BTC246: The Future of Insurance using Bitcoin w/ Becca Rubenfeld & Rob Hamilton (Bitcoin Podcast)

23:57It becomes and it acts like a pure self-custody multi-sig. And you're able to control that even without us. So if you tried to log in one day the website is gone, your anchor watch is gone, as long as you still have your signing devices and the output descriptor, which we make sure you do, you would be able to use either Bitcoin Core or Rob has built a recovery wallet that he can speak to. But that long and short of it, it becomes self-custody. It is self-custody. And so you need to hold those private keys. That recovery layer, and just to then go back to the inheritance thing, That recovery layer, that multi-institutional recovery layer, one I want to call out that is while you are insured.

24:39Because a lot of Bitcoiners rightfully question any custody model where they are not in control. And transparently here in this layer, you can see that the recovery layer is multi-institutional. So it's AnchorWatch and our recovery partner. And it's there for a reason, right? It's there to enable inheritance. It's there to protect you if you got your keys stolen or lost for any reason. but it is also insured. So very specifically in our insurance contract, it says that if Anchor Watch misuses that layer, if we use that layer to effectively abscond with the customer funds, that's covered by insurance.

25:15And so you're either protected by the tech or you're protected by the insurance where the tech kind of itself can't protect you. And what we think we've put together is this holistic solution where you're really protected, not just from like one point of failure, but for many points of failure on the inheritance thing, like, let's go back to it. Cause I think like the way you reacted, it's the way we hear everybody react to, which is like, wait, so the treasure map that my wife is supposed to follow and like the scavenger hunt that I put her on that I'm just sweetie. I hope, hope this makes sense.

25:49Right. Like that's gone. That's gone. Yeah. What I say is that the only thing that I hope that I would really prefer is that she knows that you're a customer because then she would know to reach out to us. Even if she doesn't know you're a customer, we would still be able to recover the assets because we will collect from you. Let's just use you as an example. We would collect your primary beneficiary and contact information and the secondary beneficiary. And when we're getting to the end of the year where we're like, hey, Preston, it's time to renew your insurance contract. We want to turn over the time locks.

26:23let's get together. We don't hear from you. So then we start emailing more. We're trying to get in touch with you. We're not hearing back from you. Your policy then lapses. It goes to self-custody, which is okay. And we'd be sending out notes being like, Preston, it's okay if you don't want to continue with AnchorWatch, but just keep in mind next week, your vault is going to be to your self-custody. We want to make sure you have your keys in a safe location. Best of luck. But like just one last warning, right? That you're going into self-custody. Three months and 90 days after your policy has ended, if we didn't ever hear from you, we will actually start looking for your beneficiary.

26:59So we will be reaching out to her. We never take ownership. Like we never claim that because we haven't found her yet that it's ours. And we're looking for your beneficiary, your secondary beneficiary, and eventually your estate with probate. And we're looking for the rightful owner. And when we find that rightful owner, the Bitcoin will be returned. And we would help them if she wanted to continue hodling and wanted to be our customer, we would educate her, we'd get her set up on a brand new vault, we would take that on, no additional fees for that, no additional recovery fee if we do end up helping somebody after passing away.

27:34That's all just a service for being our customers. If she needs to liquidate it to deal with family things, we would just assist. And so what we like to say is that you're protected from the rent tax, you've got the insurance from all these different failures, but man, inheritance is scary. And that treasure map is scary. And we have just removed that fear, that confusion, that trust. I give the story of before our platform was built, doing my own treasure map, right? And I tell the story that I think I did a good job. It was clear. And I went through with my son and other family members and said, okay, all you have to do is start in this one location.

28:14If you start here, you'll be fine. It's all written out. It's very clear. It's got helpers. Just can you start in this one location? Yes, absolutely. About four to six months later, I checked in with all the different people, three different sets of family. None of them knew what I was talking about. i'm not i'm not surprised three i was able to like yeah get him there but it was very troubling and so i think i that it was always top of mind when we were designing the inheritance protocol i think everybody has the same family dynamic for a bitcoiner yeah yeah yeah rob has been helping like people have reached out to rob and i mean rob if you want to breathe yeah i mean people get to this place in Bitcoin where you're the Bitcoin guy.

