The Pomp Podcast - #1089 Eric Satz On How To Retire Off Bitcoin & Crypto

Starting point is 00:00:00 what's up everyone this is anthony pompliano most of you know me as pomp you're listening to the pomp podcast simply the best podcast out there now let's kick this thing off eric sats is the founder and ceo of alto ira in this conversation we do a primer on retirement accounts on buying bitcoin and cryptocurrencies inside of those retirement accounts with the positive benefits and the negative side effects could potentially be i really enjoyed this conversation with Eric, and I hope you guys enjoyed it as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by Compass Mining, the world's largest marketplace for mining hardware and hosting. With Compass,

Starting point is 00:00:41 everyone can mine Bitcoin. You can do it at home or in one of their 23 hosting facilities around the world. All you need to do to start mining your own Bitcoin is go to compassmining.io today. Again, if you want to get into Bitcoin mining, go check out compassmining.io today. This episode is brought to you by LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of liquidity and they have 100% uptime track record through all the volatility spikes.

Starting point is 00:01:09 LMAX Group's liquidity relationships and ultra low latency technology means that LMAX Digital is the market leading solution for institutions across crypto trading and custodial services. LMAX Digital, secure, liquid, and trusted. Go learn more at lmaxdigital.com slash POMP. Again, that's lmaxdigital.com slash Pomp.

Starting point is 00:01:29 This episode is brought to you by 8sleep. Good sleep is the ultimate game changer, and the 8sleep pod is the ultimate sleep machine. The pod is the only sleep technology that dynamically cools and heats each side of the bed to maintain the optimal sleeping temperature for what your body needs. With the pod, you can start sleeping

Starting point is 00:01:45 as cool as 55 degrees Fahrenheit or as hot as 110 degrees Fahrenheit. What is the result? Clinical data shows that 8sleep users experience up to 19% increase in recovery, 32% improvement in sleep quality, and up to 34% more deep sleep. How do I know it works?

Starting point is 00:02:00 I sleep on it every single night and it works so well that I begged the founders to let me invest in the company. Go check them out today at 8sleep.com slash Pomp to start sleeping cool this summer and save $150 on the pod. Again, 8sleep.com slash Pomp. You get $150 off when you use code Pomp.

Starting point is 00:02:18 Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions. and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy,

Starting point is 00:02:35 but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, guys, bang, bang. I've got Eric here with me. Eric, I thought a great place to start would be kind of a primer on retirement accounts. I think lots of people have heard of retirement accounts. They may even have one,

Starting point is 00:02:51 but they might not understand how they actually work. What is the purpose of a retirement account and why are they so advantageous for the everyday person? Well, loaded question. So thanks for starting easy. You know, I think most people know that a lot of folks have just brokerage accounts where they can invest in stocks and bonds. Some may be more surprised to understand that there are actually more people with retirement accounts than non-retirement brokerage accounts. So give or take 150 million retirement accounts across the population. And the retirement account was created. This is like it's not a surprise, right?

Starting point is 00:03:40 The logic holds up. The retirement account was created to give each of us an opportunity to save in a tax advantage way, such that when we get to retirement, we actually have some savings to fall back on, right? So originally, everyone thought Social Security would take care of us. I think, again, unfortunately, not a surprise. That's probably not going to be the case since by 2035, I think it is, we're sort of on a path for Social Security being run dry. And there are two really important parts to the tax

Starting point is 00:04:20 advantage nature of retirement accounts. One is where you invest on a or you contribute funds on a pre-tax basis and get to invest on a tax deferred basis. That means you don't pay tax at, you know, sort of across time. And you only pay tax at the end when you start to take distributions. The other way, and this is, and that's referred to as a traditional IRA. The other IRA is referred to as a Roth IRA. With a Roth IRA, you're putting money in on an after tax basis. You also get to invest tax free over time. But then when you take those distributions, because you paid the tax up front, you get to withdraw on a tax-free basis. And so for those who can afford to contribute to Roth IRAs, that is a huge, huge advantage

Starting point is 00:05:15 and everyone should do so over a longer period of time as they can. But the traditional IRA is still a great way to put money away, invest on a tax-free basis as you go, and then only pay tax upon distribution. And of course, I think you and I talked about this once before, Einstein referred to compound returns as the eighth wonder of the world. That's what you get with retirement accounts. And if we can all take advantage of that, then bang, let's do it. And so when you think about kind of these accounts, they essentially are used as an incentive to get people to think long term, right? You lock up the money for a predetermined amount of time, and the government will give you tax benefits for doing so. What are the types of assets that people normally are putting in there?

