you know, the incredible interesting
development of Bitcoin as a corporate treasury asset, as you
know, kind of started with micro strategy and what to look out
for in 2025. And yeah, if you're up for it,
let's let's let's dive into that.
Absolutely, man. Let's dive in.
Awesome. Well, First off, I want to thank
you for helping you know MicroStrategy pill myself,
myself just like orange Pilling, you know people do that to
themselves. But you have been a huge guide
and help for me. You know, and especially when I
heard you on a podcast talk, you know, of course about
MicroStrategy, the, you know, the Bitcoin strategy.
And you mentioned, you know, this is a business model pivot.
And when you said that, that really clicked for me because,
you know, the, the, the story of, of MicroStrategy, and we'll
dive into that further, is kind of, you know, it's, it's, it's
kind of like gradually, then suddenly he, he's improving on
his understanding and improving on his offerings, etcetera.
But when you said, you know, business model pivot, I
understood, OK, he's taking a company that he was basically,
you know, at the end of, he was like thinking of quitting or,
you know, selling or, or whatever.
He had his problems. And now it feels like he found
the renewed possible future for for this company.
And that made me realize this is not just a software company
that's buying Bitcoin as a as a treasury asset.
Like he is starting on a path to actually become something way,
way bigger. And I shared with you a, a tweet
that I wrote to check, you know, do I understand what he's doing?
And I'll read that and then let's let's dive into that.
I, I tweeted. So MicroStrategy is like a
vacuum just sucking up all Fiat liquidity and refining that
dirty cash into Bitcoin. That sounds like an extremely
profitable business model. And you replied to me.
You got it. Is that a good summary or can we
expand a little bit on that? It's a great summary, right?
I mean, this really is a pretty monumental shift for a
corporation to go through. And it's, it's a tough one to
make the decision to do, right. MicroStrategy having to be the
leader, the really the first company to take this step into
not only converting into a Bitcoin treasury as a treasury
reserve asset, but they want the extra step to say, what if we
pivot some of our focus away from what our core business
model has been, which is business intelligence software
products. And instead we look at how do we
manufacture a universally appealing asset for all investor
types, right? How do we become, I'll call it a
leveraged Bitcoin equity that terms been growing in
popularity. I really like it because I think
it actually sums it up quite well.
You're making your equity the product for the market.
And that's a tough shift for people to make mentally when
they look at a company because traditionally you're always
looking back to, well, what are the core operations of the
business. And with MicroStrategy, when
they go back and they look, they go well, yeah, they've got a
software business. And for years and years and
years, it's been a good cash flowing company, but the growth
was gone. And for equities, typically what
that means is your equity value, your multiple that you're going
to get starts to compress significantly.
The market rewards growth and they want growth at the expense
of anything else. And it's what makes a lot of
corporations very short sighted in nature because they're always
focusing on the next quarter's earnings, right?
You've got to show revenue growth, you've got to show
margin growth, you got to show bottom line growth, right?
That's always been the focus tradition, but Bitcoin didn't
exist in the past. So this is a relatively new
development here, right? I mean, we think in terms of
something being around for 15 years as being a very long time,
but the reality is that's a very short lifespan for an asset.
So to see a company look at this emerging asset and go, this has
qualities that are valuable to the capital markets.
And that quality is, is that it's in this adoption period
where volatility is very hot, right?
Bitcoin was a 60 volatility asset.
Most equities in the United States would fall into like the
15 to 20 volatility. So it's significantly more
volatile than traditional equities are.
And what MicroStrategy did was they looked at that and said
volatility is what generates returns for institutional
capital. They need to be able to trade.
They need an asset that moves around a lot, but they can't get
access to Bitcoin directly. And even if they can, what if we
could take our model and we could apply leverage to our
business to acquire more Bitcoin in excess of what we could get
just purchasing our cash? And what if we could engineer
enhanced volatility for our equity?
Well, if you can do that, you're creating a really great product
for all kinds of traders, right? I mean, we're talking retail
traders love this because it's moving constantly.
You can leverage way up if you want to using the options of
this company. If you hate Bitcoin, you can
short the company, you can buy puts on the company.
But now we're seeing it trickle down, right?
It's good that the equity moves, but it also opens new doors for
micro strategy that other companies don't have opened for
them. And that is access to raising
capital using the volatility that they generate.
And they're looking at that volatility profile and going,
how do we build a volatility profile for all the different
types of customers that want exposure to this type of
performance. And you're seeing them do that
with all these new products that they're offering.
Obviously, the main one that we've seen so far is convertible
debt, right? The convertible bonds that
they've been issuing out to the market and what those
convertible bonds are a slightly step down in volatility product
that they can offer to a pool of captive capital that cannot
otherwise come into Bitcoin. And that's an important point in
that those types of institutions that are starved for returns
couldn't get access to one of these assets that could generate
the type of volatility they need for their gamma trading
strategies, which we've talked about quite a bit now.
I think a lot of people got kind of an education and convertible
bond and convertible arbitragers that they never thought they
were going to get, unless you're following MicroStrategy.
But they created a product that's tailor made for that pool
of capital, right? So they're giving them
volatility that's going to be way larger than what they're
going to get if they go buy convertible bonds out of any
traditional equity, right? If Alibaba issues convertible
bonds, the bonds aren't going to move very often because the
equity doesn't move very often. And in convertible bonds, that
bond has that conversion. It's a call option on
MicroStrategy embedded within it.
So as the price moves drastically on MicroStrategy,
and particularly when that price starts to climb, it starts to
act more like equity, right? Those returns on the bonds
themselves start to move. And these gamma traders are
capturing that movement. It's really as simple as
thinking about it as sell high, right?
They'll short the stock when the price runs way up, and then
they'll buy it back cheaper when it comes down and the delta
comes down, they'll buy back those short positions.
So throughout the length of holding that bond, they're
constantly trading, and that's what generates returns for them.
And it made these products really important to that market
because not only did these perform really well, they
outperformed Bitcoin itself, which is massive, right?
I mean, that's a huge undertaking for a bond to
outperform an asset like MicroStrategy or like Bitcoin.
So it was pretty shocking to the market over the last 12 months
to see that type of performance ramp up.
And it hasn't always been the case, right?
We've, we've now gotten conditioned to think that that
performance is just what it's always been.
But we got to remember that a lot of these bonds, like the
2027 bonds were issued back in 2021 and they only recently
became convertible. So they had a long period where
they were sitting on 0% coupon payments.
They were getting no returns on the capital back to them and the
stock really wasn't moving all that much.
But then this last year when we saw MicroStrategy really ratchet
up that leverage, we started to see the performance really show
up here. And that's been just, I think
mind blowing for a lot of people that's causing both other
corporations, it's causing retail investors to kind of re
evaluate how they see these companies that are introducing
Bitcoin into their ecosystem. Bitcoin custody is evolving and
while self custody is important, it has its own risks and
trade-offs. Onramp is pioneering a new
standard multi institution custody which eliminates single
points of failure adding fault tolerance and redundancy to your
custody set up on ramp secures your Bitcoin in a segregated
cold storage multi signature vault guarded by tree
independent institutional grade custodians none of which have
unilateral control. Your funds are fully auditable
on chain cannot be re hypothecated and can only move
or withdrawn at your explicit direction.
Multi institution custody removes the technical, mental,
and physical burdens of private key management, providing
unparalleled Peace of Mind for you and your loved ones.
Bitcoin is money, and as the price continues to appreciate,
On Ramp helps you seamlessly tap into financial services like
trading, inheritance, insurance, loans, Iras, and more, all
without compromising on security or accessibility.
Check out on rampbitcoin.com through the link below and
schedule a consultation with the On Ramp team to get to know them
and learn more about their offering.
And that's become a very monumental shift that we're
seeing broadly in the market as new entrants are emerging.
And looking at, one, how do we acquire Bitcoin just for our
treasury just to protect the value we have in our
organization. But two, there's going to be a
few more players that really emerge and say, we've got some
unique characteristics here. And we're going to take the
strength of our core business and we're going to start taking
that to really ramp up this leverage Bitcoin equity play.
