The Bitcoin Standard Podcast #34. Michael Saylor on The Fiat Standar‪d‬

Link to the podcast: https://saifedean.com/podcast/34-michael-saylor-on-the-fiat-standard/

Saifedean Ammous: Hello! Welcome to another meeting of the Michael Saylor Appreciation Society. Our special guest today is Michael Saylor himself, fresh from the Bitcoin for Corporations conference in which he promoted Bitcoin to corporate America. He made a very very strong case for Bitcoin, why it matters for corporations, and why it matters for corporate balance sheets. We’ve had Michael on before—we spoke about his ideas on Bitcoin and his ideas on inflation and cost of living, and he’s been an absolute thunderball of inspiration and powerful ideas since coming into the Bitcoin space over the last year! And it’s an absolute pleasure to have him back again! Thank you very much for coming back, Michael!

Michael Saylor: Thanks for having me!

Saifedean Ammous: I guess we’ll start with talking about the Bitcoin for Corporations conference! So what were your impressions of the corporations? Did they buy your pitch? Clearly some of this — Tesla, namely. But what was the general impression you had?

Michael Saylor [04:44]: My impression was: I was surprised at how much enthusiasm there is! We started in August, we were the first public company to make a serious commitment, and then Square followed us, and then Marathon Patent did a pretty big Bitcoin acquisition for their balance sheet a few weeks ago, $150 Million. And then when Tesla did, we’ve now got four public companies in a row that have all made pretty material commitments! Of course, the market’s been enthusiastic! Generally, the market’s been very supportive of all the Bitcoin companies. If you look at Square’s stock, PayPal’s stock, Riot Blockchain’s stock, Marathon’s stock, Microstrategy’s been well treated, I think Tesla of course is the most successful stock of the year. We’ve checked off one question, which was, How will public shareholders view this? And there was some trepidation, and in fact they’ve viewed it enthusiastically! For example, since Marathon did their $150 Million Bitcoin acquisition, their stock doubled! If you’re wondering how the public shareholders will view it, oftentimes the thing that holds back public companies from doing something is their concern about how it will be perceived by their outside shareholders. And because it’s very difficult to meet with outside shareholders — they’re changing every minute of the day between 9:30 and 4:00 PM, right? Your shareholder base is changing! So it’s like trying to grab onto a whirlpool in the middle of an ocean! You can’t quite get your hands around it — it’s dynamic! That’s a challenge, but as we came in the conference I thought—first of all, there’s a lot of demand bubbling up! We had a lot of people asking us! A lot of people asking us, How’d you do this? What should we do? There’s illegal issues, regulatory issues, where you trip the 1940 Act, are you gonna need an ETF, what’s the accounting treatment for it, what’s the appropriate corporation governance? You know, rather than try to have one meeting at a time — Saifedean, you realize at some point, if you had 40 hours of meetings a week for the next 30 years, well that’s like 2,000 times 30, right? What is that, 6,000? You can touch 6,000 people in 30 years! You just can’t go fast enough! So you can’t do these one at a time. So we thought, let’s just go ahead and add it as a track to Microstrategy World, which was all virtual, and I thought — by the way, Microstrategy World last year was 2,500 of our customers in a room and it cost us $4 Million, and it cost them probably another $6 Million, so we spend $10 Million in 2019 to put 2,500 customers into a convention center. This year’s Microstrategy World, we probably spent 1/15th that much money, our customers spent nothing, so we spent probably 1/30th! We reduced our travel and entertainment and event budget by 97%! We reduced all of our travel and events budget by 98% year over year, if you want an interesting factoid — 98%! So Microstrategy World was pulled off for 97% less money, we had 21,000 people registered instead of 2,500. We thought, We’ll tack on Bitcoin for Corporations as an afterthought. I thought, Well if we get 800 that’ll be good! Then I thought, Well we’ll probably get 1,000. Then I thought, Well we’ll get 2,000! And I went on television and I said, Well I think we’ll get 2,000, and then we had this surge, and the day of the event — no joke, it broke the Internet! Like it actually broke our video server, and the stress was, we blew through 15,000 people and I was on the phone with my IT people saying, Get more capacity from our vendor! And for like an hour or two hours in the morning leading up to the noon thing we were like maxed out and I was worried! So some enterprising cyber hornets — I love the Bitcoiners, they’re so enterprising! — while I’m trying to solve the problem the conventional way, someone turns on livestreaming to YouTube, and they set up bootleg live streaming channels that have thousands of people on them! When we finally got to the noon session with Ross — who you introduced me to by the way I think, thank you!— so we got to the noon session with Ross and we had 8,500 come into that session, so I thought I’d have 2,000 and we went to 8,500! I thought I’d have 1,500 companies represented, and it was actually 7,000 companies represented in the live session! And then the live session got bootlegged out and posted on YouTube, went viral, I think we’re up to 250,000 views now! [09:58] So I guess the summary would be: exceeded my expectations! And we had people from Space X there, you know, some of Elon Musk’s companies, we had people from Marathon there. The ones you would expect were there, but of course there’s an avalanche of private companies, and there were a decent number of public companies and treasurers and CFO’s that were lurking. Some of them don’t want to have their names mentioned as you can imagine, because it’s a sensitive topic, right? It’s material for a company! But I think we can call it a success, because on television for the past few days, we’ve had the CEO of GM asked if he’s gonna invest in Bitcoin, we’ve had the CFO of Twitter asked about Bitcoin, we’ve had the CEO of Uber asked about Bitcoin! We just had the Miami, Francis Suarez, announce that they’re moving forward to put Bitcoin on their balance sheet, and it’s become part of the conversation, even to the extent that now people are grappling with the accounting and the volatility issues, which I account to be an incredible success for all of us! Because a year ago, no one would have even discussed this! This morning we had a milestone: in the CFO section of the Wall Street Journal, the challenges of incorporating Bitcoin on the balance sheet for CFOs was discussed in an article, and I think that’s the first time that the Wall Street Journal in the CFO section had ever actually brought up the topic of Bitcoin! So the implication is: it’s in the conversation everywhere! And increasingly, people have to come to terms with why they’re not doing it. And there will be technical reasons — Oh! It’s volatile, right? I mean, it’s going up 200% a year, but it’s going up, it’s making us large sums of money in a volatile fashion, that’s a technical reason. If you’re an investor and your reason for not investing in something is, It’s making money too fast in an unpredictable fashion — I’m not even gonna say what I think of that! It’s quite amusing to me! [12:14] But if I had to be criticized, I think I’d like to be criticized for making money too fast in an unpredictable fashion! And then they’re grappling with the accounting issues, because if you hold it as the underlying asset, it’s currently accounted for as an intangible on the balance sheet, which is the most conservative way. Kind of like the way you’d account for patents or things like that. You know, if you hold it as a fund, then it may, under certain circumstances, be accounted for as an investment asset. But then if you have a fund, it’s a security! And if you hold the asset, it’s property and a commodity! And if you have a lot of securities, at some point you might trip the SEC 1940 Act and become a finance company, because you have more than 40% of your assets as securities. There are a lot of nuances and people are grappling with them, but they’re good debates, right? Good discussions to be having right now! And a year ago, no one would have even considered these matters! So we have injected this into the conversation I think around the world, and I think the Bitcoin conference was part of it. Clearly the Tesla purchase was helpful! And I think February 8th, you could call Mainstream Day, Saifedean! February 8th, this year, was the date when the entire story of Bitcoin as a treasury reserve asset crossed outside of the Bitcoin and the Crypto community, and it was in the Wall Street Journal, The New York Times, The Irish News, The Straits Times — every major financial publication everywhere in the world, and all the mainstream media! I got invited the next day to go on CNBC, Bloomberg, FOX, CNN, NPR! And I’m like, No more! I can’t do any more! But the point is, CNN, NPR — these are not Bitcoin journalists, these are mainstream sources! So I think the message is exploding into the mainstream — you could start the clock: February 8th was the day the shot was heard around the world! And that, combined with the Bitcoin for Corporations Summit, placed this in the public domain. The beauty now of course it, I used to meet with 100 people, and I could meet with 10 a week, and then we met with 8,000 people, and then it went viral to 250,000 people, and now we’ve published our Bitcoin Playbook, and that’s out there circulating amongst lawyers and accountants and advisors and investors, and we just let that percolate and I think good things will happen!

Saifedean Ammous [15:01]: Absolutely! I was going to say the exact thing that you mentioned which is: one year ago, none of this was going on anywhere! Nobody was talking about any of this stuff! I remember exactly it was one year ago, it was a conference, and I was with somebody who works in a Bitcoin company — they were talking about some blockchain nonsense — and I was telling them that the case for corporations really is: hold a small part of your balance sheet in Bitcoin! And especially if you’re operating internationally, it will help you get around banking closures and it’ll protect you from inflation also! The response I used to get when I’d mention this to people was always, No! It’s too volatile! And the accounting would be too much of a headache! There’s no way anybody would do it! And it’s incredible, and it’s almost entirely down to you, how the conversation’s entirely shifted in a year now to the point where we have a complete playbook that the lawyers and accountants can just go to microstrategy.com, download your corporate playbook, and they have the complete guide to how they need to answer those questions, and we’ve already had thousands of them show up! So I think I can’t but commend you for your incredible service to the cause! And this unbelievable contribution of just putting this out there and forcing it upon people! People call it speculation and people say, Well people are just speculating! But I think ultimately, every economic decision is speculation, and maybe the reason this speculation is paying off is because it is a better economic decision! Maybe it’s just that it’s a better asset on the balance sheet and the world is discovering that!

Michael Saylor [16:31]: Yeah! I mean, clearly words can be prejudicial, as we’ve talked about before, if I kicked you into the ocean and I threw a life raft next to you, it wouldn’t be a speculation to put on the life vest or crawl onto the life raft! If you were walking through the desert and about to [die of thirst] then I dropped a water bottle that was sealed from a brand that you’d never purchased in a supermarket before, it wouldn’t be a speculation to crack open the water bottle and drink the water! And if you lived in Argentina and the currency was crashing and you had pesos and you had the opportunity to buy a tangible asset or convert your money to dollars, I don’t think it would be a speculation — I think it would be rational, right? If I kicked you out of an airplane and you had a parachute, it wouldn’t be a speculation to pull the rip cord either! It’s just — it’s only speculation when you don’t understand the engineering or the science behind the thing! Then it’s speculation! You could say it was speculation for Amazon to use the Internet to sell books.

Saifedean Ammous [17:49]: And it’s speculation for people to buy Amazon stock as well! But, it works!

Michael Saylor: 15,000 retail companies got destroyed for their lack of speculation! Hey can we talk about the Fiat Standard?

Saifedean Ammous: Absolutely, yes!

