TDI Podcast: The Crypto Taxman (#939)

22:54The Disciplined Investor Hosts:I think it's a confusing point and it's even a point of contention to this day because at the end of the day, you know, cryptocurrency and digital assets can take many different forms. And, you know, some may be securities, some may be collectibles, some may be entirely different asset classes. Some may be derivatives of existing asset classes. There's a lot of different forms that a cryptocurrency can take. And there are, you know, different regulatory agencies are going to take different viewpoints on what they're classified as. And it is confusing for people, first of all, because it's called a cryptocurrency, right?

23:37The Disciplined Investor Hosts:And there's been tons of people that have gotten snared by this from a tax perspective because how the IRS looks at it is as property. So when you trade one crypto for another, the way the IRS is looking at it is if you traded one piece of property for another. And, you know, there's no like kind of changes, which was a huge, you know, point of contention and confusion back in the early days. So, yeah, you know, any crypto to crypto trade is taxable. And what I find in the early cycles and even to this day is that people aren't aware of that often. And, you know, they'll be trading crypto assets, crypto to crypto trades throughout a bull market and maybe even taking profits into Bitcoin or Ethereum.

24:24The Disciplined Investor Hosts:And then when, you know, if a bear market comes, they're not realizing all those trades that they made at peak valuations were taxable events. And, you know, if they were rolling all of their tax payments back into the market, they're going to have issues once it comes to tax time. So people do get ensnared by that. And it's even, it's, you know, a point of, a big point of contention today that needs to get fixed. that a lot of people are trying to fix from a regulatory standpoint is that stablecoins are all –

24:57Patrick Camuso:Well, that's a whole different – I got a whole area on this. Can we just hold that for a second? Because I got a whole discussion.

25:01The Disciplined Investor Hosts:Yeah, the one thing I want to point out on that, though, is that it's – their taxes property too, just to tie that into that discussion. But we can't – let's get to that more later.

25:11Patrick Camuso:Yeah, because I want to stay back on where you were because I think it's also interesting. And I think our listeners – there's a lot of people out there that are working for the man, a lot of people that are working for a company that's not their own, and you made the leap. You left Deloitte to start your own firm, right? So aside from the fact that you obviously made a killing on Bitcoin, no, but seriously, what was the, two things. What was the tipping point on rationale for why you left, if you can discuss that, and the after effect of how that was for you?

25:50The Disciplined Investor Hosts:Well, you know, I always intended to start my own CPA firm, believe it or not. And for most of my life, I've actually intended to be a CPA, which a lot of people find that interesting as well. But, you know, I've wanted to basically be a CPA and own my own firm and, you know, take this entrepreneurial route since I was a very young man. And my whole intention behind it was to really pursue, you know, mastery in a career that could lead to a deep understanding of business and investment. So, you know, I can not only build a career and build a business, but build a deeper level of sophistication that could even extend me further, you know, as a businessman, as an investor and as a human being.

26:32The Disciplined Investor Hosts:And, you know, that's really been been my approach to everything. So, you know, it definitely was a big jump. You know, leaving the big four, it's, you know, that's a very good route to take. And, you know, many people I work with are still working there or have went on to work at, you know, other private companies. But, you know, my path was always really set on this. And it's definitely not for the faint of heart. It definitely was a huge risk that paid off. Um, but you know, if, if, if you want a larger payoff, you, I do believe you have to take a certain level of risk. So luckily, you know, I, I guess that you could say I had the appetite for it to a certain degree and I was dead set on it from a very, very early part of my life.

27:22Patrick Camuso:And it's paid off for you nicely. I mean, not all risks do pay off, but that I think is a really smart route. It's interesting because, you know, you talk about this whole idea of a, um, a profession, not only profession, education that can get you to, because that's what you're talking about, right? You're not, you aren't talking necessarily about a profession. You're talking about an education that could bring you closer to business dealings and understanding the business world and understanding investments and opportunities. And in effect, I'm going to read through this for you and tell me if I'm way off on this, but in effect, allow you to understand and then make good choices in what that was, whether it was just investment or whether it was maybe a business or maybe some other type of bigger investment, right?

28:07Patrick Camuso:Is that the whole point?

28:09The Disciplined Investor Hosts:Absolutely. You know, yeah, I started as, you know, a young man from, you know, modest beginnings from, you know, a small town in the Poconos in Pennsylvania and pursuing this route of accounting and becoming a CPA put me in Deloitte, working for, you know, some of the largest investment managers in the world on Wall Street. It led to me having this motivation and drive to learn about all the financial systems, which led me to learning about precious metals, which basically led me to learning about Bitcoin in the early days. And it's kind of just defined the whole trajectory of my career and more or less the path that I took in my life.

