Everything’s Bigger in Texas: Front Running the U.S. SBR with Lee Bratcher of TBC

Jackson Mikalic (00:01.656) All right, gentlemen, packed house. We got the five way last trade this week. It's always fun. So this time we got Lee Bratcher on from the Texas Blockchain Council. Lee is the founder and president. And so we have my three co-hosts as well. I'll rattle the names off, Brian Cabellus, Tim Cotsman, and Michael Tanguma. Good to see everyone today. It's been pretty volatile past week since we recorded. So no shortage of things to talk about. Really excited for Lee to be here today because timely conversations around what's happening in Texas, but also just at the state level as it relates to strategic Bitcoin reserve bills, other legislation that has been introduced to protect the right to self custody, the right to mind, et cetera. And then there's of course a ton happening at the federal level as well. So really excited for this conversation. Lee, thank you for joining us. It's great to see you. Lee Bratcher (00:53.342) Yeah, Jackson and gentlemen great to be on looking forward to the conversation. Jackson Mikalic (00:58.718) Awesome. Well, so we are all long-term investors, allocators here, but we do like to just take a look at the price each week on the on-ramp terminal, see where things are. It's been a, it's been a wild week, I would say, you know, we've been seeing some 10 % candles up and down both directions. What do you guys make of it all? I guess it has a lot to do with just discussions at the federal level. There's of course the tariffs too, if you zoom just out of the Bitcoin discussion. So Just a lot of things happening and it's led to pretty volatile past, not only week, but really just past month or so. Michael Tanguma (01:32.23) Yeah, this is easily one of the most volatile times I've experienced in this space, because it's not all downside. Like we took that wick down to like 78 or 79, but then Trump came out on a Sunday, was it Sunday? Over the weekend, whenever it was, and just kind of got everyone excited and you saw it pump and then it just kind of retraced and now it's sitting back closer to 90,000. So it's, like you said, it's an exciting time to talk with Lee because of this reality of like, the states and the federal government are on a race to figure out how they can start accumulating Bitcoin, which is wild because three months ago that have been crazy to say let alone three years ago. And I Lee's been at this for a very long time. Lee Bratcher (02:14.44) Yeah, this is a culminating moment for us here in Texas with the Texas Strategic Bitcoin Reserve bill about to pass. It'll pass the Senate here in the coming days and then the House will go over to the House. So hopefully by the end of March we'll have a SBR pass for the governor to sign. Jackson Mikalic (02:35.672) That's incredibly exciting. Yeah. So, Lee, could we talk a bit about that then? So for those that aren't familiar with your background, could you just share high level, what do you do at the Texas blockchain council? And then would really like to get into more about what you're seeing. there's no shortage of things to talk about just of how things have changed at the state level, the federal level over the past several months, let alone, you know, several years you've been at it, but what, what exactly do you do? And so how should the audience think about the work that that you're pushing forward here at Texas Blockchain Council. Lee Bratcher (03:06.76) Yeah, we're a trade association. So we do two things. Primarily, we do the lobbying and advocacy portion of things. And then we also work on business, business, business kind of connections, introductions, close conferences for our member companies to meet new clients and partners. And so really a facilitator in the industry with a pretty strong focus on Bitcoin mining and energy. Start it with me. Jackson Mikalic (03:38.656) Yeah, no, it's, it's exciting. I know certainly in 2021, just all the hashrate moving to Texas post China ban. then of course, lot of the team, Michael included is down there in Texas and we work a lot with different mining businesses. And so really appreciate the work that you're doing on the advocacy side. So maybe just a level set. mean, you mentioned just in passing now the work or kind of the progress that's been made with the Texas strategic Bitcoin reserve. But before even getting into the specifics of that, could you just kind of speak to what you're seeing in 2025 at the state level, at the federal level, how have these things or how have discussions, you know, with policymakers, with institutions, with miners, like how is this all changing over the past couple of months here? Michael Tanguma (04:22.566) Yeah, maybe to add a little meat to that, like we talked about with this new administration, it's been a, it's kind of hairy on where the direction was gonna go come November and the election, but it's been, it feels like all lights ago when it comes to policy, administration friendly, regulatory, right? On our end, talking with whether it's banks, RIAs, everyone now feels a little caught off guard and like needs to figure out a position. So just curious like what you've seen there historically and how that's been drastically changed. And I feel like that may tie into, I believe it's the launch of the North American Blockchain Council now that you guys recently came out with. We'd love to hear how that kind of ties into it as well. Lee Bratcher (05:03.976) Yeah, I think the market has really run ahead of most institutional traditional finance players. You know, we saw with the polymarket odds on the night of the Trump Trump's election victory, polymarket odds in Bitcoin price were almost identical as they increased in tandem. So with that, we've seen announcements, David Sachs obviously being appointed. We've seen Saab 121 quickly be eliminated. And I think that's going to bring a lot of big banks into the industry. lending, custody, all sorts of things that you guys have a great vision for and have had a vision for for a long time, but now these banks can actually do that. And the multi-institutional custody model is actually probably in vogue where it was a little bit less popular a couple of years ago because some of these custodians and large banks weren't even open to the conversation, but now everyone's trying to catch up. And so what we anticipate, great strides this year. There's gonna be a lot of companies go public. A lot of digital assets companies will go public this year because the markets will be friendly. Now, of course, the macro picture is a little bit more challenging with the tariffs and the Federal Reserve holding strong on tighter monetary conditions. We'll see who wins that battle, Jay Powell or President Trump. They're certainly battling it out right now. It's almost like the president is daring. the Fed to keep rates steady despite the situation that's being created with the tariffs. But I think we'll see a lot of companies go public. We'll see market structure and stable coin legislation. I like to talk about Bitcoin strategic reserves and stable coin legislation in the same conversation because stable coins are the 15th largest buyer of U.S. treasuries right now. And that'll probably go up to it'll be under 10 by the end of the year. Just with the Lee Bratcher (07:10.14) growth of stablecoins. They're the poorest buyers of US treasuries. Ninety percent, ninety nine percent of stablecoins are denominated in dollars and then those dollars then go by treasuries, right? Once they're deposited at BNY Mellon. I think a bunch of different banks will become custodians for stablecoin deposits in the coming months as well. I think BNY Mellon had that special dispensation from the SEC that gave them a head start. But why would other banks not? custody those deposits. So that combined with a strategic Bitcoin reserve and and yes, it should be Bitcoin only. I think there's a lot I think you guys agree with that. I know you guys agree with that. There's a lot of talk out there about what other assets could be added to this reserve and you know, those are for conversations for another day. I think there's two two primary drivers here. Bitcoin strategic reserve and stable coins will prolong the US dollar as the world reserve. currency for decades to come. Were it not for those two things, it's very likely that the dollar could lose that status as world reserve currency within the decade and just fall to a basket of reserve currencies with the euro and other currencies and that's not an outcome that we want. Brian Cubellis (08:29.838) It's super fascinating. It seems like there's a realization on the part of, know, perhaps Trump himself, but certainly the people he's surrounded himself with that stable coins are this way to really continue to kick the can down the road effectively and sort of plug the hole of demand for US treasuries. Just going back to sort of, you know, I'm curious, what is the sentiment shift been in the work that you do, the people that you talk to, policymakers, sort of like pre and post election. Because I would imagine there was a stark shift once people realized, OK, Trump's going to win. He's going to put all these sort of pro crypto, pro Bitcoin people in power. Was it tangible on the ground to see people engaging in a different light? And in your view, is that a function of them just being like, all right, this is where the puck is going. We need to get up to speed on this? Or was it Is it genuine interest and genuine learning that's occurring? Or is it just now they feel like they have to do this? Lee Bratcher (09:31.878) I think it's a little bit of both. think there was a lot of education that went on with elected officials and regulators for years. Trump has just allowed it to be in the zeitgeist and allowed it to be a safe thing to now bring to the fore. The strategic Bitcoin reserve in Texas probably would not have happened had Trump not been elected. I think what we were planning on beforehand the last two years, we were working on a charitable trust. And I know Michael, we had talked with you about this and other members of your team. We were going to develop a trust structure, put Bitcoin in the trust and