MicroStrategy's Bitcoin Strategy Is INSANE

What's up guys? Today I've got a fantastic episode with Phil Rosen. Phil is the co-founder and editor-in-chief of Opening Bell Daily. In this conversation, we put on an absolute masterclass on Bitcoin treasuries. We explain how it works, why MicroStrategy has bought so much Bitcoin, why their stock trades at such a premium, how Michael Saylor continues to raise money through debt and equity, why other companies are starting to copy this, how I evaluate the good, the bad, and the indifferent, and then we discuss why so many other companies are going to do this in the future and what you as an investor should consider as you evaluate these different companies. On top of that, we look at a number of other current events including prediction markets and why they've been so accurate, how come schools hate both prediction markets, self-driving cars, and ChatGPT. On top of that, we get into Howard Lutnick being named as the Commerce Secretary, and then we even get into a little bit of talk about why Donald Trump stepping into office, how he's approaching it, and what you should expect in financial markets. All right, Phil, what's the first topic you got?

Bitcoin doesn't care about the macro environment right now. Bitcoin cares about what Bitcoiners care about, which is yes, the ETF options, but also MicroStrategy is accumulating Bitcoin at a rate we've never seen before. He bought $4.6 billion of Bitcoin last week in one week. The guy's a maniac. He's just buying as much Bitcoin as he possibly can. Now we have Semler Scientific, Metaplanet, they're all announcing every single day. Somebody's out there announcing, 'I'm buying more Bitcoin.' And I think that there's people who are starting to say to themselves, 'Wait, this thing may catch on. This may change corporate finance. We may have more and more companies saying this is a balance sheet strategy, puts me on offense.' On top of that, I think that there's a bigger and bigger drumbeat about this Bitcoin strategic reserve. We obviously saw Senator Cynthia Lummis come out. I've publicly now said I think we should print $250 billion immediately and buy Bitcoin. We can get into that, but I really do think that this is going from a contrarian idea to now it is a consensus idea. And when that happens, capital flows. When capital flows to a finite asset, price goes up. And I expect us to see a lot more all-time highs in the coming weeks and months.

Well, I think every business has the same goal, right? Which is how to create value for shareholders. And historically, that's been two levers: you can either increase your revenue or you can decrease your cost. If you're a really good business, you do both at the same time. But now we've introduced a third lever into the equation, which is you can use your balance sheet either for offensive or defensive purposes. And Bitcoin being put onto that balance sheet is really, really powerful. In a way, if you plug your balance sheet into the Bitcoin network, the Bitcoin network goes to work for you. And so MicroStrategy is a great example of doing that. There's two things that I'd pay attention to when it comes to MicroStrategy. The first is that he's able to continue to dilute shareholders, yet the price of the stock keeps going up. That is usually backwards. That's not how it works. But people understand he's going to use that to buy more Bitcoin. More Bitcoin means more Bitcoin yield. More Bitcoin yield means that the price is going to go higher. And so they're excited about that. The second thing that becomes pretty important is that MicroStrategy is not just doing this, but they're actively trying to convince others to do it. And so results are the best resume. If you show up and you say, 'Hey, I think you should buy Bitcoin,' people say, 'Well, who are you? What do you know?' Michael Saylor and MicroStrategy shows and says, 'I think you should put Bitcoin in your balance sheet.' They say, 'Who are you? What do you know?' He says, 'Well, I did it. I got billions of dollars, $30 billion on my balance sheet, and seems to be going pretty well.' And so naturally, there's a lot of other CEOs that say, 'Well, if it works for you, why wouldn't it work for me?' And so, you know, in a weird way, buying Bitcoin and putting it on your balance sheet means that your core business probably isn't super successful. But it's the classic innovator's dilemma because the businesses that have the most free cash flow, the most assets on their balance sheet, they think they're big and successful, but actually, imagine if they were able to disrupt themselves and they were able to go do this as well. So if you had an amazing cash flow driving business and you were doing the Bitcoin strategy, that'd be 1 plus 1 equals 45. But instead, what people are doing is they are saying to themselves, 'My business isn't working. I need something else.' Out of desperation, they're actually going and they're buying Bitcoin, putting it on their balance sheet. You can see this with a lot of these businesses. It's not something to be ashamed of. These entrepreneurs are being entrepreneurial. They're figuring out a way to create value for shareholders. And so they say, 'Look, if my business isn't going to do it, then let my balance sheet go and do that.' And I think that that is what's eye-opening to so many people. It's because of the 4,000 publicly traded companies in the United States, a lot of them don't work. A lot of zombie companies out there. And so they're saying, 'Wait, hold on. Michael Saylor just invented a new magic trick. He gave me the escape hatch. Let me just hit that emergency button and let's go and let's see what happens.'

