This is “ReSolve’s Riffs” – live on Youtube every Friday afternoon to debate current and most relevant themes in the world of investing.

Among hot and contentious topics in investing, cryptocurrencies certainly rank top of the list – including their designation as a form of currency. From a techno-libertarian experiment, Bitcoin, its peers and particularly the blockchain technology that underpins them, have morphed into a global phenomenon that promises to revolutionize finance itself. Our conversation with our guests Tyrone Voss Jr (401 / Altruist / Human Advisor Podcast) and Shaun Cumby (CIO at 3iQ) included:

  • How cryptocurrencies can be thought of within the context of a portfolio
  • Digital Gold vs Long-dated call option on a store of value
  • The generational factor between believers and detractors
  • Cold vs hot storage
  • Stable coins and crypto’s money market

This was a true learning experience for us, enhanced not only by our guests’ knowledge of the space but also the many questions we received. Special thanks to Shaun and Tyrone for joining us, and to everyone that tuned in and participated in the discussion.

See you next time.

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Tyrone V. Ross Jr.
Financial consultant – 401 

Tyrone is the founder of and financial consultant at 401stc, and Director of Community at Altruist where he also hosts the Human Advisor Podcast.

He is a graduate of Seton Hall University, and was also a 2004 Olympic Trials qualifier in track and field in the 400 meters. He was recognized by Investment News 40 under 40 (2019), and WealthManagement.com as a top ten advisor set to change the industry in 2019. Financial Planning.com named him as one of 20 people who will change wealth management in 2020. 

Shaun Cumby
Chief Investment Officer – 3iQ

Shaun Cumby has worked in trading and portfolio management for over twenty years across many asset classes, including asset backed securities, mortgage backed securities, credit default swaps, bank loans and equities and related derivatives.

His roles prior to joining 3iQ included being the Chief Risk Officer of Dundee Bank of Canada and co-head of the TD Securities corporate loan portfolio. Mr. Cumby earned an M.B.A. from the University of Toronto.

Transcript

Richard:                               00:00:04                Everyone, welcome to our latest ReSolve Riffs. Before we begin it’s good to just let everyone know that this is for entertainment and informational purposes only, caveat emptor, do your own research. This is not investment advice.

Mike:                                    00:00:24                Amen to that, Richard. We are definitely here to have some fun, and really have some behind the scenes conversations. Things that you might you might hear that happened at a happy hour in a conversation that I’ve had with amongst these various gentlemen at many times some poolside, well, all of you have probably had a poolside drink with the time or two. But really happy to welcome Tyrone Ross here, financial consultant for 401stc, director of community of Altruist invested investors, the Human Advisor podcasts, a great podcast if you haven’t checked that out. We have an Olympic Trials qualifier so a high level athlete he knows what it’s like to win and lose.

Backgrounders

Richard:                               00:01:08                Mike your signal-. Now there are bits, that’s Tyrone Ross. As soon as you’re telling everyone the guy’s name it went off. Tyrone Ross here. This other guy is Shawn Cumby. Mike introduce Shawn.

Mike:                                    00:01:23                Yeah, are you guys hearing me or no?

Richard:                               00:01:26                You’re back.

Mike:                                    00:01:29                I’m back.

Richard:                               00:01:31                Yeah, I don’t know, network.

Mike:                                    00:01:32                I apologize. I’m having a little bit of network difficulty but we’ll work through it. You guys hear me now or no?

Richard:                               00:01:41              Yeah.

Mike:                                    00:01:45                Okay. Shawn Cumby, he’s worked at ReSolve in the past, been our head of futures trading. He’s had billion dollar books at his disposal and also launched a crypto asset fund, a Bitcoin fund in Canada on the exchange on the TSX, prospectus listed and the whole nine yards so something that leading edge for Canadian investors again like they were with ETFs. There’s an investable vehicle for investors in Canada to consider at least the crypto asset universe. I have no idea if you guys can hear me or not.

Shawn:                                 00:02:23                Yeah we can.

Richard:                               00:02:24                We can. Loud and clear man. Show us your drink so we can actually get that out of the way. I’m actually going for a COVID free Corona. Cheers. Well, Tyrone, athlete with his water. What are you drinking?

Shawn:                                 00:02:45                A Negroni, gin, Campari and Martini Rosso.

Richard:                               00:02:50                Not bad.

Shawn:                                 00:02:51                Amazing.

Richard:                               00:02:54                All right, Mike, what’s the topic today? I guess we’re talking about crypto.

Crypto

Mike:                                    00:02:59                Well, you Know what? Hopefully you’re hearing me but when we get a lot of interest. I personally have a lot of interest in this new frontier asset class that is crypto assets for a number of reasons. I think that generally in the world of financial, ongoings investment advice and whatnot, not this investment wise, investment topics. I think this is a pretty big topic that is an up and coming topic. This is for me that it’s up and coming.

So when I think about two guys who have actually been on the leading edge of this curve, who have invested significant time and money, and effort into understanding this particular frontier asset class, and committing to that asset class, early on, this is years ago. Shawn and Tyrone came to mind as two leaders in this field and really, we wanted to just pick your brain in an open discussion. No products but lots of knowledge, lots of insight, what’s happened over the last two or three years as you guys have gone in the journey? What were the things that came to mind? How did you make that commitment so early on to really sort of more fully jump into this opportunity or this idea, if you will, and just maybe walk us down that journey a little bit.

Tyrone:                                00:04:24                Okay, so go first Shawn.

Shawn:                                 00:04:27                You want me to go first?

Tyrone:                                00:04:28                 Yeah. Sure.

Shawn:                                 00:04:29               Okay. I was working for a quant hedge fund and love technology, I’ve heard about Bitcoin late 2009, 2010, couldn’t really get my head around it. Remember going through 10 bucks, then 100 bucks, then 1000 bucks and I was like, okay, I’m going to pull back from 1000, set up my application for amount Gox and it literally got hacked. Like a couple weeks after I was still waiting for my account to be approved, backed off and then-

Richard:                               00:05:06                Lucky break.

Shawn:                                 00:05:07                Yeah. Better lucky than smart sometimes, but got involved with the company I’m with now. Invested in them in 2017 and Bitcoin just took off. The underwriters they were planning to do a Bitcoin fund at that point in time. And the underwriters were saying we might raise 2- $300 million for you. So I called them ahead and I was like, have you ever traded two or $300 million of anything? And they were like, “Well, no.” And I’m like, Okay, I’ll be in your office in 15 minutes. That was kind of my bread and butter when I worked at TD Bank. Then just got more and more involved and then sadly had to leave ReSolve due to conflicts of interest and been working there since February of 2018 trying to get a Bitcoin fund listed on the Toronto Stock Exchange. And it finally happened in April.

Tyrone:                                00:06:15                That’s awesome. For me it’s a little-

Mike:                                    00:06:17                 What a journey that was?

Tyrone:                                00:06:19                For me, a little different path. I want to say it was right around 2015. I had a friend of mine he was the one when we were growing up, who was always tinkering with computers and making our fake IDs and everything. Right around 2015 he had mentioned Bitcoin and always anyone in this space has two lives, one when you heard about it, and then the second one where you actually took it seriously and went all in. Finally, he convinced me to download an app called Bread Wallet. And he sent me some, and I was like, wait a second, this is different. Then he was like, “well, I’m going to give you an address, send it to this address. It was it was a third person and I sent it to them instantly. Again, if you’re a financial advisor, and you work in financial services, you realize how long everything takes to settle and clear and do all of that.