bequeath the trust to the state of Texas. We don't have to do that anymore. Now, this bill used to have a donation component and appropriations component where the state of Texas would accept donations from Bitcoin companies, from individual Texans, and they would also make an appropriation to buy Bitcoin into the reserve. Actually, last week, there were some current concerns about the donation piece. So they pulled that piece out of the bill. It would make it easier to administer and they're just going to appropriate funds to buy Bitcoin, which you had told me six months ago, told me that I would have said there's no way that's going to happen. The only way we're going to get Bitcoin in the balance sheet of state of Texas is if we donate it. And to see how far that has shifted, I am relieved, honestly. I mean, the bill is going to be easier to administer without the Donation piece that's a that's a plus but now I don't have to go twist the arms of companies like Marathon Riot Cleans Park Cypher everybody else and say hey, please donate one or two bitcoins from your from your Balance sheet to the state of Texas, which they probably would have done that would have been you know, no one wants to give up their coins Michael Tanguma (11:17.488) Yeah, it's honestly insanely fascinating because, which you just hit the nail or like explained, you know, we have a lot going on. So obviously we're here in Texas and we see the leadership from Texas, but in the minutia, didn't necessarily know about the donation piece getting stripped out, but we were in New York last week at POMP's conference and it came up at a very high signal dinner about like, Texas leading, but then they brought up the donation piece. And I literally rattled off what you described because that was my understanding of where this kind of like based on was the charitable trust that some of the folks were connected as well as yourself were discussing to try to get Texas. It was like a roundabout way to accept Texas to adopt some form of Bitcoin. And now you have to strip out the roundabout way just so they can buy Bitcoin. It's just wild to see that happen within that quick of a timeframe. Lee Bratcher (12:06.692) It is wild. And the bill passed out unanimously from the Business and Commerce Committee. All Democrats, all Republicans voted for it. Now, some of the Democrats probably, actually, I'll tell you, there were a few members of the committee, both Republicans and Democrats, that didn't really want to vote for it. But the chairman of the committee, this was his bill. The lieutenant governor who oversees the Senate was all about it because obviously, Dan Patrick is close to President Trump. And so... They just didn't want to spend the political capital to oppose it. think if it had been a true, like, anonymous vote and they wouldn't had to have said, it would probably have been more like, you know, seven to five, seven, you know, it would not have been unanimous. But we did see it come out of committee unanimously. It'll probably pass today unanimously in the Senate. And then I expect it to go through the House in next 30 days. And we'll be we'll see what the federal government does. I mean, We're getting news in the last 24 hours that the Bitcoin strategic reserve at the federal level might be back to Bitcoin only. I think the amount of backlash that we saw is indicative of even people like the Texas Blockchain Council. We are not Bitcoin only. We have companies like Consensus, the maker of MedicMask. We have Coinbase as members. Even executives from companies like that are saying, We got to start with Bitcoin. Bitcoin is the reserve asset here because of its unique properties. is not trying to, ETH is not trying to be the hard asset reserve currency. It is trying to be other things and we should look at them as differently as we look at a broker dealer versus a bank. They're just solving different problems. Michael Tanguma (13:54.448) Yeah, 100%. It's something that we kind of educate. if you're, I don't know if you were there, but like the crypto ball as an example, it's like, it's not the Bitcoin ball because there's not enough Bitcoin capital that goes to invest to make these affect this change. So it's required to support other things. It's just, it has nothing to with being wrong or right. It's like a very big thing of OnRamp is do you want to make money or do you want to be right? It's like, you got to meet the market where they're at. And so it makes complete sense. some of these tweets that Trump's been out there with because there's a lot of capital lobbying. Maybe Lee, taking a step back, to the extent you can help us, like me personally and the audience, but then even the group here is the dynamic between like the federal level, there's executive order, and then there's the legislation. And we've had these rumors coming out Friday that there might be some announcements. And that's more tied, my understanding, to the executive order, how that interplay. And then the state level. and like the different dynamics from approvals and we've seen kind of Wyoming and some other states where they've kind of just fallen a little short or I don't know how little's fair, but just like just that dynamic from federal to state would be helpful because we've talked with different states and there's a lot of interest in getting our support even from like, and you shared some nice documents that we passed along because there's just no shortage it seems like of like traps when it comes to putting this forward and then. individuals looking into it and really figuring out ways to poke holes. And so we just love to hear like how that dynamic plays. Lee Bratcher (15:24.89) Sure. think there's bills are designed to fail, right? There's no legislative system that designs for bills to sail through with no problem, right? You've got to go, you got to get a bill author, you got to get it filed, you got to get it in committee. You've got to go through the hearing process, got to pass it out of committee, pass it to the floor, and then you go to the other chamber, right? And then you got to do that whole process all over again. So only about eight to 10 % of the bills that are filed in Texas actually pass. And the number for the federal level is something less than like 2 % of the bills that are filed actually pass. So oftentimes you have to file bills over and over and over again. This will be a very rare case in Texas where this is the first time we filed the bill and we'll be able to get through here in the same session. In Congress, know, market structure and stablecoin legislation will likely pass this year. Thankfully, we don't necessarily need legislation for a Bitcoin strategic reserve. federal level. So I think that most of the fighting there is going to be internally around the different executive agencies that would oversee it. You know, the RFPs that will go out for the custodian, you know, the process by which the federal government is going to take possession of this. think anytime what we've seen both the state and federal level is anytime you're introducing a brand new concept, there is always jockeying amongst different agencies. If it's something pretty popular like this, then they're jockeying for it. If it's something pretty unpopular or that's gonna create a lot of work, then they're jockeying to push it out off on another agency. So I think that the political will is there to get it done. What we're finding out as an industry is there is a... pervasive and it's not negative, it's just there's a process that involves thousands of different folks that are required to kind of make, administer something like this in a way that's transparent, removes kind of the risk of the federal government losing the assets or... Lee Bratcher (17:49.228) or improperly acquiring the assets. We were even working on an unclaimed property bill recently where they had to write into the bill because this was around digital assets because right now, states liquidate unclaimed property. If Bitcoin comes into the state's unclaimed property safekeeping and trust, they liquidate the Bitcoin immediately because they don't know what to do with it. So this bill would allow them to hold that Bitcoin for a holding period similar to how they would hold other assets and commodities and things like that. And they had to write in the bill that the department was not permitted to liquidate the asset at a price different than the prevailing market price. And they had to specifically outline, you know, different indexes and marketplaces that they had to look at because because it's not the incentives are not the same as in the private sector. Because the person hitting that sell button or that buy button doesn't really have the same incentives as a trader whose money they're either because either their own money or one of their clients money. They don't have the same incentive. They're just doing a job. And if they're pushing that buy button at a time when there's no liquidity or the market is just on a severe, I mean, you can't really bake that into the process. You have to work with all of the different folks that are doing this to make sure that they're doing it with industry best practices. That's a long-winded way of saying that's why it's taking so long. Brian Cubellis (19:25.9) Lee, I'm curious just back to the federal level for a second. What's your view on sort of the medium to longer term implications of going via executive order versus, you know, full congressional approval, i.e. the bill that Senator Lummis had put forth initially. You know, I've heard some commentary around like, well, if it's just by executive order, for one, it'll probably be smaller amounts. for whatever reason. then the more important part is like, it's just less robust in the sense that it could be more easily reversed in the future. I.e., if the next party to take power in four years or eight years wants to sell the Bitcoin, they could do that more easily than if we took sort of the longer path of getting congressional approval. Do you have any thoughts on sort of the distinction between those two avenues? Lee Bratcher (20:24.348) Yeah, I think your characterization is spot on. My thought is a bird in the hand is better than