So we're not done seeing the evolution here yet and we're not
done seeing companies under this market.
It's really, I think you had a lot of them waiting until FAZ be
really came into effect and the accounting settles down.
It becomes much more black and white on the accounting than it
was when they had the indefinite intangibles.
And so now it's a much more easy strategy to implement for
companies. So I think 2025 is really going
to be the year where we see this accelerate.
Yeah. What I find interesting is that
just as with Bitcoin, it's hard to understand Bitcoin if you
look at it from a traditional perspective, right?
And I think how you just explain it, it's the same with this.
But there was one thing that you said that that piqued my
interest because, you know, Sader kind of went from
necessity to conviction to, hey, I see this opportunity to this
business model pivot that you mentioned to now like relentless
execution. Like he's been buying Bitcoin
for the past 8-8 weeks on every Monday, I think.
So he found like a new way to like rejuvenate his company
basically. And I think the business form of
pivot now, so offering all these diverse financial products
basically that fit the Transfi world in order to, yeah, just
find capital to eventually buy Bitcoin.
I feel like that's like a a temporary part of the pivot to
eventually move on to something bigger that that, that we'll
talk about. But it's interesting to see that
like he rejuvenated his company. And so and when you mention
about like other companies adopting it, it doesn't
necessarily mean that only companies that are in the same
stage as micro strategy was would do this.
Like they could do that to rejuvenate the company, but just
companies that are operating in a way better way could actually
strengthen just their own position by the money that they
make, right to, I'd say just survive towards the future, just
strengthen their own own position.
Does that make sense? It does, yeah.
When I look at these companies, you kind of see them in a couple
different categories, right? First, you're going to have the
really cautious entrance that come in.
And really what they're looking at is they understand the
weakness that holding Fiat currency does to the eroding the
value of their business, right? So you'll get people that dip
the toe in just by converting cash reserves into Bitcoin.
And that's great. And that should be celebrated as
well because it is a big shift for these companies to
undertake. But what I think is really going
to be transformative about this, and I agree with you that I
think this is phase one of an evolving strategy over time,
right? You get rewarded for being early
to something like this. And what I view this as is this
is really transforming the future capitalization of
organizations. So if you look at what
Microstrategy's doing, they're accumulating all this digital
capital, right? They're bringing it inside.
They're using whatever tools are at their disposal, whether it's
equity, whether it's fixed income products, right?
They're using all the tools at their disposal to accelerate
their accumulation of digital capital.
And we're in this adoption period where bitcoin's no longer
this, you know, fringe speculative asset anymore.
You're starting to see nations talk about it, including the
nation with the reserve currency of the world, right?
the United States is now talking actively about it.
And we've got people in positions now to really
influence the decisions where they're looking at adopting this
digital capital for themselves to strengthen the country.
So if you're a forward-looking leader like sailors, proven to
be, right, willing to pivot, which is not easy to do, right?
When you build a company and you're the founder of that
company, it's very easy to get married to the initial mission
that you set out. It's very hard to break from
that and admit to yourself that maybe this isn't working
anymore, right? Maybe this isn't what's going to
drive value for our shareholders anymore.
And we might need to look at a drastic transformation here.
What happens for most people in that position is they just
basically start issuing capital back to shareholders through
dividends or or whatever. And it's basically an admission
that we're out of ideas. So we're just going to keep
running a good, I like that that generates cash flow, but we're
just going to give it back to the shareholders for as long as
we can. So you're no longer holding
those entities. You know, people call them
value, right? When you're paying those
dividends, I call them value stocks.
But you're giving up kind of any of the excitement around growth.
The growth is gone and you're really just riding a business
that's been good for a long time and you're just going to issue
out all the capital back to the shareholders and you're not
going to hoard it. Well, now instead of going out
and generating growth on your own, a lot of these companies
have the opportunities to basically bring in an asset that
brings growth to you, right? You can benefit from the growth
of just the asset alone without you having to really do all that
much in your business model. So you're going to get some of
these organizations that look at making that transformation and
saying, not only do we need to get Bitcoin on our balance sheet
to preserve value, to capitalize on the 60% growth that bitcoins
having year over year, but we want to get as much of it as we
possibly can. Because what it can do is it can
give your company a second shot at life, right?
It gives you time to capitalize your business that you're going
to be able to use in the future, right?
I think if anyone thinks that you're not going to be able to
use Bitcoin to borrow against as a corporation here over the next
10 years, I think you're out of your mind.
It's definitely going to be there.
So if you're capitalizing your company, you may exit in the
next 5 to 10 years in a position of really enhanced strength
beyond what you could have on your own.
And that enhanced strength brings opportunity, right?
That brings opportunity to reinvent yourself down the line
and capitalize on whatever the emerging product is that you
need to bring out to the market that the market's demanding.
If you just continue to sit in a road value over the next 5 to 10
years, you're going to cease to exist over time.
And I think a lot of business leaders are going to really be
faced with that reality as they watch some of these companies
that were willing to take a risk, you know, and it's less
risky now than it was five years ago, right?
I mean, people are starting to acknowledge that a little bit,
but you still hear the sound bites out there about, you know,
how risky Bitcoin is as an asset.
But it's significantly less risky than it was five years
ago, right? The adoption has turned.
We finally got tailwinds. You know, it's reaching its
escape velocity point. So if you're one of these
forward-looking leaders, now you're looking at an opportunity
to change the standing of your company in relation to all your
competitors. If you're in a small industry
that's all competing with each other and you've got five
companies, 5 core competitors that you're competing with, and
you continue running your business.
And it's a good business, but it's not a great business.
But the only difference between you and your competitors is that
you converted all the value you created into Bitcoin, which is
holding its value over time. Or maybe you went a step further
and you said we're going to take our business, which is strong,
throws off good cash flows for us.
We're going to leverage the tools that brings to our
business to go out and actively acquire Bitcoin however we can,
right, within a defined risk parameter.
That's very important because a lot of people view this strategy
as risky when you use leverage to acquire Bitcoin.
But if you do that over time, you exit that five to 10 year
period. With significantly more value on
your balance sheet than all of your competitors, right?
That could put some companies in a position where you ultimately
end up owning your sector because you could buy your
competitors at that point. So it's a transformational step
that a lot of these companies are going to have to take.
And for other companies, when that starts happening, if one of
your competitors announces this type of change, you better be on
your toes because if you don't start looking at protecting
yourself from that type of threat, right, that's a threat
to your business. You now probably need to look
at, at a minimum, bringing Bitcoin onto your balance sheet
through the conversion of cash just to maintain your standing
relative to your peers. So I think that that journey for
a lot of companies now as they're watching this evolve is
going to really push corporate strategy for the next decade.
I think that you're going to get into this digital capital, I'll
call it a digital capital arms race, where you're trying to
recapitalize your company into the next layer of innovation
that we're going to see. And you're going to try to
position yourself to be in the best position for strength,
growth and innovation that you can be in over the next 5 to 10
years. And I think that's going to be
very important to corporate and corporate finance and how all of
these finance professionals that are managing the capital of
these businesses are going to have to change their thinking
and at least evaluate those outcomes and whether or not they
need to be positioned accordingly.
Yeah, I, I was looking so forward to this conversation
because it gives me so, so much, so much ideas like what you just
said makes me think of it. It is going to become a
competitive advantage because also I love also, by the way,
the thinking around the dividend, right?
So a lot of people are in the stock market and they're like,
oh, I'm getting dividend, right. And it's also used as an
argument a lot. Well, at least stocks pay
dividend. But when I hear you say like,
no, that's actually a bad thing because you want to reinvest in
the business. Eventually you want to grow.
If you want to create more value, create more value of the
company, which eventually gives you more leverage to borrow to
then invest to create more value, etcetera, right?
