The Last Trade E066: Tracking Business Bitcoin Adoption with River's Sam Baker

Jackson Mikalic (00:03.021) Everyone welcome back to The Last Trade. This week we have Sam Baker who is a research analyst, River. Sam authored an excellent report that was just recently published on corporate Bitcoin adoption. So we'll be diving into that report among other themes and topics that we've seen in the industry recently. Of course today joined by my co -hosts Michael Tanguma and Jesse Myers. Good to see everyone. How's everyone doing today? Michael (00:28.324) Good. Sam Baker (00:28.504) and well. Jackson Mikalic (00:30.384) Sam, appreciate you making some time. Good to meet you. And maybe before we get into the report, let's just hear a little bit about your background. saw that you, before joining River earlier this year, you previously worked at Galaxy and I believe Citi, if I recall correctly. So we'd love to just hear about your background in the traditional finance space. It sounds like some other crypto, Bitcoin native firms as well. And ultimately what led you to River, it'd be a great place to start. Sam Baker (00:58.212) Sure, well, first of all, thanks for having me. Great to meet all of you. As for some background on myself, I went down the Bitcoin rabbit hole in college. I was going down the, I guess, investment banking trajectory at Boston College and during that period, I found Bitcoin. And so my first job out of college was at Citi. I worked in their digital assets group, so very blockchain focused, not so much Bitcoin as much as I wished. And then I spent about two years at Galaxy, primarily in their trading business, but also working on some of the other products related to Bitcoin mining and asset management. then earlier this year, I jumped over to River. It was really great to finally be working for a Bitcoin focused company. And right now I'm focused on research. So most recently put out the report on business Bitcoin adoption, but we'll be putting out reports a couple of times a year. Michael (01:58.522) That's awesome. It's interesting, you know, on the Bitcoin side, because there's only so many companies to work for. So generally you kind of have to do a hop and then kind of get into it. I'm curious, like any learnings or big themes from like Galaxy in particular that helped as like you move directly into Bitcoin and that influenced, you know, the report because I know they're pretty well regarded shop as well. Sam Baker (02:21.794) Yeah, for sure. Galaxy is very institutional focused, where I would say River is more focused on retail and smaller to medium sized businesses. So at Galaxy, we really got to see a lot of the big movers in the market. I was there over the last bear market. And so got to see firsthand from the trading desk, the blowups of Luna, 3AC, BlockFi, FTX. was sitting on the trading floor when Galaxy took a big hit during FTX, but it was also a great opportunity because of how thin the liquidity was that week. I actually also learned a lot working at Citi, just learning a little bit about how banks are viewing Bitcoin or just blockchain more broadly as an opportunity and a threat. One of the things I took away from that is I think banks are actually more focused on CBDCs as a threat to their business model insofar as it would take away their deposits. And so I would say just like, you want to know a little bit about how the largest banks out there are like thinking about blockchain, they're actually really thinking about CBDCs as opposed to Bitcoin. So I found that experience like very interesting. Jesse Myers (Croesus) (03:50.61) That's fascinating. It's so funny how crypto and CBDCs provide this sort of air cover for Bitcoin to continue to develop and mature for long enough before the world, while the powers that be, realize that Bitcoin is actually the thing that they should have been worried about all along. Tell us more about that. like in a bank environment, did you see like decks going around about, you know, how CBDCs are a threat, how we, how we as a bank can get around this, you know, efforts we can take to lobby against it or perhaps innovate our way around CBDCs. What was that like? Sam Baker (04:31.638) Yeah, so I guess the way I would divide up any digital assets group at a bank would be between, and I'm gonna say a lot of words that you might cringe at, but CBDCs, private blockchains, crypto, and then enterprise blockchain. And the private blockchain and enterprise blockchain sides of things are things that these banks have been working on for years and years sometimes. over a decade and they haven't really materialized in any way. like, yeah, yeah, or like trying to address trade finance because a lot of the banks are at the center of trade finance, which is a multi -trillion dollar industry. With regard to CBDCs, I think the way a lot of the banks are trying to position themselves is at the center of the infrastructure. So Citi, for example, helped Jesse Myers (Croesus) (05:05.932) basically like an intranet, right? Sam Baker (05:31.956) managed the release of the CBDC in Nigeria. And so they were very involved with the central bank there. One thing that listeners could read up on if they're interested is like Citi released this concept called the regulated liability network, which is basically like a private blockchain run by banks that countries could issue their own CBDC on top of. like making that sort of model, I think would allow the banks to still have some sort of business model to extract revenues on top of a CBDC, which is preferable to just them being totally worked around from a government. And then as it regards crypto, I would say the banks haven't really done anything in this space. The most they can do is like, you see, know, Goldman and JP or the APs for a lot of the ETFs. They've always explored issuing products like lending backed by Bitcoin, but you usually have a very high turnover rate of people that actually care about Bitcoin working at the banks. When I left Citi, on the same day, there were 17 other people that like we were all Bitcoiners and we all left because we knew that, you know, no matter how much effort you put into kind of pushing the bank in the right direction. It wasn't going to materialize into anything. And so as a result, you kind of have just a very high turnover rate of people that actually understand the space leaving into Bitcoin focused or just like companies in the space, custodians, trading houses, exchanges. Jesse Myers (Croesus) (07:21.482) That's an amazing point that the brain drain from traditional institutions to Bitcoin makes it so that the institutions are perpetually unequipped with Bitcoiners. That's a funny point. Michael (07:34.925) It's what I've seen without throwing any other names out there from the biggest regarded institutions that are in Bitcoin, everyone leaves because it's just too slow. And I think Jesse, this kind of ties into what we've talked about where... We're increasingly becoming convinced that the incumbents just won't catch up because by the time they get to something, something else exists. It's like we have a whole investment fund literally titled this like early writers because the incumbents will refuse to adopt the most disruptive technology. So it'll take the early people that will find it and then build the met new companies because it's just, and I think like we see this with AI as well. When you think about the amount of censorship that exists, like you can't like it disrupts the existing model of your solution if the models are giving everything from an AI perspective. So you have to censor it, well that's not the best product and ultimately it's somebody that's net new going to build that in the same way like when you think about what River's doing or on -ramp, you have to like build things from the ground up. that are native to the asset and sometimes those things are not conducive to the existing legacy model of your whole other business. It's a whole innovator's dilemma, like, right, you know? So that makes complete sense that people leave. Sam Baker (08:48.334) Yeah, totally. I mean, yeah, like there are more regulators specialized on regulating JP Morgan than there actually are people on the trading floor of JP Morgan. So if you just think about that, it's like pretty impossible to move forward. There's one exception in the large traditional finance space, which is Fidelity. And that's because Abby Johnson is, I would say, a very outspoken Bitcoiner. And so when you can have an exception like that, maybe Cantor Fitzsherald would be another example. When you have the one like CEO that can from the top down just move things forward, I think there's a glimmer of hope. But yeah, otherwise, I'm not too optimistic on banks offering Bitcoin products anytime soon. Michael (09:40.368) Sam, real quick before pivoting, because I know we have a jam -packed agenda with the business side, but I'm curious your thoughts on where, like, you know, I think BitGo just came out with their whatever USDCS or whatever it is, the token, their stablecoin, and then there's the conversation with Wyoming and having their sovereign backed. Jackson Mikalic (09:40.464) Yeah, I'm glad you... Michael (10:02.264) stable word of these like almost