The Strategic Bitcoin Reserve Playbook: Inside BPI’s Toolkit for Sovereign Adoption

Jackson Mikalic (00:02.278) All right, welcome back to The Last Trade. This is going to be a good one. We're joined by Zach Shapiro and Zach Cohen. We have two Zachs today from the Bitcoin Policy Institute. This is actually a special episode and Zachs, you may be wondering if I say that every week. I actually do not say that every week. So the reason why this is special is twofold. Michael mentioned that he actually prepared for this podcast, which I don't think he's ever done in over 100 episodes of The Last Trade. Michael Tanguma (00:23.636) Thank Brian Cubellis (00:23.881) You Jackson Mikalic (00:28.23) And then the second would be that you released a state level strategic Bitcoin Reserve toolkit today. And so this is kind of breaking news. We're going to be diving into the report and the framework you put together for states in the U.S. to be putting forth legislation to adopt Bitcoin as a strategic asset, as a technology. So, gentlemen, really a pleasure to have you both joining us today. Zach Shapiro, maybe I'll hand it over to you just for a quick background and then Zach Cohen and then we can get into the report. Zack Shapiro (00:57.064) Absolutely. Well, first of all, thanks for having me. The background story behind this toolkit we created actually came from a request in advance of an event we did in March called Bitcoin for America that was really focused on the concept of strategic Bitcoin reserves. And the event was really about the idea of a strategic Bitcoin reserve at the federal level. And the executive order that created the federal strategic Bitcoin reserve dropped right before the event, which was exciting for us. But before that, it seemed like states were making faster progress than the federal government was. It was moving more quickly than Senator Lummis's Bitcoin Act. It was moving more quickly than it seemed at the time, the Trump administration was moving. And so actually, I don't think he'll mind saying this. Michael Saylor reached out to us and said, you know, can we do a speech about the state of the states and how states are leading the way on these reserve FFs? And as head of policy at BPI, my role is to figure out sort of the granular details of what our policy areas should be and what position we should take. And I'm a lawyer by training. And so it sort of fell to me to look at all of the different state level efforts to create a Bitcoin reserve. And what it turned out was there were a whole bunch of efforts. There were 32 different bills out there from 26 different states, I think. all kind of garbage. You none of the bills would outright create a Bitcoin reserve that was funded upon passing. A lot of them also had, I won't use the square word on your part, but altcoins as part of them and precious metals. And some of them were just like two pages long. And we figured, you know, we could probably just do a better job. than the current efforts out there. So we announced in my speech at our March event that we were going to create an open source framework where we were gonna try and create comprehensive legislation that states could use to do Bitcoin reserves the right way, to do it sort of in a smarter way. After the March event, we sat down, Satko and myself, and we tried to think through, right, what does this actually look like in practice? Zack Shapiro (03:20.44) There are three I think important design choices we made that explain the end product that we have now. One is that this should be a modular piece of legislation. We wanted to do something open source where you we would put our name on it but wouldn't have pride of ownership. Anyone can steal this. Anyone can plagiarize it. Anyone can fork it or modify it in any way they need. And because of that I the most helpful way to do this legislation is to create a menu of options that's not just here's one way to do an SBR that states can copy or tweak. But here's like a bunch of different ways. Right. And that includes a standalone SBR, which is a pool of Bitcoin that's held in self custody that states hold for a long period of time. It could be other types of public investment in Bitcoin. So putting Bitcoin into pre-existing pension plans or state investment accounts. It could be something in between where there's an SBR, but it's held by a custodian. And so we wanted to create language not just for one way of doing things, but Sort of all of the well-done, you know versions of how you could do an SPR that could meet different state needs understanding that Different states will have sort of the the political know-how the technical know-how to do some of these things and not others The second design choice related that that we made was to throw the kitchen sink at this So it's not just going to be SBRs, but it's going to be public investment in Bitcoin more broadly States are in sort of a unique position compared to the federal government because unlike the federal government don't get to print the World Reserve currency. And when they issue debt, it's not T-bills, it's local muni bonds. And they're much more constrained because they have to have balanced budgets and they can't borrow as much in what they can do. so SBRs are, if anything, arguably more important for states than they are for the US federal government, which at the end of the day, you talk about the last trade. The real last trade here might be the United States government printing money to buy Bitcoin. That's not a break glass in case of emergency option that individual states have. And so there really is urgency for states to do this and to do this right. And so we also included things like bit bonds. included things like, you know, more specific definitions of qualified custodians and really tried to give, you know, be a Swiss Army knife for states. And then the third choice that we made, which I think is germane to the conversation we're having now, is that, you know, while BPI is pretty good at thinking through the SBIR issue and we've Zack Shapiro (05:49.959) got pretty good chops at writing legislative texts. We're not experts at every domain area that's going to have to be in this toolkit. We're not experts on executing large sort of public state level trades to buy Bitcoin where you're not moving the price and you're getting best execution. We're not experts on custody. We're not experts on insurance. We're not experts on a whole lot of things. But we have friends that are and you we know a lot of sort of the best Bitcoin companies like yourself that are experts in these various domains and so we reached out to our friends and we got input from the people who do this all the time sort of understanding that there aren't going to be people in all likelihood in state government that know how to do Bitcoin stuff at least so far that's not how you get elected to state positions and so I think sort of this like broad toolkit that we have that reaches everything you could want to do with Bitcoin at the state level that is set up in a modular fashion where states can pick and choose these various things like they're choosing off a menu and where each of the individual parts have been carefully thought through to produce the sort of right result that's the best policy for states informed by the best in class practices by the Bitcoin industry creates the end product a really strong document that we hope will be much more helpful to states than the rest of the stuff that's been floating out there. Michael Tanguma (07:24.178) Appreciate that Zach and maybe before going to Zach Cohen, I just have to comment on Jackson's dig about preparation. And so I listened to so many podcasts that they form, they're a form of preparation and Bitcoin policy hour is probably the highest signal podcast. So it was in my docket and I just made sure I listened to it right before the podcast to be able to speak to a lot of this stuff. But I would encourage folks to listen to the guys chat. It's a little trying to be frequently, I, or every week, but I guess sometimes if you guys are busy throwing huge conferences, you might miss a week, but I've really enjoyed it. And one of the topics that came up there that I think Pines brought up with you both was around seeing around corners and being prepared for where the market is because ultimately Bitcoin moves very quickly. And I think this is what we've seen in the past 15 years of Bitcoin and crypto's history is that use, and this is just general policymaking, right? Like if the market moves too fast in one direction, you get these bad outcomes when it comes to regulation and policy. And this could be one of them when it comes to custody. And we, think we all agree here, we don't want all this Bitcoin, whether it's States or sovereigns sitting at Coinbase. And so I think these are all very important aspects. Execution is another one. had our good friend Lee Bratcher from, you know, Texas Blockchain Council. And he referenced all the different minutiae that went into that bill around just things we wouldn't think of when it came to execution and who's working for the state and how do they have the right governance around them when they execute that sell or buy because that's other people's money. It's not their money and we have to like, you know, have a process for that. So a lot of that makes sense that you shared. Zack Cohen (08:58.85) Yeah, mean, you know, just to jump in here, we looked at, know, as Zach was saying, what some of the other proposals looked like, and some of those bills have actually passed, right? I think we've had three state-level SBIRs pass. you know, broadly speaking, I think that's a good thing. I think these are things that are moving the Overton window. You know, most of BPI's work is done at the federal level. And so having states pushing on this is, you know, it's not trivial. With that said, I think... there's also an appetite for these bills to be stronger and deeper and more informed. And that was really where we came in. And Michael, you mentioned how we talked about seeing around corners and when Trump got elected, there was a big push for these bills to come out. It's like, okay, we've got the administration on our side, the Overton window has shifted, let's take full advantage. And maybe those early bills weren't up to snuff. And so now we've taken the time, stepped back, put together all of the best resources in one place. And so now the push is, we've got some momentum here, the Overton window has shifted, let's really put it into practice here. Jackson Mikalic (10:12.114) I love it. Yeah. So why I'm