3 Stories of Crazy Geniuses: Fenn’s Treasure, Michael Saylor’s Infinite Money Glitch + Ralph Lauren’s Bold Bet

25:44We make$75 million, we're going to buy more. But over time, he starts doing more aggressive bets. So what he starts doing is he starts issuing these convertible bonds. And now as he goes to the market, he says, hey, here's a corporate bond. You can buy the bond. We're going to take the proceeds from the bond sale, and we're going to go buy Bitcoin. And he does that over and over and over again. And on top of that, if you look at MicroStrategy's stock today, so when he was last on the podcast. Well, let's just actually say this. In March of 20, the stock was$10. In March of 21, the stock was$78.

26:18And today, it's$410. Correct. So it's up in the last five years by 2 ,600%. Okay. So it's shot up. If you compare it to even NVIDIA stock this year, it's outperformed NVIDIA, which is pretty insane. And so what is going on here? His company is now worth$80 billion as of today. And how much revenue and profit does the actual business do? The actual software business is declining 10 % a year and is something like a couple hundred million in revenue and under$100 million of net income. So it is a rounding error. It is no longer relevant to the stock price. And does he have employees who work there?

27:05Yeah. They still have employees that just keep running that software business. But the stated strategy is, her job is to acquire Bitcoin in the most effective ways possible and hold forever. That's what he wants to do. That's an inspiring talk every Friday at your all hands. Right? Bitcoin price is up. Great job, everybody. We did our job. And to his credit, he's been buying throughout all the dips. So Bitcoin price went up to$60 ,000, then it goes down to$16 ,000. And even during that process, in December 2022, Bitcoin price is$17 ,000. He buys another$50 million. He buys another$14 million. He buys another$150 million.

27:52He has continued to buy throughout the whole process. And Bitcoin's at an all-time high. And as of today, he just bought another$5.4 billion of Bitcoin at the all-time high price. How did he have the money to do that? Again, he's raising money in these bonds. And so what's interesting about this? Here's what I want to talk about is genius or crazy. I hesitated to even bring this up because A, this is outside of my zone of competence, meaning I don't know corporate bond strategies. I don't know why. I don't know how options traders look at this. I don't know what the bond market is like. That is not something that I've spent 20 years of my career in.

28:33I'm a startup guy. Okay, so on one hand, unqualified to talk about this. On the other hand, I've been a crypto holder and believer since far before Michael Saylor and have seen throughout each cycle how new players come in with new strategies and build massive profiles and success on the upswing. And I've seen things go very, very badly. Last cycle, there was Sam Bankman-Fried with FTX. There was Doquan. There was Three Arrows Capital. There were several people that, for a moment in time, looked like absolute geniuses. They were hailed by everybody. They were on the cover of magazines. Sequoia's investing in FTX.

29:10And everything looks incredible. And then it all comes crashing down, either due to bad acting or bad risk management. I don't know anything about crypto. And I can give you an example of a red flag that was on air on our podcast. So I don't remember exactly. I think it was 30 or 45 minutes in. I asked him a question. I go, so Michael, you're buying all this Bitcoin with your company's money. Cool. What are the downsides? Because it appears as though one of the downsides could potentially be you're losing focus on your main money-making software. And I think you think that's worth it. But what are some other downsides?

29:45And his answer was, there are no downsides. And I was like, well, I mean, like every decision has a downside. Like the downside of being healthy is that you have to go to bed early when you want to go and hang out with your friends. But it's worth it. Like there are downsides. And he kept insisting, there are no downsides. And in my head, I thought, if you can't be honest to me about this like pretty straightforward thing, is there anything else that you're being dishonest about? Yeah, there are no downsides, said every charlatan ever, right? That is a, it is, could be a red flag. That doesn't mean it's damning.

30:15No, it does not mean it's damning, but it was a red flag. Let me give you the generous interpretation of this. So I actually agree with Michael Saylor in one weird way when he said there's no downsides, which is that for him personally, there were really no downsides at the time. At that time, if you go back and you listen carefully to Michael Saylor's interviews, most of the interviews, he just talks about how he had the epiphany and he realized that Bitcoin is the way and he started doing it. The true story is that there's one like precursor to that epiphany, which was that he was stuck between a rock and a hard place.

30:48He had this software business that was successful. It was profitable. And I think at the time it was even, you know, had shown growth or had been showing growth over the last 10 years. And he was getting zero credit in the stock market for it. And he's like, what am I supposed to do? Like we're a successful company. We've been operating successfully for, 15 plus years. And the market is basically saying, give us back the cash. We will not value you for any of the cash you have on hand. You should just give it back to us. We're going to give you no stock credit for how you might invest it, how you might use that cash, how you might grow your business.

