Why Did He Buy Over 1.6 Billion Dollars of Bitcoin? : Interview with Michael Saylor MicroStrategy CEO ①

Michael Saylor is an American entrepreneur, inventor, author and the CEO of MicroStrategy. He combined his passion for technology, business and computer science to create a strong place for MicroStrategy. He became a Bitcoin believer in March 2020, and tells us about his monetary thesis and why Bitcoin is the best Store of Value.

Michael Saylor (MicroStrategy CEO)

Interview Date : 8th December 2020

Where did you go to university, and what did you study?

I went to MIT and studied spaceship engineering. I have a degree in aerospace engineering. I have also studied the History of Science, and the Scientific Revolution and how they impact an economy and society. After I left MIT, I started a company called MicroStrategy at the age of 24 in 1989. I have been the CEO and the principal shareholder of MicroStrategy ever since for the past 31 years. MicroStrategy is a business intelligence company where we sell enterprise and business intelligence everywhere in the world.

What Triggered You to Come into The Crypto Space?

I observed the Bitcoin space as an outsider up until March 2020. I had opinions about it prior to that point, but I wasn’t very well informed. Someone found a tweet from 2013 where I had tweeted “Bitcoins days were numbered”. After that, I hadn’t thought about it for 7 years. In March 2020, I became passionately interested in it and started to study it intensely. The pandemic and the fiscal response to the pandemic was what triggered me to look at it. If we look at the monetary supply, the M2 monetary supply expanded approximately 5.5% in Europe and the US from 2010 to 2020. Macroeconomists are sensitive and aware of such facts, but I didn’t pay attention. I didn’t think that the inflation rate was not equal to 1%, but here is the big epiphany this year; the government says there is no inflation, and yet everything that you want to buy is 20% to 40% more expensive. The truth of the matter is, inflation is a bogus matrix. Central banks define it as the “rate of price change for a market basket of goods and services that don’t include food, energy nor assets.” What the government has done is by definition created a market basket of things that are just deflationary. If I defined the market basket that included food and energy, it would inflate faster. For example, if foods like a table-sized caesar salad would include food like a table-sized caesar salad that has high energy content food or high variable cost food, the inflation rate would increase faster.

If I included scarce assets like beachfront property, land, or a nice piece of art that’s rare, it would inflate much faster. So, inflation is a vector and there are many kinds of inflations. The inflation rate of bonds is 20%, the inflation rate of many equities is 8%, and the inflation of consumer goods, not including food and energy, is 1 % or less. There even are a lot of things that are deflationary, so if you focus upon the wrong thing you will come to the wrong conclusion.

How Does the Media Write about Inflation Rate?

The media publishes the inflation rate based upon that consumer basket that doesn’t include food and energy as dictated by the central bank. Therefore, it lulls everybody into a sense of complacency. For example, I have had people tell me there is no inflation in Japan even though the central banks in Japan have been expanding the money supply. Yet it’s utterly impossible to buy any nice real estate in Japan. Tokyo real estate is the most expensive real estate in the world, and everybody knows it’s hyper-expensive. An average person would have to work 5 to 10 lifetimes to afford it, and yet they don’t call it inflation.

Why is governments say “there is no inflation”?

Because the government has decided “you shouldn’t want that, and you can’t buy that” and as long as you don’t aspire to it, so there is no inflation. I didn’t understand that and that’s why I had not focused on it before. I started focusing on it in March because things that I wanted to buy started going up in price rapidly, while the government claimed there is no inflation. Looking at the expansion of the M2 money supply, and that equates to asset inflation which you would also call “Cost of Capital”. You could also call it “Inflation”, but it is only inflation in the classical sense, so you have to redefine the market basket to include food, energy, and assets, so let’s just call it “cost of capital”. I realized the cost of capital had tripled. It used to be 5% but now is 15%. In other words, every investment that you own that doesn’t have a yield greater than 15% or more will lose value. This applies to bond yields, stock yields, and even a rent yield of a real estate you have. If a bond, stock, or any business in the market doesn’t grow its cash flow faster than 15% a year, it’s going to lose value. Therefore, if it’s a piece of real estate you are not paying out rent yield greater than 15%, then you are not holding value unless you can get the rents to go up by 15%.