Like it's, it's flywheel. So if you start basically giving
back the the dividend, as you said that there's not, there's
nothing there, there's no room for you to grow or you're giving
away that capital that you could use to, to grow to eventually
increase the stock market value. I love that thinking.
I think that's very contrary as to how people just generally
invest. But with that part of like the
competitive advantage, eventually it's the same as with
individuals that adopt Bitcoin. You know, I generally say like
it lowers your uncertainty towards the future so you can
become a builder instead of a consumer.
I, I think it's the same for, for a company, right?
Like you want to have a certain mechanism or a tool that creates
maybe a prolonged runway or, you know, something like that for
your company. So you can actually try stuff
and actually try to innovate to see if you can reinvent yourself
or become better or more valuable or whatever, which
eventually is the goal of most companies.
Because in a free market, there's always a competition in
a sense. So you could always be
threatened by a new entrance, you know, unless you really have
a have a monopoly. And it also makes me think
about, I'm going to talk with him again, but I had him on
before. Leon Vancombe is really into
like real estate and Bitcoin. He does real estate development
and they basically when they have a project, they borrow like
that's a €10 million project, they borrow 12 million, they buy
2 million of Bitcoin for that entity of the project.
And those are 5 plus years project like building, building
homes or, or whatever. And in that way, they kind of
like secure the future of that project.
And I, you know, I think it's a similar approach here.
So, so very interesting that you explain it like that because it
makes so much sense. Yeah, it's, it's the same as
with individuals. Once your competitors adopted
like you have to do that too because you know they are more
protected towards the future and and will have more capital,
especially if they are able to create that leverage and perhaps
also borrow more and they are able to invest more.
There's even the more foundational shift in thinking
that a lot of people have, right?
I mean, people always talk about the risk free rate of capital,
right? And what they're talking about
are things like Treasury bills or Treasury bonds.
And it's interesting when you're tying your risk free rate of
return to something that's not even outperforming monetary
debasement, right? Really what you end up doing in
that arrangement is you accept the certainty of loss, Yes,
which is something you would never do, right?
I'm never going to give you $5 if you give me 4 back.
Right, which is not it's. Not an arrangement I'm going to
sign up for with. You, yeah, but it's increased
future uncertainty that you also adopt, right?
Correct, correct. And so it's, it's almost strange
to me how conditioned we've become to accept that as
stability, right. We've accepted stability as the
certain erosion of the value we've created in the world,
right through our efforts and time.
And time is our most finite resource we have, right?
I know it's almost cliche to say it, but you're spending a
drastic amount of your life trying to bring this, you know,
value into your life, right? Through collection of money and
assets that makes up, you know, say you work from 20 to 60,
right? That's 40 years of your life
that you've spent trying to generate value that's going to
carry you for the rest of your life.
Well, if you're fighting into headwinds the whole way through
there because all you're conditioned to do is, you know,
used to hear the about people, you know, many decades ago that
used to, you know, put their money in the mattress, right?
They would take cash and they would squirrel it away and save
it somewhere, you know, for safekeeping.
And people used to think that that was a great idea.
Just hold your cash, but keep it with you, right?
Don't let it be in the banks, right?
The Great Depression taught people that was a bad idea.
Maybe you shouldn't do that. So they're really holding things
in physical cash. And that was back during a time
where monetary debasement wasn't as rapid as it is today.
You have to evolve your thinking now because they've given you
all the evidence you need to see to show that they don't have
control over this, right? They've lost control when our
GDP in the US is, you know what, our debts, 130% of GDP, which is
astounding, right, that we're getting there, that starts to
reach an escape velocity where you can't put that genie back in
the bottle, right? You've borrowed a huge amount of
value from your future for today, and you're not generating
any growth on the other side of that equation that's going to
support that debt that you're taking up.
Yes, And that ultimately is going to mean debasement of your
money. In real terms, also right.
In real terms, it's been nominal, you know.
It's. Been nominal, but it's going to
be real. It's going to be real and it's
going to be very real. You know, anybody, they play
games with all the numbers that come out, right?
When they talk about inflation, right?
All the inflation numbers that you hear reported to you, you
know, they basically say here's inflation, except we exclude all
the things you need to live your life, right?
Things like food and all these other categories, right?
As long as you don't need food and utilities to live, here's
what inflation was. Well, your whole life revolves
around the areas that they exclude from the measurement.
So you're not even getting an accurate accounting of the value
you're losing in your day-to-day life as it goes.
And so the thing that a lot of Bitcoiners really turn the
corner on is they go, I'm spending an exorbitant amount of
my life, my efforts and my thoughts into creating value for
the world through one way or another, right?
Whether you work for a corporation and you're just
trying to really provide the best value to that corporation
that you can provide, and they're rewarding you with a
payment in one value that's coming in Fiat currency,
Bitcoiners turn the corner a lot faster to go, well, what they're
rewarding me with has limitations, big limitations.
And that limitation is, if this is what I decide to pin the
value of my life to, I'm going to be in this constant battle
against the debasement of that asset.
And that trickles into a lot of other assets, right?
We all think that some assets are very stable in the returns
that they provide. But people forget that a lot of
the times those returns are generated by the loss of value
of the denominator of that equation, right?
If you're denominating it in the US dollar and the US dollar
continues to devalue, yeah, it looks like the value of that
assets going up. So people drastically are
looking for what asset can I introduce to my life where I can
actually lock that value up for the future, right?
I want to make sure that my future standard of living is
absolutely no worse than it is today and hopefully much better
than it is, right? You're trying to create future
value for yourself by getting rid of all the entities that are
playing games with the currency you were initially conditioned
to believe the value of your life was going to be reflected
in. So getting away from the Fiat
currencies and going to something that for the first
time that's gaining adoption with no interaction from the
central banks, Oregon, anyone actively managing it, right?
We know the rules to Bitcoin and because it's a finite asset with
unlimited demand into the future, you can be pretty
certain about the trajectory of Bitcoin, right?
We can count on everything we know about Bitcoin remaining,
which is beautiful. And it's that foundational shift
that once you turn that corner and you start transitioning your
savings over to Bitcoin, you start to almost panic because
you don't feel like you have enough, right?
And you see what's happening in the world around you and you go,
the value I've created and I've worked so hard to create and
dedicated so much of my time to creating is disappearing through
no fault of my own, right, just through mismanagement of
programs in the country that I live in or whatever the case is.
They're debasing it to get rid of their debt problem.
And I'm the recipient of the outcome of it.
And anyone grocery store knows the impact of what that looks
like. Right now.
It's getting bad and people are starting.
I think that's what's starting to push so many people to
explore alternative options here.
And a lot of them are arriving to Bitcoin and you love to see
that. Quick question, if you have your
Bitcoin in self custody, where are you keeping your Bitcoin
seed words? For me there's only one way and
it's backing U my seed phrase with Stam seeds.
It's a single durable plate without any parts or materials.
Stamp your words into solid titanium which is fire
resistant, water resistant and built to last.
Unlike etching or engraving, stamp seats better.
The tools help you to deeply stamp every letter for permanent
readability, making it easy for you to protect your generational
wealth. Don't risk losing your seat
phrase on paper. Get a stamp seat plate for
unmatched protection. You can use code BRUM that's BR
AM for 15% off at stamp. Seat.com, I think you explained
it perfectly. I think we're talking basically
about saving, right? Just like spending your time and
energy now getting a reward. I don't want to spend it now.
I just want to save its words to future so I have something I can
use to do whatever with, you know, whatever you want to
create in the future or protect in the future.
I think you're, yeah. I was going to say, the point
that I'd make is that that same equation applies to
corporations, yes, right. They're not immune from this,
no. And the way that I like to often
describe MicroStrategy to people so that they can kind of
conceptualize it from their own life is you've got an income
statement for your personal life.
You've got a balance sheet for your personal life, right?
Think of your income statement as your salary, right?
