Michael Saylor on Bitcoin's Next Billion HODLers
If you’ve been following Bitcoin for any amount of time, Michael Saylor needs no introduction. As the founder and CEO of MicroStrategy, Saylor captured a zeitgeist when his publicly traded company announced a $250 million bitcoin purchase in August. Since then, he has increased the company’s Bitcoin investment to $425 million and ratcheted up his personal holdings, all while starring in relentless in GigaChad memes. After months of pestering, I finally pinned Michael Saylor down for a chat with the BTC Times.
“Stop talking about regulatory arbitrage. Censorship-resistance, privacy, and tax evasion are bad ideas. We hate that.”
The conversation began with a huge letdown. I had asked Michael Saylor what could motivate greater institutional investment in Bitcoin—after all, if Bitcoin is going to the moon, we’re gonna need a lot of deep pockets to climb on board.
“People with billions of dollars don’t want to invest in crypto networks that support anarchists,” Saylor explained.
Anything that advertises privacy and freedom from government theft becomes a direct enemy of the FBI, Interpol, and every law enforcement agency on the planet.
It’s understandable that wealthy investors don’t want to antagonize the State; they tend to be the government’s biggest beneficiaries. That places them fundamentally at odds with Bitcoin’s philosophical goals. Proof-of-work, block size limits, and full nodes are expensive and wasteful prerequisites to secure the network from third-party interference. Institutional investors apparently hate these things, but the growing list of Bitcoin Treasuries suggests that we can reconcile our differences.
I asked Saylor if this was a marketing problem.
It’s a matter of emphasis. The industry would benefit if we didn’t call Bitcoin a cryptocurrency, but a crypto asset.
As a “currency,” Bitcoin not only competes with the Treasury and the Federal Reserve, it also implies a payment network to compete with Square, Apple Pay, Alipay, and other services that are both faster and cheaper. Maybe that’s why even the venture capitalists on Sand Hill Road still struggle with Bitcoin as a technology. They see it as either a bet on the collapse of Western Civilization, or a heavily impaired PayPal.
What about Bitcoin Lightning?
“Inspirational, but it’s not going to displace Apple or Alipay,” Saylor points out, “right now, Bitcoin’s number one source of energy is the support from Square Cash and PayPal. These are two things that directly compete with the Lightning network.”
This might offend the Bitcoin crowd, but it’s actually a strong endorsement. A successful “cryptocurrency” might achieve a market cap on par with Square, but beyond payments lies a $300 trillion ocean of assets. We returned to the impetus behind MicroStrategy’s Bitcoin purchase: “Every company, every organization has the same problem: How do I conserve my money? When fiat currencies are debasing, that means every single investment is probably being inflated away.”
“Bitcoin is best as a basic network that stores value,” Saylor continues. “It solves the problem for all the money and all the people on the planet.” This year’s bull market coincides with a deadly pandemic, but maybe the price run wasn’t driven by the prospect of societal collapse so much as the profligate printing of money.
In that case, it makes no sense to compare Bitcoin with altcoins like ETH and TRON. That’s like listing Chuck E. Cheese tokens on the Chicago Board of Trade. Bitcoin should be alongside corporate bonds, real estate investment trusts, gold, and 30-year Treasuries. The reason it’s not is because crypto exchanges don’t make money if people just buy and HODL.
Crypto exchanges are one of the biggest things holding back the industry: “It’s dysfunctional for the exchanges to list all the other altcoins. It is absolutely insane that they offer 100X leverage. It attracts people that have gambling addictions.” Saylor likens this to a drug dealer selling Vicodin laced with Fentanyl: “The industry can’t grow if you overdose or kill all your customers with too much leverage. It sets back the entire cause by many, many years.”
Besides, professional wealth managers don’t want to feel like they’re dropping client funds onto a roulette table. “99.9% of the money doesn't want to juggle altcoins on fire. 99.9% of the money just wants to keep their money.”
Eventually, Bitcoin may become the gateway through which institutional money flows to tokens and altcoins, but at this point, any attempt to supplant Bitcoin will hurt the industry as a whole.
The Lindy effect is real. “Integrity is by far the number one deliverable of Bitcoin,” Saylor says. “Institutional investors need reliability and longevity. You have to watch the network run for three to five years without any failure before you even begin to think you can trust it.”
Over the past decade, Bitcoin developers have been careful to emphasize the experimental nature of the technology. In fact, the latest release of Bitcoin Core is only 0.20, implying the software is still in beta.
To those unfamiliar with cypherpunk prudence, the abundance of caution borders on paranoia. Bitcoin satellites and fireproof hardware wallets don’t resonate with professional wealth managers. These people have a fiduciary duty to their clients and can’t joke about Citadels and civilizational collapse.
Developing for edge cases hardens the network, but people like Jeff Bezos aren’t optimizing for the zombie apocalypse.
Network resilience is crucial; the irony is that everything that makes Bitcoin robust and stable are things that would horrify a professional wealth manager. Self-custody, for instance.
A willingness to “Be your own bank” is a fundamental part of decentralization. But according to Saylor, no employee at an investment firm is going to accept responsibility for the corporate private keys. Even with multisignature wallets, he compares key management to handling an explosive device: “It’s like finding three of your employees and giving each one some nitroglycerin. ‘Take this home with you and bring it back in the morning. The three of you be careful, and don’t get too close to each other. And don’t drop it.’”
Then there are practical concerns. Saylor declined to discuss his company’s key management strategy, but pointed out that it’s not always a matter of choice. Companies exist in physical jurisdictions with accounting rules that control how crypto assets must be acquired and handled. “These considerations impact the way institutions carry the asset on their balance sheet and how it reflects it on their P&L statements,” he says. For example, current GAAP accounting rules treat cryptocurrency as an intangible asset, a classification typically reserved for illiquid things like IP and trademarks.
Corporate partnerships can help resolve these challenges. Bitcoiners tend to be wary of trusted third parties, but tech companies like Apple and Facebook have the ability to bring Bitcoin to the next billion users. Saylor cautions against exclusionary arrogance: “Bitcoin can become a monetary network and an instrument of economic empowerment, but the best way to do that is incrementally and pragmatically, while in harmony with the political system.”
It’s a catch-22. If Bitcoin is to become a sovereign money, it needs to spread to every corner of the Earth. In order to spread to every corner of the Earth, it can’t storm out of the gate screaming about crypto anarchy. Square and Paypal integrations don’t need to be the endgame, but they’ll help us get there.
That doesn’t mean developers shouldn’t continue to improve privacy and censorship resistance; it just needn’t feature in an investor prospectus. After all, wealth managers don’t go off about the military’s nuclear arsenal when considering a purchase of Treasury Bonds. It’s a testament to Bitcoin’s technological success that unforgeable costliness and network resilience are now taken for granted. Any sufficiently advanced technology is indistinguishable from magic, as they say.
What about the cypherpunk manifesto, the one where we arise and cast off our barbed wire fences? For the die-hard crypto anarchists, institutional money may seem anathema. It’s not necessarily a bad thing, according to Saylor:
If Bitcoin goes up by a factor of ten, these early HODLers are all going to be insanely rich. They can use their monetary energy to invent stuff and make the world a better place.
Maybe it’s a fact of life that anything cool and subversive is eventually co-opted by corporate interests, from punk rock to cypherpunk. There’s a never-ending search for the next disruptive thing. We can either complain and rail against the inevitable, or shut up and take their money.