29:00And so I've had to deal with grieving widows, parents of kids, and it's not a place you really want to be in. And so independent of what we're talking about with our product, just make sure you have an understanding and you've actually tested your backups and your recovery process. You could have it just be like, pretend you don't exist and tell your loved ones to make sure that they can access your Bitcoin. These are just things that are just part of your ongoing hygiene. I like what we've built as a way to kind of clean that up and make it very, have a trusted person who's able to step in and help you out.

29:31But independent of however you choose to hold your Bitcoin, I think it's an important factor. Something that I think is really important for a listener of this, especially somebody who isn't self-custiding their coins, and maybe they're just having Ibit in their stock ticker. Sure. They're listening to us talk about all of this. And I imagine what they're thinking in their head, And this is probably a lot of the people in our audience. They're thinking, why would I go through all this? Why wouldn't I just own IBIT? And I guess my answer for the person is, I suspect, and I think you guys both agree, that there's tremendous value, especially in the coming 10 years, for people that actually have control and custody of their coin.

30:13As an example, we have the director of Fannie Mae, Freddie Mac, that just came out recently and is saying that your creditworthiness for a loan can be actually tied to your Bitcoin holdings. And so if you actually have control of the Bitcoin and you're willing to put it on deposit at an institution, you can now use this as collateral to go out and get a loan or going and buying a house. If you've got$100 ,000 of an IBIT ETF or whatever, that may not be the same setup or same scenario. The fact that you actually hold the keys comes with, I mean, it's just, this is just human nature, folks. Like if there's something hard to do, usually there's a reward associated with that hard thing that you're doing, which is custody of your own coins.

31:02So for you guys, as you're looking at this, help people wrap their head around some of the, maybe get into the story that just happened with the family, Freddie May, and just kind of like how you see a lot of this kind of transpiring in the future and why self-custody is so important. Well, I think what we're seeing a lot of this year in particular, in 2025 in particular, is actually bringing Bitcoin up to match. So before there were actually some pretty, not from a Bitcoin perspective, but it's like a TradFi normie perspective. There were some downsides to self custody. You couldn't borrow against it.

31:37It wasn't to what you're talking about. It wasn't considered part of your assets when you were trying to buy property. There were all these kind of limitations to self-custody. There were positives too, right? Like that we'll talk about, but all those limitations this year are being removed. There's plenty of ways you can borrow against your Bitcoin, right? There's lots of providers coming on. And then most recently, this FHFA guidance from Fannie and Freddie, what it's saying is that now if you own Bitcoin, unlike a month ago, the bank is allowed to take your ownership of Bitcoin into account when they determine if you are eligible for a mortgage.

32:18So it's not going so far as saying they will accept Bitcoin as collateral for a mortgage. I think there are providers. There's a couple of providers in the Bitcoin space starting to look into that. But the guidance is saying, look, bank officer guy assessing this particular risk. You are allowed to look at that. And I think that is a huge, huge bullish indicator. I think it's huge. Bitcoiners have a really hard time getting mortgages if their net worth is in Bitcoin. And so just to say, look, you can at least take my income into account and then yeah, take my Bitcoin holdings into account and give me credit for that.

32:57On the limitation side or why I think it's a great first step, but we got to keep really educating the regulators. And I think Anchor Watch is in the right direction here, is the current guidance that was in Hulti's letter to bank officers, it specifically words the guidance as you can use the Bitcoin in your assessment if it's held at a regulated exchange. So that was the specific words used. And I tend to think that that is more just a particular wording. And we as an industry have the opportunity to educate them because why would they do that? They would say like, what the spirits of what we're trying to get at for the bank's purposes is what we're trying to get at is assuring the bank that if they claim to have this Bitcoin, it's real, it's somewhere, it can be verified.

33:49And so I would just say like, okay, that's, that's actually a start. Yeah. The bank should be right. Well, Rob, let me, let me just say this from a risk standpoint, your model is way less riskier because it's not funds on the exchange. This was actually what I was exactly on that point, the risks. Hold us back to the insurance because we've been going into the tech side of this. The reason I've been self-custodying Bitcoin for over a decade, the reason why I do is this understanding of managing my own risk, right? And that the reason why I wouldn't want to hold an Ibit versus spot Bitcoin, personally, it has like, for me, it ultimately comes down to understanding and in control of my own assets and risk management around that.

34:32To tie this into the insurance and the risk piece, the ETFs largely use Coinbase. A lot of the treasury companies use Coinbase. There's maybe three, four players out there of where these funds are currently sitting today. And for me, I view this as an aggregation of risk. And the insurance coverage that exists at these players is fractions of a penny on the dollar. I think it's public that Coinbase has somewhere like three to$350 million of cover for their assets. One, they have like tens of billions, hundreds of billions. I think it's like an asset. I think it was a number back of like 300 billion between Bitcoin and all of the long tail crypto assets,$400 billion.