28:51The Disciplined Investor Hosts:But it really started with this principle of if I'm starting from square zero, how am I going to gain mastery from a business and investment perspective while building a career and becoming a professional?

29:04Patrick Camuso:So here's an important question. This could be the most important question of all the different podcasts we've done together and one today. How far were you from beautiful Mount Airy Lodge?

29:14The Disciplined Investor Hosts:Oh, not far at all. Not far at all.

29:18Patrick Camuso:Did you ever go there? I've been there. As a matter of fact, I saw Julio Iglesias perform at the beautiful, beautiful Mount Derry Lodge in the Poconos.

29:30The Disciplined Investor Hosts:No, I actually, I've personally never been there, but I do know exactly where it is, yeah.

29:35Patrick Camuso:Yeah, that's a great place. So from New York, we would go down there. We'd go to the Poconos, right? We'd go to all these different areas here. We'd definitely go there. We'd definitely go to all the different hotels that were in the Poconos. There was a lot of good ones.

29:47The Disciplined Investor Hosts:It's a good little place to get up to in the mountains from the city.

29:49Patrick Camuso:Yep. So when it comes to crypto taxation regulation, so we've talked about this and there's been a progression and there's been more of a progression. So I want to hear the latest and greatest. How has the IRS been the – how has their approach to the crypto taxation discussion over the last few years and particularly more recently, how much has it changed? And what should investors do to prepare?

30:25The Disciplined Investor Hosts:Well, firstly, I would say it's changed significantly this year. And, you know, this upcoming tax season are going to be huge from, you know, a compliance and enforcement standpoint. But really, it's just the next stage of, you know, of maturity of what we've been seeing the IRS do with digital assets for the better part of a decade. And what I'm referencing is they are collecting tons of information on taxpayers' transactions. And, you know, that's taken many forms historically via John Doe audits, international data sharing agreements, and other methods that are still used. And as a result of that, you know, even this week, my firm has gotten dozens of inquiries from people that are receiving tax notices from the IRS where they've collected information and, you know, they know they have transactions.

31:24The Disciplined Investor Hosts:It gets cross-referenced with their tax returns and they get a tax notice that basically says more or less in like layman terms, you know, we know you don't have crypto. we know that we believe you may have not claimed all of your transactions related to cryptocurrency. So, you know, there's tons of people getting those now. And then what we're going to see is this tax season for this year, the 1099 DAs are going to come out, which is a new tax form. It's kind of like a 1099 B for your broker set, you would get almost for securities, but it's the DA stands for digital assets. And this is going to be coming out for all centralized exchanges.

32:06Patrick Camuso:Is it, let me just ask, is that going to be for holdings or for transactions? Like the B for 1099. Yeah. For 1090 B is transaction based for let's say dividends or there's an INT for interest, but B is for transactions. It gives you the buy cells and nets and all that. Whereas some, some like there's some IRS forms that come out that just give you, I guess not a 10, 10, 9, 10, 9 is that give you the net. So, so they're going to then just for transaction, if you do not transact, I assume you're not going to get.

32:38The Disciplined Investor Hosts:No, if you're not transacting, I don't, I don't, I don't anticipate people getting, but this is going to get, you know, going back to what we were saying with the, with earlier, with the non-compliance. There is, according to the IRS, 75 % non-compliance rate. That's publicly on their website. It's based off of all this data collection you've already done. And I see it firsthand at my firm. When we're doing the crypto accounting for a new client, it is the norm that we have to go back several years to reconstruct their cost basis and their accounting records. It's not uncommon to go back five to 10 years for a new client.

33:25The Disciplined Investor Hosts:So, you know, there's tons of people that basically, you know, another way to say it is they haven't done their crypto accounting since 2016, 2017, 2018, and they have to get it all caught up to get their basis accurate. So I'm seeing it firsthand. So there's this huge noncompliance rate, and now these 1099 DAs are going to come out for every person that has transactions on these centralized exchanges. So what I expect, first of all, is a lot of the people that are noncompliant are going to get ensnared in this just from just not filing and having matching errors due to that. The other issue is going to be people that even are filing may have matching issues if they don't file correctly and reconcile these 1099 DAs with their tax returns.