two in the bush, right? So let's move forward with the executive orders and the administration pursuing this and then we'll let Congress catch up at some point. we've got a two year window until midterms. You know, the Senate majority is very narrow for Republicans. So I think Senator Lummis's bill is the better way to do it. It's a cleaner way to do it. Like you said, it's a more permanent way, but it's unclear whether or not that will be possible without breaking the filibuster, which they're definitely not going to do for a Bitcoin strategic reserve. They're not doing it for other things, right? So that 60-volt threshold is tough. Now you just saw Senator Cruz's CRA. get 70 votes in the Senate. So there's a lot of Democrats that signed on to that. That was to pull back the IRS's broker rule that would have made unhosted wallets and DeFi and all sorts of things have to comply with broker rules, which is not possible, right? Wallet software provider can't KYC and AML all their users because it's literally a piece of software and they sometimes may not know who's using it. So that's where we stand. Jackson Mikalic (21:45.644) Yeah, one thing I thought that was really interesting, you said Lee, a bit earlier was about just the success rate of bills that are introduced within Texas, but then also at the federal level. if I remember correctly, it was eight to 10 % in Texas. And so I'm curious to hear your thoughts. It may be obvious to us that are recording and probably to a lot of our listeners as well, but I know there's some cohort of listeners that... maybe aren't even convinced on the idea of a strategic Bitcoin reserve. So it might seem obvious to us, but I feel like it's worth discussing. Like, why are we even talking about a strategic Bitcoin reserve in the state of Texas? And why is there support for it? And not to say that, not to diminish all the work that you've done. I know there's a ton of work that several stakeholders have done to get this to the point where it's at today, but it almost sounds like it's kind of smooth sailing, right? Now that the bill's been introduced and it sounds like there's support for it. But that's usually not the case for nine out of 10 bills. So could you just share maybe a bit about why there is so much support for the Strategic Bitcoin Reserve and why should people in the state of Texas care about it and how to constituents of other states think about this for, you know, wherever they live. Lee Bratcher (22:58.92) Yeah, I'd say the cost to the state of Texas to administer this bill is the minimum, right? It's a negligible amount of Bitcoin that they will appropriate relative to the state's biennial budget. So the upside is tremendous. The amount of capital, the amount of entrepreneurs, the amount of investors that could potentially come to Texas as a result of this signal that this is sending is the real win here, right? If we could signal to the world that the United States and Texas in particular is going to be the jurisdiction of choice to be a builder in this industry. That's where the real win is. That's where we see relocation, tax benefits, job creation. I think the $20 million or the Bitcoin that the state of Texas eventually buys, and it'll likely be a number around 20 million, it'd be my guess, maybe 21 million, is going to be pretty de minimis and negligible relative to the entire state of Texas. Michael Tanguma (24:02.512) Yeah, like maybe to double click or go on a little deeper on that. There's it's it's without question, Texas and Lee's platform is. either the leader or leading from the top number of states that are favorable to this asset class pre this administration. And one function of that has to do with the amount of businesses that make actual money because you cannot have effect, have impact without capital. And because of, as a good friend, Griffin Habey likes to call it Chegsit, you know, the amount of miners that were able to come to North America and specifically Texas has empowered the ability to really go and educate and affect change via policy. And so something that I've talked to Lee multiple times about is the native Texan have been very interested in obviously bringing more of that, but then to diversification of businesses in the space, because there's a lot of infrastructure and things that need to be created and built and, and would love to see it in Texas. And something that I was a little bashful and almost embarrassed to say out loud was I lived in New York City for a few years in 2017 to 2019, 2016 to 2019 and when I came back I remember just seeing part of the learnings in New York was just how antagonistic they were to business owners in general. It was something you just didn't see in Texas. And so it was just very foreign to me. And I thought if there was one place, this was in 2019, that was going to take my Bitcoin, it was New York. And if there was one place that understood property rights, they didn't understand Bitcoin, but they understood property rights was Texas. And Michael Tanguma (25:40.73) knowing about Bitcoin and understanding technology and Wall Street was like, well, Texas sits right in the heart of the US and also from Austin that sits more on the tech side and Dallas on the financial services side, that if Bitcoin is to become an increasing player in the markets, we can be the capital of the world. And it sounded crazy. So just didn't say it out loud, right? But then I want to pull up our, you know, governor here. with the announcement of the the New York Stock Exchange coming to, I'll just zoom in a little bit, he had this quote or the the main thing that to take from it is Texas will be the financial capital of America. Something that would have just been seemed like insane but post-COVID with the amount of exodus from the coast, the amount of Texas friendly, the crazy amount like I think we're number like seven globally in GDP from like from a sovereign. There's I may get that a little bit off but directionally correct. Just curious if you want to opine on that Lee, like on just how big that opportunity is to not only lead, but then when it comes to having a favorable stance from where there hasn't been regulatory and legal to be able to build without having to look over your shoulders in this space. Lee Bratcher (26:53.053) Yeah, some data points there. Dallas has more financial services professionals than any other city in the United States bar in New York City. Right. So The industry and the talent is coming here. Goldman Sachs is opening and building their own skyscraper in downtown Dallas for 5,000 employees. be kind of their second headquarters, if you will, globally. We'll be here in Dallas now. The New York Stock Exchange, as you pulled up that tweet, is coming to Texas. Their Chicago operations, their sub-exchange there in Chicago, is relocating to Dallas, Texas. That was in response to the start of the Texas Stock Exchange, which Governor Abbott championed BlackRock and Citadel both invested in the Texas Stock Exchange is going to open their doors in later this year, also in Dallas. So in Texas, you have Houston, which is the energy capital of world. You have Austin, which they call Silicon Hills, which will one day compete with Silicon Valley from a technology software perspective. And you have Dallas will be the home of capital markets. That trio energy capital markets and technology is I'd say a one-two punch, but it's a three-ohs trio. So whatever that expression would be, it's going to be a dynamic Texas triangle moving that GDP figure from that seven-eighths largest in the world, if it was its own country, to be competing with countries like Germany, China, Japan, as just Texas being able to compete with those countries from a GDP perspective. Jackson Mikalic (28:27.32) That was music to Michael's ears. have a, unless you want to ask a follow up, I have another question there. Brian Cubellis (28:29.281) You Michael Tanguma (28:33.006) No, well, to be so Bitcoin sits at the beauty of that intersection, right? Energy, technology and finance. But to give Jackson and, you know, his beloved state of Pennsylvania, like they are also working heavily on this amongst other states because there is a race. Texas won't be the only like end all be all winner that individuals are trying to pull that capital and that human capital to their state to build. So yeah, Jackson, you're just throwing out. Jackson Mikalic (29:02.43) That was yeah, that's a perfect segue. I wanted to ask exactly that Lee. So, you know, from a state competition perspective, sounds like, you know, maybe you're biased, but of course, Texas is leading at the moment. You guys are doing great work there. But who else do you see from a state perspective leading with legislation, with SBIR, with attracting capital and talent? there is there any close competition or you feel like Texas stands alone at this point? Lee Bratcher (29:28.936) Yeah, I think, you Florida is always in that conversation too and New York is the incumbent player can never be counted out. The New York Department of Financial Services is in a very impressive regulator, very strict and a little bit overly onerous, if you will, but they have hired a bunch of talent in the financial services area. And so there are other pieces, there are other legs to the stool that Texas does not have in abundance like like a state like New York would have. We need to fund our regulators a little bit better, which is kind of weird coming from a... conservative state, someone who like me who's pro business, who doesn't really believe in a ton of regulation, you have to have a lot of talent in that realm in order to attract some of those big, know, fortune 500 companies. Now, Texas is home to the second most fortune 500 companies of any state. We have tons of them here. But in order from a capital markets perspective for Dallas to be on par with New York, we're going to need a lot and part of that too, is the institution of business courts. know, the chancellery courts in Delaware, you've got business courts in New York. Texas just established our business courts here last legislative session, so they're pretty new. Other states that I see, you Jackson, your question was well placed. I think Pennsylvania is a