Daniel Prince | Once-Bitten! A Bitcoin Podcast: Michael Saylor — The Year in Review 2022

Link to the YouTube video (the timestamps are based on this): https://youtu.be/BiTc3tkrcEw

Daniel Prince: All right we’re back. Michael, welcome back to The Once Bitten Show. Lauren, what’d you have to say?

Lauren: So this question is not related to Bitcoin at all — it’s a Christmasy question: What is the best Christmas gift that you got?

Daniel Prince: What, in his life?

Lauren: In his life.

Michael Saylor: Boy, this is really hard. A house full of family members showing up to spend the holiday with me — that’s the best gift.

Lauren: Aww, that’s cute.

Daniel Prince: Wait a minute! You say that’s cute because Uncle Chad says that, but when I say things like that —

Lauren: You say things like —

Daniel Prince: I say my presence is your present. Now it’s falling in! You see: it’s about time, Lauren. It’s about time with loved ones, and not the little plastic things. You read the Grinch poem — it’s not about consumption and plastic.

Lauren: Yeah but it’s like books and stuff this year.

Daniel Prince: Well let’s test that out.

Michael Saylor: You know what? One day you’re gonna miss him. You’ll be away with your friends for a ski vacation in Christmas — you’ll only miss him for a couple of minutes, but you will miss him and then you’ll get back to the skiing.

Daniel Prince: Yeah. And something will happen and then it will click. It’s like, Ah! The old man was actually right about some things in life. Well let’s see, Michael — for those that are listening to the podcast I’m wearing a T-shirt with the HSBC logo on, but underneath the acronym is HBDC. Any idea what that might stand for?

Michael Saylor: I don’t want to speculate. Why don’t you enlighten me?

Daniel Prince: Honey Badger Don’t Care!

Michael Saylor: Okay, I like it.

Daniel Prince: That’s what we’re all about, isn’t it Lauren? Do you have any more questions for Uncle Chad?

Lauren: I don’t think so, no.

Michael Saylor: Can I just say for the record, Lauren, you’re taller — you’re growing out of the frame. Last time you were dead center and now Daniel has to keep adjusting the camera up, so that’s a good thing.

Daniel Prince: That’s true. The first time you spoke with Michael you were nine years old. You were just about to turn ten and now you’re almost twelve. How much have you learned about Bitcoin in those two years?

Lauren: Well the amount of people I’ve met — that you talk about all day — probably 21 million.

Michael Saylor: Lauren keeps getting taller and smarter, Daniel, and we stay the same.

Daniel Prince: I would like to think we’re getting smarter as we go, Michael. Do you want to say good night then, Lauren? All right, Michael, how have you been?

Michael Saylor: I’m doing fine.

Daniel Prince: Should we do a little year in review? What’s been your biggest positive moment of 2022?

Michael Saylor [3:41]: The positive of 2022 — I think the most positive thing of the year is the emergence of Bitcoin as the institutional grade digital asset, and the clarity that has arrived to the mainstream media and to institutions and to the government that there’s one crypto-asset that’s a digital commodity. I think Bitcoin is that commodity. At this point it’s been iterated by the chair of the SEC and it is now just iterated by the chair of the CFTC. We saw a speech by the Secretary of the Treasury Janet Yellen reciting the legend of Satoshi. We saw the chair of the SEC sitting in a cabinet meeting with regulators from a dozen or more different agencies reciting the legend of Satoshi. We’ve seen senators and congresspersons referring to Bitcoin and the virtues of decentralization. I think we went in two years from people on Twitter lamenting the lack of mainstream coverage of Bitcoin — there was no coverage at all — to a point where we saw five stories in a single day on the front page of the Wall Street Journal, and we saw stories about the industry go to the New York Times, the Journal, Forbes, Fortune. We saw the spin-up of Bloomberg Crypto. So a lot of mainstream coverage. The legitimization of the asset class. It’s clear that there’s been a lot of crypto carnage and a lot of broken glass and a lot of pain for Bitcoiners — even more pain for non-Bitcoiners or crypto token people where they watched their Terra and Luna go to zero and a lot of crypto banks closed their doors and went to zero. So we have seen a crash to zero of lots and lots of things in the ecosystem, but I think this is a necessary maturing process for the industry. And the one thing that I think is probably just the most auspicious is that there seems to be broad-based consensus on two things: (1) that digital assets are here to stay and that the entire world needs to embrace the crypto economy one way or the other, and (2) that the one crypto commodity that exists in the world that’s universally agreed upon is Bitcoin. So that being the case, Bitcoin is the most stable thing in the universe, and if we’re not banning it then it’s only going to grow.

Daniel Prince: Okay, and the biggest disappointment of 2022?

Michael Saylor [7:11]: The biggest disappointment is just all of the negative effects of having the crypto economy meltdown, as we knew it was going to. But all of the people in the Bitcoin industry — they’re doing the right thing, that are working to grow the industry — have been slimed by their association with the rest of crypto. Do Kwon decides to buy some Bitcoin and screws up the Bitcoin market by blowing up a $60 billion complex — that’s been a negative thing. The explosion of Three Arrows. What really makes you angry is all the crypto neo banks and wildcat banks that collected people’s money — either got people’s Bitcoin or they got their money to buy Bitcoin — and then they either never bought the Bitcoin or they bought the Bitcoin and then panic sold or sold the Bitcoin in a fire sale as they were being force liquidated. What really makes you angry is when you read about, say, FTX that collected billions and billions of dollars but never bought the Bitcoin, actually. So why is this a problem? If FTX stole billions of dollars in a Block-Fi and Voyager and Three Arrows and Celsius and Terra Luna — if all of those ecosystems basically collected people’s money and then lost all the money, then people that legitimately wanted to own Bitcoin had their money stolen from them. So you have the very careful Bitcoiners that bought their Bitcoin and still have their Bitcoin, and then you have a lot of more casual Bitcoiners that maybe they bought the Bitcoin and deposited it in Celsius to get some yield and now they lost their Bitcoin. And I think that that’s a tragedy. I mean it’s bad for them, right? It’s awful for anyone who had their money stolen from them, and it’s not good for Bitcoin because billions and billions of dollars of Bitcoin was stolen/destroyed. I send you $20 billion to buy Bitcoin — you take the Bitcoin or you steal the money and the Bitcoin doesn’t get bought. Or I send you $20 billion worth of Bitcoin and then you loan it out to someone that invested in Terra Luna and Terra Luna goes to zero and then the Bitcoin never comes back. And so what happened? They converted the Bitcoin into Terra Luna or converted the Bitcoin into FTT or the equivalent and then that went to zero. So that kind of makes you mad. It’s somewhat tragic — it’s irritating, tragic. It’s not the finest moment for the crypto industry. And you would say, You probably shouldn’t have trusted any of these people, but there are a lot of decent people that did trust them, right? You’ve got a lot of a lot of crypto influencers and a lot of Bitcoin influencers, and they were sponsored by Block-Fi and FTX and Celsius and some of the other players in the space. If you were sponsored by Voyager or Block-Fi or FTX and then someone decided to use one of those, then they suffered. I think the Gemini Earn product where people actually bought Bitcoin through Gemini and then they transfer it to Genesis and Genesis generates yield by maybe loaning it out to Three Arrows and Three Arrows loses it and Genesis can’t pay you back — that’s a low point in the industry. It’s a growing pain. It’s a brutally expensive market lesson, but it just reminds you of the corrupting influence of the industry: there are so many people that are counterfeiting money or they’re just stealing the money. And the advantage is to the counterfeiters! FTX invested $5.6 billion in FTX Ventures — they must have spent another $2 billion in marketing or more in the two years, so they poured about $7.5 billion into the economy and they did it by in essence counterfeiting $10 billion or more worth of tokens like FTT and SRM and they boosted Solana and they boosted MAPS and then they went and they borrowed real money. They borrowed as much as they could, posting that collateral from counterparties — like they borrowed from Block-Fi and borrowed from Voyager and probably borrowed from Three Arrows. They borrowed from anybody that would have made a loan to them. And then they borrowed from their own depositors at FTX. And of course they then raised billions of dollars from outside investors. And they took all that money and they in essence corrupted everybody they could: so you give $45 million to Block. $45 million to what, a handful of journalists? What could go wrong? $15 million to one influencer who will remain nameless that everybody knows. And then you give it to every politician on both sides of the aisle. And then you give it to all of the academics. I think it’ll be probably three to five years before we know the extent of that corrupt money, but I don’t think that there are many people that weren’t tainted. They went to pretty much every crypto influencer, every journalist, every politician, every entrepreneur, every educator, everyone that would take their money, every celebrity — so just about anybody that would take their money, they went to them. And if you read the FTX Ventures spreadsheet it’s like eight pages long and they invested something in hundreds of things. It’s hard to figure out who in the industry didn’t end up with some of that money. So the counterfeiters have an advantage in the war over the sound money people. Nobody’s faking $7.5 billion of Bitcoin and using it to taint politicians and taint the media because it’s $7.5 billion real dollars — it’s hard to come by, that money. But if you just gin up $7.5 billion worth of FTT token — that’s made up money. Sam pretty much created that money in 12 months, maybe 18 months max. In order to create another billion dollars he just needed to manipulate the price up three dollars a token. How hard is that? Not hard at all! He basically took the money from his own customers off the exchange, wash traded it with himself, manipulated the price up three bucks, declared a billion dollars worth of earnings, and then went and spent it. And how did he spend it? He bought everybody. So I think that’s the negative. I guess the positive is we got lucky that FTX blew up because they were very close to bribing or corrupting the entire establishment. We’ll see just how far they got, but some of the bills in Congress — they were driving to get light regulation in DC and then funnel crypto exchange fees into the regulators in order to addict them to more counterfeit crypto money. So I think it’s been a brutally painful year — one of the more difficult years — but it’s a necessary rite of passage. If the regulators won’t clean up the industry — a lot of people, I don’t know for whatever reason they think regulation’s a bad word, but if people are running through your neighborhood shooting the children and burning down the houses and stealing your cars and murdering your dog, you would say, Where are the police? Why don’t they show up and install some order? The real issue here is: the regulators need to enforce the law. And what you’ve got is a lot of people that are lying, cheating, and stealing, and the regulators have been very slow, very ineffective in enforcing ethics and the law in the industry — for whatever reason. So the result is the market ends up enforcing it. You kind of need your own vigilantes, so you end up with the Bitcoin maximalists pointing out the scams and the frauds and they stand up and say, Look! We’re just not going to let you abuse people like that! And they pay a personal price to do it, but I think that happened. And then you have the order of nature, the natural result, which is: if you insist upon acting irrationally and irresponsibly long enough — like, Sam basically gets high, steals the family car, goes on a joyride 180 miles an hour. Maybe the police didn’t stop him, but he wrapped the Ferrari around the tree, see? That’s what happened with FTX, which is: they took the car off a cliff. Why? Because they were high and they were going too fast. And so ultimately nature heals itself. You would like for there to be law and order, and if there was law and order it never would have got this bad. But even if there isn’t law and order, eventually: play stupid games, win silly prizes. When Do Kwon issues $20 billion of UST and pays 20% interest, he took out a $20 billion loan and agreed to pay 20% interest, so he had to come up with $4 billion in cash a year. Okay so some kid in Singapore decides to borrow $20 billion to pay $4 billion cash a year and his idea for how he pays the $4 billion is he’s going to print his own Luna token. Okay so how long can you actually print Luna token that gets converted to $4 billion in cash a year? I guess you can do it when it’s $2 billion loan, but when it became a $20 billion dollar loan you couldn’t do it. So what happened? Everybody was kind of just getting high on infinite leverage and there were no cops on the beat and they got out of control. And so as soon as there’s a little bit of pressure — the little pressure was the Federal Reserve funds rate — if you look at what really catalyzed or tipped this off and we go to the one-year: the one-year yield on a US treasury bill in the last 12 months went from 26 basis points all the way up to 470 or 480 basis points. So as the free money environment started to come out and you started seeing some pressure on the entire ecosystem, the first thing to crack was Terra Luna, and then the next thing to crack was Three Arrows, which was again ridiculous leverage, and then the Three Arrows thing really mortally wounded all the crypto hedge funds I think, and it mortally wounded Alameda, but it took another three months before we saw that filter. And it’s still filtering: we’re still seeing the depths of that because we’re staring at Genesis wondering what will happen with Genesis — there’s 34 days or something since they’ve froze out or locked their redemptions.

