If the market value of our bitcoin increases, we believe this would create more opportunities to manage our leverage targets. With the opportunity to take on more leverage in a prudent, risk-managed fashion, the value generated from our increasing bitcoin holdings would be expected to outperform even further if bitcoin prices continue to rise. MicroStrategy’s value proposition is clear when compared to other forms of exposure to bitcoin. And as Phong said earlier, we believe that the combination of our operating structure, bitcoin strategy, and focus on technology innovation provides a unique opportunity for shareholder value creation. The management team has demonstrated a track record of disciplined approach to navigate through volatile times in the bitcoin market and establish credibility in achieving our goal of generating more value for our shareholders.
Thank you for your time today, and thank you for your continued support of MicroStrategy. I’ll now turn the call over to Michael for his remarks.
Michael Saylor: Thank you, Andrew. I’m Michael Saylor, the Executive Chairman of MicroStrategy. First, I’d like to go over a few performance statistics with you. Since August 10th or August 11th, when we adopted our bitcoin strategy, our stock has outperformed bitcoin, as well as every major asset class along with every major big tech stock, as well as every major enterprise software stock. We’re very proud of this. And for those of you who have followed us on this journey, it’s been a number of steps every single quarter that got us here. But I think that this is a very useful chart to illustrate and discuss some key elements in our strategy and in our business outlook. First of all, with regard to bitcoin, 2024 is the year of birth of bitcoin as an institutional grade asset class.
Bitcoin is being increasingly referred to as an asset class and as a new asset class. And in fact, it’s the first new asset class of the modern era. It’s difficult to really name another asset class. Gold, when it was converted to ETFs wasn’t a new asset. Commodities were never a new asset. 30 years ago, the S&P Index was converted into an ETF, the Spider. That wasn’t a new asset then, but it was certainly a revolution in finance. And so, bitcoin represents many things, but one thing it represents is the first institutional-grade digital asset. And so, we’ve now completed the first 15 years of the bitcoin life cycle. And in that first 15 years, it was largely unregulated retail asset misunderstood. The next 15 years, I would expect will be a regulated institutional high growth period of bitcoin.
Very, very different in many ways from the last 15 years. Bitcoin itself is performing well for a number of reasons. But one reason is because it represents the digital transformation of capital. If we look at some of these other great performers on the chart, like Microsoft and Google and Meta and Apple, they’re all digital transformation plays. They represent the digital transformation of devices and the digital transformation of relationships and the digital transformation of information and books and libraries and entertainment and education and the digital transformation of corporate processes at, say, Microsoft. Well bitcoin’s very profound idea, it’s, what if we actually transformed capital from its analog form, capital in the form of land or buildings, or capital in the form of shares in an actual physical company, or bushels of corn, or diamonds, or bars of gold, or capital in the form of Fiat currency or bonds.
And what if we could actually make that into a digital asset that’s created in order to address all of the historic perceived shortcomings of analog assets. What if we had all the benefits of gold, but none of the liabilities of gold? What if we had the benefits of the share of stock, but none of the liabilities of a share of stock? What if we had the benefits of a building but not the liabilities of the building? A synthetic digital asset. And so increasingly investors are recognizing this. That’s why bitcoin is up 260% since we embarked on our bitcoin strategy. That’s why it’s outperforming the S&P and the NASDAQ. That’s why it’s outperforming gold, silver and bonds. Bitcoin isn’t a company. And it’s profoundly important to understand that it’s not a company, it’s an asset class.
And as such, based on a commodity, it has spawned an entire universe of companies, products, and services built on that asset class. So part of the driver of bitcoin’s performance is not just its protocol and superior fundamental characteristics, but another driver is the industry of bitcoin miners that secure the network and bitcoin custodians and a set of bitcoin exchanges. So we see lots of public companies that are bitcoin miners now. We see many, many companies that are entering into bitcoin custody, like Anchorage, like Bitco, like Fidelity, like Coinbase. We see Bitcoin exchanges, like Block, acting as an exchange, like Fidelity, like Coinbase, like Gemini, et cetera. We’re going to see more exchanges. We see an explosion in bitcoin wallets, different software applications for mobile phones or devices in order to move bitcoin around.