great state for... capital formation. There is a lot of academic institutions in Pennsylvania that are very strong. And that's kind of another leg of the stool is sort of the talent, the academia, the partnership. How does academia work with business? And of course, you've got some clusters in Pennsylvania that are second to none. Of course, Massachusetts, the Boston area has some incredible academic clusters. That's an area that Florida does not have as strongly as states like Lee Bratcher (31:26.152) Massachusetts, Pennsylvania, and Texas. And I would say Texas is sort of not leading in academia. UT and A &M are premier institutions, but in the state of our size, you would want to see more academic institutions. think University of Texas Dallas is coming up, and they are on par with Harvard and MIT and some of these other, working, for example, in some programs related to technology and business. but we're not where we should be from an academic perspective. Jackson Mikalic (32:01.474) Yeah, it's great insight. Brian Cubellis (32:01.738) One question, Lee, sorry, just a little off topic, but just thinking through all the progress you guys have made this sort of race that's now occurring across states and at the federal level. And Jackson kind of alluded to this of like, you know, to us, this makes total sense, like why a government would want to accumulate Bitcoin for a treasury. I'm curious what you're seeing in terms of dissenters. Like, what what are they leaning on in terms of their rationale for why this shouldn't be a thing. Is it just a lack of understanding about what Bitcoin is or is it more sort of like a fiat maxi mentality of like how could we do this? This threatens the dollar. That line of thinking because I've seen that as well from some talking heads of like, you know, this seems counterintuitive to the dollar strength, which we know Bitcoin could actually help help dollar hegemony over the sort of medium term. But curious what you're seeing in terms of any actual rationales for why these bills shouldn't get passed or we shouldn't accumulate Bitcoin. Lee Bratcher (33:07.88) Yeah, I think it's two and you hit one of them right off the bat, right? It's the the US dollar argument. I think what we talked about the top of the call about prolonging the dollar and how Bitcoin Bitcoin mining stable coins do that. That's an easy logical argument that I can bring to bear and any any advocate can bring to bear. The thing that's harder in the main the second main area where I feel like people are concerned, and maybe just don't understand is they're thinking that we're doing this just to pump our own bags. And, you know, people, it's really hard to tell them like, hey, $20 million does not move the market at all. It does not pump our bags, you know. Brian Cubellis (33:38.883) Right. Lee Bratcher (33:49.32) It's it's a negligible amount of money. It's more so to get the the gears of government running make sure that they understand You know if we're gonna be the center of capital markets, and this is the future of finance Let's get the education going and you can't you as you guys know you can't educate you can't understand this until you use it That's why you know the poor journalists who've been writing about Bitcoin Who you know for ethical reasons or whatever they they aren't allowed to own an asset that they're writing about you know, it's very hard for them to understand how this asset works. And so that's one of the two main challenges that we see. the second one, the latter being a little bit more difficult for people to understand like what $20 million is so inconsequential that it doesn't pump your bags. I think that's the main. Jackson Mikalic (34:40.534) Hey, Lee, real quick. if you want to switch rooms, feel free. I just just saw your note there. If not, if you want to stay put, then we can keep going. I have a question I can ask. Lee Bratcher (34:49.096) Okay, I don't know how it sounds on y'all's end, but it's pretty rough on my end Okay, let me switch up Brian Cubellis (34:55.456) Yeah, it's gotten a little bit louder over the past couple minutes. I think the beginning will be fine. Like I said, I can edit out most of it, but it's a little bit louder now. Okay. Lee Bratcher (35:04.487) Okay, standby. Jackson Mikalic (35:07.372) Okay. Jackson Mikalic (35:10.808) Yeah, I guess we can just chat real quick. rest of the episode, I think Leah has like probably another 20 minutes or so. I wanted to ask on that question about thoughts at the sovereign level. So it's like, you know, you could talk about dollar and in fighting within, is it bad for the dollar? But if other countries start doing it, so we could do that direction. But what else do you guys want to cover? Michael Tanguma (35:18.705) Okay. Michael Tanguma (35:31.472) I think the one that I really, it'll be impactful for the conversation, but also for OnRamp is just teasing out if there was a problem with the market. It makes complete sense about liquidation price and the incentives. but like, well, what if you start looking at custody and you're gonna go with nobody ever got fired for Coinbase because that's the job, but then like, I'm gonna pull up the slide of the losses. And like, I feel like that ultimately, maybe it's too nuanced for this initial session or approval, but at some point people are gonna look at it and be like, well, how do we make sure we're not on this screen if we're gonna really allocate material capital? Jackson Mikalic (36:11.032) Cool. So you want to do then what I mentioned, what you, and then we can maybe end on some federal stuff. Michael Tanguma (36:17.358) Yeah, yeah, let's talk sovereign. Jackson Mikalic (36:19.522) Cool. What you doing better now? Okay. Awesome. So yeah, those are all great points. Lee wanted to get your thoughts then on the sovereign level, right? So there's obviously some debate still within states, within the federal level here in the United States, whether Bitcoin is good or bad, is this a good use of taxpayer money, et cetera, et cetera. But what about the U S competing with other countries? Right? So we all want to Lee Bratcher (36:20.348) I found a quiet room. Yeah. Quite a room for sure. Jackson Mikalic (36:48.856) We're all America first here. We want to do what's best for our state or for our country. And I think the five of us would agree that Bitcoin is something that helps advance that ethos and agenda. But not everyone is convinced, right? So there's still a lot of skeptics, as you just mentioned. But how might other sovereign nations stepping in? We know it's happening, but at an increased rate, how might that shift the discussion or that dynamic within the United States. Lee Bratcher (37:20.914) Yeah, it's a bit ironic that we understand the fiat system as Bitcoiners because you don't really get to Bitcoin without like diving deep in like Safedin's book and understanding fiat. And the fact that the US has the exorbitant privilege of printing the world's reserve currency and that we could literally just pull the Michael Saylor, you know, market at the market offering and just buy Bitcoin by diluting stock. United States can do that by diluting the dollar essentially. print money by Bitcoin, print more money by Bitcoin. So it's a fascinating dynamic. Other countries don't have that opportunity. They're buying Bitcoin, you know, in sort of with taxpayer funds in a different way. Of course, it's taxpayer funds with the United States, but it's more so the dilution of purchasing power rather than direct taxpayer revenue, which I think feels a little bit different for the taxpayer. So you have to have a little bit more buy-in in some of those other countries like El Salvador and others. Whereas in the United States, it's like, okay, we get diluted for everything, right? For defense spending, for mandatory entitlements, so security, let's try something new. Let's dilute a little bit, print money and increase money supply for an actual reserve asset. It's like the difference between putting a car on a payment plan versus putting a house on a mortgage, right? the house is gonna appreciate, the card is gonna depreciate. And that's kinda how I view it. So while it's a little bit more challenging to say, to tell other countries, hey, we're gonna print this reserve currency that you really need, you really want dollars, we're just gonna print more of it and buy Bitcoin. I mean, it further emphasizes the importance of Bitcoin, but it also, if we do that too much, the speed that that takes place has to take place over 50 years. If you do that over a couple years, then you run the risk of destabilizing things. So I think that's a long process. And I think the United States should definitely do it very thoughtfully and carefully. Michael Tanguma (39:29.702) Yeah, the interesting thing with that we all find with Bitcoin is it's the ultimate alignment of incentives and game theory from the micro example of us as individuals holding Bitcoin to preserve our purchasing power to what Jackson brought up on the sovereign level. This shifting of the over 10 window, excuse me, can't be underscored because it started like two or three years ago with like RFK and different politicians coming up and talking about this. And now we have this SPR conversation. And it ties to the sovereigns doing the research all the way to what Lee described with states naturally needing to do this work and just build the like piping from the allocation perspective, right? So like whether it's us on a micro example, trying to talk to our friends and family about just buying a little bit, you want to open that connectivity from learning, but also being able to buy a little Bitcoin in the same way from the states. It's like, let's just educate you on know, understanding the dollar, understanding the gravity in general that the dollar has to be debased. And maybe you want to learn about putting some kind of strategic positioning on at some point, and maybe we don't get to that point in the near future. But if other states, because sovereigns competing with each other, similar states competing with each other from talent, from tax revenue, so then you naturally want to get that. This is that Overton window of education happening. I- yeah. Lee Bratcher (40:58.352) Yeah, that's right. It does take time for that game theory to play out. you know, most people don't game theory is one of those concepts that most people don't understand. And they don't understand that they're part of the game theory until, you know, the those incentives have cascaded upon them. So I think we're just so early. And this is a phrase that you guys hear we hear in the industries often, we get to remind ourselves of it, you know, things are gonna these things are gonna unfold in decades, not in months. And so I think that's one thing to keep in mind. Michael Tanguma (41:35.12) Yeah, and the thing I wanted to tie from that was ultimately to, it feels premature for this initial cycle, let's call it next six to 18 months, because I feel like a lot of the states are gonna have approvals here, but it's around the custody aspect. And the reason why I bring it up, it's obviously something we work on, but more because you touched on it about the execution dynamics. I don't even know if it had to do with Bitcoin or just a different asset that the state inherited and naturally because they're state employed, you have to make sure the language is appropriate. So the assets of the state are marked to market at the right price when you liquidate. And I think about something like that. That's great example of wool like custody and this notion of nobody ever got fired for going with Coinbase or Fidelity, but The thing that we've kind of stumbled on is we had clients that are close to states that have said, hey, can we have a call with you guys just to understand what you're working on? And we tell this story that's very different from the market of explaining like, we fundamentally don't think custody has been fully figured out yet because you have these two sides of the barbell, which one is Coinbase and the other one is effectively consumer grade hardware devices to store it. And as a fiduciary or state, you can't really. it's not tenable to do the ladder. So you have to end up in the former camp of using a third party custodian. But where that starts to break down is a kind of like twofold. And the main one is when I think about if I was in a room like. let's just say it was a room that you're focused on winning or it goes down to the policy level of how do you actually execute on this? The question that I would come up with if I was anybody trying to vote or just make sure this is bulletproof is like, how do we make sure our state doesn't end up on this screen of the slide I just pulled up where there's been, you know, the total market cap is a little over three trillion of crypto. And about a fifth of that has just evaporated. Michael Tanguma (43:33.732) Right? And like, sounds like either we're talking our book or it's just like, this is an old problem. It's like 10 business days ago, we had the largest hack in history, like not just like Bitcoin or crypto in history of like financial markets. And so just curious, like how you think about that in a, do you see it being, a hindrance for any states or they'll be okay because it's still too nuanced of a subject to think about custody outside of like Fidelity and Coinbase. Maybe I'll pause there. I have a second part to that question, but just curious like how you think about that or if states and folks aren't really bringing it up as of yet. Lee Bratcher (44:15.592) You know, actually has been brought up several times and I know it's been brought up in multiple states where we were connecting with the state of Ohio recently and of course the Texas Comptroller talking about custody, talking about custodians, multi-institutional custody. I think they're starting to think about, they were even thinking about self custody and like cold storage and I encourage them, hey, That is a great thing for individuals, probably not the safest route for a sovereign, but it is an option. And maybe there is a multi-institutional or multi-key situation where they can have a kind of self-custody in a sense, but not have full control in one ledger or treasure wallet, right? Where there's potential for nefarious activity or even just accidents. like we saw with the Bybit hack. So those conversations are definitely being had. Michael Tanguma (45:18.448) Yeah, and I think this is where the Overton window importance because the fact that you said that is a very strong signal of where the market's headed in that. Like we're talking SBR, we probably end up in the Fidelity's and Coinbase's of the world, but as the market gets more educated, maybe somebody does wanna put a hundred million dollar position size from a state level and then now they have to have a serious conversation. And it was very interesting because it's, think a lot of state reps have been... pleasantly surprised by the bipartisan support and the interest and the sexiness from this sector now where they're getting called all the time, all the way to like the treasurers supporting it. And it was interesting talking with the state and bringing up this dynamic. In my mind, it's clear as day. I think in our team's mind, it's kind of like nonsensical at a certain point to send the assets in the same way if you were back in 2013 sending them to Japan and Mt. Gox. It's kind of weird that like Abu Dhabi sends and buys. We know, we're pretty confident they hold personal Bitcoin as well in central banks there, but they send it, their capital, I think to the tune of half a billion dollars to San Francisco and Coinbase, as a Texas citizen, it feels weird to send our capital somewhere else. And so bringing it up with the state, they're like, well, what if our, could you show our treasure how to shard and implement holding a key? And I was like, well, of course, like, because at the end of the day, similar to, Little people know that like Texas has the only sovereign North American bullion depository, right? And so it just makes natural sense Maybe it starts eventually with the state of Texas or another state holding one key But ultimately it should be all of the keys in the state and maybe it's banks or banks that have local branches in that state But it's just a more resilient architecture for a sovereign Depository or repository which is ultimately what this is versus sending it off to San Francisco or the Northeast so yeah Lee Bratcher (47:12.72) Yeah, I completely agree. you know, interest, you brought the bullion depository because the author of the House bill, the House version of the bill was the main author on the bullion depository, Chairman Giovanni Capriglione. He was also just named the chairman of the Texas Doge Committee, which is a now a full-time standing committee modeled after what Musk is doing in DC, probably a little bit less aggressive because Chairman Capriglione is a much more mild man. but he is the one that authored, he and Senator Tan Parker authored the Bullion Depository Bill 10, 10, 15 years ago. And it does, I think it will take that amount of time. time is accelerated in 2025 versus 1995. So maybe it doesn't take 10 years, but it's gonna take a couple years for self custody to really be learned. Michael Tanguma (48:09.926) Yeah, and I think like the interesting part. about states and where the education is so important is, I think the last time you were on Lee, we talked about one of the studies that came out from like the demographics. And it's like almost 100 % of Texas demographics want sound money. It's just a certain age bracket where it starts to go to gold and then younger goes to BTC. And so actively talking with banks and other financial institutions as they already build the infrastructure for their own clients, right? It starts in the private markets and naturally can extend out to the public markets when it comes to a state wanting a whole key. like go down the street to a local bank you're familiar with them maybe they're already providing services for other businesses so like to your set to your point it's going to take decades and maybe probably sooner than that but it's really exciting to hear that this is these discussions are happening because it means the market's getting more and more educated by the day Lee Bratcher (49:02.856) Yeah, exactly right. I mean, we've done some surveys that have found that 50 % it's actually 52 % of Texans under the age of 29 own some sort of digital asset. But over 65, that number is 6%. And that's that's data from two years ago, right. So if we ran that survey, who knows what it would say. And that's similar to, you know, the accountants, the lawyers and the bankers. that are starting to get exposed to this industry. It's almost like, do you have an internet company or is every company an internet company? Well, at first you have an internet company and then a couple years later, every company's an internet company. Right now it's, are you a financial services company that works with Bitcoin? And in a couple of years, it'll be like you work with Bitcoin. Jackson Mikalic (49:57.386) Yeah. One thing I wanted to make sure we touch on before we wrap up here, Lee, and appreciate your generosity with the time. Could we chat a bit about what has happened at the federal level? I know we touch on it a bit. earlier in the segment where we're taking a look at the price and you mentioned maybe there's some flip-flop that is happening now back to Bitcoin only and of course you had mentioned that some of the executives at bigger publicly traded companies within the US have been advocating for Bitcoin only in the SBR at a federal level. So what do you think happens between now and the end of the week? I believe there is the crypto summit happening on Friday. And it seems to be that there will be some sort of announcement or, I guess plan of action at the, with an executive order. that what you're expecting? And do you think it will end up being Bitcoin or will it be, more of these other, cryptocurrencies that were shared on Sunday by president Trump? I think for the audience sake, was Bitcoin, Ethereum, Solana, Ripple and Cardano, I believe. So where do you think this all heads at the federal level? Lee Bratcher (51:12.096) I think he's going to try to throw the needle on it and please both sides by creating a strategic Bitcoin reserve and then creating a secondary