Then you've got all your living expenses and the remainder would
be your net income, right? What you're doing when you shift
over to what MicroStrategy is doing is they're saying, well,
instead of us fighting for this, you know, 5% raise a year right
in our income, instead of deploying all of our efforts
there, we've accumulated assets on the other side of the on the
balance sheet side. What we're going to do is we're
going to be smart about how we deploy those assets.
And if we get 5% return on a bigger pool of capital, that's a
more impactful outcome than getting a 5% raise on your
salary, right? That's part of the reason why
people need to save for retirement, right, is because as
you build that capital base, the interest that you're, the
returns that you're getting year over year start to become more
material than the income you're getting from your job.
Now MicroStrategy, that's essentially what they did.
They shifted from saying let's focus on the income side to how
do we better deploy our balance sheet.
We have a very strong balance sheet.
We're unencumbered by debt, right?
We've got a lot of flexibility. They've got a few things that
you don't have in your personal life, which is access to the
capital markets. And in this way that you're
seeing them deploy with all the different products they can
issue. But foundationally, that's the
change that they made. They said we've spent decades
building the value in our balance sheet.
Now let's take that strong balance sheet and let's utilize
that to generate bigger returns for our shareholders than we can
by focusing on our BI business, right?
The growth just isn't there. They've got significant numbers
of competitors on that side, but in what they deployed on the
balance sheet, they didn't have that many competitors.
So they got a huge head start and other corporations are going
to start playing catch up. But it's a very simple shift in
thinking, but it's not one that you traditionally see in
corporate finance because the value of companies has always
traditionally been tied to the outcomes of the income
statement. So that's the foundational shift
that they made that sets them apart.
It's also what makes them very difficult for people to value
because they'll value the returns that they see on the
income statement and the growth. They're having a very hard time
wrestling with the returns that are coming from the activities,
actively utilizing your balance sheet.
So it's kind of throwing people off from the traditional metrics
they like to rely on. Yeah.
That's a perfect bridge to the next part I wanted to talk about
because MicroStrategy introduced a new metric Bitcoin per share.
And yeah, it's it's really hard to compare that to traditional,
you know, financial metrics as as you mentioned, what
implications does this have for valuing the company?
And maybe also take into account that you what you mentioned
before the fast be so that's the financial accounting standard
board, which basically creates like the the rules for
accounting in, in in the United States.
There are changes there. So that and they've they've come
into effect, but they haven't really reported with these new
changes, right? So they can report on Bitcoins
fair value. So, so the fair value of their
holdings instead of you mentioned that before, it was
kind of like an intangible asset before kind of like a patent or
something I once heard. So that's of course totally
different than what Bitcoin is that is coming into effect.
I think it's Q1 where they can really report on the earnings in
Bitcoin per share denominated in dollars or are accounted for in
dollars with the fair value of of of Bitcoin.
Yeah. So for FAS B, so some companies
have adopted it already, which is great, right, Companies like
Sembler Marathon, right, But a bunch of those have adopted FAS
B already. The change really is in the past
micro strategies only been able to realize losses on their
Bitcoin holdings. So if the value went down, they
were forced to mark down the value of the Bitcoin on their
balance sheet. And that caused a huge number of
issues, right? One, when people were, people
like to use automatic data sources out there to get ratios
like leverage ratios, that was part of what started to drive
the risky leverage narrative because the balance sheet never
accounted for the fair market value of the Bitcoin.
It was always this marked down value of it.
So it made them look far more leveraged than they actually
were. What's changing now is that at
the end of 2024, they're going to mark their Bitcoin up to fair
market value, right? So starting Q 12025, the balance
sheet is going to reflect the fair market value of their
Bitcoin as of the end of 2024. From that point forward, any
appreciation in that Bitcoin is going to show up in the net
income on the income statement. So it's going to show up in
those earnings. And when you accumulate the
amount of Bitcoin that MicroStrategy has, it doesn't
need to move very much for that to be a really drastically large
number. And it's going to shock a lot of
people because you're talking potentially billions and
billions of dollars of earnings every quarter if Bitcoin
performs now, it goes the other way too.
Right now, you're going to start seeing those losses going into
the net income as well, which you saw some of that with the
indefinite intangible accounting, but not the full
amount because traditionally it was marked down already
partially. But it's going to go both
directions. And so that's going to introduce
probably more volatility into the equity as people work to
digest what that means. But now you're going to see the
impact of this accumulation strategy.
And if Bitcoin follows pretty much any of the estimates that
you're seeing come out from people, whether you're in the
camp that believes it's going to be 175,000 by the end of the
year or I've seen, I think Max Keiser said 2.2 million or
something, right? Like really high.
So whatever that number is, right, it could be very
impactful to that income statement and that's going to
bring a lot of eyeballs to the strategy now that they're going
to see the outcome of what they've accumulated and the
creation of the value of what they've accumulated showing up
in those income statements. So that's going to be a big deal
for MicroStrategy. So you've got a lot of guys out
there that are now tracking day-to-day what that gain is
going to look like for Q1. But the first time we're really
going to see it, it's going to be the value as of, you know,
March 31st, but it's probably going to come out on their
earnings at the end of April is probably my guess for when we'll
see the 1st Q1 earnings. So, but it's important because
those earnings will flow into the criteria for getting into
the S&P 500. So for the S&P 500, you have to
have a cumulative 4 quarters of positive earnings.
Well, with the indefinite intangibles that they've had,
they've just had huge losses for several quarters in a row.
And now all it's probably going to take is one $2000 move in
Bitcoin to wipe out all those negative earnings and put them
into positive, which now at least gets them in the
conversation. There's no guarantees that they
get entry into the S&P 500, right?
That one's a little more political than the NASDAQ 100
was, which they just got into, which was a really big deal.
But it's a really big deal to get into the S&P 500 because of
the amount of capital, the amount of passive capital that
comes into your equity when you get in there.
So it might take them a couple tries.
People are going to have to digest, you know, how do they
evaluate MicroStrategy from the index lens for the S&P 500?
That committee will have to decide on that.
But it at least opens that door for them to meet the last
criteria that they need to meet to be able to be in the
inclusion for that. So that's going to be a really
cool change that comes out of this fair value accounting
because now the Bitcoin isn't treated, you know, as hostilely
as it was before because you're going to start to see those
returns trickling through. So that that's a big deal.
And it's a big deal for other corporations as they're adopting
it as well. Do you think that will happen
this year, the S&P 500 inclusion or is that hard to predict?
I, I'm hopeful it will and I try to remain fairly measured and
when I think these things are going to happen.
So I think that the first chance, which comes this summer,
I'm not expecting it then I think that it's going to take a
little deliberation to gain consensus on how they're going
to treat MicroStrategy. I wouldn't be surprised to see
it by the end of 2025 though, right?
They'll get two more shots here and 2025 to get in there.
So I won't be surprised to see them get in, right.
I think they should be in. And I think that when you look
at those indexes and they're looking at the types of returns
and the adoption that this type of a strategy is getting, it's
going to force them to consider their criteria and how this is
going to factor in because they may have to answer this question
for several other organizations. Micro strategy is the first one
reaching enough scale to get consideration, but there will
probably be others coming, so they're going to have to come up
with a more standardized approach.
So these passive inflows, I read someone's calculation, ones that
that could be like around a billion a month.
Well, it depends on on their spot and the and the and the
weight of course, But let's take just, you know, the number
doesn't really matter, but it's more about so these passive
inflows basically by the stock, right?
So that gives them money to buy more Bitcoin and just to add to
the flywheel, right? So that's the whole idea of of
getting. Yeah.
It's one of these impact factors that are going to impact things
like the multiple to net asset value that you see talked about
a lot, right. So one of the questions that
that you'd asked me before that I think I missed was around kind
of their key metric that they report, right, which is Bitcoin
yield. And Bitcoin yield is essentially
the change of Bitcoin per share quarter over quarter, Yeah, so.
What you could call earnings per share basically, right?
Yeah, Yeah. Except for the earnings are
cumulative based on all the Bitcoin that they hold.
Yes, change in value there, right.