private banking dollars play into that stack that you reference which is like you know the CBDC there's the tethers of the world and like how does that play in because like I guess these banks can't issue their own dollars it's because they're kind of an interesting spot Sam Baker (10:20.458) Yeah, when I was at Citi, that was over two years ago, and this was when the stablecoin market cap was maybe a fifth of what it is right now. And so it was part of the conversation, but not nearly to the extent that I would imagine it is right now. so to be honest with you, I'm not entirely sure how banks would play into that. I would guess that they would be or they should be jumping on top of it because it would allow them to, I mean, at the very least, they should be cussing the assets that are collateralizing these stable coins because that's kind of the only way that they can fit in. Jackson Mikalic (11:08.563) Sam, appreciate you sharing those perspectives. I find it interesting. A couple of the TradFi organizations you mentioned like Fidelity or now Cantor Fitzgerald. In a lot of ways it does require a level of sophistication from the top to drive Bitcoin, not crypto or enterprise blockchain, private blockchain, all the buzzwords that you threw out there. And it's interesting because most of these firms seem to be mired in it. One quick anecdote is Michael and I have had some conversations with some Swiss private banks and it's interesting to see it might be a combination of their low time preference thinking of both the institutions and also the end clients like these are institutions that have been around over 150 years and they also focus on generational wealth right and they've effectively seen multiple generations of their clientele preserve and grow wealth over time and now they have fortunately a couple of Bitcoiners that are kind of sitting within the innovation lab there that really deeply understand Bitcoin have been in it for over a decade. And it requires like that type of it requires that type of knowledge and individual to push forward within an organization. I also think it comes down to that like a Swiss bank has very low time preference versus a Wall Street firm maybe just looking to beat on quarterly earnings, right? Quarter after quarter. So there is something about maybe just these different financial institutions require. It requires both the leadership and the knowledge around Bitcoin, but then also just how incentives are aligned throughout that organization. We'll appreciate you sharing those perspectives. So I'm curious, like before getting into the report itself, maybe you could just share. you know, the impetus for writing the report. I was picking through it this week. It was very well done, extremely comprehensive, lot of interesting data points, way more than we'll even be able to get into through this conversation. So folks will be able to check it out after the fact. But how did you and the team kind of decide on focusing on business adoption as a report and why is kind of now a good time to be looking into that? Sam Baker (13:17.028) Sure, so we decided to put out the report for a couple of reasons, both selfishly and trying to just benefit the rest of the space. I would say from River's perspective, we've been serving a lot more business clients over the past few years. That number is now in excess of a thousand. And so just seeing that growth and that demand from businesses made us look into, like what? what materials are out there to help business owners understand the role that Bitcoin could play on their balance sheet or otherwise. And there aren't that many resources out there. When you look at business Bitcoin adoption, just in terms of the headlines, I think it's very easy to get drawn into focusing on micro strategy or some of the other companies that are just making huge moves, which is great to see. but it's not that replicable to smaller businesses, family -run businesses. And so we wanted to really open people's eyes to the breadth of business Bitcoin adoption. If you look at Bitcoin adoption more broadly over the past, I would say, year or so, you can divide up the holders into individuals, businesses, institutions, and nation -states. And from the beginning of this year, At least I don't see retail or individuals driving that price higher, driving Bitcoin adoption. It really is coming down to businesses and institutions right now. And maybe later in the cycle, we'll get a lot more interest from retail. Yeah, yeah, this is the perfect chart to show. And so we just wanted to highlight the state of business Bitcoin adoption, where it's coming from. and then provide as many resources as possible to equip business owners to at least consider the role that Bitcoin. Jackson Mikalic (15:23.618) Yeah, that's excellent. This is such an awesome way to highlight ownership and distribution. And there's a lot of themes I want to touch on. And I know the group does here too. I'm curious for the clients, so you mentioned over a thousand clients at River Business Clients, which is remarkable and congrats on the success there. I'm curious, like, do those folks typically sign up first as individuals and then bring their businesses in? Or are you seeing a lot of businesses reach out direct without maybe the individuals are already being Bitcoiners and wanting to sign up and understand the merits of Bitcoin treasury strategy. Sam Baker (16:00.248) Yeah, yeah, good question. Many of them did start off as individuals, as individual clients, and then they brought their business on. And I would say, you know, a majority of the remainder were companies that are, you know, small to medium -sized businesses that had an existing, I would say, champion within their company that either was a River client or a client somewhere else. and was just pounding the table on implementing some sort of Bitcoin strategy for a while. And then finally won over the management or the key stakeholders to finally like onboard and buy Bitcoin. Michael (16:42.394) That makes a lot of sense. I appreciate you calling out the, you know, there's the folks that get the headlines in the space, but then there's the like real applicable stuff in the real world where I personally like gravitate towards when we think about inflation and margin compression because of it, because people have to raise prices and it's not just raising prices and consistently maintain the same revenue, less clients or less individuals are able to buy those services. And so it really matters for the longevity of a business. to be able to have a better form of money to store. it's cool to see you guys leading that charge and the number of clients you have, because it's more tangible. And I like the case studies that were in there with Peony and Tahini's that have been around for a while. Sam Baker (17:26.564) Thanks. Michael (17:28.808) That also maps very directionally. So I was previously at Unchain and worked with a lot of small businesses or businesses and What you described is exactly kind of how it looked it was a private it was an individual client that then on board of their business or their friend told them and What was fascinating that it's kind of like tied into those case studies that most people don't it makes sense But they're never like explained it is it's always people in the real economy that are feeling inflation that gravitate towards Bitcoin It's like there's some notion of proof of work when you're out And this is like a kind of a symptom also of athletes and firefighters getting it. It's like you have this like shelf life and you're out there and you kind of know there's only so much time and then you also see these things happening. And so like it's a very interesting thing how Bitcoin is such an emergent technology that's the people at the edges that feel it, that have to find it. And then it kind of moves up into the stack when it comes to the corporations and you have all these boards that are like, it's okay, it's okay, because they're getting their share of buybacks and all the things versus the people that are on the front lines that they need to. So it plays very nicely into that report that I feel like that's probably a lot of what you see today and it'll grow over time but like that's the emergent part of Bitcoin on the business side. Sam Baker (18:34.02) Right, yeah, so 33 % of companies in the US, over 10 million are family run. And I think when you have a family run business, that means a lot more than just being a CEO or a CFO at a publicly traded company where you get your stock options every quarter and you get your payout. Like for a family run business, it's very much a savings account or a store of wealth that can be passed on from generation to generation. And so I think these business owners are looking at it with a lot more care than maybe a much larger CFO and a different time preference as well. Like for a publicly traded company, you're focused on the next quarter, two quarters, you maybe you have a slightly longer time horizon. but that's gonna incentivize you to focus much more on mitigating risk over the next six months. Whereas when you have a family run organization, that wealth matters for longer than your own lifetime. And so I think