innovation fund that has some of the other assets in it. that strikes me as something that someone like with the personality like President Trump would try to do. And so, you know, could be pleasantly surprised and see him come out with something that's pretty robust. but I think he's gonna try to throw the meme on it. Brian Cubellis (51:43.596) Yeah, it was interesting to see, obviously, the Trump tweet that Jackson mentioned initially only referenced XRP, Solana and Cardano. And then he, you know, quote tweeted himself and said, also Bitcoin and Ethereum, obviously. We love those, too. And then I think Howard Lutnick just this morning was interviewed saying, you know, basically signaling like Everyone relax. We understand Bitcoin is different. And while whatever we are announcing this week or in the coming weeks and months, we will be looking at Bitcoin in a different light, even if we're still quasi positive on these other assets. Relax. We understand Bitcoin is different. So I think that was kind of probably in response to a lot of backlash over the past several days of being like, how can you possibly consider these other assets for a strategic reserve? And then the other sort of thought out there is like, well, in terms of like go forward buying, know, maybe that's where it's really Bitcoin only in terms of like go forward accumulation. And the reason they need to stay positive on these other assets is because they're just going to continue to hold what they've already seized. Is that kind of how you perceive it? Or do you think anything's still on the table in terms of like go forward accumulation? Lee Bratcher (53:08.2) Yeah, I think you've hit the nail on the head on what is the most likely outcome. It's unfortunate that there's obviously certain people within the Trump world that are pushing him in certain directions. And I don't even think it's the Garland Houses of the world. think, Garland House has been a unique actor and influencer of the president as of late. despite being like an early donor to the Kamala Harris campaign. There's other people and they're in his orbit, the ones that were pushing on the Trump coin, Melania coin, that obviously are very well versed in the space and have their own opinions. And so I think he's probably hearing it from a million different angles and just deciding which advisor to go with. And it's almost like real time market feedback, right? Like, get the tweet out there. Let's launch Trump coin, Melania coin, take a few dings, know, Javier Malé in Argentina almost it's impeached over Libra coin because he allowed his staffers to tweet about it in positive ways. So, you know, Brian Cubellis (54:10.775) Right. Lee Bratcher (54:25.124) Not everyone, things don't stick to Trump like they do to other people, world leaders. So Javier Malé had a harder time shaking that, but even though he was not really set to gain financially from Libra, Libra token, whereas that is not true of Trump and Melania coin, right? So I don't know. I would say that the louder the voice that we can be on X, on all these other platforms, Trump kind of is a populace. He likes to hear the people's voice. And we need to be loud because there are clearly some people in his orbit that think that something like Trump coin was a good idea and may still try to defend that push. I don't care if you... Well, I came out really strongly against it the next day and got a little bit of pushback when I'm like, it doesn't... Just because we can still be excited about our Trump presidency and like pro-business administration and call out stupidity. So I think the most important thing to remember is let's be loud as an industry. Let's get our influencers like Pomp and like David Bailey and Michael Saylor needs to be a little bit. And I'm one that says Michael Saylor has been too much of a maxi for me for a long time. But I will say he needs to be more of a maxi when he's talking to Trump because he he's allowing, you know, the, the president's power to kind of, and maybe he's not, maybe Trump's just not listening, but like, I feel like those kinds of figures that had that kind of political influence. You say, Trump coin was a bad idea and that should not have happened. Let's get it right with the reserve. and start with Bitcoin. you want to, you know, maybe put a market cap. That's what we did in Texas. Put a market cap threshold on it. We said 500 billion. Right now, that's only Bitcoin. If there's another asset that achieves that kind of market cap, then the state can look at it. That's pretty objective. We need objective guardrails and not subjective thoughts. Brian Cubellis (56:41.198) Yeah, that's a really good point. The other, just quickly, like the other interesting dynamic this week was like the Brian Armstrongs of the world coming out and being like, hey guys, like I run Coinbase. We do all, you know, the crypto casino. I basically invented the crypto casino, but even I think this should be Bitcoin only. Like that was one of the bigger signals for me from the past week. Michael Tanguma (56:41.361) Yeah. Michael Tanguma (57:03.344) Yeah, I like the take of the whole art of the deal where Trump just asked for the everything and then gets what he wants. And, Lee, that's an interesting, I didn't heard that, but it makes sense on like, if there's an innovation fund for digital assets, like, I don't know if it's partial, just the reality of this situation, but like, at the end of the day, in my mind, we're in an infinitely much better spot. you know, like what we're talking about and debating what should go into a digital asset fund versus like what could have been. And also just from a, I liken to like what we're doing here, whether it's at OnRamp or just like the fact we're talking about Bitcoin in this light to like finding an early artist. If you ever found somebody that you like to listen to and other people haven't caught on, it's like there's something really sexy about it. And then eventually when it becomes mainstream, it's like, eh, it's not as cool that like. I just see this as the ultimate arbiter of like the market in that everyone truly does get Bitcoin at the price that they deserve in the same way as a state or a country or a corporate does. So if people are gonna do something and lose their purchasing power because they didn't adopt it when they should have, like that's just a function of the market and you can just deal with it and like build products and services that can capitalize on that, right? Because while everyone's playing with their altcoins or whatever, that's their thing. Like that's up to them. But if you're building resilient market structure that will outlast that, then that's your opportunity. And so that's how I see all this. I get kind of excited when they talk about all the tokens, because it's like, fine, let them do it. And then everyone has to touch the serve and eventually realizes, OK, I need a better form of custody. I need a hold only Bitcoin. And people that are building that resilient infrastructure somewhere that have invested in mining are able to reap the rewards. Lee Bratcher (58:48.58) Yeah, you're making great points and I couldn't agree more. Someone asked me this morning, what's the greatest risk to the digital asset industry now that we have had all this political and policy success? And I said, there are very immature markets and parts of the industry that are risky. Michael Tanguma (59:10.918) Yeah, 100%. It's like the highlight the ex anonia rabbit. It's like, that's the biggest fear is we just have to be loud in education. So at least people know there's signal somewhere because the biggest risk is from the micro all the way to the sovereign getting rubbed by getting your exposure and then not coming back. And that's historically been the arc, the story arc of this past 15 years in digital assets. It's just been such a small asset. We have such a large total addressable market. People can get burned and never come back and we get net new, know, poor Canada, how many different pensions have been rugged by the FTXs and Celsiuses of the world. But at a certain point that starts to break down and you're just taking everyone's money. And then that just hurts the industry. So it's an important function of like, that's where the BPI, Texas blockchain council and other advocacy groups come in clutch because you have to be able to be in the rooms and have the temperament to educate. I won't speak for the other guys, but I definitely like gone down the journey of learning about the politics in this. And it's just like, not for me, like what you described on, you know, politics, it's like both sides, right? Like you could touch on it early on the call and it was nuanced, but it's this notion of everyone hates something. And then they still have an opinion on where they want to push it to the agency. So you're fighting for it. And then if they don't like it, they're trying to push it towards you. Like it's just as jockey and all day long that is, it's a very interesting world. Lee Bratcher (01:00:33.736) It is and I think, you know, people that are building products that help educate people. mean, by the very nature, BitKey by Block is a product that has education. It's very core, right? Multi-institutional custody by OnRamp has education. It's very core. And even exchanges like Coinbase, we touched on this earlier. They have entire segments for education when you go on and you onboard and... that we just need a lot more of that. And it's a collective action problem, though. There's nobody that's making revenue from educating their clients. But if you don't educate your clients, then they could get burned and never come back and they won't be your client anymore, right? They may not even get burned by you, they're just going to get burned somewhere. And so, you know, we're all kind of coming together and saying, all right, we have this collective action problem, we need to solve the education challenge. There's thousands of hours of education needs to take place. It's not easy to do. Jackson Mikalic (01:01:36.088) Yeah, it is all about education at the end of the day. Lee, I know you're tied up for the rest of the day. You an event to attend. So thank you for making the time. Really