Lots More with Matt Levine on MicroStrategy's Infinite Money Machine

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So I went to write one of our-

Matt Levine (0:21)

Thanks for having me.

Tracy Alloway (0:21)

Yeah.

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We do have the perfect guest.

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You're listening to Lots More, where we catch up with friends about what's going on right now.

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Because even when the Odd Lots is over, there's always Lots More.

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And we really do have the perfect guest.

So I went to write one of our Odd Lots newsletters recently, and I was going to write about MicroStrategy, and I had this idea. I was going to call it MicroStrategy's Infinite Money Loop. And then I was researching on the Terminal, and I stumbled on a bunch of Matt Levine columns where you actually titled it Crypto's Perpetual Motion Machine. And then I thought, well, I'm not even going to try to compete with Matt. I'm just going to ask him to come on the show and explain it to us.

Joe Weisenthal (1:40)

Many such cases. But at least he'll come on the podcast.

Tracy Alloway (1:43)

So here we are with Matt Levine, who is, of course, the author of the Money Stuff column, but also the co-host of the new Money Stuff podcast.

Matt Levine (1:50)

That's not new.

Tracy Alloway (1:51)

That's pretty new.

Matt Levine (1:52)

It's like a year old. I keep thinking it's two months old, but it's almost a year.

Joe Weisenthal (1:56)

Oh, really?

Matt Levine (1:57)

No, it's like nine months or something.

Tracy Alloway (1:58)

Wow, time flies.

Joe Weisenthal (2:00)

I always think 2020 was two years ago.

Matt Levine (2:02)

Same, same time.

Tracy Alloway (2:04)

Yeah, time is a flat circle. Matt, what is MicroStrategy's Perpetual Motion Machine?

Matt Levine (2:10)

MicroStrategy. I keep saying Perpetual Motion Machine. I think I'm kidding. I think I'm kidding.

I keep hoping that I'm kidding. So MicroStrategy is a pod of bitcoins that issues stock and the stock trades at, call it, two times the value of the pod of bitcoins. And so if you have that situation, you sell more stock to buy bitcoins because, like, classically, that's an arbitrage and you close the arbitrage, right? You sell stock that brings down the price of your stock, you buy bitcoins that brings up the price of bitcoin. Eventually, you get to the point where your stock and the value of the underlying bitcoins is the same. MicroStrategy, like, it never gets any closer. So they keep selling more stock and buying more bitcoins and that keeps driving the value of the company up and so they keep getting more and more valuable.

Joe Weisenthal (2:58)

They have an asset, so to speak, that's not bitcoin. And that asset is the ability to get, like, non-margin callable leverage, right?

Matt Levine (3:10)

So, I mean, like...

Joe Weisenthal (3:13)

Like, if I wanted to borrow bitcoin or borrow money to buy bitcoin, I could, but there is a chance that bitcoin goes down tomorrow. They ask for my money back and I'm homeless.

Matt Levine (3:20)

So, this is a thing that they say and that has some truth to it, but this is not a levered way to buy bitcoin. And the way you know that is that the market cap of the company is 2X the value of its bitcoins, right? So, it's like an anti-levered way to buy bitcoin, right? Like, if you put $2 into MicroStrategy, you get back $1 of bitcoin, which is the opposite of leverage. Now, it's true. And by the way, also, they do have the ability to, like, they're right. They've sort of touted this as their strategy. Like, we are a better mousetrap for buying bitcoin because we can get leverage. They do a lot of convertible bonds. They don't, I don't think, have a ton of, like, you know, just sort of regular, non-marginal leverage other than the converts. But yeah, that's a theoretical case.