35:10So you're talking like a fraction of a percent of coverage. You don't know as an individual retail customer, if people have seniority in the debt claims, typically larger account holders get seniority in debt claims in the event that you're an unsecured creditor and something goes wrong. So you're at the back of the line. You're not named in the insurance policy directly. what we did with the bundling of this tech of securing your coins and tying them to your insurance policy gives you that full risk transfer. Risk transfer and buying and selling insurance is a whole segment of risk management that has been entirely non-existent when it comes into the market for Bitcoin today.

35:43What we've had is risk distribution. You could have a multi-sig, all of your eggs are in one basket, but actual the financial contract of risk transferring has been non-existent. And so on that insurance side, and even taking it, we've been talking about the individual with inheritance. I view this as just like corporate governance and control. Why would you not want to have your money secured somewhere where maybe you have a trusted person who's able to step in kind of in a role that we're sitting in, but also know that baseline, that money can't move unless you explicitly authorize it cryptographically, right?

36:14And I think that's like kind of the big leap of what we've built out here. We can have multiple users, right? You can have your CFO and your CLO and your CEO all have different accounts, each holding keys, being able to abstract this out. And if your business is managing Bitcoin, I think fundamentally the biggest risk of these treasury companies in aggregate is something were to happen to the coins being cut. Absolutely. Absolutely. That has to be the foundational risk. There's disclosure in the bottom of every ETF that says, by the way, this is uninsured. If the actual Bitcoin that underpins the ETF is compromised, the ETF becomes...

36:55What I'll say actually, for those that are more interested in holding ETFs, I always throw this out as an interesting consideration, fidelity, self-custodies. So if you're actually thinking through a risk distribution lens and you want to hold Bitcoin ETFs, have exposure to FBTC because they're at least not correlated with this entire segment of risk. And this is something in insurance and in gambling, I used to play poker, this concept of risk of ruin. You never want to be in a position where one assumption falls apart and it has this larger cascading effect of like, irreparable loss, that is what we're mitigating around.

37:28These different keys, these different setups, you having a named policy, being able to have this comprehensive set of coverage. I think this is just an obvious step as the ecosystem and capital formation matures. With all of these treasury companies I've talked about, it's almost like the initial capitalization of Bitcoin banks. I just view it as you have these corporate entities that are accumulating massive amounts of Bitcoin, and it's going to get to a place of maturation where They're going to want to do things with that Bitcoin eventually. As the arbitrage opportunity closes and they now have a large Bitcoin position, they're going to want to do other things.

38:00You're going to want, I think, foundational to all of these is the custody of the asset itself. Your entire asset of what your company is worth is sitting somewhere else. It's like if I was Apple and all of my proprietary tech in my asset was sitting in Amazon somewhere else. Yeah. Yeah. Right. It's sitting somewhere else, right? And you're at the mercy of them. And I think that's just viewing Bitcoin. and this is kind of like the evolution of the ecosystem. Bitcoin has been viewed up to this point largely as a software technology play. And that's why people charge it like a SaaS model where you walk in the door.

38:31It's a SaaS model, but we charge you based off bips of like how much the money is worth, even though like at a certain scale, it doesn't cost like you understand Bitcoin to be able to send one Bitcoin to it versus 10 ,000 Bitcoin to a single address. It's the same amount of security and overhead to be able to manage that. Right. So it's a great business where you get to accrete all of this right to your bottom line as a SaaS business. But if you view Bitcoin as a capital asset, the actual fix to this is a risk transfer and insurance market of Bitcoin actually being treated as such, like as a capital asset.

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42:40I'm not going to issue more paper receipts than what's in the vault. And then I'm going to do a really, really good job at making sure nobody can get the gold in the vault. That's the job of a bank. And we have under this fiat fractional reserve monster that has existed over the last hundred years, we've just gone so far away from what it is banks do, which is secure and custody and don't issue more paper on top of it. And you guys are demonstrating what banking is and why it exists because at the end of the day, the people, if you got a billion dollars, you don't want to just like secure that in your bedroom in a safe, right?