Daniel Prince: And what’s annoying is the casual observer — those people that might have just been on the edge of dipping their toe in to read some extra articles about Bitcoin rather than like the grander crypto kind of sphere — we could have just knocked him back three to five years, or even longer, from even considering touching an investment in Bitcoin because they just lump Bitcoin in with [crypto]. The positive for us is it has been defined, but in the mainstream media they’re still doing not the best job — it’s all clickbait to get these heady headlines out like, Crypto’s Dead, Bitcoins Dead, and they’re always using Bitcoin as like the main depiction for those clicks on their incentive structure. And the MSM journalist world is still so [ugh] — and then we’ve got Greenpeace wailing in on us.

Michael Saylor [21:33]: It’s like the Wild West: you want to go west for property rights. You go west and then there’s the romantic notion that you’ve got freedom, but then some criminal shows up with a gun and he shoots half the people in town — that didn’t help! That didn’t accelerate the population of the West. The fact that one criminal out of a thousand can go and shoot 20 decent people including the town doctor — that didn’t help. So I think we’ve got the Wild West and you would say, Well if you wanted a rational adoption and the smoothest progression of virtuous technology, it would have been better to have law and order. And we’ve been lacking a bit of law and order in the past two years. In the absence of law and order, what you have is: you have criminals that are corrupting and bribing the media, the academics, and the politicians, and so that’s a setback. And then you also have criminals stealing people’s money, like economically murdering people — that’s a setback. But it’s above my paygrade: I’m not the President of the United States. I’m not the head of the SEC or the CFTC.

Daniel Prince: Are you going to throw your hat in the ring?

Michael Saylor [23:02]: No I’m going to keep working for Bitcoin. I’m gonna keep the Bitcoin job — that’s my day job and I’m okay with that. But I get your point! We can lament — it would have been nice if there was law and order as people moved West. But there was some law and some order and there’s some vigilantes, and occasionally the criminal comes into town and everybody kind of gets together and decides they need to push back on the criminal and then at some point somebody sets up and steals a bunch of money and then people don’t trust that somebody and they shift their trust to somebody else. So I think that the future is Bitcoin and it’s obviously a volatile path to Bitcoin, but we’re moving in the right direction: Bitcoin is stronger today than it was two years ago or four years ago or six years ago or eight years ago, and I think you just got to keep your head down, nose to the grindstone, and move forward.

Daniel Prince: And here we are: you’re two years into your first cycle — that’s been a hell of a ride! Do you want to chat about your Class of 2020? And my goodness: I remember very vividly the day that MicroStrategy announced the big announcement that you are going to invest $50 million dollars into Bitcoin in that September, I believe, the announcement was made. You can correct me if I am wrong. But we all get Bitcoin at the price we deserve is the old saying. I like to tweak that: at the time we deserve, maybe, might be a nicer way to put it. How has that felt? There’s two years of roller coaster ride. And for those plebs that are listening that might have followed you in — even those that bought at $50,000–60,000 and here we are sitting at $16,000 — what’s the message to those people out there?