that's why we've seen a lot of demand from both small businesses and family run entities. Jackson Mikalic (19:54.314) Yeah, I mean, that's such a great point, Sam and Michael, too, just around the grassroots nature of Bitcoin and really just becoming like a survival of the fittest type of technology, right, where people seek it out, maybe not even because they want to, but because at some point it becomes a need for them to do so. And I thought this was like a this is a really powerful chart because it's not like any of us are advocating for businesses to be dumping 100 percent of their cash reserves into Bitcoin. Like that could present challenges in and of itself. But even just allocating 3 % to Bitcoin in the past four years has, on an inflation just return basis, is vastly outperformed, holding it in dollars. And most people still seem to think that the dollar is a reliable and stable currency. But the four of us know that over time it's being depreciated at a greater clip. And I think you just kind of hit the nail on the head where for family businesses, you're not just kind of collecting a paycheck, right? Like this is your livelihood. This is the way that you put food on the table for your spouse and for your children. And there's such a greater need at that point to seek out alternatives to actually preserve and grow your wealth versus having it constantly drained and having to then, you know, compromise maybe on the quality of your business or increasing passing costs onto your customers. So it makes a ton of sense that that's where you're seeing a lot of the adoption. Michael (21:21.84) So a good example of this, I always think about this notion of we know we can't have an upside down balance sheet as individuals or you get put in cuffs for bankruptcy and all the things associated, but everyone else is allowed to do it. And Jackson, if you can find the chart with Apple, because that was one that kind of ties into this, is I think it was 15 billion and I guess they're unrealized, but it's via, forget what. page it was but you'll see the chart that pops up of like losses because the loss of purchasing power that if that was our personal balance sheet like we would never accept that but nobody talks about it and if you scroll up one click I think yeah it one more I think sorry maybe it's the other one but there was a there's yeah maybe Jackson Mikalic (22:08.681) I'll find it for you. Jesse Myers (Croesus) (22:10.687) And Sam, you're doing these calculations, you're using the official CPI numbers, so I assume? Sam Baker (22:18.028) Yeah, yeah. So I'm being generous with the CPI numbers, maybe, maybe, maybe a better way. Yeah. Yeah. I think the way so, so Lynn Alden recently put out an article. Jesse Myers (Croesus) (22:23.604) So it might be worse than that. Sam Baker (22:34.44) And she took a little bit of a different perspective. It was a great article, but she looked at the rate of monetary inflation and not consumer price inflation. And I think as a business, that might be a better way of looking at it, because at the end of the day, your goal is not to get diluted in terms of the size of the money supply. And so really your benchmark should be either the stock index that you're in, or M2 at the very least. Jesse Myers (Croesus) (23:05.62) Yep. Yeah, that's a, we feel passionately about that. Or at least I certainly do that the best barometer for true inflation, unless someone can prove to me that there's a better metric out there is just M2 growth. Michael (23:22.192) Yeah, the capital markets access is a big one as well because when you're able to get access to cheap debt, it changes the whole survival game that we're talking about versus when you can't, you have to find the best tool to stay alive. then it's also easier when you can make the decision versus the standard. Yeah, this is the 15 billion in 10 years. This is everybody's personal balance sheet as well. Jackson Mikalic (23:50.607) Yeah, no, it's it's so true. mean, again, like not surprising. Sam, I would love for you to correct me if I'm wrong, but it was like something it might have been over 90 percent of the businesses that have adopted Bitcoin with River were less than five stakeholders or something, right? Needed to approve that. Is that that right? Or generally around there? Sam Baker (24:11.94) Yeah, it's, it's somewhere in the range of 90, 95 % of our own business clients required less than five stakeholders to approve a Bitcoin purchase decision. And the reason we, we wanted to find out that stat is just learning more about how much governance plays a role in making a decision, like adding Bitcoin to the balance sheet. And so these smaller companies do have a first mover advantage because if you have someone in the company that can champion Bitcoin and you can make that decision, it's a lot easier than being at a multi -billion dollar public company where you have to get approval from your whole board and then you have to spend months finding all the third parties that you're gonna deal with. yeah, props. huge props to MicroStrategy and Block and some of the other large companies for getting that done because it is not easy to do. Jesse Myers (Croesus) (25:17.115) Did you guys happen to look into how many of those businesses really only needed one person to make that decision? I would guess it's a high number. Sam Baker (25:27.67) Yeah, yeah, I think we did ask that question and it was a number. Yeah, I wouldn't be able to give you it off the top of my head, but yeah. Jesse Myers (Croesus) (25:34.633) Yeah, yeah. Jackson Mikalic (25:37.296) Speaking of micro strategy, back in 2020, the four of us remember very well just in terms of that initial announcement being made. And I feel like there was, there obviously was so much excitement around it. And I think there was also way more anticipation of other publicly traded stocks or companies doing that as well. And maybe four years later, I'll speak for myself. I'm a little bit surprised that there that we've seen a slower rate of adoption among public companies. But Sam, one of the things that you put in the report that I thought was interesting was a table that compared, I guess you would call them like four key pillars or four parts of market structure that are needed for Treasury assets. Right. So there's liquidity, regulatory and accounting, institutional acceptance and precedent. And I thought this was a great chart that you threw together just to highlight how much has changed in a matter of four years. I'd be curious to hear your thoughts. If you share the sentiment that you're surprised that MicroStrategy hasn't really been followed by too many other companies. And when you look at this chart, like what do you think is most important? Do you think any of these play more of a role than others? Be curious to hear your thoughts, you know, looking back four years compared to where we are today. Sam Baker (26:55.81) Yeah, great questions. I would also love to hear your guys' thoughts on micro strategy because yeah, it's just a fascinating case study. So as much as we could talk about liquidity or accounting or regulatory, I really think the most important of these four categories is precedent because all these companies are, at the end of the day, like you could think of them as sheep and everyone is still following this traditional corporate finance, treasury playbook. And so as soon as you have a critical mass of businesses that are starting to look at Bitcoin or other assets as a diversifier against inflation, I think that's going to do more than anything else. And for the other categories, it's just I think it's a binary of, you know, it work, work, we're liquid enough. So 10xing the liquidity from here is not going to be a huge needle mover. Same with the accounting like the accounting standards are fairly clear at this point So I I don't think that we could have much more progress in that regard So Yeah, I do think precedent is the most important as for micro strategy so Sam Baker (28:17.228) I don't really know where to start. I might go on a little bit of a rant. I think MicroStrategy's example is very unique and I don't see their playbook being replicated, at least in US capital markets, all that much. I think their strategy is a one... It is a one company take all approach because they have established themselves as the most liquid issue like Company that can take advantage of capital markets to buy Bitcoin Yesterday, they announced the pricing of convertible notes. I don't know if you guys saw that 875 million dollars at a less than 1 % interest rate and so Yeah, yeah, and so their ability to Jesse Myers (Croesus) (29:05.034) 65 bits, I think, yeah. Sam Baker (29:09.526) take advantage of the demand from bondholders and take advantage of the volatility that's priced into their stock is a first mover advantage. And the larger they get, the more they're going to be able to do that. I think Where you will see other companies follow the explicit micro strategy playbook is in other capital markets like MetaPlanet in Japan. Maybe you'll get another company doing the same thing in Europe or Hong Kong. But I don't see too many more like similar scientists doing that. And the main reason why is because I don't think