MicroStrategy Bitcoin Summit | Corporate Strategy with Michael Saylor


Key Takeaways

  • A hard asset will appreciate at the rate of monetary expansion in addition to its technology, utility, and network effects
  • The road to serfdom is working ever harder to earn a currency growing ever weaker and then investing the proceeds of that work into assets that are growing ever riskier” – Michael Saylor
  • All Bitcoin corporate strategies revolve around the same idea:
    • Attract bitcoin revenues, generate operating income, and hold it on your balance sheet. Then finance all your derivatives
    • As a result, your purchasing power, revenues, shareholder value, stock price, and earnings will all appreciate
  • There is $400Tr of capital denominated in debasing fiat instruments, layers of money in different jurisdictions around the world
    • Pick a target, offer a suitable on-ramp into Bitcoin, and you will capture massive value

Two Sides to a Bitcoin Corporate Strategy

  • Bitcoin is a hard money asset that is interesting to any corporation –why?
    • Market dynamics lead to capital outflows from weaker assets and into stronger assets, until every asset is equally attractive on a risk-adjusted basis
      • For currencies, a weak currency will have capital outflow towards stronger currencies, till it eventually collapses
  • As a smart and dynamic digital monetary network, corporations can build financial and technical products on top of Bitcoin
  • Bitcoin now has a 10-year history of appreciating 200% annually
    • A hard asset will appreciate at the rate of monetary expansion in addition to its technology, utility, and network effects

The Current Environment

  • Corporations strive to grow both their revenues and operating income, and their assets and investment income
    • However, they operate in an inflationary monetary environment and have to outperform a cost of capital that is annually rising by 5%-15% or more
    • As a result, corporations take on cheap debt to finance issuing dividends, buying back stock, and funding operating losses
  • The road to serfdom is working ever harder to earn a currency growing ever weaker and then investing the proceeds of that work into assets that are growing ever riskier” – Michael Saylor
    • Companies can either decapitalize (self-destruct) or recapitalize with an asset that appreciates faster than the monetary supply expansion

The Parable of the Argentine Rancher

  • Imagine you own and operate a profitable ranch in Argentine but you expect the Argentine Pesos to lose 25% of its value every year for the coming decade. What would you do?
    • On the Balance sheet side, you will convert 100% of your treasury and future cash flows from Pesos to USD
      • Even more, borrow against your future cash flows and convert the loan to USD
      • Additionally, finance all your fixed assets and issue equity in the ranch, all to acquire more USD
    • On the operational side, redirect sales to a USD market, create suitable products if necessary
      • Additionally, keep your costs denominated in the depreciating local currency
    • Going to the extreme, re-locate the entire business to the USD market

Corporate Bitcoin Balance Sheet Strategy

  • Convert corporate treasury, cash flows, and fiat derivatives into Bitcoin
    • Keep in mind, the value of investments denominated in the weak currency won’t be protected (stocks, bonds, real-estate)
  • Corporations can issue debt and equity in the local currency and convert the proceeds into Bitcoin
  • If possible, finance future cash flows or directly convert them into Bitcoin
  • Bitcoin balance sheet strategies apply to 100% of companies, subject to the state of your company and access to equity or debt lines

Corporate Bitcoin P/L Strategy

  • The primary question to ask: Can I build a product powered by Bitcoin?
    • For instance, a mobile payment application that lets you buy bitcoin (e.g. Coinbase, Cash App, PayPal, etc.)
  • Open products let users take custody of their bitcoins, while a closed product keeps bitcoins on the company balance sheet
    • To exit a closed system, customers have to sell their bitcoin and incur capital taxes, this creates customer lock-in
      • That said, closed systems may be promoted by offering lower initial fees, cash backs, or through a big tech offering (E.g. an easy way to buy and store bitcoins on your iPhone)
  • Companies can also drive bitcoin revenue by building bitcoin software and hardware tools, or by offering bitcoin professional services

Examples of Existing Bitcoin Companies

  • GrayScale, a bitcoin closed-in fund
  • Fidelity digital assets, an open system that lets you buy and sell bitcoin, and offers custody solutions
  • NYDIG, a hybrid business that has its balance sheet, treasury, and cash flows in bitcoin, and offers bitcoin services like brokerage, custody, and funds
  • PayPal, a closed product providing an easy way to buy bitcoin without taking custody
  • Square, an open product that lets you buy, trade, and withdraw bitcoins
  • MicroStrategy holds bitcoin on its balance sheet, issues equity for bitcoin, and converts cash flows into bitcoin
  • Coinbase, trading and custody services on an open model
  • Binance, evolving into a bank for individuals and institutions, offers a broad range of services including derivatives, and lending.
  • BitMain – Manufactures Bitcoin mining hardware
  • Marathon, a bitcoin miner that also holds bitcoin on its balance sheet

Bitcoin Business Opportunities

  • Mining operations, possible anywhere on Earth. Find a clean, cheap, renewable energy source.
  • An exchange, broker, and custody bitcoin
  • Commercial Bank, offer loans and generate yield against bitcoin as collateral
  • A fund, allow corporations to invest in Bitcoin that otherwise won’t or can’t
  • Derivatives offer a structured product that guarantees low fixed yield, and profit from yield difference. Akin to a bitcoin swap
    • Many are afraid to own an asset that appreciates over 200% per year, but will quickly buy an institutional product that guarantees a 10% taxable yield
  • Credit Cards, offer loans at low-interest rates against a bitcoin collateral
    • For instance, PayPal offering cheap loans against a rapidly appreciating collateral, as users never sell their bitcoin
  • Insurance policies with half the premium by partially investing funds in bitcoin, instead of investing in 30-year swaps
  • Hardware devices, a screaming opportunity for Apple and Samsung to build HW wallets and 2FA into phones and watches
  • Software companies can offer bitcoin support into operating systems, cloud offerings, and backend server offerings
    • Additionally, capitalize on the network effects by building bitcoin and lighting support into social networks and chat apps
  • Semi-Conductor company: manufacture SHA-256 AISC mining chips, and secure elements for HW wallets
  • Data Centers: Create modular bitcoin mining data centers that can be deployed at remote-energy sources

Wrap up Big Idea

  • There is $400Tr of capital denominated in fiat instruments and being debased, layers of money in different jurisdictions around the world
    • No one size fits all, you can capture massive value by solving regulatory compliance issues and offering a suitable on-ramp for a target audience
    • Layers of money around the world: consumer savings, retirement accounts, institutions, equity funds, debt funds, corporate treasury, state and local governments, pension funds, federal governments, futures and options markets, etc.
Crypto : , , , , , , , ,
Notes By Mostafa Khaled

More Notes on these topics

Top Insights and Tactics From

31 Best Podcasts of All Time

FREE when you join over 35,000 subscribers to the
Podcast Notes newsletter

No Thanks