TDI Podcast: Crypto Camuso (#974)

26:36Pat Camuso:So I think if I interrupt you with something here, I think this whole idea of. In a weird way, crypto has lost its edge as that mentality, that that cutting edge. Ever since it's become more mainstream, ever since we got the ETFs, ever since we got the corporations a little bit post this point. but corporations utilizing his treasury shares. I mean, the idea that we have a, I guess, Michael Saylor, I don't know what he is. He's the cross-bearer of Bitcoin and the savior, talking about it every way. He's talking his book most of the time, but his company, if you look at the stock, has gone down the toilet in the last year or so, and he's ultra-levered.

27:32Pat Camuso:Who knows what the company actually does anymore, But it seems to me that ever since it went mainstream, it's lost its edge. What do you think? Well, it's definitely, you know, it's changing over time, right? It's being institutionalized and it's gaining in regulatory focus and compliance is becoming, you know, an issue that's getting much more attention. So to that degree, yeah, you know, it's not 2016 anymore with Bitcoin. It's definitely changing in a certain sense. But I think that's going to happen when any industry that's going to be maturing at all, you know, it's going to have to grow from those initial roots.

28:18Pat Camuso:And some of the growth is into various different types of coins technology. One of the things you mentioned as you were talking about the early days was NFTs, non-fungible tokens, which had its heyday for six months, maybe, of excitement, right? Where we were buying all sorts of monkeys and weird graphics that people were buying for all sorts. Did you understand that whole phase, by the way, of buying JPEGs in an NFT for some absurd amount of money? well you know the idea with nfts is they're supposed to represent ownership on the blockchain due to the fact that they're non-fungible and they're unique and you know people associated them with with jpegs um you know it was extremely speculative and obviously short-lived um there could be future uses for nfts if there's more of a you know regulatory architecture built around it and it can actually start to have some sort of representation of ownership.

29:28But, you know, I would say that was a phase that we haven't seen get revived since that cycle.

29:34Pat Camuso:One of the things that I thought back in the day was, hey, I got an idea. You know, this whole idea and this whole concept of buying a house where you have to get the title and the mortgage and the blah, blah, blah, blah, and the records and the things and the fix-ups and, And, you know, all the plats and the graphical analysis of, you know, the plot area. You know, the whole thing that goes into a home, right? The ownership of a piece of land and a house. So from the land all the way up. You know, there's a lot of stuff in the courthouses and the systems and a lot of stuff has not been kept up.

30:11Pat Camuso:I said, you know what? I got an idea. Why don't we get an NFT that wraps a house? And when you buy that house, that NFT, because it's ownership, right, is basically easily transferable to a new owner. And everything inside of that is either, is kept intact. You know, the property information about insurance records, everything about it, everything about this house is kept in there and then transferred to the next person for use. It seems like a good idea. Yeah, I think it's very interesting. I think that there, you know, it's not just a tech, technological solution to a lot of these questions when it comes to that.

30:56It's regulatory as well. And if you can actually like legally represent that on chain, it gets a bit outside of my wheelhouse, you know, from a tax and accounting perspective, I would say. But I think it's very interesting. And, you know, if we ever do see NFTs come back, I do think it's going to be in some form of, you know, real world asset tokenization and it's representing, you know, assets on chain in a way that, you know, is, is, is, does have some sort of legal standing. But that's yet to be seen.

31:32Pat Camuso:That is the point, right? It's the tokenization of the real world asset. It's the hard asset into the tokenization from the aspect of being on the chain. And whether that's called an NFT or something else, that's the whole point of making easily indestructible, by the way, right, the information and easily moved around through technology. Yes, I think the ease of transferability as well as being able to verify ownership as well and to reduce fraud, I think, are two big use cases there. Let's talk about stable coins for a second. And, you know, this is something that has been blossoming in the area of crypto.

32:15Pat Camuso:And use cases are many. Foreign transaction, easy ownership, currency, move various currencies into one and have a stable coin that can be used for cross-border payments and settlement rails and things like that, emerging markets. So this has been big, right? It's been growing dramatically. Yes, yes. But a great example is paying over, you know, if you have like employees that are overseas, you know, that's a great example of a good use case for it. So, but why can't we just wire money to, well, I mean, obviously the stablecoin idea, if you have money in US dollars or, you know, other kind of crypto or whatever it is, and you transfer it to stablecoin, then it gets into that coin.

33:07Pat Camuso:but then you have to transfer to, and usually it's USDT, isn't it? Yeah. I would say, you know, the difference is it's like, say someone is operating a remote business and they have an employee overseas, you know, they're going to wire them money and maybe pay a$45 wire fee and wait three to five days for that to hit the employee's account. And not always without, you know, not always without issues through that process. where a stable coin can be sent to that employee's wallet address. And, you know, they can have it within minutes. And it's the fees are, you know, immaterial, very, very small amounts.