34:09Patrick Camuso:Or more important, or also if they transferred in from one firm to another, when you talk about non-matching, let me bring up the similar or the same thing but differently said, is that the basis would never record it properly. So now they're going to get –

34:21The Disciplined Investor Hosts:Yeah, so the basis is a whole other issue with the 1099 DAs. In fact, this year they're not even required to report the basis. They're only going to be reporting proceeds, believe it or not. Wow. And it's going to be –

34:33Patrick Camuso:That's even more of a nightmare.

34:35The Disciplined Investor Hosts:Yes, it is. And then it's going to become more of a nightmare when they have to actually share all this cost basis information and the taxpayer is still going to have to report some of it to the exchanges because some of it held in non-custodial wallets. So it is going to be, you know, a minefield for people this year when they're navigating this. And if you're not doing proper, not only proper accounting, but then proper reconciliation with the third party reporting, and then, you know, reporting that all appropriately on your return, you're going to have compliance issues. and you know again i bring it back to the 75 non-compliance rate like there's going to be tons of people that need to get this and then realize they need to go and update five ten years of their returns before they even can reconcile against the what if you what if you're not at

35:20Patrick Camuso:a custodian you're not at a uh online we'll call it crypto you know that's really interesting

35:27The Disciplined Investor Hosts:because this is a whole nother you know big debate and um point of contention and you know of political football to a certain degree as well. The broker regulations that require these 1099 DAs to be reported, they were proposed last summer. And at that time, it was to include non-custodial wallets and all these DeFi protocols like a Uniswap, for instance. And in the final broker regs, it actually made it through and they were going to be included. And then through a congressional action, they repealed it out of the final broker regs, the DeFi rules. So they repealed what?

36:17Patrick Camuso:They repealed the non-brokerage?

36:19The Disciplined Investor Hosts:They repealed that non-custodial. So that's just dumb.

36:25Patrick Camuso:That's not consistent. That's not consistent. That seems like somebody decided that it's a workaround and they can hold it in a cold wallet somehow, somewhere off line, if you will, and get away with something because otherwise it makes no sense.

36:46The Disciplined Investor Hosts:Well, regardless of what side of it you're on, like the bottom line is it was included and they pulled it back last minute through this congressional action. Why would they do that? I'm asking you something. Why would they do that? um because on on the on the crypto side they they they don't want to have to report all the wallets and kyc all the wallets they don't they don't want to disclose that information and of course on the regulatory side they they they want it disclosed so there was huge pushback within the industry and then um basically you know the our our industry lobbied the the trump administration pretty hard and, you know, he got in and it got repealed.

37:27The Disciplined Investor Hosts:So, you know, whenever these administrations do change in the future, you can start to see that come back.

37:33Patrick Camuso:All I'm saying is, let me just restate my point. The only reason that would be repealed if, in fact, there was a movement to make sure that transactions and cryptocurrency was taxed properly, the only reason why it would be repealed is people realize they can hide money that way from the aspect of taxation. because there's no reason why one holding place versus another holding place is not includable in these requirements. That's my take.

38:04The Disciplined Investor Hosts:Yeah. I mean, the argument from the crypto industry would be, like, they don't believe they have to disclose a non-custodial wallet that's decentralized, that has no brokers, and they don't believe, like, you know, a decentralized protocol like Uniswap that is running without really a centralized control that it should have to report.

38:26Patrick Camuso:Let me just restate the overriding discussion is that worldwide income, if you are a US citizen, is taxable, period, end of sentence.

38:33The Disciplined Investor Hosts:Oh, well, absolutely. I mean, when we're doing someone's crypto accounting, we don't just do the exchanges. You have to include the wallets. And what happens is if someone does get into this idea of selective reporting, it's going to work to their disadvantage, either in the current tax year or a future tax year because you'll have tax basis gaps so really you know once you get once you start having to report some things you have to report everything regardless of if there's third parties reporting on it and it's it's you know i've preached for years that it is an insane idea you know on the blockchain to commit tax fraud because it is an immutable public ledger and there's no sexual limitations when it comes to tax fraud.

39:14The Disciplined Investor Hosts:And, you know, you do have to report your non-custodial wallets. And to people that may, you know, if you're transacting on a centralized exchange, they see your withdrawals to the wallet addresses. So this information is out there. And, you know, there's tons of tools, chain analysis tools to tie identities to people's wallet addresses. So it's not advisable. You know, earlier this year, well, it started last year with the indictment, but earlier this year, we saw the first person actually go to jail for a pure crypto tax evasion case. Richard Algern III, who underreported, I think, three or four years of returns related to cryptocurrency was maybe like four or five million.