Michael Saylor [25:18]: I think you’ve just gotta take the long view. If you have a less than 4-year time horizon, you’re just a trader — you’re just a speculator. And if you think you’re gonna hold Bitcoin for 4–10 years, you don’t understand Bitcoin yet — you should probably go study it harder. Because I think once you understand Bitcoin you know you’ve gotta have a 10-year plus time horizon. And when you really understand it you realize you should have a 100-year time horizon. Yeah Daniel first of all on the cycle I feel like there were three cycles since August 2020: Bitcoin ran up to about $60,000, it ran down to the $30ks, it ran up to the $60ks again, it ran down to the $30ks again, it ran up to $47k and we thought it was headed north and then I think the Fed started cranking on the tightening and then it crashed down. And then we thought we were going back up again and then the FTX thing happened and we got hammered again. So you could think one to easily three cycles in 24 months. I mean that’s a humbling experience. I probably underestimated to a certain degree the volatility that we were gonna have a year after I got into this. I had a little debate at one point with Saifedean on it — he turned out to be more right than I was. He was saying, There’s gonna be a 75% drawdown and I was like, I don’t think it will. But if Saifedean’s listening: You were right, so congrats to you! I don’t know if we’re happy about it, but you were right. But in any event, I don’t think it matters: at the end of the day you’ve got volatility as a digital monetary asset is coming to life, and as we monetize Bitcoin. So two thoughts: I never really took a 100-year time horizon — I never considered investing in anything for 100 years before I discovered Bitcoin. If you had asked me in March of 2020: Is there anything that you would invest in for 100 years? Is it even relevant to ask about the outlook for the asset in multiple decades? I would have said, You’re crazy! You don’t know what Google’s going to do in a hundred years. You don’t know what Apple will be. You can’t own that land for a hundred years. You don’t know anything, really. You don’t know that people will use natural gas — oil may be obsolete. Maybe we’ll use nuclear fusion. So I would say there’s a pretty big inflection point that 8 billion people on the planet had things they could invest in that had a useful investment life of 10, 20, 30, 40 years — it used to be: a long time frame was 20 years. And it was only after discovering Bitcoin that I started thinking different. And if you roll the clock back to like the first podcast I did after I bought Bitcoin: people asked me about Bitcoin and I said, Well I looked at it versus gold and I started analyzing it and I was trying to figure out which one was better because it was the question of: Do I buy $500 million of Bitcoin or $500 million of gold? And once I read The Bitcoin Standard and I started understanding stock to flow and I started thinking about hardness of a commodity, I realized: Well the half-life of gold is 35 years. If you keep increasing the supply by 2%, it’s a 35-year half-life. And I knew enough of non-linear mathematics and engineering to see that the stock to flow of Bitcoin is effectively zero because in the limit as T goes to infinity the number is 21 million, and in the limit as T goes to infinity the stock to flow is infinity — there is no inflation in the limit. And you would understand that if you studied calculus — it’s freshman calculus. The irony of course is: most economics isn’t based on calculus! When’s the last time you saw an economist say, Well in the limit as T goes to infinity or demand goes to infinity or such and such: in the limit this is the equilibrium, or this is the solution. So I just looked at that and I said, Well yeah in the limit it’s pretty clear that gold’s got a half-life of 35 years and Bitcoin has got a half-life of infinity. And if I just play it out for a hundred years: well over the course of a hundred years, $100 million of Bitcoin is still the $100 million but the $100 million of gold has been cut in half three times so you’ve got $12 million of gold. So gold is losing 88% of its energy over 100 years — Bitcoin is not losing 88% of its energy and that makes it 10x better. Okay, so why would you ever express an opinion about anything looking out a hundred years if you couldn’t imagine it lasting that long? And the useful life of a company — the average life of a company or life expectancy a company — is like 20–25 years if it’s a successful one. If it’s a small company the expected life is 5 years. The expected life of a house or a building is not a hundred years — there’s no building that a hundred years after it was built is still usable without substantial maintenance. So I think Bitcoin drew me in to thinking hard about the theory of property. Like, What is the half-life of something? Well if you want to understand it you have to assume the maintenance costs. So if the maintenance cost of owning a residential property in Florida is 2% taxes and another 2% a year in utilities and upkeep and insurance then that’s 4% a year so that means in essence the half-life is four divided into 70, so call it 16–17 years or something. Okay so the half-life of residential property in Florida is 17 years. To calculate the half-life of a commercial office building you would have to do some kind of triple net thing where you look at the rents and then you subtract the taxes, the insurance, the utilities cost, the depreciation of the building, and you could maybe come up with some useful half-life. But what you can see of course is it has some expense, and there’s some challenge to operating it. So I think Bitcoin really drives you to think about the theory of property and it drives you to think about the theory of money. And when you finish you realize that all the money you ever had was defective and all the property you ever had has a shorter half-life. Especially once you factor in all of the natural maintenance costs and the risk factors — and this is where most people don’t do this very well. For example: How do you calculate whether you have a positive or negative yield on a loan to Celsius that pays you 6%? If I give my Bitcoin to Celsius or Block-Fi and they pay me 6%, well that’s like I’m getting paid 6% rent. But then what’s the real cost of the investment? And the cost of the investment is they might just take the money and never give it back to you. So how do you assess that? Well if you think that once in 50 years they’ll fail then that’s 2% a year is the cost of capital. But then you have to put the risk-free cost of capital on top of it. So if I had a million dollars, in the current environment I could go and get 4.5% interest from the US government on a 1-year bond. So the risk-free cost of capital is 450 basis points — then if you think it’s going to fail once in 50 years, it’s 200 basis points more. So now it’s 650 basis points. But now you’ve actually got to consider the tax. So the after-tax benefit you have from making the loan is — maybe get paid 6.5% interest and then your tax rate is 33%, so you’re basically getting like 400 basis points after tax. And now I have to compare that to what have you taken? I guess the point is: if you think that the firm might fail in 30 years then the counterparty risk is equal to the after-tax return — if it fails once every 30 years. And the real problem of course is you could have got 300 basis points after-tax yield risk-free if you just put it with the federal government! So what does that mean ultimately? It means that you’re basically taking on twice as much cost as you’re getting yield if that firm fails every 30 years. Isn’t it kind of ironic that you get to a conclusion that the half-life of your money invested in the Celsius bank is 30 years if it fails once every 30 years? Does that make sense? Or something like that, right? But of course we know that the risk is much greater: the risk is not that they’re going to fail every 30 years — how about every 10 years? Not even that — they didn’t even last 5 years! But if you thought they were going to fail every 10 years then you would have had to put 10% on top of that, and what you would have realized is that in essence, people are taking on a 30% counterparty risk per year in order to get paid 6%. Or in order to get paid 4% after tax, they took a 30% risk, which means that they were basically buying a negative yielding, minus 26% yielding thing, most likely. Although I don’t know if many people even lasted 3 years. If the real risk was they would blow up within one cycle which is 36 months then you had a counterparty risk of 33% against an after-tax yield of 3%. So I think the reason to study Bitcoin is because if you study Bitcoin deeply enough you would be able to articulate all the defects of money, like the fact that there’s a 30% negative real yield on owning the peso. If you understand that there’s a 30% negative real yield owning the peso, then you understand currency and money. If you understood that there was a 30% negative real yield invest putting money in Block-Fi or an FTX or a Voyager or Celsius, then you understand banking. If you understand the risk of investing in Snapchat or Facebook or Alibaba or the like — owning an equity — now you know why they’re public companies and you have to read the disclosures. But of course if you bought FTT token you bought an unregistered security. So you bought a private equity token without a disclosure. Whatever the risk of owning a public equity like Apple or Microsoft or Amazon or the like — and Amazon’s down 50% for the year — whatever that risk is, the risk of owning a private equity token is 10x that. So when you put a million dollars into FTT token, you’re looking at something like a negative real yield of 40%-50%. There’s a one-third or one-half chance that was going to zero within 24 months, within the cycle. But you didn’t figure that out because you didn’t study Bitcoin. Who in their right mind would own FTT token? Someone that doesn’t understand securities. And of course a lot of people in the crypto industry don’t. Whenever we say these are unregistered securities, all the crypto people say, What does that matter? What’s with these stupid securities laws? Remember certain famous influencers? This stupid SEC law from 1933! It’s like, Well why do those laws exist? Well they exist so that the Sam Bankman-Frieds of the world can’t print their own token, do insider wash trading, manipulate the price up to $8 billion and then tank it to zero overnight — that’s why the laws exist. He could have never operated the exchange — Alameda would be out of business, FTX would be out of business, and the FTT token would be out of business if they actually had to file a registration statement with the SEC. Because those were all insider conflicts of interest and there’s nothing ethical or legal about any of it. And so they couldn’t have done it. And so the reason that it makes sense to file registration statements and take equities public is in order to avoid these kind of FTX, FTT frauds that basically destroyed people. Now there is a stigma attached to related party transactions in public companies — rightfully so, because Alameda was a related party to FTX. And FTT was a related party. So Sam Bankman-Fried is the issuer of FTT, is the owner of Alameda, a hedge fund, and is the operator and owner of FTX — those were three related parties. The reason that there’s a stigma is: if you took FTX public and you said by the way FTX accepts FTT which is a related party issued token and it does business with Alameda, the question that a skeptical investor would have is: Well since the same person controls all three, is it possible that he actually wired the systems to give himself an advantage? And if it turns out that Alameda has a billion dollar trading loss, will Sam Bankman-Fried, the CEO of FTX, liquidate Alameda in order to protect the interest of the other customers? Or will Sam not liquidate them to protect his own interests? He has a conflict of interests — and we know how the story ends. By the way, the other question would be: Since Sam has $8 billion worth of FTT token, will Sam, the CEO of a bank, issue credit against the $8 billion of the token that he issued himself and give himself preferential treatment? Or will there be an arms-length transaction? So here’s the interesting question, Daniel: if this was an arms-length relationship and there was a disinterested financial executive running FTX, how much credit do you think they would have extended Alameda for $8 billion of FTT token?

Daniel Prince: Nowhere near what they did.

Michael Saylor [43:03]: We know they gave them billions and billions of dollars of credit — maybe up to $10 billion of credit.

Daniel Prince: Well how much did you get as a bonafide MicroStrategy CEO when you were in the market trying to raise cash, right? There’s the direct comparison that we can use.

Michael Saylor [43:19]: Yeah if I were to go to a bank and say, I have some locked MicroStrategy stock — will you loan me money against it? They would say, No — zero. The answer, by the way, to the question is: a disinterested CEO of a crypto bank that was honest and competent would have lent Alameda somewhere between zero dollars and $10 million dollars. The number is not one order of magnitude less — it’s not even two orders of magnitude less — it’s somewhere in the range of three orders of magnitude less, if you were honest and competent. You would basically say, Well what is 5% of the honest trading liquidity in the token? If the thing trades $100 million a day but $80 million is wash trading, there’s $20 million a day. Well how much of that is trading on another exchange, not your own? Oh, $3 million a day. Okay so $3 million dollars of this stuff trades on another exchange. Can I trust that one? No, none of them are regulated. Okay how much trades on any regulated exchange? Well of course none of it, but let’s say I threw out the issue of a regulated transparent exchange and I just said, Well how much trades on an exchange other than one you own? $10 million. Okay I’ll give you 10% of that: I’ll give you $1 million of collateral value. Okay how much could you borrow against a million in collateral? Well the max is 50% loan to value. So I will give you a $500,000 loan against $8 billion of FTT token — that’s the answer if you’re honest and competent. So, obviously that didn’t happen. The reason it didn’t happen is because you had three related parties all terminating with one boss — and the one boss was not honest, not competent, and not disinterested. A biased, dishonest, incompetent person. Okay what could go wrong? Well when you have three related parties and a biased, incompetent, dishonest person, the what can go wrong is: the entire thing gets burned to zero. And is that likely? Yes, highly likely. It’s not even just what could go wrong, it’s highly likely — that’s the reason there’s a stigma attached to related party transactions. You would never want the CEO of a bank to be issuing loans to a private company that they owned. Like if it turned out that the CEO of JP Morgan was issuing billion dollar loans to Jamie Dimon Real Estate Development Company jointly owned with him and his wife, people would just lose it, for obvious reasons.