But in also growing up poor in the unbanked home, I realized the power of what that’s going to do for folks to not be a part of the banking system and immediately clicked. I’m like, imagine if my mom and dad had this growing up. There’s no payday loans, no check cashing places. No money orders. This is incredible. But I still didn’t read the white paper. So he puts me in this Facebook group chat with to this day some of the smartest people I’ve ever come across, cryptographers, computer scientists, data scientists, the whole deal, and I’m looking at the conversation and there’s all these fancy terms, SHA-256 and Oracle’s and men pools and I’m like alright, it has to be something. I start to see they’re giving each other some terrible investment advice. And I’m like being like that’s where it is. That fall I had a chance meeting with Howard Lindzen, some folks may know Howard Lindzen who’s a pretty notable investor here in Toronto actually. He is a Toronto from Canada, but he’s known in the fin twitch circles as we call it on Twitter and asked him for 15 minutes of his time, he ended up giving me an hour and a half and he goes, “if you want to be as successful as a financial advisor, if you want to be I challenge you to hang your hat on crypto, learn everything you can. Go all in on crypto in the startup space. And I did that then and it changed my life and then literally right as I was getting into it, 2017 happened. Then it was like all right now it’s prime time, you can see all of the mistakes that were made. You can see how financial advisors were completely blind, most still are. But I was able to add some value not only to the retail investor but also to advisors on what this is going to look like moving forward.

The beautiful thing is now the infrastructure now is a lot more robust than it was in 2017. But nothing has been built for advisors, the education is not geared for advisors. There’s no products, especially here in the US that are geared for advisors. So now we’re in this really weird space where we are the conduit to a lot of retail money, trillions of dollars, but our practices, our education, our tools are not set up to be able to handle that. And I’ll get into this a little later. I actually had to build a whole crypto practice outside of the traditional markets, because everything was held away. Then as I left that world, and then continued to build for what I think financial advisors will need in the future and large asset managers by the way, it’s taken on a whole different realm and I’ve been able to use what I’ve learned over the last four or five years to educate not only retail investors, obviously as an advisor, but fellow advisors on the space.

Richard:                               00:10:03                I’m going just jump into what you just were referring to how to position perhaps for retail investors Bitcoin in their portfolios. I remember back in 2017 when I saw this was really gaining some traction and some momentum. I remember reading the Bitcoin white paper and reading some other papers and telling myself that I think I got a hang of this thing. Really what I was doing was momentum trading, I was jumping on to that trend that was sky rocketing. I wrote it for a little bit, made some money, and then I could tell that this may have gone a little too far.

Ever since then, I think last year, I started dipping my toes back in and putting a small position to my portfolio more of a sort of a hedge against an unknown future, something that I don’t understand. Because this is where there’s such a huge information to symmetry in this space. There’s a small group of people that really understand what’s going on. Then there’s the rest of us that are seeing this mega hype and a lot of flow and some major big investors talking about how they’re positioning it into their portfolios. That I think we’ll get into that in a second, but I was curious to see you Tyrone. What’s the framework that you use for individual investors, retail investors to add cryptocurrency in their portfolios?

Frameworks

Tyrone:                                00:11:25                My own thesis around Bitcoin is this, it is a long dated call option on a store of value. That’s my framework. I don’t get into the nuance of is it digital gold? Is it a store of value now? Is it current? Bitcoin is all of those things and more, you can’t put it in a box. Once you see it, you can’t unsee it. So that’s my own personal thesis. I don’t follow daily price action. It’s a long dated to call option on the store value. I think depending on where you sit, it may be a savings vehicle for some. What country are you in? Look at remittances. Is that something that you are – again, if you are a hedge fund, if you are a fund manager, now you’re talking about the non-correlated properties and things like that.

So it depends on where you are, for me dealing with a younger client base that is looking at it as here is something that’s speculative, let’s be honest. To them it’s speculative. It has some properties of being a digital gold so they find that exciting. And then it it’s volatile. So, it has that day trading stock feel, but I’ve never had to pitch it. All the clients that come to me already own it and they come to me because you’re the financial advisor is not going to tell me to sell it. You also understand cold hot storage, hardware wallet, multisig, decentralized finance, borrowing against it, lending against it, all of these things. So they know that they could come to me.

We’re always going to get back to financial planning and the basics of a goals based planning. It always goes there. But right away their comfort level is, you get it. I know you get it. So I’m comfortable talking to you, but I’ve never had to pitch it. I’ve never had to say, well, you’re talking about gold, have you thought about Bitcoin? So they’ve always come to me already owning it and then what I try to do is be honest, is try and get them to diversify away from crypto.

Richard:                               00:13:30                That’s how I was going to suggest….

Tyrone:                                00:13:36                Right. They diversify away from it. Now it’s like, okay, some of the portfolios I’ve seen financial advisors will bug out. There may be some startup stock in there, some founder stock, there may be some Bitcoin. There may be some Tesla and some marijuana stocks in there and then there’s a whole bunch of cash, but that cash could be USDC, Paxos, it could be tethered. It could be a whole bunch of things. And that’s the beauty, again, we can get into this later. But that’s the beauty of the stable coins face right now is that for advisors, they don’t even realize that’s eventually going to be our money market. So when a client wants to sell down their Bitcoin position, and they want to park money somewhere, you’re going to do that in stable coins. But right now, financial advisors can’t even make that connection. For me, it’s all right. What do you own? Why do you own it? Where do you own it? How tech savvy is the client? Going through a full risk tolerance, another investor and policy statement, time horizon, all of those things.

Based on that now I start to open up the conversation is this is a trust in the estate, the tax planning piece. There’s so many parts of it is that as an advisor when you’re dealing with retail, as opposed to dealing with family offices, pension funds, things like that. But I’ve never had to pitch it and then it’s all right, you own too much of it. Let’s diversify away a little bit, you’re highly concentrated, but they don’t even know what that means.

Just a quick example here, but I have a client highly concentrated in Microsoft stock. He works for Microsoft, but he gets crypto and he owns a lot of crypto and I’m trying to get him to understand concentration versus diversification and what that looks like from an overall. What it means to be an investor with a broad and portfolio and asset strategy management strategy, and then kind of help them execute against that.

Richard:                               00:15:28                Yeah, that makes sense. Shawn, what are your thoughts around that?

Shawn:                                 00:15:35                 It’s been pretty much the exact opposite of Tyrone’s experience. Were mostly having to do the…you understand gold being in Canada. Very gold heavy like a lot of folklore around investing in gold in Canada and introducing a lot of people to digital gold. A lot of people, like we’ve addressed the traditional financial channel. That’s where there’s just a ton of money there. We just wanted to create a simple straightforward professional product that if somebody wants to take a position in Bitcoin, one, 2% as an asymmetric return bet for the long term. We suggest, hold it through two halvings. I guess at this point one more halving. It’s been a it’s been a challenge, like Bitcoin. Bitcoin is a challenge. There’s just no two ways about it. Like you can scratch the surface, think you understand it, and when you get into it more and more, it is just-

Richard:                               00:16:48                How long are the halvings?

Shawn:                                 00:16:50                Every four years approximately. We just went through one on May 11.

Richard:                               00:16:54                So your horizon you’re proposing, which is-

Shawn:                                 00:16:58                Yeah, I think over the next four years, typically if you look back 2012 that halving it was a concept and it went up an insane amount then pulled back a fair bit. The subsequent halving in 2016 went up 28 times, pulled back 80%, rose up again, we’ve just passed through the next halving. There’s great potential because everything in finance is a trade, you’re exchanging one thing against another thing. Most people are exchanging an ownership position in a company, they own equity, to get that equity, they sell US dollars. That’s an exchange, everything’s an exchange. So what’s going to be the ultimate denominator for Bitcoin in the world’s eyes is the US dollar. If they continue to print it, now, Bitcoin will only get stronger against the US dollar. So it’s been a struggle the on the products out there, we haven’t had any Canadian bank dealers in our syndicate. But when we look at the flow of where is our stock going? It’s going into the bank’s stock accounts.