Well, if Bitcoin keeps going up, obviously people are just going to look at the past and say, 'Well, I should have bought it.' The question is, what is the risk-reward for you buying Bitcoin? And then in public markets, one thing that a lot of folks not in public markets discount is a clean story. And so MicroStrategy actually benefits from being the company that is buying Bitcoin. If they had a great business analytics company and were buying Bitcoin, that wouldn't be as clean of a story. And so people kind of know that the business analytics kind of product is not necessarily this big, gigantic thing that's amazing. The bulk of the value in the market cap is coming from buying Bitcoin. And so people say, 'Well, this is basically just a levered bet on Bitcoin.' And I think that is, you know, kind of a core component here is if you choose to plug your balance sheet into the Bitcoin network, then people start to ask, 'Are you a business that's building a product or a service for customers, or are you a business buying Bitcoin?' And I think that that's where people are still trying to figure it out. Can you do both? How do you talk about that? How do investors from a receptivity standpoint kind of treat you? Do they buy your stock or do they say, 'Hey, this confusing story, I can't tell what you are. Instead, I'm going to go buy somewhere else.' And so storytelling is really important in public markets, more so than the private market. And I think that's kind of the phase that we're at now. People know this works. Can I do it? Should I do it? How do I tell the story? Those are the questions people start to ask.

Well, I think there's a couple things that are important. The beauty of Bitcoin is that it's not about what everyone else has got, it's about what you got, right? There's no competition here. You buy as much Bitcoin as you can, and Bitcoin works for you just as much as it works for the next person, whether they got zero Bitcoin, 0.1 Bitcoin, or they got 10 Bitcoin, right? Bitcoin still works. And so on the public company standpoint, how much MicroStrategy buys shouldn't affect you. Just go buy as much as you can, and that'll work for you. Now, the other thing that I think is pretty interesting is that all of these different companies are coming up with different novel ways of pulling off this strategy. What MicroStrategy does is they issue debt and they sell equity, and they're going and doing this. They have a very large ATM that they're going and tapping the market. They're able to raise billions of dollars because they have a lot of investor interest. They're also issuing these convertible notes at a premium with a very low to 0% interest rate. Very interesting strategy. If you go and you look at Metaplanet as an example, not only are they issuing debt and doing equity, but I believe they're also selling covered call strategies. And so they're able to generate some yield from that, and they use that yield to then go and buy Bitcoin. And so ultimately, what these companies are realizing is, I want to get capital. If I get capital, I want to convert it to the hardest form of money. And so that means that I want Bitcoin. And so whether it is coming from your product and service driving profits, whether it is from issuing equity, whether it is issuing debt, whether it is issuing some sort of options and covered call strategy, or some other novel thing that people haven't even thought about yet, if you get capital, buy Bitcoin. That's these companies' strategy, and it seems to be working very, very well so far.