Daniel Prince: So what I can’t figure out from this part of the story is: the SEC — they knew. There’s documented meetings between Sam and I believe Gensler himself, if not some of his team. What were they sitting on? I can’t figure that out for the life of me.

Michael Saylor [47:06]: First of all, no one has credibly documented that there were meetings. We know that there was a calendar entry where someone that worked for Gensler might have had a meeting but we don’t know.

Daniel Prince: Okay, so we’re waiting for verification on that.

Michael Saylor [47:19]: I’ve read that there were many more meetings with the CFTC than the SEC, and many many more with politicians, but we don’t know the content of any of those meetings — no one has made that public. But what is your question?

Daniel Prince: Where were the regulators? It seems to me as though — you said it before — were they sitting on their hands? Did they know? Is there more to this story?

Michael Saylor [47:47]: The regulators — it seems like they just don’t feel that they have the authority to regulate offshore entities. That’s been the big blind spot.

Daniel Prince: Right, because he had it all registered in the Bahamas?

Michael Saylor [48:02]: FTX was in the Bahamas and so there’s this vacuum of power, a blind spot where the US regulators don’t feel like they have authority to regulate offshore entities. And the action they’ve taken has been via civil enforcement actions which are very slow and very expensive — it might take years and years and years. And so they have basically pursued a number of entities via civil enforcement slowly, but they haven’t laid out any global framework for digital assets and they haven’t pursued offshore entities — they haven’t even really pursued onshore entities that aggressively. So there’s been a lack of effective enforcement, I think you could say, and a question about who should take leadership of it. Congress has been mired: they haven’t passed a law. They couldn’t pass a stablecoin law. There is no law or clarity with regard to: How do you register a digital commodity? How do you register a digital security? How do you register a digital currency? How do you register a digital token? There’s not even a definition in law of what is a digital — if I said, Define a digital token, digital security, digital commodity, and digital currency, it’d be hard to get people to define it. I think there’d be a lot of debate about people not even understanding it. I bet you we can’t get people to agree. For example: you think people will agree on the difference between a digital security and a digital token? What’s the difference? It’s not well understood. There’s no taxonomy. A lot of people think Bitcoin is a digital currency, but in fact it’s really more a digital commodity. Tether and Circle should be thought of as digital currencies. I can’t tell you why we don’t have a clear regulatory regime. I can’t tell you why because that’s politics — it’s above my pay grade. Somewhere between the Administration, the SEC, the CFTC, Congress, the Senate, and Treasury — they could determine why.

Daniel Prince: There’s a lot of moving parts there as well, right? There’s so many different incentives and people easily coerced in some departments, maybe. Does it remind you — it reminds me a little bit of what we saw back in ’08 or leading up to ’08 where the ratings agencies were behaving badly, to put it in basic terms.