pulling up the report, I have it here. I just want to echo sentiment for the people who are listening. I think it's incredibly important to advocate for state adoption of Bitcoin. Of course, the federal level is playing out as we've seen over the past several months. And Zach, to your point with the Trump administration, it's been effectively a full 180 from prior administration. So things are moving very quickly. What I'm excited about as it relates to the state adoption is I ultimately think and I probably would speak for all everyone here that the states that are early and forward thinking as it relates to Bitcoin are really going to be the economic powerhouses of the future. One thing I've always paid attention to is if you look like 20 years ago to the most I think it's like the the wealthiest counties in the country 20 years ago is like maybe two or three of them were in the Washington DC metro area. But you fast forward to the present, it's about six of them, right? And so as we've seen the growth of the state, know, deficit spending, really robust spending in the Defense Department, intelligence agencies, a lot of wealth is concentrated in Washington, D.C. Not necessarily a good or bad thing. I guess it depends on how you parse that information out. But what ultimately the next 20 years is going to look like, I think, is that states that are early to Bitcoin and use the framework that you've provided in this toolkit, are really going to be where a lot of the wealth, talent, know, Bitcoin ends up within the United States. without further ado, I want to pull the report up and I will defer to both of you because you authored this over 30 page report, this toolkit, where you'd like to start because we have here a beautiful glossy cover, by the way, I love it. And then if you just scroll real quick, you can see bios on Zach Shapiro, Zach Cohen, and then you have the table of contents. And so as you think about you know, where you'd like to start. just want to call out for people who are not on video, really starting at the highest levels, findings, right? We're defining things about what is Bitcoin? Why is this relevant now? And then you go into establishment of SBRs, Bitcoin purchasing programs, economic development initiatives that kind of ties into what I just said. There's a lot of information here. So anyone who, you know, after this hour or so of recording wants to dive into more, we'll have that in the show notes, but Zach Shapiro, maybe I'll hand it over to you. There's a lot to go into here. Jackson Mikalic (12:35.142) Where do you think is the most logical place to start to start setting the stage beyond what we've already shared? Zack Shapiro (12:40.404) Why don't do just a high level comment on each of them and then I'll leave it to you all to dig in and ask more specific questions where you're interested. But I think because this is meant to be sort of comprehensive and modular at the same time it's useful to just get a broad overview of all of it. So starting with the finding section when you have a finding section in legislation that's not legal language that's setting specific rules right. That is It's really preamble about why you are passing the legislation that comes after the finding section, but we actually think this is Really important and really important for our work at BPI So the finding section is basically where we get to smuggle into the legislature legislation all the nice stuff that we want to say About Bitcoin and this is important primarily for two reasons the first is You know, there are lot of folks in state legislatures that want to be friendly, vaguely friendly towards Bitcoin and crypto, and they don't necessarily know the difference between the two, or sometimes they'll say digital assets or Web3. And they don't really know why they are asked to vote on a piece of legislation. And we think that state Bitcoin reserves are such an important topic of legislation that for people who are looking at whether or not to pass this bill or why this makes sense or how we move the Overton window on the idea of Bitcoin is an asset that should be on public balance sheets, we really need to be very specific and clear about why. And so the findings section really sort of puts the reason behind why we're doing this all. What separates Bitcoin from the rest of crypto? What makes Bitcoin a long-term valuable asset that states should hold and protection against monetary debasement that we're gonna see at the federal level that states are not in control of. And really helps lawmakers who are considering this legislation understand why. The other thing that's helpful is the extent that these things pass. When we have legislatures that have looked at these fighting sections, they've included them in a bill, and then it is... Zack Shapiro (14:49.138) a matter of public record that a state has passed a law that says, you know, Bitcoin is real. Bitcoin is a legitimate asset. Bitcoin is unique. That is something that we can then as BPI, as advocates for Bitcoin, take to other states, take to the federal government and really explain like, look, this is serious traction, right? This is not just us saying it. It's not just crazy people on the Internet. It's not, you know, Reddit or whatever. This is actual government policy that Bitcoin is all these things that we are saying it is. So, while not the most important from like how law gets rolled out perspective, we actually took some time with these findings to add what we think are important justifications for the rest of the law. Zack Shapiro (15:36.727) So then that's that's findings definitions You know won't belabor this part But we think precise definitions are really important a lot of the other bills out there We've seen defined as you know Bitcoin is a cryptocurrency that has at least X market cap Just don't think that's like a good long-term definition. So like we want to define Bitcoin more carefully We want to define cold storage more carefully the extent that we're using these concepts when you think about writing legislation You need something to be like general enough that it's understandable and leaves flexibility to do the right stuff, but specific enough that it provides constraints on non-experts of how the law should be implemented. So the definition section was really important in terms of like being very clear about what we meant and how things should should go in once it's implemented. Third is the establishment of the Strategic Bitcoin Reserve. This is one of the really important meaty parts this in the next section. establishment of the Bitcoin Reserve and then the Bitcoin Purchase Program. This is sort of the menu of options for public investment in Bitcoin. And that could be anything from a pure strategic Bitcoin Reserve in the mold of Senator Lummis' Bitcoin Act to sort of more modest incorporation of Bitcoin into other public investment. And so maybe this this three and four might be a good place to sort of pause and discuss what the options are and maybe how we all collectively think about how states can leverage Bitcoin. Michael Tanguma (17:08.261) Yeah, maybe before jumping in there, I do want to thank you guys and appreciate kind of a lot of the work you're doing because there's it for me specifically, that's not how my brain thinks. And I can never do it. We've been approached by multiple states to help them and share some light on what custody is and other things. And I just happen to be in certain states at the time to meet policymakers and the way that they explain like you reference the definitions, not only the clarity of the definitions and the structure, but the amount of pushing and pulling and jockeying when it comes to, you know, partnering with different parts of the policymakers and getting themselves attached to it because they're trying to navigate some other bill they're trying to get. It just, sounds like so much work and it requires a lot of like tactfulness and discretion. And I know you guys are working on a lot of this. So I think this is, this is going to be hugely beneficial for All these states that don't know what Bitcoin is, don't know that there's 21 million fixed cap supply and then all the way through as we go through this to just have a frame of reference of like, okay, this is a body of work that I could use as a like anchor and then can build upon it where they're just kind of like nothing that exists today. Zack Shapiro (18:18.07) Yeah, I appreciate that. mean, look, BPI is a really small organization and we are in the business of trying to have asymmetric impacts. And that's very much the spirit of this, right? This is something that saves us a lot of time because if anyone asks us about state SBIRs, we can sort of shove this document in their direction and say, we think this is the right starting point. Anything you could realistically want to do is in there. And we've made it easy for you. We've actually we're not this is not like our white paper or think piece about why state Bitcoin reserves are good or conceptually how they should be. this is language you can cut and paste and throw into chat GBT and like honestly you could take this entire document put it in like you know one of the better LLM models say which parts of it you want and you probably get a pretty good bill out the other end and so we're trying to make it as easy as possible for state legislatures that are not expert in this. Michael Tanguma (19:08.708) Unless you're in Connecticut, right? Zack Cohen (19:09.153) enough. Zack Shapiro (19:11.104) unless you're in Connecticut and then you go right to jail for even looking at this document. Michael Tanguma (19:12.656) you Zack Cohen (19:14.51) Just a follow on point, know, for folks who maybe are wondering like why we did this as a toolkit instead of just a straight up piece of model legislation, right? There's the parts that Zach was mentioning, right? There are different needs state to state. You know, Michael, you mentioned there's some jockeying that's happening. I think the key element here too is that this can serve as an educational piece, right? Like when folks take this to their legislator and they say, hey, you know, we've got a full toolkit here. Obviously, you're probably not going to put all 36 pages of this into a bill. But hey, you want to learn what Bitcoin is. you don't know what a hard fork is or what that would mean for a strategic Bitcoin reserve or hey, I've never heard of multi-institution custody. Is that something that works on Bitcoin, etc., etc. And so that was also a decision that we made early in the process to say this is good for more