The Wolf Of All Streets - The First Crypto Bank with Caitlin Long

Episode Date: March 9, 2021

After years of trial and error, plus extensive legislator work, the first-ever crypto bank was established in Wyoming, headed by Caitlin Long. As impressive as the advancement is, according to Long, it’s really only the first innings for digital asset collaboration with legacy banking. Ultimately, it will be the velocity of technology and private sector innovation that drives crypto adoption around the world creating a new financial system that supersedes our outdated way of doing things. In this episode, Melker and Long discuss a range of topics including:  The difference between value and price Long-term capital investment projects Unstable interest rates A deleveraging FED Avanti Bank The velocity of new technology The crypto bank misnomer A Bitcoin lending market Crypto efficient payment systems The blockchain taskforce Central banks buying Bitcoin --- VOYAGER This episode is brought to you by Voyager, your new favorite crypto broker. Trade crypto fast and commission-free the easy way. Earn up to 9.5% interest on top coins with no lockups and no limits. Go to https://www.investvoyager.com/ and download the Voyager app and use code “SCOTT25” to get $25 in free Bitcoin when you create your account. --- Mina Protocol Mina is the world's lightest blockchain, powered by participants. Rather than apply brute computing force, Mina uses advanced cryptography and recursive zk-SNARKs to ensure a super-light and constant sized chain, that allows participants to quickly sync and verify the network. The team behind Mina is backed by VCs such as Coinbase Ventures, and Mina's adversarial testnet was the largest public testnet outside of ETH 2.0. To get involved ahead of Mina’s mainnet, visit https://minaprotocol.com/wolf --- Matcha 0x Matcha is the easiest way to trade in DeFi. Matcha enables traders to seamlessly swap tokens using 20+ aggregated liquidity sources that deliver better prices than going to a centralized exchange or Uniswap. Connect your wallet and start today at https://matcha.xyz/wolf --- Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co

What is up, everybody? I am Scott Melker, and this is the Wolf of All Streets podcast. One of last year's most exciting news events was the introduction of crypto banks in the United States, specifically in Wyoming. We're often told in life that if you want something bad enough, you should just go out and make it happen. And that's exactly what Caitlin Long did. After helping to establish pro-blockchain laws, Caitlin went out and formed the first ever crypto bank, helping to legitimize the crypto industry. Beyond just blockchain, Caitlin has been recognized as a top business leader in tech and is a veteran on Wall Street. I can't wait to hear more from Caitlin about her legislative work in Wyoming and what is needed to open the floodgates of

institutional adoption. Caitlin Long, thank you so much for coming on the show. Hey, it's an honor to be back. Thank you. So once again, you're listening to the Wolf of Wall Street's podcast, airs twice a week, where I talk to your favorite personalities from the worlds of Bitcoin, finance, trading, art, music, sports, and politics. This podcast is powered by my amazing friends at BlockWorks. You can check them out at blockworks.co for access to the highest quality information in the space. And you can find everything about me at thewolfofdollstreets.io. So first, Caitlin, I've never started with a quote, but you have this amazing quote that I want to read. The tipping point for a currency seems to be when society realizes en masse why prices are really going up, namely that the denominator of a price, the currency, is going

down in value. All prices are just ratios expressed as the value of the good numerator in terms of the currency denominator. Can you talk a bit more about what that means? Because I just absolutely love it. Oh boy. Yeah. Thank you. Well, I think actually the GameStop experience in the stock market really caused a lot of folks to wake up and realize how the system really works, that the rules, you know, didn't necessarily help the little guy, so to speak. And, you know, that stocks might be going up because there's something else going on other than fundamental value actually being created by businesses. And it's definitely, there's been a collective awakening bitcoin's a big part of it of course as well um but you know a lot more folks are realizing the the traditional financial system isn't exactly ster you know fair and stable especially to the little guy and um this has

been something i've been talking about for years uh trying to figure out how to fix it i'm not um advocating you know completely throwing it. I actually think it's going to exist in parallel for a long time with the crypto system. But I'm pretty psyched that we have a crypto friendly SEC commissioner probably coming in. So he does get confirmed. I think, you know, Commissioner Peirce has done yeoman's work in helping to advocate for this inside the SEC. We've got a Bitcoin hodler on the Senate Banking Committee, Senator Lummis. There's just a lot of really great stuff happening. And there definitely are some anti-crypto people too.

But generally speaking, the market's just growing on its own. And people are voting with their feet and it's awesome. It's funny you say that you've been talking about this for years, and I think a lot of Bitcoiners have, but I think there was sort of a grand awakening to it, obviously, in 2020 with COVID and the economic meltdown. I mean, seeing people suffer on Main Street and seeing this sort of global economic meltdown while stocks just bounced as hard as you've ever seen and continued back up. It really does show, and I talk about this all the time with Bitcoin, the value of an asset and the price of an asset are two very different things. Oh, I completely agree. Yeah.