Michael Saylor [51:03]: I guess that there’s always government interagency struggles and there’s partisan struggles and there’s struggles between the industry and between the regulators. And so we had some of all of that and there’s just a lot of different agendas — there’s a lot of money that’s circulating to influence the agendas. It’s not new, right? You can find examples of these squabbles in every industry, every decade, for hundreds and hundreds of years. Until you don’t have history — as long as there’s good history, you’ll be able to read about it and debate it. I think that it’s not that constructive for us to discuss why we don’t have it — why don’t we just talk about what we should have? I have a constructive suggestion: I don’t know how we get there, but if you wanted the industry to grow — if you said, What’s best for the civilization? Let’s start with: What’s best for the human race? For all 8 billion people? And then we can talk about what’s best for the United States or what’s best for any given industry. But let’s talk about what’s best for the human race: to harness the power of technology in order to create abundance, in order to reduce friction, in order to improve efficiency, in order to improve productivity — that’s what’s best for the human race. So how do you do that with digital assets? I think the thing to focus upon is what are the virtues? And they’re not that hard to figure out. Here are the virtues: It’s virtuous to be able to trade an asset 24/7/365 friction-free between 20 billion computers and 8 billion mobile phones — that’s virtuous. If I can actually move money between here and South Africa on Saturday afternoon — that’s virtuous. So digital exchanges are virtuous if you do 24/7/365. On NASDAQ you can’t sell your Apple stock on Saturday afternoon, but on Coinbase or Binance you can sell something on Saturday afternoon. So that’s a priori — it’s pretty obvious that there’s a benefit of 24/7/365 service: a digital exchange. The second thing that’s virtuous is digital peer-to-peer transactions. The ability to bypass the exchange and for me to actually send $20 to you without going through Coinbase or Binance — without going through any trusted third party, or having the choice of any of 10,000 third parties: choice. And so peer-to-peer transactions is virtuous. The ability to self-custody is virtuous. It’s valuable to be able to hold your Bitcoin on your hardware wallet or in your head, but one could say it’s also equally valuable to be able to hold a hundred dollars or a million pesos. Or why stop there? Why not be able to hold your Apple stock on your hardware wallet? Why not be able to hold a bond? Why can’t you actually carry your New York Municipal Bond in your hardware wallet? So self-custody of assets is a third virtue. The fourth virtue would be the existence of digital commodities. Why can’t I have a digital commodity that I can self-custody? And Bitcoin is the greatest of digital commodities. But the ability to create any digital commodity — in theory you could create Chinacoin, Daniel, and Chinacoin would be Bitcoin fork that you can mine in China and then you can hold as a Chinese citizen. Now, would that be good for Chinese citizens? Yeah! If it’s illegal for them to own Bitcoin, but it’s legal for them to own Chinacoin, it would still be better for Chinese citizens. It’s kind of like: If I live in China, I can’t necessarily own land in the United States, but that doesn’t mean I shouldn’t be able to own land in China. You see? And if I have Google in the United States and I can Google things but it’s illegal to Google in China, it’s still not a bad idea to have a search engine in China. So it’s not the best thing in the world, but for 1.5 billion people in China: If the choice was to give them a digital commodity, not Bitcoin, or give them nothing, I would still give them a digital commodity that’s not Bitcoin. You could do the same trick with Canadacoin: If the Canadians said, Well you can mine Canadacoin using hydro power on the St. Lawrence Seaway and there’s no capital gains tax and no property tax on Canadacoin and you can trade it freely and maybe there’s no state tax either and there’s no inheritance tax on it — if you’re Canadian you might say, Hey! Canadacoin? It sounds like not a bad idea. Now if you’re a Bitcoiner you would say, Ugh Canadacoin? That’s garbagecoin because I’d much rather own Bitcoin — that’s true. But I don’t want to own a cabin in Canada, but if you live in Canada you would probably think that the cabin in Canada is okay. Now, it’s impaired property because you can’t move it outside of Canada, right? But just because it’s impaired property doesn’t mean that it isn’t property. And so there’s a family of digital commodities you could create that would be good for the human race. It’s not as good as if we abolished nation states and abolished taxes and abolished property tax and abolished income tax and abolished inheritance tax and abolished border controls and abolished asymmetric rules — I get it. In a perfect world, we’ve got Bitcoin, no nation states, and mana falls from heaven. But I’m not expecting to live in a perfect world in the next 30 years. So in the next 30 years — in a world of nation states — you could imagine digital commodities circulating, of which the greatest global digital commodity is Bitcoin. And look: if someone wants to create a Dogecoin that inflates at 5% a year? I don’t want it, but the point is it’s a commodity, it’s not a scarcity. Bitcoin is a scarcity because it doesn’t inflate at 5% a year — it’s capped absolutely. Like, do you want to own oil or natural gas? There are people that make money owning it because there’s demand in the near-term, but the problem is you can’t stop anybody from creating more energy, and so therefore it’s a commodity, it’s not scarcity. If you think about it you’re like, Okay well maybe there’s something there and maybe Apple Computer will create some kind of coupon that’s like some quasi-digital commodity that’s not as good as Bitcoin but it’s better than the alternative and it’ll flourish for a while. So having the ability to register a commodity would be useful. The next thing is a digital currency. You know, the world does want dollars: they want a trillion dollars worth of dollars. They want them in Africa and Asia and China. And so if you were able to legitimize Circle or legitimize Tether and allow other banks or other issuers that are trustworthy issuers of some sort of digital currency then I think that market would grow by a factor of a hundred — it would explode. And is that a good thing? Yeah it’s good for the world because now I can actually carry cash around on my Android phone and make a cash payment in dollars and I can do it in a split second, whereas now I can’t. How do I get access to it? So that would be a good thing. And then I think digital securities would be a good thing. I don’t know that I like all the crypto tokens out there. Like, I don’t want FTT as a digital security. But what about Apple stock as a digital security? What if you could actually buy a hundred shares of Apple stock, hold it on your iPhone or Android phone and transfer it on Saturday afternoon, and maybe someone wants to give you yield on it or you want to borrow against your Apple stock? Right now you can borrow against Apple stock but only from a small cartel of banks. And they control the interest rate and they control the custody of it — you can’t self-custody Apple stock. There’s no global market in either loans or yield on Apple stock — it is a controlled market. So you have an oligarchy: you have a 20th century traditional finance system that controls a hundred trillion dollars of securities — all of them. All the stocks, all the bonds, etc. They’re all stuck in the 20th century system. And it stops working at 4 PM in the afternoon, it starts working at 9:30 AM in the morning, and it doesn’t work on bank holidays. So digital securities would actually be good for the human race. If it’s good to self-custody your Bitcoin, why wouldn’t I want a self-custody ten thousand dollars, one thousand pesos, 10 shares of Apple stock? Maybe I want to self-custody two ounces of a gold token? Right? It is a thing. What if I wanted to self-custody 10,000 barrels of an oil token? To hold forever? No, to speculate on the price of oil. Yes, I want to buy 10,000 barrels of oil to speculate on and I want to send it to my friend and take self-custody of it because I don’t trust my oil derivatives and I don’t want to go through some ETF. So those are all just examples of digital securities. And then the other interesting idea — which is not a bad idea, it’s just been unethically, irresponsibly implemented — is the NFT thing. I don’t know about non-fungible token — how about just token? Like, if you’re a celebrity: let’s say you’re Tom Brady and you want to issue Tom Brady token, or the Katy Perry token. The deal is I’m going to sell 10,000 of them. They’re going to cost ten thousand dollars each. So I’m gonna raise a hundred million dollars. I’m going to sell a hundred million dollars worth of superfan tokens. And what do they give you a right to? Well I’ve got this private [Twitter] Spaces and you have to have the token to get into Spaces. And to get in my chat you need the token. And if you have the token you can get backstage passes to any of my concerts. Or you can come to my meet and greet after the football game. And then once a year I have a barbecue. And if you have my token and you post it and then you comment on my Twitter, I’ll respond to you and like your tweets because you’re one of my superfans, right? Okay and if you want to, you can sell the token, and when you sell the token I get 10% of the capital gain. And so the incentive is for Madonna or Katy Perry — pick your favorite celebrity or artist or actor — the incentive is for them to be really cool with their 10,000 super fans and to drive the hundred million dollars worth of tokens up to be worth a billion dollars. Like, there are people that pay ten thousand dollars to get a front row ticket to a concert or go to a certain event. People pay ten thousand dollars to go to the Vanity Fair party so they could rub up against a starlet — they would pay that much. Somebody paid millions of dollars to have lunch with Warren Buffett. So the reason that there’s so much enthusiasm for some of these crypto token things was: artists want to own their brand. And celebrities want to own their brand. The artist formerly known as Prince, he changed his name and wrote Slave on his forehead because he was so angry at the record labels because he felt like they had stolen his brand and they had rights to all of his intellectual property and he felt kind of enslaved by them via contracts. So what’s wrong with giving a musician their brand back? What’s wrong with giving the creators the ability to monetize their fame? If you were to show up to a party or a charity event and you found out that everybody at the event paid two thousand dollars a ticket just to show up because you were going to be there and there’s a promoter that made three million dollars that night and you got paid none of it or you got paid twenty thousand or fifty thousand or whatever, you’d be kind of irked. Like, why is it that the promoters and the labels make all the money and I can’t make all the money and my family’s starving or I got kids to feed or I got my own issues and they just seem to be riding on my tail? This irks people. So if you created a digital token and if a hundred thousand creators could issue their own token, it would catalyze a new economy. The problem — and this is what the crypto people have tapped into — the problem is: there’s no way to do that in a legitimate, ethical fashion. So they fall into the clutches of the crypto operators who kind of victimize them. And you can’t just take yourself public. Like, if you want to take a company public — here’s the problem with that: it would cost you about $25 million worth of lawyering and accounting to get ready to go public, and it would cost you $5-$10 million a year to make all the filings to stay public. So it’s going to be a hundred million dollars worth of cost and you need a full-time staff of 25 people — some large thing. It doesn’t make sense for 500 rock stars and 187 chess streamers. What if we watch these people on Twitch or YouTube and you’re Hikaru Nakamura and you’re streaming chess and everybody wants to be a Hikaru fan and so you want to buy the Hikaru token? That guy doesn’t want to take himself public. So there ought to be a difference between taking a company public, and issuing a token. And here’s the other problem, Daniel — and this is the place where I sympathize with the crypto entrepreneurs and the digital assets community: even if you took yourself public, even if you had Daniel Prince coin and you want to take yourself public and make all the disclosures, it’s still illegal to trade 24/7/365 on a crypto exchange. Like, MSTR stock is public: there are thousands of pages of disclosures. Every quarter we actually make more disclosures: we have a never-ending stream of 8-Ks and 10-Ks and 10-Qs and Form 4s where everything is transparent — you still can’t trade MSTR on a crypto exchange. You see? So what do we have? We have a potential world — here’s the progressive world: a million creators issue a million digital tokens. A hundred thousand issuers create a hundred thousand digital securities, including Apple and Amazon and Twitter. Even Elon must need to do this: he needs to take Twitter public in order to pay the bill. So Elon might turn around and retake it public in order to raise the money to pay his bills. So there’s a time when you want to issue these kind of securities. Then there’s a market for some amount of digital currencies. I don’t know how many, but certainly one or multiple per every fiat currency unit. And there’s 180 fiat currencies — you need at least 180 digital tokens to represent the currency. You probably need 3–5 [each] in order to create competition, so that’s a thousand right there. So you could have a thousand digital currencies. You should have at least one digital commodity — Bitcoin, the global scarcity — but if there’s another one, if China is not going to allow Bitcoin and they issue Chinacoin, I’m still in favor of other digital commodities as a benefit to the people. And then you need some digital exchanges, and you need of course the entire ecosystem of hardware wallets and wallets and custodians so that people can hold all these digital assets and self-custody them and then secure them with multi-factor authentication. So I’ve just described the grand digital assets economy that would have a hundred-trillion dollars worth of assets and hundreds of thousands or millions of digital assets in that economy. And the benefit is world trade: 8 billion people can trade with each other friction-free. We cut cross-border remittance down, we open up the global economy so everyone can freely swap all of their currencies and all of their assets low-friction, we empower people with more sovereignty. If you believe in sovereignty and you can hold 22 different assets in your hardware wallet instead of one? That’s more sovereignty, not less sovereignty. Until every corporation disappears and every nation state disappears, there’s a legitimate reason for currencies and securities to exist. If there’s a government in China and there’s a government in the US, there’s going to be a currency for China and for the US. And if there’s Apple and Google, there’s going to be an equity for Apple and for Google. And if you believe in a world where there are companies creating your food and creating products for you and in a world where there are governments, then there’s going to be securities and there’s going to be currencies. And if you believe in a world where artists and creators can own their own brand, there should be tokens for them so they can have [sovereignty] — how can you believe in sovereignty for yourself and then believe that Katy Perry shouldn’t be able to own some of herself? Why is it that Apple and Google should get all the money off of Katy Perry’s art? Because it’s getting monetized on Apple Music or Amazon Music, right? So ultimately: if you believe in freedom, why not let the artist own their art, why not let the companies own their equity, why not let the countries own their currency, why not let the commodities be commodities? And if you can create another commodity, more power to you, but I like the one we’ve got. And then why don’t you let honest actors freely trade those things in exchanges? Why don’t you let banks form that will give you loans against those assets and give you yield on those assets? Some will be transparent, some will be opaque, some will be offshore, some might be De-Fi, some might be Ce-Fi. Do you trust JP Morgan? For some things I trust them. For other things maybe you don’t trust them, right? But that’s a progressive world of digital assets, and you would create a lot of prosperity if you did that. That’s the best case. The only way that’s going to happen is if the regulators in the United States lay out a framework of digital assets and they lay out a registration process by which you can get your token, security, commodity, or currency registered, and then they lay out some rules of the road for exchanges to trade those things and what the disclosures are. And you would like to think that for less than a million dollars you could find a way to issue an ethical token, and for $10 million you could issue an ethical digital security, and for less than $10 million you could find a way to issue or prove you’ve got a digital commodity, and you could issue a digital currency and there’s restrictions and rules of the road and laws. And if there were, that would channel all of human ingenuity and investment into rationally creating new products, and good ones would prosper. Let’s pick the story of two musicians: one musician issues a token and they issue ten thousand or a thousand and then they actually have meetups every month and they treat their fans well and all the token [holders] go backstage and people love that musician and the token actually goes up in value. But the other musician issues ten thousand tokens and then they issue a hundred thousand more and they never hosted an event and then they stopped playing music and retire to just get drunk and live the rest of their life in squalor. And that token crashes because that’s an example of a poorly run token operation, and the other one was a well-run token operation. The same thing happens with companies: one company issues too much stock and then its earnings go to zero, it loses money, and the stock crashes, it goes to zero. Another company runs itself well and the stock goes to the sky. The same story happens with countries and currencies: one country issues a currency and they run the country well and they deregulate the market and people move to that country and the economy grows and the currency stays strong — not as strong as Bitcoin, but strong. And the other country issues too much currency, inflates the currency, makes stupid rules, passes all sorts of laws and restraint of trade, puts up huge tariffs, puts up huge capital controls, abuses their citizens, the currency goes to zero — think Zimbabwe. I just described ways that nations can rise or fall, or ways that artists can rise and fall, ways that companies can rise and fall. If you want a commodity, then it’s got to be a community, an ideology/movement. if you will. And if it is corrupt? Think about all the Bitcoin forks: the ones that were corrupted, failed. If it’s corrupt or it’s stupid, then it will fail. And if it’s virtuous and rational, it will succeed. Cryptos are like religions, and I’ve said it before. I don’t think it’s prejudicial to say that. You’ve got plenty of religions through the history of mankind — their ideologies — and people join the ideology because they believe it and they get value from it. And if you think about the ideologies that lasted a thousand years, the ones that were virtuous and had good values tended to grow and prosper. And the ones that were corrupt, run by demagogues that were not virtuous, who were full of vice, tended to crash and burn. And if you don’t believe me? Go study the history of religion: you’ll find that 99% of them fail over the course of a hundred years. 99.99% fail over the course of a few thousand years. And so ideologies will lift or destroy a commodity. Companies will destroy the securities or elevate them. And the tokens will live or die with the celebrity. They are what they are. And I think that you’ve got three different regulatory regimes: you’ve got the current regime which is a bit passive-aggressive and chaotic — that’s where we’re living right now. In that regime there is only one safe haven: the only thing you can do safely and ethically in the current status quo is buy Bitcoin — own Bitcoin. Bitcoin is universally acknowledged as the commodity — there’s no way to get anything else acknowledged as a commodity or a security or trade it or a currency. So in a current environment where the only path forward is Bitcoin — that’s the positive. The negative is: it’s a bumpy path because everything else is chaos and opaque and it’s the Wild West. The second regulatory environment would be a regressive regulatory environment that’s clear. That would be an environment where you could own maybe six currency tokens, a handful of commodity tokens, and you’ll have a dozen or two dozen tokens trading on exchanges and that’s it. Maybe they’ll let Circle circulate, if they like it. If it’s a company that’s regulated — maybe Paxos. Okay I can circulate Pax gold, Pax dollar, Circle, Bitcoin, and then we’ll have a debate about whether or not is a Litecoin or some kind of proof of work token — is it a commodity? If so, then then that’s the regressive environment — a very small environment. In that case, you can own a few more things, but of course the only thing that looked really good is Bitcoin and the rest are kind of just traded tokens. The currencies would be used for remittances — that’s a net plus. It’s still a benefit. You still have a trillion dollars worth of US dollar coin and you could circulate that to China and Africa and South America and Asia and it would be a net plus, circulating on the Lightning Network and on centralized networks and custodial networks, so there’s something there. The third regime — the best regime — would be a progressive digital assets regime where we define digital tokens, digital securities, digital currencies, digital commodities, digital exchanges, and we allow hundreds of assets and then thousands of assets and then tens of thousands of assets and then hundreds of thousands of assets to circulate friction free peer-to-peer via exchanges, via open protocols like Lightning, via custodial protocols like Binance or Coinbase or Block or CashApp — that’s the best. The only way that’s going to happen is if some combination of regulators and policy makers in DC get together and they put forth that framework. And we will see. I’m not expecting it in the next 12 months based on what I see. It seems to me like we’re more likely stuck in scenario one, which is chaos. Chaos, Wild West, and passive-aggressiveness for the next 12 months, because there is no clear path forward.