companies will get rewarded all that much in the future for having too much of their business trade off of the value of Bitcoin as opposed to their underlying cash flows. Michael, were you going to say something? Michael (30:05.241) No, I think it's spot -on nobody talks about this there's all these companies doing their SPACs and this stuff and it's just like There's what you described the liquidity but also the underlying cash flows of micro strategy help protect it from the debt That's owed and nobody else has that so like you can get wiped out if the market corrects Which is just how everybody gets wiped out when they use leverage in Bitcoin, but nobody says what you just said So yeah, that's it's spot -on. I kind of have the same sentiment Sam Baker (30:28.142) Yeah, exactly. Sam Baker (30:33.316) But I think, yeah, I think that if another company that had positive cash flows in the US or many of them tried to put 50 % of their enterprise value in the Bitcoin, then they would get some sort of conglomerate discount from the market because, so every investor in micro strategy knows that they're getting exposure to Bitcoin leveraged, but. But if Apple were to put 50 % or 100 % of their treasury into Bitcoin and their cash flows were much lower, would get a, they would be punished by the market for doing that because you would have all these investors that are looking for the cash flows of Apple and now they have to also include the price performance of Bitcoin as well. I mean, personally, I would love to see Apple do that. That'd be awesome. But I don't think too many companies are gonna do that. and you're gonna have a lot more that are just gonna take a measured approach to allocating three or five or 10 % of their balance sheet to Bitcoin. Jesse Myers (Croesus) (31:38.504) Yeah, I think that's right. I think I think you're right to that like Japan, China, Europe, maybe a few other capital markets could have their own version of micro strategy. But you're right. It's kind of a singular play and a coincidence of a lot of things that needed to line up of Michael Saylor had control of the company so he could make this decision after reading the Bitcoin standard. You know, like that's the amount of of buy -in he needed. And then also that as they've said, it was a zombie company. So they were able to make this sort of clean jump from we're an operating company that does business intelligence software into we are a Bitcoin leverage play. And now all of our investors understand that they're not expecting us to be Apple cash flowing. You know, that this is a pure play. So yeah, you're right that, you know, a lot of things had to line up and that's, guess why we it's four years later and we haven't seen, many other large public companies do a similar strategy. There's, there's, think we underestimated at the time how unique micro strategies position was. and, yeah, now they're like true corporate adoption as like a treasury asset is, is really happening, but that that's on the scale of like 3%. rather than 150 % like MicroStrategy has done. Sam Baker (33:10.084) Yeah, exactly. I don't know if you guys remember seeing at the very beginning of this year, ahead of the ETF launches, when people knew that they were going to launch on January 11th, a very popular trade was shorting MicroStrategy because the thought was that like their... like the gap between their value in Bitcoin was going to close because why would you invest in micro strategy if there's spot Bitcoin ETFs now? And the market was entirely proven wrong. I think, yeah, yeah, it was in early 2024 where like they just gapped higher, squeezed a bunch of shorts. And I think that is a testament to how successful their strategy is with tapping into bond market investors. and volatility investors by just issuing convertible notes like month after month after month. So yeah, I'm curious if you guys have any thoughts on like where they're going in the future, but I don't see MicroStrategy like going away anytime soon. Jesse Myers (Croesus) (34:20.104) Yeah, we, we happened to have Michael sailor on the podcast earlier this week. That'll, that'll be coming out in a few weeks. So, we, we were quizzing him about, I sort of personally, as as a, as a Bitcoin or I'm, I just hold Bitcoin and I have FOMO watching what micro strategy is doing. And I, I, you I'm tempted to, you know, get a micro strategy allocation because what he's effectively doing and what they've Sam Baker (34:26.647) Alright. Jesse Myers (Croesus) (34:48.616) now oriented their KPIs around is this concept of Bitcoin yield that they are delivering on. And it comes with some risk, but I think it's working. And I think that risk is small enough that it's attractive to me as a Bitcoiner and someone who would like to grow their stack. So we were quizzing him about this and... And yeah, that's the strategy and they're going to keep leveraging the tools they have at their disposal. We had this conversation a few hours before they announced their latest 875 million. So they're just going to keep on doing this so long as capital markets are inefficient in how they're pricing micro strategy. And also so long as the debt markets don't have any better way to get exposure to the upside of Bitcoin. It's a hell of an offer to a debt market of like, I will pay you back basically, you know, what I borrow from you using my operating company plus 65 bits of interest. But basically like you're going to get your money back. And if there's upside, then you can participate in that upside. What, like what a hell of an offer. And I think there's going to be no shortage of, of, of, you know, debt, of debt market participants who want more of that. into the future. Michael (36:14.32) So this is a fun, spicy one, because I didn't expect we were going to go here. But I think the MicroStrategy stuff is cool in the sense of it's just a fun, you have somebody that can do something different and see how far you can take it. I think it's right where, Jesse, I've seen a lot of folks that are friends, I respect, where they have 401Ks and tax advantage accounts get exposure, which makes sense. Although you could take a couple extra steps and reduce the counterparty risk by doing self -directed but it's an easy form to go get leverage and individuals won't leverage with micro strategy where I think maybe Jesse and others should just think twice about selling Bitcoin for it is because it's the same reason why individuals don't go invest it I know it's different but it's kind of the same in like Solana because you can go get some like higher potential leverage on the crypto market by going to another asset But you basically have like three to four layers of counterparty risk, and one of them is the mental counterparty risk, because now you're paying attention to something instead of just doing what somebody was supposed to do, and then when you exit, because you have to exit the trade, right, because you ultimately want Bitcoin. But that's just one layer of counterparty risk. The one that shocks me that nobody talks about. Well, there's actually two one of them is like, where do they custody this because it's all centralized custodians And if they lose the underlying your stats per share is actually zero Nobody says that and the second one is they're basically poking the bear and I don't like poking the bear when it's messing with the money because What happens when the bears like hey, I think I'm gonna need that for whatever reason I'm not saying that ever could happen but like that has to go into the equation And so you layer all of that and then the taxable events on the exit of your position into that and then selling that position back in and it's like yeah I think I'm good and I don't and I'd say for Justin when you're thinking general like that's how individuals should think about it like corporates and that need exposure and they want higher leverage and all of it but I don't think for like the average Bitcoiner they should be selling their Bitcoin to go get exposure to like a publicly traded company as their Bitcoin price exposure Jesse Myers (Croesus) (38:20.118) Yeah, ultimately for me that the thing that tips the scale big time is the taxable event of You know, I don't I unfortunately don't have any Bitcoin in a tax advantage to count. Otherwise, this would be a lot more tempting Frankly, I think I would if I did I would probably chase that What with some small percentage like, you know five maybe ten percent? but limit it to that because there is the there are risks that go with it. just think that Solana has greater risks than it's worth. I feel I'm inclined to think that this strategy that MicroStrategy is deploying is less risky than the yield that they are generating. But that's my personal take. But the thing that stops me from doing it is, know, Michael Saylor says, don't sell your Bitcoin. He's right. Like, it's better to have the underlying thing. If this thing's going to 200 acts over the next 20 years as Michael Saylor says it will and you know, we also say it will Then then I don't want to screw that up Michael (39:29.712) So let's say it another way Sam I'm curious your question because I was gonna pose it like let's pretend because this is effective over talking