Starting point is 00:06:07 Are they putting in cash? Are they contributing other types of assets? Like what goes in? And then we can talk about what they're actually doing once the value is in that account. So, historically, retirement accounts, they've never been restricted, by the way, to public stocks and bonds. But historically, it was only easy to invest in public stocks and bonds. Now, the IRS, for, let's just call it accounting purposes, and for clarity, says that you can only contribute cash to a retirement account. So you can't take IBM stock from your non-retirement brokerage account and contribute it to your retirement account. You first have to liquidate, take the cash, and then make the contribution. Now, for those who don't know, I'm the CEO of a company called Alto.

Starting point is 00:07:09 And Alto is both a custodian and a transaction execution platform that makes it easy and affordable for folks to invest their retirement savings in non-publicly traded securities. So that can include private equity, venture capital, real estate, crypto assets, private credit, et cetera. And so the drafters of retirement account language all the way back to when ERISA was created in the early 1970s accounted for the fact that we weren't going to be limited to just publicly traded stocks and bonds. So really, the now short answer to my long winded question is that almost any type of asset can reside within a retirement account. But in terms of what goes in and what comes out, for the most part, it's cash. There are exceptions to that rule on the way out, but it's complicated. And so when you think about these types of assets, obviously, we mentioned the compound growth is a huge advantage. The stocks and bonds, some of it was an access play, which is easier to buy those inside. But I'm assuming private equity, venture capital, other types of kind of long duration type investments, as it has become easier to access those within retirement accounts, they kind of line up with the incentives of these retirement accounts. Is that a fair statement? It's 100% fair, not just fair, but accurate. So you're referring to duration matching, right? So you're taking dollars that are meant to be saved and invested over a long period of

Starting point is 00:08:51 time, and you're investing them in assets, which are going to actually take a long period of time in order for you to achieve liquidity. Liquidity is when an asset is sold and you receive cash in return. So, for example, I invest in a venture capital funds on day one, you know, a hundred dollars goes in and hopefully 10 years later or somewhere between seven and 12 years, let's say, ten dollars comes out. and that that of course is uh advantageous to a retirement account investor one because that money that money comes back to the retirement account on a tax-free basis but two i couldn't touch that money anyway right not not until i retire and so these are exactly the dollars one should be using to make long-term investments. The other big thing that's changed

Starting point is 00:09:54 over the last now five to seven years is technology. So, you know, it used to be that if you wanted to invest in a venture capital fund, you had to have a million dollars or more. In today's world and with various investment platform partners that Alto works with, you can invest as little as a thousand dollars or ten thousand dollars or a hundred thousand dollars or a million dollars it doesn't matter and you know um peter teo famously invested five hundred thousand dollars in facebook turned it into a billion dollars most people say yeah but i'm not peter teo and i don't have you know five hundred thousand dollars in my retirement account but that's not the point the point is actually that you can take five hundred dollars or five

Starting point is 00:10:41 thousand dollars and achieve the same return. And that's the point. And so when you think about these long duration type assets, it's almost exactly opposite of if you were to put dollars in, let's say you were, you know, 25, 30, 35, even 40 years old and leave it in there for call it 20 to 40 years. The dollar has historically been devalued quite a bit. And so the idea of saving in your retirement account is actually a little kind of weird because it's not saving. What you're trying to do is get dollars in and then invest inside of the retirement account, right? Yeah. So unfortunately, I think everybody's getting smarter with respect to the effects of inflation in today's economic environment, but you're 100% correct. If you take dollars

Starting point is 00:11:26 and just put them in a checking account or savings account, and they earn very little, if any, interest over that 20 to 40 year period of time, when you take that dollar out, it's actually been devalued, right? So the dollar is no longer worth a dollar. And that is sometimes, I should say, the dollar that comes out 20 to 40 years later isn't worth the dollar that went in 20 to 40 years earlier. And which speaks to the fact that, you know what, we need to make investments and we need to take the risk reward into consideration as we build our portfolio. One of the things that we like to preach at Alto is portfolio diversification. So it's not that public stocks and bonds and public markets are bad or good. They play a role. They're just not