appreciate the work that you're doing at the Texas Blockchain Council. What would be the best handoff for anyone who wants to get in touch or just support what you guys are doing there? Lee Bratcher (01:01:57.064) Yeah, we've got a strategic Bitcoin Reserve Ambassador program. Folks are welcome to go to the website and sign up. We had about 30 Bitcoiners show up to the strategic Bitcoin Reserve hearing in the Senate. We'll have another hearing in the House. So that's kind of where we're pointing people right now in this next 45 day window. Jackson Mikalic (01:02:15.626) Excellent. Well, Lee, thank you for joining. I'm excited to follow the continued success of your organization and then also the bill within Texas at the moment. So thank you for all the hard work you're doing. Really appreciate it. Brian Cubellis (01:02:29.73) Thanks, Ali. Michael Tanguma (01:02:30.482) Thanks for joining me. Lee Bratcher (01:02:30.728) Thanks for having me on, Jackson Mikalic (01:02:33.352) and yeah, Brian and Michael. So let's continue the conversation here on the, yeah, we're going to keep. Lee Bratcher (01:02:37.117) Woof. Michael Tanguma (01:02:40.402) We're gonna keep rolling. All right, All right, Lee, appreciate it. Sorry that you had that background noise. I'm sure it was probably distracting, but you did great. Appreciate it. Lee Bratcher (01:02:49.296) try to mute as much as I can guys I don't even know was that usable Brian are you gonna be able to use that Brian Cubellis (01:02:53.26) Yeah, yeah, it'll be fine, yeah. Lee Bratcher (01:02:56.328) I got kicked out of that quiet room and I'm sitting here and like trash cans are rolling by. trying to time my comments so that I can wrap them up and get the mute button. All right, sounds like y'all are gonna keep recording. I'm sorry, if that's not usable, let me know. Michael Tanguma (01:02:59.953) Ha ha! Brian Cubellis (01:02:59.97) Ha ha ha! Brian Cubellis (01:03:12.45) No, I'm fairly certain it'll be fine. Lee Bratcher (01:03:15.278) Okay. All right gentlemen. See you guys. Michael Tanguma (01:03:16.242) Cool. I'll ping you. All right, thanks, Lee. Brian Cubellis (01:03:18.542) Thanks, man. Jackson Mikalic (01:03:18.968) Thanks, Lee. Michael Tanguma (01:03:21.778) Wow, and then there was three. What do you want to riff on? Jackson Mikalic (01:03:25.674) And then there was really, Brian Cubellis (01:03:25.806) First ever after show? First ever TLT after show? Jackson Mikalic (01:03:30.082) That's right. Yeah, no, there's Michael Tanguma (01:03:32.818) Was there too many central points of failure this week that we need to discuss? Brian Cubellis (01:03:36.664) If had to do it. I think we missed it last week too. Jackson Mikalic (01:03:37.932) You had, we had to cover it because last, no, I think we wouldn't miss the week before, but then last week, the single point of failure was the, unexpected visitor at the hotel. And then this week I wanted to talk about the safety deposit box thing, because I actually, totally overlooked this, but I spoke to someone yesterday who shared this with me after the conversation. He mentioned it on the call. Brian Cubellis (01:03:46.858) it or that yeah Jackson Mikalic (01:04:05.016) And so for context, what happened was in the fires that happened in LA earlier this year, there was an individual who was impacted. His home was burned down in the fires, but he had his keys and I guess seed phrases, I don't know his exact setup, but he had his cryptographic material or at least backups out of the house. And so he thought that he was safe because he wasn't securing his Bitcoin at home. He had it in safety deposit box with I want to say it was US bank, but don't know for certain point being he had the Bitcoin out of the house. He thought he was safe. He goes to the bank. They were impacted by fires. I don't know to what extent, but you would think, you know, the safety deposit box, it's durable. It's flame proof, et cetera, et cetera. He goes there. The banks closed because they're impacted by the fires. He can't get a hold of anyone that works at that branch. He has hard time getting an answer from anyone at the, I guess the home office or the corporate level. And so the only answer he got was it's possible that everything was still intact, but they're going to have to move the safety deposit box to another branch location. And he wasn't given any more information about this. So I read this and I was just like, what the hell? mean, first of all, I've... I never really understood the appeal of using safety deposit boxes because you're parking what, you know, the people who do it want like permissionless access to their Bitcoin and they want to be self-sovereign, but you're giving up a lot of that sovereignty by parking your keys in a safety deposit box. So I just read that. was like, what the hell, man? Like this, this is ridiculous. Michael Tanguma (01:05:47.846) Yeah, chain of custody is like a big aspect there, right? Because we've onboarded in our previous life, thousands of individuals to collaborate custody, billions of dollars and every time, and it was like, we didn't have the best practices, so everyone picked a different thought. So some folks were more favorable to safety deposit boxes, but I was in your Camp Jackson in the sense of like, I could never recommend that because I would never do that for a number of reasons. One is like, just you just. only have access during a certain number of hours, but what you just hit the nail on the head is like, let's just pretend that all of that's worked out and it ends up back in a deposit box that you own. You don't know how many people touch that. And you don't know if a picture was taken of the CE, the hardware device. Most people maybe know this, but maybe not. Like other than a cold card, it's my understanding. And I've gotten in trouble for talking out of pocket with cold card, but like I'm pretty confident. The newest cold cards, you can't really break into them. They're impenetrable. They're world-class. But they've had like the ledger, I forgot, Don John or whatever team that they, I think it was MK2, with enough time they can brute force. But let's just say cold cards are impenetrable. The ledgers and treasurers, if you get ahold of them, it's known in the industry, like your seed can be extracted. And so if you get ahold of a ledger or treasurer via like just somebody leaves it somewhere safe, they perceive it safe and you have the right way to brute force or clone, you can just take the seed or private key off and you never know that it was extracted from that device. And so just that like in itself amongst all the other things, because the reality is probably moving from that bank to another one, that thing's probably lost and gone forever because it's bureaucracy moving that, it's a wild thing that I think people just naturally put, I would say a lot of folks specifically on collaborative custody will put them in safety deposit boxes and it's just not. really logical. Jackson Mikalic (01:07:41.536) Yeah. And there was a couple of other things here too. First of all, what you just said, Michael, feel like is not well understood at all within the industry. Like I didn't even know that that was possible. I don't know, six months ago, 12 months ago. And so Michael Tanguma (01:07:54.802) Yeah, because Ledgers and Treasures have four to six digit pins. So all you need is a random generator to like go through and cycle through until it unlocks the pin. And that's just one angle to get into the device. Jackson Mikalic (01:08:04.81) Exactly. So most people who are doing this, you know, haven't even fully thought that through before. So yeah, just something to think about. And then the second piece as well in this post, this guy was like, he pretty much chalked it up as a loss, but he's said, I do have some Bitcoin on Coinbase. And so naturally then this goes back into diversification of custody. It's a prudent thing to do for, I think most people you figure out how to do that. But if you're diversifying your custody between an exchange that you can't get a hold of and when you want to move Bitcoin out, might take you weeks. I've seen this quite a bit recently, but then also somehow at the same time, people get their Coinbase accounts hacked all the time. There's $300 million on average hacked every year out of Coinbase. So there's just like all this broken market structure. I spoke to someone yesterday as well, who's been paying attention. He was referred by a client, paid attention for like the past four or five years. But he chose not to invest because he was worried that his Bitcoin would just evaporate, right? It would be hacked somewhere or he'd lose it. It would end up on the wrong platform. So I just think it's remarkable that how fragile things are when you really start to peel back a couple layers of the onion. these are things that people really haven't thought through and it's pressing to do so. mean, figure it out. It doesn't have to be, you don't have to work with us. you could figure out another solution if you want, but at least like start thinking about these things because Bitcoin's 80 something thousand dollars and most of the people listen to show have somewhat of a material exposure. So it's like not something you can just lose and recover from easily. Brian Cubellis (01:09:47.446) Yeah, the other thing worth mentioning related to this particular story, think was so I guess it was his whatever he had in his home, whether it was just the backups or whatever he had in a like, I guess a fire resistant safe, but like fire resistant safes like actually do melt after a certain amount of exposure to fire and heat. And so like Even if you think you're doing everything right, there's still these pitfalls of securing cryptographic material in meat space that makes these things very difficult and there's various pitfalls. Michael Tanguma (01:10:28.954) Yeah, yeah, I mean, like, we have no shortage of whether it's family members that just get rid of seed phrases because of they just perceive them as receipts or whatever, like everyone has significant others and they know they clean up around and all the way to we've talked, I think a little bit. It's the one that's most jarring is like the different rings