about Michael Saylor or micro strategy is coinbase so if they do what they do in infinite of an item like they get to what they want to then they have 900 ,000 whatever the number of Bitcoin Well, we talk about Coinbase not holding all this asset because of this and where it goes. So how confident, like Jesse, where would that break down where you'd feel concerned? Because we feel concerned with Coinbase having all this Bitcoin for all the reasons that we feel it's the same thing with MicroStrategy. Sam Baker (40:08.996) It's the same thing with BlackRock, right? Michael (40:09.016) It's just, this is, Yeah, this is the fun part about having these discussions and like where I think we found luck in this or cool part of the show is like, this is stuff nobody talks about. Like we got crypto Twitter, Bitcoin Twitter, we everybody's stats per share, but it's like, wait, let's break this down. Like what is actually happening here? And let's think about like the actual first principle risk of where it is. And there's this notion of the underlying. And I think that's another component of this, of there's a centralization of an asset happening that historically you don't want it to centralize. And I think Jesse, where you were this would come in where would make more sense is a five, a three, a five, five, a seven where fidelity Coinbase, BitGo, River, OnRamp, like all these keys. Now you can actually know this underline and maybe they're all over the world. So when somebody has an issue with it, it's like, well, now you're protected and microsailer probably should hold straight. MicroStrategy is tech company. They should probably participate in that. Then I think you start to de -risk it, but it's pretty wild that like they're just allowed to like leave all this Bitcoin on a central point of failure which historically hasn't really worked very well for the first 15 years in Bitcoin. Jackson Mikalic (41:14.594) Yeah. Yeah, no, it's a very fair point. And Sam, you brought up the ETFs as well. And 90 % of those assets are custody with Coinbase too. So that poses a huge risk of centralization and becoming an unsecured creditor of that firm. I'm curious because there was also a little bit of information in the report, I believe, about ETFs, right? And there's obviously one big inhibitor to firms purchasing the ETF is if you have over 40 % of your treasury insecurities, you have to register as an investment company, if I understand that correctly. Are there other considerations you think that firms will think through as it relates to ETF exposure versus spot exposure beyond just investment company versus commodity? Are there other things you think people are considering? Sam Baker (42:10.242) I think there are lot of reasons why a business should hold spot Bitcoin instead of an ETF. And I think those reasons are pretty straightforward and I haven't seen a single company buy the ETFs as opposed to spot Bitcoin. think, you know, yeah, yeah, as you mentioned, there's the 40 act, which requires a company to hold less than 40 % of their assets as securities. That may be one reason why a lot of companies haven't bought a lot of gold on their treasuries in the past, because you either have to hold GLD, and pay management fees on it and potentially be an investment company or you have to buy gold which is not liquid at all and so you don't get any of the advantages or like roles of a traditional treasury asset. So Bitcoin can really just play a perfect role with both the liquidity and the price appreciation while serving as a commodity and so I think I think it's a pretty obvious decision for companies to just buy spot Bitcoin. Maybe the one consideration would be custody because a lot of business owners are not all that familiar with custody. yeah, until I see an example of a company that's buying the ETFs instead of spot Bitcoin, I'm not all concerned about that. Michael (43:40.504) How do you think about custody for as much as you could share that cohort and the percentages? one of the reasons I ask is part of the, firm was realizing back when you talk about the five person investment committee, an individual is very easy to make decisions. can specifically like, they can do self custody, live on river, use an ETF, but the second they have to go to a committee that's looking at this, anything passed like okay, they're like, well wait, where's the custodian? And if you tell them you're gonna hold it on plastic, devices they're just like absolutely not that's where like the ETF kind of comes in because it's like I rather you nobody gets fired for buying an ETF there if they lose the assets well it's at least we did the thing so I'm curious how you guys have seen that play in because you guys have you know world -class custody Alex just put out you get your team put out the the reserves stuff if you want to plug that's that'd be great but like how you guys think about that and how firms if it's a if it precludes them from getting exposure or like what I've Sometimes when it gets to a certain threshold, that's when people start to really get concerned with allocating more because they're like, well, I felt good about this. Now I don't really feel good because I don't really know what the fault tolerance or redundancy is in this. Sam Baker (44:53.336) Yeah, well, I doubt that there will be any disagreement between us when it comes to custody. I think that businesses should always be very concerned about custody and should always be very thoughtful about where they're holding their Bitcoin. You mentioned like no one gets fired for like buying an ETF. I don't think anyone in the public company space gets fired for onboarding with Coinbase and That's why eight of the nine ETF issuers are cussing with Coinbase. The one exception, Fidelity, has their in -house custody. And I think the same is gonna be for a lot of the largest publicly traded companies. I think that most of them are gonna go to Coinbase because simply, like, you're not gonna get fired for going to the largest, most regulated custodian. That being said, there are... You know, I think there are only 20 ,000 companies in the US that are over 500 employees. There are 33 million other smaller companies that can take the time to actually think more deeply about like what custody solution makes most sense for them. As for River, we've built all our custody in -house. So many companies trust us. with our own custody solutions in cold storage. I'd be happy to speak a little bit about the proof of reserves maybe a little bit later. But we also encourage companies to withdraw to self custody if they have the technical expertise to do so. I think another great solution for businesses is some sort of collaborative custody or like multi -institutional. custody model where they're dividing up that risk because I think you can mitigate both the risks of self custody and just trusting a single third party. And so yeah, yeah, I think that all businesses at any point should be concerned about it no matter how large or small their allocation is. Michael (47:08.442) Yeah, I think just on that note, what's interesting, this is a good slide to keep up Jackson, I think the interesting part where you said Sam and like what we feel as individuals is we have too much exposure, maybe just the right amount, depending on who you ask on Bitcoin. So you naturally have to think through custody really deeply because it's... Majority if not all of one's net worth and if we believe where we're going is this is the best store of value That's ultimately where businesses store all their value that all these things ultimately hit ahead, right? They have to plan ahead because whether the price appreciation or their increasing adoption of the asset and divesting from other investment vehicles it's just something it's like it's a just natural kind of like it hits an inflection point and it kind of almost like it hinders increasing and people don't talk about it it's implicit versus explicit in that they don't buy more because they're just like, I don't feel comfortable. And as they're like, this is the threshold I'm willing to lose or I'm willing to mess up versus like creating the tools and solutions that let people actually be able to get as much as they want and feel that there's like you reference, know, multi -institution. One of the aspects is like this, this notion of financial controls that exists for wires and any movement of assets at any corporate level. Like that's what we have to figure out from a Bitcoin perspective. And you probably want that with multiple institutions. So then the assets move unless there's all of these things that happen in place and that's where like going back to the MSTR thing I think would need to be in place for that like what happens when it's 3x right we're at 180k and we all know like that's just gonna never I mean it'll happen and they're like what do they do then and what do the shareholders do that like when you know it's just a big problem Sam Baker (48:50.008) Yeah, you gotta be thinking a cycle or two cycles ahead at all times. Jackson Mikalic (48:55.852) Sam, I'm curious, so on this slide, right, there's about a quarter of businesses surveyed have concerns about custody and trading. And you mentioned that you