Daniel Prince: Also known as clown world. What is good to see like there is a musician pleb who is just releasing his music Value for Value via Fountain app so you can go and listen to his music and you are streaming him sats, so he’s never going to get tied up into these contractual obligations that Prince had to and George Michael — the two great examples of time past. And they could just do that with Bitcoin and they won’t have to issue their own token and spend all that money on legal fees and whatever else to ethically —

Michael Saylor [1:21:29]: I get that, but to be clear though: that clearly is a safe haven, but it’s not a digital security or a digital token or a digital currency. And so you could do the same thing by simply selling your own app on the Apple Store and telling people download the app and pay a dollar a month to get your music. So there are plenty of ways to monetize or monetize content right now. And you’re talking about using micropayments to support things. I think it’s a totally different subject, which is: Under what circumstances will micropayments be successful? But it’s not the same as what I described. I would think that, for example, Katy Perry is probably not going to rely upon streaming sats and micropayments — it’d be great if she did, but there’s a lot of impedance there right now.

Daniel Prince: This is what we need to do Michael: We need to orange pill Katy Perry to make another album and only sell that album in Bitcoin. So then she forces 100 million people to go out and at least exchange $10-$12 worth of Bitcoin so they can have their first touchpoint so they can buy her album.

Michael Saylor [1:23:00]: It’s an interesting idea but it’s a different idea. It’s a heavy lift. It’s very difficult — now we’re back to this issue of: Is Bitcoin a currency or is it a property or an asset? And the problem is 99.99% of the world’s systems are wired to pay you in a currency. So if you look at cross-border medium of exchange, it’s all the dollar. And so you can’t even sell something in Yen: If you lived in Japan and you wanted to sell somebody to an American and you said pay me in Yen, people would balk. So you’re gonna lose 99% of your audience when you actually put that impedance in front of people.

Daniel Prince: But you’ll get those 10,000 superfans?

Michael Saylor [1:24:01]: No, you won’t. You won’t get the 10,000 superfans.

Daniel Prince: You don’t think so? If your fan base is already 100 million?

Michael Saylor [1:24:11]: It’s a different idea. A digital token is the idea of an artist taking themselves public and selling shares in their own brand — that’s a different idea than: I’m going to use my influence in order to drive you to buy satoshis.

Daniel Prince: To stack sats.

Michael Saylor [1:24:30]: It’s a different idea, right? They’re different. It’s not hard to get people to want to embrace your technology because they think it helps them. It’s hard to get people to embrace your technology because it helps the world. If the world’s most famous musician said I’m only selling my album in Bitcoin, that’s good for the world but it’s bad for them in the near-term because they’re going to make fewer sales, and they know they’re going to make fewer sales. So it’s creating an impedance. Just like when these guys move off of the most common network and they move to the second network, their sales or their messages are gonna fall by an order of magnitude. So it’s a different idea that we could talk about. But it’s more likely someone is going to embrace Bitcoin — like artists — because they understand that Bitcoin is the best way to save their wealth and give it to their children or their heirs. So if a famous musician decides that Bitcoin is the best way to store my wealth and escape inflation and monetary debasement, then they will buy Bitcoin and then they will support it and say it’s a good idea because of that reason. They’re not going to embrace Bitcoin because it’ll sell more albums or make them more famous. They might say, You can pay me in this or Bitcoin. That’s a plus, but it’s kind of like if I was supporting a language that’s spoken by 1% of the world and I said I’m gonna create an album but it’s only in that language and you have to learn that language in order to listen to my music — the problem is you’re gonna lose your audience. And so we need strategies that get everybody to adopt and embrace Bitcoin. If we’re back to the subject of what’s good for Bitcoin, you want to make it easy for people to embrace Bitcoin — you don’t want to make it painful for them to embrace Bitcoin. The paths of least resistance that are simpler than others.

Daniel Prince: And that’s a beautiful segue into what I wanted to discuss with you on today’s pod — one of the very many things, one of the notes I’ve got written down here. And that is about nation state adoption. Because — and just to give a little backstory to the listeners: you were gracious enough to host myself and André Loja. Big shout out to the pleb from Madeira who has managed to start orange pilling his president. And he bought along his head of cabinet and the guy in charge of the International Business Center there. And Prince Filip joined us as well, and we came and visited you and we just wanted to get your ideas around the best practice of nation-state adoption, or how to best go around educating the people of Madeira — a small island of around 260,000 people. Would you mind sharing? I don’t know if your thoughts have changed since that meeting back in April, but would you mind sharing with people your thoughts on (1) how El Salvador have gone around doing it and (2) what would be the best practice for other people to put something in place for their country, for their state, for their whatever it is?