Michael Saylor [18:03]: So a couple of thoughts I had. You made this point: you were talking about money progressing from soft to hard. The gold standard was the culmination of commodity monies from glass beads and seashells and stone coins and the like, and copper and brass and eventually we get to gold and gold is pinnacle and silver is next. And so gold is the hardest commodity money, it lasts the longest, and then you make the point: human beings are able to take a longer view! Your time horizon stretches out! If you had seashells as money or carved wood sticks, your time horizon wouldn’t last beyond the rotting of the wood sticks. Or your time horizon wouldn’t last longer than when people trekked off of the seashore to get more seashells. So gold is the hardest money of that time period, and human beings were able to take a long view. They can create longer lasting structures, right? If you have a harder money, you can create a longer lived structure and that structure would be an institution. And the hard money is working against time. Time is the impedance, and the money is flowing through time! So I started thinking about that as an engineer and I thought, Materials progress from soft to hard, and we build with wood and then we build with brick and then we build with stone and then we build with iron and then we build with steel! And steel is, right now, the winner of the materials, and using the hardest material, human beings are able to create the largest and the tallest structures! They’re working against gravity! So time is an elemental force, gravity is an elemental force, so the significance of steel is, I’m able to build a 100-story skyscraper, and the significance of strong money, or gold money, was, maybe I could create a 50 or 100-year old dynasty of some sort. Maybe I could even build a cathedral based upon the gold! Money progresses from slower to faster. When we get to Bitcoin, you’ve got a harder money than gold, so if it’s harder, that means in theory you can build structures like institutions that’ll last longer than the gold institutions or the fiat institutions! I had the thought when Jack Dorsey just announced today that he put 500 Bitcoin into an institution or an endowment to finance Bitcoin development with a focus on Africa and the like. So presumably Bitcoin development, Lightning development, etc. And I thought, 500 Bitcoin will eventually be — if you don’t spend it — it’ll be worth $500 Million! We’ll get to $1 Million a coin and then maybe Bitcoin will start to appreciate at 20% a year, 30%, and eventually it’ll slow down, but you could borrow against $500 Million—$50 Million a year — which is enough to finance a development unit of hundreds of software developers! Forever! You know, a simple rule of thumb: 500 BTC might reasonably support 500 professionals working an organization forever! Okay? Why? Because Number Goes Up, it’s a store of value! If I put the equivalent amount of money into government bonds, the half-life is not gonna support anything, right? 500 BTC you can calculate it today — 500 BTC is $25 Million, right? So $25 Million invested in something which is going up less than 20% a year is losing value! So the S&P wouldn’t work, gold doesn’t even work, they’re both clocking in at 15% a year! Sovereign debt doesn’t work! So the NASDAQ sort of works, it’s going up. Big Tech sort of works, but you couldn’t really say forever with Big Tech, because it’s tied into — it’s got so many risks and complexities! So if I endow an institution with the hardest money, I could reasonably have a 100-year or multi-100-year time horizon! And I’d look you in the face and I’d say, Yeah! It looks to me like 500 BTC will support 250 people at $200,000 a year, 500 people at $100,000 a year. I mean if you’re supporting people in Africa, developers in Africa, right now the cost per engineer is $25,000-$50,000 a year, probably $25,000 a year! So you could support 500 people forever! Let’s call it 1,000 years! I mean we could go back and forth, but — so hard money lets you work against time with an institution. And then I think you’ve got this other dimension, which is, Is it smarter and is it faster? Bitcoin is maybe 10–100x harder than gold, and so we can look out hundreds and hundreds of years. But it’s millions of times faster than gold! I pointed this out the other day: if you have a $1 Billion block of gold that’s 30,000 lbs, moving it across the continent is probably a $5 Million, 1,000-hour exercise. 1,000 hours to organize a few 747s, lots of armed guards, lots of diplomatic issues. So $5 Million, 1,000 hours! And if I want to move a $1 Billion block of Bitcoin — $5, 1 hour! A million times cheaper! A thousand times faster right now! And so that means when money progresses from slower to faster, humans are able to create higher frequency structures, and they’re working against space or against friction! So longer-lived structures have to work against time. How am I gonna endow the foundation for 1,000 years? And higher frequency structures are all about, I need to move $1 Billion of gold every 2 hours! Or $1 Billion of money every 2 hours! Not every 2 months. And the gold, of course, is so low frequency — it doesn’t oscillate at all, right? I mean, if you have 30,000 lbs of gold, how frequently does it move? I mean, didn’t the French send that aircraft carrier to pick up their gold once, in a century?

Saifedean Ammous: Yeah!

Michael Saylor [25:16]: Like isn’t it a once a decade type thing?

Saifedean Ammous: Germany did it recently: a lot of millions of dollars to send it when they repatriated their gold from the Fed. I can’t remember how much it cost, but it was in the tens of millions of dollars I think, and it took years to move Germany’s gold! So it’s very slow compared to Bitcoin!

Michael Saylor [25:35]: People that criticize Bitcoin for being slow, they’re running these lab experiments in a garage on their little altcoin moving no money around! And it’s kind of like criticizing someone running a power reactor when you’ve got a lighter in your hand, you know? Like, it’s totally unrelated! It’s silly! If you’re gonna compare the speed and the efficiency of Bitcoin, you have to compare it to the gold network, because you need to have final settlement on $1 Billion of money, of tangible property! And you’re not really getting $1 Billion of settlement on a fiat network without so many other things. So I guess my point is: we have something that’s gonna last a lot longer — it’s harder. And then we have something which moves faster, so you create the potential of high-frequency structures which are inconceivable! Like a bank that actually makes $1 Billion loans and moves the money tangibly every day, every hour, every minute! There are certain structures people can’t conceive of because they never thought about being able to tangibly move $1 Billion of monetary energy in 37 minutes and then move it back! In the crypto world they’ve got this idea of flash loans, maybe that’s the closest thing? I don’t know how enamored I am of a flash loan that lasts for like 400 milliseconds? I don’t know! It seems to me to be interesting but cute — maybe a little bit more gimmicky? I can definitely see the application of a loan that lasts 87 days! Or 31 days! Or maybe moving a block of money for 187 days! If I can do it with two institutional counterparties without the banks in the middle and the governments in the middle — and we’ll get to this in a second, this fiat issue — that opens up a new world! You could imagine in like 1600 in Renaissance Europe, they’re building buildings with masonry and they’re 5 stories high and someone says, You know one day we’ll have steel and we’re gonna build 100-story skyscrapers and they’ll be shaped differently! You know? And the architects couldn’t even conceive of that because they didn’t have a material strong enough. I don’t think people can conceive of the kind of banks or the kind of institutions that we’ll have with high-frequency money! And I think this last issue is that money progresses from dumber to smarter. Humans are able to create more complex structures and they’re working against entropy — complexity? Maybe entropy is the word! So we’re either working against time — we gotta be harder, we’re working against space — we gotta be faster, we’re working against entropy — we gotta be smarter! And the material is the semiconductor chip to make us smarter combined with Bitcoin, and the material is the network to make us faster combined with Bitcoin. I mean Bitcoin is basically sitting on the network on the chip getting harder, faster, smarter, and the conclusion you come to is: just like architecture, where I can break the laws of gravity — what does steel give us? It didn’t just give us 50–100 story buildings! It also gave us cantilevers and it also gave us bridges, right? And Carnegie made all his money by the way — I read his biography — his big customers were municipalities buying iron and steel for bridges! Bridges are a pretty big deal! Actually, you could make the argument: bridges may be even more important to civilization than skyscrapers! I mean, knock out the bridges in Manhattan and everybody starves to death! You ever see in a bridge — the bridge that connects San Francisco and Oakland, or the Bay bridge that connects the eastern shore of Maryland to D.C. — with the bridge it’s a 1-hour commute. Without the bridge it’s a 12-hour commute! Or it’s an 18-hour drive! In one case I drive to work, in the other case, I don’t! Right? It ends the civilization! So I think this element of money — I think you put your finger on something very fascinating, which is: as the money gets harder, we can see further into the future with our institutions! But I think, as it gets smarter and faster, we can construct institutions or relationships that are inconceivable before with slow, soft money! And I would say, that takes us to fiat. Fiat is softer money. It’s faster than a block of gold, but it’s still so much slower and stupider than Bitcoin!

Saifedean Ammous [30:37]: It’s manual! At the end of the day, at least gold is somehow automatic. It’s a machine in a sense — it has its own truth within it! You can verify it even though it’s a little bit expensive. But with fiat it’s ultimately manual. But today’s use, it is generally faster to move it around than moving around physical gold, but its real drawback as you were saying — in holding onto value for the future—that’s where it’s really not good and in that sense, the way that I look at it is: the harder the money, the more it incentivizes us to lower our time preference and therefore makes us think more and more about the future, because the harder the money, the less uncertain the future! Because now you have something that—I have this wealth, this monetary energy that I’ve stored — and I have more certainty in the fact that it’s going to be there in a year or in 2–3 years. So 1, 2, 3 years becomes more of a foreseeable thing for me, less of a uncertain thing for me, and so I start discounting less! When I start discounting it less, I start effectively lowering my time preference and providing for the future. And this is why I think the harder got—silver and gold were continuously getting harder and silver was eliminated and gold was hardest—that was the pinnacle of human achievement, arguably! This was when we made the most incredible technology! This was when we invented all these incredible things like the airplane and many, many, many things of the 19th century which I mentioned in The Bitcoin Standard! And I think in the 20th century, maybe we’ve reversed that process because our money is getting easier and so the future is becoming less certain and so we’re becoming more high time preference because we discount the future more!

Michael Saylor [32:15]: I agree with that! Yeah I think you’ve put your finger on something there which is: the future gets hazier and you see more anxiety! I mean I know as a corporate CEO, in March — as I was staring at a block of $500 Million US dollars and I was watching the money supply expand and the dollar devalue, my anxiety went through the roof! My anxiety went up so high that it kind of kicked me out of the fiat standard into the Bitcoin standard, right? Like the boiling frog, or jumping out of the boiling whatever! I mean it literally shocked me! It’s all about engineering a mechanism or engineering a security for yourself, right? I mean, steel allows me to stand on a cantilevered structure a hundred feet over a canyon! Or it allows me to stand on a bridge 1,000 feet over the Hudson River or the East River with security! I can even drive a car over it and steel allows me to stand 800 feet in the air! And you imagine the insecurity of that, taking the structure away! Human beings are able to go to places with engineering. Space stations, right? We’re able to go places with engineering, where otherwise you literally can’t live! Like there’s no life there without the engineering! You know, you got me thinking about the fiat standard and some of the criticisms I’ve heard lately about energy consumption of Bitcoin got me thinking about, Well what’s the comparable system? Again the critics are people that—they have a little toy railroad train in their garage and they think, Well my toy railroad train is more efficient than Bitcoin! But they don’t really contrast the energy consumption of Bitcoin to the energy consumption of the alternative system that it is replacing! So if you look at the fiat system, money’s gotta do two things: it’s gotta be a medium of exchange and a store of value, and Bitcoin kind of is one structure and the fiat is another structure. So I look at the current system and I think, Well to make this work, when we replace the gold standard — I mean the gold standard in its — when commodity money reaches its pinnacle I suppose after all the shuffling around we eventually arrived at gold coins and silver coins! And gold in my opinion is store of value, and silver is the medium of exchange! You know, one of them was the day-to-day currency! A gold coin was like 8 grams, a quarter of an ounce? Feels like it’s about a $500 coin? And so the gold coin is about 1 weeks salary for a laborer, and you wouldn’t have used a $500 or $1,000 coin to pay for things routinely, but if I gave you a stack of ten of them, that’s your treasury! So the silver coin is the medium of exchange, and in that standard you’ve got a very clean structure! Gold coin, silver coin, you mine the gold, you mine the silver, you mint the gold, you mint the silver, you store the gold, you store the silver, they all circulate around! And eventually maybe they’re gold notes, right? Maybe some notes that are fractional or fully reserve-banked — moving that around. [35:51] When we went to the fiat standard, we replaced that with—the Treaty of Genoa got me thinking about this, Saifedean! — we replaced this with diplomats, corporations, accountants, lawyers, programmers, security guards, contractors, buildings, armies, software, mints — we kept the mints, we kept the printers, we kept the gold mines, we kept the vaults, and then we tacked on ideas like ETFs, bond indexes, bond funds, financial managers, and everything else around them, in order to create a medium of exchange and a store of value! I’m trying to figure out how much energy is consumed by—what is it, like 100,000 bank buildings? J.P. Morgan has 200,000 people, so I’m guessing there must be in the finance industry around the world—in the US it’s like 8 Million — so half of the finance industry is tied up in store of value medium of exchange! So if we could figure it out it’d probably be like 40 Million people in the world! Maybe it’s 20–40 Million people! So what’s the carbon footprint and the building footprint and the concrete footprint and the steel footprint and the electricity consumption of — and I was kind of kind — I’m not really allocating all the armies and the like, but you could probably say, if you really wanted to keep track of the real cost of the system —

Saifedean Ammous [37:28]: But you’ve gotta include the proof of work system so you’ve gotta put in the military!