33:53So I would say it's really like the quickness and ease that comes with it.

33:56Pat Camuso:However, from a taxation standpoint, there are some gotchas, aren't there? Yes, it gets very interesting from a tax standpoint because cryptocurrencies or digital assets in general are taxed as property. And currently, USDC or USDT or other stablecoins, like you mentioned, are still included in that definition. And therefore, they have to be accounted for and tracked for tax purposes. But how does that work then? How does that make it a currency worthwhile? How do you do that? I mean, you track it like any other digital asset. It's a bit easier to track because it's usually less volatile, right?

34:51Because it's a stable coin. But you do have that burden where you do have to track it and also report it on your taxes as well. um so if i take stable coin and i send it to you walk me through the taxation of that because

35:08Pat Camuso:because technically it's not like there's a gain on it when i sell it right but no in that case there wouldn't be a gain but you would you you still should claim it and you and the problem is is that you may see tax reporting on it in certain certain instances now that we have form 1099 days and stuff so you know picture um you're gonna send me ten thousand dollars you'd first maybe purchase ten thousand dollars of usdc on your on your exchange of choice right and maybe you'll transfer that to a wallet that you control and then maybe you'll transfer that to um my wallet so when you first purchase the usdc that would establish your basis in it which would likely be you know, 10K because it's a stable coin.

35:54That basis would follow over to your wallet and then you would send it to me. That would be you disposing of that digital asset, the USDC. So then you'd have a disposition at that point of$10 ,000 and you'd have to claim it on your Formate 949 as a disposition, even though it's a stable coin.

36:12Pat Camuso:But even if you're out of compliance on that, let's go through that. Let's say I did it 50 times. I gave you$10 ,000 50 times throughout the year and I was supposed to claim them all, et cetera, et cetera, right, as the transfer or of it, you know, the movement. I'm moving it. The reality is at the end of the day, there is no tax implication on any of this. So it's kind of moot. Even if I got somehow the IRS came after me for something and they saw this as a way to slap me on the wrist, I mean, I guess they could penalize me for reporting issues. but there was no liability. How does that play out?

36:54You're right to a certain degree that in most cases, once all the facts are laid out and everything's reconciled, that it should be tax neutral, but you're, you know, you're going to have to possibly deal with reporting issues and reconciling that with the IRS. Which is a pain in the ass. Exactly.

37:16Pat Camuso:And that's like you need somebody that can do audits to kind of dig through this stuff. But the point is, are you saying that the U.S. – well, let's put that aside because it's any government really. But the – well, the U.S.-based 1099 DA is the record – that's what you should be getting, right? What does it stand for? What's DA stand for? Digital asset? DA stands for digital assets. And yes, this is the first tax season where people are receiving that for their activity that took place in 2025. And this is their party reporting. But that's what you should be getting from the various. You should be, if I buy this on an exchange and then dispose of this by sending it, well, not dispose of this, but send it to my wallet, my own personal, I don't know, call it my cold wallet, right?

38:03Pat Camuso:I somehow get it over there. And then I then move it from there. I have to then issue what? a 1099 DA also? No. So the 1099 DAs are actually being issued by what the IRS defines as brokers, which to simplify here would more or less be exchanges. So, you know, if you dispose of something on Coinbase, for instance, or, you know, like another exchange, that's when you can expect to receive these form 1099 DAs. The biggest challenge with them is that, you know, It's a new form, and it's also incomplete by design in a few different ways. Number one, if you have assets that aren't – that the full lifecycle of the asset didn't take place on that exchange, they're not going to have the cost basis information for it.

38:58Pat Camuso:Right, because that's what I was going to say. If I buy it on the exchange, I send it to my wallet, right, and I send it back, they may not look at that as a full round trip of the same asset. Exactly. At that point, you would break the chain of custody for their 1099-D. This is a mess. Pat, this is a mess. This is a mess. Yes, because non-custodial wallets and exchanges got pulled out of the regs through a Congressional Review Act in 2025. So originally, you know, these were going to be included. They got pulled out. And now taxpayers are left with the scenario where, you know, not all of their activity is necessarily included on Form 1099 DA.

39:48And there's other types of transactions that are included as well. You know, USDC, there's a limit to where that's included. Certain other types of transactions are included. So this it's really like this challenge with the cost basis is not going away with this form. It's just starting to make things more visible to the IRS in an attempt to increase compliance. But, yeah, there's this big challenge when you when you when you break the chain of custody, they're not going to have this basis information. And then even when it's a stable coin, you need to have an audit trail and you have this burden of accounting for it and reconciling it so you can report this accurately.