provide kind of like an unbiased menu or choice of different custody models, right? Self custody, collaborative custody, multi -institution, traditional third party custody. I'm curious, like, to the extent you're able to share or have the insights, how do you... How do you perceive business owners' comfortability around self -custody? Like, do you find a lot of times as it relates to their business that there is discomfort there and they're typically opting to keep their Bitcoin parked with River? Or is it, you know, is it the other way around? You're finding that most people prefer to have self -custody or collaborative custody even for their business assets. Sam Baker (49:47.042) Yeah, I think for a lot of the smaller and medium sized businesses, the thought process is very similar to probably how we all approached it as individuals, right? You kind of buy Bitcoin first, you have it on an exchange for a little bit, then you start learning more about self custody and then you eventually start dipping your toes in the water. Anecdotally, from the businesses I've spoken with, All of them that I've spoken with would like to eventually get to a place where they're very comfortable holding their own assets and self -custodying their Bitcoin. And they're kind of in the process of getting comfortable with the flows of... you know, putting their excess cash reserves into Bitcoin. And, you know, as that allocation grows in size, then they end up starting to move some off of River and into self custody. Jackson Mikalic (50:46.338) Yeah, no, that's interesting. mean, we all kind of just spoke to it, but the idea that you have to be thinking one or two cycles ahead, right. And I would almost take the inverse of what you said, not in an argumentative way, but like in the instance that Bitcoin is 100 ,000, 120, 200 ,000, 500 ,000, know, thinking five, let's call it about five years down the line. I would be shocked if more people were moving their assets off of River and doing self custody versus leaving at OnRiver or using another third party solution like what we have here at OnRamp. Especially now that you guys have the proof of reserves, right, and you're extremely transparent as a business about how those assets are. mean, commend you guys for doing that. I think that's fantastic. So I'd almost disagree. think as the price increases, there's going to be more and more discomfort. And especially if there's, you know, let's call it five, 10 or more stakeholders involved in the business, it becomes challenging, I'd imagine, to figure out who actually manages keys. How do you think about succession planning, how do we actually get like technically savvy enough to be managing these within our organization. So it'll certainly be interesting to play out over the next couple years I think. Michael (51:56.688) The caveat with that is it's very much true. problem is, it's part of the founding in this business is that 2022, everyone blew up, so you don't know who to trust. So you just see all the assets move out of centralized exchanges. They don't know who's the good player, who's the bad player. People don't, they just see the bright. They leave it for a while and they go into a... You know, we just forget we have short memories of space. And so like a net new wave will come in and they'll be like, it's cool. Like all the custodians have all the world -class stuff like River. We know that's not true. and we can't help ourselves. And so then they lose assets. And then I think Jackson, it starts that vicious cycle of like, we got to take self custody. it's like, because custody, it's just the problem that there's a digital bearer asset and you don't know who not to trust is the problem with the self custody. that's like the, and I don't think that that moves away. It just consistently every cycle goes and it's kind of where we have this like longer term vision where. individuals if we're right, we'll catch into it or we're going in, we're like ahead of it, but it's like this is a logical progression because it's the middle ground between not having to deal with the pain of self custody and holding millions of dollars in your house on a plastic device, but also not having to just singularly rely on the best institution because it's almost hard to fully know. especially when people, as you know, in the business world, they're literally trying to survive in their core competency to go from a technical perspective and know who the best is. It's very hard for them to do. Sam Baker (53:33.404) As much as we do encourage River clients to self -custody and just withdraw their coins every month, it's also very encouraging to see like now that we have our proof of reserves, you... you can see our assets under custody, it's publicly available information. And to see that number grow and grow month after month compared to like, you know, CoinBases or some other large crypto exchanges assets under custody decline, it's encouraging to see that because I think it's a sign of how much trust is placed in River. And so, yeah, yeah, we're very much paying attention to that. Jesse Myers (Croesus) (54:13.0) Yeah, it, it's, does remind me of the, mean, we talked about that. Nobody ever got fired buying IBM. and, buying IBM right now in terms of custody is trust in Coinbase. and I feel like, you know, there's always a lag between the reputation of a brand and like what they're actually, you know, what, what they've actually built and, and, you know, you see, I think that's a great point that rivers, Bitcoin under custody growing over time is a sign of trust building for river. whereas coins coming off of these larger, older exchanges like Coinbase is a sign of the inverse. And I think it just goes back to like the market in general is still quite naive about what they should consider with regard to custody solutions for Bitcoin. And so you default to reputational brand and Coinbase is the big player still in that sense. that's really all they've got going for them. They've got a long track record and they're the name that people know. And they're not investing in proof of reserves the way that River is. They're not investing in an improvement on multi -sig that like OnRamp is doing with multi -institution custody. And I think that there's just a lag function between the market realizing learning more about what matters and shifting away from IBM and towards, you know, the newer solutions that have better properties and maybe just are a younger brand. Michael (56:00.78) and client services, like I would come in, I won't call it the person, but working with River on a, we had an investment fund and we were accepting wires and some of it was going into River and like one of the, on the client service side was like sending me texts and helping onboard it, like you can't get that. or cracking, like you just get no help and it's a black box. It's always been like that because the market's too reflexive and they have too many clients they have to serve and they're not really financial institutions. They're more of like this weird mix between a tech and a financial institution and you don't get that. So that's another big thing going for firms that really care about the client experience. Sam, on the note of those like four cohorts and I was kind of surprised to see the... What was the, Jackson, was the first, the main one that was the hindrance? Jackson Mikalic (56:50.997) Liquidity. Michael (56:52.398) I was thinking it was accounting that was there. I was kind of surprised to see that. It makes sense, but also just curious, like the regulatory concerns, I feel like is this big backdrop and maybe that's more because we're further in the weeds, but like this election and a lot of that. Jesse Myers (Croesus) (56:53.799) Accounting. Jackson Mikalic (56:57.132) yeah, yeah, accounting. Michael (57:11.322) We've anecdotally heard people are just staying out of the markets or waiting until election because there's this natural kind of, it's turned into an issue from a political perspective like Bitcoin or crypto in general. Just what surprised you in those findings or was there anything that, it was pretty much on par with kind of like the anecdotes you've seen in the market. Sam Baker (57:31.684) Well, yeah, think that chart may be slightly misleading in that it is representative of a survey of businesses across many different industries. And I think the regulatory concerns are very valid for certain businesses that either have money transmitter licenses or they're in the mining space and they think that they could be discharged from where they're operating. So there are certain specific businesses that should be thinking about regulatory risk very carefully, but for your mom and pop, know, restaurant or home builder or construction worker that is just following a simple strategy of buy and hold, anecdotally, I've not heard regulatory as a large concern about. adding the Michael (58:33.274) Yeah, the one that surprises me on this is the stakeholders to agree. Like, because we all know, you know, it's like the way I think about this is like a family, right? Like if we went to our family and it's our balance sheet, we're like, hey, we should buy some Bitcoin. I guess if you're the patriarch and the person's