31:25We're going to give you zero credit for it. And so he had this problem, which was no matter what he did with his company at the time, he couldn't get the stock price to go up. He couldn't increase shareholder value. And so he had, in some ways, nothing to lose because he was stuck. And he had been stuck in this plateau for so long. And the market, he says in some interviews, like, the market was giving me a very clear message. We don't believe that you can invest this cash in any way that's going to grow your business. Well, then he's like, well, screw that. Why don't I just do something else with it?

31:55If I can't grow micro strategy with it, maybe I can grow it through investment. And he went and he looked at real estate. He looked at gold. He looked at all the different ways that he could do it. And he basically, at that point, deduced that Bitcoin was his best bet to invest the money to actually grow the stock. And was he like a crypto guy? So 2020, for a lot of the hardcores, was late in the game for crypto. Was he like... He was skeptical. He did not believe in Bitcoin. Somebody had told him about it. He didn't believe it. So he wasn't one of these early hackers? Then he went back and looked.

32:22He went and watched a bunch of POMPs interviews and he started reading about it. He started learning about it. The other thing that was true was that he looked at the amount of inflation And he realized that the kind of stated goal of 2 % or 3 % inflation was misleading, that it didn't count a bunch of other things. It also didn't take into account the fact that if you were an investor, you just put the money in the S &P 500, it was growing at 10%, 15 % a year. And he was like, look, if I can't beat that, there's really no reason to invest in my company if I don't have the ability to beat that rate.

32:52And so what he wanted to do was, like most Bitcoin maximalists, at the end of the day, they look at fiat currency. and they believe that here you have a weak currency. And if you could borrow a weak currency at 0 % interest rate and use it to buy a hard currency like Bitcoin, that's a good trade. So that's the two things that he wanted to do was he wanted to get out of fiat because he didn't like the direction that fiat was going with inflation. And secondly, he knew his stock was stuck. Okay, so that was that part back then. But at that time, he wasn't doing this thing where he's borrowing billions of dollars to buy Bitcoin.

33:28And so let me just kind of walk you through the model of what he's doing now. Okay, so basically, MicroStrategy issues debt. They use that convertible bond, corporate bond. And so today, they just did a$5 billion, whatever, corporate bond offer. Who did they raise it from? Bond buyers, the bond market. So there's trillions of dollars that get invested in bonds. And one of the things, you might say, why are people buying a MicroStrategy bond? because of the underlying business. Versus just buying Bitcoin themselves. Or just buy Bitcoin themselves. The arbitrage is that he realized there's a trillion-dollar-plus market of people who buy bonds that because of their structure, they're not allowed to buy security.

34:13So they can't buy stocks. They can't buy real estate. They can't buy Bitcoin directly. They can't buy the Bitcoin ETF. So the bond market cannot access Bitcoin unless they access it through a bond. Got it. The mandate of those funds is that they can only buy bonds. That's why people gave them the money was you're going to buy bonds. It's a 0 % interest rate, but you can convert the bond into MicroStrategy stock at a certain price at$300,$400,$500,$600 a share. Higher than the current price of the thing. So it's like a long-term call option on MicroStrategy. So if you were in the bond market and you wanted access to Bitcoin, but your bylaws and your mandate does not allow you to buy Bitcoin directly, then in an inadvertent way...

34:56That's a crazy loophole. Supply demand. So he's the only supply on the market to absorb this demand that's there to get access to Bitcoin type of yield by issuing these things. Okay, so that's the first part. So then he buys Bitcoin and he goes and he tells the whole market, I'm a forever buyer of Bitcoin. I will increasingly be buying billions and billions of dollars of Bitcoin. I'm doing it at the market price and I will continue doing that. That instills a bunch of confidence in the Bitcoin market because Bitcoin says, wow, there's this whale who says, I don't give a damn. I'm doing this. I'm deep pocketed and I'm going to keep doing this.

35:29And so he takes supply off the market. He signals to the market that I'm a forever holder. And he says, I'm going to keep buying bigger and bigger amounts as we go. So the Bitcoin price goes up. So now Bitcoin price goes up, which then causes his stock to go up because his stock is based on the fact that they have$30 billion of Bitcoin sitting there. And the stock goes up and then he sells more equity at a premium and he buys even more Bitcoin. Now he's selling equity shares to buy Bitcoin. Rinse and repeat. Is he selling any of his equity in the company? I don't know. I'm not sure. And is he liable for any of these convertible bonds?

