Summary
➡ MicroStrategy, a software company, has been using financial engineering to leverage its assets, offering volatility as a product. This strategy has led to the company outperforming others, including Bitcoin and major stocks like Nvidia. The company manages the risk of this volatile strategy by covering its debt service with its substantial cash flow. Despite the risks, this approach has resulted in significant returns, making MicroStrategy an attractive investment for those who can handle the volatility.
➡ The text discusses the strategy of using borrowed money or debt to invest in Bitcoin, which has an average gain of 55% per year. This strategy, known as leveraging debt, can be beneficial if managed properly, ensuring there is enough cash flow to cover the debt. However, it’s important to note that this approach carries risks and should be considered carefully. Over 50 publicly trading companies are already implementing this strategy by adding Bitcoin to their balance sheets.
Transcript
Now, real quick, my name is Mark Moss. I’ve been a tech investor for two decades, two big exits. I speak on the largest Bitcoin stages in the world. I’m a partner in a leading Bitcoin tech VC hedge fund. And I’m launching a brand new publicly traded company called Matador that’s going to be following this MicroStrategy playbook 2.0. So let me break down how we’re stealing this strategy and how you can do the same. All right, we’re going to jump right into the infinite money glitch. Now, listen, there’s a lot to cover. I want to tell you why they decided to make this and how it works, and what their competitive advantage is.
And of course, at the end, the last slide, I’m going to show you how you can do this. There’s a couple ways you can play this on your own. But let’s just start with this, because I don’t think anyone’s ever broken the math down this way. You’ve never seen this before. The infinite money glitch, we all want that, right? Okay, so number one, let’s explain how the glitch works. So basically, what MicroStrategy is doing from a nutshell, we’ll get into the details. From a nutshell is they’re taking on debt, and they’re buying Bitcoin with it.
All right. Now, up to date, since 2020, they’ve taken on almost $4 billion, $3.9 billion in debt. And they’re now sitting on over $15 billion in market valuation. So $4 billion in debt, $15 billion sounds pretty good, right? But how does this work? Let’s sort of break down the math, okay? So what MicroStrategy is doing is they’re using debt, but not just any debt. What they’re doing is they’re using something called equity convert markets. And so because MicroStrategy has equity, it’s a publicly traded stock, they’re able to use that equity, that public equity, and put that up as collateral to borrow money at really good rates.
Now, that equity could convert over if they don’t pay it back. And so they’re able to leverage debt at a crazy low level. Now, you and I, unfortunately, we can’t do this personally. Other businesses are starting to do this, and I’ll show you how that’s working. But we can do it at different rates. But let me show you the math. Okay, so they’ve taken on kind of two different types of debt. One, they take on debt, and their highest amount they’re paying is crazy. 1.76% interest on that. And then for the notes that are convertible, they’re paying 0.8.
So they’re literally borrowing billions of dollars at 0.8%. Wow, I wish I could get that, but we can’t. Now, if we look at this, we can say, let’s just take the highest amount. I didn’t go through and look at all the different percentage and tranches. Let’s just assume that all the debt, the 3.9 billion, is all at the 1.76 amount, which is not. So it’s actually less than this number. But for the easy math, let’s assume it’s at the 1.76. That would mean that they owe $68 million a year just in interest. $68 million a year in interest.
Okay, now, what does that mean for us? And how does this work in the infinite money glitch? Well, they’re borrowing billions, $3.9 billion. They have $15 billion in Bitcoin, but they owe $68 million just in the debt service. But here’s the thing. If we take a look at Bitcoin since MicroStrategy has been doing this, which is the last four years, we can see in the last four years since 2020, Bitcoin has been averaging a 55% return per year. Now, we can look at different time periods. We can go since the beginning of time.
It’s, you know, the last decade, it’s about 150%. But I think the last four years is a pretty good time period. Look at 55% compared to the S&P 500 to 13%, NASDAQ 13%, bonds, losing money, silver, 2% gold, et cetera. But 55%. So again, back to the simple, easy math. They’re borrowing at 1.76%. And they’re buying an asset that’s going up by 55%, the four-year average. So what this means is that they’re making 55%, they’re paying the 1.76%. They’re netting, they’re profiting 53.2% per year by borrowing low and buying high. Maybe we call this a speculative attack.