Richard:                               00:18:17                Okay, yeah. But do you see it as virtual gold, digital gold into the future? Because when we were thinking about the title for today’s Riff, this was kind of like a half tongue in cheek comment, but also I was looking a little bit at the correlations to gold into to S&P over the last couple of years, and then particularly in Q4 of 2018, and in the first quarter of this year, those are two major risk off events where gold benefited from the risk off environment, whereas Bitcoin endured quite a bit of a draw down. Do you think that that’s part of this idea that this hasn’t really caught on to those with their hands in the levers of power?

Shawn:                                 00:19:09                Right. Bitcoin is still so small. Like it’s probably less than the cash on Apple’s balance sheet. It’s just tiny, but I like the idea of digital gold. Like gold coins back in the day were actually a currency, like a couple thousand years ago but nobody uses gold coins as a currency now. But whenever, thousand years ago, 2000 years ago, you’ve paid taxes with gold coins and so on. But then as gold became more valuable, and a stock to flow made it harder and harder. It became a store of value. I think we’ll see the same thing in the evolution of what is Bitcoin in terms of what it represents to the world so that people will see it as digital gold and then potentially literally like the SDRs, it’ll be something even greater. Let’s say if bitcoin is a million dollars a coin, the slow settlement times won’t matter. Everything will be done fractional, the number of exchanges will be few. When it’s at,  twice the hardness of gold and is incorruptible and immutable it will represent something that humanity has not yet seen.

Richard:                               00:20:29                You’re referring to the special drawing rights of the Bank for International Settlements, right? That’s the analogy there.

Shawn:                                 00:20:34                 Okay.

Richard:                               00:20:35                Yeah, what I was getting at and it’s because I can imagine Gen-Z years, millennials, people that are, they’ve been born with gadgets in their hands, taking to the technology a lot more. GenXers to some extent as well, but I would imagine that people who were born in a time when there were still the gold standard, who happened also still to be that those with their hands and leavers power, those were the largest 401K’s and Roth’s and RSP’s are in Canada, those who still control the large chunks of money. I would imagine that to them, it’s a little harder to jump on that narrative or to embrace it wholeheartedly. Obviously you have people who have jumped on it. So there are exceptions to that rule. But I would say in general, it’s much more the younger generation that may have hopped on and jumped on to this idea. Do you think that there’s also this generational gap and it’ll take a few years, potentially a decade or so until more of the control of this money is in the hands of people whose minds can wrap around the idea?

Tyrone:                                00:21:46                I think so. Well, let’s look at the numbers. 30 trillion or so they said of assets will pass down over the next three decades. You also have the first asset class in history that was led by retail. Retail came in first. Look at look at Coinbase, and actually let’s go back. You look at 2008, 2009 when Bitcoin was introduced to the world shortly after that, we get the iPhone, shortly after that, we get the App Store. That six months two year timeframe was set up perfect for this. Now you have this crazy bull market for the next 10 years. Bitcoin was born in a perfect environment, including tech, demographics everything, perfect time.

But now to your point, led by retail everything is on the phone. I can do it through an app, it’s very easy, and it’s not as hard as some people think for you to buy bitcoin. It’s very simple Cash App makes it very easy, beautiful and simple and safe to buy bitcoin. So I think people really underestimate where it is for retail. But to your point because they’ve done grown up with it, back to those demographics. If I’m 25, 2009 that was 12 years or 13, 14. I grew up with a phone. I grew up doing everything from here, whereas boomers who grew up with having to do research and using someone to utilize research and having a fundamental construct around investing and it fitting into this nice, neat plan, Bitcoin isn’t that.

Which is why now, again, if you look at pension funds, endowments, all the folks that we’re trying to get in, it’s a very regimented and rigorous process before making an investment. If you look at Fidelity Digital Assets, they just put out a report. And I don’t really care about the numbers of the adoption. I never look at those reports. But what are the concerns? Number one concern, volatility. Young folks could care less when on that weekend, March. I think it is March 12 when Bitcoin dropped 50%, not one call, one text, one anything from a client, they expect it, they understand it. Market manipulation very important to the institutional side.

There’s still a lot of that prime brokerage is lacking, we’re getting better price action and liquidity, needs to be a lot of development there. And the last is a fundamental framework for valuing. Now I think Shawn, and I would agree, I think there’s some things there, stop the flow being one, realized cash, there are a few others there, but you can’t put that in front of an advisor. You can’t really put that in front of Howard Marks and go, no, this is it, this make some sense to you. So, I think when you look at all of the things, there’s a digital divide in it. I think there’s also this you could call it a demographics or age divide in terms of where, if I made my money, and I’ve set up financially, I’m going to be slower to move to something that is-

Richard:                               00:24:59                More risk averse.

Tyrone:                                00:25:02                Yeah, exactly. It’s a fad. It’s speculative. That’s how they’re looking at it. Whereas like, why wouldn’t I own gold? And if I’ve seen gold and I understand it, and it makes some sense. Where younger generation is they don’t have that same, it’s here, it’s right on my phone. It’s 21 years old, I just go in and Bitcoin is there’s this thing that was in this app that I downloaded where I also send money back and forth to my friends. I do think that divide there makes sense. But again, as these assets start to be inherited and transferred, now you’re going to have a younger demographic say, “All right, this is what I’ve inherited. I think I’m going to divest some of these things, and I am going to put a significant portion into digital assets and in many forms, but it’ll be interesting to see how that plays out moving forward.”

Shawn:                                 00:25:55                We had the experience where we went to talk to a very, very large multibillion dollar family office and they give all of the kids in the family some money to invest in their ideas. One day, one of the heirs came in and said, here’s a ledger, I bought Bitcoin with my allocation. The PM was like, what do I do with this? He was afraid to even touch it and he’s like, this doesn’t fit with our IT. We don’t know how to do the accounting on it. It doesn’t fit into our limit models. It doesn’t fit into value at risk. And I said, well, at some point when we get regulatory approval we’ll have Bitcoin with the CUSEC. And he goes, that’s what I want. I get that. I might not ever understand everything about Bitcoin, but I understand now how I can use that for a wealth product. The other thing to Tyrone’s point that I love reading about is that, who are these guys that got it early? That it clicked for them. I’m not talking about like-

Richard:                               00:27:08                The cypherpunks. You mean outside of the cypherpunk group?

Shawn:                                 00:27:11                Yeah, even one level past that, like the Winkle boxes, how did they? What clicked for them? I’m talking about like the old finance guys like Bill Miller, Michael Novogratz, the macro investor that became an early ether winner.

Richard:                               00:27:28               Paul Jones has jumped on it recently.

Shawn:                                 00:27:31                Well, that’s very recent, but like back in the day like Peter Berger at Fortress Investment, who’s like a super deep value, credit guy. They got Bitcoin way ahead of everyone else. Arguably they pulled Novogratz into it.

Richard:                               00:27:47               Yeah that’s where he was from. Novogratz was Fortress as well.

Shawn:                                  00:27:50                In Fortress. Dan Morehead who formed Pantera and their level up like some crazy number. I just love reading their story is about how they saw this early and took a small allocation that grew 100 times in value. To Tyrone’s point, like the platform of the mobile phone. The one thing I’ve learned is, we want to look for investments that address a global market through software technology, delivered on a smartphone. You have a globally addressable market instantly. And Bitcoin does that for money.

Richard:                               00:28:35                 But how do you, I mean, going back to both of you guys-

Mike:                                    00:28:38                All right I’m back. That’s the quietest I’ve ever been on any of these Riffs.

Tyrone:                                00:28:45                We missed you.

Mike:                                    00:28:45                I was killed. When you’re at the happy hour, I had to go to the bathroom because I was a bit clamped, I was choking on a hot dog. I couldn’t say anything.

Richard:                               00:28:55                Instead, It’s that island internet, don’t worry about it.

Mike:                                    00:28:57                I got it now. I’m on. So go ahead, my apologies.

