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Crypto industry needs ‘enlightened regulation’ to grow: Microstrategy CEO

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Microstrategy CEO Michael Saylor joins Yahoo Finance Live to discuss the outlook for bitcoin as well as the expectations for the future of cryptocurrency.

Video Transcript

JULIE HYMAN: Our next guest, though, still buying Bitcoin, is still very bullish on Bitcoin, as he has been. Michael Saylor is joining us now, MicroStrategy CEO. Michael, it's great to see you. And I know that you've been out there, putting the word out, not just that you are still bullish on Bitcoin, but you've been talking about the sort of debt covenants of the company and that you're not at risk, as we see Bitcoin fall to levels where they are.

The market seems to be convinced of that, I think, at this point, judging by what's happening with your stock price. So what's next, I guess, is the question here in this cycle. We have already seen a washout in, as I said, the ecosystem. It doesn't feel like that washout is done. What do you think?

MICHAEL SAYLOR: I think that the crypto industry is going through a transition. We're crossing the chasm from the first decade, which was entrepreneurial and offshore, and, you know, like the wildcatting phase of the crypto industry. And the industry is growing up to be institutionalized and public and 10 to 100x bigger. I think the crypto industry today is full of confusion. It's obvious why we need it. The benefit is programmable money at all frequencies.

But a lot of times, it's not clear whether you have 10x leverage or 10% leverage. A lot of people are confused about what's a commodity versus a security versus a currency versus a token, what's the definition of an exchange, what's a derivative. And it's not even clear the difference between permanent capital and temporary capital. There's a big difference between having a billion dollars forever and having a billion dollars of capital in a token until tomorrow. And so, clearly, the industry is going to benefit. And it's going to grow partially by education, but, really, through enlightened regulation.

JULIE HYMAN: So enlightened regulation, or regulation, really, of any kind, doesn't feel like it's that imminent, right? On the education front, I mean, you've been talking about it for the past several years. I feel like most laypeople have had a lot of questions about crypto over the past several years. So what's been missing in that education piece? And how do you still fix that, leaving the regulation piece aside for a moment?

MICHAEL SAYLOR: You know, I think sometimes it takes time. If we think about the securities model, it took us 100 years before we understood what it means to disclose a security. And then derivatives took about a decade. And now they're fairly well-understood. And ETFs have gone through this transformation.

I actually do have confidence that enlightened regulation is coming this decade. I mean, not in the next few weeks, but in the next few years. Until we get that regulation, the safe choice is Bitcoin. The use case is a commodity, not as a currency, not as a security, but rather as a commodity, where you custody it in a place that you have confidence in either self custody or a very institutional grade custodian.

BRAD SMITH: What requirements do you think could come as a result of that regulation?

MICHAEL SAYLOR: It's a good question. First of all, if the regulators make it clear how you establish a digital commodity, right, additional commodity is based on proof of work without an issuer. We need a way to certify digital commodities. If I can launch a proof of work network in a fair fashion and without an issuer, I've got a commodity. That's one treatment.

Digital currencies like stablecoins, they need a certification technique as well. And the question is, how much collateral is backing it? Is it 10% collateralized, 100% or 1,000% collateralized? Securities need a clear guidance for, how do I issue a crypto security? Is it exactly the same as any other security? We need a definition of tokens. What's a crypto token? How do I disclose and create a crypto token? What are my rights and obligations with it?

I think we need a definition of an exchange. There's a lot of confusion about what an exchange is in the crypto ecosystem. We know that 24/7 exchanges that have lots of functionality are good things, but there's a big debate about what they can do, what they should do.

And then, of course, there's even a question about what is a crypto bank, right? What's Voyager or Celsius? Were they banks? Was BlockFi a bank? I can see the benefit of having a crypto bank, but we need more structure there. So I think that guidance and clarity, it's going to come. It's going to be good for everyone. It's going to grow the industry. It's especially going to be good for Bitcoin. But also, it's going to allow all the entrepreneurs and all the innovators to act much more rapidly and much more decisively than they are right now.

And I would say, clearly, the ball is in the court of the SEC, primarily. To a lesser extent, the OCC has a role. The FDIC has a role. The CFTC has a role. Congress will probably get involved at some point. But this is what the industry needs to get to grow and get beyond its current stage.

JULIE HYMAN: Michael, let's talk about MicroStrategy for just a second here because you've got the decline in Bitcoin prices. You've got what seems to be the decline in demand for enterprise software right now. You guys had a decline in your top line revenue last quarter. We've seen a lot of retrenchment in the tech industry really writ large. What about you guys in terms of hiring this year or maybe layoffs this year, in terms of any kind of retrenchment in spending on your part?

MICHAEL SAYLOR: Well, we've got a very stable, very profitable business. And in fact, our business is like 99% of the other businesses on Earth, which is, we spent many, many years to figure it out. And we can manage it in a stable fashion, but we can't necessarily grow it 20% or 30% a year, year over year, like the digital monopolies. So MicroStrategy's strategy isn't different than any private company or 99% of the other companies. And that strategy consists of, run your business efficiently as best you can. Grow it when you can. And then make sure that you invest your cash flows into a Treasury asset that's going to appreciate over time.

So, of course, we've chosen Bitcoin. And risk assets are struggling this year, right? This is the worst year of 50 years for risk assets. But again, that's a universal challenge that everybody faces. And if you look out beyond four years and base your decision making on fundamentals, I think you conclude that Bitcoin is the right choice for a Treasury Reserve asset.

JULIE HYMAN: But again, going back to the core business, are you guys retrenching on investing in that core business, and particularly, on the staffing side?

MICHAEL SAYLOR: No, we wouldn't cut back. We continue to hire. As I said, we're profitable. We remain profitable. And if you look at our business, we've got 2,000 employees. All but about five of them focus upon creating business intelligence software for our customers. And then five to 10 people are focused on the Bitcoin strategy, which is a Treasury Reserve strategy. And we're going to motor through this. I think we're quite confident in the business. And we like the transition that we see from on-premises software to cloud software.

BRAD SMITH: Crypto winters usually spark a lot of new projects, or at least, a wash-out of the projects that are non-viable. In this crypto winter, is there a point where you believe or are comfortable with a bottoming out of Bitcoin prices?

MICHAEL SAYLOR: Well, I tend to focus upon the four-year moving average. And if you look at the four-year moving average of Bitcoin, we've only touched that a few times in the decade. And generally, historically, those have been good opportunities to enter. And so we're about there right now. I think that does indicate that the industry is rationalizing. And we're forming a solid base around this point.

JULIE HYMAN: And is there-- remind us. Are you actually coming in and buying here? Or are you just holding what you guys have?

MICHAEL SAYLOR: Our strategy is to acquire and hold Bitcoin. So as we generate cash flows, we sweep our excess cash flows into Bitcoin. And so we will continue to buy Bitcoin at these levels or any level. It's just like a dollar cost averaging into a strong property asset.

BRAD SMITH: Michael Saylor, MicroStrategy CEO. As always, thanks so much for the time and the discussion. We appreciate it, Michael.

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