leading, that's what you see come through. And there's probably a lot of people you never see or you get an interest, but they never make it through because if you're the son and try to get the family to buy Bitcoin, it's a hard sell. Jackson Mikalic (58:33.537) What? Michael (59:01.038) if that makes sense, that certain businesses never get to see you guys because it's not the right setup for, there's no shorter people that probably have somebody part of their firm that wants Bitcoin, but everyone else is like, this is not the thing we're gonna do. Sam Baker (59:14.402) Yeah, yeah, oftentimes it's a family run, you know, multi -generational business where the son or the grandson is trying to orange pill their parents. And it takes sometimes years to drive it to completion. Jackson Mikalic (59:30.937) What about on this chart, Sam, with accounting and tax treatment as it relates to public companies? Like, what are your thoughts going into 2025? Sam Baker (59:38.904) Well, yeah, so the FASB is the organization that establishes GAAP accounting, which is the accounting standards that every company follows in the US. And last December, they put out guidance that updated how Bitcoin is accounted for on financial statements, which makes it a lot more favorable for especially a public company to hold because you're... you're no longer going to get punished by having to account for Bitcoin at its lowest observable value since you bought it, basically. So it was very punitive for a while. And then they put out this statement in December that is officially going into effect this December, I believe. But companies may choose to implement it at any point before then. And so you've had companies like Block already implement these new standards. And so I think that with this new standard set, it'll make it a lot easier for businesses to be able to actually pull the trigger on making a Bitcoin investment and not having to worry about how investors are going to complain about... net earnings being lower than they otherwise should be. Jackson Mikalic (01:01:10.428) Yeah, it feels like a massive roadblock that's been lifted. But at the same time, I'm almost skeptical now of the degree of which public companies will adopt Bitcoin only because of what we kind of talked about earlier as it relates to micro strategy. Right. And like in 2020, everyone on Bitcoin Twitter was just talking about how this would just be the first of many companies to kind of deploy the strategy. And I agree with you, Sam, and kind of what's been discussed today, that they're uniquely suited and we probably won't see many other companies beyond what we've seen already deploy that strategy, but actually thinking about now just making an allocation within public companies as a treasury asset, right? Like maybe one, one to 5%. Do you actually think that we're on the precipice now with these accounting changes that we'll see a surge in demand next year? Or do you think that maybe it could play out being a little bit more tepid than some, you know, some commentators are making it out to be? Sam Baker (01:02:03.62) Yeah, I think you might see some marginal growth in the number of public companies that are adding Bitcoin to their balance sheet. But I think the primary drivers of business Bitcoin adoption will continue to be from private and smaller companies. You know, they're the ones that don't have to be worrying about next quarter's earnings. They don't have to, you know, get 100 people to sign off on a Bitcoin investment. All those concerns will still be there for public companies. And so, you know, it would be very encouraging to see some more public companies invest in Bitcoin. I mean, we've seen 40 % growth in the number of public companies that have a Bitcoin strategy in the past year, but that number is still quite small. I believe it's less than 60 public companies worldwide. And so, you know, we'll probably still be below two or 300. in a few years if we just follow that growth, whereas I think you'll continue to see a lot more growth from smaller businesses. Jesse Myers (Croesus) (01:03:13.374) Yeah. Yeah. I think that's, that's dead right. I do think that the one aspect of the FASB change that people are underestimating the impact of is that companies with significant Bitcoin holdings, their quarterly earnings calls, those CFOs and CEOs are going to start looking like rock stars quarter after quarter after quarter. And to date it's been punitive and You've looked like a loser because you've had to mark down to the lowest point that Bitcoin got to during the quarter and then take the hit every single quarter, no matter what, you know, the actual value of your coins is now. And that's going to switch to companies, C -suites that have Bitcoin as part of their treasury looking like geniuses or just like, you know, being able to advertise like, we had operating operating income of a hundred million this quarter, but we also had a $1 billion gain in our Bitcoin holding. So we made $1 .1 billion this quarter. Look how much better we are this year versus a few years ago. Like that's going to start happening and that's going to, it's going to, it's going to be kind of stark between companies that don't have that tailwind on their, on their earnings calls and those that do. And I think that's going to just seep into the psychology of C -suites of like Well, you know, I'm jealous, I'm envious of these companies that get that tailwind. So maybe we should take a more serious look at, you know, adopting that as part of our strategy too. Michael (01:04:52.836) Yeah, mean, same on that note. Like I was thinking through what Jesse was referencing and part of what probably seems like it's hard adoption for institutions or specifically publicly traded companies is it's multifaceted, not only in the understanding of Bitcoin, but getting the groups internally to. to buy in, but then ultimately where do you park it? Because it has a liquidity profile of a treasury, like we're talking about treasuries, and has a liquidity profile of cash equivalents, but they can't actually treat it like that because of the volatility. So they have to look at it as a longer term player that doesn't make any sense to allocate. They're not allocating for six months as like a money market fund, it's like a two, four year, whatever the duration. And so then they have to naturally like manage that internally. And that seems like a very complex thing to get buy -in, especially at a significant amount. How do you think about that? Do you think that this hindered some of this? Because there's not that many companies thinking in that way as well. And then why wouldn't you do stock buybacks and do other things with your capital? And then that's where goods you start damaging or getting punished for allocating to it as well. Sam Baker (01:06:04.59) Yeah, well, I do think it makes sense for most companies, both public and private, to hold on to a lot of excess cash because those that do are gonna be able to withstand cyclical downturns a lot better because they're not gonna have to dilute their shareholders every time they need to raise money. And so I think this whole thing is gonna require just a rethinking of Treasury management. generally because to your point, Bitcoin doesn't fit into any existing sleeve of a treasury. if you look at Apple's balance sheet, all of its low duration, all of its fixed income, and so there's not really a place that you could easily say, yeah, I'm gonna swap this out for Bitcoin and it's gonna serve the same purpose. And so, Yeah, yeah, I think it's gonna take a long time for CFOs to come around to just rethinking their approach to treasury management with a longer term time horizon. Would you agree? Michael (01:07:18.704) Yeah, it's just a hard thing. mean, we see it on the institutional side, Like pensions and just institutions in general is like what bucket falls in. had an advisor, he had his firm bought by Blackstone and it was a hedge fund. And he said that he had the same problem 20, 30 years ago. said, what bucket? And they were doing like crazy returns. He's like, I don't care what bucket you put it in. You figure that out. That's your job when you talk to institutional investors. Obviously, we can't say that, but it reminds me of something like this. like, do you want the best performing asset of all time or not? You figure out the Sam Baker (01:07:22.211) Yeah. Jackson Mikalic (01:07:50.87) See you. Michael (01:07:52.145) Sam, I know we're running up on time. I'm curious, like you had three, I had notes on three interesting parts of like future adoption with Bitcoin. So it was cross border, wages and commerce. curious where you see the anecdotes from the interest and also what's, because I think that's a different angle and flavor of adoption is people don't want to come at it from money, they want to come at it from operational efficiencies. And then that's the Trojan horse into coming into it as a store of value and curious like any, if what you saw there. Sam Baker (01:08:13.058) Yeah. Sam Baker (01:08:25.176) Well, a report on business Bitcoin adoption would not be comprehensive if we only focused on Bitcoin as a treasury asset, because for many companies and nonprofits, they're using it very