Custody

Richard:                               00:29:01                No, no worries, I was just going to ask a little bit about the custodial side of this because I know that this has been a big concern for a lot of people. You mentioned the Mount Gox hack. I remember buying one of those little digital wallets. I think it’s called Treasure or something along those lines. I remember learning how to use it all the little different codes, and I know that for institutional money that’s one of the big concerns. So, some people have used, I think it’s called cold storage. I’m trying to get a little bit more information from both of you guys, how you think on the institutional side, Shawn, but I guess on the retail side as well Tyrone.

Mike:                                    00:29:36                 Okay. Just before you jump into that I’d also like that some context there. Did we talk about the market cap of Bitcoin crypto yet? Sort of the 200 billion in asset of size and-

Richard:                               00:29:52                Is that Bitcoin or all the all the-

Mike:                                    00:29:54                All. I think it’s all the crypto space is 200 billion. So, you know, in the context of the institutional framework, what is the drive towards that? I think I heard you Tyrone talking about the Fidelity studies, there’s probably 100 people at Fidelity working on this in Fidelity Global. You’ve got some people working on the problem. Shawn, that’s one of the reasons I was looking forward to having you on because you actually navigated this in the Ontario landscape from a regulators perspective and actually got a perspective space product that trades at a very small premium to the actual underlying and allows people to take advantage of this right inside their account.

So you got the retail and on the institutional question what you seeing is their objections. What’s the traction? And any speculation on either one of your sides when do you think the market gap needs to get to a trillion certainly makes it a an asset class that has to be reckoned with? At 200 how does that happen? Are you seeing that coming through with your order books on the Canadian side and a little bit of context around that. We got a few questions coming through on YouTube as well. I will come back to those. Those of you asking questions, keep them coming, we’ll get to them.

Shawn:                                 00:31:16                The last trades that we did that just closed this morning we saw much more institutional participation, hedge funds, but also Canadian mutual funds were buying into this round, which is great to see. Because we’ve just said, if we’re going to put this product out there. We want the highest level of professionalism and custody. And we found that with Gemini, we evaluated many. We love them. There are other great guys coming up the curve. But I’m very interested in Tyrone’s experience because I know one guy who got involved in crypto, he bought a bunch of ether and kind of forgot about it. Then was reminded about it and he looked at his phone and he had $6 million worth of ether on his phone. I hear these stories about guys, like I met a guy that mined Bitcoin from early in 2009 which he was on the original cryptography list through 2013. He got divorced then. I said, did you set your mining rigs up again? He goes nope. But you know what? It didn’t matter. He has everything on metal cards and he’s an honest cryptographer. But I see these guys that are walking around with literally 10’s of thousands of dollars in their hot wallet. What do you do when somebody comes to you like that?

Tyrone:                                00:32:50                Great question. So let’s create a framework around this whole conversation. I’ll start with financial advisors to move out. For financial advisors is a very interesting place and very complex which is why it’s a very weird spot for an advisor to be in. Bitcoins a bearer asset. The law is I can hold it, I can then take that in and now I’m in the whole crypto ecosystem. I’ve come across that same thing with the when the clients who that is like, okay, well, you want to know…again, their tech savviness, how much are they able to be secure with holding that much crypto on their phones, which a lot of people have that. So you have the sim port attacks now, there’s a lot of issues. But they do put it on a hardware wallet.

Now, what do they do with that? Because if they lose that there’s all the crypto. Do they put it in a safety deposit box? There’s a lot of conversations. The main thing that I tell financial advisors is if you have a client that comes to you and they say, well, I have crypto and Coinbase or finance all these other phrases. You panic a little bit because you’re like, okay, well, Coinbase in my opinion is the best house in a bad neighborhood but as a fiduciary you want to talk to them about the safest way to do that is to get it off of there. You want to be able to help them with some custody options. Now, I’ve had conversations with Gemini as well for some projects that I’m working on. And Gemini is a really good quality store, two audits, all that other stuff really great place for those that understand. For financial advisors is Fidelity hard stuff. For no other reason they trust Fidelity. You’re not going to convince them that they’re going to put their clients crypto where to start. And that’s what Gemini is. It’s Fidelity or bust period. It’s no conversation after that. Now there are other great kingdom trust in so many others, Bit Gold, we could keep going. It’s Fidelity hard stop, because you know what else I probably custody my brokerage assets, or other assets at Fidelity. They just have the trust and trust managed here.

Now go a level higher. When you look at institutions again from conversations that I’ve had which is interesting here and Shawn, I’m sure you start to have these conversations well is two things, decentralized custody where atomic swaps, atomic swaps and then also multi SIG. So when you have decentralized custody which is coming, which I can’t wait for but again, how do you explain that to a financial advisor or you sit and explain that to Wisdom Tree? You can’t, you have to explain to Thomas Watson what multi signature is and multi signature is simply you need more than one signature for that Bitcoin to move. What’s missing within the institutional conversation is exactly that. I’ve had conversations with Wisdom Tree, their head of research. I asked him, I’m like you guys use, I want to say to you use this. This is what you’re used to because every thought about multi SIG. Are you familiar with atomic swaps, the instant transfer of assets, decentralized away from you, so maybe it’s at State Street, you have some at Fidelity, and then you have some yourself and here with your internal. You have a two or three signature, two people have to sign. Maybe the client takes some, maybe there’s a trust and estate attorney involved.

So custody is very sticky, depending on where you sit but it’s gotten better. There’s a lot of really good choices. Like I said, Gemini is really good in terms of their security models and how they are a qualified custodian. But again, for individual retail clients, if you buy all Cash App, it immediately goes into cold storage. If you want to take that off of coin of Cash App right, you got to tell that client, well, these are your treasurer or ledger.

Richard:                               00:36:38                Does that actually work though? The cold storage. I understand that the hot wallet is just something that’s online that it’s susceptible to hacking, but the cold storage is just basically something that’s taken into a hard drive outside unconnected from the web. That’s it. Is that just the distinction?

Tyrone:                                00:36:55                Simply Yes, it’s offline. It’s just offline actually you can control that. Again, as an advisor, there’s a lot of interesting things there from an estate conversation and trust conversation that other folks just don’t have to have, but even from…Now here’s the other piece. No one talks about this, especially on our side, is insurance. I’ve had conversations with Backed, Gemini. What is the insurance piece into that point? Okay, you have $200 million insurance. Fantastic. What does that $200 million dollars cover? Is it 90% to the hot? Is it 10% to the cold? Who gets priority there? Guess what, if you’re an individual investor or you’re a financial advisor, institutions are going to get protected first, that’s just always going to go, the institutions are going to make sure they’re going to get full insurance, and they’re going to be covered by that. Retail not so much. But I’ve had to really dig into these conversations. What does the insurance cover? Where does that go?

These are conversations that are not being had as fiduciaries, we have to have that conversation, which is why Fidelity knows right now, we’re going to stick strictly institutional because if we open up Pandora’s box for retail and advisors and that whole thing, because where the client is going to do. Okay, fine. Mr. and Mrs. client, I think we’re going to take $50,000 a year portfolio, we’re going to put it into Bitcoin through whatever Fidelity Digital Assets ETF. That’s everything. You know what that client is going to say, okay, great. Is it insured? What happens if it goes to zero? Is there FDIC insurance and that advisor is going to go, what?

So we have a long way to go with custody on the retail advisory side, on the institutional side is more robust. But there’s still that issue around the insurance and what is covered versus cold versus to hot. What type of the account structures and things like that, but it’s very interesting when you look at the options that are out there. Again, Shawn agreed like Gemini is high quality. But for me to explain that to some of my colleagues, they’re just not going to get it. How old is this? I think 2014, 2015. It’s like not putting my client’s assets there. But Fidelity is immediate trusted source, which is again, the messenger matters here in the space when you go in to have these conversations.

Insurance

Richard:                               00:39:31                To the insurance point, I think there’s a distinction there. One is insurance against hacking, how it’s supposed and then there’s got to be a distinction between how the custody was but you were also mentioning insurance against possibly if it goes to zero sort of thing. I think those are probably two separate conversations. FDIC.

