Organized & Compiled by: Deep Tide TechFlow
Guest: Michael Saylor, founder of MicroStrategy
Host: Bonnie
Podcast source: Bonnie Blockchain
Original title: Bitcoin Jesus Michael: This generation's opportunity for a turnaround! You just need to do this!
Broadcast date: November 16, 2024
Background information
Michael, known as 'Bitcoin Jesus,' and the U.S. listed company MicroStrategy, which he founded, are considered one of the world's most visionary Bitcoin securities issuers. With bold investment strategies and firm belief in Bitcoin, he led the company from a traditional software business to become one of the best-performing companies in the U.S. stock market by 2024. Here, we will explore his path to success and his unique insights on companies, individuals, and the future of Bitcoin.
Childhood reading competition
Michael's growth experience
At the beginning of the podcast, Michael shares his childhood reading experiences. His father served in the Air Force, so he lived in different countries, including Japan and New Zealand, as well as several states in the U.S. He recalls his love for comic books in the first grade, even though each comic book cost 25 cents, which he could not afford. To encourage him to read, his parents promised to reward him with 10 cents for each book he finished.
Inspiration from the reading competition
Michael's teacher held a reading contest that sparked his competitive spirit. He discovered he could borrow seven books at a time, so he began borrowing science fiction books. Throughout the summer, he read a large number of books to earn money to buy comic books. Ultimately, he not only completed the contest but also developed a genuine interest in reading, especially a love for science fiction literature, coming into contact with works by authors like Robert Heinlein, Arthur Clarke, and Isaac Asimov.
The impact of reading
Michael states that this experience accelerated his intellectual development and had a profound impact on his later life. Although he no longer reads comic books as he did before, his love for reading still exists.
Diversifying risk
MicroStrategy's investment strategy
Bonnie inquires about Michael's investment strategy with Microstrategy, especially its decision to concentrate investments in Bitcoin.
Michael confirms that Microstrategy currently holds 252,220 Bitcoins, and his personal Bitcoin holdings have slightly increased from the 17,730 he announced four years ago. He notes that while traditional financial wisdom advocates diversification, in some cases, concentrating investments may be wiser.
The logic of concentrated investment
Michael explains his views on diversifying risk. He believes diversification is suitable in situations with multiple high-risk options; however, if the only viable choice is one, then concentrated investment is a better option. He uses the metaphor of a sinking ship and lifeboats: if only one lifeboat is safe, it is not wise to scatter everyone across different boats. In the face of hyperinflation, choosing diversified investments will only lead to greater risks.
The uniqueness of Bitcoin
Michael further elaborates on why Microstrategy chose Bitcoin as an investment. He points out that when a company holds $500 million in cash, it generates 0% interest while the cost of capital is between 15% and 20%. In this situation, holding cash actually leads to company losses, so there is a need to find an investment that can yield higher returns. Bitcoin is considered the only truly scarce commodity in the world that can outperform the S&P 500 index in the long term.
Investment advantages of Bitcoin
He emphasizes that Bitcoin is not only the only digital commodity but also has no issuer, giving it regulatory advantages. For publicly traded companies, the restriction of holding more than 40% of assets in securities makes Bitcoin an ideal investment choice. MicroStrategy, facing life and death, chose innovation and attempted new investment ideas, resulting in a turnaround.
I have to convince myself first
The challenges in the persuasion process
Bonnie inquires whether it is difficult to persuade others to accept Bitcoin, given that many still view Bitcoin as a scam.
Michael shares his process of convincing himself in 2013. Initially skeptical about Bitcoin, he thought it might fail. He mentions that Bitcoin's value often hinges on whether people need it; many view it as a curiosity when there is no pressing demand.
The evolution from skepticism to trust
Michael describes how he gradually changed his perspective. He believes that everyone starts as a skeptic, and after a few hours of contemplation, they may realize that Bitcoin is an asset, then transition to being a trader and begin trading Bitcoin. After approximately 100 hours of learning, he began to view Bitcoin as an investment, considering it like a 'bank in the network' that allows for fund transfers without intermediaries.
