Obviously, there has been so much
anticipation and frankly, a lot built in, I think, to the price of Bitcoin of
this idea that spot ETFs are finally going to come.
What's the next catalyst for Bitcoin if and when that happens, How much further
can it be pushed upward? Well, I think you can't really
underestimate the significance of the spot ETFs.
It's not unreasonable to suggest that this may be the biggest development on
Wall Street in 30 years. I mean, the last thing that was this
consequential was the creation of the S&P index and the ability to invest in
all 500 S&P companies via one trade at the same time.
So this is very eagerly anticipated. But most of the money in and the Bitcoin
market right now is is the hodlers and their traditional crypto investors,
mainstream investors, mainstream retail mainstream institutions have not had a
high bandwidth compliant channel to invest in this asset class until they
spot ETFs. So I think in January the approval of
the spot ETFs is going to be a major catalyst that's going to definitely
drive the demand shock and then that will be followed in April with a supply
shock because there are about 900 Bitcoin a day available for sale by
natural sellers, the miners, and that number is going to be cut to 450 Bitcoin
a day in April. So it's a it's a pretty big deal.
And that puts Bitcoin where a year from now.
Higher. There's.
You know, we could probably keep a bunch of economists and modelers working all
day long to calculate the supply, demand and price elasticity of this.
I don't think we've ever seen, you know, a 2 to 10 ax increase in demand combined
with having and supply in a scarce, desirable asset that people want to hold
for a long period of time. So I think we're expecting 2024 is going
to be a major bull run for the asset class.
We just don't know how far the assets are going to run at this point.
Well, And to get to MicroStrategy specifically, as I said, obviously big
holder of Bitcoin, given what you just told me about how a spot ETF is going to
make it perhaps easier, more appetizing for retail investors, institutional to
to get crypto exposure via that product, Why would someone still need to be a
buyer of MicroStrategy? Is this actually something that is going
to end up working against you? You know, the ETFs are unlevered and
they charge a fee. MicroStrategy is an operating company,
so we're fairly unique because we can generate additional Bitcoin via our
operations, either via PNL operations or capital markets operations.
And we can take advantage of intelligent leverage, like we can borrow money at 0%
interest for many, many years. And we did that with the convert and
then we can use it to buy bitcoin. So you can really think of the ETFs as
like shipping lines, very efficient, long haul, carry a lot of a lot of
capital. MicroStrategy is more like an airline.
We don't have the cargo capacity and our capital structure that a a container
ship has, but we can go faster and we have higher performance.
So we provide your leverage and we don't charge a fee.
And so if you can dig in to our capital structure, you get comfortable with
that. We offer sort of a high performance
vehicle for people that are Bitcoin long investors.
Well, if it is ultimately for people who want to be long Bitcoin and we are
seeing Bitcoin as you anticipate, continually be pushed upward by some of
these developments in 2024, what does that mean for your plans around around
holding and whether there are entry points at which you would want to buy
more? Perhaps not.
Well, we will absolutely continue to acquire Bitcoin.
Our strategy is to acquire and hold the Bitcoin and we will acquire it by a
variety of different means as as long as they're accretive to our shareholders.
Our goal is always to find a way to pursue more Bitcoin per share for our
shareholders. And sometimes we do with debt, sometimes
we'll do it with equity, sometimes we'll deal with cash flows from the business.
And of course the volatility in the market just creates more opportunities
for us as an operating company. And and our particular business strategy
allows us to harvest that volatility to the benefit of our shareholders.
Well, and let's talk about how you account for that as well, because
obviously last week the Financial Accounting Standards Board passed new
rules that will apply to MicroStrategy, essentially means you get to capture all
the highs and the lows of your cryptocurrency holdings.
Technically, that doesn't actually go into effect until 2025, but you could
adopt it earlier. When is MicroStrategy planning to do
that? Well, we're still evaluating that.
And and I leave that decision to our finance people.
But what I'll say about the accounting is I think fair value accounting is is a
giant step forward for the industry. And up until now, corporations have had
to invest all of their spare Treasury reserves and sovereign debt.
Sovereign debt normally has a compound annual growth rate of a few percent.
The cost of capital for most companies is 10 to 12%.
Bitcoin's got a compound annual growth rate of 40 plus percent over the past
four years and even higher than in the more distant past.
So having a digital money like Bitcoin as a Treasury Reserve asset allows you
to beat the cost of capital and it turns your balance sheet into an asset instead
of a liability. So we think this is a real game changer
for corporations. So do you think then, that it could be
advantageous for MicroStrategy to potentially use these accounting
practices earlier rather than later? I think that we'll wait for our finance
people to give us that recommendation. I do think that the fair value
accounting guidelines from Pfizer are just going to be good for the industry
in general. They'll provide more transparency and
they'll be good for Bitcoin as an asset class and and for Bitcoin as a Treasury
Reserve asset for companies that have large cash flows that they want to carry
forward.