than maybe just producing bills. Jackson Mikalic (20:12.178) I love it. if we were, so if we dig into more of the establishment of the strategic Bitcoin reserve section a little bit more, maybe before getting into the nuance and practicalities of implementing it that you've laid out in the toolkit, I would love to just set the stage on why are states considering establishing a strategic Bitcoin reserve? It sounds like maybe an obvious question, but. Michael Tanguma (20:26.768) Thanks. Jackson Mikalic (20:36.218) It's a nuanced question because Bitcoin is a very nuanced technology. It's unique, unlike anything we've ever seen before. And so I'm curious from the conversations you've been having with policymakers, is it mostly a focus just from that main area we discussed at the top about kind of hedging against the fiscal irresponsibility of the federal government? Are there many other reasons from like censorship resistance and having decentralized technology and economic development, what are you seeing in terms of interest from policymakers at the state level as to why they're considering a strategic Bitcoin reserve? Zack Shapiro (21:13.91) I really runs the gamut of reasons. But the sort of two clusters of what we hear. One is there are state legislators who understand Bitcoin and are orange-pilled. And the reasons they would give you probably sound like the reasons that I mentioned at the beginning of this episode that are the states can't print money. They are constrained in terms of borrowing. They need to run balanced budgets. And they have long-term duration liabilities that, for example, pension plans where people depend on them. to provide over the long term. And if the dollar is going to get continuously debased, you can't just have dollar assets. so Bitcoin is a good hedge against debasement over the long term for states investment accounts. And then there are, you know, when we get into more exotic stuff like bit bonds, there are people who really understand, you know, to come back to asymmetric opportunities, like the first local municipality that figures out you can probably do a bit bond that gives tax free Bitcoin upside, they're going to be able to raise I mean it's going to be like the treasury companies you can just it's the infinite money glitch and now all of a sudden you can invest in your physical infrastructure you can invest in you know police and firefighters and services and you can also share in the upside from Bitcoin and so there are people that understand it on that level and then there are larger group of people that like are kind of want to be Bitcoin and crypto cheerleaders at this point and they want to do something useful but they don't really know what that means or what to do and so this is also meant for those folks to be like Yeah, you want to do something, you want to row in the right direction, you have some vague sense that Bitcoin or blockchains or something like that is important. We are the people who spent a borderline unhealthy amount of time thinking about it and this is our best answer to that question. Michael Tanguma (22:59.727) Yeah, with it. mean, we're to try to do our best to be objective because a lot of this is about multi institutions when we focus on. But I make the case a lot of these things can be potentially done wrong and be OK. You can't mess up custody. And in our view, this is what has kept most people out from the industry. I'm sure you guys have seen this, but I'm just going to flash it on the screen. Like we have this slide that we share and most people don't see it and we get. desensitized by numbers. And this is a little bit shy of what it really is. On the screen, we're showing $655 billion in losses. It's a little closer to 700 billion just given some of the recent losses. But the point being here is I've always thought through, if you're sitting and you're trying to generate consensus, how do you say this will never happen to me? Right? Like how do you, how do you verifiably say, because there's a lot of the process will go through this dock that you can't actually ever verify from an operational security perspective, Coinbase's custody, Fidelity's or wherever they are. And then there's also this component that I've always thought through from sovereign adoption. It's kind of nonsensical when you think about how El Salvador at some point had their Bitcoin at Coinbase and then they got enough pressure or whatever and they brought those keys home. But it's kind of weird that somebody in the UAE is buying an ETF in San Francisco and it sits there. And so part of, know, in this, in this document references within the state walls. And so there's a lot of things that go into the custody that has to like, make sense if states are going to really lean into this, right? Because it's one thing to do a gimmick and put a couple million bucks in. It's another thing if you're going to hold hundreds of millions, if not billions of dollars, and be able to show up the next day to work and or be able to sleep good at night, not knowing an FTX or every other issue we've had the past 15 years. So just curious how you guys thought through like custody and this component, because multi-institution ended up being a big part of this whole article and naturally did a control F and saw there was a very large number of sightings. So just curious how you guys thought about custody in this frame. Zack Shapiro (24:56.49) I think honestly it's just conviction at this point. aside from my work with BPI, I have a law practice. work with a lot of different Bitcoin startups sort of across the industry. And I have come to the view that like for institutional clients just in the marketplace, multi institutional custody is the best set of tradeoffs. Right. It is you're not reliant just on your own keys. There's less risk of internal collusion, there's less risk of external collusion. And this is an incredibly powerful sort of best in class custody solution that is only available because of Bitcoin's native technology. It's not something we've had for previous assets. And so then when I put on my BPI hat, I'm like, OK, how does this translate over into the government? It does in exactly the same way as for large institutions. If you have a bunch of public balance sheet Bitcoin, you're not going to do better in my view than multi institutional custody when you when you look at all of the different trade offs. know that one risk is losing keys. One risk is a wrench attack. One risk you know the real big risk here is collusion from from insiders even if you have some sort of multi SIG. You know it's been known to happen. And so multi institution I think is the right answer. So we include as a big part of this. And then you know at our summit a couple of weeks ago I also I did a fireside chat with Commissioner Hester Perce at the SEC. I pushed her on that as well, which she seemed open to that when the SEC is formalizing its rules for what it means to be a qualified custodian for Bitcoin, if indeed they come to the conclusion that they can make those rules because Bitcoin is a commodity and not a security. So there's a question of whether that's in their jurisdiction at all. I think for the Bitcoin companies, I assume like yourself, it would be better if they just said yes and gave you a clear rule. And so you could go to clients and say, hey, we're a qualified custodian. To the extent the SEC is going to do that, they really should take the properties of Bitcoin into account and think about Bitcoin differently than you would think about a sort of stock certificate for traditional security or a physical asset like gold, where you know have to think what is the best way to custody this thing. And the best way to custody the thing Bitcoin, think certainly multi-institutional custody, maybe with you know either current available scripting language or future updates like Zack Shapiro (27:25.88) like covenants, hard to beat that when you look at all of the different threat vectors. Michael Tanguma (27:31.789) Yeah, I think that it's a great call out. A lot of people will reference like legacy like tech is multi-sig. It's like it is like we're so far on the fringes with Bitcoin and multi-sig. It's how all the Bitcoin at these large custodians is leveraged. And I think Covenant and MiniScript and all these things will be the future. But they're effectively haven't necessarily been battle tested and they'll require years and hundreds of billions, if not trillions of dollars to be secured before somebody is going to really park serious capital. Would you outline Zach was a big component of like the founding of this business because this is something that I'm glad you brought up because it's all about, as you guys know, getting these concepts into the zeitgeist because it felt like it was, uh, has for Pierce's first time hearing multi-institution custody. And that notion doesn't get appreciated enough in the Bitcoin community is like, again, this might sound a little taboo, but I fundamentally feel that you can change the, the, could be 20 million, 22 million. could even have inflation. I'm not saying we should have inflation, but gold had inflation was global. It is still kind the global reserve asset. But the reason why it failed is because there was no governance at the protocol level. And so it has centralization problems. And where Bitcoin flies or kind of changes in that dynamic is there's governance at the protocol level. And what that allows us for multiple entities and multiple potential jurisdictions. But then a few things to call out. because I think they're a little bit still, we're so early in this that I think are important for this topic is it's interoperable and it scales proportionally with the amount of assets. So today, if Texas bought 10 million and the next day have a billion or a trillion, you can have five key holders, you can have seven, you can scale that nicely. And this was always kind of the vision with the ETFs. And we're seeing this now with pubcos that are coming to us. So you can actually grow that. there's provenance and attestation built into it that most people don't necessarily talk about. So traditionally, if you if you generate a wallet address, you're telling me it's your address. And if you go to Coinbase, Coinbase has to tell you they control that address. But this is the first time you can have multiple entities, and especially regulated entities all say that this address is definable and it's owned by you because you've actually onboarded, which is just something that is nuanced, we don't talk about enough. And then the last one that I