The investment philosophy of Bitcoin
After 1000 hours of in-depth research, Michael sees himself as an 'extreme supporter of Bitcoin.' He believes Bitcoin is not just an investment, but a tool providing property rights to 8 billion people worldwide. Compared to traditional assets, Bitcoin grants everyone the same property rights regardless of their location. He emphasizes that purchasing Bitcoin means participating in a global network, where all participants are working to enhance your wealth.
The ethical significance of Bitcoin
Michael believes Bitcoin is not only an economic tool but also a means of economic empowerment, capable of providing opportunities for every person, every country, and every institution. He emphasizes that this is the first time in human history that property rights can be transferred in a way that these rights are not easily taken away. This idea is profound and important to him.
Options to maintain flexibility
Reasons for choosing Bitcoin
Bonnie expresses her views on Bitcoin, believing that if one wants to purchase an asset that can be passed down through generations, they should choose an asset that the government cannot arbitrarily inflate, such as Bitcoin. She mentions recent news about a wallet possibly belonging to the U.S. government being hacked and $20 million stolen, which led her to think about Bitcoin's storage methods.
The best way to store Bitcoin
Michael responds that there is no single 'best' storage method, especially considering personal time spans and needs. He points out that the longer the time, the more important it is to maintain flexibility in choices. He gives several examples:
Short-term investors: If you are 75 years old, have a stockbroker who can help you buy Bitcoin over the phone, you might choose to buy Bitcoin in ETF form through companies like Fidelity or Blackrock.
Large enterprises: If it is a large company, regulated companies may prefer to buy Bitcoin directly rather than ETF and choose a compliant custodian.
Individuals in unstable countries: If you live in a country with currency collapse or government instability, self-custody of Bitcoin may be a better choice. In this case, Michael suggests trading through overseas entities or completely self-custody.
Choose a storage method based on the situation
Michael emphasizes that the key to choosing a storage method lies in the type of entity (individual, family, church, union, city, or bank) and the environment (such as war-torn areas or stable countries). Additionally, the time span is also an important factor. For example, if you want to leave Bitcoin to your granddaughter, who may live in other countries, it is best to choose a self-custody method that allows her to have complete control.
The importance of maintaining flexibility
Michael concludes that maintaining flexibility in choices is key. He believes that if he were to summarize what business school teaches in one sentence, it would be 'keep your options open.' Therefore, owning Bitcoin itself and knowing how to self-custody is the best way to maintain flexibility.
MicroStrategy as the best-performing U.S. stock
Comparison of Bitcoin and MicroStrategy
Bonnie mentions some impressive figures: Bitcoin has risen 97% in the past year, TSMC has risen 116%, Nvidia has risen 222%, while MicroStrategy has risen 455%. She asks how investors should view this discrepancy and why MicroStrategy's stock is trading at a premium above its underlying assets.
The multiple values of holding Bitcoin
Michael explains the difference between investing in Bitcoin and investing in companies related to Bitcoin by using oil as an example. He states that the value of owning a barrel of oil is clear, but if an oil company also owns a refinery that can produce various petrochemical products, then the value of that company is not just based on its oil reserves. MicroStrategy, as a Bitcoin reserve company, holds $17 billion worth of Bitcoin, which gives it significant intrinsic value.
The uniqueness of MicroStrategy
Michael points out that the uniqueness of MicroStrategy lies in its ability to securitize Bitcoin. MicroStrategy created a range of securities to attract capital market investors who do not want to hold Bitcoin directly. These investors prefer investment tools with higher performance rather than simple Bitcoin. For example, MicroStrategy's stock offers 1.5 times leverage of Bitcoin, meaning its volatility and return rate are higher than Bitcoin itself.
High-leverage investment choices
Michael further explains that there are investors with different demands in the market. Some investors want higher-leverage Bitcoin investments, such as MicroStrategy's derivatives (like MSTU and MSTX), which provide 2 times the leverage of MicroStrategy, effectively achieving 3 times the Bitcoin investment. Additionally, the options market for MicroStrategy also shows tremendous open interest, exceeding $40 billion.
MicroStrategy creates leverage by issuing convertible bonds, which provide investors with a relatively safe investment option. Investors can receive principal protection when the bonds mature while enjoying potential upside gains when the company's stock rises. Michael mentions that a recent convertible bond deal performed exceptionally well, rising 45% in just four weeks.