40:05The Disciplined Investor Hosts:and um you know he had he he pled out to like two two or three years in prison i believe um and um the ir he had to turn his private keys over to the irs with all this bitcoin on it and it's reported to be like 120 million dollars worth of worth of bitcoin um so you know he's the first kind of like high profile case that was in the headlines related to this there's another pending case where someone else was charged named waylon wilcox who's an nft trader who's facing several counts of filing false tax returns or, yeah, filing false tax returns. So, you know, there's these, there's, it's, if you're going to commit tax forward, you know, this information sitting out there on the blockchain in perpetuity.

40:52The Disciplined Investor Hosts:So it's not advisable. But yeah, I mean, you know, I see what you're saying, but overall, there's huge industry pushback from the wallet perspective. Of course, that's what I'm saying. Of course there is. Yeah, but ultimately it's going to get –

41:08Patrick Camuso:Of course it's going to catch up to them eventually. Right now it's just we'll see what we can get away with and how far it can go. But if there is a standardization of the tax code with regard to crypto, it's going to have to cover all crypto all places for U.S. citizens I'm talking about, right? That's what I'm talking about. Let me skip over to – can we just skip over to Web 3.0 and strategies and DAOs and I don't know where to begin with this. But you have a business that is potentially, I guess, taking cryptocurrency as a form of payment. And there's issues with regard to possibly, if you think about Web3, because, well, okay.

41:50Patrick Camuso:So you have a standalone shop here in beautiful Mount Airy Lodge decides to take Bitcoin, okay? And, okay, fine. That's, you know, in a state, in the United States, blah, blah, blah. But now we talk about a web business, right? A Web 3.0 business maybe or web. It doesn't really matter, right? And they start taking in through platform or just payment in terms of cryptocurrency. And there could be some multi-jurisdictional compliance issues on that, right?

42:26The Disciplined Investor Hosts:Oh, absolutely. Absolutely. Absolutely. You know, one of what there's a big trend, there's a few big trends right now. One of them is, you know, stable coin adoption and companies like PayPal and Square and others adopting blockchain rails to enable people accepting stable coins and other cryptocurrencies for payment. When you start doing that, you're going to have just the traditional tax considerations and accounting considerations that are going to get more complicated. But on top of that, you have sales tax and tax considerations. And it's one of the most widely overlooked things industry-wide.

43:06I'm one of really the only people discussing this topic of on-chain sales taxes.

43:11The Disciplined Investor Hosts:It's something that is going to become a bigger issue in years to come. But obviously, you know, the focus right now is on the federal level. But I actually wrote a book on this topic related to on-chain sales taxes and NFT sales taxes, because I think it's going to be a huge issue. Because, you know, we were just talking about the noncompliance related to just regular income taxes. And this is even going to be a larger issue as we start to see these payment rails and more transactions from a commerce perspective start to proliferate. You know, when we saw the Internet and e-commerce really start to grow 10, 15, 20 years ago, whatever it was, then people weren't collecting sales taxes back then outside of their home state.

44:05The Disciplined Investor Hosts:And there was a court case called the Wayfair court case. And that required, you know, people to collect sales tax across state lines. Like when you go on an e-commerce site now, you know, you type in your address and they calculate sales taxes. So we're going to see that.

44:20Patrick Camuso:Because there's a long, long time. For a long time, we didn't have to pay taxes.

44:23The Disciplined Investor Hosts:Exactly. Exactly. And, you know, it's kind of now the new frontier is on chain. And people are not paying sales taxes on chain. The level of noncompliance. There's over 31 states.

44:36Patrick Camuso:Again, that doesn't make any sense to me. It just, it. Well, first of all, you have to know what sales tax you're paying. That's an issue. I would assume it's do home state.

44:44The Disciplined Investor Hosts:It's a huge challenge for people to comply. There's over 31 states right now that tax digital products and goods and NFTs and other types of transactions that are happening on chain likely fit into these definitions. We've seen several states actually give guidance related to NFTs. Washington's interim guidance came out years ago. It's the most detailed, but several other states, Pennsylvania being one of them, they've included NFTs in their definition, taxable digital products and goods. So it's another huge area of tax exposure for the industry.

45:22Patrick Camuso:You know what I find really funny in the industry? You know, you tell me how difficult it is and who knows what it is. Everybody knows you sell something, generally speaking, a product of some sort, you pay tax. services to a degree, depending on what the services are, you're made to pay a tax, right? That's kind of generally common knowledge, isn't it?