Starting point is 00:12:23 the be all end all. And so how do you get portfolio diversification that allows you to reduce the overall volatility of your portfolio and increase the long-term returns. And that happens with alternative assets. And so everybody who has a brokerage account today, whether it's a retirement account or otherwise, is looking at their statement and they're seeing a significant decline, 18% to 22%. If you look at your alternative asset balance, for most people, nothing has happened. And it's not that those assets haven't gone down in value. They may have gone down some. Some may have gone up. But you're only repricing when a transaction happens, whether a private company raises money or sells itself. But otherwise, you can't wake up and hurt

Starting point is 00:13:18 yourself with alternative assets because the liquidity is not just there for you to access. Whereas in the public markets, and we all know that 99% of us are terrible traders, the market goes down, we wake up, we sell. The market goes up, we wake up, we buy. It's the exact opposite of what we should be doing. And you can't do that with alternative assets. And so it is not only a good portfolio hedge, it's a good hedge against human nature. And so when you all think about building out this product, one of the things that's fascinating to me is you obviously offer the kind of stocks and bonds access. You've pushed further and further into alternatives. And then you also now offer Bitcoin and cryptocurrency access as well.

Starting point is 00:14:04 Where does that idea come from? Are you seeing that kind of customer demand or market demand? And you're saying, hey, we got to go build a solution here. Is it something that you all predict and then kind of customers move into that area because now it's available? How does that work? So, you know, because crypto is still so young in its life, most of the traditional brokerage firms haven't made the crypto asset portfolio available to its client base. And so, And I don't know if you remember this way back in 2016, you and I were talking about doing a crypto, you know, at the time, Bitcoin mining operation together. And so I had, you know, Bitcoin got onto my radar screen sort of 2013, 2014, around 2016, 2017, when I was on the board of the TVA. to me, this felt like a no brainer that the TVA, who has an endless amount of energy at

Starting point is 00:15:09 basically zero marginal cost, ought to be in the crypto mining business. The answer, you know, I was like 30 years younger than most of the other board members. And so when I brought up Bitcoin, I got a lot of blank stares and looks on my face and I just couldn't get the board there. So then I actually, I called you and we were looking at doing a crypto mining facility together. And for various reasons, that didn't quite work out. But the point is that crypto had been on my radar for a long period of time. And when I recognized that the other, that the traditional brokerage firms, Fidelity, Schwab, TD, et cetera, weren't allowing folks to invest in crypto, which at the time was Bitcoin and a little bit of Ethereum, I said, you know,

Starting point is 00:16:00 we need to do this. And so over about two years, I was able to build a relationship with Coinbase and eventually partner with them such that when our client comes to the Alto platform to invest in crypto assets, the transaction execution, while performed over the Alto platform actually takes place at the Coinbase exchange. And so that that's the way it works for us and our clients. And so today, when somebody comes in, how much money could they put into an account? How much can they actually invest? And then what are the assets that they could buy in kind of the crypto ecosystem? So, you know, what's really interesting, if you go and you ask the average consumer, is there more savings in like pension funds or 401ks or IRAs? Most people will say

Starting point is 00:17:00 401ks. But the fact of the matter is that actually IRAs have surpassed 401ks in terms of total of dollars saved. And they're continuing to grow at a faster rate than 401ks. The reason being is that we all now stay at a job for a shorter, shorter period of time than we used to. And when you leave that job and go to a new employer, you have the opportunity to roll your old 401k into an IRA. Also, the gig economy where people don't have access to 401ks, but only IRAs has been a major growth accelerator for the IRA basket, if you will. So on an annual basis, I can't say those of us, those who are 50 or younger can contribute $6,000 a year. Those who are older than 50, like me, get a quote unquote catch up allowance, and it's either