So bigger pool actually. But what's really interesting
about Bitcoin per share and the reason why it's important is you
can think of it as essentially continuing to create an
increasing intrinsic value floor for the equity, right?
So MicroStrategy is becoming unique because the derivatives
market is becoming so huge, right?
The options market, I think the last time I checked, was as
large as the market cap of the company, if not larger now.
And when you've got a derivatives market that's that
large, that starts to impact the equity performance because
you've got this constant settling of all these options
contracts and that creates a huge amount of volume in your
equity. And what happens is you get
these shifts, right? And where those are going to
push your equity valuation, right?
You've got things called gamma, right?
And you're going to get dealers that are hedging their
positions. And so as sentiment changes on
Bitcoin, people are going to take different bets in the
derivatives market. And that can force these dealers
to hedge in different ways, which can put a lot of buying or
selling pressure on your equity, right?
So it starts to create these really outsized moves in the
equity, which is what creates the volatility.
And so Bitcoin per share, I view it as foundational to the high
sides of the stock price and building a higher floor to the
stock price when the sentiment changes.
So I've always viewed multiple to net asset value as kind of a
combination of sentiment of the market in terms of how they're
thinking about Bitcoin in the future and it expands and
contracts depending on how people or how institutions are
viewing Bitcoins prospects over the next certain period of time.
So when they're building Bitcoin per share, you can think of that
essentially as building this intrinsic value floor behind
each of the shares. So for instance, right now I
think that that value floor is right around $150.00 a share.
That's tied to the core value, the Bitcoin per share times the
Bitcoin price, right? Yeah, which tells you each share
on a fully diluted basis is about $150.00 in intrinsic
value. Well, if you just assume that
the multiple to net asset value is going to expand and contract
within a range, right, Say you thought the high end was going
to be 3 and the low end is going to be 1 1/2, right?
The higher you get that intrinsic value, the more
impactful a three times net asset value multiple becomes,
right? If you go three times from $100,
right? That's going to get you up to
$300.00. If you go three times from $200,
that gets you up to $600.00, right?
So as that floor builds, it builds the higher end of the
range for the stock price. And this thing's going to be
volatile. It's the whole design, right?
But you're going to get these periods of time where that
valuation expands as market sentiment changes and traders
start to place their bets and that starts pushing the hedging
activities. So there's a lot of buying
activity in the equity which can push the price higher.
And then when that sentiment shifts, right, gamma goes the
other direction as well and it brings you closer.
But now you've got a higher floor for the valuation of the
share than you had before. So it's probably not coming down
as far. So you can think of it as the
cycle of expansion and contractions.
And we saw four of those in 2025 for we saw major run ups and
major draw downs, right, 3040%. So that's going to be the norm
for the stock. It's the whole design.
It's why after you're in it for a while, you stop panicking when
the price goes down because it needs to, right?
That's what makes it appealing, is you need those wild blow off
tops and you need those draw downs and yeah, they hurt every
time, right? There's no way around that
isn't. But there will be less, less
drawn down, as I understand it correctly, because if you're
building a higher stack of Bitcoin, you're basically
building a protection against that downsides valuation, let's
call it like that. Like it cannot go as low as it
was before because the value of the Bitcoin is at an at a new.
Exactly. Level basically.
Yep, you're constantly building the floor underneath the stock.
Yeah. So is that also why or could
that also be why Sailor is perhaps a bit in a rush in the
sense, well, you could say he's in a rush because he knows
something about the strategic Bitcoin reserve.
I think we'll we'll skip that for this conversation.
But I mean more like, well, let's say the SPR gets there,
price goes up, maybe crashes down.
Like, he has to protect his own path of accumulation, right?
And so could that also be why he's kind of in a rush?
Absolutely. I think so.
I mean, there's a lot of factors that are that are pushing him to
move quickly. I think he's starting to see
competition emerging, right? You're going to get more demand
out there for Bitcoin as these new companies start to enter the
markets. And we've seen some coming in
and buying a significant amount of Bitcoin, right.
So there's evidence to support that they're waking up, and he
might not have the first mover advantage here for that much
longer. So I think that he's speeding up
his accumulation to try to get it right now.
The market's still allowing him to acquire at relatively
favorable prices, right? Buying in the 90,000, given what
we know about Bitcoin, yeah, is a steal.
Yeah. So I think he's taking advantage
of that right now where he's going to try to get as much
Bitcoin. Probably here, you saw it in Q4.
I think you're going to see it again in Q1 where he's going to
try to get as much as he can. Because with the new
administration coming in, it really changes the dynamics of
how you expect Bitcoin to perform.
It's really tough to price in what could happen when one of
the major world powers starts publicly announcing that they're
acquiring Bitcoin. You, you can't wait for that,
not for this type of strategy, not if you want to accumulate as
much digital capital as possible.
So I see him still being very aggressive, right?
While it seems like they've used up a lot of the 2121 plan and
for those that aren't familiar with it, they put out a plan in
2024 that said we're going to raise $21 billion using equity
and $21 billion using debt. They've still got 58% of that
remaining. They still haven't even used
half and it was painful in Q4 for a lot of people because the
focus was equity, right? The equity side using the ATM,
which is basically just MicroStrategy selling shares
into the market. That one's, that one's painful,
but it's the fastest way for them to accumulate, right?
It's the best way that they can take advantage of moving fast.
And they do have a risk framework that they follow,
which is they've got an internal range, right?
And they don't publicize what their internal range is, but we
could speculate that it's around 20 to 40% of the fair market
value of the Bitcoin they hold on the balance sheet.
That's the highest that they'll borrow.
Historically, they've stayed right around 25% of the value of
their bit. That's how much they borrow up
to right now. They've got really low.
So using the ATM, what that does is it buys new Bitcoin that has
no corresponding debt to it. So that Bitcoin goes to the
balance sheet and IT engineers, right?
You'll hear people say financial engineering, IT engineers
additional space for borrowing. So what I saw them doing was
speeding through the equity side of the plan in order to create
additional space going into 2025 where they can now shift the
tool that they're using and go back to the fixed income side of
the house, whether that's preferred stock or convertible
bonds. And now they can stay out of the
ATM market as heavily, right? You've been seeing them do a
little bit, but nothing material yet.
They've got 6 1/2 billion left on the ATMI.
Think that's probably going to be issued over maybe the next
three quarters. I don't think we're probably
going to see them rush through the whole thing again.
But they've now created that space where they can now focus
on the other side of the plan. Now they can get back to the
fixed income side. So they've only used 3 billion
on the fixed income side, right? So they've got 18 billion left
right now that they can issue. They've already signaled to the
market that they're going to do 2 billion in preferred and we
can talk about that here in just a minute.
So now they're down to about 16 billion that's remaining.
What's going to be unique about the preferred is depending on
how they structure it, that preferred offering is probably
going to live in the equity section of the balance sheet.
So that's not actually going to show as debt on the balance
sheet. So it's not going to impact that
leverage ratio. It's actually going to lower it
even more than it is already. Right now, we're in the 17 1/2
percent range. So when I look at them, they're
in a strong position now to execute on the fixed income side
because if none of the bonds that they've already issued
convert in the near term, they've already got space for
about 3 1/2 billion that they could issue right now to stay
within the 25%. When they do the preferred
offering, that's going to make it even higher.
They're probably going to be around 5 billion that they can
issue at that point. And with any help from Bitcoin,
that expands drastically, right, because it's tied to the fair
value of the Bitcoin. So if Bitcoin goes up to
120,000, they create even more space that they can go out and
borrow from. So they're getting into this
really strong position now where in Q1, I'm expecting a lot of
activity on the fixed income side for two reasons.
One, because they've got the space and they need to keep the
leverage high to keep the volatility and the equity,
right? That's a core part of
engineering that volatility. But two, there's these early
conversion clauses that we talk about a fair amount in those
bonds, which basically says if the bond trade or if the equity
trades at 130% of the conversion price for 20 days out of a 30
day period, that bond becomes eligible for conversion into
equity. So if you're looking at 2025 and
you subscribe to the traditional cycle theory of Bitcoin, 2025
supposed to be the best performing year that we're going
to see. The more bonds they get out in
Q1 means that most of those bonds could become eligible for
conversion as early as Q3, right?