45:41The Disciplined Investor Hosts:Oh yeah, definitely. Okay.

45:43Patrick Camuso:And you got some of the smartest people in this industry and you're telling me that it's a challenge. Means while they create a currency out of thin air, okay? And they put this on this blockchain thing, which is this immutable ledger, blah, blah, blah, blah, blah, this whole thing, right? And they go on and on and they have almost religious ceremonies about the importance and how great this is and you're telling me they can't figure out what state gets the money when the transaction comes through

46:08The Disciplined Investor Hosts:it just makes no sense to me i've been i've been preaching the the the this this issue for years the sales tax they don't want to pay it they don't want to do it that's the bottom line

46:18Patrick Camuso:but you know if they have this they create this technology that's unbelievable where you put on glasses and you're immersed in a vr thing and there's money coming in from roblox bucks or whatever, whatever, you know, I'm not blaming them, but you know, that kind of thing, or, and you're telling me they can't figure out the taxes payable to a state upon sale. Seriously. Come on. It seems a little bit far-fetched to me.

46:41The Disciplined Investor Hosts:I agree with you in the sense that, you know, if the industry wants to, wants to reach the next stage of maturity, these, these issues have to get to get a bit,

46:49Patrick Camuso:put their big boy pants on and be a business, not this other thing to try to play with. By the way, you mentioned the, the next frontier, I want to mention that you have, to everybody out there, that you have something called the Financial Frontier Podcast, starring Pat Camuso. And you had recently, back in June, you talked about stable coins and the future of finance. And in July, you talked about, you had the guest on Umar from the Account and Quits. You talked about mastering the fundamentals of Web3 accounting and talked about subledger setups and compliance. And in August, You had an episode titled, very long episode title, by the way.

47:26Patrick Camuso:I try to keep it to three words. You don't seem to care about this. Navigating Crypto Taxes for Investors and Professionals. With Sheehan, which, by the way, has a long last name. I'm going to try. Chandra Sekhara from CoinTracker. And you talked about IRS enforcement tax strategies, audit proof systems, et cetera. So cool stuff. The Financial Frontier Podcast.

47:47The Disciplined Investor Hosts:Yeah, I appreciate that. And we have some very interesting episodes coming out. One of which is with one of the former executive directors of the IRS that actually really, you know, assisted with some of the or really oversaw the digital asset broker regulations. Other episodes with people that are working with senators and lobbying efforts related to some of these crypto tax issues that we're discussing. So there are going to be some interesting episodes coming up.

48:17Patrick Camuso:So let's go backwards here to some of the other things. Or not backwards. Let's go into some of the things I want to talk about.

48:27Patrick Camuso:The stablecoins. Let's talk about stablecoins. Shall we talk about stablecoins? Because it's all the rage right now. What I find also interesting. So the oxymoron, the juxtaposition, the funny beating down on old fi, you know, grandpa fi. by, you know, these same people that are coming on the various news channels, social medias, and saying things like, you know, oh, can you imagine not being able to transact on a weekend because your bank is closed? And by the way, I don't know about you, you can send me money through Zelle. You can give me cash. There's plenty of ways for you to do things on the weekend.

49:10Patrick Camuso:And the earliest form of digital currency, by the way, I don't want to freak anybody out here, but was a credit card, which you could use at any given time that would charge your account. Now, that's not as fancy as we want to talk about with a cryptocurrency. I get it. But the idea of utilizing a transaction-based currency of some sort on anytime, anywhere, let me tell you, I can call up Moldavia any time of the night and book a hotel room and use a credit card. I'm certain of it. Would you agree with that?

49:45The Disciplined Investor Hosts:Yeah. I do think stablecoins in other countries are a way where they're able to get dollars and maybe get better, less fees. Clearly. No, no, I got that.

49:58Patrick Camuso:I'm just saying that what I want to talk about, though, was the interesting thing where I was going to bring this one more point as I got through this, the strange same people that hate Old Fi, right? That's the whole crypto believers, right? Wouldn't you agree? You know, Old Fi is like, you know, it's like. Oh, yeah. Okay. So those same people, these guys now are coming. Gemini, Winklevoss, they're coming on Old Fi with their rug pulls, with their IPOs, and they're running it up. Gemini came out. What did I say earlier? I said it came out, ran up to, what, 40-something is back. It's below its IPO price now.

50:35Patrick Camuso:You know, you look at Circle. Did great, by the way. That's a stablecoin company. I found it fascinating. A stablecoin company is coming to old five for financing. How weird is that?