40:28Pat Camuso:Well, the good news is this keeps you in business for a long time. Well, you definitely need a good crypto CPA if you're transacting in digital assets. Yeah, seriously. That's for sure. And, you know, as things move forward, it seems that we'll, you know, be seeing more complexity. And, you know, things are not going to be getting simpler for the foreseeable future, especially if we start to see things like wash sales and, you know, other provisions. This seems to me to be like the equivalent of pick a ball with orthopedic surgeons that you look at them. You're like, hey, you got a lifetime of potential here due to this sport.

41:10Pat Camuso:This seems like to be the same thing for accountants that specialize in crypto. These kind of forms, this lack of quality laws. It is. It is. It's a unique specialty. And, you know, my form 1099DA is, you know, exposing this issue to a lot more practitioners who are, you know, getting more people with these forms. And there are liability concerns and due diligence considerations for preparers. So, you know, they're left in a position where many times they're partnering with firms like mine to do these calculations for them on behalf of their clients so they can make sure that it's accurate and that they're covering all their bases for it.

41:59So, yeah, you know, I think that there's a real need for it. And, you know, it's extremely complex and there's going to be more and more firms and practitioners that continue to encounter this as you start to see more people get these tax forms.

42:13Pat Camuso:What about the legislation that's coming out? There's some, I think there's some new things on the table I've been reading about. And I know they talked to you about it before with regards to staking, mining, things of that nature. What's going on there? Yeah, so there's nothing that's finalized yet, but there's some interesting bill provisions. And these are some trending provisions that we've seen attempted before, but that are picking up steam. And I would say like the some of them that I would want to point out, because there are several, would be, you know, the biggest trade off in most of this is wash sales getting applied to digital assets.

43:00And again, it's currently not not not applied, but we do we do see this in a couple in a couple in a couple bills. and this is kind of like the concession that we're seeing in most proposals um between the between you know the industry and regulators um the other very interesting thing is staking where you know we're still seeing a push to not to have a deferral on recognizing staking income that may or may not be elective. You know, we'll have to see. But, you know, the timing of the recognition of staking income, I would say, is another big one. And the wash sales one is really interesting because it's going to create, you know, more of a deeper accounting requirement for all of these transactions.

44:01that, again, are fragmented across different custodians and in non-custodial environments. And then, you know, the wash sales is a 61-day period, and, you know, crypto is obviously very volatile. So it's going to be interesting to see, you know, how this actually applies to investors if that does pass. Another interesting one is the de minimis deception. So, you know, trying to create legislation, some that apply only to stable coins and some of them that apply to, you know, digital assets more broadly, where there is a de minimis deception to where if you're spending crypto under certain thresholds, for instance,$300, that, you know, there's a tax exemption for that.

44:49So I would say those are some of the most common ones that I'm seeing right now. And we'll see if they do get passed. And if they do, that's going to be a lot of what we're going to be working on with our clients is, you know, how that applies to their portfolio from just a tax consideration standpoint and also from an accounting standpoint.

45:08Pat Camuso:Does some of this get cleaned up a little bit with the likes of interactive brokers, Charles Schwab and others in the business now? The biggest announcement being recently that Charles Schwab has entered into the crypto business, albeit with a small grouping of crypto coins that they can actually hold. But does some of this start to get more normalized and better reporting capabilities as we see these big boys enter into this? To a degree, yeah. I would say yes. I was just talking to an investor earlier today that has – and this is very common for our firm. This hasn't done the historical accounting and has all this cost basis fragmentation and data issues for the better part of the past decade, going back I think to 2018.

46:01So we're working to get everything cleaned up and reconstructed for them. But as I was talking to him, that's basically his plan is to get it all cleaned up and dispose of this year and then move it, move, move into something where, you know, he, he gets all this reporting taking off his hand. So there's definitely that subset of people. I think with the 1099 DA, for people that have very simple fact patterns, you know, that are not moving across custodial and non-custodial environments or across like multiple custodians and that don't have significant legacy assets, you know, that have maybe like more of a simpler transaction footprint.

46:43I think the 1099DA, as this faces in, can start to simplify things on that spectrum for people. But on the other end, you still have people with very complicated fact patterns. You have the widespread noncompliance from the historical standpoint. And you still have people that are operating, like I said, in these non-custodial environments, like with all this DeFi activity and just business activity in general. So I think from those perspectives, you're, you're, you know, you're, they're, they're still going to have, have, have these reporting gaps and challenges and reconstruction burdens. But for, for some people, I think there are paths to simplify it.

47:21Pat Camuso:Well, not for, not for Waylon Wilcox. No, no. What happened there? So, you know, that's an interesting case. It's, you know, it's one that I've been following for some time that's now has basically settled intricate, you know, interesting with probation only in a fine of$150 ,000. And of course, you know, like the taxes that he already had to pay, which, you know, is a better result than previous indictments that we've seen from the Justice Department with the likes of Frank Algren, for instance, which was the first pure crypto tax evasion case, which led to him getting sentenced to a few years in jail.

