The Last Trade E039: Institutionalizing Bitcoin with KPMG

Brian Cubellis (00:02.862) And we're live. Gentlemen, thank Juan. Brian, welcome to The Last Trade. Thank you for joining us. Thanks for having us. Thank you. Well, you guys are doing some pretty important things at KPMG that we're gonna talk about. I think this is a really exciting episode for us because we operate in the world of Bitcoin, predominantly thinking about what we can do to push the edges of the technology, leveraging things like Multi -Sig to make sure people are. Cussing their Bitcoin the right way and you guys are sort of a bridge between the world that we're in in the traditional world particularly with auditing consulting and you guys have Drove deep into Bitcoin particularly writing a piece highlighting that Bitcoin is ESG compliant and if you are Interested in pushing an ESG future into the world. You should be leaning into Bitcoin Before we jump into that particular research report that KPMG put out, which is learn a little bit about yourselves. How did you find Bitcoin and how did you find yourselves working on these particular teams within KPMG focused on this industry? Yes, I guess I'll go first, Enquan. So, Brian Consolvo, I'm a partner with KPMG. I'm in our technology risk practice. I think if I go back to when I first heard about Bitcoin, my path was not unsimilar to others. I'd probably say it was pretty late in 2017 until I finally actually started to hear about it. Which had obviously been around, what, eight years or so by then, which is kind of hard to believe. But I was very, very quick to dismiss it when I first heard about it. It definitely seemed very scammy on the surface. I kind of equated it with gamers who were just trying to create their own currency, which is obviously not even true. So I mean, I fell victim to... some of the misconceptions that people immediately have when they hear about cryptocurrencies in general. And then it wasn't until probably 2019 or so, I was at a training and sitting with some guys that I work with and they were talking about it. And I kind of just revisit, I guess I just had a sort of a different lens, I looked at it from and I was like, okay, if this is still around, like this is obviously maybe there's some substance here. And I think that's when I went down the rabbit hole and I'd say the rest is history. Brian Cubellis (02:28.494) Yeah, and I started my finance and accounting career 25 years ago, right during the dot com boom. And then after that downturn ended up in housing finance. And so it's got to experience the housing boom, the great financial crisis, the aftermath and the reactions to it. So during those experiences, trying to learn about what was going on and filling my gaps, my knowledge of what I was seeing day to day and the policies related to how to react to that. got more interested in just broader monetary and fiscal policies out there. And what would be a potential solution for this in the long term? And first RVing about Bitcoin first came out now at the time it first came out pretty early is still we're still right in the aftermath of the great financial crisis. You know, it seemed like a hobby thing on the side. It was interesting, but never would have expected within 10 years to see so much growth in it. Didn't really get more involved until much later. especially after a lot of, it was really difficult, as you guys know, to buy and sell Bitcoin. It was really difficult to do that. The exchanges didn't really exist early on, you had to mine it. But lately, last several years, especially in 2019, 2020, I got more interested in it and see its potential for the topics that I was looking into during the great financial crisis. And I think considering the prowess that KPMG has in accounting, it might be good to touch on Bitcoin generally as an innovation in the realm of accounting. How do you guys see what the open ledger brings to the world of accounting? Well, I think it's difficult to make the correlation just from the standpoint of it being a distributed ledger, right? But if I just think about the work that we do under the accounting lens, when we're auditing companies' financial statements, it does make it somewhat easier to audit something that's publicly available. So when you have these decentralized ledgers, things like Bitcoin, it's much easier to go out there and have assurances over that immutable ledger versus a company systems that can be manipulated by individuals. But I think when we look at kind of where KPMG fits in, thinking about some of the Brian Cubellis (04:50.318) the core services that we have like audit, tax advisory, that sort of thing. We actually audit some of the public companies in this space. One of the big things that we're gonna be tasked with doing and we have been is actually verifying assets that are under custody. And I think that introduces some new complexities, a number of things that the audit world has not seen before. And it wasn't until probably, I'd say the last four or five years, Where some of these companies in the crypto ecosystem started to go public that they then started to undergo? financial reporting audits and things that have to adhere to something called socks, which is basically a controls audit that public companies have to to undergo on an annual basis Yeah, it's fascinating I mean in at 1031 we have a portfolio company has Secchi that is partnering with bitwise to verify their on -chain assets. And so there is the ability to verify that you actually own Bitcoin, in particular wallets via signing a message that says you own the private key to that public address. And it'll be really interesting to see how it plays out. Like do these third party solutions like Hoseki come to market that help these companies verify? And then the whole discussion, Jesse, I'm sure you can jump in, like what proof of reserves, like how can you actually prove the reserves and not the liabilities? Yeah, just I find it. So interesting how different cohorts of people come to Bitcoin faster or slower, depending on the subject matter that they're familiar with in their career. And I've noticed it. So I have an accounting background. I got a master's in accounting. Never went into a big four accounting after that. But I've noticed that accountants seem to get Bitcoin or be interested in Bitcoin a little bit faster than the average person. And I think for me, it was partly a fascination of like, oh, wow, this thing is designed to have a complete audit every 10 minutes automatically. And that's just, you spend all this time in accounting class learning about all the steps that are necessary to try to get some precision around accounting numbers for public or private companies. Brian Cubellis (07:18.254) And here's this thing that can help so much by providing this different structure that enforces an audit every 10 minutes. And I think that's, you know, there's Pierre Richard, Robert Breedlove, Cedric Youngman, a bunch of other accounting background Bitcoiners. And I think that's part of, I think accountants have a slight leg up in getting to and seeing the potential of Bitcoin. sooner than other folks because of what they deal with on a day -to -day basis. Yeah, I think a lot of people that I've interacted with at KPMG definitely get it, right? Like they understand the technology, they understand how to audit it, they understand all of the nuances and complexities that come with it. Now, where it becomes a whole entirely different story is whether or not they believe in it as it actually solving a fundamental problem, which is why it was created in the first place. But I think just by being accounting experts, one of the things that anyone at any big four is gonna be responsible to do is actually understand these things because if their clients are gonna be transacting with crypto, if they're gonna be holding on their balance sheet, et cetera, they're gonna need to know. And I think the point about going more fundamental, as you know, like accounting, one of the big innovations hundreds of years ago during the Renaissance of the double entry bookkeeping, you have two parties there. And then the idea behind double entry bookkeeping is every transaction has interaction with the balance sheet and income statement. So you can track who owns what, right? And that is it equity, is it debt? So that for every asset, right? And then I've heard the blockchain or Bitcoin. specifically also described as triple entry bookkeeping. And I'm like, I've never learned that in school, what triple entry bookkeeping meant. But I think the concept there is that you have two parties, they do a transaction and you have this third party that in more traditional finance, you have to hire to confirm that that transaction is legitimate, right? But in with the blockchain or Bitcoin, you have these, you could even be anonymous that other people are verifying that that transaction is legitimate. So you got a three party system already pre -built. Brian Cubellis (09:31.79) and how it's designed. And it doesn't require that you hiring a third party that you trust and write a report to say this is a legitimate transaction. So I think that I think that's where the two interact. And that's probably why you also hear some people say maybe the blockchain technology also has long term legs that could impact finance and banking and other industries. Perfect summary. Well articulated that I agree that the triple entry bookkeeping phrase that you hear. bandied around is a little bit hand wavy, but at the core there is something, you know, that is the special sauce