personally find interesting is the proof of reserves notion, because Michael Tanguma (29:48.461) I kind of think proof of reserves and it's the way that it's talked about today is almost like a fallacy in the sense that if I do proof of reserves today and I'm a single custodian and I collude tonight or my team colludes against me or I lose all the assets, well, what was the point in the proof of reserves? And so inherent in multi-institution is proof of reserves because it's audible and it's on chain. And these are some of the things that are just natural when it comes to large pools of capital. The beauty of multi-institution is we all can use it in the same way an institution can leverage it. which is the beauty of technology. democratizes across scale and time. Brian Cubellis (30:22.914) Yeah, I think maybe one other thing to add to those comments, Michael, is just like zooming out and just thinking about multi-institution as really just like a new implementation of multi-SIG. As you referenced, multi-SIG is sort of the standard. It's battle-tested for a decade. The coinbases of the world use multi-SIG for their cold Bitcoin storage. The issue is that you still have single entity exposure. And so this is something that is a bit of a nuance. But like, if you think about the Bybit hack four or five months ago, They were using a form of multi-sig, but the compromise happened at the entity level. And so the distribution of keys within the single entity actually didn't end up mattering. And so the actual sort of secret sauce to what we're building at OnRamp and really any implementation of multi-institution custody, because as Michael mentioned, it's interoperable, open source. Anyone can spin up a multi-institution quorum if they wanted to. The real secret sauce is the distribution of control across distinct entities because what that actually provides for the first time in Bitcoin's history is a level of fault tolerance and redundancy, which is required for any material exposure to the asset, particularly at the sovereign level. Like you can't have this thesis on Bitcoin that it's going to appreciate into the future and we want this as a reserve asset. And you can't just wake up one day and have the allocation go to zero because you happen to pick the wrong custodian. The ability to actually have fault tolerance and redundancy built in, I think is super critical to just thinking about this asset, right? Because, you know, in terms of the educational process that needs to occur here, as we referenced sort of the beginning of the report, laying out the findings, why Bitcoin is important, different definitions. That's all super critical because this is just a very different asset, a digital bearer instrument. There are no fallbacks. Like, it's very unique in that sense that custody is actually the most important thing to get right. And if you can build in a level of fault tolerance to that structure, then you can actually foreseeably have this thing progress into the future where you're not worried about something going wrong, which historically has been the case in Bitcoin, whether it's self custody or trusting a single entity. There's always that thing in the back of your mind that like, this could go wrong. And that's also the, from the outsider's perspective, like Brian Cubellis (32:43.328) That's the perception of like, this is going to end up in a landfill or North Korean hackers are going to get it. Like those are the tropes for a reason. Like there's, there's empirical evidence to state that, that, does happen in other custody models. So I think that's just important. Like a higher level framework of like, this is very different. There's a lot of education that needs to occur. And I think, you know, the toolkit is, is, you know, going to be a great resource for folks as they dig into this going forward. Zack Cohen (33:10.136) Yeah, I think that's a helpful comment, right? We're at a point in time where there's momentum behind these kinds of proposals, right? Where there is interest from state legislators and integrating Bitcoin into their balance sheet, however it may be. At the same time, they might not be aware of what's involved with that. It's not like going on their, or an individual going on their Fidelity account and buying a stock in order for a state to do this effectively. There's a fair amount of due diligence, a fair amount of engaging stakeholders. And so the goal again with this toolkit was put it all in one place, have the companies that contributed language like OnRamp, like the other companies that we worked with, available as resources so that when and or if these state legislations want more information or want to learn more, that they know where to go and that the people that they go to are not the FTXs of the world. that they are trusted, reputable, sort of best in class. Michael Tanguma (34:14.445) Yeah, Zach Shapiro, I think we probably both share the a little bit of the annoyance with the QC rules. So maybe you want to chat a little bit about about that because I think it's an important, it reminds me a little bit of the banking regulators saying. You know, most RAs and pubcos don't necessarily, by the letter, by the true letter of the law, have to use a qualified custodian. But it's the kind of thing like nobody ever got fired for going to Coinbase. And so you see a lot of these pubcos and RAs just opt for qualified custodians when historically qualified custodians have been unqualified custodians. so I'm curious just how you think about that. We're actively working on just from a letter of law how reads today, because we can only work with the within the confines of what's exists. So we're working on qualified custody around the existing with the first key holder being a qualified custodian. How does it get written at the state level? But curious how you're thinking about that, because I think this is going to underpin not only the SBRs, pubcos, but then also bit bonds, because multi-institution embeds across multiple asset products, because you're naturally thinking about duration risk. Because custody may work for a day in a bit bonds, but if it's a duration of 10 plus years, you need that custodian to be a long, very long time. And historically, most institutions outside of Coinbase haven't been around for 10 years. So it's inherent to like a lot of these core products that you guys are thinking through, I think, is going to underpin from a fiduciary perspective that fall tolerance will have to be there. Zack Shapiro (35:36.971) Yeah, I think there are four things that are annoying about the qualified custodian situation. The first is that, so far as I can tell, this is not actually a legal problem. This is a business problem, which is, you know, stupid when we're talking about regulatory stuff. There's not any meaningful legal requirement that a Bitcoin custodian be a QC under the SEC's rules. The reason why this comes up, the reason why you care about this, the reason why I care about this is because clients demand it. That's what you just said, that no one ever got fired for working with it. Like it is a is a CYA, you know, maneuver from people's FAs, from trusts, from large companies. And so, you know, that starts us off on the wrong foot. Number two, it's not clear at all, I think, as I mentioned before, that such a concept can exist for Bitcoin, which is a commodity, right? A qualified custodian is a securities law concept. If you listen to my fireside with Esther Peirce, she acknowledges like she's not sure that they have jurisdiction. to answer this question at all. they're thinking it through. But this it might not be a thing. And so if you combine that with number one, it's a business problem that may have no solution because the SEC doesn't have jurisdiction to answer the question. That's a problem. Compounding it. Number three, to the extent that the SEC says stuff like there is such a thing as a qualified custodian for Bitcoin, it's entirely unclear what that means. The current best understanding among crypto lawyers is a nationally chartered trust would do it. That's so far, I think, just a state chartered trust of which there are a few that would cut it. in the Gensler era, they stopped giving out those trusts to crypto companies because they were worried about, know, Operation Showpoint 2.0 type of stuff. I assume that will resume more. know companies are trying to get those now. OK, those two probably. The federal one definitely, the state one probably. And then beyond that, like, what about a statutory trust? What about some other kind of like, we just don't know where the line is. And then the last thing that's annoying is the conversation we sort of just had and maybe what you're referring to in terms of unqualified custodians. The credentials you need, the technology you need to be a good custodian for Bitcoin has nothing to do with the credentials you need to be a qualified custodian if people are understanding the rules correctly. And so this whole thing is just a it's just a mess that's really getting in the way of a lot of the best actual Bitcoin custodians being able to serve the biggest potential clients. Michael Tanguma (38:03.146) Yeah, and to put a little meat on that, there's like, just to share how kind of opaque it is, there's three different implementations like I'm familiar with, there's probably more, there's the like, Bicco has their South Dakota Trust, they house all the keys. So they have direct control, and they're the fiduciary and the record, the legal record of the asset. And then there's the sub custodial model that we saw that that's the unqualified custodian where Prime Trust, Fortress Trust got in trouble because they leveraged a third party, you know, multi-party computation. lost different, there's different explanations of why, but they, at the end of the day, they lost client assets, but they're the legal record. And then they're directing the control. And then friends at Two Ocean have an interpretation of it from the Wyoming regulator is that they're qualified custodian at legal record and fiduciary. And then they house, the assets within an environment that gives them control, even though they don't touch it and they're not signing. Like there's still, there's these different minutiae that everyone's playing with based on their regulator, but there's no clear answer. And so everyone just takes their interpretation that they feel from their legal team and that's going to protect them. And then everyone else just ends up on the outside and that's where Anchorage and really Anchorage Coinbase and Fidelity have ended up as