February 6, 2021
MicroStrategy Bitcoin Summit | Corporate Strategy with Michael Saylor
Intro
- This session was part of the MicroStrategy Bitcoin for Corporations Summit
- Speaker: Michael Saylor (@michael_saylor) CEO of MicroStrategy, Saylor Academy, and author of The Mobile Wave
- Check out the Podcast Notes on his Masterclass in Economic Calculation
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
- Market dynamics lead to capital outflows from weaker assets and into stronger assets, until every asset is equally attractive on a risk-adjusted basis
- 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
- On the Balance sheet side, you will convert 100% of your treasury and future cash flows from Pesos to USD
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)
- To exit a closed system, customers have to sell their bitcoin and incur capital taxes, this creates customer lock-in
- 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.