36:09Or these bonds? No, it's not like a personal guarantee. No, it's a corporate bond. If this goes south and this collapses, then his net worth, which is highly based on his holdings of MicroStrategy, are going to go down, right? And his reputation and everything else. And what's his net worth now? How much of MicroStrategy does he own? He owns 9.9 % of MicroStrategy. So as of today, just off MicroStrategy, he's worth$8 billion. Okay. In 2020, the company was worth$1.4 billion. So he was worth a measly$140 million. So he's grown from$140 million net worth, assuming that is his only money, which it probably isn't, all the way up to close to$10 billion.

36:47It definitely had asymmetric upside versus downside for him, right? Like hitching his wagon to the Bitcoin rocket ship represented a way for him to go explode up in a good way, in a way that he was never going to be able to do with just MicroStrategy, the declining software business. At the same time, there obviously is reputational risk and there's capital risk. How is it going? They've basically acquired almost 400 ,000 Bitcoin. They've outperformed every company in the SP500. Last week alone, it saw $136 billion of trading volume. To put that in perspective, even GameStop during the GameStop.

37:24GameStop never saw this. So he's basically created, he's intentionally turned MicroStrategy into a meme stock, meaning he's detached it from the underlying business in the way that GameStop did and created a product that the option traders want, that the bond traders want, that the Bitcoin maximalists want, that the Bitcoin skeptics hate and want to go short. Now, what could go wrong? Let's go to there. And by the way, let's also say the craziness of not only doing this, but then spending the last four years just on tour being a Bitcoin evangelist is also like a really extreme step to take, right?

38:01Like there were no half measures in what he did. This is a sort of Elon Musk style, all in, reputationally all in, financially all in. And he has that personality. He's got the types of, I don't know him other than the 60 minutes we spent virtually with him, but he seemed like he had the personality where he's super high IQ. super low, like emotional, normal human emotions where he's like, right. But it makes sense. The math says this. Therefore, I do that, even if that is a ridiculous thing to most people's standards. High IQ, high T count. Yeah, like, yeah, like he ponies up.

38:46All right, let's take a quick break because I got to tell you a story. Let me tell you the first time I tried to run payroll for my team. I was using a traditional bank and you know, the type. It's got a janky interface. It's built like a 2002 tax form, and it was open only during business hours. And I hit send, and it froze. They flagged the transaction. They locked my account. They put me on hold for 45 minutes, and then they told me I got to visit my local branch. And that was the day I started looking for a new banking solution. After asking a few founders what they were using, I found out about Mercury.

39:12And so now my payroll is two clicks. I can wire money. I can pay invoices. I can reimburse the team, all from one clean dashboard. That's why it for all of my companies and so do 200 000 other startup founders and so if you're looking to level up your banking head to mercury.com and apply in minutes mercury is a financial technology company not a bank banking services are provided through choice financial group column n a and evolve bank and trust members fdic

39:38okay so now what's the you know at the same time maybe i'm just uh like a pts deed from past crypto cycles. But like I mentioned, every crypto cycle, this happens. Somebody gets uber aggressive, they're seen as a genius, they overextend, or they commit malpractice, and they come crashing down when the cycle... Inevitably, these things are all cyclical when it goes down. Last cycle, it was FTX, it was Doquan, it was Three Errors Capital. These were multi-billion dollar vehicles that were created very quickly. They burned bright, and then they fizzled out. due to one of those two reasons. So I'm on the lookout right now.

40:19Bitcoin's at an all-time high. Instead of just jubilation, I'm just keeping an eye out. You know, fool me once, shame on you. Fool me twice, shame on me type of thing. So I'm just keeping an eye out what might it be this cycle. On the other side, he's made a couple of genius calls. So back in, I want to say, when was it? 2007-ish timeframe. There's a bunch of interviews of Michael Saylor talking about Apple. Maybe 2012. and he basically is talking about, he's on a thing and he's like, Apple's going to go to$2 ,000 a share. And he's like, you don't understand what's happening. Apple is inventing the same way that he's talking about Bitcoin, how Bitcoin is this, you know, the greatest invention ever, how it's going to be millions of dollars a coin.

40:58He was talking about Apple the same way. He's like, you have a supercomputer in your pocket. Do you understand what this means? You know that 4 billion people are going to be carrying this thing around and that Apple's going to be making X, all the numbers just sounded insane to people at the time. and when he was talking about it and it's all come true. His entire bet on Apple, he's like, I don't know why you would own any stock besides Apple. And if you had listened to Michael Siller at that time... He's always had this like, you all are stupid, this is obvious, and he's right sometimes. Yeah, I mean, I don't know.