of like having a third party who's necessarily verifying the double entry accounting that is going on. Brian Cubellis (10:24.078) working with alien technology. You guys are learning how to deal with this too and incorporate, I guess that's another interesting topic we can talk about before we dive into Bitcoin's role in the ESG imperative is how do you see Bitcoin maybe not disrupting, but being incorporated into what you guys do at KPMG. So, yeah, no, it's a good question. I think a lot of that will be driven by how much adoption we see from clients, right? Like at the end of the day, what our clients start to do and what they plan to do will drive where KPMG and other consulting firms decide to upscale their own employees and where we see the opportunity. So I think it's really driven by the companies themselves in terms of where KPMG starts to play. Brian Cubellis (11:17.005) And on what Song Kwan was saying about, yeah, the double entry bookkeeping occurred in the Renaissance. And I remember from accounting classes, probably, an accountant's indulgence of sort of claiming that a good part of the economic boom of the Renaissance was fueled by this innovation in accounting that enables business on a larger scale and a more like, a more professional scale than was previously possible. So, you know, accountants, I think, have a reasonable claim to say that innovations in accounting enable a renaissance. And we might be seeing some additional renaissance unfold as a result of the innovation that comes from triple entry bookkeeping and what that enables for business globally. Yeah, I think to that point, on the historical aspect of the global adoption and how accounting helps with that. Modern accounting can trace its roots back to the railroad boom of 1800s. The reason why is you had all these foreign investors like Europeans funding companies that were doing business in the United States, which was a growth country at the time, right? There was the developing world, was considered a developing world back then. And so you needed to have accounting statements that accurately reflect balance sheets and income statements and cash flows as well to look into that. And so I think with your point about Bitcoin and other technologies is how do you help with cross border global type of trade transaction investments and have trusted reports that you can rely on to make business decision investment decisions, even to even know like if you're making a return or not, because you can imagine even back then, invest all this money into something, how do you know you're actually getting a return so. I think that's part of the long history of accounting and blockchain could be a big part of that future. Brian Cubellis (13:25.165) Real quick before the report, Marty's question about getting involved in Brian, your response about the companies will dictate, like I would imagine historically look like somebody looking at a Coinbase and Diligencing Consulting, looking at like them as a counterparty is a big part of the business. But I'm actually curious on the other side of it, if you guys think about external parties or companies looking at firms to get best practices on like. bringing custody in house rather than going external. If you have a sizeable location, it starts to become meaningful. It's like, maybe I don't have a counterparty that sits. I think about custody because it's technology and I can think about best practices or cross border or other angles around this technology. Do you guys see any of that or how do you think about that and preparing for it? Because I would imagine that's where a large part of the market goes where every company we talk about becomes a Bitcoin company in the sense you have to start to incorporate some of this technology just because it's a better form of. technology for cross border treasury, whatever it is. Do you see any of that or have any thoughts about like how you prepare for that? So I would say in terms of bringing custody in house or using third party custodians, I'd say that's somewhat of a nuanced kind of view at the moment. Again, I think if we start to see a significant amount of adoption going forward in terms of corporates putting on the balance sheet, more companies starting to transact in crypto and then custody becoming an even bigger topic than it already is. then yeah, I mean, that certainly could be something that we start to take a position on and something that could be kind of incorporated into certain engagements that we deliver. I guess one area that I think about that that would become pretty relevant is some of the due diligence engagements that we do. That could be something that we evaluate. And I know we've even helped company evaluate certain custodians in general. So kind of like a vendor assessment. So I think... That's something that we could definitely do and maybe something to a degree that we're already doing. But in terms of that being like a core service, I think that's where we would just have to wait and see. Brian Cubellis (15:31.021) Yeah, it's valuable. It's valuable information if you can advise correctly on that, because as we've seen throughout Bitcoin's history, there are some that do it right and some that that do not. Yeah, I think I think the big thing too, and you know, this is probably something we'll get into at some point is I still just think there's so many people out there and so many companies that if they were to get into crypto somehow, I just don't think there's a huge appetite for a lot of these people and a lot of these companies to to do self custody. Now, my hope is that that changes over time. I do think that sort of the ethos of Bitcoin is that you are self -sovereign, you're cussing the assets and you're removing any counterparty risk. But I think the way it's currently structured today, I mean, I remember when I first took custody of my own assets, like it was kind of daunting. And I think about people right now that, you know, take my parents, for example, like I don't think I can't even begin to think about trying to explain. maintaining your seed phrase and all of that to them and have them feeling comfortable doing it. So I think hopefully again, that will evolve. I think it's going to be something where the next generation, maybe it becomes more inherent to them and something that is just second nature. But I think where we're at right now, I do think it's still so early that there's just people that when they finally take that lead and if they do start to, buy any Bitcoin or any other cryptos that they're just going to feel much more comfortable keeping it on an exchange. And I think that's just a reality of where we are right now. Yeah. And I mainly bring it up because it's been in previous discussions like Bitcoin's obviously very emergent. So us as individuals are the first to take self custody. And there's been a proliferation of collaborative custody partners where people can participate. But whether it's us as individuals running big companies or it becoming pretty obvious, like, and without naming a name, there's a company out there that holds a lot of Bitcoin. Yeah, who better to trust or at least participate in that trust than the entity that's holding that versus an external party solely. And so it just seems like a logical progression as education grows, it would go in that direction. Yeah. And I definitely think that we need more custodians out there, whether it's collaborative custody type solutions, like you just mentioned, Mike, or Brian Cubellis (17:50.957) even centralized custodians that we have today, because you're right, there is one primary one out there. And the more that grows, the more centralization risk we start to see. So hopefully that will start to evolve over time. I was just going to say nation states as well. We got Latin American countries holding Bitcoin sitting in North America or potentially North America, just like a lot of cognitive dissonance on where the asset sits versus their stance on it. So I would imagine you start seeing the entity participate more and more in the governance effectively and on chain. Yeah. Yeah. It'll be interesting to see if this, how this pans out. The idea of self custody is just so difficult, I think in the world of traditional finance. As you take a company today, even the cash on their balance sheet, they don't self custody that cash. They don't have piles of cash in a room. It's held at another entity. It's an obligation of the other entity, of the securities that they have. pretty much any financial asset, it's effectively being held by someone else on their behalf. And so it's an obligation, right? So the idea of getting to some custody that you actually own the asset and control it without the need of somebody custodying it for you is a foreign concept. So I think it's a very difficult leap to say, hey, not only get exposure to Bitcoin, let's say as a treasury asset, but hey, you should self custody it as well. I think Brian's probably right that the more likely middle ground is that they'll rely on custodians for them that's a little bit closer to what they're familiar with today when somebody holds cash on their back, for example. Yeah. And obviously this is what we've been so focused on it on ramp the last 18 months of building out like another version, another model of multi -institution custody where we believe that it preserves some of the attractive benefits of self custody. namely that the end user retains control without handing over coins to a third party custodian. But it fits in with the model that entities and most