43:25Like you, that's a lot of value. You need to do something that actually has real security and safety associated with it. So. Yeah. Well, all these, let's say more advanced financial products that will be coming out that are built on top of Bitcoin. I think at least the first step or the required step is to ensure that whatever the supposed amount of Bitcoin is that's underpinning the financial products, at least we can start by saying, look, if there's paper Bitcoin being created, it's clear. And the amount of real Bitcoin that's underpinning the paper is clear. So proof of reserves, the Bitcoin is where, like, this is all provable.

44:10So you actually, there never need, in Bitcoin, there never needs to be a question about where the Bitcoin is. And so I think what we built is just something that we built with that premise from the very start, which is like the tech, the custody, like it enables lending, it enables escrow, you can use it for so many different financial products, that's fine. but at the core of it, at the base layer of it, there's X amount of Bitcoin. It's held in these locations. It's verifiable. We can do proof of assets. We can do proof of reserve. Like, truth. You know what's interesting? To your point here, Becca, one of the issues that a lot of the talking point that a lot of people have had with proof of reserves is there's no proof of liabilities.

44:55Okay. This is a really interesting dynamic with the Bitcoin treasury companies, because in order to do the sailor move, the strategy move, you have to have access to public markets. You can't do this in private market. You can't go out and get the liquidity in a private market to issue more common stock or to go out and issue more preferred stock on the day and raise capital and do this thing that they're doing. And what I find so fascinating about all of this, almost like it's intended to go in this direction, is with a publicly traded company, now the proof of liabilities is really kind of being solved for.

45:35You kind of - Right? It's really crazy. The other big four really are doing a solid on that. Yeah, the accountants are actually hoping to sell it quite a bit. I also just love the juxtaposition to crypto, where the whole critique the whole time was that you were doing unregistered fly-by-night securities. And it turns out doing a registered security and just going through traditional disclosure processes and running an honest operation and doing that is actually the capital unlock. Who would have thought that doing your audits and doing your quarterly filings and doing all these things and just running an above board business is actually the way you unlock the next tranche of institutional capital.

46:13It's massive. And it's just, it's not lost on anybody that's watching this very closely is you're looking at how much micro strategy is growing and how much they're able to compound by implementing this strategy. And you're comparing it to a traditional bank that for all intents and purposes is just fully engaged in the Ponzi scheme and of fractional reserve banking. And micro strategies eating their lunch by being not just backed one to one, but like back five to one. And you would think that that would be impossible because they're playing the game in a very fair way in which all participants in that system are winning.

46:55Whereas the other one is one team is clearly winning and everybody else on the other side is losing. And really interesting, the intersection of this too, is the convertible debt notes, which was Saylor's first move. I'm going to take my cash money by Bitcoin. On the convertible debt side, the largest buyer of the convertible debt is Allianz, the insurance company. And the reason why is that because if you are familiar, remember with the FASB accounting rules, there was a certain statutory standard on how you would do all of this gap accounting for Bitcoin. And it would be very, you would have to mark to market at the lowest price.

47:28In insurance, at a very high level, the health and strength of your insurance company is how big your surplus is. And that gives you leverage to write more and more policies, the more you have in reserve. Today, in the United States, insurance is a state-by-state regulated industry. And there is a self-directed, self-regulatory body called the National Association of Insurance Commissioners. So every state and territory sends their own insurance commissioner and there's this loose governing body. Bitcoin is an unadmitted asset, meaning if you have a billion dollars of Bitcoin on your balance sheet for your insurance company accounting, you get zero dollars and zero cents credit on it.

48:04But these convertible bonds don't fall under that. It's a registered bond of a publicly traded company. And so now you can get the Bitcoin call option in the upside and not blow up your balance sheet in the process. Yeah. So this is a massive piece of the understanding of there's so much capital sitting out there that is looking to get Bitcoin exposure and they are statutorily blocked from doing it. So you walk in and they're like, yeah, I'll take a 0 % coupon to get the call option on Bitcoin all day with a portion of my balance sheet. And it's a perfect thing too, when you think about it, insurance companies have a massive duration problem where they have liabilities that extend really far out, it's just structurally a better way to get that exposure.

48:44And the nature of how our product works is also a nice yin and yang, because let's say Preston, if you're a customer and you had an issue, that doesn't impact the rest of our book. Whereas if I'm just insuring Coinbase, the likelihood that an incident for a filed claim happens just at Coinbase, and it's only going to be for$20 million and not all of the money, is you have a high concentration and a couple of key players. Whereas for us, we're enabling that risk distribution. So you have more than just the big four or five custodians to help managing stuff. So this would be like to get exposure on both ends on the capital side and the buying and the selling of insurance.