Somebody actually put a little, I wish I could give credit to the person who put a little drawing up of something that I'd been saying multiple times, which is that Bitcoin doesn't have price stability, but it has system stability. The dollar may have price stability, but it doesn't have system stability. And to use the Nassim Taleb reference to forest fires, you know, if you just don't let the natural process happen, when the conflagration comes, it's because you didn't let the small burns happen. And we've suppressed volatility as a policy in fiat currency systems all around the world. And what that's done is taken away the most important price in the economy, which is the price of borrowing money, because that is the traffic signal between different industries that experience where investors figure out where should they invest their capital?

Should it be in home builders or should it be in consumer products? And it's also, very importantly, the traffic signal that tells investors how to invest their capital over time. And long-term capital intensive projects like fixing the power grid in Texas take a lot of time to have returns. And you have to be pretty confident in your math if you're going to put capital to work that has a 20-year payback period versus something that has a three-month payback period. And interest rates are the signal that is the traffic cop there. And if they are not set by the free market, then that's when you get the so-called clusters of errors, where entire industries make the wrong calculation at the same time in the same direction. Usually in markets, you have buyers and sellers. But when the home builders all at once overbuilt in markets, you have buyers and sellers, but you know, when the, when the

home builders all at once overbuilt in 2007, you know, the years going up to the housing crisis, um, you know, is it because they were all stupid or is it because the market was giving them the wrong signal? Same thing with the, um, with the, with, um, the shale businesses in the United States, way over-invested. And then obviously when oil prices crashed about a year ago, a lot of those projects were revealed to have been never economic in the first place. And those investments should not have been made, but those are very, very long-term investments with long payback periods. So that's why a lot of companies lost a lot of money and we saw a lot of bankruptcies. Well, builders are doing it again, by the way. Yes, they are.

Oh my gosh, I saw it just today. I don't know when the show will run, but just today we had a home builders, a new home sales number, I think it was 923,000 annualized. We have not seen that since I think 2004. Now granted, there's a lot of migration happening. People are moving out of cities. Some people are moving into cities. There's just a lot of migration happening. And COVID has definitely had an impact. And so maybe there was pent up demand, but I don't know. I mean, it feels like the real estate market is really on fire too. So if interest rates are the traffic signal and all the things you just talked about, it seems to me like we've got like a massive roadblock of SWAT teams with flashing lights,

right? This isn't just like a casual, you know, beware of the curve kind of thing at this point. So I think we're likely past the tipping point of fixing this. What do you think the end game is of all of these policies that we're likely past the tipping point of fixing this. What do you think the end game is of all of these policies that we're seeing now? Well, so this is where I'll challenge you, because I've not given up on fixing it. And here's why. I'm actually really optimistic that the advent of real-time payments is actually going to cause the system to deleverage on its own. What we don't know is whether there's some event

that comes in in the intervening period. And let me explain this. Stablecoins are such an interesting phenomenon because the velocity of stablecoins is stunning. The last time I looked at the exchange-reported velocity of Tether, it was 1,247 times annually. So each Tether trades hands 1,247 times annually. So each Tether trades hands 1,247 times annually. The US dollar M1 velocity, which is apples to apples, is four. So not even in the same zip code. So what's going on? Well, Tether and other stable coins are really, really efficient

payment systems compared to the payment systems that are available for the U.S. dollar. They settle with finality. So, you know, for certain circumstances, and they settle in minutes and they're traceable, right? For certain circumstances, they're definitely better. And the users have figured that out. Okay, so what that's telling you is velocity is coming from tech. It's not coming from leverage. I just had this conversation with a number of really smart people that I've known for years yesterday, kind of coming from the same economic school of thought about velocity. But central banks inject a dollar into the traditional banking system. Banks lever it 10 to 1 through fractional reserve banking. That's how you get the money multiplier of 10.

Well, right now it's 4, but let's use the textbook math. And the money multiplier of 10 turned into $10 of M2 for every $1 of the monetary base. That's the way it used to work. And it used to be textbook and predictable. The Fed would inject reserves into the banking system. And then six months later, you'd see an increase in CPI. And so that's how they managed the traditional banking system. That was based on leverage. How did we get velocity? How did we get that money multiplier of 10? It was through leverage because the banks fractionally reserved and they started to take

interest rate and credit risk. They did maturity transformation. That's what lending banks do. They take demand deposits and turn them into mortgage loans. Okay. So that's the traditional system. We got velocity through leverage. But what I just described to you with stable coins is we're getting velocity through tech, not through leverage. And so this is a really important point. Even if stable coins and crypto didn't exist, the push towards real-time payments or faster payments is coming. We have real-time ACH coming in the banking system in the US. We have FedNow coming in the banking system in the US. So even if crypto weren't part of it and you didn't have stable points, you're going to actually have more pressure on banks to settle things faster. Now, let's go back to think about that leverage model of fractional reserve banking. If all of a sudden things settle faster and the