individuals, frankly, are used to of not having to take full responsibility for how they're setting up and maintaining their own custody setup and instead interfacing with a portal to their Brian Cubellis (20:17.741) coins that, you know, it feels familiar to it's a legal relationship with the business, though that business doesn't have, you know, unilateral control of their coins. It's, you know, and that's the way that it retains some of the attractive benefits of self custody. So there's, you know, it's obviously still early days for for custody for this type of asset class. And it's very exciting to be a part of building out these solutions that are better tailored to where businesses are at in terms of what they're used to, their competences, their capabilities. You know, most businesses are just simply not ready to set up self custody because who's going to hold the keys and how are you going to manage that? That's a gigantic hurdle, a whole learning curve to get up in order to take on self custody. But it's possible with this model, multi -institution custody, to preserve the benefits of trustee without having to spin up a giant organizational leap in terms of how you're approaching your own treasury and security around that. I guess the thought experiment really stems from like Google and Apple. If they decide they want a sizable position, why wouldn't they just get a couple of engineers to figure it out? I mean, right. logical progression to figure it out themselves or the smartest people in the world versus sending it across, you know, through the Coinbase. Like you guys figure it out. It's like, we probably have smarter people to do this. We already have an example of this with Tesla. They forked BTC pay server. Yeah, exactly. Yeah. That's why, that's why like I also actually anchor to there will be first principles thinkers that will only actually take sizable positions in a format like this because they will take the position that I can't give up unilateral control. It's like, If you think about us as individuals, I think about my own journey and only being able to have a sizeable material position if I could anchor the keys to the real world and know that they don't get up and walk away and plug themselves in. So that same concept starts to grow from like one to 2 % to 10%. You have to start thinking about like, actually, how do I make sure that this doesn't end up, you know, in a landfill or, you know, hacked? And so that's how you start to get to these like concepts we're talking about that generally seem foreign at first. But over time, you start looking at this thing and realizing, okay, like, Brian Cubellis (22:36.621) this is a different asset, so now I have to treat it differently from a pure custody perspective. It's fascinating because we just spent the first 20 minutes of this conversation highly focused on the custody aspect of Bitcoin, but it's multivariate, it's dynamic. We could spend three hours talking about custody alone, but then you have the other parts of the network and particularly what you guys focused on in your report, which is mining, which is where the physical world really connects with Bitcoin and the digital world that it's providing us. It's very energy intensive. I've been in the mining industry for six years now. It is one of the most masochistic industries on the planet, I believe. It's highly competitive. It's cutthroat, but it is invigorating because you have this intersection of the Bitcoin mining industry and the energy sector happening right in front of you. And it's just infinitely fascinating. And yet there are many misconceptions about how Bitcoin plays in the world of industry. And I think the report that you guys... put out, Brian, that you co -authored was really important because we've been fighting this energy consumption debate as a Bitcoin mining industry by ourselves for some time now. And I think the report that you guys put out, particularly stamping KPMG's name on it, is a very strong arrow in the quiver in the narrative battle that we find ourselves in. And so I think transitioning. To the ESG report, why did you feel compelled to write this particular report and what about the mining industry made you comfortable putting your neck out there and putting KPMG's name on this saying that hey Bitcoin mining is actually an imperative if you care about ESG? Yeah, so I lead one of our emerging tech CEOEs at KPMG and so one of the things that we focused on for the past few years is just crypto in general. Brian Cubellis (24:39.597) So that's kind of how I got into this space a little bit, at least as it relates to KPMG. And then if I fast forward, it was probably early in 2023 that I came up with the idea that, you know, there's, I think the criticisms about Bitcoin mining are obviously well documented. And I just thought, look, there's, there's a whole nother side to this coin that no one seems to really be talking about. Obviously the Bitcoin miners are saying it and they're pounding the table, but there's probably a lot of people who just aren't really willing to listen, they probably view it as a conflict of interest or something to that effect. But there just seemed to be a growing list of benefits that Bitcoin mining offered in terms of, hey, look, this isn't just a matter of Bitcoin uses a lot of energy, which I think even that can be somewhat debatable. I mean, yes, it's energy intensive, but I mean, what's a lot of energy? I mean, if you think about it, I think Bitcoin by most estimates are somewhere like a quarter of 1 % of global energy use. I would say that's pretty miniscule. And so then for us to be focusing our climate efforts on that, it just seems to be, I don't know, I don't see a lot of value there. I mean, even if you just wiped Bitcoin mining off face of the earth, I mean, in theory, you didn't really save a whole lot. Now, the other side of that is you'd probably be be doing a disservice because as we call it out in the report, there's just a number of ways that I think Bitcoin mining is actually assisting with this climate issue that we're faced with. We can go through them, but I mean, I think one of the biggest things that I think people really just don't recognize is when you think about all this renewable energy that we have, which I think renewable energy is in the United States about... 15 -ish percent of energy production, which is a relatively low number. But then the other thing I always call out there is Bitcoin mining as a whole, it's estimated to be somewhere in the 50 to 55 % range for renewable energy. So what's that? That's nearly three, four times more renewable energy than the average mix we even have to begin with. I think that's pretty important detail that a lot of people seem to forget. Brian Cubellis (27:00.941) And then you get into things like demand response, you get into the ability to mine with flared gas and methane from landfills. I mean, those are pretty amazing examples of how Bitcoin is actually reducing the amount of greenhouse gases that get emitted. If you look at just flared gas and mining with methane from landfills, and I know that's not something that's really being done at a huge scale just yet, but methane is like 80 times more potent than carbon dioxide over a 20 year period. So I think if we're going to look at ways to solve climate issues, like I think many experts have signaled that methane reduction or mitigation is one of the most important ways to do that. And I think there just seems to be numerous examples of where Bitcoin mining can fit in and actually help solve some of those problems. And I think we tried to do kind of a layman's explanation of that in the paper, going through some of those examples where it's being done, it's being done. quite a bit in the United States. I one thing I always call out too is... The vast majority of Bitcoin mining domestically in the US is being done in Texas. Well, coincidentally, Texas is where the most renewable energy production is located. I don't think that's a coincidence. And I think when we get into the supply demand mismatch of these solar wind energy sources being intermittent and the fact that if we don't have a buyer at a certain point in the day and then demand may peak at a certain point in the day, there's a lot of wasted energy that you can't just turn off a solar panel. You can't just turn off wind turbines. That's one of the benefits of fossil fuel burning plants is it can scale up and down. So if you're going to have a transition to using more solar wind sources, I think you need to be able to find ways to monetize that. And I think that's what Bitcoin miners have been able to do. Yeah. We're going to pull up that last chart again. Brian Cubellis (29:03.117) I mean, Pierre Richard from Riot was tweeting about this yesterday. It's a perfect segue to these charts, Brian, because if we look at the pricing throughout ERCOT yesterday and went negative because wind and solar production was extremely high throughout the day. And so for anybody out there is unaware of how Bitcoin mining helps solve this problem. If you have negative pricing, you're essentially on the hook for that. You just turn on a bunch of Bitcoin miners and use that electricity to mine Bitcoin and produce revenue. instead of having to eat the negative pricing throughout the day. So it really fits uniquely in this arena to solve this particular problem. And then another thing, like I think the amount of wind and solar that's come on here, on the grid here in Texas has been immense over the last few years. And that's highlighted some problems when you're overly