Michael Saylor: Yeah I mean, the first cost of the system is probably 20–30 Million bankers and financial advisors and the like! That’s the primary cost! The secondary cost is all the government infrastructure, the diplomats and the military officials and the aircraft carriers and the armies and the back and forth! I guess the third cost is actually the wars themselves that get waged back and forth! And then I think the fourth cost — the pernicious cost — I guess is the inflation! If we’re burning — you said 7–8% was the monetary inflation on average — if there’s $500 Trillion of monetary assets and you’re debasing 5% of it a year, even, that’s $25 Trillion! So I dunno — $50 Trillion a year? It must be $50 Trillion! If we could somehow calculate that number — I mean if you really wanna do something useful — calculate the cost of the infrastructure, the banking infrastructure, then the governmental infrastructure, and then the first order cost of the currency debasement and the second order impact on the currency derivatives — the stocks, the bonds, and the real estate! And then after you’ve done that you could throw in the business insolvency and the destruction of good enterprises and the political insolvency — destruction of good countries, right? The inefficiency of the system results in the destruction of entire countries! I guess the best example being like the meltdown of the Weimar Republic due to the Treaty of Versailles, which was I think largely the result of poor treatment of debt and, following World War I, I mean they pretty much crashed that entire political system because of the way they layered the debt asymmetrically on the Germans and not on the French and the Americans! We know how that one ended! Which wasn’t good for anybody! I think we can see, in the 20th century, we see an example of lots of countries destroyed by the fiat standard. I’m sensitive to all the companies destroyed by the fiat standard as well! The example of that is: as they keep cranking up the monetary expansion rate and as CEOs keep attempting to have their stock hold value, the only way the stock can hold value is to expand the cash flows per share faster than the rate of money expansion! And that means that in an environment where the money’s expanding at 7% a year, if your company’s growing at 3% a year, you can’t store value in the stock, and the political pressure to hold value in the stock causes you to take on massive debt, and then the massive debt is used to either issue dividends or buy the stock back, and so what you’re doing is you’ve taken on $1 Billion of liabilities to actually pump the stock up and then you’re impoverishing the company! Eventually you end up with the company having billions of dollars in debt and no equity, and then when you hit a crisis — like a technology crisis like Amazon attacks Toys “R” Us while they are insolvent — or you have a pandemic crisis and they shut down your restaurant and you’re insolvent! So the crises create insolvencies because the companies are undercapitalized because they took on debt under political pressure to keep their stock up! And you could see that playing out even right now, where the majority of CFOs — like we just saw, I’m not gonna name the CFOs — but the majority of CEOs and CFOs will say, We’re gonna take our cash and buy our stock back, and conventional financial thinking is: Reward CEOs and CFOs for buying stocks back and issuing dividends, and criticize them for buying Bitcoin or tangible assets with their cash flows! Like, I would be criticized as a speculator taking risks with my balance sheet even though today I have $3.2 Billion of tangible assets on my balance sheet! A year ago I had $500 Million, right? And conventional wisdom is, You should give away the $500 Million and have zero! So conventional thinking is: decapitalize the company! And you’re really ostracized or criticized if you convert cash from a weak asset to a strong asset! Primarily by conventional thinking. I know I said a lot, and I threw a lot out there but I should pause and we should just talk about it because I think there’s a lot of interesting implications and they start with this idea of the fiat system and the fiat standard!

Saifedean Ammous [42:51]: Yeah! That is great! Thank you for that! The cost of the fiat standard is all the things that you mentioned. There’s also the business cycle which is constantly causing misallocation of capital and causes businesses to make malinvestments which get wiped out all the time! And then there’s the fact that — and this is primarily outside the US , it’s a much bigger problem elsewhere— which is that you have the countries pay its balances, all of their international account and their current account, all of it is settled with the central bank’s cash balance, which is also used to back people’s deposits in the banking system, and it is also used to buy government bonds, so essentially just financing government bonds. [43:41] And it backs the national currency. So you’re constantly putting all of society’s savings and all of the society’s ability to trade with the outside world essentially as collateral for government to borrow against! And of course, government has high time preference incentives to continue to abuse this all the time, and so it ends up creating all kinds of destruction of savings and destruction of capital. I think that’s really — well it’s hard to estimate which is the biggest — but if you think about a century of misallocation of capital, when you think about, How much capital was misallocated? And, How much capital was essentially leaked away from prudent, productive people who have put it away to finance their future and then suddenly saw it go Poof! because their central bank had printed it! And all of that went to finance wasteful government spending and war and investment in things that were not chosen on the market! If you think about the opportunity cost of that over a century, I think the world would be a very different place! And I don’t necessarily have to speculate about technological achievements that we haven’t made, but I think with the things that we have, owning a house with 24-hour electricity and running water is probably something that would be attainable for everybody in the world if money was hard! If you think about it, anybody, particularly people in the poorest country in the world, if they had had gold for the last century, it would be almost trivial for people to be able to secure a modern house with electricity and running hot water as a basic infrastructure! I think the upside of where we would be is almost unimaginable for people in our position! [45:29] But I think the bare minimum would be that: basic technology would be far cheaper all over the world and far more easily available because people could afford them! It’s not that expensive to build an engine that gives you 24-hour electricity! It’s a really simple engineering problem that’s been solved in many places in the world for many many decades. And it just keeps getting cheaper every year! I think the reason that so many people in the world don’t have it is because they have bad money that just continues to lose value. And it ruins their time preference as we were saying earlier! It prevents them from thinking of the future.

Michael Saylor [46:03]: One thing that’s interesting to me is: in the perfect gold standard, the store of value is a gold coin and the medium of exchange is the silver coin. As I read The Fiat Standard, I see we kind of had to abandon the gold standard because we needed faster money and we needed larger quantities of it! You know, we replaced the gold standard with this network of tens of thousands of banks and hundreds of central banks and armies of accountants and lawyers and bureaucrats! The currency was the medium of exchange, the store of value when the fiat system worked — first they tried the store of value as gold — it seems like they layered on fiat currency over gold to try to do that, and then over time as the gold got seized and it was synthetic gold or hypothecated gold, and then in 1971 the semblance of that started breaking down and then the store of value in the fiat system was sovereign debt! If we look at the world today, there’s all the currency, and the theoretical store of value, right? If you ask a corporate treasurer, What are you gonna do with your treasury, I need to store my value? Well I don’t hold my cash outright, I would hold it in government debt — treasuries were the gold. The gold standard is treasuries! And that kind of worked! For example, the currency system — international currency trading — used to kind of work! There was price discovery in the market! For example, you remember when Greek debt was trading like 8, 9, 10%, and I remember Spanish debt or Italian debt used to trade 5–6%. I would say if you go back to before the EU was formed and you had all these countries with all their different currencies, the currencies were in a competitive market, and if a country wanted to keep its currency from collapsing, you had to raise the interest rate! So you remember when people used to have 12% interest rates and 8% — under the Volcker regime, we go back to the ’80s: you had Ronald Reagan — he was fairly conservative, Volcker was conservative. There you had the fiat standard, but they took the interest rates to 18% in the US! The thinking was, countries had to compete to make the currency viable: you had to have interest rates that were market-set, and in that world you have 8% 30-year bonds and you had 5% bonds. In 2010, short-term interest rates were 5%! So you remember you were saying, Well the money supply was expanding at 7–8%, maybe 7% or something! In that world, if I’m a corporate treasurer, I can get 5–6% on bonds. Call it credit-worthy bonds, AAA credit. The store of value in the fiat system, when it works — and we’ll go back to good ole days, Ronald Reagan when it was the good ole days — when it works you buy credit-grade bonds, AAA-rated, you buy sovereign debt, it yields 4, 5, 6%, the money supply expands either 3% or 7%, say it’s expanding at 7–8%, you’re getting a 1–2% loss, I give you $100 Million — the half-life of the money is 35 years! So in that world, you can have — by the way, 35 years or 30 years is kind of a magic number, it’s your career, Saifedean — so if I’m a CEO or I’m a corporate treasurer and I’m running on the fiat standard in that time period, I can take my capital, I can put it into like credit-worthy bonds, not take a lot of execution risk, not try to guess what happens with Zoom versus Tesla and I’m not “speculating,” right? The fiat standard, when it works, gives you sovereign debt and credit instruments that allow me as a responsible corporate treasurer to protect the assets of the company for the next 20–30 years, long enough for the company to execute its business strategy. That used to work! But then something started breaking down in the last 30 years! And today it’s busted! There’s no price discovery, sovereign debt is not a store of value! Last week the junk bond index dipped below 5%, it was 4.9%! Okay? The theoretical risk of junk bonds, the risk of default to anybody is 4%, but to a rational person it feels like it’s 8%! It’s 4–8%, is the risk on the bond, which means that if you’re getting 4% yield, you’re at best zero and at worst, it’s a negative real yield of 4% or something after credit adjustment! So that tells you that corporate bonds, sovereign debt, and junk bonds are no longer stores of value. And the currencies yield no interest! The US 30-year swap was 72 basis points a year ago. Today, it’s 175–180 basis points! And that’s the best you’re gonna get! [51:34] The EU 30-year swap is 20 basis points. It’s nothing! There’s no yield! So what can you say? You can say: the fiat standard has broken down starting the year 2020, because at this point there is no tangible store of value where all the traditional treasury instruments are no longer stores of value! Now, when did it start? And I’m going over this in my head — forgive me, I read your book, you got me thinking, I’m literally thinking about this this morning but I’m thinking — I’m thinking it started to break down with the Japanese in 1980s. I think the Japanese had a crisis, the crisis was: the digital revolution, computer chip came out, Intel, Microsoft — the Japanese dominate analog electronics, the world shifts to digital electronics, their exports start slipping, and as the world moves to the Computer Age, the Japanese economy weakens. Their reaction is: the central bank starts to intervene. They’re a closed system and authoritarian, a single government in a closed system under economic crisis. And so they start buying everything, price discovery disappears, asset inflation goes through the roof, real estate in Tokyo goes through the roof, zombie companies start to manifest themselves, the economy freezes! And that’s the first place you start to see the breakdown of the fiat standard! The interest rate goes to laughable numbers! Non-competitive, and it’s like this self-referential closed system — it doesn’t make any sense whatsoever! And America looks at it and in America we have 18% interest rates, you know? And so the Japanese response was central bank intervention, and they were the first major country. Maybe not the first, because I’m not a student of China and every other country. I just noticed in Japan. Then what happens next, America has the Reagan revolution and so Reagan and Volcker really define the game plan until 1988. And we have the fiat system lurching toward normal — you had savings accounts that yield 6, 7, 8% interest! You know, the way you know that there’s a semblance of normalcy is: checking accounts yield 0% and savings accounts yield 8% interest and the banking system offers those things! You know, a savings account allows me to save money! If the money supply’s debasing at 7% a year, the savings account is yielding 7% interest, there’s some hope! When I was a kid, there was hope! And then Clinton came in and Clinton inherited a great economy and Microsoft’s killing it and there’s the Internet revolution and Google and Apple — this is the rise of America and all of a sudden we thought the Japanese were gonna own everything in America! They were buying the Rockefeller Center, Sony was crushing everybody, etc. So we lurched in 1980, an inflection point! America got its mojo back and we thought technology and the Internet — that makes us leaders! We didn’t think we were world economic leaders when Reagan was elected! I mean, people really thought the Japanese, they were setting up Toyota plants, there’s a movie Gung Ho — we thought we were gonna be working for the Japanese! [54:54] The world took a left turn, the Japanese economy missed the digital revolution, and I think this is deep-seated in the Japanese language. It’s a pictographic language, that they didn’t have the programming skills. They missed the digital revolution! America started to rise, the rise of Western Europe, the US started to prosper from digital productivity. And Clinton inherited this very healthy economy from Reagan, and Clinton was kind of a moderate. And we went on to 2000. And what happens in 2000? The EU! And before the EU you had all these different currencies and when you crossed Europe, every currency had to have its own interest rate and its own bank, and they’re competitive with each other! And if a currency prints too much, their currency crashes and no one’s gonna save them! And so there are interest rates! Go look at the interest rates — they’re real interest rates! It was like a 7%, a 6%, an 8%! Right? There are consequences to irrationality under the fiat standard when there’s 100 central banks and they’re all competing! And you talked about it in your book: there’s all these central banks! The US as a currency swap was — it wasn’t 87% or 90% of all currency — it was like 30%! You can see this manifest itself in 1980, because when you had different currency systems — the Chinese, the Japanese, the Indian, South America, the German bank, the U.K., the French, the US — they’re all different currency systems. And the US had to raise their interest rates, and there are consequences to our inflation! We had to take our interest rates to 18–19% to actually fix that problem! We couldn’t print money with impunity! It’s like pissing in your own bath tub! It’s a small bath tub, and there are consequences to foiling your own bath tub, but when it’s a big ocean, there are no consequences and you feel like you can — if you print $1 Trillion in a $10 Trillion economy that’s a problem. And if you print $1 Trillion in a $50 Trillion global economy that’s 2%, right? That just goes away! So in 1980, you couldn’t do it! And we started lurching toward globalism, and then the EU was this big change! And what happened? Well the EU came with a light hand, but it was a massive increase in governmental authority and fiat authority. Because now you’ve got an EU central bank! In my opinion, the biggest beneficiary of the EU? When the EU formed, the biggest beneficiary was the US! Because you saw every local country —