48:06So, you know, what happened with Waylon Wilcox, and he was just sentenced back this April, was he sold just under 100 NFTs, crypto punk NFTs, for which I believe totaled just above $12 million. And he didn't report, report the transaction.

48:31Pat Camuso:Why should he? I mean, it's just, you know, it's, it's not their business. That's the same thesis that we, the problem for him is the transactions existed on a public immutable ledger. And he, you know, he ended up getting indicted for this. And, you know, they said that he saved$3.3 million in taxes approximately that he had to pay back along with another million in interest along with the fine along with probation and you know he avoided prison it's it seems like based off of their reporting from april on what what we're finally settled with this but he's still better off than the people that bought this crap that's worth nothing now that's true that's true yeah they bought 12 million dollars worth of nfts let me just do a quick calculation on the back of my napkin here uh probably worth $1.50 now.

49:22Yeah, most of them have lost value for people that are holding up. Frank Algren's more interesting. He's not a recent case. Isn't this the original? He's the first pure crypto tax evasion case. And he was sentenced, you know, maybe like two years ago, maybe back in 2024. I could be off on the year, could be maybe a year earlier. But he was sentenced to several years in prison, I believe, three years. And, you know, he had significant assets that was reported. I believe they reported, and this is from memory,$120 million on his colds in his wallets. And he had to, as part of his sentence, I believe, turn his private keys over to the Justice department and isn't allowed to even move any of the funds without their approval in addition to having having jail time so i will say like wayland wilcox seems to have gotten you know not as severe as of an outcome as frank algerin did um and you know wayland under wayland didn't report from what i understand in the case where um frank algern did report but inflated his cost basis so you know, they're a little bit different fact patterns to a certain degree.

50:45Pat Camuso:Yeah, but both were. But, you know, this is, I think, you know, the first of what we'll see of more cases that they're going to start rolling out for people that are, you know, severely noncompliant with crypto to a point to where it is criminal in nature. And, you know, these types of cases serve as an example, you know, as they're even saying, you know, in the headlines, like the IRS criminal investigator said, let this case serve as a warning. So, you know, these types of cases are meant to serve as a warning and an example. And the same time you start to see Form 1099-DA going out, which is, you know, designed to push a higher degree of compliance, just third party reporting.

51:30So, you know, we'll see how this plays out and how this impacts the compliance rate going forward.

51:36Pat Camuso:Yep. Pat Kambuso, always a pleasure having you, expert in the area of crypto. We'll make sure to have the information on where people can find you, those people that are going to be getting those 1099 DAs. I call them duck's ass. That's a DA. From my day, when you had a certain hairstyle, you would say, hey, I'm going to get a DA, which was a duck's ass looking feathering thing in the back of your head. Have you ever heard about that? No, I haven't. Well, now every time you see a 1099 DA, you're going to think about it. Sorry that I put that into your head. That was back in the 19, I think, late 70s or 80s, some maybe late 80s, something like that.

52:12Pat Camuso:Anyway, Pat Camuso, CPA expert in cryptocurrency. Always wonderful having you on. Thanks so much. Yeah, I appreciate it. And that's going to wrap up another show, another episode of the Disciplined Investor Podcast. Please make sure to go over to, I don't know where it is. You want to go to Apple, that's a great place to do it. Go give a review, put some five stars on it, give some love. Check it out on Spotify and Amazon. Also make sure to follow. By the way, we've got a lot of new clips and videos going up on X, Twitter, whatever you want to call it. Follow me at Andrew Horowitz. That's one word, Andrew Horowitz, all together.

52:45Pat Camuso:No spaces, no check marks, no underscores, no dashes. Andrew Horowitz on Twitter slash X, whatever you want to call it. And we have some great things that are going up on a regular basis with our interviews and our discussions. And of course, you'll get the first dibs on when these podcasts do in fact go up on Tuesdays and Sundays each and every week. So thanks for joining me this week. Next week we have coming up, Wes Gray's coming up from Alpha Architect. I am excited about that. Love talking to Wes. Thanks for joining me. Go over to thedisciplineinvestor.com if you have any desire to talk about your investments, you're worried, you want to think about the rebalancing process or even looking at what's going on with your positioning.

53:25Pat Camuso:We'll be happy to take care of you. look at your portfolios, give you some quick update and see if it's something that makes a lot of sense. Thanks for joining me again next. I'll see you again next week. Bye-bye. This podcast is intended for informational purposes only and does not constitute personalized investment advice. Investing involves risk, including the possible loss of principle and past performance is not indicative of future results. The views and opinions expressed are those of the host and any guests and may not necessarily reflect those of Horowitz and Company, Inc., an investment advisor registered with the U.S.

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