dependent on these two sources. That's the beauty of... Bitcoin mining as well because when you have negative pricing there, it's negative for natural gas, nuclear as well. And so you can put large mining operations behind the meter during these negative pricing events and just direct the electricity to the mining operation to create revenue. And so it has become abundantly. It's been clear to me for six years now. That's part of the reason why I joined Great American Mining. We were doing flare gas mining in the Bakken. And it's just like all this energy is being wasted whether it's on grid or off grid and it should be monetized We want to make I think the narrative should be we need abundant energy sources if we want to continue flourishing as a society globally and With that mind we should just be as efficient with the energy that we're producing whether it's off grid or on grid and Bitcoin mining is Uniquely suited there is no other application that can solve these problems due to the fact that Bitcoin's a distributed network and you can have downtime that's not gonna disrupt the rest of the network, which cannot be said for any other application. Yeah, I think that sort of plays into the demand response, Marty, right? And that's something that the average person, and I put myself in that category prior to writing the paper, really didn't have a good understanding of. Brian Cubellis (31:23.277) That's the challenge with understanding how Bitcoin fits into this is when you start looking at energy markets and things like that, like they're very complex. Most people probably couldn't even tell you how their electricity is generated, where it's actually coming from. They favor the fact that they walk in their room, they turn on the lights, they turn on their stove, whatever it is, and they have energy. But I think, in that last graph you pulled up, I mean, you can see a very obvious peak throughout the day and then sudden. decline in the evening for solar. Well, where's the rest of that energy going? That's where I think Bitcoin mining can fit in. I think the fact that miners are able to co -locate, I think that's the other big characteristic that the average person doesn't recognize. Like you can't do this with other industries. You can't have a hospital that just shuts off power because demand seems to be increasing throughout the day or some sort of other industrial plan. So I think they play a very important role just given that they're a flexible user of that energy. and the fact that they are very price sensitive. This was a big theme for us out in the UAE or in the MENA region in general in Saudi Arabia. It was estimated there's a guy from Saudi Aramco that's running a venture firm out there. And I'll butcher these numbers, but directionally, I think he said over the next 30 years, they're supposed to add like 100 gigawatts. And a large percentage of that is going to be in renewables. It's just like a natural kind of skate valve for like Bitcoin mining. And they're already looking at it. And we've seen this like in Oman and Abu Dhabi. But that's just like one region of the world that will be looking for that kind of demand. Yeah, it feels like, Brian, you hit on such a core part of this misunderstanding just generally in the public. It's like people assume that their electricity is just a commodity and that it flows without problems from a plant thousands of miles away. all the way across the country without any loss, you know, to plug in to wherever it's needed. And that's just not how electricity works. The physics of it, you know, electricity needs to be there's lumpiness. It's not evenly distributed. And, you you touched on how methane, methane mining is is an example. I think to me, it stands out as like the single most exciting thing for Brian Cubellis (33:47.117) with regard to Bitcoin and the environment of, yes, there's a lot of synergies with renewable energy installations and incorporating Bitcoin mining into the business case for whether or not to put in those renewable energy installations. But when it comes to methane mining, there's nothing out there that Marty talked about. There's no other use case that can be that flexible, that nimble in terms of geography and co -location. that makes it possible to justify capturing methane in landfills. There's just no point in capturing methane at a large scale from a landfill so that you can generate power on site except for Bitcoin mining. And so Bitcoin mining creates this use case where it makes sense to capture and use methane. And Brian, to what you were talking about, that's like the low -hanging fruit really in terms of Bitcoin in the environment. If people are concerned about reducing greenhouse gases, here's this ready -made application that does something that no other application on the planet is capable of doing because of how nimble it is in terms of its flexibility with time and also geographic location. I don't know if you want to dig in a little bit more to that, but to me, that feels like, you know, when you were digging into this report, That probably stood out as something that people aren't talking enough about. If you care about the environment, if you care about reducing greenhouse gases, this should be a major topic. Well, Brian, before you hop in, I mean, we have a great example of this yesterday. Chris Alfano from 360 Mining, he's right out the door here in the Commons. He tweeted out that he got a cold call from a natural gas producer, I believe in the Marcello Shell up in the Northeast that was saying he's only making 30 cents per MC. per MCF for his gas right now. And if you were to take that gas instead of set it down the pipeline, sell for 30 cents in MCF and divert it to a generator to produce electricity to mine Bitcoin, you can get like $10 in MCF right now. And so that's the beauty of this particular solution is that it provides a free market economic incentive to solve these problems. You don't really need intervention from the government or subsidies to solve it. It's just pure economic greed that can solve these emission problems. Brian Cubellis (36:14.413) Yeah, I think that's a, can you guys see this, this chart? Yeah, Logan's gonna try and pull it up right now. Okay. So while he pulls that up, this is an excerpt from the report and it basically just gives a breakdown of, I guess, sectors in terms of the greenhouse gas emissions that they're responsible for. And as you can see, tourism by far is the biggest. And you even have gas flaring here, which is pretty huge. That's. an order of magnitude bigger than Bitcoin. Just the gas flaring and the landfills alone, which is substantial. I mean, just think about if you were to really start to scale mining even more so than it is now, and you could start to reduce the amount of methane that's being emitted into the environment. What I like that you said, Marty, is this is all done through just basic incentive structures. There's no government subsidies. There's no handouts here to make it work. I mean look at tourism Tourism is massive. I don't think anyone on the planet is going to be willing to not go on their annual vacation To another country or flying across the United States wherever it may be In order to start reducing their own personal emissions. I mean same with the fashion industry right here I was actually very surprised at how big this number is but the bottom line is people always want the you know newest set of shoes that come out, they want to constantly update their wardrobe, et cetera. These are things that have massive implications on climate. But what people I find really want to focus on is this tiny one down here, which is Bitcoin mining, as if that's going to have any sort of impact where I think anyone should be able to look at this chart and realize, OK, if we really want to make a dent in climate change, these big, huge bubbles here are where we need to focus our time and energy, not the tiniest ones. Now, obviously that doesn't mean that I'm suggesting that Bitcoin mining should just use whatever power it possibly can. But I think obviously, as the paper alluded to, and Marty, you can probably speak to, given your expertise, is the fact that Bitcoin miners are consistently seeking out the cheapest price power they possibly can. Obviously, the price of their electricity is the biggest input in what is ultimately going to drive their margins the most. And... Brian Cubellis (38:39.277) Where we've seen them start to do that is through primarily renewable energy sources and where we have stranded and wasted energy that often is a byproduct of renewable energy sources. Yeah, it's I mean, when you run the numbers in bull markets, even when natural gas is in a bull market itself, like even when it was trading around like 10 to 12 dollars towards the end of 21, it was more economical to mine Bitcoin with natural gas. right in the bull market last year, then send it to send it to the midstream. Obviously, big way mining didn't divert material amount of natural gas, but that is a variable that's entered the equation that can be added to the tool chest of these energy producers will make them more efficient, make them more profitable, and then give them more optionality to build more robust. operational stacks incorporating Bitcoin and I think that's why it's very important you guys wrote this research piece and that we're having these conversations right now because obviously with Elizabeth Warren and the Department of Energy really focusing in on that very small bubble that you highlighted on that last chart like we need to get this narrative