Saifedean Ammous [57:46]: Yeah! It limited the ability of Deutsche Mark from competing with the US Dollar I think! It gave the dollar a lease of life, because it tied the Deutsche Mark with weaker European currencies!

Michael Saylor: Here’s what I saw: when I traveled through Europe in the ’90s, there were 10 languages — the menus were in 10 different languages — 10 different currencies, I have to change money at every border, I started with $1,000, I ended with the equivalent of $780 or $900, the money-changing was expensive, and I couldn’t read the street signs! When you travel through Europe after the formation of the EU, all the menus converted to English, EU adopted English as the second language, you converted to the Euro, and if you’re living in Portugal or France or Spain you’re thinking, Well I had to give up Portuguese and Spanish and Italian for English! And I had to give up the peseta and the lira for the Euro, but I might as well just convert it to the dollar! The Italians aren’t gonna adopt French! And so it’s almost like all the Europeans agreed to adopt English, and then they started pegging to the dollar! And the US was the big beneficiary of the formation of the EU, because now everybody had to accept English and the dollar, and that played into TCP/IP and the Internet, and Google, Facebook, Apple, Amazon, and the entire US economy benefited! And it was US San Francisco progressive views, San Francisco technology, US law. The American legal and economic and cultural system encroached on Europe in a big way! We saw the formation of a Western Europe and the United States, a billion-person trading bloc trading in dollars, convertible dollars trading in English language subject to basically US trade law! So what happened next? Well, the EU was weak, and there was a crisis, and it used to be that, if I wanted to buy Italian bonds I could get 7–8% yield, and the German bond yield was 2%. And the Germans had the best credit rating and the French were next, but the Portuguese had a weaker one and the Italians had an awful credit rating and their bonds yielded great! And the Greeks, at some point — you could probably go back and pull the bond yields, it probably tells the story of the death of the fiat standard, right? Or the encroachment of the fiat standard! If you look at bond yields in European countries from 2000-on, there’s a point at which they all pretty much pegged to the EU bond yield, and that was as the EU central banks started taking responsibility for the default of the Greeks. The Greek crisis was probably a seminal event! [1:00:56] When the EU bailed out Greece, that was an expansion of the EU central bank! I almost think about two crises: we had the Great Financial Crisis, when the United States bailed out every bank, and we forced them all to take hundreds of billions of dollars, and we bailed out every European bank with US dollars! And it seems like once we did that, we owned them all! Like, the US dollar as the world reserve currency, it went from being 30% to 40% to 60% to 80% to 90% after that crisis! And it seems like after the debt crisis of Greece, and after the Italian debt crisis when the EU central bank bailed out those countries, the EU kind of owned them as well! The summary is: by the time this is all said and done, interest rates in the European Union have crashed to zero, short-term interest rates are negative, long-term interest rates were like 8 basis points for 30-year money on a swap a few weeks ago! And so what you really got is the massive expansion of the EU central bank and the Fed from the year 2000 to the year 2020. And as they expanded, all corporate debt, all sovereign debt, stopped being an effective store of value! The currencies became dominant and for whatever reason, the US currency just got progressively stronger and stronger from 1980 to the year 2020! And now the entire transformation has taken its hold!

Saifedean Ammous [1:02:42]: So I guess what you’re saying is basically: Bitcoin eats the store of value market! So what assets do you see that essentially disrupting? What do we get rid of? Do you think government bonds make sense anymore, or do you see them phased out?

Michael Saylor [1:02:57]: I bet you can track this! The early fiat standard had gold as a store of value. The early fiat stage! And then the mid-stage of the fiat standard I think had sovereign debt as a store of value. And then I think the late-stage, the twilight years, of the fiat standard I think it has stock indexes — the rise of the Vanguard 500 and John Bogle and the S&P. The DOW, the S&P, the NASDAQ, the stock indexes — they emerged as the store of value, I dunno maybe 2010? At what point did the Swiss central bank start holding stocks?

Saifedean Ammous: 2011 I think!

Michael Saylor: Okay! Bingo! When I was getting started in business, nobody would’ve reasonably considered stock indexes as a store of value. They thought it was an investment! But Vanguard was very successful, and the S&P 500 was very successful, and I think people at some point realized, bonds are only covering half of inflation, cash isn’t covering anything! And the stock indexes start to track your monetary expansion, Saifedean. I mean, pretty close, right? S&P is like 7–8% a year for a decade?

Saifedean Ammous: Yeah.

Michael Saylor: I think that the free market migrated. The death of the savings account forced everybody probably first into bond indexes and then stock indexes. And today, a 22-year old Uber driver knows that the savings account is worthless! If I have cash at some of these bulge bracket banks, you know in their money market funds? They’re actually charging like — they’re offering 15 basis points yield and charging 25 basis points management fee! The literal fee is higher than the yield on the account! The marketplace has migrated, and it’s being forced. And stage one was gold, stage two was sovereign debt, and then the rise of corporate, AAA-rated debt. You could almost say that in order to replace the gold standard, we had to have an army of credit rating agencies — Moody’s and S&P and you could say the rise of the junk bond market might be explained by this! — people desperately chasing after store of value without equity risk. Finally they threw in the towel and they started absorbing some equity risk! And then in 2020, we kind of kicked the thing into high gear, right? March of 2020 is the point where everything just breaks! Like, because 5, 6, 7% money expansion against an 8% S&P index and against a 5% bond yield or 4% credit worthy yield and 8–10% junk bond yield — you can sort of almost make that work, but it stops working when the money supply expands by 25% and the S&P yield is 15% and the junk bond yield is 4%, and the sovereign yield is 0–1%!

Saifedean Ammous [1:06:04]: And arguably, it only worked in the ’80s and the ’90s because essentially it was financed by borrowing from the future through manipulated interest rates! And so effectively, it’s not like it was working and now it broke — it was a short term fix that was inevitably going to break down eventually!

Michael Saylor: I think right now the only two store of values — the people are smarter in some ways than the politicians and mainstream media, because even the 23-year old Uber driver knows that they’re probably better off to buy Tesla stock or to buy a market basket of technology stocks, or even take a flyer on GameStop, or buy Bitcoin, than they are to put their money in a savings account and wait! I think that what’s happened is, people have migrated, smart money has determined that there’s only two stores of value left! Really smart money that’s brave says, Bitcoin! If you’re really progressive and if you’ve got some courage, then you realize that the best store of value is Bitcoin — it’s digital gold! The other layer of smart money that is either very comfortable — they’re already wealthy, they’ve got plenty of money and they’re comfortable or they’re conventional — the comfortable, conventional smart money has decided that Big Tech or growth is the store of value. And the best surrogate for that is NASDAQ. If I go right now case for Bitcoin, and I look, what does that show me? ROI 1-year it’s saying Bitcoin is 356% up, NASDAQ is up 43%, gold is up 14.7%, S&P is up 16%, and treasuries are 2%, and your money expansion was 25% or whatever you want to plug in! And if you plug in 15% going forward you can see you’ll tread water with gold and S&P — maybe! I wouldn’t [with gold]! I think that you’re more likely to tread water with the S&P. I think with gold, gold is in a ballistic trajectory — it got a boost in the crisis — now it’s losing momentum, it’s broken down in the last 6 months and it’s about to crash! And you’re going to see people short gold, reallocate from gold, the price is gonna crash! And it’s probably the scariest possible investment right now, because gold only exists as long as people are looking for a non-sovereign store of value, and you only need one, right? And there’s only one that can be! And you pretty much have to be brain-dead to be allocating to gold versus Bitcoin in the year 2021! You’re just gonna have to go through like mental gymnastics! So I can buy the argument that I buy a market basket of all the stocks, because you’re just buying the economy, but I can’t really buy the argument of gold anymore! And of course, treasuries are disasters because you’re long money — not only are you taking on cash that’s losing 15% of its purchasing power a year, you’re locking yourself in for 20–30 year duration! By the time you get the cash back you’re going to have lost 95% of your money, so that’s just foolish! But you’ve got growth, right? Everybody wants growth! They’ll take growth discounting risk to zero! They’ll even take the prospect of growth, right? Like if you just tell me a story, and if I can’t have growth then they’ll buy GameStop because at least there’s the potential of — if I can’t have growth, I’ll take speculation of growth, and if I can’t have speculation of growth, I’ll just take speculation of a short squeeze! All of those are more compelling than anything left in the fiat system!