50:47The Disciplined Investor Hosts:there's definitely emerging right now of um trad fi and and and the web3 world even if you go to crypto conferences this past year there's a lot more um of a professional presence i would say

51:02Patrick Camuso:so there's it's funny because they're willing to take it now they realize that it's you know they're not going to displace they may disrupt they may add on to but displacement is pretty is futile, as they would say on Star Trek. And I think that they realize there's a lot of money out there that they can have access to if they comply with the fact that, okay, we're an add-on. They don't need to be the replacement of. They could be, there's plenty of, point is there's plenty of room in the world for all of this. That's my point.

51:35The Disciplined Investor Hosts:Yeah, look, from what I see, the industry wants adoption. and if you want wider adoption particularly from you know institutions and even just you know mainstream retailers it's going to require right acceptance from regulators and that's going to require a certain level of compliance and you know taking the approach of just kind of throwing your hands up and not working with anyone just creates a vacuum that's unlikely to be to your advantage. That's kind of the way I see it. So, yeah, I mean, you know, the Bitcoin conference is almost like a political conference now to a certain degree.

52:20Patrick Camuso:As opposed to a religious one.

52:21The Disciplined Investor Hosts:Yeah, yeah. It's a way different tone in the past couple of years and not just that one, you know, many others. So it's changing and there's definitely a focus now in DC on crypto and there's, you know, the crypto industry has descended on DC and we're going to see a lot of changes and a lot of maturity and with that's going to come regulatory clarity, but, you know, more requirements for compliance.

52:53Patrick Camuso:But let's talk about stable coins because stable coins are often seen as this, I guess a bridge maybe, or some kind of connector between TradFi and crypto, newFi, DeFi, FiFi, FutureFi. So is this, I mean, well, let's back it up. The stable coins of yesterday, right? We had what, the Terra, the Luna, that was kind of these algorithmic stable coins that were promising always 15%. By the way, you're a young guy. I've been in this business It's a long time. You start hearing that 15 % number. I don't know what that magic number is, but 15 % is always the number that is like, oh crap, get me out of here.

53:35Patrick Camuso:That was the Madoff number. Madoff always made 15 % per year annual. That's what he guaranteed you. And that's what these stable coins did. And when I heard that, it kind of made my ears wiggle. Right? And they did eventually go belly up and people in jail and all that good stuff.

53:51The Disciplined Investor Hosts:And tons of people lost a lot to that.

53:54Patrick Camuso:So the stable coins of today are usually what? Non-interest bearing, just currency, or some may have interest to a bit. But generally speaking, they're used as currency. That's the point, right? Yeah.

54:08The Disciplined Investor Hosts:I mean, you know, you have to look at each individual one. And quite frankly, there's more that are coming up every day.

54:16Patrick Camuso:But do we need all these? Can't we just have a couple? What do we need all of them for? If it's a stablecoin, it's supposed to be a stablecoin. It's different than all these other deals where the project-based or it could be built upon or whatever, right? I get all those other ones that Chamath Palihapitiya put on the backs of napkins as the best deal ever or whatever, right? Or Doge. I get the meme coins and all that. But why do we need so many stablecoins?

54:48The Disciplined Investor Hosts:um you know i think it's not why do we need so many stable coins it's more that you know any major player in the space is gonna want to control the rails the payment rails and you know get the fees the data and um the the leverage that comes with it and based off of the market positioning of different different groups in the space um that may control liquidity for instance or um have some sort of regulatory arbitrage or even you know potentially countries that have like geopolitical power they're they're in a position to where they can potentially you know launch launch something and and benefit from that so um i think that's kind of like why why you see so many.

55:44The Disciplined Investor Hosts:And then, you know, that's also why people are using different ones too.

55:52Patrick Camuso:So I guess what's going to end up happening like it usually happens is something's going to rise to the top and the rest of the stuff is maybe gone. It may not be like an investment gone, like it's done, but it's just, you know, not used very much. Because essentially if you want to have a stable coin that is really a stable coin, which is a world currency. Because that's what you want of a stable coin, don't you? Don't you want a world stable, a world currency that can be easily transacted? It's very little friction. It's low cost. It's available wherever, right? Like, you know, that's why you have all these other payment plans.

56:28Patrick Camuso:You have TransferWise, you have PayPal, you have Block, you have this, whatever, Square. You know, all these different Visa, MasterCard, US dollars, Wires, Swift. You have all these different possible payment methodologies. The whole point, I would seem, if I was to be the god of stable coins, is to have one stable coin that was accepted around the world. Doesn't that seem like the way you want to do it?