49:16In the physical space, this would almost be like you're a bank, you're custodying customer deposits, right? But you've put a thousand different lock boxes in a thousand different places all over the world that if you go to, if you go to the front door and knock on the door to rob the bank, it's not there, right? It's all spread out because you're in cyberspace. Exactly. Right. And this is the asymmetry and what we're able to offer and why we were able to get the underwriting authority we did at a hundred million dollars is because if it was just, let's just say, it was just AnchorWatch and it was just us managing keys for other people, we'd be the same exact position as all of the incumbents.

49:53All of the risk is sitting in one spot. And to be clear, like companies like Allianz and others, they will use this market and these treasury posts to get exposure to Bitcoin. Okay. So remember, insurance companies, big ones, make money two ways. They sell insurance, right? So they make money off premiums and hopefully their profits are enough to cover their loft. And then with that pile of reserve capital, they invest it for a secondary revenue stream, which is investment return. And so what Allianz and others are saying is like, hey, okay, I'm allowed to invest a portion of my giant pile of bajillions of dollars, I'd like some exposure to Bitcoin.

50:38I can't have it because I'm impaired if I have it. But now there are these bonds. And so do I have Bitcoin? I don't. And that's too bad. But what I do have is some exposure now that I'm allowed to do. And so smart insurers, Allianz leading the way, are saying, that's a really good way to juice my my investment right now and remember the investment sorry the insurance industry there's seven trillion dollars that's how much money is sitting there and alliance has made a little a little sprinkle right yeah it's huge and that is just in today so that's something that can start happening today and then the future the flywheel that gets turned on is where then those insurance commissioners that rob mentioned in the naic say you know what just like the fha fhfa letter that we talked about a few minutes ago just like that we are advocating to those insurance commissioners to say you know what at this point in bitcoin's maturity in this asset class we're not going to say that it is an unadmitted asset and you get zero credit we'll give you 50 credit we'll give you 75 credit maybe we'll just give you credit right maybe we'll make it an admitted asset and we'll just treat it like it should be treated in its dollar value and its mark to market.

51:58When that happens, then we start denominating Bitcoin in, or sorry, denominating insurance in Bitcoin, right? And so there's, there's pros and cons actually in today's world. We're not on a Bitcoin standard. Companies are not on a Bitcoin standard for the most part. So they have to do their books in dollars. So there's, there's reasons that the dollar denominated makes sense. It makes their insurance expenses predictable in dollars, right? It gives them access to the current market, the A-rated, A-plus rated current market. They want that. They need it. Sometimes it's required. So there's reasons to do denominated in dollar policy.

52:35But Bitcoin denominated is where we're headed, we certainly believe, as an industry. And what that looks like is something a little different. That's where Allianz and the other insurers out there, they actually have Bitcoin in that pool of capital. that's what the transition is so now they have this is such a big deal this which you're talking about is such a big deal this is a big deal this is the original idea beck and i got really excited about building anchor watch we realized we had to sequentially build out steps to get there yeah and and so now they have this pool of capital a lot of it is still fiat but now there's bitcoin in it too and the bitcoin get underwrite bitcoin to nominate an insurance so instead of always having to be like, okay, well, my Bitcoin is currently worth a million and I bought a million dollars insurance, but then the price is fluctuating and I'm always having to do that.

53:23When we go to Bitcoin denominated, first of all, that's abstracted away. So now you also don't necessarily know how much your insurance bill is going to cost in fiat. So there's trade-offs, but you certainly know what your coverage is. You are maximally protected on the Bitcoin side. And now that Bitcoin and those reserve pools, that is a yield generation machine. That is a new way, an additional way to take what historically has been a relatively unproductive asset in terms of generation, right? The value went up excellently, but in terms of using as a productive asset, now we can do that with insurance.

54:01And so now an investor can say, you know what? I actually want to put my Bitcoin in that pool of capital because I understand it's not risk-free yield because I'm literally underwriting insurance risk. So it's not risk-free, but it is very predictable risk. There's a prospectus, there's historical lost information because AnchorWatch has been running this policy on the fiat side for a while. So we now have safe their custody platform is. And that's going to be a huge part for you guys long-term of people wanting to make deposits on your platform is you have the history and that's right yeah and so now wow we are raising that we have others like this is where the whole industry will head i believe yeah we raise bitcoin we say okay investors whether you're a treasury co or yeah a whale or a bank or whomever okay you've got bitcoin that you want to deploy we will take that bitcoin It's going to sit safe and sound in cold storage.