the defaults in institutional allocations because they just have the state or the federal charters and then they have infrastructure in place. Jackson Mikalic (39:25.426) I'd love to talk about the section four now on the purchase side because so we laid out some of the considerations as it relates to governance custody controls around the strategic Bitcoin reserve, but everyone wants to know, well, how are these states actually going to acquire Bitcoin? And so I know Texas and I believe it was New Hampshire have actually passed legislation. I haven't dug into either one of them in great detail. know the Texas legislation allows for a $10 million initial purchase. I'm curious if the two of you could please just provide some more color on as states get strategic Bitcoin reserves up and running as part of this legislation. What are you typically seeing? What did you recommend or suggest as part of the toolkit for states to start to acquire? Bitcoin. I know we mentioned bit bonds just in passing, but that's only one of many options as far as I understand it, that states could actually start acquiring Bitcoin to bolster their balance sheet to help the constituents within their state. So I'd love to just better understand that because a lot of people want to know, you know, practically going from, we're going to implement a strategic Bitcoin and reserve. Well, how do we actually now acquire the Bitcoin? How does that all work? Zack Cohen (40:38.658) Yeah, I can get us started here and then kick it over to Zach. You know, just before we dig into the specifics here, I think broadly speaking, the states face the same issue that the federal government is facing, which is, you know, taxpayers maybe don't want their tax dollars being spent to buy Bitcoin. And so one of the things we've heard repeatedly out of the White House is we need budget neutral means for acquiring more Bitcoin. And so that's, you know, get a little bit more creative with with how that works. And one of the major proposals for that is obviously bit bonds. At the same time, there's a lot of funds that sort of already exist on the balance sheet of these states. Pension funds have a ton of available assets, some of which could be fairly easily rotated into Bitcoin. We spoke briefly with Andrew Hones about this. when Zach and I were putting the drafts together, we were like, well, wouldn't it be great if they just rotated these assets? And he said, well, I don't think it's going to go over very well. I don't think it's even possible for a state legislature to tell a pension fund, like, you need to rotate these assets. And so the workaround on that side was to basically direct all these pension funds, all of these accounts that weren't directly controlled by the state treasurer or the comptroller, whoever managed the assets, to say, you need to do a review of the existing assets you have. You need to assess what your sort of Bitcoin exposure is at the moment. And then you need to include in that report, a proposal for adding exposure. And so that's one front. There's obviously operating accounts and that's a little bit easier for a state legislature to direct. But bottom line, most of these states are wary. I think the folks who are sponsoring these bills are excited about the proposals, but they're also sort of recognizing that there's a number of constituents who maybe haven't come around to Bitcoin yet. And so there's a balance to be struck in acquiring Bitcoin without necessarily pissing anyone off or making any enemies. Jackson Mikalic (42:51.056) Right. And that piece you mentioned as well, Zach, on the public pension side, mean, that really just addresses, as far as I understand it, correct me if I'm wrong, that would only address a Bitcoin allocation to the extent you have a state pension if you're a government employee of that state. So then everyone else who works in the private sector. I guess is not really getting Bitcoin exposure unless they're buying it as an individual, right? So beyond, guess, and to your point as well, that's a long process. I mean, we came from the world of institutional allocators and due diligence. And when you're dealing with equities or fixed income or other asset classes that have existed a while, even those due diligence cycles on a specific product or fund can take a year or two. So let alone a new asset class that people are still looking to wrap their heads around. may take even longer. And we saw some of those smaller BIP allocations in 2024 last year with a few of the public pension plans. I think some of them have since sold their exposure. Others may still be hanging on, but it's a very small allocation. Again, we're still very early, not only as individuals, but as it relates to states getting involved. So we'd love to just understand if there's anything. Zack Shapiro (43:58.551) I wouldn't I wouldn't under undersell pension plans though. mean, so there just aren't that many private sector companies that offer real pensions. States typically have very large pension plans. And that is just one area where you really run into this acute problem of the ideas you're setting people up for the rest of their lives. People are living longer and we're going to debase the dollar again and again and again until we can't do it anymore. And so that is like even just solving public sector pensions. even through a reasonable or small sized allocation, I think that is a huge pain point for states. Jackson Mikalic (44:36.594) I agree. Sorry if it came off if it came off to the contrary, but I agree with that. And then on the private side, right, it's just a matter of kind of outside of the scope of this report, allowing for 401k and other type of contributions to be made to spot Bitcoin directly, which I don't know if we're quite there yet. But yeah, what else would you like to highlight on the purchase side? mean, I think there's a lot of interesting things, but there's also 30 pages of a toolkit that you publish. So I want to make sure we can get through as much of it as possible. Zack Cohen (45:04.294) Yeah, I think two things to highlight on the execution side, one being the folding of tax revenue into the strategic Bitcoin reserve. This is something that think did actually exist before our toolkit. And I haven't read the final language in the Texas SBR bill, but I know that earlier drafts of that bill had provisions to say that any Bitcoin or crypto that is pledged for tax purposes can be folded into the Strategic Bitcoin Reserve. An interesting thing that Zach and I came across there as well was basically the language suggested that if cryptocurrency, so anything other than Bitcoin, was used to pay taxes to a state agency, and obviously this hasn't been authorized yet, or at least until the bill goes into effect, but when that does get authorized, that actually All the crypto that gets sort of used for tax purposes is to be sold and converted into Bitcoin if so chosen by the state. And so that was kind of a fun thing for us to see in there. The state policy is to not shit coin, which is fun for us. And so that's a big pillar. I don't know how big that will end up being, but Certainly interesting. And then the other thing to hit on here is the execution. So Zach and I spoke with the team at Falcon X. They're one of the sort of leaders in executing these trades, making sure that when they purchase large amounts, they're not moving the market. so we spent a fair amount of time with them. I think we had multiple phone calls to answer questions, figure out exactly how they would go about this. And the language is pretty much straight from them. really kind of high signal, maybe alpha in there about how they're acquiring Bitcoin. Brian Cubellis (47:10.442) I have a question more sort of high level just zooming out for both of you. you know, where in your minds are the biggest educational gaps today? And sort of we've sort of alluded to this throughout the conversation, but you have certain folks in government and policy who are orange-pilled. They're all about Bitcoin. They're trying to convince their other policymakers, their colleagues. You have other people that feel like it's a good idea, but they're not really sure why perhaps. And so there's all these different cohorts of people that are now getting up to speed on this thing. if you just think about even 12, 24 months ago, the conversation was so different. It was questioning whether governments were going to ban Bitcoin. And now we're debating, is the government going to buy Bitcoin? And which states are going to buy Bitcoin first? A complete departure from where we were a couple of years ago. But that being said, there's still these these gaps. So I'm curious, like, I think the toolkit is a fantastic effort to sort of fill in those gaps. But I'm curious from your vantage, know, boots on the ground, talking with people every day, where are the biggest gaps currently? And where do we need to focus our educational efforts going forward? Zack Shapiro (48:26.71) I think the biggest gap, it's easy to lose sight of in this if you're a listener to this podcast, but it's just understanding Bitcoin as a store of value. You know, that's why I like starting with the finding section. But people really need to understand what Bitcoin is, why it's important. And, you know, if you if you think through the implications of the existence of Bitcoin, you're going to be going down the right path. So I give my opening speech at the the summit the other week. And I showed this scene from 2001, a space Odyssey. There's a famous jump cut in the movie where there are monkeys hitting each other with a bone and someone throws the bone up and it becomes a nuclear armed satellite. And like that's the kind of jump we're talking about here. Right. Like imagine you came across an element like gold and you study your history of money and understand why gold is good money and it's gold that you can email. Well, OK, that creates a lot of second and third order implications for what's going to happen in the world and just getting people there. And the challenge is you can say that to someone and you can show them the Bitcoin chart, which actually is not super helpful to this conversation. And you can show someone technically how Bitcoin works, which I think is extra not helpful to this conversation. But, you know, I didn't want to say it on speech in the speech in front of our audience of policymakers. But there's some element of this. like you need to take the like freshman year dorm room bong rip approach to this, which is like, let it blow your mind for a second that we invented digital