Well, I think there's pros and cons, right? On one hand, if you go and you buy Bitcoin, what you're getting is you're getting the return of Bitcoin. So if Bitcoin goes up 20%, you get a 20% return. The promise of MicroStrategy is if you buy MicroStrategy, you're going to basically get a levered bet on it. There's also the idea of Bitcoin yield. So if your, you know, 10 shares are equivalent to holding one Bitcoin on the balance sheet, he's going to continue to buy Bitcoin in a way that's going to be accretive. So your 10 shares in the future may be worth 1.2 Bitcoin on the balance sheet. So there's this idea of this yield that is generated. That's the positive story, and so far that's played out. That's why people are excited and they're, you know, kind of going full on with that excitement to allocate to the stock. One of the questions is, will that premium close? And so the numbers as of earlier this week was he had about $30 billion of Bitcoin on the balance sheet and the company was trading at an $85 billion market cap. You have 30 billion of Bitcoin, 85, I'm not a mathematician, that's a pretty big gap, about a $55 billion gap. And now he's got his other business. That business isn't really worth that much, and you know, on the grand scheme of things, but let's just give them credit and say it's worth a billion dollars, probably not, but let's say it is. That means there's a $54 billion premium that's being placed on this company's assets. And so why are investors giving it that premium? Well, they believe Bitcoin is going to go up. They believe he's going to buy more Bitcoin in the future, and they're basically giving him credit for future appreciation and future Bitcoin yield. Makes sense. Companies do that all the time. Investors say, 'Hey, I'm going to look at what is your 2025 revenue. I'm going to put a multiple on that.' And so this idea of kind of looking into the future and trying to understand what is it valued today based on those expectations is not a new concept. The question is, are they going to be right? And so on one hand, they could be underestimating it. Maybe there's more Bitcoin yield than they thought, and actually the price of Bitcoin goes much higher than they thought. And so whatever the value is today would be undervaluing that future growth. On the other hand, though, they could be overestimating it. In that situation, that premium is going to collapse. And therefore, if you're buying MicroStrategy at that level and the premium collapses, then you're not keeping up with the kind of appreciation of the Bitcoin. And so when I look at that, I say to myself, well, most people are probably going to do is they're going to do both. They're going to buy a little bit of Bitcoin, they're going to buy a little bit of MicroStrategy, maybe they might buy a little bit of the ETF, right? And maybe they go and they buy something else. I tend to think most people are not going to make highly concentrated 100% bets by allocating to this. Instead, they kind of say to themselves, 'Well, I know I want Bitcoin. Maybe I even want to take some Bitcoin into self-custody. Maybe I'll kind of make sure I have that exposure directly to the asset. But you know, this MicroStrategy thing is interesting, or this Semler Scientific thing, or this Metaplanet thing, or this DeFi Technologies, or all these companies that have Bitcoin on their balance sheet. I might put, you know, 5% into this thing.' And I think that's really where people are trying to figure out, you know, what is the right allocation. And there's plenty of people debating it on Twitter. I don't have the answers, but it definitely seems to be working so far. And so humans are great at looking at the past to try to predict the future, and that would suggest that it's going to continue to work. If it does, or if it doesn't, we're going to find out together.

Well, there's all kinds of assets, and I don't know necessarily if you want to hedge against Bitcoin not working. You could bet against it, right? If you think of from that standpoint, you go short Bitcoin. I don't suggest that. A lot of people have lost a lot of money shorting it. But you can do that. The financial instruments are available. Instead, if you don't believe in the Bitcoin story, then there's other assets you can buy. And so there are some people in the world, although, you know, they're slowly becoming fewer and fewer, that believe that the dollar is going to be debased at an aggressive rate moving forward. And so they want some sort of store of value to provide that economic protection. If they get that economic protection, they say, 'Well, which asset should I buy? I can buy real estate, I can buy gold, I can buy Bitcoin, I can buy name your favorite, you know, store of value or inflation hedge asset.' And they say, 'Well, I don't think the Bitcoin thing is real.' That's fine. Buy real estate, buy gold, buy whatever asset, but you're still benefiting from that dollar devaluation that that investor is believing in. And so when you look at it, I think Bitcoiners are saying, 'Look, we agree the dollar is going to be devalued. We agree real estate's going to go up. We agree that gold is going to go up. We agree that name all these assets. We just think that Bitcoin is the one that's going to outperform them all.' And if you go back, this isn't just me saying it. In 2020, Paul Tudor Jones famously went on CNBC and he said, 'I think inflation's coming.' And I was, 'Oh my God, PTJ, one of the greats, he says inflation is coming.' He sounds a lot like the Bitcoiners. And then he said the famous line. He said, 'Bitcoin is going to be the fastest horse.' And so when he said that, what he basically was saying was, 'Hey, I got a bunch of inflation hedge assets, precious metals, etc. I just think this Bitcoin thing is going to appreciate faster than everything else.' He was right. And so I think that's really where Bitcoiners, maybe, and gold bugs or real estate investors, etc., kind of start to diverge is they agree that the dollar is going to be devalued. How they express that, what is the risk that they perceive they're taking, what is the return that they are targeting, differs between those assets, and investors will kind of allocate accordingly.