Once I understood that I realized the 300 trillion dollars worth of assets in the world that are fiat instruments are all going to lose value. Those assets will most likely lose half of their value over the next 46~48 months. So, if you wish to preserve your wealth or your purchasing power, you have to find something scarce you can buy. This search eventually led me to find Bitcoin.

What is the most important feature of Bitcoin to you?

The single most important feature of Bitcoin is the fact that it is thermodynamically sound. Bitcoin is a closed thermodynamic system with no more than 21 million coins. You can’t add or remove coins other than losing them. It’s a deflationary system, and all you can do is add energy to it or take energy away from it. So, you can either heat it or cool it down. What is compelling about Bitcoin is that it is the first sound monetary network invented in the history of the world. I view it as a monetary energy network that can collect, store, and channel monetary energy and space over time without power loss. Energy means you could put money in it and hold it for a decade or 100 years. Over space means it’s 1:1000 to 1:10 000 of the energy required to move gold or other sources of monetary energy. Therefore, it is a highly efficient monetary network. That’s what’s compelling.

There is a whole list of things that make it compelling, but ultimately, I feel like looking at 10~20 components will lead to missing the point. The point with Bitcoin is that it is an energy network that is the first engineered monetary energy system. I can convert any form of energy into money, and I can convert money back to any form of energy, so it is the highest form of monetary energy because anything else can be converted to it and vice versa. Thus, every other monetary network is defective. For example, seashells don’t work so well, and neither do commodities, tobacco, gold, silver, and copper. They all are defective because they have leaks. They bleed energy over time.

Gold may be the most famous example of money. However, gold miners create 2% gold every year, i.e., if you store your energy in gold, you are going to lose at least 2%to 4% a year. Over 100 years, you will lose 80% or more of your energy assuming everything else stays the same.

The reason why some people still choose gold over Bitcoin is that they don’t know about Bitcoin. So, gold is the best energy system they can find as the alternative would be the fiat monetary network. Whereas the gold monetary network is losing 2 to 4 %of its energy level every year, the fiat money is losing 5% to 25 %. This is not because gold is good, but simply that the paper networks are awful. The rate of monetary energy loss varies. For example, in countries like Argentina, Lebanon, Venezuela, and Turkey, the monetary inflation rate is much higher than 5% percent. So, if you could put money into gold that is losing only 2% to 4% of its value every year, that would be a better alternative than to lose 10 % of value a year. Gold may look good compared to fiat currencies but it looks awful if I told you “you could lose no value at all”. Bitcoin results in you keeping all your money for over 100 years.

Do you put all your eggs in one basket?

If I am going to lose half of my money, for sure I am putting all my eggs in the Bitcoin basket. Instead of keeping your money in a local currency, you could put it in something that has been going up 100% every year in the past decade. For example, how could it be smart for someone to keep their local currency after letting them know their currency is going to crash by 90%. What would you convert and diversify into other than Bitcoin? In such a case, every piece of real estate, every stock, and bond that is a fiat instrument will lose a decent portion of their value. If you don’t know about Bitcoin in such a situation, you will most probably lean towards gold until you discover Bitcoin. As soon as you know about Bitcoin, you are going to sell your gold and buy Bitcoin as is a million times better. The conventional view on Bitcoin being something volatile and risky, and that you should only put a small percentage of capital into it is not what I believe to be true. My view on Bitcoin is that it is the ideal treasury reserve asset because it is a safe-haven asset engineered to be superior to gold in all aspects. Therefore, if you have something that is engineered to be better than gold, and if you knew you are going to lose half of your assets if you kept them in cash, why would it be risky to put your money into something that is better engineered than gold?

Interviewer , Editor : Lina Kamada



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