out there because we are reaching a point of maturation in this particular off -grid space companies like Upstream and Giga. really stepping up their manufacturing prowess and building the data centers and the generators that will enable this market to flourish off -grid. It would be a damn shame if the government were to step in and stamp it out right when it's about to take off. Yeah, I think one thing to note, maybe because we're so into it, it's a fundamental problem that we understand is that I think for the average person, they may not realize how difficult it is to store the energy because everyone has batteries. So they might think that any energy that's produced can be stored and used later. Right. But as you know, that's not really the case. Even with battery technology, you can't store all the energy that can be produced. So the electric grid is designed to be you have to build it to be Brian Cubellis (40:53.133) to produce the peak and that creates inefficiencies. Because if you're doing that and looking at doing an investment, if all your profits are at the peak, but then you start losing money at the troughs, well, where is that extra demand gonna come from to make something look like it's a good investment, like building a renewable energy source? And so I think that's the other aspect to, I think what I've been talking about here is that it helps with the investment decisions. If you want to invest in other sources, this helps make that look more appealing. And some of that energy that was produced with this is not necessarily wasted because a lot of this energy can't actually be efficiently stored. Maybe one day there will be some technologies that will allow that to happen. Like any amount of energy produced can be stored and used later, but that's not really the case that we're out today. No, it's insane. Like the efficiencies of Bitcoin mining. So on the economic side of things. Like the time cost of capital when you're building out these generation assets is massive because you have to build out the asset, you have to build out the substation. This is on grid and then you have to build out the transmission lines and all, all that takes a ton of capital and a ton of time. And you're not making any revenue on that investment, but between the time you break round to build a generation, generation asset, get the substation set up and get the transformer lines interconnected with the grid. Um, Now with Bitcoin mining, build the generation asset, build a substation, and then put a Bitcoin mining operation behind the meter as you're building out the transmission lines, which can take 12 to 18 months. So you can begin making revenue 12 to 18 months before you would have otherwise if you didn't have this option there. So the economics from a capital allocation and investment perspective make a ton of sense. Yeah, I think one of the things that I was exploring, when I was doing the report is where do we have examples of Bitcoin miners being part of the capital raise for these renewable energy sources? And my understanding and the feedback that I got was the problem right now is that some of these miners just don't have the credit worthiness for investors to kind of use them as part of some sort of power purchase agreement. So they're going to be the primary buyer of that electricity. Brian Cubellis (43:12.205) from day one is just giving the credit worthiness for those miners. So Marty, I don't know if you have any thoughts there, if that's something that is a problem now that will start to resolve itself as these miners kind of start to build their credit over time. But I mean, some of these companies are public US companies, so I found that kind of hard to believe. Yeah, I think as more of these larger publicly traded miners begin owning more of their generation assets, and the substations themselves, it makes them more credit worthy because you can use those hard assets as collateral and that makes a much better case for a credit investor where they're like, all right, maybe we don't believe in Bitcoin, but if we have these generation assets as collateral, we feel comfortable writing the check. And then we have seen an example that's actually recorded with Jamie McCavity, who's the CEO and founder of QuorMint, but it's on the opposite side of... of the cycle that we're talking about. So he bought a wind farm in West Texas in their substation assets, but he bought it, this wind farm is 12 years old. So they ran out of their ability to leverage renewable energy credits. They took them for 12 years and they weren't able to take them anymore, which made it completely uneconomical. So he was able to come in and say, hey, why don't you give me all your generation assets in your substations. And we'll do that as an in -kind equity injection to core mint the company and then we'll come in bring our mining operations and make this wind farm profitable Yeah, that's really interesting. I think I agree That seems like an example of something we'll start to see more and more especially with some of these Existing energy projects that might fall by the wayside or just prove to not be economical And that's where miners can come in and provide they have the capital to do so And I think we're correct me if I'm wrong here, Marty, but I think we're sort of seeing that in like an isolated experiments stage in Africa with like gridless compute, putting in micro hydro installations that are entirely based on like, we're going to we're going to invest this capital to create this hydro installation because we're going to be Bitcoin mining. And so if it works in that scale, the first principles of it are sound. Brian Cubellis (45:32.845) and it can and will work on a larger scale eventually. But I think that is very exciting to me because it's sort of the tip of the spear, I think, in terms of justifying energy installations because of power purchase agreements with Bitcoin miners. Oh, you guys are going to get me running. And if you think about it, you know, companies like Satoshi Energy and Snowda out there that are really working on the accounting side, partnering with Bitcoin mining companies, utility companies, other counterparties and trades. And you can envision a future in which instead of getting invoice for your power consumption at the end of each month and having an N30 and 45 payback period, you can literally mine Bitcoin. and use the lightning network to pay your energy bill as you're consuming it. We're not only talking about efficiencies at the physical layer, we're talking about capital efficiencies in terms of how you actually pay your energy bill and how you capitalize utilities companies. And this will open up a bunch of capital for these utilities to begin reinvesting in their operations more quickly to make the overall grid system more robust. Brian Cubellis (46:46.253) I can nerd out on this for quite a while. I think this is the most bullish part of the Bitcoin ecosystem. Obviously, 21 million, scarce asset, you can self -custody your wealth and prevent it from being debased is extremely exciting and an innovation that will probably not be repeated or there won't be an innovation as great as Bitcoin for some time. But this particular intersection of the energy sector and Bitcoin mining, I think people are sleeping on it and I think it is going to drive an energy revolution that will look back on a century from now and be like, holy crap, I can't believe we were doing things the way we were before Bitcoin existed. Yeah, the programmatic streaming of value is very underpriced or understood right now. That's like one angle on energy, but that goes across the world and how general net 30 or whatever settlement has generally been. And once that gets unlocked, we haven't even like we squint, we know like, you know, interchange. And that's like a kind of a consumer thing is us to change where we don't have full scale adoption. But there's a lot of other things that I think will play into it, whether it's like reinsurance, or what you just referenced with Sonoda or other kind of like capital movement from countries that it's harder to get out for whatever reason. There's a lot of ways that like streaming, lightning will help from a friction perspective and capital move. Yeah, because it unlocks a ton of capital. With these utilities companies, you have to put up massive deposits because they don't know if you're actually going to pay your bills. And if you have a Bitcoin mining operation and you can say, hey, here's how much hashrate we have, you can look at the network hashrate, the difficulty, and basically calculate what our payout is going to be on a day -to -day basis and have some assurances that you're actually going to get paid. And we can set up the contract in a way where as we get paid, you get paid as well. Yeah, night and day efficiencies in capital markets and energy, which will be a tailwind, just an ongoing tailwind indefinitely for so long as Bitcoin exists, which is pretty exciting. And I guess if you take it to the extreme, that's where people get excited about like, this is how we build the Dyson sphere of, you know, like this is how we incentivize like unbelievable scale energy production. And that's linked to societal progress to Brian Cubellis (49:10.125) civilizational progress. And so it's to me that it's Bitcoin provides a ton of hope for individuals in how they're saving their money. But it also provides hope on a civilizational scale. And I think that I think Marty's right that the thing that we sleep on that we under appreciate is the extent to which this will fuel