Mike:                                    00:39:52                Well, I think he’s talking about custodial insurance.

Tyrone:                                00:39:57                I’m just saying to clients. A client now’s not going to care about any of that. They’re just going to say what happens if it goes to zero? But yeah, most of the custodial side is just simply that insurance coverage and again, the ability to buy more or whatever that looks like to get a State Street or Prime Trust or somebody in. I’ve had hours and hours and hours of conversations behind the scenes and they’re just not ready to be bought for advisory and asset management to come in yet.

Mike:                                    00:40:32                 It’s truly a pervasive issue. Custodial certainty, whether you’re talking about futures commodity merchants going belly up with client money, as well as over the centuries, banks going, having bank runs. This is not particularly new. It’s extremely important especially in a frontier asset class where you have minimal history and experience and it’s such a unique asset class as you alluded to. There’s the possession bearer. It’s a bearer asset. A couple questions here. One question we’ve got, what do you guys think about decentralized finance, DeFi. So major players are offered eight to 10% yield on stable coins. But it’s not exactly risk free. How do you evaluate that risk or reward? Or do you? I don’t know if you guys look at that or don’t but.

DeFi

Shawn:                                 00:41:21                 I’ve been digging into it and you’re basically taking counterparty risk right now. It’s a very strange animal to me that you’re going to over collateralize account to borrow some cash. I understand where people don’t want to sell crypto. If they’re up, they don’t want to pay taxes so they borrow against it. These yields are unique.

Mike:                                    00:41:58                Can you explain it a little bit more even I’m a little bit foggy in the Shawn. So like a margin account for your brokerage where you have X amount and you can borrow from that amount.

Shawn:                                 00:42:08                If you have $150 worth of Stable Coin or Digital Token and borrow $100 so your accounts over collateralized. You’ve given up the keys basically, you’ve moved that crypto over in many cases and if you broach the collateral level or volatility exceeds the level they can sell you out Bit Max like. Coming from a credit background, we say like the road to hell is paved with reaching for yield.

Mike:                                    00:42:46                We have a whole chapter in our book on that. It was just one page big letters, don’t.

Shawn:                                 00:42:52                These yields are extraordinary. I don’t know whether there will last but I’m not an expert yet.

Richard:                               00:43:03                What are Stable Coins exactly? Because I’ve read a little bit on them and say, how would you differentiate a Stable Coin from Bitcoin, Etherium or any number of those more well known cryptocurrencies?

Tyrone:                                00:43:16                So I’ll take that and also answer the first question. I’m super excited about DeFi. It is a house of cards right now. But I think what you’re seeing on DeFi is the future of finance being built on the Etherium blockchain. Again, there will be a lot of projects here that are going to fail. But when you look at borrowing, lending, insurance, investment, all these things, Dharma right now is the most impressive thing what they’re doing. I would encourage everyone just download the app, just to look at it. It’s incredible what they’re doing. And then you also have to understand here is that the crypto space is missing its iPhone moment. It needs his iPhone moment where everyone just goes oh. That’s where it is. Very easy to use and it’s beautiful. Dharma is inching us there through decentralized finance. You can transfer money, you can buy ether on there. You can collateralize it again. There’s a few others out there. But it’s a beautiful experience. The yields are crazy. You’re taking a lot of risk, counterparty risk right away, smart contract risk. There’s a lot of risk that you’re taking but just to be very careful.

Again, I’ve had a client that literally collateralized ether to die and paid off, forgot what the number, almost $100,000 worth of student loans. So it’s working for folks that are very well versed. I sat with a prospect that had roughly $3 million. If he never wanted to, he would never have to touch the traditional banking system again. Everything was run on ether. And he was showing me his portfolio and it was remarkable how he completely removed himself from anything in a traditional market. It’s impressive what’s being built. They’re still very early House of Cards I would encourage everyone to read more than you actually do. And just take a look at Dharma and look at that. That’s where it’s going. Now to your point just like all things here, I think crypto currencies is a bad name like Stable Coins. Crypto dollars which someone a very prominent name in a space Nick Carter is trying to remain them it’s crypto dollars, and they are simply…the difference from Bitcoin is they’re just simply now they were made to be stable to simply transact and move value as $1 on the blockchain essentially.

Richard:                               00:45:35                There’s a peg on it.

Tyrone:                                00:45:38                Yeah. And there are some that are fiat backed. There are some that are collateralized. So I can turn, I could take some of my ether, I could collateralize that and turn that into Di, which is a type of stable coin. Or I could use something like a USDC that’s backed by actual dollars in other things. So the goals for both of them to have a stable value. But again, tech savviness goals, all these other things depends on how you actually would use crypto dollars or stable coins. For advisors and asset managers you probably want to stay more towards the fiat backed. Some of my clients and people that are more tech savvy want to get into the synthetic collateralize type because it allows them to do so many like that. I do get crazy leverage and do all types of stuff depending on what it is you actually collateralize and what you actually use.

Also for financial advisors out there be very careful because DeFi taxes for your clients is a nightmare, they will ask, I just posted on Twitter I got a DM this advisor panicked. Not only did he not understand what basic attention token was and ether was, but there was there’s all these in and out trades whatever to like add some crypto accountants to your centers of influence immediately. So the taxes there get a little crazy as well. But I’m a big fan of DeFi and I think moving forward that’s where the future especially of financial services are being built.

Mike:                                    00:47:10                Interesting. Another question is do you think that Bitcoin market dominance failing is something to worry about? I’m not sure the context of that exactly. But take it as you will.

Bitcoin Dominance

Shawn:                                 00:47:23                Yeah. Not me. I think that over time it’s just going to pull away and away. The problem I have with a lot of other tokens that are built on projects or ICO’s is they have some of the worst governance structures imaginable. It’s like, okay, this company wants to raise money to build something out. Let’s give these guys all of the money they ever thought they would make up front, and let’s see how that goes. You get an Instagram of a guy driving a Lamborghini in Mongolia. Okay, well, I get lesson learned.

Mike:                                    00:48:03                Yeah, you don’t want to have a Lamborghini in Mongolia. So –

Richard:                               00:48:10                That’s the lesson.

Mike:                                    00:48:12                I see you nodding along. Is there anything else you want to tag on to the end of what Shawn was saying there? Because I saw you nodding along pretty hard on that particular point.

Tyrone:                                00:48:19                No. I agree. I agree wholeheartedly. Not much to add there.

Richard:                               00:48:26                 How about Velocity Coins or Velocity tokens. Someone was mentioning this to me the other day. I hadn’t even heard of it before, and it also hit my head. All right, enough of this conversation. I also heard that they have a couple of them backed by gold and silver. So a couple of tokens backed by actual precious metals. That strucked me.

Shawn:                                 00:48:48                Yeah, digital tokens based on gold have been around and tried for a long time and it didn’t work so well for the last guy ended up in jail. There are some innovative ideas where the token would be based off, based on a pool of, for example, T-bills. Say 80% T-bills, 20% five years and then the remainder being like, say like a pool of high yield. So your token is actually generating interest. Now, that’s interesting because people that work in cash management, they move cash between corporations and banks, but here, and then they reinvest it, they’re like, okay, we’ll take in three and a half billion dollars from a European entity into Canada and will pay you whatever, 30 basis points in interest per annum. But now instead of moving dollars, they’re moving a token, that actual token which is a payment mechanism is also the investment. That’s a really interesting idea.

Richard:                               00:50:00                I’m going to throw a couple of provocations at you guys based on that. One of them is just that all these different acronyms for collateralized assets based on tokens hints of the last great financial crisis a little bit, there was a lot of that going on, financial engineering. Just an initial thought. The second one is if you’re backing all these tokens with stuff that’s in the system via currency, or precious metals, or even these more exotic assets, isn’t that somewhat defeating the purpose of this hedge against the system or this protection against the dollar itself in the dollar based economy to some extent?  What are your thoughts?