Michael Saylor [1:28:30]: You know what? When you think about governmental organizations, you want to focus upon the most effective, biggest bang for the buck strategies first. So the question really starts with: Well what is the political entity? Is it a nation state? Or is it a state or province within a nation state? Or is it a city? Or is it an agency? So what you would do rationally is a function of how much political power you have, but let’s just say hypothetically you’re a small country and we’ll go from there. If you were a small country and what you wanted to do was encourage Bitcoin adoption and/or benefit from it, you do the simple non-controversial things first: first you just start to educate and provide education on what Bitcoin is because if people don’t understand what it is, all your other initiatives are gonna backfire on you. So I think you’ve got to start with education. And first you would educate yourself and the people in the government. So I would start with education programs to educate the government in general. Then you would move to educate the citizens. And that just means make the education freely available and promote it — free education. Then from there the general playbook is you want to put in place asymmetric legislation or asymmetric laws or policies. Policies that make it beneficial for an individual, an investor, a businessperson, or any other entity to do business with you or to relocate their funds or relocate their business or relocate their person to your jurisdiction. So how might you do that? Well you could start with the tax code. If I knew that there was no property tax on Bitcoin and there would never be a property tax, that’s a start. Now generally there isn’t a property tax on Bitcoin anywhere else in the world though, so it’s not a big advantage except that proactively stating that you won’t might provide some people comfort. The next tax would be capital gains tax. So if you were to actually say you’re giving it the most favorable capital gains tax treatment or no capital gains, that’s going to be a big advantage for you. The next would be income tax. If you traded it, if there’s a positive tax treatment or the most favorable tax treatment for any asset, then yeah people are going to want to relocate the asset there. So whatever the tax code says is important. In some jurisdictions, when you go and you buy property, the foreigner has to pay a property tax. Like in the UK if you buy property, there’s a transfer tax, and that discourages foreigners from buying property and discourages domestic property holders from selling their property to foreigners. So the way that you discourage any property or any assets from coming to your country is you put onerous taxes on them. And then the way you encourage it is you do the opposite: you don’t tax them or you’re very clear that there won’t be any taxes. So let’s assume though that you do all that — because there are a lot of other tax-free jurisdictions: there’s the Singapores and the Monacos and the UAEs that are pretty well known for not having onerous taxes. They don’t have income tax or trading taxes or capital gains taxes. So after you look at the tax situation, the next thing you would do is look at your real estate. if you were to actually give a license to a Bitcoin ATM operator to go and set up ATMs on every street corner, or if you gave them a right to plug Bitcoin into existing ATMs. If every ATM in the country took and/or provided Bitcoin, then that would make your country Bitcoin-friendly. And of course there are regulations — this is under the broader category of financial regulations: are there regulations prohibiting you from moving Bitcoin around? Or are there regulations that encourage it or enable it? So you want to make it easy to do business, to do commerce with the asset in the nation. And likewise you want to get rid of all of the onerous financial regulations that make it difficult. After you work through the tax code and then after you look work through all the financial regulations then you go to all the land use regulations — we talked about it: if you make it easier for someone to set a Bitcoin business up, that’s good. If you make it hard, that’s bad. Then there are issues of citizenship. Certainly some nations allow you to obtain citizenship if you buy property. I can think of a number: you buy a million dollars worth of property, you can apply for a passport. Well if Bitcoin custodied in the nation in question counted as property and it gave you certain rights as a citizen or as a resident alien, then that’s a benefit. So I think all of those are obvious. Then you go to the next step which is: you as a government buy some yourself. If you start to acquire Bitcoin for your treasury, that’s a benefit. If you were to pass laws or set up regulations where people could pay their taxes or pay governmental fees in Bitcoin, that would be beneficial. But the thing that would make it really compelling is if you actually telegraph that if people pay their fees in Bitcoin, you wouldn’t convert it back to fiat — you would actually hold it on the nation state treasury or with the central bank of your nation, in Bitcoin. That encourages people to pay all their fees in Bitcoin and that actually creates another Bitcoin treasury. So I think that’s useful as well. Beyond that: rules that make it possible for Bitcoin-friendly businesses to work there. If you’re a business that’s actually creating Bitcoin services or Bitcoin products or products that integrate with Bitcoin, that’s useful. I think simply having regulatory clarity that makes it clear what you can and you can’t do and what the rules of the road are, I think are very very useful. So off the top of my head I would start with all of those things and then go from there.

Daniel Prince: And having watched El Salvador for the last year and a half, what are your thoughts on how that’s been rolled out? I don’t know if you visited — please tell us if you have? If you’ve got any personal insights?

Michael Saylor [1:36:56]: I haven’t visited. I think they’ve done some things pretty well and they’ve got an office. I wouldn’t just give away thirty dollars worth of Bitcoin to all the citizens — I wouldn’t do that. I think that that’s an expensive way to spread Bitcoin. I think that you’re better off to organically create a reason why a business would come. And ultimately there’s only so much that nation states can do. The positives generally are around tax incentives and the negatives are around regulation. So I think if you’re a governmental entity, what you want to do is have constructive regulation that’s very positive, and you want to have a lack of negative regulations that are onerous, and I think you want to have constructive tax incentives. If you really want people to locate to your country that own Bitcoin you would say there’s no tax — there’s no inheritance tax on it. For the most part, the other incentives aren’t that useful because if I really believe in Bitcoin I’m not going to sell it or I’m very rarely going to sell it. So maybe I sell a little bit over a long term but I intend to hold it forever. So the thing that everybody intends to do is they’re all going to die, and there are very few places in the world where you can die without having half your assets seized.

Daniel Prince: Which is shocking.

Michael Saylor [1:38:42]: We can make a list of of them, but it’s a very short list of places that don’t just steal all your stuff when you die. So if I was trying to do something that was really effective, I would simply have tax carve-outs, and I would say, We just don’t tax your Bitcoin when you pass it to your heirs. Or we just don’t tax the Bitcoin when you transfer it, period — whether you transfer it while you’re alive or while you’re dead. And if you did that then that’s pretty compelling. Say you’ve got American citizens: they can’t really escape American tax code without giving up their citizenship for 10 years so it’s pretty onerous, but for American citizens in that situation you would simply want to enable them to set up business operations that do Bitcoin-friendly things. And it never hurts to make it easy for businesses in your nation to accept Bitcoin. I would be supporting Lightning. I guess I would support Lightning and Lightning payments for all my merchants. If the government accepted Lightning payments and the merchants accepted Lightning payments and if there’s some benefit or some help from the government to get that infrastructure up and running, then you would like to be the country where everybody can pay with Lightning everywhere. I think that would be useful. If you had your own currency and you created a digital token — maybe it’s the dirham or something — if you create that digital currency and you create a Lightning wallet where people can exchange Bitcoin for that currency and that currency for Bitcoin seamlessly, instantaneously for free, and they could pay using Bitcoin and they can immediately transfer it back and convert it back to the digital currency friction-free, everybody’s happy. I think if you integrated your currency, your payment systems, your merchants, your tax code with the Lightning Network, with the Bitcoin network, that would be a useful thing.

Daniel Prince: That’s not the CBDCs that they envisaged when you hear the central bankers talking about CBDCs or government officials.

Michael Saylor [1:41:27]: Well there are certainly central bankers that want to issue their own CBDC and control you with it, yes. There are other central bankers that want to issue their CBDC to control the currency but they don’t want to control how people spend it — they’re a little bit less onerous: they simply want to just inflate the money supply. There are other bankers that just want to issue a digital currency — JP Morgan and Bank of America would just like to issue a digital currency just so that they can generate yield on their digital currency. I mean heck, Tether and Circle would like to issue their stablecoin because they get paid 4.5% or 4% yield, so their motive is just to get yield and the like. So there are lots of people that have different opinions about digital currencies. So if you’re running a country, you have a choice: you can choose to be a good actor or a bad actor. If you want to be a good actor you would issue a digital currency that’s a cash-like instrument that provides you with privacy and you could self-custody — if you’re a good actor. If you’re a mid-actor you would issue the digital currency and let people self-custody — maybe you would inflate it a bit more. Obviously people that are in favor of doing the right thing are exclusive to people who are against doing the right things, so either you’re going to do the right thing or you won’t. I mean you asked me what I would do if I was running a country and I told you, which is: I would do the thing and I would support Lightning. If I didn’t have a currency — like in El Salvador they don’t have a currency — they’ve got to have a Lightning wallet that supports USD and BTC. If you had a currency like ARS, the peso, you would want a Lightning wallet that supports ARS, USD, and BTC. Will they do it? They’re not going to do it in a hyper-inflationary economy. If you’re intent on running your currency and inflating the supply of it by 20%-30% a year, you’re not going to do what I just described because people would use the Lightning wallet to evade capital controls, and all of the value in your economy would drain out of your local currency into the US dollar. Some of it into Bitcoin, a lot of it in the dollar — overnight. But there are some countries that have a stable currency — a relatively strong currency: Switzerland. If you look at the Middle East they’ve got a lot of currencies pegged to the dollar. Even the Chinese sort of pegged their currency to the dollar, but they have capital control issues — they don’t want their citizens to move their money out of China. But if you went to a society where the currency is pegged to the dollar — if I was in Emirates and I wanted to lead the world, I would issue a digital wallet based on Lightning, based on Bitcoin that offered you the digital dirham, the digital USD, BTC, and then I would plug Lightning into all the merchants in the country and then I would plug the government into Lightning and I would say you can pay for everything using this. They’re a very mobile economy already — they’ve always been leaders in mobile. They had a mobile government initiative to basically set up all the government agencies to be mobile accessible so that you don’t have to go into an office to do things — you can do them online. So that’s what I would do: I would basically embrace the entire digital economy that way. Some people will, some won’t. We’ll see who does. If you were a nation state and you’re a big exporter then there are three ways you’re going to embrace Bitcoin: you could say, I’m going to sell barrels of oil in Bitcoin — that’s the most aggressive way. That’s kind of like your idea of Katy Perry sells her next album in Bitcoin, but that’s going to create a lot of pushback. In Libya when they didn’t want to take these dollars for oil —

Daniel Prince: Gaddafi found out.