banks are taking demand deposits and converting them into mortgage loans, 30-year mortgage loans, right, and taking that interest rate mismatch. They have better ways to manage that than they used to, for sure, interest rate derivatives, et cetera. But stop and think about that business model in a world where everything settles fast, as opposed to takes, you know, ACH can take two, three days to settle. Fedwire, you can get same day, but sometimes it doesn't quite work same day. Swift, sometimes, like I know I worked with a corporate customer, it took six days to move

money from Thailand to the US. It's its own money, right? So, all right. So we're going to a faster system. How can the banks take that kind of leverage in a faster payment system? It's going to naturally delever. And by the way, as much as everyone is concerned, not everyone, but a lot of people are concerned about the size of the growth of the Fed's balance sheet, what's actually happening is the Fed is deleveraging the traditional banking system by doing that. So we're actually stepping forward into a more deleveraged system. And as we speed everything up and we start to get velocity through tech, that's just gonna accelerate. And so I'm not sure that the traditional banking system

isn't gonna be able to claw its way out of this, but everybody's gotta be smart and anticipate it and understand what's going on. We're getting velocity through tech, not velocity through leverage. We don't need that leverage anymore. And if we don't need that leverage anymore, then the system's fundamentally more stable. I'll close this diatribe. I know it's dominance as reserve currency of the world. And it's because it's great technology

and, you know, folks will keep using the U.S. dollar as long as it's got good payment technology and not switch over to China's CBDC. But if China's CBDC really does actually have better technology, every corporate treasurer who controls most of the foreign exchange volume in markets has a really strong incentive to find the best and fastest and cheapest and safest way to move money. Corporate treasurers may not care whether China knows where all their money's moving. Privacy may not matter to them. What matters to them is cost and efficiency and safety. And so there is a technology arms race. A lot of people have made this point in payment technology, and the US is absolutely behind. But there are things on the

horizon that actually give me some confidence that there's reason to be optimistic. Let's put it that way. Right. And we just saw a few months ago that the OCC said that banks will be able to use stable coins, which challenges SWIFT and HCH, all of these. So as much as we're behind, at least there's a clear recognition that there's a superior system available and it's worth experimenting with. Yeah. Well, and by the way, it's not small. The total ACH and Fedwire payments in the United States annualized are $752 trillion. Guess what? The annualized trading volume of Tether, using the exchange reported numbers, which I know are not viable,

right? Okay. So I get that these are not great numbers to use, but it's $44 trillion. Well, actually, if you look at the on-chain Tether volume, it's something like $7 or $8 trillion. I may not be right about that, but it's in the trillions and it's consistently in the multi-trillions. It's not small anymore, right? I mean, there's something going on. And then one of the interesting things is Binance USD has kind of come out of nowhere and also has huge on-chain velocity. And of course, it's off-chain velocity as well with exchanges, crosses happening at Binance. But it's not just a tether story. It's USDC. It's Binance USD. It's

Paxos Standard. They're all trading at very high velocities, which tells you this is not a fluke. There is something really important going on in the stablecoin world, for sure. Yeah. And you were obviously ahead of this. I mean, you announced the establishment of Avanti Financial Group last February, right? So what does an entirely crypto bank mean? What are you establishing? Well, one thing is, it's not really a crypto bank. That's a misnomer. Sorry. No, it's funny. I get why the term has evolved that way. It's a bank that can provide trust services for crypto.

So it's not like you're depositing your Bitcoin in the way that you deposit dollars in a bank, in your traditional bank. We can only take US dollar deposits. Deposits meaning the deposits in the traditional bank. And that is going to work just like your traditional bank US dollar deposits do, except we're just going to be more tech forward because we've got an awesome tech team. But on top of that, we can provide custody services for Bitcoin and other cryptos. So including our own Avid instrument, which is a stablecoin-like instrument. So the interesting point is that doesn't exist right now

because there's been a separation of that in the marketplace. And why is it important? Because if you can actually settle a trade under the same roof, in same legal entity between a Fed cleared US dollar and a Bitcoin, all of a sudden you open the market up to a lot of innovation that we can't even predict at this point. And you also take a big risk out of the crypto industry, which is that if somebody pays a crypto service provider for a Bitcoin in ACH, if they pay the dollar payment through ACH, that ACH payment can technically be clawed back for up to 90 days. And so if you think about the crypto provider who's delivering a Bitcoin

and then the customer claws back the ACH, US dollar payment, guess what? That service provider's out both sides of that trade. That's a big risk issue in this industry. It's why the Coinbases of the world don't allow you after you purchase Bitcoin to take it off platform for several days, because there's a big financial risk for them. And it's all tied to how ACH works. If you send them a Fedwire, that's fine because Fedwire is final clearance in Fed dollars. But what the Wyoming speedy banks can offer if they're approved by the Federal Reserve to do that

is actually Fed clear US dollar services. That's not available to crypto right now. And it's not available under the, specifically, it's not available under the same roof as any institution that can also provide custody services for crypto. So we're combining those two things that of course exist in spades outside. In other words, the Silvergates and Signatures of the World provide Fed cleared US dollar services, but they don't custody crypto. The crypto custodians don't have access to Fed-clearing services. So we're putting those two things under the same roof.