41:30These are oversimplifications. But yeah, I guess the guy's fascinating. He is a fascinating guy. I think you described him well. He's extremely high IQ. He's extremely high cojones. and when he gets conviction on something, he sounds insane. And so, okay, you know, I think the main thing is, where does this go wrong? So I think the main place it goes wrong, obviously, if Bitcoin's price starts to crash, the problem will be if, for whatever reason, MicroStrategy stock, which today trades at like a two and a half times multiple of NAV. You know, NAV is the net asset values, like the underlying asset that it holds, right?

42:04It owns$33 billion of Bitcoin. So the question is, why is it an$83 billion company? Which is what you think it should be? It should be like a$35 billion company. Yeah, it should be whatever the asset is, plus the multiple of profit for software. It's a Bitcoin holding and acquisition company. And so maybe you say, okay, here's its holdings. Great. And then on top of that, maybe there's some premium for the fact that it's able to acquire them on leverage. It could do things that a Bitcoin ETF can't, right? So a Bitcoin ETF can issue a bond. It is different. But the question is, is 2.5x the right multiple?

42:36Yeah, that's crazy. The question is, the down spiral looks like this. The unwinding looks like this, which is micro strategy for whatever reason, either because Bitcoin price goes down or the stock market just changes its tune on it, starts to not trade at such a premium to the nav. And now all this money that it's borrowed, these bonds expire 2027, 2028, 2029. If those were to convert, he would be forced into selling Bitcoin. And once he becomes a forced seller, now the whole market, the whole Bitcoin market will start to crash because it'll say, oh my God, MicroStrategy is going to have to unwind its entire Bitcoin position.

43:12That's going to be$35 billion or more of Bitcoin hitting the market. How much is Bitcoin worth? What percentage of a player is he? He owns about 1 % of the Bitcoin float today and he's trying to get 2 % basically. Dude, this guy's intense. Yeah. I guess my short story is I don't know what's going to happen. I guess my disclaimer is this I do not know what's going to happen more than that I'm a novice when it comes to this however I've been in a few crypto cycles before and I've seen in every single crypto cycle when crypto goes up somebody starts being very aggressive acquiring buying crypto using leverage like he's doing right now it hasn't ended well in previous cycles and right now everybody is calling this the infinite money glitch You go on YouTube, you search micro strategy, infinite money glitch.

44:05He's a god. He's the best. And it always makes you wonder, what is the scenario where this unravels? And do I believe that that could come true here? There is no strategy that is risk-free. There is no free lunch. And I think that right now, the entire narrative is about how this is a free lunch, how this is a free money glitch. And I don't believe that. I don't know enough to know the specifics about this, but my spidey sense is tingling. Who's the most conservative Bitcoin so conservative being like they're rational and they can explain the pros and the cons without being overly emotional. Who's that in the Bitcoin world?

44:40So that's a good question. Who do I trust the most to have a rational opinion about Bitcoin? That's a great question. Yeah. There's this guy like Andreas Antonopoulos who I believe is that but he's a technologist. So you don't You listen to him about how Bitcoin as a technology has great potential. So you read his book, which is called The Internet of Money. And he's extremely rational, and he's a good faith actor. Who's the person that's like, if we all buy into this, and if it works, the upside is this. But if we don't, the downside is this. Who just says, here's all the potential. I think a lot of people say that.

45:25I think a lot of people understand this. A lot of people say like, look, Bitcoin has these properties. It could become X. It could become the next gold. Actually, most people fall into the bucket of they don't price that as 100 % certainty, right? They say it's possible and there's a potential for that. That's why I own some of it, but I don't put my entire net worth in it. And it is also possible that it doesn't get adopted or that there's a technical flaw or that governments beat it down in these ways or that it becomes unpopular for these reasons. And that's the risk in this, right? There's a bunch of people that feel that.

45:56Those vocal thought leader rationalists, what do they say about Michael Saylor? They don't take a position. Right now, even as I'm saying this, I'm thinking to myself, I'm going to go cut this in post. Because why take a position? What's the upside? The upside is what? Well, there is some upside. I might be right a few years from now. You're going to look good by predicting things. And there's also the upside of just doing what's right and telling everyone, don't waste your fucking money on this thing. Yeah, but I guess it's, you have to be A, smart enough to understand it. B, you have to have the desire to look right by putting your neck on the line with a prediction.

46:37Yeah, the Bitcoin community doesn't seem like it typically has the... The moral fiber. No, no, I wasn't going to say that. I was going to say they don't mind expressing. They're very vocal. If someone thinks you're full of it, they'll say it. They're also very wishful about their bags, right? I think that goes back to your question of who could you trust to not speak just hopefully about their bag, right? They just – they want it to be true so much that they convince themselves it's true and risk-free. What I'm trying to get at is who's the person who I can trust to find out what the opinion of Michael Saylor is?