Michael Saylor [1:46:07]: Yeah so that’s the most abrasive, aggressive way. There’s a secondary way: I’m going to convert my entire treasury from United States dollars, US treasury bills to Bitcoin. That’s pretty aggressive, too. You might not want to go that far. The third way is: our sovereign wealth fund is just going to buy Bitcoin as a treasury reserve asset — it’s one of ten assets that we own. We’re buying Apple stock, we’re buying Google, we’re buying T-bills, we’re buying some gold, we’re buying Bitcoin. That’s the most incremental way. So if I had a trillion dollars — I guess I’d start by buying $10 billion worth of Bitcoin out of my $400 billion sovereign wealth fund, and then maybe I’d creep up to $20 billion of Bitcoin and then $30 billion of Bitcoin and then $40 billion in Bitcoin. And it would be incremental thing and I would embrace digital assets. There’s no reason to wave a red flag at a bull, or to make this unnecessarily jarrin — you could argue it’s not good for Bitcoin. You remember when someone said Wikileaks is going to take Bitcoin and Satoshi said, Now you’ve kicked over the hornet’s nest — we don’t need that much publicity. We’re too early. So I think the same is true here: if Bitcoin is embraced as a treasury asset, or one of multiple — just a new asset class — I think we 10x from here easily with no controversy to speak of. It’s just another asset. And we’ll just creep into it. And then you 10x again when you say, Oh it’s a it’s a good asset. And when you’re 100x bigger you start to say, Well it seems to me like it’s the best asset? Just going from, It’s an asset to, It’s a good asset gets you 10x each time and, It’s the best asset gets you a 1000X. So if I was talking to a nation-state I would say, Well acknowledge it as an asset. I’ve got this taxonomy — I said, Everybody goes through five stages of Bitcoin: first you’ve got the deniers, then the skeptics, then the traders, then the technocrats, then the maximalists. The deniers think it’s tulips it’s not real at all. It’s a sham — scam. The skeptics say it’s real but it’s too good to be true — the government’s going to ban it. The traders say, Oh it’s an uncorrelated asset or it’s a correlated asset — I don’t know if I like it or not but I’m going to trade it because sometimes it when it’s going down I short it, when it’s going up I go long, and if I’m not sure, I just sell the volatility. Okay so just going to step three — trader — it means you’re gonna actually buy billions of it. Step four is technocrat: it’s the world’s greatest digital monetary network. It’s like Google for money, or Facebook for money. If I like Apple and I like Google, why wouldn’t I like Bitcoin? A digital network for billions of people that does something. So technocrat is better. And of course maximalist is: it’s an instrument of economic empowerment. It’s freedom and sovereignty and liberty for 8 billion people — economic empowerment. So what I just described is: if they bought it at all, they’re traders. If they decided it was a good technology idea, they’re technocrats. And when they understand it’s a good ethical idea, they become maximalists. And I think Bitcoin now is $350 billion in the market. If we just get people to be traders we’ll be $3.5 trillion, and when they become technocrats we’ll be $35 trillion, and when their maximalist it will be $300 trillion. And of course there’ll be a lot more money in the world, or we’ll drain out a lot of other assets. I think at that point you start demonetizing all sorts of things: currency, sovereign, debt, property, collectibles, precious metals, securities, etc., but it’s a ways — we’ve got 30–40 years to get there.

Daniel Prince: We do. And just to give you an update on what did happen after that meeting in Madeira: the president subsequently asked André to get an advisory board together and invited more people to come to the actual island — to Madeira — and visit with government officials as well as the energy company for their education piece. And then also layered on top of that said, Start some kind of organization whereby you’re giving out free education to the citizens. So there’s already been three meetups, I think, that are held at a co-working space which André runs himself and it’s free for all of the locals — for anyone, actually — to go and listen to speeches and look at workshops and ask questions. And that’s just going to become more and more popular in 2023 — it’s already attracting some Bitcoiners to relocate to the island, so that advice was well-heeded, and I’m interested to see what happens in 2023.

Michael Saylor [1:51:52]: You make me think: it’s good, but of course you do a podcast and you have a hundred thousand people view it in a few hours, whereas physical meetups are a pretty expensive way to educate. If you’re going to do it: building it into the curriculum in the schools, making it a class — even an optional class in high school or in the college? I think that’s pretty useful. What you really want is to mandate it if you could, if you could make it a required class in high school or required for government employees. But if you’re going to make it optional, you basically want to offer it to all the employees of the government and all the students — that’s how you actually spread ideas most effectively in education. Otherwise [you set it up] in the middle of town. But I think the problem is: ideas spread probably 1% as effectively in the real world as they do in cyberspace — they just don’t go that fast. So you need to find a way to make it a bit more viral.

Daniel Prince: Yep, 100%. And that is being worked on like a course for kids and of course the books were being translated — all the kids books — and they’d be gifted to all of the schools. There’s tons of ideas and it’s great. It’s really very very bullish what’s going on and I just hope it can be a beacon of inspiration for other small countries that have a certain amount of autonomy. But the bigger ones like the huge nation states? You’ve got to just work in your local towns I guess and your communities before we get there. All right, Michael — I gotta kind of start bringing this round to the end here. And I know you’ve answered this question many times — and you can’t choose Katy Perry — but: if you had just one last orange pill left to give to somebody, who would you give it to? And why?

Michael Saylor [1:54:17]: At this stage I would probably give it to someone like Larry Page or Tim Cook. I think probably the most powerful entities are the people running Apple and running Google, because they control all the mobile phone operating systems in the world. And if you want to move Bitcoin at the speed of light to billions and billions of people, building it into the iOS and building it into the iCloud and building it into Android and building it into Google and all of their various billion-user networks — I mean ultimately Google and Apple control cyberspace moreso than any other company. And then you’ve got organizations like Facebook and Twitter that are pretty good at moving information around. But Google and Apple really control what is in the hand of 6 billion people. And they control the communication networks and the like. And so either one of them would probably be the most effective at moving the world toward digital prosperity.

Daniel Prince: What’s your focus for 2023?

Michael Saylor [1:55:50]: Find ways to educate more people on Bitcoin and find ways to acquire more Bitcoin.

Daniel Prince: Like us all! You’re very humble about the biggest positive events of 2022. Shout-out for your award that you received at the Atlas Society.

Michael Saylor: Thank you.

Daniel Prince: That must have been pretty cool. Great speech, by the way. And I listened to your pod with Cedric [Youngelman] — Cedric did a great job, as always, and listening to your thoughts on that was excellent. So I just wanted to make sure if people haven’t seen that they go and check that out. Are you going to be turning up at any conferences at all next year that you’ve announced or looking to go to that anybody should be aware of?

Michael Saylor [1:56:51]: I’m sure I’ll make a few. I know I’ll make the Bitcoin Conference in Miami.

Daniel Prince: It’s on your front doorstep.

Michael Saylor: Yeah that’s a fairly convenient one. And I’ll do a few more and I’ll make announcements as I commit to them.

Daniel Prince: Will we see you on this side of the pond, Michael? Is that gonna happen?

Michael Saylor: Likely, yeah likely.

Daniel Prince: All right, well I look forward to it — it’d be great to have you over here and get the Euro plebs out for some parties. All right: is there anything we didn’t touch on that you wanted to cover? Or any final messages before we close it down?

Michael Saylor: I think 2023 is going to be a great year. We got a lot of heavy lifting done in 2022 in different areas.

Daniel Prince: We certainly did.

Michael Saylor: It was a lot of work done, and I think we’re gonna see the benefit of that work in 2023.

Daniel Prince: All right, Michael, well thank you as always. Have a great Christmas and look forward to seeing you in person again next year, whether it’s your side of the pond, or mine.

Michael Saylor: Thank you, Daniel.