Tyrone:                                00:50:45                To start where you just ended, no. Because you are still operating outside the legacy financial system. So the whole thing where DeFi now is, again, decentralized finances. There’s very little KYCAML. Take that as you will, whether that being good or bad, I think we all agree that’s not the best thing. But they’re starting to integrate more of that. And that’s where folks get a little itchy and be like, well, it’s not really decentralized anymore. There’s some projects again, that are completely algorithmic programmable money out of the system. Then there’s some that are still tied because again, even Dharma you can link a bank account and things like that. But again, these are on ramps to just allow you to get away more from the legacy system. What was it? Remind me, what was the first part of your question that you asked?

Richard:                               00:51:37                 Now, I was just talking about all these collateralized ideas behind tokens if that-

Tyrone:                                00:51:47                …

Richard:                               00:51:48                Yeah, well like a bubble feeling of people adding leverage onto the system and tacking on different layers that could potentially become. I’m not saying that’s where this is now. I’m just saying that.

Tyrone:                                00:52:01                No, it’s there and it’s happened.

Richard:                               00:52:04                So there it is.

Tyrone:                                00:52:05                In March, again, the House of Cards fell, made the Maker Dow and not to get into all that they did. But there was a big issue with the overcrowded collateralization of the assets and then the price drop in the market, 50% price drop. So what happened? The beautiful thing though now is I think what we saw even coming out of, 2008, 2009 and traditional markets is what we experienced this year with banks being capitalized at least. So they telling us, right capitalized well enough, and they could withstand any macro-economic shock better than they could then. With DeFi that is going to be the same thing. I think they learned that lesson. Again, it’s still the wild, wild west of who could write a better algorithm.

But I think as they continue to fail as they get stronger, as we get into Etherium 2.0 and the blockchain starts to be more developing side chains and all these other things, it’ll start to become more robust. And it will have a stronger foundation than it does right now. But the experimentation and everything that they’re doing is very similar to that. And you saw right away, you get a 50% drop one of the most prominent projects in the space fail to do what it was supposed to do. Going back to governance, as Shawn mentioned in a lot of these other things. They’re going to figure that out because again, they’re brilliant. They’re just tinkering writing code, monetary economics and fiscal policy all that stuff. Completely formative but they’re learning that right away, right of how that works. And just really quickly, that’s the beautiful thing about Bitcoin, that’s all built in. The monetary policy to the difficulty adjustments, that’s all embedded in the system, is beautiful math of how it works.

Mike:                                    00:53:57                It’s interesting because there was a question earlier on about, I think blockchain does that mean money? What is Bitcoin? And so all of this conversation is really sort of about the various applications that the concept that a blockchain, a distributed ledger will achieve in so many different domains. As a simpleton in this domain, I think of it is sort of the invention of the internet back in the early 90s. There was no way we could imagine how that was going to transform the world and how it would be used and what the applications would be.

And I think, from a blockchain perspective, you’ve got contracts, you’ve got currencies, you’ve got the ability to interact between those contracts and currencies, you’ve probably got logistics items that you can cover. We really probably can’t even imagine all of the use cases that will represent themselves over the next 20 years. I think that’s that thesis that you would have to believe in at the beginning in order to and all to jump all in is you two gentlemen have on this topic. You want to add anything there because I just wanted to cover that one question that was earlier on about the difference between blockchain, Bitcoin, and the different types of any further clarity, I’m sure would be welcome.

Blockchain

Shawn:                                 00:55:24                Blockchain is just like a very slow but secure database structure. And it’s only when it’s distributed across this massive decentralized network, does it have value beyond frankly, Microsoft Excel? And that was the brilliant turn that Satoshi Nakamoto figured out. He was like, we’re not going to pay people, we don’t have the money to actually pay people to run this database. But if they’ll do this proof of work, we’ll pay them in a token, that over time, we hope will appreciate in value because the work they do now, and in the future makes that database secure. And as it grows in value, and it can be used as a trust machine to transfer value, people will want to use it for transferring value. We’ve done a bunch of trades in the last few days and right now I monitor the blockchain.

I just saw a trade go by for $176 million in the current mempool. The amount of value being transferred on the Bitcoin blockchain is just astounding. I’d encourage anyone to go to tradeblock.com, click on Bitcoin and see the actual blockchain being hammered together in real time. You see the transactions on the lower right, you see the blocks being formed. It’s an amazing thing to watch. And then when you go to a website like Bitnodes, and you see all across the globe, all of these flashing dots, nodes which are not miners, but they’re people that are basically contributing hardware and electrical power towards keeping the blockchain safe. I’ve said this before, Bitcoin and its associated blockchain in my opinion, is the most egalitarian effort of humanity. When you look across the 10’s and 10’s of thousands of people that have reviewed the code, like maybe hundreds of thousands of people that have reviewed that code, that have been improved it for no payment to serve as a decentralized system where nobody can get paid the way that people get paid in the traditional centralized organization. It’s astounding. It’s amazing to me. It doesn’t matter who you are, what you look like, where you are educated. If your ideas are good enough, they bubble up through a process of people that have proven themselves technically. And if your idea’s good enough, it will get implemented. That’s fantastic.

Tyrone:                                00:58:39                Yep. Open Source. Absolutely.

Mike:                                    00:58:43                So there’s certainly an energy component to that. Someone’s asking is blockchain an energy hog? You can comment on that. And then secondly, what happens when all the Bitcoin is mined? What is in it for the distributed work environment to continue to track things, like in 2044, what happens then?

Tyrone:                                00:59:09               It’s a great question.

Mike:                                    00:59:14                Yeah. We’re speculating, we’re having fun.

Tyrone:                                00:59:18                 Only because there’s a really good piece, I’d encourage whoever this is that Nick Carter just wrote about the energy that Bitcoin uses and I think it’s a really illuminating piece about how much of it is actually renewable. About how it’s fruitful, the energy that it used to create something that is hard and demonstrates so much value. I don’t really get into that much. That’s not my argument, but I think if you read Nick Carter’s piece, he illuminates very well why a lot of that is bunk. And he kind of fixes that argument. But I don’t know if Shawn has his thoughts on that, but that’s my feeling on it.

Shawn:                                 00:59:58                So on energy, you’re like recently, somebody said that Bitcoin annually uses as much energy as the United States uses on Christmas lights, or, it uses a fraction of the energy used by the global gold mining industry. And whatever it does use remember this, somebody is paying for that energy. And if we’re going to believe in a capitalist market, and maybe it’s not maybe some people are levering off of free energy in different places. But at the end of the day, somebody has to pay for the energy, for the hardware, for the real estate, for the HR to maintain that. This is not something that gets created out of thin air. So whatever people are paying for energy is worth it. It’s like-

Mike:                                    01:00:52               It’s creating a value. Creating something of value.

Richard:                               01:00:59                To your second question I guess, no Mike, I was just curious. The second question that you asked and Shawn, Tyrone, what happens when the last mining runs are completed? You 2044, I don’t know if that’s in fact the exact thing.

The Future for Mining

Shawn:                                 01:01:18                2140.

Tyrone:                                01:01:20                Whatever happened?

Shawn:                                 01:01:20                Yeah, the idea is that the transaction fees will make up the revenue for the miners. And remember right now there’s like 9000, over 9000 nodes running where people just maintain a blockchain on their own node to make sure that things are secure. So I expect that that’s going to increase over time as well. And if we do look at layers on top of Bitcoin like Lightning Network and something, your smaller transactions will occur there and they’ll get aggregated up and then settled globally on the blockchain because it will be expensive to do things on the blockchain going forward.

Mike:                                    01:02:06                Interesting. So we talked about 100 year timeframe, then what’s the chance that this quantum computing eventually ordered quantum computers do all of this? Now we’re getting to sci-fi a little bit, which is really fun.