They’re buying in a cheap failing currency, and they’re buying in a harder currency. Now, we can do the same thing. There’s companies doing the same thing. And you don’t have to be a billionaire to do this. So let’s break down how we can do this. Now, first thing, why are they even doing this? Besides the fact of making a lot of money. We want to understand MicroStrategy’s big pivot. Now, Michael Saylor has been on many shows, conversations, talking about this. I speak at a bunch of conferences with him. I’ve been at his house. I’ve had dinner with him multiple times.
We’ve discussed this in great detail, and it’s not a big mystery. Like I said, he’s on lots of shows talking about it. And basically, MicroStrategy is a software business. And their business model was sort of trending down. The business model of a software company is great, because there’s a lot of recurring revenue, MRR, monthly recurring revenue. But it’s very hard to continually build new software and stay up to date. And so he said, look, I looked at this from a perspective of we have a lot of cash, but the cash is losing value. This is in 2020 when they were printing trillions of dollars of stimulus.
So the cash is losing value very, very fast. I don’t know if I really want to invest it back into the software business, but we have this good cash flowing asset. So what should we do? Well, we looked at all the options we put into bonds or real estate or stocks or whatever. And we realized that the best place we could put billions of dollars for 100 years, that was the qualification, the best place to put a big chunk of money for a long period of time was Bitcoin. And so they did.
Now, I want to say right here that smart people change their mind. And this is for all the skeptics that are out there that think this is all a bunch of scam and joke and magic internet money. Michael Saylor did too. This is a tweet from him December 18 of 2013. And he said that Bitcoin’s days are numbered. It seems like just a matter of time before it suffers the same fate as online gambling. So in 2013, he thought it was a scam. He thought it was a joke. He thought it was going to go away and then get rid of it.
However, then just a few years later, well, seven years later, to be exact, on September 14, 2020, Microsoft, MicroStrategy completed its first acquisition of 16, almost 17,000 Bitcoin. Amazing Bitcoin at an aggregate purchase price of $775 million. So he went from 2013 saying, look, this is a joke. It’s a scam. It’s never going to last. It’s going to go away to 2020, buying billions of dollars with it. And now 2024 being what we call the gig of Chad. He’s like the biggest advocate of this. And he talks about it all the time. So they had to pivot away from the software, but they still have the software business.
We’re going to talk about this when we get deeper into the plan of how you can apply this. But what they really built wasn’t just a way to hedge. I put here the hedge isn’t as good as a leveraged play. So whether they were just trying to hedge their position, like he wasn’t just trying to say, how do we preserve our cash by putting it into another asset, stocks, bonds, et cetera. It wasn’t a hedge. He was trying to find a way to leverage it up to do some financial engineering. Well, he is an engineer from MIT.
That’s why he thinks this way. All right. So now that you sort of understand the why, you might ask yourself here if you’re in the same boat. Do you have money that’s in an asset that’s not performing well? And would you like to put that money into the best performing asset? And would you like to follow an engineer from MIT and learn how to do some financial engineering? Well, let’s figure that out. What is the play for you then? Okay. So the key is, like I said, from an MIT engineer, how did he financially engineer this? And it’s not just holding, not just holding.
It wasn’t just hedging, but it was financial engineering to actually leverage this up. And really what MicroStrategy offered to the market was what we call volatility as a product, which sounds crazy, right? And that’s because for the average investor, they think that volatility is dangerous. It’s one of the things that you hear about Bitcoin the most. It’s too volatile. Well, turns out professional investors and allocators, they want volatility. They want it. Because volatility is this. How do you make money if an asset say straight? You don’t. You need volatility and people want to, professional auditors want to bring volatility to their portfolio, believe it or not, when, well, that’s why they’re smart money.