that crime rings that go to different, you know, hotbeds of capital. across the world, but frankly in the US is where we've heard the firsthand incidents and they look, you know, they use industrial type, you know, magnets to find where the safe is. And then they're just generally looking for, you know, diamonds, watches, gold. And you think about the value of that, that's anywhere between 10 to a hundred thousand dollars. And that's what people look for. What happens when they realize in this particular incident, the individual had 300 Bitcoin on a seed phrase they didn't find because they didn't know to look for it. Yeah, I think like it goes back to Jackson. It's like less about leveraging on ramp or even working with us. Like if you want to work with us, it's great. I think the reality is it goes back to what we talked about with Lee. We have a very unique opportunity here to educate the market and also we make money so you can grow that in proportion where most don't. They do it out of like altruism or whatever it looks at. like the reality is that's really been missing from the market to educate in the right way because nobody tells these stories or explains this stuff because nobody has an incentive model to do it. You basically have two sides of the market. One is selling you plastic devices to secure the wealth and that's perfectly fine. But the end of the day, like that's all your wealth and it's just nonsensical when you have majority. goes and that's where there's like a that's where our clients work with us are they're serious and they're like okay well I need to manage this in a serious way with serious people if you're holding a little bit of capital there's no problem with having it on a plastic device but then the other side of it is if you're on an exchange Michael Tanguma (01:12:17.81) you had to raise capital and you had to sell investors on why you're going to accumulate that capital and do things with it in the future. And so it's in your best interest. Even if you say take it off, you're always trying to build different angles to keep it. Whether it's like a proof of reserves is one of my favorite that gets talked about a lot in the industry on face value. It sounds great. Like a lot of things until you realize, well, proof of reserves works until their exchange hacks, lost, stolen, corrupted, Lazarus is embedded. The next day, all the proof of reserves is gone. So now you can audit on chain that it all disappeared where multi-institution that's just inherent into the product is proof of reserves, because it's segregated on chain. So it's just like a lot of these concepts that are important to discuss. You can even be debated if anybody ever wants to talk about it. But the reality is like, no one's really incentivized to tell this story that long term, when Bitcoin's a million dollars, people are gonna be scared shitless, let alone like be kidnapped and abducted because they're holding millions of dollars on these plastic devices. But also the alternative is leaving on a third party exchange is also gonna be. It's not going to be conceivable, let alone be done because if we're already having the largest exchange hacks in human history, the largest hacks, and we're at 87,000, what happens when it's 187,000, let alone 887,000 and nobody has any solutions for this? They still treat it as like ETF or cold card. That's like what the most sophisticated people talk about or debate. again, it just makes zero sense because now there's a different solution. Jackson Mikalic (01:13:45.144) Yeah, and the thing too is a lot of the people who are big proponents for self custody don't even realize that they are actually proponents for the ETF in the sense that if you tell everyone you know that you have to hold your own keys, 99 of those people are going to buy the ETF and one person will hold their own keys. So the ETFs are actually largely a retail vehicle. Everyone loves to talk on Bitcoin Twitter. like the institutions are allocating massive amounts of dollars and whatever to Bitcoin via the ETFs. Sure. 20 % of the ownership is institutions. 80 % of it is retail. 80 % of the ownership of the ETF is a person who's looked at it for five years and we're like, I can't figure this out. I'm not going to, you know, put a plastic device in my house. So I'm to buy the ETF and like, There just needs to be better solutions. Otherwise, all the Bitcoin over time ends up in the ETFs in Coinbase. So that's just the end state of it. Michael Tanguma (01:14:49.136) Yeah, it's a great point. Like, God bless him. If he was here, I'd probably still say it, but maybe not. But we can talk about it next week if he comes back after we say this. We were joking in a text of like, I thinking about the ledger experience on last week's show. And like, imagine if we did a like concierge onboarding of collaborative custody with Tim walking through like, let's plug in your dongle and the drivers and then let's go through. And it's funny because it sounds like we're picking on ledger, but the reality is it's just empirically true that like the vast majority of hardware devices are ledger. So that's what people have to use. And imagine working through Tim, unboxing it, unwrapping, putting the 12 or 24 words. And then you like literally, again, this is always fun to talk about because I've done this like for a long, I don't know how much Jack and gone through this route, it's like, if you're gonna do any of this seriously, you have to wipe the device and then make sure that you can reconstitute and re-put the C-Fresh. So like, you imagine wiping on a call with Tim, write all these words and then let's wipe the device and then let's redo it again. and then go and park a million dollars or whatever your amount of Bitcoin is and then make sure you can reconfigure all this outside of the platform we're using because that's inherently part of it or why would you trust, you know, might as just leave it at Coinbase. Yeah, so you'll have to deal with the firmware in the plugin in. It's just a, it's a really funny. Brian Cubellis (01:16:07.598) And stay up to date with all the firmware upgrades potential. Yeah. Michael Tanguma (01:16:15.332) It goes back to what Lee was talking about in the altcoins. Look, enjoy us in this conversation being still very taboo because it won't be taboo for very much longer. We already see the growth. We see the interest. We see the serious investors, the people that want exposure to our firm because they understand like now there's a different solution to an asset that is going to only go up in value. But at the same point, Yeah, it's important to talk about and just like reference. when folks are ready, we'll be here and we're not too far from the price really being the, idea is the price is the reason, not the bad things that are going to happen because of the price appreciating. Jackson Mikalic (01:16:54.452) out. Well enjoyed the segment. We'll do more of this on future episodes of The Last Trade and we'll have to get the Tim Cotsman onboarding to Ledger or a multi-signature wallet. We'll see what we want to do there but I think that's great. Michael Tanguma (01:17:12.166) I nominate Cam. I nominate Cam. Cam and I, between us, at least, you know, thousands of onboardings, like just significant, Cam has the patience of a saint. So we'll get Cam to do it because that starts to break down when people are clicking or click the wrong, because what's gonna happen with him is he's gonna click the wrong seed phrase because you're literally writing them down. think in ledger it cycles within three or four and you have to write it down. but when you go back, you have to re-put it in. And so if you put 12 or 24, if you write down, let's say you have to write down 24 and let's say it asks for number 17, if he puts number 18 or 16 and 17, this happens a lot because you're going through and you're trying to like map the number on the screen to that. And it usually doesn't go in chronological order. So it won't say one, two, three, it'll say 17, 24, whatever. It's kind of fun talking about this because I haven't had to talk about it for years and to really break down how insane it all is. It's pretty fun. Jackson Mikalic (01:18:00.226) you Jackson Mikalic (01:18:06.72) Yeah, no, it's it's actually wild. Yeah, it's been a while since I even plugged the ledger in, to be honest, just like I'm like most people. I'm like your your average Joe when it relates to self custody. And that's why I'm very much bullish about what we do here because like most people are like me and they plug their ledger in once a year and they literally have no idea what they're doing and they've done they've done none of this and it's just it's fine you know it's fine five years ago whatever i bought my first bitcoin i leave it on a ledger and you know i'm safe but it's not going to be fine for much longer Michael Tanguma (01:18:41.52) Yeah, there's parallels to real life in this with firearms because this is really how firearms like in the interaction is if you use it daily, if you're running some kind of weird exchange that you need to be using ledgers, you probably every day don't use actually the other problem. You get too comfortable and you click buttons that send it to the wrong address, but you're not shaking or freaking out like Jackson. If he has to touch his ledger after five years to go and buy his wife a diamond wedding ring or to lever up. And so generally you go and pick that stuff and you plug it in and the drivers don't work, the firmware is out of date. And it's the equivalent, it really is, it sounds like hyperbolic, but it's equivalent of like picking up a gun you haven't touched in three years because you hear a weird noise in your house. Like that's when mistakes happen because you're just not prepared. And so there again is nothing wrong and it's valuable self custody, but it's like you gotta like do this stuff all day long backwards and forwards if you're gonna do it seriously or you end up just kind of like foot gunning yourself at some point. Jackson Mikalic (01:19:41.676) Yeah. All right, gentlemen. Well, it's been fun. I'll see you next week. Michael Tanguma (01:19:44.498) See you next week. Brian Cubellis (01:19:46.222) See you next week, boys.