Liquidity and volatility
Michael emphasizes that MicroStrategy's high liquidity and high volatility allow it to borrow funds at low interest rates, as lenders seek to benefit from this volatility. If MicroStrategy were to invest in low-volatility treasury bonds, it would undermine its value creation ability. He compares this volatility to the temperature of a car engine, believing that to drive fast, the engine must stay hot.
Volatility and risk are not the same
Definitions of volatility and risk
Bonnie inquires whether Michael feels nervous when Bitcoin prices drop.
Michael responds that he does not feel nervous and points out the distinction between volatility and risk. He explains that volatility refers to fluctuations or severe changes, while risk refers to the expectation that an asset's value will drop to zero. Bitcoin is volatile, but this volatility does not mean it is high risk.
The liquidity and leverage of Bitcoin
Michael further elaborates on Bitcoin's liquidity and leverage characteristics. He mentions that if you need to sell $1 billion worth of Bitcoin with 10 times leverage on a Saturday night, you only need to provide $100 million in collateral to complete the transaction. In other asset markets, such as gold or real estate, this operation would be impossible.
Michael emphasizes that the Bitcoin network offers extremely high liquidity and leverage, making it attractive even during market volatility.
Limitations of other assets
He points out that other assets (like gold and real estate) lack liquidity and credit during market stress or panic, making them less useful. For example, during a crisis, people may want to sell assets, but in these markets, selling large assets is not easy. In contrast, Bitcoin's volatility reflects its practicality and flexibility as a financial tool.
Where there is volatility, there is energy
Michael likens Bitcoin's volatility to the heat in a jet engine, emphasizing that this volatility is the energy driving the performance of the financial system. He states that while a jet engine produces loud noise and hot air when operating, it is not frightening because it is the necessary power to fly from New York to Tokyo. Similarly, Bitcoin's volatility is a manifestation of its financial energy and is a key factor in driving its superior performance.
Michael's viewpoint is that volatility is not equivalent to risk. Bitcoin's high volatility actually reflects its liquidity and leverage characteristics, allowing investors to trade more flexibly when market conditions change. This characteristic gives Bitcoin unique value and appeal in the financial market.
Extreme financial operations
Characteristics of convertible bonds
Bonnie inquires about the situation of convertible bondholders; what will happen when the bonds mature and MicroStrategy begins to repay the principal?
Michael explains that when convertible bonds mature, holders can choose to convert their bonds into MicroStrategy's stock. He mentions that the conversion price of the first batch of bonds issued by MicroStrategy was around $39, while the current stock price has far exceeded that price, allowing holders of these bonds to gain substantial capital gains.
The conversion of bonds and company strategies
Michael points out that most of the bonds issued have already exceeded their conversion price. He states that it is unlikely that the principal of these bonds will be paid, and it is expected that these bonds will eventually be converted into stocks. He lists the conversion prices of different bonds, emphasizing that as Bitcoin prices rise, conversions of bonds will become more common.
Expected growth of Bitcoin
Michael's long-term prediction for Bitcoin is an average annual growth of 29%. He mentions that even in the current market environment, Bitcoin's growth rate exceeds this expectation. He explains that if an asset grows by 21% each year, it will double in about three years. Therefore, the duration of the debt is about five years, allowing MicroStrategy to realize capital appreciation when the debt matures.
Leverage and investment strategies
Michael emphasizes that MicroStrategy's goal is to maintain moderate leverage to remain competitive in the market. He believes that if a company has no leverage, it could face volatility similar to Bitcoin, while its investors are all supporters of Bitcoin. He likens the company to a real estate firm, pointing out that using low-interest loans for investment is more attractive than having no leverage at all.
Goals for increasing Bitcoin holdings
Bonnie summarizes that MicroStrategy's ultimate goal is to increase the number of Bitcoins per share.
Michael confirms this, stating that the company focuses on acquiring more Bitcoin creatively and valuably. He introduces the concept of 'Bitcoin yield' (BTC yield), which is a metric for measuring the growth of each Bitcoin share.
Calculating Bitcoin yield
Michael explains how to calculate Bitcoin yield, which involves dividing the number of Bitcoins held by the fully diluted number of shares to arrive at the growth rate per share of Bitcoin. He notes that if a company increases its Bitcoin holdings in a given year and the Bitcoin yield is positive, shareholders will not be diluted but will benefit instead.