56:51The Disciplined Investor Hosts:Well, I mean, you know, it comes down to the argument of, like, do you want, I guess, more decentralization, or do you just want to have one currency? because ultimately you have to, whoever's behind that stable coin, you know, has more control and leverage.

57:11Patrick Camuso:Why do we care? Do we care? I mean, again, for a stable coin, I'm not talking about other currencies, you know, cryptos that you could use. But for a stable coin, I thought the point of a stable coin was to have non, you know, In other words, you make a global stablecoin consortium that has, I don't know, continent-based, let's call it, okay, for lack of a better discussion, Pat. And, you know, you have a voting party that, I don't know, maybe there's some kind of a blockchain voting something or other that votes the committee members in. You know, you do like, instead of America's Got Talent, you know, you do stablecoins got talent.

57:55Patrick Camuso:and you vote them in to that position for what they do, right? Or for that matter, have it as the UN. I don't know. Something like that, it seems to me. It just seems to me this whole idea of the decentralization. Is it really that important for a stablecoin at the end of the day? Well, it can't be fully centralized like one. I get that. I understand that. And it can't be one company, one country, whatever. But it seems to me that somewhere in between that may be a hybrid approach, if there's such a thing.

58:26The Disciplined Investor Hosts:Yeah, I mean, it's, you know, it's an argument that's going to continue on because there's definitely the argument to have like one centralized currency, but not everyone's going to trust that. Not everyone even trusts any of the one stable coins that are out there right now. You know, if you look at like Tether, for instance, Some people use that, some people don't. Others distrust Circle and, you know, not everyone would trust a stablecoin that's even necessarily controlled by one nation state or a group of them potentially. um so those are also probably going to pop up but will there be other other stable coins that are you know privately issued i it seems to be that way you know but i've seen and you know maybe the industry changes but you know there's tons of fragmentation at so many different levels in in this industry um you know with different blockchains with different type users the different types of transactions that are going to be taking place and, um, you know, um, different, different regulatory environments within different jurisdictions.

59:40The Disciplined Investor Hosts:All these things start to create ways where, you know, there's differentiation and people can launch.

59:46Patrick Camuso:Well, I'm sure we're going to have the whole issue.

59:47The Disciplined Investor Hosts:All that gets standardized one day, possibly. I mean, I'm sure we're going to have the same ongoing discussion from square

59:53Patrick Camuso:one of a stable coin, a cash equivalent. Is it a digital asset? Is it a, Is it that whole thing from not only a personal perspective, but also from a tax treatment? Because that's a big issue. Stablecoin, in my opinion, should be a cash transaction. If it always maintains the same value, if it doesn't change value, I have no problem with no taxes on it.

1:00:17The Disciplined Investor Hosts:Yeah, this is a mess right now. It's one of the things that I believe is a political topic when it comes to crypto taxes. It's actually something I'm talking about on my podcast soon. It's the stablecoin taxes because, yeah, they're all taxable events because stablecoins are looked at as property right now. So it's a huge tax issue. It's also a huge accounting issue in terms of like, you know, how should stablecoins be presented on the balance sheet, whether it's as intangible or as cash. So, yeah, you know, the tax issue just creates just reporting requirements that shouldn't really have to exist, I would say.

1:00:57Of course, if you're disposing of Bitcoin for a stable coin, you should have to claim the Bitcoin disposition.

1:01:03The Disciplined Investor Hosts:But there's a reason that if you're selling USDC, that's a stable coin that's going to be within 99 cents for a dollar that we need to go and and place an administrative burden both on the taxpayers and the IRS to have to process all these transactions of people's stable coins. So I think that's something that has to change. But right now, it's a huge issue because they are just falling under the definition of property.

1:01:31Patrick Camuso:One thing I like about the stablecoin the most is that if you have it backed by, let's say, U.S. Treasuries, which again, there again is that merger between, you know, I'll call it old FI, but old FI and new FI, right? There's a very interesting point there because the stablecoin has to be backed by something. And that was the big issue with Tether for many years, right? What are they really backed by? Is it really because they couldn't figure out what was really backing on this? But when you look at the various coins out there in the stablecoin environment, they are to be backed. Now, if they are backed by treasuries, what does that mean?

1:02:05Patrick Camuso:The more people that adopt the stablecoin, the more treasuries they have to buy. That keeps the United States fully liquid or whatever particular country they use the treasuries from. But many of them are backed by U.S. treasuries.