So what does it mean when we see banks like Mellon starting to talk about this? Well, what's interesting, I came, as you know, from the traditional banking world. They're not building it themselves, generally. I don't know of any of the big banks that are truly building Bitcoin custody, right? They probably, a number of them have custody for private blockchain tokens. You know, JPM coin is a perfect example of that, right? But it's not trading outside of JP Morgan. You have to be, it's a closed, it's a walled garden. You have to be in the club in order to get access to that. And it's really just a ledger entry is really what it is to clear transactions among

parties that are part of their own closed network. But the benefit of what we can do, of course, with an open permissionless blockchain backend is that others can join the network, too. And so those open permissionless blockchain back ends have been persona non grata to the big banks up until recently. And because they haven't built on them, they haven't hired engineers. I think a lot of the engineers who really truly have chops in those open permissionless protocols probably aren't necessarily looking to go work for a big bank. And so basically what's happening to round it all out is that those big banks are looking to subcustodian arrangements. They're contracting out to crypto companies who truly know how to do this and just don't happen to be banks. So I have to imagine when you started this, we had not seen all of this news from the OCC giving permission to do certain things.

Is that why you went to Wyoming? Well, no, actually, you know, what's funny is I actually think that Wyoming pushed the OCC. I know that because it was happening at the state level. And there's always been competition between the national regulator, which is the OCC their state chartered banks exactly the same powers as national banks. They each most states have something called parity statutes that makes state and national banks equal. And and then in the early 90s, there was a law passed called Regal Neal, which which it created interstate banking. And it prohibits states from discriminating against other states, state chartered banks. Right. So a New York, a New York bank can't discriminate against New York. New York can't discriminate against a Wyoming state chartered bank.

What it can do is make the Wyoming state chartered bank register, or in the case of New York, open a branch. So there's a little bit of extra hoops that have to be jumped through, but it's not major. And, and we have the same powers. And frankly, there's a lot, there's so many details. This is so much more complicated, even than I thought it would be going into this about the differences in the way state charter banks operate and national banks operate. But there's one really important point. Not all banks are considered equal. The OCC banks are trust banks. They are not full banks. What does that mean? It means they can't take deposits. What's the significance of that? It means they can't clear U.S. dollars at the Fed because they're just a trust bank. They're not a depository institution. They just provide custody services, but they cannot clear US dollar payments. So all of the trust banks still need to have

a third party bank that clears their US dollars. So now we're back to, all right, can we clear a US dollar trade and a Bitcoin under the same roof and get a true atomic swap? No, you can't do that right now. And the OCC charters don't allow that. The Wyoming Speedy Charter does. Sick of paying ridiculous fees to trade crypto? It's time you try Voyager. It's hands down my favorite place to buy and trade crypto and is 100% commission free. Voyager gives you easy access to more than 50 top crypto assets and you can instantly transfer cash from your bank account so you never miss a trading opportunity. Even better, you can now automatically earn interest on crypto holdings.

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a super light and constant size chain that allows participants to quickly sync and verify the network. Their upcoming mainnet launch is right around the corner and there are opportunities to participate in community leaderboard challenges for rewards. Visit minaprotocol.com slash wolf to find out how you can get involved and earn tokens ahead of mainnet. DeFi is where all the excitement is, but participating in it can be a nightmare. Not anymore with Matcha. Matcha makes it ridiculously easy to create a wallet, onboard new users, execute trades, and source liquidity. The best part is that it's cheaper than Uniswap and delivers the best prices on the market by aggregating all the available liquidity and routing to the best source. My favorite part of Matcha is it offers

high-level trading features like limit orders, liquidity depth visualization, gas efficiency, and more. Sign up for Matcha now at matcha.xyz slash wolf. That's M-A-T-C-H-A dot X-Y-Z slash W-O-L-F and join the tens of thousands of traders who are already a part of the movement. And why is Wyoming so ahead of their time? It's funny, when I started looking at what Wyoming was doing with crypto, for some

reason, it was just so reminiscent of Colorado with marijuana in the early days. It was like, the state said you could do one thing, but they were never sure what the Fed would allow them to do. You saw these suitcases and trucks full of cash and no federal bank would take their money. But right. I mean, is it somewhat similar? Not to be ironic, it's the Wild West because you were literally in the Wild West. But, you know, in those early days and still, is it is there some confusion or risk as to what they might do at a federal level? Well, you've always seen the states experiment. There's a phrase called states are the living laboratories of democracy. And there are so many examples. Marijuana is just one. But Wyoming's actually been first in a lot of things. The most specific examples are Wyoming gave women the right to vote 50 years before the whole United States did in the U.S. Constitution.