Saifedean Ammous [1:10:02]: Yeah! And I think Bitcoin becomes more and more compelling over time. Sure, there will definitely be stocks and investing in stocks has its place, but I think for the store of value market, that’s going to distinct from money that you want to risk on high growth, high risk stocks! So the interesting thing will be to see how this develops! Now you’ve been saying that you don’t think Bitcoin threatens the dollar. So would you say that Bitcoin threatens treasuries, but doesn’t threaten the dollar and therefore we can continue to see maybe just more inflation in the dollar, but governments continue turning value against Bitcoin and continue to collect taxes from Bitcoin, so Bitcoin replaces their treasuries, puts them on a tight leash, and makes their inflation a little bit more transparent, but their dollar continues to survive! Is that how you see it?

Michael Saylor [1:10:46]: Yeah I don’t think it’s very constructive for the community to focus upon Bitcoin replacing the dollar! It’s a crypto-anarchist idea! I could be more supportive of Bitcoin replacing the Zimbabwe dollar, or the Venezuelan Bolivar! Like, in a government where all of the institutions of government have broken down, an utterly corrupt, dysfunctional government where they can’t function anymore, and that’s a hyper-inflationary environment — I’d probably be more supportive of that! Because there, people are going to starve to death! So there’s billions of people in collapsing economies where the currency is collapsing. There, some kind of stable currency — it might be even a stablecoin like the US dollar sitting on a crypto-rail backed by Bitcoin, which might be what Tether is or what something is — I think that that’s probably got a value, that’s probably got a place! But in the United States and in Europe, as the fiat currency expands, it maintains its place as a medium of exchange and a lawful currency and as legal currency. And it will, and we should hope it will, because I don’t think anybody wants France or Germany or the US to look like Zimbabwe, right? I mean those are literally countries where the rule of law and the right to property break down! When the rule of law and your right to freedom of speech or the right to life, liberty, and property break down, you’ve got a situation of true anarchy! And then — I suppose if you’re a crypto-anarchist and you support reinstalling free speech and right to property via a crypto network — I get that! That makes sense! But in a country that has a rule of law and a right to property, the logical thing that happens is, when people lose faith in the currency, they migrate to gold! When gold isn’t fast enough — by the way, gold is an antiquated, elitist asset! I mean, the criticism of gold that people should focus on is that it’s elitist! How do 500 million people buy $1,700 worth of gold? Calculate: what is the mark up on $1,700 worth of gold coins purchased $87 at a time, right? Isn’t that like 40% mark up? Like, aren’t you looking at — I mean elitist is, I’m gonna basically pay double! I mean even coins are expensive! If you want to get gold at a reasonable price you have to buy a bar of London good delivery gold, which is 400 ounces at a time — that’s $800,000 blocks of gold—and you probably have to buy five of them from J.P. Morgan to get treated anywhere close to reasonably, right? So gold is an elitist store of value. It is not accessible to the billion people in the Western world — in Western Europe and the US! It’s certainly not accessible to the 7.8 Billion people on the planet! And so, if you’re going to deliver a store of value to everybody with a mobile phone on Earth, Bitcoin is your best bet! Bitcoin is gonna be running transaction fees of less than 1%. 1–2% would be high, you know? Whatever it is, it’s going to be nothing compared to the cost to acquire and store and maneuver gold! Gold is elitist and gold is antiquated, because I can’t move $37 worth of gold from point A to point B to pay for an Uber ride! I can’t fund with gold! Gold is not bankable! Gold is slow money. With Bitcoin, we’re on the verge of a world where you’ll have $1 Trillion of Bitcoin—you can plug a billion consumer accounts into it and you can offer people the ability to borrow against the Bitcoin at 4% interest! J.P. Morgan offers you securitized loans up to loan-to-value 50% against conventional assets at LIBOR +50 basis points if you’re an institutional customer! You could get LIBOR +200 basis points if you were a consumer! You’re talking about 2–3% interest! So in a world where a major bank were to plug into Bitcoin, there’s no reason why we couldn’t get to a point where a billion people could borrow money against Bitcoin at 2% and then never sell the Bitcoin forever! I think in the next 36 months we’ll see 4–5% consumer loans against Bitcoin! When’s the last time you got a loan against gold? No! And then we’re onto this next thing which is, Okay, we’ll write off gold. Well what’s next? Bond indexes? No. So we migrate to stock indexes! I think the free market in the Western world is inventing asset classes to serve as stores of value, and they’ve been doing them legally and ethically, and the government allows you to create asset classes! I mean, when $1 Trillion moved into the Vanguard 500, the S&P 500, the government didn’t block that! So I think that the right way to think about it is: Bitcoin as a store of value asset class, as digital gold, growing to be $10 Trillion, and then $20 Trillion and then $40 Trillion. The big model I have is a monetary planet. And let’s say the monetary planet is $500 Trillion, it’s a gaseous planet! The outside of it is $100 Trillion worth of M2 or M3 money — currency, derivatives and the like — Euros, Dollars, etc. And so that’s currency that’s moving through all the governments on Earth, and that’s gonna continue as long as there are governments on Earth! Then inside of that is $400 Trillion worth of other assets, and it’s broken up between real estate and collectibles and stocks and credit instruments and bonds and derivatives. $350 Trillion of the $400 Trillion — I dunno, maybe it’s not that — maybe $200 Trillion of the $400 Trillion is what I’ll call currency derivatives! Their value is based substantially or in part on the discounted value of the future cash flows of the asset. So stock’s valued on future cash flows, commercial real estate’s valued on future cash flows, and bonds valued on future cash flows. Those are currency derivatives. Now inside that is a higher quality set of assets — I’m gonna call them trophy assets, collectible assets! A beach house in the Hamptons, Palm Beach, a Picasso — even a trophy equity, to the extent that own Disney because I love Disney, because I love Mickey Mouse, because Mickey Mouse was part of my formative experiences! A trophy piece of debt, it’s a piece of debt for the Children’s Hospital in my neighborhood because they saved my kid’s life. Like something that you would hold and you would value because it’s part of your self-identity! A football team, a soccer franchise — things that people love and they would hold them irregardless of the forecast of the discounted cash flows into the future. Your personal home — your personal home has value to you, your personal car, your personal yacht, your personal plane! These things have value to you because you love them and they will be pried from your cold, dead fingers! And it doesn’t matter what the interest rate is — it’s your house! It’s your lake house! So that stuff is a harder asset. And then in the middle of that is a $10 Trillion hardcore gold which we’ll call non-sovereign store of value fungible money. And inside that, in this burning red-hot thing at the center of the Earth — that’s crypto! There’s a Trillion-dollar crypto fire in the middle of the $500 Trillion planet! And that Trillion-dollar crypto fire was started from a spark by Satoshi, and it’s burning and it went from a Billion to $10 Billion to $100 Billion to a Trillion — the Bitcoin fire! And that is the hardest, fastest, smartest, strongest monetary asset in the history of the human race! And it is expanding and it is boiling these things, and it is boiling gold! And the first thing it’s gonna do is it’s gonna replace gold, and gold will collapse into the crypto fire! And then it will suck in sovereign credit instruments, negative-yielding sovereign debt, to the extent that that’s held as a store of value! It will subsume some debt indexes and some equity indexes. And it’ll probably expand from $10 Trillion to $20 to $40, $80, $100 Trillion, and it could get all the way to say $200 Trillion, and when it’s $200 Trillion, it’ll be the stabilizing framework and the gaseous monetary planet will go from $500 Trillion up by 10% to $550, maybe it’s +15% a year, right? If it’s +15% a year, your $500 Trillion monetary planet will expand to become an $800-$900 Trillion — what’s after a trillion, is it a quad —

Saifedean Ammous [1:20:46]: Quadrillion!

Michael Saylor: We’re headed toward a Quadrillion — a Quad planet! And Bitcoin will expand at 250%-300% a year—for the last decade — and that’s about as fast as it can go, because anything faster than that rips the wings off the airplane! People ask, How fast can human beings accept change? I think, if you look at the history of business, companies growing faster than 200% a year are rare! I mean, that’s pretty much as fast as it can go! So it’ll go 200%, and it’ll track that way, and then I think at some point when it crosses gold, it’ll slow down to 150% and 120% — you could probably work it out over the next 20 years as it goes from a Trillion to $200 Trillion! It might take 30 years. It might take 20 years. It might take 10 years. Somewhere between 10–30 years, right? If you look at the rate. And where we’re headed is: a world where there’s 8 billion people on the planet with a mobile phone, and those 8 billion people are storing value in digital gold, and probably that mobile device is gonna have a hardware wallet embedded in it that’s gonna be the token, and you’ll have multi-signature multi-hardware wallets securing digital gold which has become — I dunno what is it gonna be, a third, or half? — you have to ask the question theoretically, Saifedean! What portion of the monetary planet should rationally be store of value? And I think it’s self-equibilating, because as more monetary energy — it’s like magnetism, you’re de-magnetizing something, you’re de-monetizing something! — as more monetary energy falls off of gold and off of silver and then off of indexes into Bitcoin, price discovery will return to these other assets! So price discovery’s gonna return to gold and it’s gonna return to its ornamental and antique value! And price discovery will return to silver, and price discovery will return to stocks and bonds. What you can assume is that in a free market, price discovery will return, the bond prices will fall, the yields will increase, real estate prices will fall, the yields will increase for commercial real estate, you will see stock prices fall, dividend yields and yields will increase — everything will rationalize in a free market. Market dynamics, conventional market theory dictates that: no asset can be any more attractive than any other asset in a free market, because capital will flow and migrate so as to equalize the expected return on all assets! Now what you’re gonna see is certain markets become not free! The way you break that is you pass laws! The extreme cases will what you’re seeing going on in India right now. What you saw in China makes it impossible to convert your RMB into Bitcoin. And India’s threatened by it, Nigeria’s threatened by it. You’re gonna see back and forth, and you’ll see some countries will embrace it and other countries will run from it! But you know, the Chinese made Google, Twitter’s illegal, Facebook’s illegal, right? That’s gonna happen! And it didn’t stop them from being successful other places! I think you’ll probably see the Western world will embrace digital gold, I think you’ll see banana republics, corrupt regimes, attempt to resist it! On the other hand, I’ve traveled all through China and everybody’s got a VPN and they’re looking at Twitter and Facebook accounts with VPNs! It’s really difficult — can they actually stop it? Not really, right? I mean they can’t stop it, they actually have a hard time stopping money traveling on crypto rails over VPNs and the TOR network. On the other hand, will they suffer from it? Yeah! There’s a big cost to not have Google! I mean there’s a big cost to not have YouTube, right? There’s a big cost to not have electricity! There’s costs to reject technology! If your money moves a million times faster, then that means the cost of capital for the world that embraces the technology drops, and that means that innovation accelerates! And you can cling to your gold coins and your giant stone coins of the Yap people and whatever, but at some point — there’s a cost not having Google Maps, man! Cars that don’t drive themselves, you know? There’s a cost! And eventually it reflects itself in the Cuba standard of living, or the North Korean standard of living, and even the Chinese can’t necessarily stop this thing! So bottom line is: I think the fiat system is going to continue as a currency, and it should! The currency rails work fine! What people still haven’t got through their head is, I could have 150% of my assets in Bitcoin! You can have a million dollars, you can buy $1 Million in Bitcoin, you can mortgage your house, buy another $500,000 in Bitcoin, you could take out a personal loan against your future earnings if you’re a doctor — buy another $500k in Bitcoin! If it was me, I’d mortgage my house, I’d sell my gold, and I would raise debt and I would buy Bitcoin! You can have 100% of your assets in Bitcoin, get a bank that will give you a loan against Bitcoin, if Bitcoin is going up at 25% a year, and if your expenses are going up at 5% a year, you can borrow money to pay for your coffee and to pay your rent and to drive your car and to live your life forever!— never pay it back — keep the Bitcoin, and your debt-to-equity ratio will fall! And so at some point you could literally fund everything in Bitcoin, and so you don’t need to replace the dollar is my point! You don’t really want to spend Bitcoin! What you want to do, is you want to plug your Bitcoin account into a Visa card, and you want to pay for things with Visa, and you want to run up a debt, and you never want to pay it off, and you want to die owing money! It’s not that complicated! You have a million dollars and it doubles every year — you eventually have $100 Million, you can spend $100,000 a year going up at 20% a year, or you can spend $100,000 going up at 50% a year, and you will die with $90 Million of equity, $10 Million in debt, never having paid tax! And you don’t need to replace the Euro, you don’t need to replace the dollar, you don’t need to get rid of your Visa card, right? Those things don’t matter!