And so he offered volatility as a product and he has a stock now that moves multiples on top of Bitcoin. So Bitcoin’s already too volatile for some. And now it moves multiples on top of that, which means it’s even more volatile. But of course, volatile means moving up and down, not just down, but up and down. And what we can see here is that MicroStrategy has been outperforming everything else. As a matter of fact, we can see this sort of teal green line right here. That’s MicroStrategy. And it’s close sort of neck and neck with this blue line right here, which is Nvidia.
So Nvidia and MicroStrategy have been absolutely crushing it. Everything else is down below this orange line right here. That’s where Bitcoin is. And then down here, this yellow line that just basically sits flat right here. That’s the QQQ. Then this blue line that’s even a little bit lower than the yellow line. That’s the SPY, the S&P 500. So stocks are down here. Bitcoin is right here. Nvidia is right here. And MicroStrategy is sitting right there, completely outperforming everything because of the financial engineering that we have. Now, it hasn’t just been outperforming all of those things and even Bitcoin.
But when we look at it priced in Bitcoin, this is the important thing I do. Everything like this, we can see that MicroStrategy priced in Bitcoin since January of 2023, not since 2020, but since 2023, is up almost 300%, 280% priced in Bitcoin just since January of 2023. So it’s been working really, really well. Now back to the sort of the math. How does he do this? It seems very risky, right? Leverage is bad. Leverage is dangerous, especially on a very volatile product. So how does Michael Saylor, how does an engineer from MIT manage the risk in something like this? Well, they manage the risk with cash flow.
So as I said, MicroStrategy has been borrowing $3.9 billion. They have to pay $68 million a year in interest. What happens if the price of the asset goes down? What if Bitcoin drops to $15,000 or $10,000? So what? He just has to pay the $68 million a year. Well, how does he do that? Well, turns out he has a company, again, a software company that throws off a lot of free cash flow. So his company, MicroStrategy, is throwing off last quarter, $111 million, annualized that’d be over $400 million. This is a five-year chart of the gross revenue on a quarterly basis.
And what we can see is this is $130 million right here. And right down here is about $100 million. So we’re in this about $115 million, $120 million of gross cash flow per quarter, or over $400 million a year. So he’s making $400 million-ish. And he owes $68 million-ish. And so that’s how he hedges his downside. Even if the collateral, even if the price of Bitcoin drops to $5,000, $10,000, whatever it is, as long as he can continue to pay the $68 million in interest, he can do that. Now, because of that, because he has the cash flow, this is key when we get back to how we apply this on our own, because he has the cash flow to cover the debt service, he can continue to leverage it up without the risk.
You see, most people get themselves into trouble. They burn their house down with the leverage. But he is managing his downside. OK, does that sound good? Now, how do you and I, how do we steal this strategy? How do other companies steal this strategy? OK, well, before we get into how you and I and how other companies are stealing this strategy, I want to give you the name of a couple. Before we get into that, let’s talk about just the elephant in the room. Should you be buying MicroStrategy? Or should anybody be? Why wouldn’t they just buy Bitcoin directly? And this is a good question to understand.
Bitcoin or MicroStrategy, which one’s better? Especially considering that MicroStrategy is a big, hefty premium over to just buying Bitcoin directly. So let’s answer this question. Number one, the way that MicroStrategy has developed this or financially engineered it, again, is that for about every $1 that Bitcoin goes up in price, MicroStrategy goes up by $2 on their market cap. That’s pretty interesting. And that’s because of the leverage they put into the system. Also, MicroStrategy has much better regulatory protection and clarity. What do I mean by this? I am not telling you that the governments are going to make Bitcoin illegal.
They’re going to take away your right to own it. I don’t think that’s the case, not in the United States anyway. I think that ship is sailed. But still today, there’s a lot of institutions, funds, things like that that don’t allow you to buy Bitcoin. It’s a commodity. And they can only buy equities, for example. Maybe some people, maybe foreigners, they can’t buy the Bitcoin ETFs that are available. And so it’s very easy. Any one of these foreign people, institutions, et cetera, can just buy an equity. And so there’s regulatory protection around equities.