And if they're eligible for conversion and Microstrategy's
price performs drastically, right, making these bonds
basically just trading like equity where there's really no
incentive for the bondholders to keep holding them anymore.
You could essentially get an almost clear Ledger going into
the end of 2025, which means if there is a cycle that
materializes again and Bitcoins price pulls back, MicroStrategy
might be almost entirely unleveraged by that point.
And then they'll be able to re leverage during the lower
periods, raise capital, buy more Bitcoin at the depressed prices.
So I do think there's urgency in the plan to execute as much as
they can in Q1 before it's likely that any of these
administration changes would result in an impact to EU s s
Bitcoin strategy. So there, there is some timing
here. And I'm sure that team, you
know, behind the scenes has modelled this out, you know, 20
different ways already. But to me, that seems to make
sense that you would act with some urgency on the fixed income
side in Q1 because you might have that possibility of getting
all that debt off your balance sheet going into the end of 2025
just in case the cycle does repeat, right?
I still think we see a more muted cycle.
It probably materializes because people believe so heavily that
it's going to materialize, right?
It's been so ingrained and so predictable over the last few
cycles. That I think.
Will almost create it, but you're fighting now against
institutional capital that's buying, yes.
So retail's not going to drive as much of that cycle.
So maybe we see a drawdown of 30 percent, 40%, but I'm not so
sold personally, and this is just a personal opinion.
I'm not so sold that we go back to an 80% drawdown in this
cycle. I think there's just too much
capital that's buying at any price now.
And they're holding it, right? They're not trading it.
They're holding it for the long term.
So I think that that's going to change the dynamics.
But it trades at the margins, right?
So it's going to be whatever's actively trading on the market
that's going to drive the price. So I do think we'll probably see
some level, but preparing for that if your micro strategy is a
superpower here. So if they do this right, they
could end 2025 in a really strong position to be able to
execute their strategy, rebuild their debt ladder during a bear
cycle and be ready for the next bull run in four years and
continue to build their lead in terms of the holder of digital
capital. Yeah, fascinating.
I I also believe, you know, there's now perpetual buyers,
especially if there will be a sovereign, you know, strategic
reserve. So I also think, you know, I
don't think we'll see the minus 80%.
Again, I agree with the -40 perhaps it gets extended a
little bit because I also think, and I love that you touched on
that when we talked about like inflation and prediction towards
the future. Like people seem to forget
sometimes that that parallel path is also happening.
And so we are not only talking about Bitcoin, like that
parallel path is the reason of existence of Bitcoin is the
accelerated debasement of Fiat money and the increasing need
for individuals and companies and countries to protect
themselves more towards the future, right?
So that is happening in a, in a parallel way.
And I do see there has to be some sort of inflection point
where there are enough, I'll say enough people, institutions that
realize they need to do something.
And well, if you do the research also, by the way, as a sailor
did, you will end up with Bitcoin being the best
protection and, and savings technology towards the future.
So I also, we talk a lot about Bitcoin in general, but I think
there's a combination, right? There's a reason why Bitcoin
exists. And you have to take that into
account. Like that train, as Lynn Alden
says, is not stopping. One thing that really struck me
with what you just said, and I had to think of when you said
intelligent leverage. It's interesting when kind of
like haters talk about MicroStrategy, etcetera, right?
They talk about, oh, they're so over leveraged and the debt and
the etcetera. And you said they're trying to
keep it between 20 and 40. And there's an example that
Sailor uses a lot where he says like, hey, I can borrow $2
billion backed by 500 million in Bitcoin.
And as you just explained, the entire goal is to just up that
stack so you can have more leverage or maybe say just
perpetual leverage. You can keep on having leverage
in order to borrow more. He just says like, OK, I use 500
million in Bitcoin to borrow 2 billion.
I buy 2 billion in Bitcoin. I reserve that half a billion in
Bitcoin for, you know what that loan is backed by.
And I just created 1 1/2 billion in shareholder value just like
that basically. And when he talks about that, it
sounds so simplistic, but when you think about these accounting
rules that that we talked about, that's a crazy business model
like that is that is insane, right?
Yeah, and it's important to note that they're not backing these
by anything, right? These are not he talks.
About it likely like. Yeah, but he talks.
About the word. Basically saying that the
organization has so much value beyond the borrowings, right?
And every time that they're accumulating more Bitcoin, their
position just keeps getting stronger and stronger.
So yeah, he's, he's basically borrowing a trivial amount
relative to the assets that they're holding.
Yes, right. That's makes it just such a good
play. What they're basically doing is
they get to buy Bitcoin now and they get to pay for it with
equity later, right? That's what they're doing.
Which is of more value because their stack is higher.
But exactly. So, you know, when they're
setting these conversion prices, it's been interesting to watch
that grow over time. You know, when they went from
being in the 30% conversion premium and then on this latest
offering, they got 55% on the conversion premium, right?
That premium is growing. So it's becoming more accretive
to the shareholders in terms of the Bitcoin per share and the
Bitcoin yield each time they're doing these.
And the conditions are becoming so favorable that they're
getting 0% on 3 billion. And I mean, that's a really
incredible demand to, for someone to give you $3 billion
at 0% coupon payments, right? That's, that's not normal.
But that can only be because of the performance that you're
getting in the equity. And they know that there's value
in that call option of that debt.
And that's what's going to make the preferreds very interesting
when they issue these. And I don't know whether they'll
do that sooner or later. I kind of thought because they
had 5 million shares available right now, that they might do
the preferred offering before the shareholder vote.
I'm starting to think that maybe they're going to wait and do it
after the shareholder vote, although I don't think that they
necessarily need the increased shares yet.
I think those shares are largely to accommodate stock splits in
the future. Right.
Exactly. People are freaking out about
it, but it's really about stock splits in the future.
It's not like they're opening up, you know, they're not ten
billion shares. Yeah, exactly.
Yeah, that's not what they're doing.
But the prefer, the preferred is going to be very interesting
because preferred is essentially going to be an even further step
down volatility product from what the convertible bonds are.
So if you think about how they're going to do that, the
structure of that preferred stock is going to matter a lot
in terms of how it trades from a volatility perspective.
So if you're trying to get to a volatility of 30, which is half
of Bitcoin, right? If you're trying to get to a
volatility of 30, you need to engineer the terms of that
offering to be conducive to that.
It means that you're trying to make this product act and trade
as fixed income for a long period of time.
And there's some very important things people need to pay
attention to when we're watching for the terms that are going to
come out on the preferred stock, mainly that they need to have
this preferred stock fully aligned to being equity, right?
We're really the only outcome for that preferred stock is that
it converts into. So they've said that they're
issuing perpetual preferred stock.
What perpetual means is that there's no end date, right?
There's no maturity date, right? There's no forced redemption
date. It's essentially perpetual in
nature. Now that doesn't mean it's going
to exist forever, right? Because there will be other
terms in there that allow either the holder or the issuer, which
will be micro strategy to force that conversion into common
stock. So what we're going to be
watching for is how they structure those terms, right?
So the first step is make it perpetual.
Don't give it an end date. That's one.
Second thing you got to watch for is there can be no clauses
that can possibly result in a cash redemption of the preferred
stock. If you have any type of cash
redemption for the preferred stock, now it's a liability to
your business. So now it has to live in the
liability section of your balance sheet.
And that's very important because that takes away from the
leverage you're able to deploy for the convertible bonds.
So I'm looking for them to have no cash conversion clauses in
there whatsoever. I think it'll be very similar in
structure from a convertible standpoint where you'll probably
see something similar like the 130% of the conversion price.
I think you'll see a similar term in these preferreds.
But what's going to be really interesting is they need to
create this long time frame of this product acting as fixed
income. So while a lot of people are
cheering for maybe they'll get 0% on the preferred, they're not
going to get 0% on the preferred, right?