Saifedean Ammous [1:28:23]: Yeah I think another argument in favor of this is the fact that maybe Bitcoin is actually reducing the demand for the creation of dollars and Euros because if people don’t buy as many treasuries as they do, then fewer dollars are created. People don’t get into as much debt, and fewer dollars are created. And so if people are holding Bitcoin instead of holding debt instruments on their balance sheet then less debt takes places, and the key concept in The Fiat Standard is that fiat is debt. So basically Bitcoin reduces the demand and the supply for fiat! But I guess it’s unfortunately it’s not a choice we get to make, it’s an outcome of markets. So the question is: Can the dollar hold on? And can printing the dollar manage to maintain the Bitcoin storm? I guess that’s what we’ll see! But there are reasons why we can see Bitcoin continue to grow without the dollar having to collapse. I’ve got another question for you, switching gears a little bit: you waltzed into the Bitcoin world at a very very good time, you know! You came in at what was it $7, $8, $9,000, and within a couple of weeks we are now almost at $50,000 — it’s at $47,000 I think right now. Obviously part of that is probably you and the impact that you have had — all the evangelism that you’ve done! But also, we’ve had periods in Bitcoin before where prices have declined for quite a while, so if this was high school, you would be signing up for high school the week of the prom and the graduation! You didn’t sit with us through the dark days of holding the — buying the $1,000 top and watching it go down to $150 over two years! So I’m wondering: you went in at a time where this was a possibility! We could have had another two years, you know? You may have chanced upon Bitcoin in 2018 and Bitcoin hasn’t changed much between 2018 and 2020, but if you bought in March 2018 you would’ve witnessed the decline for quite a while! So I’m wondering, was your entry, were you just thinking, Alright, this is now better technology — I’m just gonna be buying as much as I can! Or was there some kind of price analysis going on in a sense of, We’ve consolidated for a while, so most likely we’re gonna be getting another jump! Would you have bought as aggressively in 2018? And do you follow any particular models for thinking about the price?

Michael Saylor [1:30:53]: So Saif, I — first of all, it’s better to be lucky than good!

Saifedean Ammous: Absolutely!

Michael Saylor: And I would say to you, I’m very lucky!

Saifedean Ammous: You’re also very good!

Michael Saylor: When I look back at my life, I can count all sorts of fortunate occurrences — so I’m lucky! Second, I think the best time in human history to buy Bitcoin was starting in March of 2020! If you want to look at this entire thing—starting from March of 2020 the world changed forever! That was the risk/reward point where the risk had diminished by 99%, and the return and the use case had amped by a factor of 100! It was an inflection point in March of 2020! Look, I wouldn’t have bought it at all in February of 2020! I didn’t know it existed — I didn’t really care to think about it! The world was totally different in February versus in April, so I think March is the beginning of the new era. I think that people in the Bitcoin industry, I think to a certain degree, they’re biased by their history, and it’s a liability for them. I think it’s baggage that they should lose! I think that most people in the Bitcoin industry — most people in business, most people in life, they want to draw on their experience, because there’s a bias that, I want to make decisions based on my experience, and I want to feel that everything that I experienced was worthwhile! And if I felt pain, I would like for it to have meant something, right? So what if I looked at you and I said, Saif, nothing that you experienced between 2010–2020 was relevant! And you could basically flush it all down the toilet and take a clean sheet of paper and start again! That doesn’t feel good! Right? Psychologically it’s hard to let go of that, but let me give you an example of inflection point: for 10 years before March [2020], we had tried to use video conferencing and I used Webex. And my experiences were uniformly awful for the entire 10 years! I could probably write a book on all of the bad meetings and all of the awful dysfunctional business results that came from that, and I fired people that wanted to use video conferencing and wanted to work remotely the previous year! Okay? And I had lots of experience! And then in March we decided to use Zoom and Zoom was 100x better, and I had only good experiences! And the truth of the matter is, the entire decade of experience that I had with video conferencing was of no value whatsoever! It actually just saddled me with a prejudicial bias because I had scars and I had pain, and it’s all irrelevant! So after March, everybody on Earth needed Bitcoin! 1,000 companies! You heard Ross last week, he said, I had 20 clients at the beginning of the year, I had 280 institutional clients at the end of the year, I have 90 in the pipeline now. Ross will have 1,000 clients! He’ll go from 20 to 1,000! All of his experience before March, all of your forecasts before March — irrelevant! It’s what I said to Keith McCullough, All your models — destroyed! Why are they destroyed? Because they’re based upon the statistical interaction. A tidal wave hits the beach! Okay? I drop a bomb on your head! Your entire history living in the town or playing on the beach — irrelevant! Irrelevant! You want it to matter — it doesn’t matter! When $100 Trillion of capital comes through a nozzle — it doesn’t matter! If you took every trade of Bitcoin from the point that Satoshi did the whatever and the pizza transfer took place, all the way through the blow-off top, all of it is irrelevant! Let me explain it a different way: if Elon Musk woke up tomorrow and decided, Screw it! I’m buying $10 Billion of Bitcoin instead of $1.5 Billion of Bitcoin! That one decision renders irrelevant all of the studying of Bitcoin’s trajectory between today and last March! One person, one thing, makes a difference! And likewise, March rendered irrelevant the statistical models in the history before! What’s going on right now is, on February 8th, on Monday, the day that you woke up, if you read the news, the world changed again! You have to keep redoing your models! The human race, I mean — read Paleo-theory: we ran around getting chased by wolves and apes for 3–4 Million years, starving to death! Life was difficult! And 10,000 years ago we invented agriculture — life changed again! 100 years ago — life changed again! The life of a human being today: the challenges, the dynamics — how many children get up and worry about getting eaten by a wild animal today? It’s irrelevant, right? The history of the human race is irrelevant to a decision — like, you’re gonna get in a car and drive the car? You can kill yourself in 3 seconds! What matters is, you’re in the frickin’ car! When you engineer a new system, it completely renders irrelevant your history! If I take a gun and I point it at your head—and there’s a bullet in it — nothing in the world that you’ve lived through matters other than: can you get me to not pull the trigger? Everything else is irrelevant! And so, engineering machines, and when your circumstances change — when you’re skiing down a ski-slope and there’s an avalanche, all your skill as a skier — rendered irrelevant! All your skill as a human being! It’s back to this issue of the guy that was the chairman of HNA — he was the richest guy in China, worth $30 Billion! 2 years ago? He went hiking in the South of France, stood on a rock wall, had a selfie taken, tripped and fell to his death! All of his money, all of his models, all of his lawyers, 87 Million frickin’ people in China — irrelevant! In 1 second, he broke the law of gravity and he died! The point here is: Bitcoin has moved into a different zone, a phase shift! It was in one phase from 2010–2015, it went through another phase 2015–2018. When Bitcoin pulled ahead after the fork wars it moved into a different phase. And then in 2020 it moved into a different phase. And at the point that publicly traded companies started buying it and institutions started buying it and mainstream media started coping with it, when a Senator got elected, the mayor of Miami Beach, Senator Cynthia Lummis — when these things happen, when Gary Gensler takes his role at the SEC — you’re in a different phase! And so, you have to recalibrate all of your models based upon a whole new set of assumptions. And it’s like I took the spear out of your hand, I gave you a bow and arrow! The human race changed! I take your bow and arrow out of your hand, I gave you a gun! I take the gun out of your hand and I give you a bomb! As I change the engineering, the outlook changes and you cannot draw on your history anymore! You have to think differently!

Saifedean Ammous [1:39:18]: Well I mean, I obviously agree with a lot of that, but let me push back a little bit in the sense that Bitcoin has not changed! It’s been doing 1 block every 10 minutes for the past 12 years throughout all of these phases! And Bitcoin’s volatility and market dynamics have not changed much! We’ve gotten these big bull runs after the halvings every single time. So far, it’s extraordinary what has happened in Bitcoin over the last year, but it isn’t extraordinary by the standards of Bitcoin — it’s happened before! So the question is: will this time be different, do you think? Have we moved into something fundamentally different after 2020 or would we still see a market cycle similar to what we had before?

Michael Saylor [1:39:59]: Bitcoin hasn’t changed, but all of the ecosystem around Bitcoin has changed radically! For example, Bitcoin is not just the underlying blockchain — Bitcoin is the banks that are plugged into Bitcoin! So, Fidelity is a Bitcoin bank, Coinbase is a Bitcoin bank, Binance didn’t exist 4 years ago—it’s a Bitcoin bank. The CME is a Bitcoin bank, PayPal and Square are Bitcoin banks, Microstrategy and Greyscale are Bitcoin banks! Those are radically different things! Probably PayPal and Square will, between the two of them, they will sell Bitcoin to — what do you think, 20–30 million people this year? The holders of Bitcoin have changed, the investment communities have changed, the narratives changed, the use case has changed, the way that people buy it has changed, and the technology to buy it — for example, I buy $200 Million of it, I do it with 88,000 transactions, every 3 seconds buying Bitcoin $2,000 a second! And I buy it to hold it forever! That’s change! Look at all the Bitcoin that Greyscale bought — it’s locked up in a trust! Do you know how that will be sold?

Saifedean Ammous: I’m not sure, no.

Michael Saylor [1:41:17]: Tell me how — this is a good question for anybody on the call! How do you think that’s ever gonna be sold?

Saifedean Ammous: Yeah I can’t see it getting sold! I see them just accumulating more!

Michael Saylor: It’s actually more extreme than that! It isn’t possible to sell it, Saifedean! There is no mechanism to sell it! The construction of the trust is such that, when the money flows into the trust, they buy Bitcoin, there are GBTC shares that are issued. Those shares can be sold and the price of the shares — the derivatives can go down — the underlying Bitcoin can never be sold per the charter! Ever! Ever! So you see, there are fundamental different things that are going on! Last I checked they had $30 Billion of Bitcoin. That’s $30 Billion of Bitcoin that can’t be sold! Okay? Held by institutions! A very different world! So these are sources of inertia falling into Bitcoin. And the volatility is not the same! If you look at the drawdowns, they’re not the same. Like when Bitcoin ran up to $40,000 it traded by down to $30,000 — that was a 25% retracement. Not an 80% retracement!

Saifedean Ammous [1:42:35]: So you think the days of 80% retracements are over?