Starting point is 00:18:03 $7,000 or $7,500 a year. So that amount, you can contribute every year to an IRA. There are some restrictions, excuse me, and you should probably consult a tax advisor if you're in a high income bracket. But for the most part, that's true and accurate without other characteristics involved. But what's not captured in that is that ability to roll old IRAs or old 401ks into a single new IRA if that's what you want to do. And so if you look at what the average account size at Alto represents, we're north of a billion dollars, probably 1.2 billion over 30,000 client accounts. So I think if we do the math, that's give or take 40,000 on average, but I don't think that tells the whole story. I think we'll see that we have client

Starting point is 00:19:05 accounts as low as $500 and as high as 2 million or more dollars. And as you start to see people come in and use these products, what are the risks? What are the downsides potentially of using a retirement account or, or investing in these types of assets in a retirement account? You can still lose your money, right? Like it's, you know, and, and by the way, people used to think, uh, that the argument when we were starting Alto, right. Was, you know, people aren't smart enough and, uh, there's too much risk. And, and, and by the way, they were talking about that in the context of a public market run that we hadn't seen in a hell of a long time, right? And so people thought that the public markets could only go in one direction. I think the tune has changed

Starting point is 00:19:55 a little bit with respect to that, that the public markets are not risk-free. There is downside. Unfortunately, we've seen a lot of that, but it has accelerated the conversation that alternatives really are going to play a role going forward, right? Because historically, you had to be an ultra high net worth or high net worth individual or professional institutional investor to participate in these markets. And, you know, thanks to technology, you no longer have to have that million dollar blank check to participate. You can participate at much more. Well, I'd like to say you can participate at any economic scale that works for you. Yeah. What's fascinating to me is if you look at some of the public pension funds, we've seen them push further and further

Starting point is 00:20:50 into alternatives, even in some cases, take on leverage where they previously haven't. And so obviously they're going out further on the risk kind of curve. They're looking for certain types of yield that maybe they couldn't get previously. And so there's not really a big difference between someone investing in their retirement account and looking for better returns, looking to combat inflation, looking for a kind of higher yield than the quote-unquote professionals who work at these pension funds. They have very similar goals, right? In some way, they're just simply investing the retirement funds of the pensioneers in a pooled fund versus you doing it individually inside of your own account. Yeah, I couldn't say it better than you just did, right? Which is

Starting point is 00:21:25 more people actually have access to alternatives than they know. It's just because some professional institutional managers investing on their behalf in their retirement account. And when I was first looking at this in early 2016, by this I mean the opportunity to create this platform that would allow individuals to easily invest in alternative assets using their retirement account, that there were a few different things that stuck out. One was we've got 30 plus trillion sitting in retirement accounts. The next was that less than 2% at the time was invested in alternative assets. And I compared that number to what we see on an after-tax basis for high net worth and ultra high net worth individuals. And that's going to be anywhere

Starting point is 00:22:18 from 10% to 25%. And then when you put the institutional money managers in the mix, that's going to go from 25 percent to, you know, Yale famously invested as much as 80 percent of its endowment in alternative assets. And what I sort of, rightly or wrongly, what I concluded was that this process of investing in alternative assets was too complicated, too time consuming and too expensive. And so if we could solve for those three things, essentially what TurboTax did for self-filing. If we could do that same thing for alternative IRA investing, well, then we could really help a lot of people and change the fate of retirement in this country. So that's what we're trying to do. When you think about Bitcoin and

Starting point is 00:23:08 cryptocurrency specifically, I know there's a lot of nuance around these assets. What should people know about Alto IRA's crypto offering and some of those nuances, whether it's specific functionality, fees, anything like that? Yeah. So we make available to our customer anything that's currently available on Coinbase. There's some geographic restrictions involved with that, but if it's available on Coinbase, it's available to you at Alto. Now, I don't think you'd be surprised to learn that the majority of the holdings of our client base reside in Bitcoin, Ethereum is second, Solana is third, Cardano is fourth, right? And then there's a long tail. And we don't tell you what to invest in. We don't tell you what not to invest in.