I'll make that guess right now. I actually think it's going to
be a fairly strong market rate, maybe something in the 7% range
from a dividend perspective on the preferred.
So what they're going to do is probably get a really massive
premium for that conversion. So say the stock was trading at
$350.00 a share, I would guess that that conversion premium
might actually be like 150%, right, Which would put that at
875 would be the conversion price.
And then 130% from that would get you to what the early
conversion trigger is. I don't know exactly what that
pans out to was in, I don't know, 1030, four, 1137,
something in that range. Yeah, a little over 1100.
So that strike price is way out there, right?
Stock has a lot of room to move. And that's important because
what they're not going to want is that equity feature to kick
in too early on this product. They want people to want to hold
these for the dividend. Now, the dividend is another
area that they need to be very intentional in how they word it,
because if it's a guaranteed dividend, that's a liability,
right? You're guaranteeing cash payment
or something. If it's a discretionary
dividend, that's different, right?
So I'm expecting them to have a discretionary dividend probably
in the seven to 8% range that's out there.
They'll collect the money at 150% premium, which is highly
accretive to Bitcoin per share, right?
It'll have a fixed number of shares associated with it.
That's also very important to keeping it as equity.
Is that that conversion needs to be in a fixed amount of shares.
That's known at the beginning. And I think that you'll probably
see this in existence where MicroStrategy won't be able to
force a conversion for maybe five years, right?
They shorten the window on the convertible bonds.
I think they got it down to two years on the last offering was
kind of their no call period where MicroStrategy couldn't
call those bonds on this one. I think it's going to have to go
longer because again, you want people buying it as a fixed
income product where they're holding it for that dividend.
That's why they're holding that product.
So you want it to trade like it's a fixed income product.
So they're engineering lower volatility on this offering.
And then the other thing is where it stands in like a
liquidation scenario. So it's got to sit below the
debt, right, So that it can be equity, but it'll be above the
common stock. So that'll be another important
thing to watch for. So the way that they build this
out is going to be very interesting to see, right?
I'm expecting it's probably still going to come out.
Maybe it'll be priced at $1000 for the preferred shares, which
would be, you know, 2 million shares of preferred that get it
issued. They can change that price, but
I think that they're targeting institutional buyers with these.
I think that what they really want is going to be these
insurance companies, these endowments, right?
Those types of buyers to come and buy the preferred stock
because they want that fixed income exposure.
Watching this all play out is going to be a pretty interesting
revelation because it's going to set the market for everybody
else. And setting the market for
everybody else is a critical thing to do when you're the
leader, like MicroStrategy, right?
You need to give them that blueprint that allows them to
see what's possible here, right? How should we look at preferred
stock for our company? Now, one thing that a lot of
people are going to catch on to when they see this is they're
going to go, well, that's great. But if you said it's 7 to 8%
interest, that means that they've got to pay out 140
million to $160 million a year on dividend payments.
And that's well beyond what the company cash flows.
And that's going to be an interesting thing to watch
because it means that that can that Bitcoin per share increase
isn't quite as black and white as we've gotten accustomed to
with these other offerings, right?
I mean, there's nuances in terms of, you know, if MicroStrategy
calls a convertible bond early, they actually owe more shares
than what you see in the initial offering, right?
There's some nuance there too, but it's minimal.
These it's different because you're essentially going to have
to try to estimate out how much equity are they going to have to
sell to raise the capital to pay the dividends, right?
And that math isn't quite as black and white because you're
trying to raise capital at future prices on your equity,
right? If they have to raise the
capital at $300.00 a share versus $1000 a share, that's a
wildly different number of shares that they're going to put
outstanding in order to service the dividend.
So we're going to have to watch that a little bit to see how
they message that math out to the market.
But that's kind of the important part of getting that massive
premium on the preferred is now you've got room where you can
issue equity and still keep it more accretive than the
convertible bonds are. So those are some of the things
that I'm watching for as they structure these out.
And I've been trying to model, you know, how would I structure
a preferred offering to keep it as equity so I don't impact my
leverage ratio and give myself enough room where if I need to
use equity as a way to pay the dividend, how do I allow for
that to still keep this as a massively accretive transaction
for my shareholders? What I'm thinking is that it's,
it's interesting how they are trying to offer something in, I
don't want to say short term, but you have to offer something
in the now. But their entire thesis is built
upon a very long term outlook, which I think you know, the the
general haters or critics don't really see and thus understand
why they are doing it right. So Sater says, you know, by my
calculation or by his calculations, Bitcoins kegger
will be 29% average over the next 21 years.
And that, as I've come to understand it is basically the
underlying thesis as to why he's doing it right.
So it's an interesting dynamic between watching the current
financially engineered, you know, products that they're
offering, but at the same time also understanding, yeah, what
it what is the end goal? And also taking into account
these, you know, the possible continuation of the cycles where
eventually the price goes down. I mean, they they, they know
that that has been the history of of Bitcoin.
And I find it so fascinating that just as with Bitcoin, it's
so hard for people to, yeah, just take someone's thesis and,
and then kind of like run with that or judge that, right?
Like people are projecting their own understanding of Bitcoin or
financial markets or dividends or productive assets and stuff
like that. I find it really interesting to
see that a lot of haters and, and they have very bad blog
posts that you, you share the bits today that yeah, they, they
just stick with kind of like overly simplistic arguments
perhaps. And they don't really take into
account, hey, there's this guy who has a 21 year thesis and
that is what he's playing. So let's look at it like that.
How do, how do you look at that? And, and do you find that
difficult as well? Like, you know who can predict
21 years? It is, yeah.
I mean, for most people, we live in a very short term nature when
we're thinking about possibilities, right?
Our time frames have become very narrow.
And part of that's probably, you know, social media and the way
that we're fed content. And no, it's the reason why
people are so upset with micro strategy when it doesn't move is
because we're expecting massive movements in one month time
frames, right? Whereas when you embark on a
strategy like this as a corporation, you're playing the
strategy out over decades, right?
So the evolution we see at the beginning isn't going to be what
it looks like probably even in five years from now.
This is when you put out a KPI for your company, what you're
really doing is you're trying to align the market and your
management to the direction you're trying to go in the near
and moderate term, right? You're guiding towards the next
outcome of your strategy. And so we may see an evolution
of the KPIs that they're focusing on in five years, it
might be different. Maybe it's not Bitcoin yield
anymore. There might be something that's
better for shareholders that they'll shift and focus on at
that point. But right now, they want their
management team focused on effectively and efficiently
accumulating as much Bitcoin as they possibly can for the next 5
years to set that organization up for the next iteration of
what they're going to be in their strategy, right?
These are constant transformations.
If you're a company and you stay idle and you stick with one
strategy and you never evolve that strategy, eventually
somebody else innovates you away, right?
That's just what happens. You've got to continue to be
thinking about the future and Sailor and all of his messaging
has shown that MicroStrategy is aligning itself with a long term
vision that's going to set them up for continued success well
into the future, right? That guy thinks in terms of 1000
years, right? He doesn't think even about 10
or 20 years. He likes to talk about the deep
future and the value you're bringing to humanity over that
time period. So he's a pretty unique leader
in that sense. And I think he's doing everyone
a great service by trying to communicate out to people that,
you know, Bitcoin's not a now asset, Bitcoin's a forever
asset, right? This is something that we're
going to constantly be building. It's this next evolution and
digital capital for the world. And he views that as a very,
very deep guiding mission for himself and for the company that
he control. And when you look at it through
that lens, it helps you to be a little more comfortable in the
way that they're executing here, knowing that this isn't just
some knee jerk strategy that's happening, right?
That's a guy that's put in the effort to understand what
Bitcoin is, what it means to humanity, what it's going to
mean for his own company, and how he can generate the value
for his shareholders over an extended period of time, right?
Not this year, not next year. He's looking 10 years, 20 years,
30 years. And I bet they have a view
internally of what that future looks like.