How much money will you have in 10 years?
Long-term expectations for Bitcoin
Bonnie asks Michael about the future price and growth potential of Bitcoin.
Michael states that his basic expectation is for Bitcoin to continue to grow as digital capital and become a tool for global long-term value storage. Currently, Bitcoin accounts for only 0.1% of global assets, approximately $1.4 trillion, while the total global assets amount to about $900 trillion. He believes the addressable market for global long-term capital is around $450 trillion, so the potential market for Bitcoin remains vast.
Target price for Bitcoin
Michael anticipates that Bitcoin will gradually grow to 7% of global assets, meaning each Bitcoin's price will reach $13 million. This target is expected to be achieved by 2045. He notes that the average annual growth rate of Bitcoin over the past four years has been about 50%, but as the market expands and adoption increases, this growth rate will gradually slow down. He points out that the dollar money supply has grown by about 7% each year over the past 100 years, so he believes Bitcoin's growth will maintain a similar trend over the next 20 to 30 years.
Comparison of Bitcoin with other assets
Michael further analyzes the comparison between Bitcoin and other asset classes. He believes Bitcoin will surpass gold, real estate, and certain stock indices to become the primary choice for the wealthy to store their wealth. He predicts that the growth rate of Bitcoin will gradually approach the return rate of the S&P 500 index (about 10-12%), and as more companies begin to purchase Bitcoin, the lines between traditional capital and digital capital will further blur.
Volatility and investment opportunities
Michael mentions that Bitcoin's volatility (around 55) remains higher compared to traditional markets (around 15-16). He believes that Bitcoin's trading volume and global tradability endow it with higher return potential. He also mentions the possibility of downloading the 'Bitcoin 24 model' for customized financial forecasting to simulate various macroeconomic and technological factors.
Advice for young investors
Michael advises young investors that every Bitcoin purchased today may be worth $13 million in 21 years. If a person can acquire 5 Bitcoins, then in 21 years they will have $65 million. Although future purchasing power may be affected by inflation, Bitcoin is still viewed as a superior investment choice compared to other assets.
Does Bitcoin make the rich richer? Or empower the poor?
Empowering everyone
Bonnie asks Michael whether Bitcoin's impact is making the rich richer or empowering the poor.
Michael responds that Bitcoin will empower 8 billion people globally, especially the working class, in a way that no other financial asset can. He emphasizes that the uniqueness of Bitcoin lies in the fact that anyone can participate in this asset investment at low cost through a smartphone, gaining the same property rights as billionaires.
The equality of Bitcoin
Michael points out that using Bitcoin, ordinary people have property rights that are even better than the world's wealthiest individuals (such as Jeff Bezos, Elon Musk, or Bill Gates). The liquidity and tradability of Bitcoin allow everyone to buy and sell at any time, unconstrained by the traditional financial system.
The wealthy and the digital economy
For the wealthy who refuse to accept Bitcoin and the crypto economy, Michael believes they will face the risk of wealth erosion. They may continue to rely on traditional investment returns (usually between 7% and 12%), while those willing to embrace the digital economy will become wealthier and be able to help the working class and the poor share in this wealth growth opportunity.
The impact of Bitcoin on capital markets
Michael believes that Bitcoin will drive the digital transformation of capital markets. Any securities related to Bitcoin will provide better returns and performance for investors. He mentions that indirectly, Bitcoin will also benefit pension funds, retirees, and those holding Bitcoin-related assets. Currently, about 250 million people hold assets directly or indirectly related to Bitcoin, a number expected to expand to 1 billion.
Want to make a lot of money
Creating wealth through Bitcoin
When discussing how to earn significant wealth, Michael proposes an aggressive strategy. He suggests that if you want to make a lot of money, you could position your podcast as a Bitcoin podcast and value it at $10 million. Then, you could sell 25% of the shares to venture capitalists who believe in Bitcoin and the digital future to raise funds.
Investing in Bitcoin
Suppose you received a $3 million investment; you could invest all of it in Bitcoin. Michael believes Bitcoin might double every three years, so if you have $6 million after three years, the podcast's valuation may also rise to $15 million. Then, you could refinance $5 million to continue investing in Bitcoin, potentially appreciating your assets to $30 million or $40 million in ten years.