They’re already very well established. But the commodity side or the ETF side of Bitcoin is still unclear of how different funds mandates allow them to do that. So you can really think of MicroStrategy really as like a high-octane ETF. It’s easy. Click of a button. I can bring it in. I don’t have to custody it. I don’t have to worry about cold storage or any of that. And it goes up at a much more multiple than just Bitcoin ETF. If I buy the Bitcoin ETF, for every $1 goes up, MicroStrategy is going up by $2.
But listen, there are trade-offs. I’m not saying you should go buy MicroStrategy. What I’m saying is they’re different. They hold different roles in your portfolio. I’ll break that down for you in a second. But there are trade-offs. Like I said, one with MicroStrategy, you don’t have to worry about the onboarding and the storage and all those things. But you also have a lot more volatility you have to work with or deal with, I should say. And one of the things with MicroStrategy versus Bitcoin is because of the debt service, it has these reflexive feedback loops.
So Bitcoin sort of sits in the middle and it continues to go up. Now, what we can see is how that’s worked out for MicroStrategy in the last four years. And since 2020, we can see that MicroStrategy has outperformed everything with a 1,339% return, while Nvidia, which is also outperforming everything, is up 950%. So that’s a pretty big deal. Down here, we have Tesla, 153, Google 140, Microsoft 110, Apple, 199, Meta 81, Amazon 16%. So because of this financial engineering from a MIT engineer like Michael Saylor, he’s been able to propel his company to outperform everything else.
Okay, so how do you steal this? How do other people steal this exact same strategy? How can we do it? Because I can’t borrow at 0.8% like he does, and I’m sure you can’t either. Okay, there’s a couple of ways we can do this. Number one, basically we’re leveraging debt. Now, this is something I’ve talked about for a long time. This really kind of came into my purview when I was studying history of the Weimar Republic, the hyperinflation that happened there. And a man in Hugo Stenez became one of the wealthiest men in Germany at that time.
And he did it by forming a speculative attack, which is basically borrowing as much money as you can in a failing currency to buy harder assets. He was borrowing in the German mark, and he was buying factories and hard assets. And this is sort of what Saylor’s doing. He’s borrowing in dollars, which are losing value, and he’s buying Bitcoin, which is harder than going up. So we can leverage debt. Now, again, you and I can’t go leverage debt. We can’t go borrow a billion dollars at 0.8, but we can still borrow.
For example, you probably have debt. You might have a house loan, a car loan, a boat loan, something like that. And you could either one, pay down more principal on that credit card, that house, that car, et cetera. You can pay more principal, or you can take that money instead of paying more down on your home, paying it off for 15 years. You can take that money and you could go buy Bitcoin with it. That’s essentially the same as borrowing, right? I already have debt out. If I’m not paying that debt down faster, buying something else, I’m basically using borrowed money for that.
That’s one way to look at it. Another way to look at it would be borrowing money out of my house. Maybe I took a home equity line, a credit line, something like that. Obviously, maybe my car is paid in cash. I can get a title loan against my car. I can get a credit card and I can borrow against my credit card. And I’m certainly not saying that you should do those things. What I’m saying though, is we’re leveraging debt. Now, should we or shouldn’t we do that? Well, that’s a personal question, but let me break down some math for you.
So the first thing is, we want to think about what is the average gain that we expect Bitcoin to have minus the debt service we’re going to have to pay. So I showed you with micro strategy, they’re gaining about 55% a year, but they’re paying, you know, what is it? Less than 2%. It was like 1.8, right? So they’re paying less than 2%. Now, I can’t get at that rate, but if I don’t pay my mortgage down, my mortgage is at like 3.5. So I can get an asset that’s doing 55% and pay 3.5.
Maybe I get a car loan instead of paying cash for my car, I get a car loan and maybe that’s 8%. So now it’s 55% gain minus 8%. Maybe I go get a hard money loan and maybe it’s 10% or 12%. So now it’s 55% minus 10%. So now I’m netting 45%. Am I okay with that? Does 45% sound good? And that’s a personal question for you. I can’t answer that. Now, the key is, is not to use leverage and burn your house down. I’ve done that before. It’s not good.