Michael Saylor: Yes! I do! Let me say it a different way: if you’re a Boy Scout and you’re shivering in the freezing cold and you’re attempting to start a fire for the first time, you recall how difficult it is to start a fire and then you recall going to sleep without a fire and then maybe your friend froze to death and you’re mortified by it! But then one day you grow up and you have a furnace in your house, or maybe you plug into someone else’s electrical system and you have an electrical heater — you’re not a Boy Scout anymore! Right? It’s a totally different world, and the system, the network, is much more mature, it’s just much better engineered, there’s much more monetary energy in it, there’s much more inertia. I mean ultimately, there’s massive amounts of monetary inertia in the system! It’s like an air compressor. We’re compressing energy in a monetary battery and it’s accelerating if you look at the rate at which energy is flowing into it! And as that energy flows, it’s stabilizing! So the more monetary energy flowing in the system, the more stable it is, the more inertia it is, the more difficult it is to change the direction, and the less volatility it has! And I think that you’re gonna continue to see that as these banks evolve! It’s very clear to me ever since March, you can literally see the volatility and the instability in the entire network being damped by rational actors!

Saifedean Ammous [1:44:13]: Let me give you my counter-case: I think ultimately, the more money comes into Bitcoin, the more the price goes up, the problem there is that you start getting more and more Bitcoin minted, so effectively Bitcoin becomes more inflationary as the price rises and I think this might be why the halving dynamic always will have a big rise but also a crash, because over the past 4 years in the previous halving period we had 4 years in which we were making 1,800 Bitcoins a day worth on average 7, 8, $9,000, so you had about $14 Million a day of new Bitcoins being produced! So for the price to hold around that level, we had to have $14 Million of new demand a day. Now, there’s only so much more the demand can increase! There will come a point in which the demand goes up, and so the price goes up, and then the price of the new coins that’ll be mined is also going up massively, so then the new supply becomes bigger than the demand — the demand can’t keep up with the supply, and you witness an inflection because there’s also a lot of leverage! A lot of people that are leveraged in so they get wiped out and then the technicals of the chart turn, and then we can have another big drawdown! What do you think?

Michael Saylor [1:45:30]: I’m not really a big believer in the halvings as being a driver going forward! Again I think that all of these models are mental models that were formed in the early years, and I think that you should throw them all out! And you should start to reason from first principles and build a new model! For example: I’m staring at the screen of Binance right now! The 24-hour volume of BTC is 93,000 coins on Binance. If you double it, that means there’s probably 180,000 coins traded today! 900 Bitcoin is irrelevant! The amount of Bitcoin being created is so de minimis compared to the volume of the trading, it’s irrelevant! And also, I think it’s irrelevant to any rational investor! It’s just irrelevant to me! For example: there’s 21 Million fully-diluted Bitcoins! Done! End of Story! Like, I don’t care at what point they get printed because — again, what’s the ratio of 93,000 to 900? The amount of Bitcoin getting mined is 50 basis points! It’s half of a percent! Like when we’re doing a trade, we pay half a percent as the fee! Like, people with serious amounts of money — they’re gonna blow through this! They don’t care! What matters a lot more than all of these concerns about the halving is if Paul Tudor Jones wakes up and decides to double his allocation from 1% to 2%? Or from 2% to 4%? That matters more than all of these other things, because the demand is excessive! So I think a better way to look at it is, it’s emerging as an asset class like the S&P 500 index. And when it gets to be $10 Trillion or $5 Trillion or $3 Trillion just like the index, there’s so much money coming in and going out of it that it’s stabilizing the index, and it takes — if you’ve got a $10 Trillion asset class like gold, it would take a Trillion dollars! Why do you think I didn’t buy gold? It’s because I said, Well it’s gonna take $20 Trillion to drive gold up by a factor of 10! How much does it really take, right? If you have a Trillion dollar asset class, then a Trillion dollars will probably drive it up by a factor of 10. Like if you double the demand? Maybe more! But if you’ve got a $10 Trillion asset class, a Trillion dollars drives it up by a factor of 2, maybe, or 50%. So as it gets more monetary energy, the inertial component gets greater, the liquidity gets greater! I really think for institutional investors, the halving just doesn’t matter anymore! The dynamic that matters is — another example: if Dan Schulman wakes up tomorrow and says, I think I should put Bitcoin on PayPal’s balance sheet! Dan Schulman has a $300 Billion company! He could put $10 Billion of Bitcoin on the balance sheet! When Coinbase becomes public, they might be worth $100 Billion! If the CEO of Coinbase decides to put Bitcoin on the balance sheet, he could put a Billion on the balance sheet! $2–3 Billion! The decisions of individuals! Ray Dalio is giving a speech at ConsenSys. Ray Dalio’s got $150 Billion of assets under management. If he decides that Bitcoin is 25% as good as gold, won’t they buy like $10 Billion of it? Ray Dalio, Brian Armstrong, Dan Shulman, right? Individuals! There’s probably 10,000 people in the world that have the ability to put a Billion dollars on the network! 10,000! And there’s 1,000–2,000 that have the ability to put $10 Billion on the network! Again, every model that you have and all the history that we have is all irrelevant if any of them act! The actors, the actions that get taken place obsolesce and they overwhelm any statistical models, because the statistical models are based upon — like if you told me — for example, in 2018 you have a bunch of Bitcoin and crypto traders that are trading with leverage that have no banks, they can’t borrow money against their Bitcoin, okay? Those people have a very short time preference, Saifedean! You’re the time guy, right? The people that have the shortest time preference I’ve found are crypto traders! I mean, they’re thinking about whether or not it’s trading down in the next 8 hours, right? So when I ask people, Why don’t you put 100% of your assets into Bitcoin they say, Well I need money to live on! Well why don’t you just borrow money? Who’s gonna loan me money? BlockFi! Oh BlockFi, they charge 12%, 10%, right? So there’s a very embryonic industry right now—the consumer banking industry that’s banking Bitcoin. By the way: name 5 companies that’ll give you $100 Million loan against Bitcoin? Name 5. Can you? No! No! It’s embryonic! I can name 5 that’ll give me a $100 Million loan against Apple stock! Citigroup, J.P. Morgan, Bank of America, Wells Fargo, Morgan Stanley — everybody! Okay? And here’s my point: Bitcoin doesn’t need to change! What’s changing is the banks! The banks are changing! NYDIG will give you a loan! Genesis will give you a loan! When Coinbase will give you a loan — Binance is rolling out some credit products. PayPal won’t give you a loan yet, but what happens when PayPal gives 340 Million people a loan at 4% interest against Bitcoin? What happens to Bitcoin? Well, time horizons stretch out! Now I can own it for 30 years. Oh you mean I don’t have to sell my Bitcoin to buy my Lamborghini? If you actually believe Bitcoin’s going up by a factor of 2 every 2 years you’re an idiot to sell your Bitcoin to buy your Lamborghini! The Lamborghini’s gonna cost you $100 Million! Why don’t you borrow the money to buy the Lamborghini and keep the Bitcoin? Well I’m afraid! I’m afraid of what? I’m afraid it’s gonna crash down by 80%. Why? Well because it did once before! Okay? So you see this circular reasoning which is: I lived in a world of crypto traders on leverage with no banking with no institutional support, and so I act. It’s just like your time preference: I’m afraid to plan for the future because I don’t trust the money! A lot of people in their head, they think Bitcoin is volatile, I don’t trust it, I won’t be able to borrow against it! And that becomes a self-fulfilling prophecy! There’s only a certain amount of — rate—at which you can change people’s perceptions, right? It takes 3, 4, 5, 6 years! As the HODLers discover that they can borrow money against Bitcoin, and as the institutions come in — by the way, what’s Warren Buffett’s famous quote? We find a company we like, our preferred holding period is forever! Is Warren Buffett still owning Coca-Cola stock? Yes! Did he sell it to buy a Lamborghini? No! Did he need to? No! Why? Because he could’ve borrowed against it! Yeah! What’s the impact on Coke stock? It’s not so volatile! Right? Because he’s a HODLer! So this is not an uncommon idea! So institutions that hold gold, how long have they been holding gold? Like, forever! What happens if you replace gold with digital gold? You hold it for 50 years! By the way, I don’t think you’re gonna be able to buy Bitcoin! Bitcoin below $20,000 — gone forever! Bitcoin below $30,000 — probably gone forever! Bitcoin below $40,000 — probably gone forever! Bitcoin in the $40,000–50,000 range? Who do you think is selling this stuff? The weak hands, with high leverage, are selling. Who do you think is buying it? Institutions! That have more money than God! That have 1,000x as much money as they’re buying with this stuff. And which ones? The first 1%, just the early vanguard. So as this happens, the institutions take ownership, their time horizon is a decade. The banks come online, that means we never need to sell it ever! I mean all these guys on crypto Twitter go, Well what are you gonna do if you ever need money? And the answer is: I’m never gonna need money! Right? Institutions never need money! If I ever wanted a little bit of cash, I could just borrow a little bit, but the truth of the matter is, the people buying this stuff are endowments! Harvard endowment, Yale endowment, right? So it’s a different set of holders, it’s a different banking relationship, it’s gonna be more diffuse. As it’s more diffuse, the volatility falls! You’re gonna have the stories of Ruffer, Saifedean! Ruffer bought $750 Million of Bitcoin below $20,000 when it traded at $40,000 they took half off the table, so they took a $750 Million profit. That’s why it didn’t trade up beyond $40,000! So then it traded down to $31,000. They might have bought back in, Saif! Those guys, the big institutions, they’re going to be damping it on the upside, on the downside, and collaring it. And this will continue for a while! So it’s a different dynamic because of the players and the capital and the banks and the security, and it’s going to continue to evolve and the risk profile and the perceptions will evolve!

Saifedean Ammous [1:55:36]: Yeah and I think also the best argument against this is just, yeah maybe the mining becomes just completely inconsequential compared to the daily volume and then in that case it doesn’t even matter if it’s —

Michael Saylor: Look, I would say that it’s already inconsequential! I think the only people clinging to that are people that like to talk about miners! I mean, I don’t think the miners can move the market one way or the other! Let me make one more point: as the miners become public, they have publicly traded stocks! It’s irrational for them to ever sell Bitcoin! What did Marathon just do — they bought Bitcoin! If you can raise equity or raise debt in the public market, the miners might stop selling it! Because isn’t it the stupidest thing you could possibly — who goes into the mining business thinking Bitcoin’s going down in price? Right? Nobody! So why would you sell something going up in price by 100–200% a year? You wouldn’t! What happens, Saifedean, if all the miners become public, and they stop selling?

Saifedean Ammous [1:56:46]: Yeah it’s like new, extra demand. It’s supercharged demand because it buys at the source.

Michael Saylor: Let me reverse it a different way: what happens if the miners stop selling and start buying? Marathon raised $200 Million in equity and bought $150 Million of Bitcoin! Okay? So my point here really is: there’s other dynamics! It’s possible that you could have 10 miners become public, they all raise $25 Billion — they just all buy! And then they mine Bitcoin to keep! And now what happens if I reverse the polarity in the entire situation? The halving doesn’t matter! Right? There’s other things that matter! At the end of the day, 1,000 Bitcoin at $40,000 — what’s that net you? $40 Million a day or something? $40 Million of capital a day is irrelevant compared to $10 Billion of purchasing a day!

Saifedean Ammous [1:57:40]: But it wouldn’t be irrelevant at $400,000 a Bitcoin! A $400,000 Bitcoin that’s $400 Million of new Bitcoin!

Michael Saylor: It’ll still be irrelevant! Because the trading of the rest of the marketplace is gonna be 100x more than that!