And obviously they're going to be getting far more calls
discussing all the developments in Bitcoin well beyond what you
or I are going to see. But I think that they see how
bright the future is here and they wanna be one of the largest
holders of digital capital so that they're ready and in
position to take advantage of what that future looks like.
All right. Maybe to wrap it up, let's see
if we could have some short answers to my final questions.
How much do you think you can reasonably acquired this year?
I mean we've we've talked about you know, the competitors
etcetera. I'm not sure where we are
exactly at that time of recording, but yeah, he's in a
rush. What What are your thoughts
there? Yeah.
So he's got 450,000 as of this morning, right?
That was with their latest by my estimates shows them getting to
about another 210,000 this year, which is a significant amount of
Bitcoin. But when I look at what they've
got available to them left in the 2121 plan, I think that
they're going to work pretty hard to exhaust that plan in
2024 or in 2025 so that they can announce what the next iteration
of that plan is probably in Q4 this year.
So I think that with the capital they have available in those
plans and with a little help from Bitcoin here, I think
they'll get to another 210,000 this year is my guess.
Yeah. And we also talked before, also
before this conversation about like, you know, the end goal.
I call it like Sailor wants to become like the world's first
Bitcoin bank. How long do you think that'll
take? Like, how much Bitcoin do you
need in order to do that? And perhaps even more like when
would the market even be ready for something like that?
Yeah, I think it's going to take some time, right?
But when I say time, I'm not talking decades, I'm talking
five years probably before we start to see more financial
institutions getting ingrained in Bitcoin and we're going to
start seeing what those financial products look like.
So if I'm MicroStrategy right now, you know, for 20/25/2020
six, 2027, I'm focusing on accumulation and they're
probably targeting getting to 1,000,000 Bitcoin, right?
And they might be able to get there.
I think as the adoption picks up, it keeps getting harder and
harder to get there. But that's a significant amount
of capital for an entity to control.
And I think it puts them in a great position to become this
digital capital bank to the world.
And I don't know exactly what those products are going to look
like yet. I got to spend some time, you
know, thinking about the evolution of that, but I think
it's going to be a very exciting future for a company like
MicroStrategy. And I think that they're going
to have a ton of options in terms of how they reinvent
themselves over the next 5 to 10 years.
Yeah. Do you think there there will be
a moment where MicroStrategy is like too big to feel like?
Are there are there any risks that you see this year in, in
like their approach and their current strategy?
Yeah, I don't, I don't know about the too big to fail side
of things, right. I mean, it becomes very
difficult to fail with the scale that they've had, particularly
if over time once they start evolving out of this leveraged
acquisition strategy. If they evolve out of this
leveraged acquisition strategy and you start seeing the
leverage of the company come down, they just get stronger and
stronger because they have this massive war chest of capital
that can absorb huge fluctuations in value with no
risk to the organization overall, right.
There's no, there's like that article I put out today that was
talking about the financial debt covenants that they were going
to trip, right? Those don't exist.
So you know, it's, it's just a silly article for someone to
even put out because these bonds are non recourse.
There's no cash flow triggers tied to them.
There's no collateral where you have any loan to value
provisions on it. The same will be with the
preferred stock. So they're not putting
themselves in a position of weakness, right?
And just with the Bitcoin that they're holding, because they
only tend to lever up to 25, the reason for the 40% upper range
is that allows them to absorb volatility in Bitcoins price,
right? But they're probably only
actively going up to 25%, which means they can sustain a huge
drawdown in Bitcoin and it's really not going to impact them,
right? It'll be painful for the equity,
of course, but it's not an existential threat to the
underlying business, right? For that, you're really looking
at very point in time maturity risk, right?
At the exact time that a bond's maturing.
If you get a Black Swan event, it still doesn't even, it's not
going to sink MicroStrategy, right?
The risk is to the common stockholders, right?
That much should be known by now where they're going to sell
equity to pay off that bond if they need to.
So that would become a dilutive event if that happened, Black
Swan, direct point maturity. But that's why they've got these
early conversion triggers and they're pushing that ladder out
into the future over time. And eventually, if they evolve
and they become this bank, their strategy may change and they may
be out of the leverage side of things.
And now they're just this holder of this massive war chest of
digital capital. They're in an incredible
position of strength to innovate and do whatever they want.
Well, Black Swan is basically with with any investment.
Exactly how it is, yeah. Nothing's without risks, right?
I mean, I'm not going to pretend that, but.
Yeah, on the other side, maybe a fun thought, let's say, you
know, because there's so much volatility, you mentioned before
there's a lot of short sellers, people who are like super short
on the stock. Could we get like, you know, if
you think about we get like a GameStop ask squeeze for micro
strategy, which kind of like leads to trading getting halted
while that Bitcoin blasts towards the stratosphere like
that would be the best day ever. Could that ever happen, you
think? When kind of like the
traditional finance part grinds to a halt and Bitcoin is just
like, see ya. Yeah, I think it's going to be
eventually you get someone caught short on Bitcoin directly
versus MicroStrategy, right? MicroStrategy is a little unique
because while it looks like they have a lot of short interest,
it's pretty much all tied. You know, probably 75% of the
short interest you see is hedges on the convertible bonds.
So there's no squeeze there, right?
You can squeeze that price to. But they're.
Fully hedged, right. So you're not if they don't ever
have to close that short. So, you know, there's no like
short squeeze that comes out of that.
So I don't look for a lot of short squeezes on MicroStrategy.
I think you'll get a ton of gamma squeezes on MicroStrategy.
So that'll be a different thing. But I think yeah.
Oh yeah. Up and down.
Yep, yeah, yeah. But I actually think that
eventually you'll get someone that gets too comfortable and
decides to take some big short position on Bitcoin itself.
And maybe it's through ETFs. I don't know what it'll be
through, but you know, there's no stopping a short squeeze in
Bitcoin, right? There's no circuit Breakers
there. No trading desk is coming to
save you, right? You're in trouble.
So while I think most people now stay out of positioning
themselves that way because of that risk, I think it also does
improve the position of a lot of these equities that are putting
Bitcoin on the balance sheet. Because it makes traders have to
think about whether they really want to short your business
Because now you've got this asset that they don't have any
control over. And if that starts going crazy
and they're short against your equity, they're in a world of
hurt Because while your equity can jump and trigger these
circuit Breakers, Bitcoin can keep going.
So every time that those circuit Breakers flip back on, it's
going to be more painful for you.
So it's really risky to short businesses that have this as a
part of their strategy. So I think that you'll probably
actually see a little less shorting on these types of
equities than you would see on traditional.
That's a good point because you also really have to understand
Bitcoin in order to substantiate the argument to to short.
And if you don't understand Bitcoin enough, then the short
is a very bad idea. Yep.
All right man, I think this was a great conversation and an
outlook for 2025. I want to ask you my last
question because I ask everyone the same question, which is what
is a core belief that you will never let go.
Core belief that I'll never let go.
I put a huge amount of importance on allowing yourself
to think differently. Than everybody else's and it
took me a long time to get there and it took me evaluating a lot
of my own beliefs to get there both personal beliefs and not
just even talking about Bitcoin. But I think one of the biggest
strengths you can carry forward as an individual is that ability
to allow yourself to think freely and think differently
from what the rest of people are doing.
And it's the only way that you're going to create different
outcomes than everybody else gets.
So I believe wholeheartedly that you need to free your mind and
let yourself think differently. I love that, man.
That ties into going all in on Bitcoin, I think so.
Absolutely. Thank you so much for sharing
that. Thank you so much for your time.
I hope this is valuable to people.
And yeah, man, let's do it again sometime.
Thank you. Absolutely.
Thanks, Brown. I hope you enjoyed this episode.
If you did, you can click here to find more just like it and
click here to find all Bitcoin for millennials podcast
episodes. Also, please like this video if
you want to help shine a light on the message of Bitcoin and
subscribe to my channel to stay connected.
I hope to see you for our next episode.
Bye.