47:12I have searched long and hard because before this podcast, I did research to say – and I literally tweeted this out. So if you think I'm an idiot, I also think I'm an idiot. My tweet today was, can someone with a better brain than me explain what Saylor is doing? A, no strategies without risk. What are the risks? What is the math? If Bitcoin drops to X dollars, it becomes a problem. And B, why is the stock trading at such a premium to now? That post has maybe 100 plus replies. I read every single one of them. I read other threads that people have put out about this. If there was one great explanation, I would have just pointed you to it and I would have read it out loud.

47:47I have not found one myself. That doesn't mean it doesn't exist. I have not found one myself that I can read and I can say, oh, in simple terms, I understand why he's doing this, why it's working today, what the risks are, how it would unravel if it unraveled. I'm only recently at the age where I don't trust everyone. Like up until recently, my logic was constantly like, well, the institutions are buying into this, therefore it must be safe. Or whoever's raising the money for this guy, surely they know what they're talking about. So now I've just two years ago got to the age where it's like, they're flawed humans just like me.

48:27And so I don't know who to trust, with these types of situations because I'm so uneducated on the topic. But I have... My spidey sense is tingling. With my own money, I wouldn't touch any of this. Yeah. That's what I would say. I have no proof other than it just doesn't feel good. Do you know what the... I think the Supreme Court or someone like that defined pornography. Like they said, it's hard to... They're like, it's hard to define, but you know it when you see it. What's the difference between pornography and nudity in a National Geographic TV show? You know it when you see it. I don't exactly know it when I see it, this situation with him, but I know that something doesn't feel right, and I can't explain why.

49:18Okay, so here's my commitment. I brought this up today, half-baked, and I admit that. I'm going to go and try to find the smartest people I can to explain this to me until I'm satisfied with the simple explanation of what's going on. And then I'll share that. If I leave this in, I'm saying that as a bookmark to say, let's hold opinions till part two. I might just take this whole part out because I'm uncomfortable with the level of half-informed speculation that was in this section. I think it's interesting. I think it's interesting. But you know that like shockingly people look to you for like this like you are like i asked you that question uh of like who's rational that people look to there are many people who would say sean i am rational but you had two criteria who's rational and intelligent but a lot of people that i fall a little short on in terms of these things right and i think i think that you vote like vocal like you're like i'm still working through this problem I think that's actually quite valuable.

50:24Yeah, I guess I'm just like only 10 % of the way working through it. And I'm just thinking maybe I should have gone to 50 % before coming on the pod and talking about it. But I will say this. A lot of the people who have done well with Bitcoin and the people who understand Bitcoin, it is the midwit meme. They look at Bitcoin and they look at all the information and then they reduce it down into a very simple way of looking at things. and the simple way of looking at things, which is either it's a better version of gold and so it's a tech improvement on gold. There's people who reduce it down and basically just say, would I rather have hard money or soft money?

51:06Meaning, would I rather save wealth, would I rather store wealth in a currency that can't inflate mathematically or a currency that will inflate? And if you just whittle things down like that to a level of simplicity, you can be right without even knowing all the details. And so I think one of the challenges with your question of who are the smart, intelligent people is that the smartest, most rational people I know about Bitcoin a long time ago, eight years ago, told me a very simple thing, bought it, put it in cold storage and moved on with their life. And they don't follow all the twists and turns and they don't try to hop on the next wave and the next trend.

51:39They don't do crazy options trading or 100x leverage. They don't do any of those things. And they made a simple opinion based on a very simple assessment. and they've proven to be right and not over-complicating it, this has been the signal of who's actually intelligent about this versus somebody who's every day on the news, has an opinion on every single thing, is trying to outsmart everybody. Those tend to not be the people that I actually trust their opinion on this stuff. Have you seen that show, Love on the Spectrum? Yeah, I have actually. It's a show about autistic people dating, right? Yeah.

52:13And there's this one episode where these two guys dating this girl and he was like, do you like tacos? And she goes, yeah, I like chicken and cheese. And he was like, I don't have anything else to say, but I want to let you know I'm having a good time. And I want to normalize that in both dating and on this podcast, which is...

52:41And that's sort of how I feel right now, which is, I don't have anything else to say, but I want to let you know I really enjoy this topic. That's it. That's the vibe. That's the vibe. I feel like I can rule the world. I know I could be what I want to. I put my all in it like my days off. On the road, less travel, never looking back.

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