Shawn:                                 01:02:19                 I thought so at first, but when I really looked into it, and again, not an expert, but it just seems to me a bit of a red herring. Like, you got a 10 minute block time and the amount of what you have to reverse and then people are like, well, we’ll just use it to crack Sha-256. Sha-256 is pretty hard. But maybe by the time that those entities or those computers are functional, we’ll be at Sha- like, a 10 multiple of that. You’re talking about the energy to spin up a quantum computer is pretty high.

Mike:                                    01:03:05                Well, yeah, and I and I think you make a good point. It is a bit of a red herring. Look at the system we’re running on. Does that have some problems and issues?

Shawn:                                  01:03:12                Yeah, you think that …

Mike:                                    01:03:19                Right. I got it right now. I have a four digit PIN. It’s probably a red herring. Greg Krause also asks, what market cap do we think that Bitcoin can achieve given let’s say gold as a $9 trillion dollar total market cap. So in the context of an asset class now backing out of the deeper deep into our fingers into the mining in the proof of concept, but backing it out and going here we have a $250 billion market cap asset. If it proves proof of concept, like we’ve talked about, what’s the potential for that growth? Does anyone have any thoughts on that or dare to make any? Obviously, you gentlemen have made pretty big investments in this. I mean that in the way just when you put your own personal careers into something like this. So I’m thinking that you guys are going to have a pretty good number on this pretty high number. I do accept that you have some bias but I still want to know it.

Richard:                               01:04:30                Skin in the game bias. Is that what we call it?

Tyrone:                                01:04:33                It’s going to begin a career risk. So I always tell people this way. When you look at market cap, again, I don’t know if that’s the right metric to gauge on we’re doing that now. So this is what I said. Overall when the entire space and there’s still a lot of junk that has to die. But when the entire space gets somewhere around a trillion dollar market cap, now you’re cooking with grease my mother would say but before that I think a couple things happened. When we even wink next to new highs in Bitcoin all hell breaks loose. You’re going to see a lot happening from the institutional side, from retail and so we’re really see what happens. So Bitcoin could jump in market cap itself to the full market cap of where we are right now in the entire space.

Richard:                               01:05:28                It’s 100% from now because the high was 20,000 ish around there.

Tyrone:                                01:05:34                Right. So again, I feel like we can get into that. I don’t know if we approach gold but again, I just think the benchmark that I said is let’s just get to a trillion dollars in space overall. Now you have something as viable that showed some life again. Eth is still really young, Bitcoin is still really young. Let’s get that Lindy effect going and then we could talk about bigger longer term timeframes, more research and numbers and then that market cap number will come. But if we just get to a trillion dollars of overall value in the space, I think you’ll start to get really heavy hands that are like okay, this is going to be around, more financialization of the space and then you go from maybe a trillion total to again Bitcoin getting up that number itself and then approaching that market cap for gold at some point.

Mike:                                    01:06:30                It only took Amazon like 20 years to do that. I think the stat is there was 390 percent declines in Amazon on the way. So the volatility is something, that’s why I think at the outset, you gentlemen talked about what’s the position size initially? Well, for someone who’s unfamiliar, it’s small. Then Tyrone’s conversation is totally different, like 90% is a little high you should probably diversify.

Allocating

Shawn:                                 01:07:03                I would throw that like 3 trillion. Let’s get to the next halving plus a year when you think about what has more utility to human beings on the planet, Apple, Amazon, like that are trillion dollar plus companies or a global means of payment and savings that addresses all of humanity. I’m going to say like a third of the value of gold and that’ll evolve over time as people become even more and more comfortable with it.

Mike:                                    01:07:43                And then and just one follow there. How do you think governments evolve? Because we do have to pay some tax at some point. I get there’s this whole world of the crypto space, the libertarian side, but there are social programs that we have to fund and so when you take things off book so to speak. Like are government’s going to be participating in this and taking their portion of that in order to spend on various programs to fund whether it’s education or better living or healthcare. Like there’s a whole number of things that government serves a role in. We’ll all take a different varying degree on how effectively they do that, and that’ll be also the jurisdiction that we live in and all kinds of stuff going on. We’re all going to fall in, but how? Have you guys given some thought to that because that’s something that I look at that and say, I don’t know how that manifests. Maybe it’s super easy, and that’s just how it happens. But any thought been given into that in the greater sort of crypto space with you two gentlemen?

Tyrone:                                01:08:54                So for me, right here in the US, Bitcoin is considered property and the government now wants to know if you own it, be holding to trade it whatever they want to know. Also, there’s no wash sale rule which is interesting. But any capital gain again it’s taxed. If you sell the capital gains is taxed, and I think that will be the majority of folks that will pay taxes on it, there’s going to be a small subset who opts out and when a libertarian go to jail but I do think for the most part, there is a tax planning around the conversation around it if you’re a financial advisor. Again, for those who hold a large position want to borrow against it. What goes on there, DeFi folks who even trade in and out, there’s a lot there. The other thing is being able to reconcile your losses versus your stock and things like that. It’s a very interesting tax conversation, but the government is going to get theirs for sure. Especially here in the US. Again like you said, what they do it, it is a whole another story, but they’re definitely working to get theirs here.

Shawn:                                 01:10:10                I’m going to quote Mike Novogratz on this, he’s like pay your taxes. Then I assure you like, I did a certification as a crypto asset investigator with Cipher Trace. And it was taught by a woman that spent a fair bit of time working for three letter government agency. If you don’t think they’re going to find out what you’re doing, you really got another think coming. Everything can be tracked other than say stuff that is like coin joined or is in ring signature type of currencies. But god help you at some point in the future you’re crossing a border, and you have a Miniero balance on your phone. They scan your phone, you got to Mineiro balance. We’re going to talk to you over in this room now.

Mike:                                    01:11:07                Well, it’s like the $10,000 you’re crossing the border with maybe. I guess I’m coming back from even, so I get that part pay your taxes here, but I’m paying my taxes, let’s say in US or Canadian dollars. If it’s a currency does the government ever…Because part of the play or part of the attraction here is that it’s not diluted. I suppose what you’re saying is it’s sort of like gold. If they want to print as much money as they want, let them print it. This is my bank account. This is where I’m going to hold my money. And you can print as much of that as you want. And I’m going to enter that world of currency, whatever fiat currency you’re in, wherever I might be, and I’ll use it and spend it but really, I’m going to hold my state, the stability, is that is sort of that I guess the first 50 years?

Tyrone:                                01:11:55                Probably. Yeah. Again, Bitcoin has to evolve still. So the lock his hands, the whales, so to speak, at some point will be incentivized to move away from it and there’s attack locations there. There’s some divestiture and reallocation of assets, and that’s going to happen at some point. But right now that savings mechanism that store value type of component is very compelling. But there’ll be a point where Bitcoin evolves, and it becomes much more part of our everyday life. And I know, they’ll be incentivized to do that. It’s a really good point. I agree.

Richard:                               01:12:37                Yes, the whole idea between low and high time preference. I guess, everybody that told me and now has a low time preference, but I kind of wanted to circle back on something we were talking about earlier in the conversation then using what Mike just said now. Is it gold? Is it currency? So, you deal with people that maybe have 50, 60, 80% of their portfolios in crypto Tyrone, but if you were to say okay for instance, let’s say average investor is already thinking outside the box a little. Maybe he’s holding 50% equities, 30% bonds a little bit outside of the 60, 40 and 20% and alternatives. What would be the range for more risk averse or more risk tolerant investor that you would say, and where would you carve that portion out for you to position a wallet of crypto and would you diversify it or would you hold particularly Bitcoin? How would you position out for the average retail investor that’s starting to consider it for a portion of their portfolio?