55:02It's going to serve to underwrite insurance risks. And we will deliver you a annualized return on that capital of X percent. It can be debt-based or equity-based. And ultimately, it allows them to put their Bitcoin in a productive place where we're paying them yield, but it's still relatively safe, meaning that the losses are predictable. and you're doing so not only gets you that yield, but it actually encourages continued ongoing investment into Bitcoin because it lowers the cost of lending. It lowers the cost of capital. It makes capital allocators in TradFi feel comfortable, feel safe. Okay, there's price volatility risk, but now I don't have losing the act.

55:45What's fascinating about this too, a small half step back into time-locking Bitcoin, the 5 ,000 or so Bitcoin on the Lightning Network are time-locked. Most Bitcoin isn't. you can leverage this tech and you can actually start locking up the float of supply of coins floating out there into these kinds of financial contracts and arrangements. And we could build that out where like, this is your insurance pool. We have certain tranches of being able to pay out. Maybe you have a coupon clip from a share of the premiums that gets time locked and earned to you over time. And you're starting to take coins off the market again.

56:13Like literally the coins cannot move until like these certain covenants or certain restrictions are open and available. That idea of people taking their Bitcoin to put in the vault to back up insurance policies, they're getting paid yield. All I can keep thinking is we're locking up massive amounts of Bitcoin. What in the world does this do to the underlying price? Like, holy moly. We live in a world where no one really uses time locks except for the Lightning Network right now. And if you could start thinking about this, we started with insurance because it's so foundational to the custody and the safety of it.

56:46Any financial product, a Bitcoin bond, if you want to do coupon clippings and locking up the principal over time, it's also almost like an on-chain native yield curve too. Saylor's doing it with all of his different preferred offerings on the financialization side. You can mirror that on the technical side and just start taking coins out of the circulating supply and it's very safe understood tech timelocks have been in bitcoin for over a decade it's how the lightning network works this is not i did not in my basement discover or implement timelocks this is something that's very just codified into how bitcoin operates and runs and this is kind of like what do you think that that would pay and i know this is a really far yeah here's what i'll just say for some context double digits or single digits what's that Double digits or single digits?

57:30Here's what I'll say. Okay. Here's what I'll say. We know that Bitcoin owners, investors were willing to hand over the keys to their Bitcoin to earn yield in the block buys and others of the world. They were willing to take on relatively, not relatively, very high risk trading strategies. First for 8%, and then they were willing to do it for 6%, then 4%, then 2%. So Bitcoin investors have shown an incredible risk tolerance for relatively low yield. I think this product to be a long-term viable product is something where both sides will be taken into account. On one side, we know what the market investors are willing to accept.

58:18And so we'll be looking to offer competitive rates, meaning attractive, right? And it's important to have long-term aligned investors who understand what we're doing. So, and who are going to do it for a long time, right? Because insurance needs to be very stable. So we'll be looking to offer yields that certainly work well for us. Maybe it is more affordable than fiat insurance, right? Because we maybe have to pay less for the capital than we would in fiat side. But it will be attractive. It will be attractive because we are trying to attract investors to that. There are two things I'll say. One, it's ultimately a market force, right?

59:00When everyone thinks of insurance, they're usually viewing it as the customer buying insurance for someone. There's a certain rate of cost to get the insurance. The other side of the desk, though, is I have this massive pool of capital as an insurer or reinsurer, and I need to deploy this risk into different buckets. And each of those get me different kinds of returns. Property and casualty, which is kind of like one half of the insurance bucket, but the other half being life and health insurance. So property and casualty, which is kind of the world we live in, reinsurers are earning low teens, mid teens as their average return on equity and capital for this stuff.

59:31And that's just like how that works, how it's going to work in our market. It's a new market. So who's to say, right? But it's going to be a supply and demand dynamic of what are people willing to pay for their insured custody and then balancing the supply and demand curves on both sides and finding out what that market clearing rate is. But what I find so fascinating about it is that insurance gets its leverage, not through kind of lending and borrowing, but through risk distribution. And the fact that you can get for every, you know, no insurance carrier is dollar to dollar or Bitcoin to Bitcoin back, because then the unit economics don't scale.