1:02:17The Disciplined Investor Hosts:It supports the U.S.

1:02:19Patrick Camuso:dollar.

1:02:19The Disciplined Investor Hosts:I would agree with you that for sure.

1:02:21Patrick Camuso:Right. So that's, it's a benefit too, right? Yeah. Yeah, it's a benefit too. Absolutely. It's a benefit too.

1:02:26The Disciplined Investor Hosts:And that's why you're starting to see this administration, you know, is friendly to it. And we're starting to see more regulations come out related to stable coins and digital assets, because I do think it's a strategy that's getting adopted at that level.

1:02:39Patrick Camuso:What's really funny about it also is if they go against it, because there's a lot of money in stablecoins right now, and that means the exact equivalent, theoretically, the exact equivalent amount that's in stablecoins that are backed by U.S. treasuries are backed by U.S. treasuries. You follow what I'm saying? There's that much. So the load that's being used to be – can you imagine, by the way, if there wasn't stablecoin for a second holding up treasuries, we may have actually have higher rates than we have now. There could be an artificially lower rate right now due to the fact that we have all this money in treasuries in stablecoins than if they weren't five years ago, let's say.

1:03:15The Disciplined Investor Hosts:It's like a pressure release valve almost.

1:03:17Patrick Camuso:Yeah. Or a guaranteed buyer. Exactly. A guaranteed buyer, which used to be – which is a good reason for the administration to actually like them if they don't do any of the algorithmic or the leveraged type of work on it. Because leverage – that would screw –

1:03:33The Disciplined Investor Hosts:Exactly. Exactly. And that's why stable coins are such a big idea because it's really, you know, this first case of where, you know, the industry has created a product that is able to like interface and fit in with the traditional financial system, more or less. Yep. And it's, you're seeing the impact of it. You're just starting to really.

1:03:57Patrick Camuso:Yep. Well, we gave everybody where to find you in terms of your podcast and how to get to that. and we're going to put information about who you are, where you are, how to get you on the episode show notes on the disciplined investor.com episode number nine 39. What episode number you on?

1:04:16The Disciplined Investor Hosts:Let's see. Sheesh, man.

1:04:18Patrick Camuso:Not that.

1:04:19The Disciplined Investor Hosts:Um, I don't know if I, I don't, I don't keep, I don't count every single one of them like that. Maybe, I mean, I don't even think probably around 50 or so episodes. You'll get there once you get to be my age.

1:04:31Patrick Camuso:nowhere close to that. I respect that number. That's great. Thanks for joining me, Pat Cavusa. We'll have you on again soon. Anything that's late breaking, I need to know, get it over to me. We'll get it on here. All right.

1:04:41The Disciplined Investor Hosts:Absolutely. I appreciate it.

1:04:42Patrick Camuso:Thanks. That's going to wrap it up for this episode of the disciplined investor podcast. Make sure to listen to DH and plug with myself and John C. Dvorak. Well, we talk about the hardcore news and what it really means to every one of us. I also have a great guest coming up on the disciplined investor podcast. Andrew Wilkinson's next week. We've got Robbie miles. We've got Tom Nelson. and it just goes on and on the list when we look at all the great people that'll be here. You know, looking at Howard Lindzen, Vitaly Kassanelson, just a great list. Anyway, thanks for joining me this week and every week go to thedisciplineinvestor.com and check out all that there is to offer you over there.

1:05:18Patrick Camuso:Thank you so much. I'll see you again real soon.

1:05:28Patrick Camuso:This podcast is intended for informational purposes only and does not constitute personalized investment advice. Investing involves risk, including the possible loss of principal 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. Securities and Exchange Commission. Registration with the SEC does not imply a certain level of training or skill. Advisory services are only offered to a client or prospective clients where Horowitz and Company is properly registered or is excluded from registration requirements.

1:06:06Patrick Camuso:Any mention of third-party companies, products, or services is provided for informational purposes only and does not constitute an endorsement. Hypothetical scenarios or forward-looking statements are for illustrative purposes and should not be viewed as guarantees. Content is intended for U.S. residents only and may not be applicable in other jurisdictions. Listeners should consult a qualified financial advisor before making any investment decisions. Please visit our website for additional information, disclosures, as well as a copy of our form CRS. Advertisements are not related to the host or affiliates and are not considered recommendations by the host of the show or any affiliates of Horowitz and Company.

1:06:50We'll be right back.