And so Wyoming was the first state to do it. And in 1869, we just had the 150th anniversary, I think was the timing of that. And then the other one is Wyoming invented the Limited Liability Company in 1977. So every state, to be honest, has their first. Wyoming just definitely has more. There's a whole long list. And a lot of it has to do with giving women power in government. First woman governor, first woman justice of the peace, first woman sheriff. It was all in Wyoming. That's why they call Wyoming the equality state.

But so this whole notion of states getting out in front when there's a big trend is not new. And Wyoming spotted this and said, you know, there's something legitimate here. And it was a perfect alignment of stars. When I got out here, I thought the one thing I was going to help do was help Wyoming fix its bad money transmitter statute, which had run all the Bitcoin service providers out of the state. Wyoming was one of three states that had a poorly worded statute and it just wasn't future proof. It didn't contemplate anything other than US dollar value could be transferred. And so I thought I'll just help volunteer to get that fixed.

And then the whole thing ended up snowballing because the legislature, this is the other important star that aligned, they really wanted economic development for Wyoming and wanted to build a financial services industry to try to attract assets. There is a small fee that every asset that comes into Wyoming pays to the state every year. It's a lot less than a corporate income tax that you'd pay in California or New York. It's a lot less than a franchise tax that you pay for the privilege of registering in Delaware, but it is a fee. And the state is really hurting

because of the energy industry, especially coal. That used to be a big source of revenues. It's how Wyoming paid for the schools. And that's going away and probably not coming back to the extent that it once did. So when Wyoming says they need economic diversification, it's truly an acute need. And that's what this was about. So they spotted the chance. We have this history of going first in a number of ways. And we thought, let's

just do it. And I said, all right, I'll happily roll up sleeves. We got five bills passed in the 2018 session, then eight more in 2019, and then seven more last year. And there are, I think, four or five more proposed for this year. Yeah. You have Wyoming, and then you have, you've brought them up a few times, you have New York, where you can't do anything. Well, they take the approach of regulating, and this is important as well. I think you alluded that the Wild West, there is definitely a difference in approach. Wyoming and South Dakota, North Dakota, generally Utah, these are small government places. They just don't want to build a big regulatory apparatus. And so what happens is the regulatory bodies are super sophisticated and lean and agile,

and you don't have the big bureaucracies. And the same thing's true of the legislature. The Wyoming legislature by statute is prohibited from meeting more than 60 days per year in a budget session and more than 90 days per year in a general session. more than 90 days per year in a general session. And they alternate every other year, budget versus general. So that means that all the legislators have real jobs. They are not full-time legislators. And what happens in states like New

York and California, they're full-time legislators. So what do they want? They want staffs. And then they build a big regulatory apparatus. It's just a really different approach to the world. And and, you know, I think the agility of the small states, especially in something like this, also is one of the stars that aligned to help Wyoming get this done. I will say yesterday there was a hearing. Nebraska. There have been several states that have that that have tried to copy Wyoming's laws. And the two that are the most important are the most complicated, very intricate. One is changing commercial law to recognize digital assets. And the other is the Speedy Bank charter. And Nebraska, it looks like is going to pass and enact because it's got support of a governor and the banking commissioner and powerful legislators. Nebraska will be the first state to actually get those through.

They've been tried in South Carolina, Missouri, South Dakota. I know Texas and Florida are working on it as well. But Nebraska is the first follower. And again, it's part of this, you know, relatively small government looking for something that the states can be, you know, ahead of and specialize in. And lastly, I'll share that happened in South Dakota with the credit card industries in the early 1980s. If you look at your credit card, if you flip it over or your debit card, most of them are issued out of a South Dakota bank.

They're subsidiaries of the big guys now, but back in the eighties, usually they were independent companies. And actually, believe it or not, the state with the highest dollar value of banking assets in the banking system is not New York. It's South Dakota. And that's because they sought out the specialty to attract the credit card industry. And really that's because they sought out the specialty to attract the credit card industry. And really that's what Wyoming's doing. We sought out the specialization in crypto and the Wyoming division of banking has really built up expertise in it.

They're now starting to train regulators in other states. And back to your question, train the OCC. Yeah, clearly. So do you see a mass migration of, you know, crypto thought leaders, companies, people moving to Wyoming? I saw it being talked about all the time. And all of a sudden, of course, Miami has jumped into the spotlight. But we all know that Florida is not the same as Wyoming as far as regulation.