Tyrone:                                01:13:36               You know it’s funny. I’ve taken a controversial stance on this. I don’t get the whole 1% allocation thing. I get it, get off zero, but if you really care about an asset and you think is going to do what it’s supposed to do with your portfolio and you have conviction why only 1%? Now I understand why the … Grasses in the world and those folks will tell financial advices that in others, I completely get it. I don’t have anything to sell them. So I say, run the models. Have 90% cash, 10% Bitcoin. Run the models again. Jeremy Siegel just came out and said the 60, 40 is dead. Like take a little bit of that 40 now, and maybe it’s 15 into Bitcoin again, he hated gold, but now he’s saying, there’s some interest in gold now and I just retweeted a podcast I did. I’m like, take out gold and put in Bitcoin here.

So that matters. I feel like if you really have conviction, and you’re having that conversation with the client, I would feel comfortable maybe in that two and a half to 5% range if you really have conviction. Again, how are you going to classify that? What sleeves that is that the alt sleeve is… You got to figure that part out, but I just never got a 1% allocation. Again, for larger investment managers that’s significant. But for what I do 1% is like what are you doing?

Richard:                               01:15:06                Where would you carve out of the portfolio? What would be your recommendation? Or at least what’s the framework in any of this?

Mike:                                    01:15:13                Well, we need to have recommendations. If you were speculating and you had something came out of your mouth that you weren’t responsible for.

Tyrone:                                01:15:25                If I accidentally? Here’s how I frame it. This depends on the advisor, you’re asking for me, my clients are very young. That bond piece is already very small, if anything. So you’re probably taking away from that equity piece. It’s not going to be, let’s take away from your T-bills or your corporate bond portfolio. It’s probably going to be, alright, you own enough Square, you own enough Slack, how about you put maybe 5% here. That’s how I would look at it but again, I think a financial advisor deal with retirees…. conversations.

Mike:                                    01:16:06               That’s a great point Tyrone. I’m going to just jump in and flip this over to Shawn because you mentioned something to me, Shawn, we were having conversation probably a couple weeks ago about how some tech funds are actually looking at Bitcoin as an investment in their space. Because Tyrone mentioned, Hey, Slack and so on and Shopify and Spotify and all the shops and spots. But maybe Shawn you can give some more insight on that on what you’re seeing on that side for you.

Shawn:                                 01:16:38                Right. These tech guys are going back to the framework I talked about before, what is like a technology based platform deliverable through mobile devices to the entire population at once. And you can think about Uber, Slack, Square, the pivot that Facebook made to mobile. It’s like that’s where you’re going to get a lift where now you’re addressing 7 billion people at a go. Why is Shopify worth more than any of the Canadian banks which make more money than anyone knows what to do with,? It’s because they can address a global market, essentially through a mobile phone using software.

Mike:                                    01:17:31                Software eats the world. Who said that?

Shawn:                                 01:17:34                Marc Andreessen.

Mike:                                    01:17:36                Software eats the world.

Shawn:                                 01:17:36                They’re big into crypto now, they have a crypto fund. And that’s what’s going to happen.

Mike:                                    01:17:45                I gotta up my allocation immediately.

Tyrone:                                01:17:48                It’s like one of the things that became obvious to us when we were putting our product together is that it’s tax compliant. It’s like you have the exposure to Bitcoin but it sits in your account as a stock. Not only do you get all of the industry insurance funds like CIPF around if your broker goes down, you’re protected. It doesn’t protect the asset, doesn’t protect you from the asset being volatile or going down. But it’s now infrastructure that makes it accessible to a lot of people. And they don’t have to think about the taxes. One of the challenges I had when I went crazy getting into this was, I probably had 12 or 15 different wallets. Then I’m moving stuff between them. I’m trying like Abra, Shape Shift, and every time I do that, I’m actually in incurring a tax position. I’m like, okay, well, it’s like a few hundred bucks and then I’m just not going to worry about it. But it is a challenge when you’re trying to do things now in size.

Mike:                                    01:19:05                Yeah, I feel that and I’m feeling like I’m underexposed now, but I think honestly what’s happening in the world is that, you said it perfectly Tyrone, it’s get off zero. So how do you get people off zero in this environment? Certainly what was funny was when it was hitting 17, 18, 19, $20,000 Bitcoin I was getting calls all the time. It was classic bubble behavior and I just said no it’s going to have a 90% correction, just when it’s down 90% ,but don’t buy it now. And it’s just that sheer luck, it could have gone to 40,000 before it went down. At some point in that moment you’re in that bubble environment and you can feel it and you just sit and wait. It went to whatever, went to two or 3000. Nobody called. It’s kind of like well, if you wanted to take a poke at 20, a two is probably better. Nah, I’m good.

So it’s interesting the overwhelming human behavioral draw, but I think this has been a great conversation about the ins and outs, the potential for this to have some pretty significant upside, the potential for it to be quite a diversifier to portfolios. I don’t know, Richard, did you have a chance to talk about just how short timeframe but how it’s quite different from gold stocks and bonds at all? Did you share a lot of that or not?

Richard:                               01:20:38                Yeah. I mentioned it very briefly when you went to the bathroom? That’s right.

Mike:                                    01:20:42                Yeah. Okay. So here you have an asset, frontier asset albeit, but a very different asset. I think it’s a different group of owners. Generally speaking, those owners that own that asset class are quite different than the owners that are owning your gold, your stocks and your bonds, which definitionally should probably provide a different stream of returns, except in the liquidity crisis, everything goes down in liquidity crisis and the last one in March, even US Treasury bonds went down in a liquidity crisis. So, there are times when everybody panics and that’s fine, but it certainly makes a, I think we made a pretty compelling case. In Canada in particular, you have a very broadly available perspectus space product for people to buy that’s listed on the TSX which as I hear you talk about things Tyrone and trying to get things set up, you don’t quite have that available on a broad based perspectus product that you could have some faith in, and that would qualify for insurances and things like that. So it’s a bit of an advantage for Canadians.

Tyrone:                                01:21:51               Yeah, you guys are ahead of us with a bunch of this stuff, and other stuff. But yeah, just reading about the fund and everything. Just in some research, I’m like man we just can’t get over the hump with it. But I think we’ll get there eventually, folks in the space here are excited that Clayton is going, stepping down and being removed. They feel like we’ll get an ETF over the finish line soon. I’m not excited about an ETF but again, I get it if I’m a fund and everything else but for retail, for advisors, I don’t think it’s the best thing. I think some type of separately managed account structure is better. But again, it will be good overall for liquidity purposes and price discovery and access. So we do want those things, I want to make that very clear. But the fact that financial advisors are like, give us an ETF, give us a Bitcoin ETF worries me a little bit, but that’s a conversation for another day, but we’ll get there.

Mike:                                    01:22:53                Fair point. Well, anyone got any closing remarks, did you have any other questions Richard or any anything outside of this?

Richard:                               01:23:00                I think we’ve covered a whole lot of ground here today. It was great. I learned a lot.

Mike:                                    01:23:06                 Me too. I really appreciate you gentlemen taking the time to be with us today and-

Richard:                               01:23:10                Thank you guys.

Mike:                                    01:23:11                …enjoy a little happy hour and some Riffs and I think there’ll be an opportunity to do this again at some point down the road and-

Richard:                               01:23:21                 We can all get together and do the feats of strength again.

Mike:                                    01:23:23                Yes, that’s right. Well don’t let Tyrone take. He’ll take you to the track. I don’t know if you ever have gone to the track but sprinting is one of the most demanding. If you haven’t sprinted for a while and you go sprint, you’ll be catatonic, you’ll be in a body cast.

Tyrone:                                00:23:45                 Absolutely. Sprinters have to deadlift.

Mike:                                    01:23:47                  …Yeah. I’ll take you to the banya after that.

Richard:                               01:23:50                 Great to meet you Tyrone, Shawn.

Shawn:                                 01:23:51                Nice to meet you.

Richard:                               01:23:53                 Subscribe, like and share, don’t forget it.

Mike:                                    01:23:55                That’s right. Subscribe, like and share all that good stuff. And appreciate you guys, thank you for being here.

Richard:                               01:24:01                Thank you for taking your time. Enjoy your weekend.