Don’t do it. So how do we do it? Well, we protect our downside just like Michael Saylor does. We need to make sure that we have the cash flow coming in to cover the debt service. Don’t expect that every single year you’re going to make enough money to pay off the debt because sometimes there’s down years. You need to protect your downside. Michael Saylor, of course, has a software business that’s throwing off a lot of free cash flow. For me, I have businesses. I have other cash flowing assets.
So I could borrow some of this debt, put it into Bitcoin. And as long as I have other cash flows coming in from other sources that can continue to pay that debt service, then I’ve at least limited the exposure to my downside. I want to make sure I can cover that debt. Now, a question you might ask is, if this is so good and Mark, you make it seem so simple, are more people doing this? Or I should say, maybe who else is doing this? Well, let’s take a look.
So we can see that I believe there’s over 50 publicly trading companies now who are doing at least some variation of this, specifically putting Bitcoin on their balance sheet. So most corporations, and hopefully your business, has money in the bank. Some companies like Apple and Google have billions of dollars in the bank. So where do they put that money? They have to run a strategy for that. So a lot of them are starting to move some of that into Bitcoin. Of course they are. But what should we do as individual investors? And who else could we see? Well, number one, we should be buying Bitcoin first.
So I think of it like that’s sort of like the blue chip stock. For sure, get some Bitcoin. Then from there, what could we do? Well, then we could find some leverage plays. So for example, here’s a company. It’s called MetaPlanet. MetaPlanet launched in April of this year, April 2024. It’s in Japan. If you’re in the US or anywhere, that’s not Japan. It’s probably very difficult for you to buy this thing. But it’s in Japan. And basically, right here on this date, you can see this took off.
They announced that they were going to run a micro strategy playbook where there was a real estate company. They’re going to take about $8 million of assets they had put into Bitcoin and started leveraging up. And they’ve been doing so. Since April, since they’ve announced that, their stock is now up 5x. They’ve made a 5x return. They were here. At this point, they were a 10x. Now look, it’s volatile. It’s more volatile than Bitcoin. So it was up really high here. Then it came down and went back up and it’s come down and it’s coming back up again.
So it’s been between 5 to 10x just since April since they announced this. So they’re doing that. Another company that I’m working with were taking public in Canada. This company should be public within the next 30 days. It’s a company called Matador. We’re doing the same thing. We’ll be leveraging up Bitcoin and we’ll be using the equity, sort of like what micro strategy does, to acquire layer 2 application companies on that as well. And like I said, there’s over 50 other companies publicly traded that are doing something similar.
Now Matador is going public. We’re in an IPO phase right now. We do have a little bit of a window for accredited investors. If you’re an accredited investor and you want to find out about Matador, I’ll put a link down below if you want to go watch a presentation and learn more about it. If that’s a way that you can do that or we’ll put a QR code here on the screen if you want to check out Matador. But otherwise, MetaPlanet, Matador are doing that. 50 other companies are doing it on their public balance sheet and you can do the same.
You can build your own leveraged plays. You can buy your Bitcoin. You can borrow against your Bitcoin at 10 to 12% and then use that to buy more Bitcoin. Again, you can not pay your home down quicker. You can get a loan for your car and there’s all these ways you can get access to debt. But I want to warn you just one more time, debt is a double edged sword. It can burn your house down or it can cook your food as long as you can manage it properly and you do that with cashflow like Michael Saylor does with MicroStrategy and make sure you do the same.
All right. Anyway, hopefully this Infinite Money Glitch helps you. This is a strategy that I’m personally doing. I talk about this quite a bit. As a matter of fact, I wrote a whole ebook on how to do this, how to retire tax-free off of Bitcoin. It’s on my website. If you want to go get it, it’s a free book. Anyway, that’s what I got. Hopefully this makes sense. If you want to know more about investing and why I use Bitcoin as my base, then you probably want to know about this investing black hole video I have right here.
That’s what I got. To your success. I’m out. [tr:trw].
See more of Mark Moss on their Public Channel and the MPN Mark Moss channel.
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