So, I mean, I kind of had this image of like Atlas Shrugged and John Galt, you know, populating this entire state of billionaires and brilliant thinkers. Is that what's happening out in Wyoming? Oh, yeah, to a small degree. You know, Wyoming's a tough place to live. It's got hardy people because it's cold. And so that's not for everybody. I don't want to live in a super hot, humid environment. So Florida is not for me, but it's for more people than Wyoming is. So what's happened is a lot of companies have domiciled here. We're in the thousands at this point.

So really, it's more comparable to Delaware. It's a place where companies are registering, but they're not necessarily locating there. And but that said, I happen to know because the CEO of one of the one of the big crypto companies told me that they're down to one of two places for moving. And Wyoming's one of them. And so that would actually be locating here, putting putting putting people on on the ground here. So obviously Kraken already came. And yeah, there's a lot going on. Let's put it that way. I'll leave it to the companies to announce it. But it's been a little, it's taken a little while to get going, but it's happening for sure. I'm curious, we talked about obviously being able to custody crypto as a bank. When do we start to see it used as collateral for loans? I mean, I've made the argument that Bitcoin is like the perfect collateral. And I recently saw Michael Saylor joking that he can put up his yacht and get a

multimillion dollar loan, but it can be floating on the other side of the world when the bank comes calling. So, you know, Bitcoin, obviously they can store it physically, you know, custody it and loan against it. So when do we start to see that happening? Well, we already are. We're seeing a vibrant lending market. I've also said, you know, be careful because a vibrant lending market for Bitcoin where, where Bitcoin is collateral for U.S. dollar loans, be careful. Number one, because it's obviously price volatile and you can get margin called very fast. But the other piece is when you deposit your Bitcoin at a company,

it's not your Bitcoin. They, of course, are holding the private keys. It's theirs and they owe it back to you, but they might not have it. And we don't have any ability to do any counterparty credit risk analysis. And, you know, we just don't know if the counterparties are solvent. We had a big bankruptcy in late last year of a Bitcoin lender called Cred that filed for Chapter 11 in Delaware. And it was revealed that they weren't solvent for a long time before they finally filed for Chapter 11. We just don't know. And there's no disclosure. And so be careful. I like the way Andreas Antonopoulos put it, up 6% today, down 100%

tomorrow. And what he's referring to is if your lender goes bust and they had your Bitcoin, you might not get it back. There is no lender of last resort to provide it to you. And the loss severity in these bankruptcies of Mt. Gox and Quadriga and Cred were 90%. Mt. Gox is a little bit of an exception because the Bitcoin price rallied so much. We're not going to get the same number. I say we because I lost money in Mt. Gox. I'm a creditor. So I'm going through the bankruptcy process.

We're not going to get the same number of Bitcoins back, but we'll get the value back just because the bull market caused the value to go up. But we will lose 90% or thereabouts of the quantity of Bitcoin that we had there. Luckily, it wasn't much for me and it was cheap insurance is how I think about it because boy, it taught me that lesson that, you know, that's not really Bitcoin when it's deposited on the exchange. And if you really think it's yours, you better teach yourself that it's not and not your keys, not your coins. That is a really powerful catchphrase that we haven't had a lot of in this bull market because, you know, a lot of

us learned our lessons in, you know, two bull markets ago. But also, we've got a lot of newbies and there's just a lot more information out there. And that's the one that should be bubbling up to the top. I just don't know if it is, if the newbies in this industry really truly understand that when they own it out of an exchange, it's not really theirs. Yeah. Yeah. I mean, obviously we see these huge lending platforms, the BlockFi's and the Celsius, and I wasn't really necessarily talking about them.

I'm just curious when like a federal bank will be, you know, but. It's coming. It's coming, I think. Yeah. But it's also, you know, collateral, you need collateral to be relatively stable for from a price volatility perspective. So I actually think, ironically, yes, Bitcoin is a perfect collateral because it doesn't it's not an IOU. It doesn't have an issuer. But ironically, the price volatility probably is keeping it out of use as collateral. Gold is, for example, not really used as collateral either. It's more of a marginal thing. But where I'm going is I think the stable coins, because they're 100% backed by actual reserves, although in Tether's case, that's been a question.

But generally, they're supposed to be 100% backed, right? And so I think that can be a new form of collateral. Absolutely. That makes a lot of sense. It's funny to talk about people not realizing when they deposit that it's no longer their Bitcoin. I think people don't realize when they deposit dollars in a bank that it's no longer their dollars.