Saifedean Ammous: Well currently I think that — Daniel just posted a screenshot saying that current daily trading volume is about $15 Billion, so currently it’s at 3%. So if price goes up 10-fold, then mining is 30% of the market if trading stays constant at around $15 Billion. So 3% now, but if the price goes up 10-fold, if it’s at $480,000, then you’re doing about half a Billion of new Bitcoin being minted every day! Which is a lot of [inaudible 1:58:26]

Michael Saylor: Well actually it’s not 3%, Saife, it’s 30 basis points! That’s what I get — 900 coins a day times $48,000? You guys can check it. That gives me $43 Million a day. See? It’s not even like a percent, it’s like a fraction of a percent! It’s 25 basis points right now? And my point again is: it’s 25 basis points — what’s the most profitable investment you can hold on your treasury? Bitcoin, right? Tell me a miner that doesn’t believe in Bitcoin? The stupidest thing you can do is sell your Bitcoin! Don’t sell your Bitcoin! Okay? So, what’s gonna happen? I actually think you’re gonna see the polarity flip on this! I think that as miners become public like Riot and Marathon, I think they’re gonna think about it and they’re gonna realize they should just keep mining but stop selling! Have you looked at Marathon’s stock? It his $40 today! It more than doubled since they bought Bitcoin on their balance sheet, Saif — in two weeks! You know what the market’s telling you? The market’s telling you that pretty much they will finance you with a premium to hold the Bitcoin, because they like the Bitcoin! So what that means is that in theory, a publicly traded mining company can raise unlimited equity or debt and never sell!

Saifedean Ammous: Yeah.

Michael Saylor [2:00:07]: So it’s not that big a deal now, but the point really is: there are other dynamics here and they could flip the polarity! What happens if $10 Billion comes from the public markets into the Bitcoin market because these miners — I think Marathon’s got a $3 Billion market cap, Riot’s got a $3 Billion market cap — what happens if they double and they issue debt or issue equity? My point is: all your models are destroyed! Humility here is — there’s a lot of people here that can tip the apple cart here! So if you construct this model based upon the past, you’re dismissing the actions of rational actors! It’s rational for a miner to buy Bitcoin, not sell Bitcoin! It’s rational for a miner to go public! It’s rational for Square or PayPal to buy more Bitcoin! They might not, by the way! It’s irrational not to! They might not because of volatility. How do you convince your customers to buy Bitcoin with your app when you’re afraid to buy it on your balance sheet, right? Isn’t there a little bit of a marketing hazard there? So there’s rational actors with capital that can move this Bitcoin and they can change the volatility and they can drive it very very hard. And the only thing that keeps them from doing it is getting up in the morning and deciding they’ll take a risk! If you basically bet that nobody will act rationally and nobody will take a risk, then you can run your historical models! But if I can break your model — if I break your model with action — then you probably ought to have a more open-ended view of the world, a different model! I look at it and I say, Everybody on Earth with money should buy this stuff and all 7.8 Billion people need it and it’s only distributed to 0.1% of the market — what’s wrong with this picture? At some point, someone is gonna decide to do the rational thing! Arguably they’re doing it now! If price is going up 300% a year, that seems to me to be rational risk-takers acting about as fast as they can reasonably act! Without, you know, going through the sound barrier! Going through the sound barrier — there’s a shock wave, and you rip the wings off the airplane! We’re kind of pushing up against the sound barrier — the rate at which — what’s the fastest an asset class can take on monetary energy without burning itself up! This might be close to the fastest! Because it’s accelerating, isn’t it? I haven’t seen the numbers — someone should calculate the annualized yield, but I thought it was 230% RoR something, over the last 5–10 years.

Saifedean Ammous [2:03:22]: The average growth rate per year was about 200% for the first 10 years.

Michael Saylor: And it’s accelerated this year!

Saifedean Ammous: Well, yeah. But it always goes through those cycles so far with fast and then slow, with variability. So yeah we were due for a very fast year this year anyway. Now look, as an Austrian economist I’m always exactly on the same page with you on that fact that it is the actions of humans that determines economic outcomes and not statistical models and constructs! But, this year we’ve been fascinated a little bit with the Stock to Flow model and it drives me to think that there might be something mechanical about the way that the difficulty adjustment and the mining determine how the price moves, just because there’s a limit over how much the price can go up over time!

Michael Saylor [2:03:45]: I don’t think the Stock to Flow model really can explain what’s going on here, because as I said, I immediately assumed it was 21 Million diluted Bitcoin and that’s what I made my decision based on, and I assumed that stock to flow is infinite, and I think that a stock to flow doesn’t take into account the actions of the fiat central banks to inflate the currency and clearly if there was zero inflation versus 400% inflation that’s a factor! You know, Zimbabwe inflation rates are different than the US and the US is radically different than a year ago! So I think you gotta take into account monetary policy and I think you gotta take into account technology! Stock to flow doesn’t take into account what happens if Tim Cook decides to build Bitcoin into the Apple Watch and into the Apple Phone? Those actions in technology, they have an impact, and doing it sooner rather than later will do it! And I know for a fact there are 10 people in the world — all they would have to do is put out a press release and they would move the price of Bitcoin! And so the technology adoption and the monetary policy — all those things, they have a massive impact on what happens, yet they’re not really part of the stock to flow!

Saifedean Ammous [2:04:58]: No the aren’t! But I mean—and rationally, this is why you would expect the model to break down, and yet it doesn’t! And that is really the mind-blowing thing as far as I’m concerned! And I think — it might sound funny to say it — but the model would’ve expected a big squeeze after the halving! And so you know, that’s needed — people like you and MassMutual to show up and carry the banner after we’ve done the light lifting — you guys do the heavy lifting taking us to $100k! And I think, yeah! 2025 is when you would expect people like Apple to be building their entire company around something like Bitcoin — it’s a little maybe too early for them to start now but I think maybe by 2025 they’ll be sold and they’ll be convinced and that’s what’s going to take us further! So the trend undeniably is Number Go Up! But what the model shows is that that number going up happens in spurts after the halving and then there’s a bit of a come down and consolidation after it, that it follows this market pattern. So it seems to be holding up now, and that for me — and it’s really sacrilegious as an Austrian economist to be saying this — but it suggests that maybe there is something about the way that the network works that is forcing this! And in fact, if you read Mises, what Mises says is, The reason you can’t perform economic calculation and make scientific predictions in economics, is that economics does not have a constant. There is no constant in economics. In physics, in chemistry, in math, in all those things—well not in math — you go back to a physical constant that is personally determined and easy to assert them and all of them go back to constants of nature, eventually. So based on that you’re able to make scientific relationships and devise them. And it seems to me that — maybe—the stock to flow model is showing us the ability to form calculations with human action for the first time with this kind of accuracy, maybe 21 Million is economics’ first constant!

Michael Saylor [2:07:05]: Well I agree with you, 21 Million is an important constant!

Saifedean Ammous: Kelly is asking: What do you think in terms of second and third order effects that you look forward to under our new March ’20 paradigm?

Michael Saylor: Well I think one effect is: the first 10 years, stock to flow and Bitcoin miners selling Bitcoin bootstrapped the network. I think we’ll see an inversion, it’s possible that all the Bitcoin miners become public and they stop selling any Bitcoin, and they become banks of their own, they start issuing equity and debt to finance the market, and you could actually see a reverse polarity there! As Bitcoin crashes into institutions that are publicly financeable, I think the dynamic changes quite a lot, because they have different options to access liquidity! So it’s a different network when it’s individuals that are unbanked that are in the cash business, than it is when it’s institutions that are very very well-banked and well-financed! I think the network moving toward the point where it’s just all transaction-based, and I think the transaction block size — those will get larger and transaction fees will go up and the network will settle into some equilibrium there as well.

Saifedean Ammous: How did you come to your conclusion about Bitcoin’s total addressable market?

Michael Saylor [2:08:27]: I just take all the money in the world and I figure about half of it needs to be allocated to actual collectibles—trophies! If you look at the typical person, everybody owns a set of things: their house, their car, their boat, their trophy assets that they’re gonna keep, and those will have monetary value imbued in them. Those are the goods and products and whatever. And then there’s another chunk which is just the treasury — everybody’s got a natural treasury. And that’s capital saved up for the future against uncertainty! I think it’s natural that Bitcoin will just continually absorb that treasury energy from endowments, from corporations, from individuals, and my estimate is that it feels like it’s about half! Half of everything should be treasury and the other half is tangible property! You can estimate it by counting the volume of gold and the total amount in sovereign debt: half of sovereign debt—maybe you want to give a loan to your government because you love the government, but my experience is that 90% of the money invested in sovereign debt wasn’t because we loved the government, it was just a store of value! And if you look at the S&P I think people invested in the S&P because they just didn’t have confidence in their ability to pick stocks — they wanted a store of value! So I think if you added up all the store of value asset classes, you’ll probably find yourself getting to a $200 Trillion number, plus or minus, against $400–500 Trillion — it depends on how you calculate it! So you kind of conclude it’s like 40–50%. And it’s kind of common sense, right? Half of your money is, you want to save as fungible asset, and the other half you invest in things you love or things you believe in or you take risks on companies or the like. I think that was pretty obvious back in the day when savings accounts existed, it’s just that savings accounts have been destroyed and so now people are saving in the stock market!

Saifedean Ammous [2:10:26]: Yeah! Alright I guess the final question that I wanted to ask you is: when are we going to turn you into a carnivore? How have you not become a carnivore yet? Or are you carnivore?

Michael Saylor: I’m a big Paleo-theorist! So long before I discovered Bitcoin I was a Paleo enthusiast and I think that a lot of stuff that comes out of thinking about how Paleolithic man lived for 3 Million years, I think is really useful health advice! What did your forebearers eat, and how did they live 100,000 years ago I think is helpful! It’s helpful in your fitness routines and your eating routines. I think that 100,000–200,000 years ago people ate lean proteins and they ate low-sugar content — maybe nuts. They didn’t eat sugar-laden fruits and they probably didn’t eat highly-engineered modern food, they certainly didn’t eat any processed food. So my view is, I am pretty much carnivore! I eat a lot of steak, I eat a lot of chicken and fish, but I think that vegetables and nuts are okay! I think the keto diet is a pretty good diet. I understand the Salisbury Diet, I think that in the event that you have auto-immune diseases or inflammation or rheumatoid arthritis I’ve seen that it’s very effective, and so I can imagine living off of all meat, but I think it’s equally reasonable — if you’re coming up with a theory of health, I think if you start with the question: how did human beings live for 3 Million years before the modern agricultural age? And you model your lifestyle based upon that, I think that’s consistent with the healthiest lifestyle, and your conclusions are: you’re probably not gonna drink orange juice, you’re not gonna drink cartons of vodka, you’re not gonna consume processed foods, you’re not gonna sit in a chair all day long, you’re not gonna be afraid to be out in the sun all day long, you should probably do vigorous activity, and you should probably eat lean, healthy proteins!

Saifedean Ammous: Yeah! Well I’ll just tell you the case for carnivore is ultimately that if you try it, you’ll see that the difference going from standard American diet to keto is almost comparable to the difference of going from keto to pure carnivore. Just getting rid of all plant matter and your body is made out of red meat and if you just eat red meat your digestive system will just have an enormously easy time with it! So I saw you drinking some cola there! I think if you ate a lot more beef, you would need fewer snacks and fewer pick-me-ups and fewer caffeine things! So we have to get you to join us on the carnivore train as well!

Michael Saylor: Okay! I take it under advisory!

Saifedean Ammous: Thank you, thank you! Thank you so much, Michael, for joining us! This was absolutely mind-blowing and fascinating and lots to chew over! And thank you so much for your time, I really truly appreciate it!

Michael Saylor: Okay! You too! Thanks everybody for hanging out with us! Appreciate it!

Saifedean Ammous: Cheers! Take care, bye bye.