High leverage investment
Michael emphasizes that the key is 'actively leveraging investments.' By allocating company cash flow and capital investments to Bitcoin, corporate profits may double or triple. He explains how to achieve wealth growth by increasing risk and leveraging Bitcoin's high return potential.
Comparison with real estate investment
He compares this strategy to real estate investment, noting that real estate typically takes longer to appreciate, while Bitcoin's growth is faster. By simply putting all capital into Bitcoin rather than selecting specific real estate, investors can achieve faster wealth growth.
Advice for ordinary people
For ordinary people, Michael recommends investing a portion of their long-term capital in Bitcoin. He suggests taking the time to learn about Bitcoin and deciding on the investment proportion based on their risk tolerance. He believes that smart investors should strive to shift their capital structure towards Bitcoin to achieve higher returns.
Embracing volatility
Michael also emphasizes that traditional financial wisdom often considers volatility to be risk, but he believes volatility is actually vitality. By embracing Bitcoin's volatility, companies can attract more capital and achieve faster growth. He uses MicroStrategy as an example to illustrate how incorporating Bitcoin into the balance sheet can lead to significant corporate value growth.
Saving Taiwanese companies
Challenges in Taiwan's manufacturing industry
Bonnie mentions that Taiwan's economic foundation is made up of numerous small and medium-sized manufacturing companies, which are facing survival challenges as manufacturing shifts to other countries.
Michael responds that many companies are in a 'zombie company' state; although they are still profitable, they lack growth momentum and become dull and trapped.
Looking for transformation opportunities
Michael suggests that if discussing how to save a company with an annual revenue of $500 million and an annual growth rate of only 2% in a board meeting, he would propose a transformative acquisition. He envisions finding a $2.5 million company with a growth rate of 50% and believes this company will grow 20% to 40% annually over the next 20 years. He thinks such a company has a monopoly in the market and possesses an unstoppable product.
Bitcoin as a solution
He further proposes that Bitcoin can be viewed as a 'global technology company' that can be acquired at 1 times revenue. Michael likens Bitcoin to a 'universal merger partner' that can help companies globalize, increase growth rates, and enhance stock attractiveness. He emphasizes that the value of Bitcoin lies in its growth potential and accessibility to global markets.
Breaking traditional thinking
Michael points out that many companies hesitate during transformation, preferring to choose slow death rather than take risks. He uses the electricity revolution as a metaphor, encouraging companies and individuals to embrace new technologies, just as they accepted electricity back then. He believes digital energy (Bitcoin) can be used to revitalize business and products.
Michael's core message is that Taiwanese manufacturing companies need to rethink their business models, dare to take risks, and embrace new technologies like Bitcoin to achieve growth and transformation. By incorporating Bitcoin into their balance sheets, companies can not only achieve value growth but also enhance their market competitiveness, avoiding being eliminated by the times.
Opportunities
Inspiration from fire
Michael uses the metaphor of fire to illustrate the importance of technology. He mentions that when humans first discovered fire, not everyone immediately understood its multiple uses, but over time, people gradually learned how to use fire to improve their lives, such as cooking, clearing land, making tools, and so on. Ultimately, this technological advancement enabled humanity to create great achievements like skyscrapers.
Acceptance and learning of technology
Michael emphasizes that the progress of civilization depends on the acceptance and learning of new technologies. He encourages people, regardless of their location (such as Taiwan, Africa, or South America), to face new technologies bravely rather than feeling fear. Especially in the context of globalization, many countries cannot invest in high-tech or real estate like the United States, so seeking new opportunities is crucial.
Opportunities in Bitcoin
He points out that Bitcoin provides an opportunity for those unable to enter the U.S. market directly. Bitcoin not only represents a way to access the best markets but also allows people to bypass traditional markets and access better markets. Michael believes Bitcoin is a universal solution to problems, especially for those who feel unsettled and excluded.
Seeking out demand-driven populations
Michael mentions that many wealthy and powerful individuals often turn a blind eye to their problems because they are too complacent and comfortable. He suggests looking for those who recognize they have issues and offering Bitcoin as a solution. For people living in economically unstable countries, like Argentina or Nigeria, Bitcoin may be their way out.