I'm just going to say, but back to what we talked about at the beginning and the whole GameStop thing, boy, a lot more people understand it now than they did before that happened. The margin called people who didn't use leverage. Right. I mean, they liquidated positions of people who thought they were just buying a stock. You think you own the securities in your brokerage account and that taught the world, you don't. They just owe it to you and they might not have them. And if something had gone wrong with Robinhood and it had had a bankruptcy and not been able to raise, I think they raised something like four and a half billion of capital in a very short period of time, but they'd not been able to do that. They got margin called by their clearing house. If they had not been able to do that, then boy, a big lesson would have

been learned by a lot of people that we don't own the securities in our brokerage accounts. They're just IOUs and your brokers are not required to actually have those securities in their inventory. I had to learn that lesson the hard way. How close do you think we are to getting more federal clarity from regulators? I would love to know how close we are to getting some sensible tax laws in the United States around crypto, but I'm not counting on that anytime soon, that they'll be less heavy-handed. When do you think the floodgates open and regulators really define what this is and we understand what banks can and can't do and

what people can and cannot do? Well, we have to, on the banking side, we have to know who the new OCC head is going to be. And word is there are two competitors, one of whom is pretty pro-crypto and one of whom is not. So let's see who that person is. But I actually think on the commercial law side, which is really important as well, Bitcoin and crypto assets generally live in a gray area in commercial law. And so, for example, we were talking about stable coins. One of the things that has prevented the existing stable coins from being used as collateral is no one knows what would happen in the event of a dispute that ended up in a lawsuit because no one knows exactly what they are from a legal perspective. And there's a warning, USDC has a warning that I've always

said, I don't mean to single them out because they just have a more responsible lawyer who's warning everyone that these transactions don't fit in nice, tidy legal buckets, and they may not actually be legally enforceable anywhere in the world. And so that's one of the things Wyoming did. We really clarified the treatment of digital assets. And under commercial law, we jumped out ahead. Now, other states are going to follow. Usually that's done in a collective organization called the Uniform Law Commission that tries to keep commercial law standard across all 50 states. But it's not the federal government is where I'm going to answer your question.

Like, when are we going to get clarity? It's actually the states. The states need to give that clarity. But it's funny because I'm an observer in that committee. And in the beginning, they started out with everything has to be paper. And candidly, a lot of them are retired law professors. It's not exactly folks who truly understand crypto and are using it every day. But by the same token, they've moved in the right direction.

I'm not saying I'm optimistic that it's going to get to the right place, but it's a long process. And we still have more opportunity. There are people like Druhinkas and Carla Reyes, who do understand crypto, who are part of those groups and are really helping to move it in, bless you, in the right direction. And, yeah, and by the way, that model law for the state is coming out in the summer of 2022. And then it takes, you know, it's going to take more time for the states to enact it in their legislatures. Some states have not even enacted key parts of the uniform

commercial code 30 years after they got proposed, right? So I don't know how long it's going to take to get all 50 states to get these laws. But I'm very glad that Wyoming didn't wait. And I'm very glad that Nebraska looks like it's going to fast follow it. So I'm very glad that Wyoming didn't wait. And I'm very glad that Nebraska looks like it's going to fast follow it. So we're really, really early. We're so early. Yes. Barely in the first inning. Yeah, I do. Someone asked me that yesterday as well. We are in the first inning now, but barely. That's how I would would phrase it. I guess it was spring training for the last 10 years, though. Yep. We got a lot of practice. We got kinks worked out. We had the block size wars in Bitcoin.

We still have wars going on between the different protocols, but I will say it's pretty obvious to me Bitcoin won at this point. Everything else is competing for the rest. And there are very big uses for certain of those protocols, especially Ethereum. But as a store of value token, it's pretty obvious that Bitcoin won. Which is pretty incredible after all this time. Because especially after last year,

seeing it drop and everybody arguing against that, right? Saying that it happened to say it was just correlated to other markets and that the case for digital gold was over. Thank you, Michael Saylor and friends, I guess, at this point for saving us. So I'm curious then, can you talk a bit about your actual role on the Wyoming Blockchain Committee? Well, I've been appointed now three times by Wyoming's governors, two different governors. And I'm a civilian. I'm not an elected official. And so I don't vote. The Blockchain Task Force was a temporary task force, and I could vote on that because it was temporary. but now it's actually what's called a select committee. It actually has permanence in the Wyoming legislature because we know we're going to

have to keep up our statutes. For example, I was talking about South Dakota with its financial services industry. They have passed an average of four bills per year clarifying those statutes. Statutes are living things. You can't just let them atrophy. And so Wyoming is going to continue to update its statutes over time. And I'm one of the three civilians on that committee. Excuse me. Did you mean to cough in everybody's ear? I did it. You hit the mute button in time, though. I know. I was good. So you mentioned earlier, obviously, stablecoins have incredible use cases. They may very well be the future of this space beyond Bitcoin just being digital gold. But for

the actual use case, you mentioned central bank digital currencies. China, obviously, is far, far ahead. What do you think the development of central bank digital currency means for the entire ecosystem? Will the United States go that route? I mean, I think a digital dollar of some sort is somewhat inevitable, but what do you think it means? Yeah, my prediction is, yes, it will evolve, but I think the private sector is actually going to be where the payment technology comes from. It's not going to be from the central bank itself. That is historically how payment technologies have evolved in the U.S. You know, the credit card networks were private.