gold. That's going to cure you of thinking it's the same as meme coins very quickly. That's going to cure you of a lot of the misconceptions people have. And then you start to think about, well, shit, what if China does this first? You know, what if people figure out that there just is a better form of money? Like we need to we need to get on this. And so I think that's still a lot of where the educational efforts are. And then once we get people to that point, then it's sort of channeling in the right policy directions. And we have technocratic Zack Shapiro (50:31.134) answer is for all of the things to do but but the big hurdle is getting people to to understand the why. Michael Tanguma (50:38.046) Yeah, that was a big unlock for me on just a lot of the things you guys are doing. And I wasn't unfortunately able to make it. But I know Brian and Liam were there in the sense of like individuals have all these there's no silver bullet to get an individual to understand Bitcoin because they all have their frame of references that they come from and their backgrounds. And similarly, there's not a similar bullet within policy and government or at a state or even a country level. But you guys are now creating a network and that can go very deep on the different geopolitical ramifications that Bitcoin will have. And they all have different appealing. It's like if this thing grows in its price or it grows in the amount of energy that it consumes or grows in the amount of illicit activity, this is how it has implications. Now you should be paying attention. And I think that is something that we just never have seen before. And it's just exciting because as more of those conversations come out. everyone starts to get more specialized. This is probably how the internet really came, you when you think about it, right? It's like, was this niche thing. And then it eventually started to touch on all these different ancillary areas of the world and the market and regular regulation. And then everyone started to wake up and then everyone that's just how you have these things proliferate. And they all start to like intertwine with each other. Jackson Mikalic (51:52.925) We'd love to talk about as well, just in the nature of covering a lot of this report, the section six and seven. So talk about economic development initiatives. know from days covering some private real estate stuff in a former life, there's a lot of different tax incentives, qualified opportunity zones as one example. And something laid out in this report that I thought was interesting were Bitcoin tax advantage zones and other areas for economic development. And then I think another area that people would really like to hear more about is just what you've laid out in the toolkit as it relates to protection of private property. So throw it over to you guys, section six and seven, just general thoughts there you want to walk us through. Zack Shapiro (52:33.236) If Zach why don't you take six, I'll take seven. Zack Cohen (52:35.704) Perfect. Yeah. So six, there's sort of two branches of six. One is obviously the tax advantage zones. And then the second branch is the environmental benefits. both of these actually spawned from a conversation with Andrew Hones, who also helped us out with the bit bond section. But Andrew maybe was actually more fired up about these two portions. That's not to underplay how fired up he is about bit bonds, but this was the first time that I think this had entered the conversation or had an easy route into policy discussions. The tax advantage zones was, the impetus is that, Jackson, as you were mentioning earlier, the idea is that Bitcoin companies, Bitcoin holders, any sort of economic activity related to Bitcoin in the coming years is is very likely, if not fairly certain, to lead economic development wherever it may be. The goal here being to basically attract Bitcoiners, Bitcoin companies, economic activity around Bitcoin to particular jurisdictions. States could effectively incentivize those people and those businesses to move from one place to another or some companies that had been traditionally remote. you know, with these incentives. you know, that, has to do with the zoning, designations, tax incentives. you know, there's a little bit more minutiae here. This is really kind of tip of the iceberg. but pretty excited to have this in here. And I think something that, that we'll probably talk about more, in the future. think this is, this is somewhat of a new thing. And then if we jump down to, the environmental benefits, this is effectively codifying, many of the conversations we've had about how Bitcoin has the potential to sort of renovate and upgrade existing energy systems. We talked about California with Andrew Hones and bottom line is somebody did an assessment of PG &E's, is Northern California power grid, how much uptime versus utilization they have. And basically they found that at an average point only 50 % of Zack Cohen (55:00.942) PG &E's grid was being used. And so, you know, the point here being, let's incentivize more of that energy to be used to mine Bitcoin. And, know, there are incentives in here to do exactly that. There's a little bit more minutiae here that I don't think we need to dig into, but if folks want to look at that more closely, you know, there's some interesting stuff. Zack Shapiro (55:26.806) All right, so section seven, this one's very short, but I'll go into each term. So the number one pushback that we've had at BPI on strategic reserves by governments in general is doesn't this provide an incentive for the state to just steal your coins or to move coins that they're holding that belong to victims like the Bitfinex, move those into government custody. And so the first thing we did is just prevent that from happening. happening. So this language is meant to be very broad. Nothing in the act shall be construed to authorize the seizure, confiscation or impairment. And impairment is a very broad word here. Right. This is meant to be protections for people running nodes and non-custodial software. It's not just that the coins will be taken. It's we're not going to impair your ability to use your coins with your own private keys of any person, business or organization. So that's meant to be just a completely broad prohibition on the State Reserve being a vehicle for government capture of Bitcoin. And then the next two terms here, affirmation of self custody rights and legal protection. I come from another frustration I have with other state level bills. I think there are, you know, well-meaning Bitcoin folks and Bitcoin advocates in the state legislatures that have been going around passing a bunch of, I think, very misguided laws that purport to create a state level right to self-custody. My view is there are multiple rights embedded in the Bill of Rights in the United States Constitution that protect your right to self-custody. There is a Fourth Amendment right against unreasonable search and seizure. First Amendment right to free speech when you're doing speech activity with Bitcoin to freedom of association, right to all sorts of things that we could use on the First Amendment. There are the Fifth Amendment due process rights against just confiscating Bitcoin. There are Ninth Amendment and Tenth Amendment rights, right, based on either state versus federal law or unenumerated rights. There are per number rights. And if we have states, especially just on partisan lines, having Republicans Zack Shapiro (57:38.649) say, OK, you we create a state law now in X state, you we can't you can't ban self custody. That's going to make it seem like when political power shifts, like someone else has the right. those those laws could be cited in a in a legal case saying, look, there isn't a constitutional right. And our proof of that is that states felt the need to write these laws protecting self custody when that right was there all along. So if you look at be here, this act affirms and protects the fundamental right of individuals. Right. And we're not creating a right here. We are affirming. right that already existed as an essential component of financial sovereignty and personal liberty. We're providing the why for that. Right. It's broader than just taking your coins. It's you have to be able to use self custody tools and then legal protection. The state recognizes Bitcoin as a legitimate digital property entitled to the full protection under applicable property rights and constitutional protections. We're calling that out right there. The rights pre existed. You always had the right to self custody Bitcoin. we're just making that clear as opposed to purporting to create some new state level rule, which by the way would be superseded by any federal law anyway if that's where the protection was coming from. Michael Tanguma (58:49.961) I love all of these sections, just quick hits, because again, I did my homework. So you guys had some really great points on the previous pods referencing. It's so simple, but if you cannot custody your Bitcoin or you cannot transfer it, the whole blockchain industry doesn't have any value. Like it has, it all goes away because everything's derivative of Bitcoin's value. And I think we forget that. So it's a notion or it's a... to nod to you guys in the work you're doing, but also just the first principles thinking of like, this has to be a core principle of all the different ways. And you can take delivery, but you can leverage other products, but you have to have that notion. And then on the other two parts, it's always that thing that I think we've all known that Bitcoin is the most ESG asset in the truest sense, right? When it comes to the environmental, social and governance. And we've seen this like obviously biased, but there's also a lot of empirical evidence with Texas, whether it's the grid. different studies they've done, but then also the amount of capital from the different mining firms and also just Bitcoin companies that exist there without the actual opportunity zones in place. And we see this in like in El Salvador and UAE. I don't think a lot of people want to live in those places. I mean, some people do, but they rather live at home. It's just that it's been so antagonistic to this industry. And as states start to lean into this, you're just going to see in Tennessee and Texas and Florida have really already reaped the rewards of this. by codifying it and enacting it, it's just gonna accelerate that across the board. Zack Shapiro (01:00:16.692) Yeah, this derivative point you're making is really important. And this is a sort of constant frustration