Starting point is 00:23:59 We make it available. And as you want to say, you got to do your homework, right? And as we were just talking about a second ago, that there's risk reward in every investment. And another thing that I think we've discovered over the past couple of months in the crypto environment is that the rules of finance don't cease to exist, right? You can't get something for nothing. And, you know, the more crazy the return seems, the greater the risk you're taking on. Shocking ideas that seem to have been figured out. decades ago, maybe even centuries ago, depending on who you ask. When you think of the product today, what's kind of the pitch to folks? Why should they come and use Alto IRA and specifically

Starting point is 00:24:57 the Bitcoin and crypto kind of functionality? Yeah, it's really easy. That's why. It's easy and it's affordable and it's meant to really unlock access to these asset categories for all people, for all retail investors. And like you, I believe in the future of crypto and where it's headed and the role that it will play. I can't tell you what the winners and losers are going to be long term, but it's going to be here and it's not going away. And we should all have the opportunity to benefit from the sector so long as you do your homework and make your investments wisely. You're not going to bat 100%. Nobody does. There will be losses, but there will also be wins. And the key is, and this is no different than private equity and venture capital,

Starting point is 00:25:56 by the way. The key is to have the wins, you know, far outpace the losses. And, you know, anyway, that's my approach. And when we think about where people can go, where can they find you on the internet or where can they find out more about Alto if they want to check out the product? Yeah. Altoira.com. A-L-T-O-I-R-A.com. So hopefully when you go there, the website is easily digestible and understandable, and it's easy to sign up for account. And we make it as seamless a process as is possible to transfer assets from another IRA account to a new Alto IRA account. And one thing to keep in mind is you don't have to transfer the whole thing. You can have a Fidelity account and you can say, you know what, I want to put $1,000 or $5,000

Starting point is 00:26:54 or $10,000 to work in alternative assets. And so that's the amount that I'm going to transfer over. And that may represent 5%, 10%, 20% of your total portfolio. And the percentage that it represents and the percentage that you're comfortable with in terms of risk reward and your understanding of the alternative assets market, that's up to you. And when you start to think about kind of what people should expect? You said easy, uh, in terms of the service itself and the product usage and, and, uh, kind of how quickly they can sign up. Uh, what do you hope customers say to each other once they actually use the product? That, that, that's a great question. But by the way, nobody has ever asked me that question. Like in the last five years, nobody's asked me that

Starting point is 00:27:41 question. And, um, so I, I hope they tell their friends, right? So historically what we know is that bad news travels by plane and good news travels by boat. And I think social media has really leveled the playing field in that regard, and that if you do have a good experience, you can tell everybody about it. And one of the things that we talk about amongst our team at Alto is that at some point, while we may be leading the field today, and my hope is that we continue to push boundaries and stay ahead of competition over the next several years. But at some point, all the technology will be table stakes. And what ultimately makes the difference is that client experience and the customer service experience and the fact that

Starting point is 00:28:33 we answer a phone and return an email and allow you to sign up for a Zoom conversation. At the end of the day, it's all about the people. And I don't think you can decide to do that three years from now. I think you got to do it today. And so I have frequently said that I will know that we have made it when whoever the CEO of Southwest Airlines is at the time, you know, shoots me an email and says, how do you make your customers so happy? And that's because I hold Southwest in very high regard. And I love flying that airline. And I think they just do it right. And they do it with attitude. And yeah, so that's our goal. That's awesome. Eric, listen, I really enjoyed talking to you today. Anyone who hasn't checked out Alto IRA, I suggest you go and you

Starting point is 00:29:19 do that as well. And the idea of helping people get Bitcoin or cryptocurrencies, assets that traditionally are thought of as kind of long-term duration assets into a tax-advantaged account is a pretty solid idea, I think, and obvious why people would want to do that. So thank you to you and your team for spending so much time and effort to make that possible for hundreds of thousands, if not millions of people. Pomp, thanks for having us. Thanks so much for listening to today's episode. I really hope you enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to transition into a brand new job in the Bitcoin or crypto industry, we've got you covered. Head

Starting point is 00:29:59 over to thecryptoacademy.io. My team and I have been working with the top HR teams in the industry to develop an intensive three-week training program with over 50 live events. We teach you exactly what you need to know to break into the industry, including live interview prep and resume review. Our students have been hired at over 75 of the world's best Bitcoin and crypto companies.

Starting point is 00:30:19 Go to thecryptoacademy.io to learn more. Again, that's thecryptoacademy.io. If you enjoyed today's episode, make sure you share it with your friends and I'll see you all for the next episode. Thank you.

The Pomp Podcast - #1089 Eric Satz On How To Retire Off Bitcoin & Crypto

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.