much so as a payments mechanism. And so, you know, we really wanted to be inclusive of Bitcoin's payments use case. Of course, it's not nearly, you know, adopted at the level of... of Bitcoin as a treasury asset. And frankly, I don't anticipate it to be adopted at the same rate, but we wanted to highlight a few specific niche use cases where some businesses are getting a tremendous amount of value from using Bitcoin. A few of the case studies we have in the report focus on some of these companies that are using Bitcoin for payments. So just as a few examples, if you're a nonprofit, that is paying out wages across borders or you're cross border contracts. For a lot of them, it makes sense to pay in Bitcoin as opposed to dealing with the local currency. Alex Gladstein from HRF has spoken about this. They settle their contracts in Bitcoin out of convenience, not because they're Bitcoiners, but because it helps them reduce jurisdictional and political risk of a government in Kenya or whatever, not wanting a certain business or group to get funded by HRF. And so for them, makes a lot of sense. For another nonprofit like Students for Liberty, I think it's 40 % of their employees worldwide prefer to get paid at least a little bit in Bitcoin. because a lot of those employees are based in Turkey or Argentina. And so they're dealing with a very different environment than we are in the US. A final use case that I want to highlight is just the amount of demand from the Bitcoin community that I think business owners can like extract a tremendous amount of value by like being very supportive of the Bitcoin community. So Sam Baker (01:10:53.412) Peony Lane is a vineyard in Colorado run by Ben Justman and Adams is a shoe company based in New York. And they have both very successfully tapped into just the demand from Bitcoiners that, you know, maybe they don't love selling Bitcoin all the time, but if there's a company that you can buy shoes from in Bitcoin, then like they're going to be supported. And one of the stats that Adams shared with me is that their average order size that's paid in Bitcoin is more than double their average order size that's paid in dollars. And I think that just speaks to the quality of a Bitcoiner client. And so I don't see that being a widespread thing where every business is going to start catering to Bitcoiners. But if you are a small business owner and you're trying to Bootstrap your growth. I think that is a great strategy Michael (01:11:57.232) One other one that you didn't mention, and I think it was kind of in there, and it's, feel it, and I think a lot of Bitcoin businesses feel it as like, as people grow to appreciate Bitcoin individuals, they naturally own businesses, and their businesses, they want to accept Bitcoin. Because if they don't, they have to sweep the cash into Bitcoin, and they get fees on that. There's just a price. And so, and then if you take the dollars, you have interchange fees, and you're paying 3%. This is something we're like actively working on. You want to offer the convenience of the dollar system, but there's the inconvenience of the fees associated where you can have a reduction in price by paying in Bitcoin. And I think that's an also growing trend that we'll see more as individuals want more Bitcoin to accumulate, you'll make it easier for individuals to pay in Bitcoin, which is a nice like feedback loop for individuals that maybe have never heard of it, that you go and you have your cash app already, you can just instantly swap and get your 5 % off and everybody kind of wins. I think it's an interesting use case as well. Sam Baker (01:12:52.644) Totally. Jackson Mikalic (01:12:55.442) Well Sam, appreciate you being generous with your time. Was there anything else on the reserve side for River that you wanted to cover or do you feel like we're in a good place in terms of what we covered already? Sam Baker (01:13:06.904) Yeah, well, I guess briefly just to mention the headline, yesterday on Wednesday, we finally released our proof of reserves. So if anyone wants to read more about that, you can go to our Rivers blog and we're going to be putting out a monthly attestation of both our assets and our liabilities. And it's something we've been working on for a long time. I think it's a great step forward. the industry and I think, you know, hopefully it'll become the industry standard, at least for Bitcoin -focused companies. Maybe the coin basis of the world won't be too quick to follow, but yeah, please check that out. Jesse Myers (Croesus) (01:13:51.034) I thought the proof of liabilities part was really clever. And as far as I know, the first of its kind, did you guys get that model from any other precedent or did you come up with a proof of liabilities concept there? Sam Baker (01:14:05.314) Yeah, I believe there are a few other companies that have toyed around with providing a similar sort of proof of liabilities. BitMEX is one, they have a blog post on how that works. To briefly explain the way, so proof of liabilities is a lot more difficult than a proof of assets for a proof of reserves because with the proof of assets, it's as simple as just posting your addresses and then having some sort of predefined transaction formula to prove that you are the owner of those assets. With the proof of liabilities, it's a lot more difficult because you somehow have to prove that you are not hiding any users' balances from your liabilities while also maintaining their privacy. And so the way we do it and the way believe BitMEX does it is by publishing a Merkle Sumtree of all of our account balances and then sharing the root hashes with our clients so that they can go on our website and pretty easily just find their account balance within the sum of our liabilities. And so the way... a user could find out if we're gaming the system is by simply verifying their reserves. And if their reserves aren't there, then they would know that River's excluding their reserves from the proof of liabilities. And so this concept almost requires a certain level of participation from our clients because the more clients that prove their liabilities, the more likely it is that their funds are safe. But without... without being audited on a monthly basis, which I think no one does, this is the best method for just providing an attestation of your liabilities. Michael (01:16:08.73) Yeah, just to share some, you'll probably appreciate. So we have an investment fund that we have institutional allocators and it's kind of like a private placement ETF. And one of the things we've done and they're very sophisticated like pensions have asked for segregated wallets. Right. And generally a firm wouldn't do that. And from a liability perspective it still sits under as a pulled vehicle. But from an audit perspective you can always know that your funds are there. And if everyone sets up then it's that alarm bell effectively which is important that funds are moving that they shouldn't be moving. So we've always liked that. And then like the multi -institution Sam Baker (01:16:31.737) Thank you. Michael (01:16:41.962) is like a proof of the reserve built in because of the segregated account. But yeah, the more that we can provide transparency as an industry where it's generally opaque, it doesn't fix everything, but it gives better foresight into when things aren't working very well. versus like, remember Grayscale, they're like, trust us, it's at Coinbase. And then BlackRock trusts us, it's at Coinbase. And you're like, well, that didn't work out so good in 2022, so maybe we need a little bit of audit. So it's awesome to see that you guys are focused there and really great to see you guys doing that. Sam Baker (01:17:15.448) Yeah, I appreciate it. Jackson Mikalic (01:17:17.165) Yeah, it's a great precedent to be set. And I also think it's timely as well, just ahead of the bull market, really picking up steam where I know River would never do it, but I know a lot of other companies have gotten themselves into some shenanigans as Bitcoin begins to rip. And this is just like a nice additional layer of transparency to give your clients. And I'm sure you'll get the participation that you need on the liability side. There's no shortage of Bitcoiners who will want to test that out and I'll try it out myself. But Sam, anyways, I know we're running up on time here. Thank you. again for joining us. Want to give you a handoff. I'm not sure if you're going to mention it, but I did notice you're a published author. So that's pretty cool. But anything you want to share with the audience before we end the call here? Sam Baker (01:17:59.246) Well, first of all, thank you for having me on. This was a lot of fun. You can follow me on Twitter at Macromule. I mainly post about Bitcoin and reports that we put out. And yeah, I did publish a book over the past year on the history of money, more targeted towards, I would say, like family members and no coiners that, you know, are just dipping their toes in the water. So. Maybe not recommended material for most of the listeners on this, yeah, yeah, I appreciate pointing that out. Jackson Mikalic (01:18:33.815) Awesome. Well, thanks, Sam. Really good to have you join today. Appreciate your time. Michael (01:18:38.052) soon.