technological and civilizational advance because it incentivizes energy production, but by identifying all these areas where there's opportunity for greater efficiency or for turning waste energy into real energy, into electricity and using it and creating a market for it. And so having KPMG, Brian, having you dig into this and highlight the fact that, you know what, there's a lot of really exciting substance here. And this is not exactly what the common narrative about Bitcoin and Bitcoin mining has been. I think it's been a breath of fresh air for Bitcoin miners who have been kind of on an island trying to set the record straight and have been unable to. And so I guess I'm curious, Brian, if you want to share a little bit about like... what the process was like for you as you were digging into this and trying to raise awareness internally at KPMG, also just in general in the, you know, big four kind of landscape of thought leadership. What was that process like for you? Yeah, it was pretty interesting, right? Like I had been part of... some teams that have published things before, but nothing of this scale, nothing that I think maybe went against some mainstream views, right? Like some of the stuff that we've historically done, it's pretty cut and dry, but I think this presented a viewpoint that maybe some people might disagree with. But I think one of the things I really tried to focus on when I was doing the paper is to not put anything in there that wasn't based in facts, right? So. Brian Cubellis (51:33.997) If I was going to go through the paper and give examples of where Bitcoin mining is providing value to the climate issues, then you wouldn't really... I wanted to structure it so that you couldn't come back and disagree with me. It's not an opinion I was offering. I didn't want to have it be something where I'm promoting Bitcoin, like go out and buy Bitcoin, Bitcoin's going to go up in price, nothing like that. So I really wanted to make it so that it was fact -based. in that if you were gonna, you know, there was a couple scenarios where, you know, we might have softened the language, we might have used certain words that, because this went through so many different reviews, especially because it was a larger piece, you know, naturally you get that many cooks in the kitchen, everyone wants to tweak this, tweak that, but I'd say by and large, I mean, the firm was very receptive to it, and like I said, it was just, there was nothing in there that you could disagree with, and I think that's... I think that's where I was able to get the powers to be comfortable with it. And so, you know, they asked some questions and we, you know, go back and forth a little bit, but it was a relatively painless process, I would say. And on the other side of that process, actually publishing and releasing the research report, what was some of the reception that you got? Did you change any minds that people who were previously skeptical say, all right, you're making a good point here. Yeah, that's a good question. So one of the things, there was obviously a ton of outreach once the paper was published. I think a lot of people really appreciated it. I mean, even people from within the firm were reaching out to me directly saying it's great that, you know, we were basically writing something along those lines. I think for me, though, I always told people like who I'd really like to hear from is who kind of went into that paper as a critic and came out sort of a proponent. And I haven't really heard many examples of that. And it could just be because of the reach I have or don't have where I just don't have access to some of those people or I just haven't heard about, you know, somebody saying, hey, this changed my mind. But, you know, I've told people on a couple of the different podcasts I've done that those are the people I really want to hear from. Or even if people have a view that they disagree with, like, let's let's have a dialogue about it. You know, if nothing else, that's what I sort of aim to do was to Brian Cubellis (53:59.053) create more dialogue and not have it be such a polarizing topic because it really shouldn't be. So yeah, that's kind of been the way it's all played out over the past six or seven months. Well, I'll jump in. I'll say I'll commend you. I think that report moved the industry forward. There's a lot of concepts that go discussed in closed doors or behind the scenes. And I think generally, you know, that this term, and I think it plays into a lot of things in sales where... You're always going to have somebody that's going to buy. You're always going have somebody that's pro Bitcoin or pro understanding the report. And then you're always going to have somebody that will never buy or somebody that's always going to be antagonistic to the report. But the reality is you're looking at the margins in that middle group and helping either them instinctually or intuitively what they thought, but putting it in a succinct way is what, in my opinion, that report did. And putting the name around it like a KPMG and having it well articulated. you there's a lot of individuals from the circles that I've run in and let Jessica and Marty chime in that it added a lot of validity and I don't want to say confidence but credibility to what they already knew and had been hearing but to put it in a succinct package like that. So yeah, it was awesome to see and it was a big driver for us to be able to share and share some of the concepts that we've been talking about but have it again put together in a very concise fashion. Yeah. And before this report, you know, kind of what was out there from a credible source was really the Cambridge report that I'll say in my opinion was a biased bit of analysis that was rooted in falsehoods. That's my perspective. And it was very, I think now there's two credible things out there, which one is that Cambridge report. The other is this KPMG report, which is rooted in facts and paints a very different picture. And I think that moves the needle right there. And I think will be the start of a trend, hopefully, of people from credible organizations taking an objective look at Bitcoin and Bitcoin mining. Brian Cubellis (56:16.685) Yeah, and I think there's a reality of like, we have to meet people where they're at. Even if you don't like the framing or where you kind of kind of want to go against the framing, because we don't fully agree with it. At the end of the day, if you don't meet somebody where you're at, you can't actually get them to where you want them to be because they'll just never start. And so there's just like, it's like you got to like, it's almost like almost losing the battle personally to win the war long term. And so that's what I really loved about it. It's like, I think a lot even on this part of it and talk about it here, but there's probably some concepts in the framing that maybe people wouldn't agree with. But I think it's very important to meet individuals where they're at and then let them kind of go down and pull on that string. So we're never going to get them right off the bat. It's just enough for them to start looking down the rabbit hole and understanding how this really changes a lot of these dynamics, which I think that's what the report effectively did and maybe was part of your goal as well. Yeah, 100%. That's a very good point because once you see it, you can't unsee it. It's like. And you have to get people receptive to actually seeing it in the first place and meeting them in the middle is probably a good strategy. It's somebody who has employed the antagonistic strategy in the past. I love the meme. There's like the two, one that's been coming around, it's probably been around for a while, is Bitcoin doesn't waste energy, it utilizes wasted energy. And then our friend Griffin Haby, who basically said he had dawned on him, he was a land man in Texas and said it really was like instrumental, his mind shift. mindset shifted when he realized there was no such thing as stranded energy after Bitcoin mining. Like these little concepts really get somebody's mind thinking about, what are you talking about? I heard Alex Gladstein the other day on a podcast framed it as not Bitcoin mining is wasting energy. If you have this energy and you're not going to use it because there's no other use case for it, then you're wasting it. So you might as if you have otherwise wasted energy, you should be putting it to work, you know, generating some revenue with Bitcoin mining. Yeah, that's a key theme of his recent article Stranded, which I thought was just so well written. And I think it's I posted about this on LinkedIn. But I don't know how anybody could read that article. And it's a long form article. But I don't know how anyone could read that and come away and still think, yeah, this Bitcoin thing is is a waste of energy. I mean, it is literally helping. Brian Cubellis (58:39.981) 600 million people in Africa that don't have electricity and I just think that's just Remarkable and I don't think it's something that people have an appreciation for especially some of us that you know live in Developed countries that like we said we we sort of take for granted the fact that we just have energy at our fingertips whenever we want it That this is something I wanted to say earlier, but I think it's imperative that we begin putting like simple first principles energy curriculums in schools. Like people shit like it is arguably Bitcoin and energy, money and energy are two of the most important tools we utilize as humans on a day to day basis. And most people don't