They originated through the banks. ACH originated through the banks. SWIFT originated through the banks. So this is just another version, and we're going to have bank versions of digital dollars, and they're going to compete in the banks. Swift originated through the banks. So this is just another version. And we're going to have bank versions of digital dollars and they're going to compete in the marketplace. And that's a wonderful thing. The market will vote with its feet. I also think, I do think that central bank digital currencies are coming. The ones who have experimented with them have not loved their experimentation. So it's going to know, it's going to take time, but it's definitely coming because these payment technologies are so strong.

One of the questions that frequently gets asked is, you know, are banks going to go away? And the answer is absolutely not. You know, central banks are not set up to service in the U.S. 350 million, you know, individual customers and however many hundreds of millions of businesses. They're just not set up with the customer service and compliance onboarding. They're set up to service several hundred banks as their customers. And so I think we will keep the two-tiered banking system, even if we do eventually get FedC, it's probably going to be more, you know, that the banks end up distributing it kind of like like physical dollars. Banks distribute physical dollars. You don't go to to the Fed and in Washington, D.C. or one of the reserve banks in Dallas to get your physical dollars. You get them from a bank.

The bank distributes them. And that's how you got them in a big bag that had a dollar sign on it. Well, you can do that with with, you know with quarters and dimes and nickels, but not, yeah, yeah. And by the way, with all the Bank Secrecy Act stuff, you're not going to be able to walk out with $10,000 of cash without a lot of compliance work being done first. I don't think central banks are going anywhere. But interestingly, you said that you think that Bitcoin has solidified its case as digital gold. Do you think that we will, like we're seeing the micro strategies and Teslas of the world putting Bitcoin on their balance sheet?

Do you think we're going to see central banks buying Bitcoin? Oh, sure. And I'm sure we already have. Yeah. But two thoughts. One is a lot just won't disclose it. I happen to know there have been a number of big international brand name companies that have been using Bitcoin for years, and they've just don't talk about it because it hasn't been in their interest to talk about it. And now it is. So maybe some will. Most will probably just stay quiet because they just don't want the world to know how they're moving money

around the world. But like I said earlier, corporate treasurers have such an incentive to find the cheapest, best, fastest, safest way to move money, and they will. But the other thing, you mentioned MicroStrategy and Square. The other thing that is interesting is, this dates back to, it also gets back to your earlier question about what needs to change in order for this to really go full mainstream. The gap accounting for Bitcoin is very punitive. It matches the gap accounting for gold. It's something called an indefinite intangible. And to put it in plain English, I'm not an accountant, but the gist is it's the lower of cost or market, which means that you're only ever marking it down. You're never marking it up on your

financial statements until you sell it. And so that's really ugly accounting because you can end up with a surprise charge. Overstock has been accounting this way since 2014, and they have taken impairment charges. And these impairment charges run through your underlying business. It's one of the reasons why people like corporate treasurers want something stable in their in their in their cash and investments. So I think what MicroStrategy did is awesome. And but, you know, Square is now up to five percent of their cash. MicroStrategy is clearly an outlier. I'll bet you what Square did was determine how much earnings volatility they're willing to take in scenarios of an impairment charge in a Bitcoin bear market. And if you catch the early part of the Bitcoin bull market, your risk of an impairment charge is lower because you're buying at lower prices. And we've seen in Bitcoin generally higher highs and higher lows, but you have to have bought near the low in order to minimize your risk of an impairment charge. And again, I think that's exactly what

MicroStrategy did, but I also think that's why Square limited it initially to 2% of their cash. Now they're at 5% of their cash, but they're not all in because they don't want that earnings volatility. We got to fix that. I will repeat a plea I've made before. If you are a CPA and you're part of the FASB, Financial Accounting Standards Board group, please do your part to fix this. Some of us are working on open source code. Some of us are working on the legal code. That's what I've been doing in Wyoming. I don't have the skill set to do the either open source code or accounting. We need an accounting version. The industry just has to start working on that because it's just wrong accounting. And I'll close this thought with

saying that it's crazy because US GAAP allows you to buy Bitcoin or gold or other indefinite intangibles in a fund structure and market up and down. But if you buy the actual asset, you don't get to market up and down. You only market down until you sell it. It's just crazy. It just creates an incentive for Wall Street to capture fees just so that the accounting can be accurate. That's where we got to push back on US GAAP standards. Yeah, that obviously makes no sense. Well, I know that we're running out of time here. So where can everybody keep up with you and see what you're doing in the future? Twitter. I'm on Clubhouse now and also Avanti Bank. Awesome. Well, thank you so much for your

time. It was really enlightening and gives me great hope. I love that we're just in the first inning. Yeah. Yeah. Great conversation. We'll do this again as we get invited. Absolutely. Anytime. Thank you so much. All right. Yeah. Bye.