for the work we do in D.C. The day before our summit, I took six or seven meetings on Capitol Hill about the Clarity Act. And there are like two or three really important pages of the Clarity Act that protect non-custodial developers and service providers. And I went with policy leads from Exis Wallet and Ledger. And we were just focused on this topic. that was the first time that most of these staffs had heard of this provision why it's important, whereas everybody in crypto is sending lobbyists DC to talk about what's a security versus what's a commodity. And what I would say to the crypto companies is if you really mean all the stuff you say about decentralization and web three and this being innovation in the future, that doesn't mean anything if you can't use non-custodial tools, right? Then it's just a really expensive slow database if you're not doing peer to peer finance, right? It's not actually DeFi, it's, you know, boils down to VC pump and dumps. if you'd like this industry to like stick around and mean something and build something valuable, all of that rests on the ability to have a new paradigm of peer to peer transfers using blockchains and smart contracts. And that's what that stuff in theory is all good for. And then in the Bitcoin industry, I know everyone's really excited about treasury companies right now. But the whole idea of a treasury company is you're buying a valuable, scarce asset and you're doing a speculative attack and fine. You know, that seems like that fits with the game theory around Bitcoin. But what makes Bitcoin the asset good? The reason why Bitcoin is digital gold and different from all of the forks of Bitcoin or other crypto tokens or whatever has to do with its credible scarcity and its credible scarcity and has to do with the fact that it can't be censored, that you can't coerce people to change what the code is, that it has this decentralized governance mechanism where there's a sort of checks and balances between the miners. and the holders and the node runners and the software developers. And none of that works if you can't custody the asset yourself. Right. The digital gold thesis falls apart. So all of this stuff that like is about number go up in both Bitcoin and crypto more broadly is downstream of you get to do with that technology what it's built for, which is use it in a sovereign peer to peer fashion. That's that's where the value flows from. And so we can't forget that part. There's a lot of discussion Bitcoin. Can we get to a world Zack Shapiro (01:02:46.472) where Bitcoin is no longer freedom money, but then it's millions of dollars a coin. I actually think that's mostly a fantasy. There may be some ways in which Bitcoin can kind of be co-opted and still be valuable, but over the long run, probably most of the scenarios that people are envisioning where it becomes sort of BlackRock coin, you're not going to be rich for that long because it's going to lose its fundamental value compared to other assets. And so even if you're a number go up person, this is something you need to care about. Michael Tanguma (01:03:14.096) Yeah, it's incredibly well said. And I think that's a great underpinning and framing for a lot of the fervor that exists from the hardcore. We've seen it Bitcoiners that have taken a notion to these pubcos is I think there's just a lot. This is how far we've got in the clown world of first principles thinking of understanding like how did let's play this out because there's been these crazy numbers thrown around with how much Bitcoin treasury companies will end up holding. And it's almost like it really is nonsensical because you're like If you play this out, they end up having no value because you just neutered the whole reason why it does have value. And I think either way, it's like gravity. It'll flow in the right direction and this will be, you know, all kind of like leveled out over time. But it's still just a very important notion to bring up that I don't think people have fully thought through the game theory and how this will work out if Bitcoin ends up being centralized by a hundred large institutions. Jackson Mikalic (01:04:05.714) Look, there's a lot to go into on the report. Either one of you would be curious just to hear any other thoughts that we didn't get to cover yet that you wanted to make sure we flagged. And then I did have a question as it relates to just state level game theory. And then I think we'll wrap up if we have time, just a few topical things. But I wanna make sure we covered our bases here. Anything else that we need to go over? Zack Cohen (01:04:28.898) Yeah, I think just one quick note, which is, you know, I've personally, and Zach probably has too, had conversations with, you know, folks, maybe state level blockchain associations, folks doing state level policy work, who are, you know, sort of beyond excited to have a resource that has all the bits and pieces that they were looking for. And so the note here being, you know, if that is you, if you are someone who is sort of actively involved with your state legislative process. If you're somebody who wants to push a strategic Bitcoin reserve in your state, Zach and I are both open to having a conversation, to supporting that anyway. BPI is very narrowly focused at the federal level. This was really the first thing we did that even slowly verged into the state level stuff. And our resources will. sort of continue to be focused on the federal level. But at the same time, like we put this out there, we'd like to see it succeed. And so, you we are relying to some extent on the Bitcoin community to put this into practice. yeah, open channels here. think my email is on the website, so on the BPI website. And so if you want to reach me there, that's the place to do it. Jackson Mikalic (01:05:52.474) I love it. Well, yeah, so I'm curious, like to the extent you guys want to spend some time on it quickly. Everyone loves to talk about game theory in the Bitcoin space. And there's, you know, one, one idea or one center of that conversation is at the federal level, how does the United States compete against adversarial nations? Right. China, Russia being some obvious ones. But I do think in the nature of this conversation being focused on the state toolkit, we'll love to just hear like any parting thoughts. in terms of how you think this plays out over the next 12 months or so as it relates to game theory within the United States. Because we did touch on Texas, we briefly passed on New Hampshire, talked about Connecticut as well, you taking the wrong approach. But I'm curious just in terms of how this all plays out. let's call it the next year. I know that's a short amount of time, but just what are you paying attention to? You know, where do you think states may lead or fall behind? Just maybe anything else that I'm not thinking of. I'd love to hear how you think this plays out within a state game theory level. Zack Shapiro (01:06:58.994) You know, I just think this is a situation broadly where being early is huge. If we have a huge price run up over the next year, you want to be the state that's accumulating now and not the state that's accumulating at 300,000 per coin. And if you're the state that's accumulating now, when it is 300,000 per coin, it's going to give you a lot of optionality and a lot of freedom. And I think similarly with with bit bonds, there is a huge amount of spoils to the state that figures this out first, especially if you can get comfortable with tax-free municipal bonds that give upside. You're just going to be able to borrow a ton of money now, participate in the Bitcoin upside, give Bitcoin upside to the people who are lending money to you. And then you're going to be able to finance the initiatives you want to just have a huge pool of capital that are otherwise probably not muni bond investors that come flooding in. Zack Cohen (01:07:52.768) Another point here, and this is obviously in the same vein, is, you know, it also is sort of exceedingly clear that the administration is posturing to start adding Bitcoin. And, you there was a comment made, we don't know if this was intended to be made, by Patrick Witt, who is basically, Bo Heinz's understudy in the White House, with reference to an accumulation plan, which, you know, is a tie to... this White House report that we're expecting sometime in July. so for states to be looking at that and saying, well, what happens if the most powerful government in the world starts accumulating Bitcoin? There's massive upside to that as well. Being the state that jumped on before the federal government started buying, that should have some pretty clear upside. Jackson Mikalic (01:08:48.464) Gotta get Pennsylvania in the mix. I'm gonna be sending the toolkit over their way. All right, that all sounds great. Michael, did you wanna jump in or do you wanna talk about some of the topical things before we close? Michael Tanguma (01:09:00.827) Yeah, I we're coming up on time. So I think we can do a couple of topical things. One thing you guys mentioned, I don't think it's been referenced in this way, but like 7%, you know, the amount of debt being issued referencing to GDP, I think is a that hurdle rate or that notion is going to become more like we know this, right? Like inflation is probably year over year, 10 % roughly, if not even greater based on just like the things that we need daily. And as that becomes more in the zeitgeist and narrative, people are just going to see, we see this already shifting, but it's just going to increase. And I think that's where you start to see hard assets and you can't like, I know we like to forget about it, but gold is going to exist for a while. And these States are probably going to be piling, you know, strategic reserves and gold and Bitcoin. And I think that's a healthy first step for some of these States is to put Bitcoin next to gold. Gold has, you know, precedent as global money and existing for thousands of years. I think that's another angle we're starting to play around with, uh, try to do. you know, move away from crypto and move it closer to this other asset that has fundamental value. Yeah, on the topical subject or good. Zack Shapiro (01:10:03.86) Yeah, Well, I was going to say, we're already starting to see inflation as a topic breaking into the political zeitgeist and the way that the economy is not going to work for Gen Z and Gen Alpha, they can't afford a home, know, and, you know, the jobs are fewer and fewer between and there's returns to capital and not returns to labor. And what that's going to do is what it's been doing since 1971 and an