understand either of them. And this goes back to like a first principles education problem as well. Like you have a bunch of people who just take all this for granted their money, the fact that they can turn the lights on and they don't know how it works and it leads them to make bad decisions in the long run. I totally agree. Yeah. And on the Africa point, like, I come back to the 20 years ago, the economist ran a big, you know, big edition about the dark continent. And like, why is it that Africa just isn't developing? Like, what is going on? It's such a shame. Like, why is this happening? And of course, you know, didn't really address the like root cause. causes of like the colonial like Frank system and how that's a major impediment to development and progress. And, you know, it just stands to me as like the system that has been in place, the establishment, the establishment and economic incentives have prevented Africa from developing at the same rate as other continents. And now here's this thing that is providing the base infrastructure layer necessary for economic development, abundant electricity, and bringing that to a continent that has been the dark continent in the perspective of the economist, which is sort of the flagship for the economic establishment. And that should be celebrated and I think will be, but it's just not clear to people yet that the incentives that are actually there are there. Brian Cubellis (01:01:07.085) and that Bitcoin helps achieve these dreamed of goals that the status quo has not been able to offer. And Jesse, I believe we've talked about this book before, but Jesus de Soto wrote, like another part of this problem is private property rights and the layer below all this mining infrastructure is the fact that these individuals can now hold Bitcoin and Bitcoin will respect their private property rights. And from that foundational core, begin to build a more advanced society. Brian Cubellis (01:01:43.437) And so with that, I mean, we can keep talking about energy. We talked about custody. We talked about energy. What are you guys looking forward to in the next three years? Obviously we have the ETF approvals earlier this year. It seems like we have a tailwind of adoption coming our way. How are you guys at KPMG positioning yourselves to stand out against the crowd of auditors and accountants and consultants that can actually advise? companies that Bitcoin becomes more widely adopted? I think for me, one of the things I'm kind of really keeping an eye on is just where some of this regulation goes. There's been a number of different bills that have been introduced, some that could be pretty problematic for the industry. There's been, I know we have like SAP 121, which I think could potentially be repealed, just given the conclusion that the the GAO came to, given that it didn't follow the Administrative Procedures Act, I think. But those are two things that I kind of point to because even SAP 121 has made it very difficult for, let's say, banks, for instance, to transact with crypto because it just has huge implications on what it does to their balance sheet, given that whatever customer liabilities they're going to be responsible for custodying, there needs to be a corresponding asset that they have. So I think that's just... becomes very cost prohibitive. So if something like that were to be repealed, that could kind of be a boon for the industry. And then just, like I said, seeing where some of these regulations go, what these bills look like, if they ultimately become law, I think those are some things that I've personally seen with companies that I've been speaking with that are keeping them on the sidelines for the time being. I was going to say I saw the American Bankers Association and other group of consortium leaders basically banging on the door saying you need to let us get access to this. Yeah, that's what I was gonna ask to the extent you're comfortable if you can dig a little deeper. Less than like SAP 121 but the American bankers and I saw cursory like is it their interest in basically custody and getting some of those fees that they've been basically not allowed to participate in because of that rule. Was that like the notion that they want to participate in custody for some of these ETFs? Brian Cubellis (01:04:09.325) I can't speak to it mainly just because it's just not regulation that I've done a deep dive into. I kind of understand the cursory points of it and also like the digital asset, any money laundering act, which I think what you might be also alluding to. Those are just ones that I know are in progress right now. I have no idea which way they're going to go in some of those implications. I just don't have the wherewithal to go too deep into that, Mike. Yeah, I think, you know, when you talk to certain members of Bitcoin community, the ETFs could be a little controversial. Business, you know, not your keys, not your Bitcoin concept of self custody and all that. But another way to think about it is if the ETFs could lead into greater adoption and people participating into it, the more the industry can feel comfortable using it, maybe maybe that's a way to get into the space. You have more proponents for it than you have a more balanced view. I think ultimately in the regulations. And so that's, I could only think be helpful to helping out the debate, right? Because if you don't have like these vehicles like the ETFs and greater like institutional adoption of it, or people wanting to be economically incentivized to maybe custody it, for example, then you just, you really just, it's easy to get somewhat run over, you know? So I think this helps with a more balanced discussion about the rule makers and the regulators and even Congress about. where things are going. I think just more people into it to help with a healthy debate is useful. Yeah. Yeah. Yeah. A hundred percent. I it goes back to meeting people where they're at. Like that's how they consume financial products. And now you have banks wanting to potentially custody it. Like there you go. That's the, uh, right. But I think the way, what it seemed like where the bank started to back off was, I think it was January, 2023, there was a, a joint letter issued by Federal Reserve FDIC and the OCC. And I think that was sort of a shot across the bow of basically saying, look, Brian Cubellis (01:06:15.277) We'll allow you guys to do this, but if you read between lines, they're saying, we really don't like you doing this. And I don't think the risk was worth the reward. This was also, you know, shortly after FTX had happened. I think this was several months after that, if that. So I think the industry as a whole just sort of had a huge black eye on it. And I think big banks were probably just thinking, you know what, the risk isn't worth the reward. But I think that's a little over a year now. I think a lot has changed. I think. The industry has kind of rebounded substantially. I mean, the ETFs were a big part of that. So it'll be interesting to see how that plays out this year, especially being an election year, or if anything really doesn't start to change until after the election. Yeah, and that's your point is all the finances, risk and reward, right? And then things like the ETF, potentially they'll see more reward. And, you know, the financial money managers, banks, lenders. So there's that, you know, if it was all risk and no reward, they would not touch the space at all. Of course. Right. So I do think that these new products can help on the balance that equation more that to get them interested in the space. As the. Affable Michael Goldstein once said, the only winning move is to play. It seems like the banks are beginning to realize this, like, hey, you gotta let us play. It's important, but as you mentioned, Ryan, obviously a lot of the froth in our industry, particularly crypto, not necessarily Bitcoin, has scared a lot of big players from entering the market, because they look at what happened in many failures of the last 15 years, and they say, holy crap, what is going on here, billions of dollars. of shareholder equity washed out overnight in many instances. And so that has the industries, the incumbent financial industries guard up. Like, should we even play with this? It seems like they're losing a lot of money over there, which has certainly been the case. But as we know, companies like OnRamp, Unchained, other companies that are really exhibiting best practice in terms of custody and securing customer funds and acting as actual fiduciaries, the CARE. Brian Cubellis (01:08:29.869) about securing their customers' funds, like there is a right way to do it and a wrong way to do it. So based off the lessons we've learned over the last two years specifically, I think how do you navigate the conversations with potential clients of, hey, here's what these companies did wrong and here's the right way to do it. Yep, I agree. Yeah, I think to tie into what Marty was saying, I'd be curious from institutional allocations and volatility, just how do those conversations or how have you seen them go where somebody coming in and saying digital assets help us understand what's happening here? Because I feel like that's a big concept, just overarching, whether it's a grandma or a large institution, company, corporate treasury. It's like, there's something here. It won't go away, but I can't see the forest or the trees. Like how do you guys engage in that conversation? Do you guys engage in like portfolio allocation, Sharpe ratio, like any of the studies that have been put out there on like how this