We’ve got bitcoin devices themselves for signing and securing the network. There’s a whole host of companies in the lightning ecosystem and other bitcoin L2s that are scaling the network. And now, of course, this year, we have bitcoin ETPs, Spot ETPs, and even derivatives of those ETPs, companies that are going to trade the volatility of the underlying Spot ETPs are starting to pop-up in application form. And of course, these ETPs aren’t just local or aren’t just United States based, but they’re global. And that’s significant, because every single company everywhere in the world is meeting a different set of compliance requirements. A bitcoin ETP in Hong Kong will serve a different need, meet different compliance requirements and meet the needs of different types of investors from a bitcoin ETP in Canada or in France or in the UK or in the United States.
And so, all of these various actors are scaling the bitcoin network with increasing enthusiasm. MicroStrategy, as we’ve noted, is unique as of now as the first bitcoin development company, but hopefully not for long. We’ve published our playbook and we’re showing other companies how to do it. And there’s a lot of real estate development companies in the world, companies that issue securities and develop real estate. There are a lot of oil or petroleum exploration and development companies in the world. There are natural gas development companies in the world. There are software development companies in the world. So we believe that as awareness builds a bitcoin as a commodity, as a global commodity, as a unique asset class, I think we’re going to see more entrepreneurs enter the space and start to work in these various areas to add value to the ecosystem.
It’s worthwhile to note, people are, in the early days, they thought of bitcoin as currency and a medium of exchange, and that creates a lot of misunderstandings and a lot of inappropriate or irrelevant criticisms with the advent of these new ETPs from BlackRock and from Fidelity. Awareness of bitcoin — can you please go back? Yeah, let’s stay on the slide. Awareness of bitcoin as a store of value asset is growing and people are starting to see bitcoin not as digital currency, but as digital property or digital gold, a digital store of value. You could think of it as gold or you could think of it as property or think of it as another kind of digital store of value. But in that regard, you kind of have to compare it against other liquid stores of value that people are using.
So for right now, the most common alternative to bitcoin for a tech enthusiast would be to invest in big tech, like the Magnificent 7, the Microsoft, the Google, the Meta’s. But as you can see, when the market cap of a big tech company doubles, you have a company doing a lot of work, generating a lot of cash flow to support the market cap. And the work that they have to do doubles. And if they want to double their market cap, their value, again, they have to keep generating — they have to keep doing more work, generating more cash, because traditional finance technique is, I dividend out my cash flows or I buy the stock back. Two very famous examples of this traditional approach are Apple and Meta, who are both engaging in monstrous capital return programs.
So a stock is returning its capital and its value or store of value promise is based upon being able to grow its cash flows faster than the rate of inflation. So they’re working increasingly hard. If you want to make it 10 times more valuable, eventually you got to come up with a way to get 10 times more cash flows. And that’s very different than the bitcoin, because Bitcoin is the asset. So whereas big tech is asset poor, cash flow rich, bitcoin is asset rich and the strategy with bitcoin becomes asset rich. Now we’re moving into a macroeconomic environment where we’re going to see increasing monetary inflation to pay off the debt. That’s well understood. That was even acknowledged by [Jerome Powell] (ph) in a 60 minutes interview this weekend, where he expressed concern.
And so as the monetary supply expands, if your strategy is to generate more cash flows, you’re going to have to grow your cash flows faster than the rate of monetary inflation. And that means that a big tech strategy becomes increasingly difficult. And so you could almost say, a big tech company becomes more difficult, gets harder, right, as the value increases, but bitcoin gets more compelling as the value of bitcoin increases because the liquidity increases and the network of holders increases. So we’re in the first year of bitcoin being viewed seriously as a possible institutional grade store of value. And I believe that over time, it’s going to appeal to technology investors as they understand it as digital capital and the digital transformation of capital.
And there’s a reason that we believe we can outperform other strategies and why we believe a commodity like bitcoin is a better long-term store of value than just buying a portfolio of stocks, because it isn’t a cash derivative. I think that it’s worthwhile to point out that the arrival of the ETFs have been a catalytic moment, because if you believe bitcoin is only valuable as a medium of exchange, then it’s very easy to say, well, it’s slow, it’s not good medium exchange, it’s not the dollar. There are lots of tax problems and liabilities where there are lots of KYC problems, there are a lot of pricing problems, accounting problems, and you just dismiss it. But of course, if we look at all the wealth in the world, only a small percentage of the wealth is stored in a checking account as a medium of exchange.