accelerated pace since 2008, which is to make wealthy people wealthy. as their assets appreciate against fiat and then people whose only asset is their income relatively poorer. That's going to create a lot of unhappiness. I think this is an unfortunate situation where nothing is going to stop this train. Bitcoin in the short term is not going to fix it. It's going to allow people an escape boat from this, but it's not going to fix that effect. I think over the short to medium term, the next few years, you maybe see the United States in some ways start to look more like South America, where wealthy people are sending their kids to school in armored cars. And you get more and more dislocation between the haves and the have nots. And then at some point in the medium term, you get a populist backlash to that, like you've seen in a lot of South American countries where you elect someone on the far left who wants to confiscate assets. And that all that energy in both the political left and the right could be channeled into incredibly destructive tendencies. And you could see violence and all sorts of stuff. And Bitcoin is both a relatively painless sort of peaceful solution. Zack Shapiro (01:11:45.981) to this problem, like an actual productive solution rather than just fighting it out. Also, just as an individual who's looking at like, what is your game theoretic outcome here? It helps you in both directions. It helps you with the debasement, preserving your wealth and being on the right side of the divide between asset holders and someone who lives on a fiat standard. And then, you know, if things go badly in the other direction, it protects you against the risk of confiscation. Real estate, which is in a physical jurisdiction, is impossible to move and really easy to confiscate. Bitcoin is not. You memorize 12 words, you can walk across a border naked with a billion dollars. And so I think people will start to realize that both of those sort of features of Bitcoin, its scarcity and its censorship resistance, you know, really make it the perfect asset to navigate some of the darker parts of the 21st century. Michael Tanguma (01:12:40.742) Yeah, it's a great call that doesn't get discussed. I've been thinking personally about it. see fires, floods, and all of these just different geopolitical things happening. And the notion of everyone's capital being in their house or their land isn't a bulletproof solution. I think it was for a very long time, but especially in the U S but it's just not necessarily the case. And the notion to be able to preserve your asset and move across state borders or larger federal borders is going to be a big, think, like part of this thesis. Brian Cubellis (01:13:11.68) I'd be curious to get sort of a state of play of where we are with all the federal legislation. So we've referenced a few things throughout the conversation. The Clarity Act, we didn't touch on the Genius Bill, but that seems to have progressed the farthest to date. Could we get sort of just like an update on where we are? What are some key dates to look forward to? I know that crypto report is due in a few weeks from the administration. And then also, you know, if you could touch on where the clarity act is, what ramifications that possibly has, and sort of what to look out for going forward here from a legislative perspective. Zack Shapiro (01:13:49.259) My best guess to go sort of quickly on each and then if you want me to drill down with the time we've left, I can. We will see the Genius Act signed into law and we'll see the crypto report, I think, both by the end of this month. I think quite high likelihood that the Genius Act passes and makes it through the House. Probably is a standalone bill, not including market structure. Market structure, the Senate is working on their version to match the House's version, the Clarity Act. My understanding from talking to folks on Capitol Hill is like there might be a discussion draft out there by the end of the summer and voting on some sort of final draft later in the year in the fall or, you know, the winter. That's going to be a bigger political lift. There's going to be intense national security FUD about that. There are some moderate Republicans who feel burned by being pulled too fast to sign on to the Genius Act. And Democrats are going to try and put in provisions to make the Trump family divest. from crypto which is going to be politically difficult so I think probably 50-50 chance that that ultimately passes based on the current dynamics but that is our biggest focus is making sure that that passes and it passes with the protections for open source developers in section 110 of the clarity act then there's the Bitcoin act that's a bigger lift right now You know, the person our team who's closest to that is Grant McCarty, who I think recently publicly said he thinks it's a double digit chance, but he doesn't want to commit to a number. I think that that's probably farther off. We need to move the Overton window on that one. But I think more likely than that is that either as part of the crypto report, which will come out this month or sometime thereafter, we get an actual plan from the executive branch on how to accumulate Bitcoin in a budget neutral way. I think that is the likely nearer term outcome than the standalone Bitcoin Act passing. Brian Cubellis (01:15:51.649) Maybe just to drill down on that last point, what would be the difference in your eyes between some sort of executive branch led accumulation plan relative to the Bitcoin Act, just from a robustness perspective? Yeah. Zack Shapiro (01:16:07.894) It's less robust. would it would be smaller. There's less money they can draw from because it needs to be budget neutral. They can't do the revaluation of gold, which is what funds the Bitcoin Act. But it would be meaningful, right? If the United States government is like, all right, we're doing it. We're out there buying Bitcoin to put on the balance sheet. I would not underestimate the knock on effects that has, especially internationally. think there are a lot of countries that have been stacking that really don't want to front run the US on this, that this will both give cover and and frankly FOMO to leaders around the world. So I think that really could kickstart some craziness. But it is something that a future administration could undo, unlike with the Bitcoin Act where you'd have to pass a different law. Jackson Mikalic (01:16:54.834) Excellent. Well, I know we're coming up on time. think just one other thing to call out quickly would be the big beautiful bill last week. We raised the debt ceiling for the 79th time. Maybe this could be the final one. We're going to get it all under order now. But now the debt ceiling is 41 trillion. We're sitting at about $37 trillion of federal debt. And then I saw this tweet yesterday. Here it is. So with that, We added another call it $400 billion or so in one day of new federal debt. Zach, you had mentioned that inflation is in the lexicon of policymakers. I don't think people were as concerned about inflation a decade ago, but certainly in the past five years with fiscal dominance and handing out cash and zero interest rate policy, negative interest rate policy abroad. This is going to continue to be an issue. You know, with the debt ceiling, the idea, the idea to other people who are not as involved in the industry as we are. is that while this delays a potential default on the debt, but every time the debt ceiling is raised, the U.S. government is defaulting on the obligations. And I'm just curious, like in D.C., what the sentiment is around federal debt as it stands today. Obviously, the bill passed last week, but is there like an acknowledgement that this is really not going to ever be resolved? Nothing stops this train. Is that kind of why we're seeing zeitgeist with Elon and America Party? Zack Shapiro (01:18:17.844) I think. I think we are seeing that. mean, people know that the debt's not getting smaller. The problem is is the game theory in D.C. There's not political will for it. The left, the Democrats, they want to do a huge amount of spending on social programs. The right wants to do a huge amount of spending on givebacks to corporate donors. Neither really hates the other one doing their thing so much. They both hate raising tax. mean, the Democrats talk about raising taxes, but That's not popular. They're not going to win on that. And so like the compromise, the Pareto efficient outcome is that we just monetize our debt over time and then we covertly take money from savers. And that is what's happening. It's what's happened. It's what will continue to happen. And smart people understand that. think more people will come to understand that. You know, one other part of this bill, mean, like tax cuts are being made permanent. The pay for are temporary and in the future there was a parliamentary trick that allows for more spending that the Republicans use that you can just bet the Democrats are going to use next time they're in power to do their spending priorities and this it's a self-reinforcing thing right the train is not you know you're not going to not only not stop it the train is accelerating and so what do do about that and Yeah, mean, like it's it's super bearish for fiscal responsibility and it's super bullish for the Bitcoin price. Jackson Mikalic (01:19:52.87) Well, I think that's a good place to end. Everyone wants to hear some bullish sentiment. Gentlemen, really appreciate the time you spent with us today. Excited to see the report out in the public. You'll get this podcast out as well. Where would you like people to send? You'll obviously link out to the report, but if people want to get in touch with either one of you individually, where would you like to send them? Zack Cohen (01:20:13.696) Yeah, so the report will be up on GitHub and also there will be like a directory from our main website, is btcpolicy.org. So that's probably the best place for folks to go check this out. It will be on the homepage, pretty close to the top. And then Zach and I both have profiles on our about page. Mine has an email on it. So if you want to reach out, you can loop Zach in pretty easily there. And then we're both on Twitter, I'm at Zach Cohen underscore. Zack Shapiro (01:20:42.622) and I'm at Zach B. Shapiro. Jackson Mikalic (01:20:45.914) Zachs. Thank you very much. Appreciate the time. Michael Tanguma (01:20:46.19) Awesome. Thanks for joining, guys. Brian Cubellis (01:20:47.542) Thank you, Zachs. This was great. Zack Cohen (01:20:48.814) Thanks guys. Zack Shapiro (01:20:50.39) Thanks for having us.