can actually benefit from preservation of wealth? Well, we're not financial advisors, neither is our firm, but we have clients who are. And I think what you're alluding to, if you look at, I think it's an interesting discussion when you think about this more from a portfolio management allocation perspective, because if you're like, let's say a true believer in Bitcoin, you have 100 % of your net worth in it, you have a different view, right? But what if you look at it more from, you just want to view this as an asset class? And with efficient market hypothesis out there, there's reasons why passive investing and the S &P 500 index has gotten popular. It's not like people are individually looking at all the companies and assessing how much cash flow that's generating. They're just buying the index. And in the past, these indexes didn't exist. There weren't an easy way to transact to buy an entire market -weighted index. And then ETF showed up about 20 years ago. And now it's become a very popular way to invest. And so... Brian Cubellis (01:10:31.629) From a market allocation perspective, look at the S &P 500, popular index of people investments, what, about 42 trillion, I think, roughly market cap, and then Bitcoin's roughly around a trillion. So, do the math, that's like a little over 2%, so like 2 .3 % or so. And so just even from that angle, should you have Bitcoin in a portfolio that's well diversified, because efficient market hypothesis would tell you that it's very hard to pick individual assets. or even time to market and consistently beat that over the long term. And so from an allocation perspective, I think is now there's an easier way to transact in it through the ETF, although that's not exactly Bitcoin, it's at least a proxy for it, the hold of Bitcoin. Then would people at least consider it as part of their allocation for portfolios? And I think the answer is probably. And I would like to caution, though, that somebody who's been investing for 25 years. I remember when it was really hard to buy gold and the gold ETF showed up. And we generally don't see gold in a lot of people's portfolios, even though efficient market hypothesis would tell you probably should own some for diversification purposes. Right. And so we'll see that gold and Bitcoin are very different, though. Right. And so maybe Bitcoin could become get more traction than gold did in that context of like these broader portfolio allocations. And I think there are there is one firm in Canada that started adding it into their general funds, total RAS of return funds, which is interesting to see because they, you know, like if you have 60, 40 portfolio of stocks and bonds, maybe add like a percent of Bitcoin and that's just part of the overall allocation. So people investing in those funds, for example, may not even know they're buying Bitcoin, but they're just buying exposure to the overall market, right? So I think that will probably start, you see that more and that will drive greater adoption because you're not really just making an investment and hey, I'm going to put everything into Bitcoin. It's just, again, just part of an allocation. Your other question about, well, could that impact treasury assets on companies? That's an interesting one because companies are going to be a lot more, depending who they are, they have shareholders, they have boards to convince as well, couldn't fit within the risk management policies. I think as you see more adoption that matures, then it just becomes an asset that just feels like something they should at least consider. Brian Cubellis (01:12:59.757) And then that's where firms like us can help out about the regulations around that and the risk management processes around it. But I think it's going to be a process to get there. One thing to note, you also mentioned Sharpe ratios. And it'd be interesting to see too going forward because a lot of those analysis that are out there, they're like the last five years that show fairly good Sharpe ratios relative to other assets and somewhat low correlation to things like 60 -40 portfolio, the S &P 500. As these ETFs get bigger and they're held by investors that also own, let's say, bonds and stocks, will there be greater correlations and tightening in the Sharpe ratios as they are owned by similar investors that own those other assets? Most of the five -year history, they're showing these Bitcoin studies that you didn't have that. there as much. I know there's ETFs in other countries, but they weren't that large. And so it'll be interesting to see how this plays out, where is Bitcoin will be continue to be a unique asset that you should incorporate into a portfolio to improve your Sharpe ratios and correlations. Or will they actually start converging? We'll see. I think that's a big question. A piggyback on that, that I know Jesse's pretty interested in is like the FASB rules for accounting. Do you see that changing in this upcoming year from like corporate treasuries and them adding to the balance sheet? Well, I think there already has been a change about that around fair value accounting. It used to be, and this is actually a little bit outside of, I know our firms has expertise in this, it's a little bit outside of what I typically do day for day, but I think the problem with the issue with the existing rules was the way it was treated in that you'd hold the value at the impaired value. So not just the... the fair value, but the lowest part of that fair value, it gets impaired. So the value and when Bitcoin value going up so much, it's just highly undervalued on your on your official US gap balance sheet. And so the change that's coming up, I think there's a is a option to early adopt it. But the change really, I think probably later this year or next year. Yeah, I think some kind of early adopt, but I don't know who is going to do that. Brian Cubellis (01:15:19.117) And then it's mandatory at the end of the year. It's going from intangible property, which you can only impair to fair value. Right, right. So then the fair value for MicroStrategy's quarterly earnings calls will now start to have a bunch of unrealized gains from Bitcoin appreciating. which will flow through to their profits, which will change the narrative around micro strategies, Bitcoin strategy. Yeah, I think in general with the fair value accounting, there's two things to note, especially for an asset that's been, if you've held it for a while, that's been impaired so much, the additional date of adoption, that'd be a pretty sizable increase in your balance sheet if you hold a lot of Bitcoin, right? Because the fair value is just so much higher than your book value. And then to your point going forward with all the new quarterly reports that come out, the change in the value, would go through the income statement. And so that can create a lot of volatility. I'm sure analysts will look at it as like, here's core earnings without the impact of the fair value change in Bitcoin. And this is what it looks like with it. So you'll see this impact both on the balance sheet and income statement side. So do, you know, there's a lot of companies that are pushing for that change. It appears that the FASB agreed with it. And so that that's coming up. So that's a big change. Brian Cubellis (01:16:42.189) exciting times. I think we're gonna win gentlemen. The tailwinds are behind us right now, heading into a halving. Mining economics heading into a halving are the best they've been throughout any cycle. We've got the ECB came out this morning trying to besmirch Bitcoin. They got ratioed and community noted out the gills. We've got a good technology here. It can help us preserve our wealth. and help us verify assets and help us become more energy efficient. And I'm very excited to see that individuals like yourselves and KPMG, the company that you work for, are beginning to realize this because we've been fighting this battle by ourselves. I've been screaming at people on the internet for a decade now, like, hey, this thing has value. And we've been waiting for the KPMG's of the world to come in and say, hey, I think these guys are right. So thank you. As my mother -in would say, we might be onto something. Yeah, and good on KPMG for allowing fact -based analysis to prevail. I think that is a feather in the cap and KPMG should take a deserved victory lap when everyone starts to follow suit on this narrative around Bitcoin mining. I appreciate that, Jesse. Well, Ryan Kixong, you guys have anything we should wrap up with before we leave here? No, I think we covered it. I feel like we could have gone another hour or so, but I guess that's par for the course of these conversations. So thanks a lot for having us. We enjoyed it. Yeah, definitely. Thanks for having us to talk and want to let the Bitcoin community know that we are doing services in this space. And I know that maybe common knowledge, I think you mentioned you have some relatives who... used to work for the big four and they're just shocked that some of the big four are into it. So I think, hey, at the end of the day, we're gonna help out our clients and if clients are into this space, that's what we're gonna do. Brian Cubellis (01:18:45.933) We should all get together at the Bitcoin Takeover next month down here in Austin if you guys can make it down. I'd like to. Yeah, there's a number of conferences coming up that hopefully we can meet in person at. Yeah, well, I look forward to shaking your hands in person instead of looking at you through a screen here. Yeah, likewise. Keep crushing it, Michael, Jesse. We'll be back next week.