1:00:02But if you can prove over a long enough time period with your actuarials and your provable like loss rates, how scalable and kind of like the expected rate of returns, you're able to start modeling that out. And you can offer that in different tranches too. Like this is where the entire world of insurance comes in, where you have maybe the first dollar loss has a much higher yield because you're more likely to have some loss versus no loss. And then you actually have a whole yield curve. It's called a risk tower in insurance, right? Let's say if the losses are over a billion dollars, then my tranche of capital starts paying.

1:00:31And that has a lower yield because it's safer because up to a billion dollars, you don't have to pay out a penny. But if it's over a billion dollars, you have to start paying, right? So this is like the many layers of financialization to be kind of built out and discovered and kind of like fleshed through. But I also, at the end of the day, I view this as like structurally, this is where Bitcoin custody is going to go. And that's why I talk about these treasury companies becoming the new version of Bitcoin banks, because they will have a pool of Bitcoin, be able to underwrite this risk. They'll be safely understood.

1:01:00It's aligned for them. They want the additional income. Yeah. And the additional income stream. And also it's distributing the risk. So all of the treasury companies aren't using the same three players. And the nature of how our tech is being leveraged, you can have the best of both worlds. You can have an enterprise-level security solution that has to co-sign, but they can't abscond with the funds without you coordinating. The thing I love about it though, Rob, at the core is you are incentivizing the person who does custody the safest, right? And has the best way to actually do this thing called banking and security, right?

1:01:37That's where these treasury companies are going to want to stick the Bitcoin. They're not going to want to go stick it on some exchange that has a black box of just trust us, bro. It's safe. Yeah. We call it fiduciary flight, where when you're a fiduciary and you have responsibility for these massive amounts of wealth, where are you going to put it? Are you going to put it with the honeypot, the uninsured honeypot? Are you going to do it in the most advanced way to distribute risk backed by the additional protection layer of traditional insurance? And we think because these two options are quite comparably priced, right?

1:02:15So there's not like a massive delta right now in the marketplace between uninsured and insured custody. There's a delta, but it's not massive. And so given that, as fiduciaries become educated and being like, wait, full insurance is available and it's only BIPs more than uninsured? Yeah. How can I do that? Or how can I go with the honeypot? So, you know, we're out here, we're building our name, we're building comfort in the commercial space and getting them comfortable with us and the platform. and love opportunities to show off the security model and everything like, but it's going to be really big.

1:02:51I mean, it is going to be, while you guys were talking there in this last 15 minutes, you know, I didn't usually I wait till we're done recording to write down the title of like what the show is going to be, but like, it is so crystal clear, the future of insurance. This is the future of insurance. Good Lord. This is crazy. Yeah. And you might ask like, why not already? So why did AnchorWatch start with fiat denominated policy? So one reason is what we described about the regulators and not admitted assets. The other reason is that to have this future, there just needs to be sufficient volume, right?

1:03:30Because there are hundreds of... AnchorWatch already has been offered casually hundreds of thousands of Bitcoin to put towards this. Every company that has Bitcoin is like, yeah, that's a great story. I want to put Bitcoin into that collateral pool. In order to pay all these investors yield on their Bitcoin, the insurance has to be sold. So, right, you actually need the flywheel needs to be on. Yeah. Right. And so we're in our first year of operations. There's other insurance players trying to figure out how to enter this space. Right. And so we need to get the volume up to just support the volume of investment.

1:04:12Yeah. I would love to be like, yes, then that's all 200 ,000, but it's not going to be the hurdle yet. Yeah. I think everything that's happening from an admin policy standpoint, now that the floodgates are being turned on, this is all going to start going very quickly. It's going to be the next three to five years. Go ahead, Rob. Go ahead. Let's say what I love about this whole story is not as it just a massive capital opportunity. It's an actual alignment of actors where I can custody my fund somewhere and it's insured. like you're talking about consumer protection right like we're how it's being managed today is not it it is a live we're in the wild west days of the early formation of just bitcoin as an industry and it's gone because there was no better option and this linking of the capital markets there's a massive financialization and opportunities to make money and put bitcoin to work as a productive asset but it also just at the end of the day protects consumers so it's a very virtuous like alignment of this of this piece of insurance and just as the one piece like insurance started like underwriting ships doing spice trades all over the world it underwrote the expansion to build the united states of america like the financialization of capital markets for risk and like lloyd's one of my favorite things is when people say that insurance is fiat is one it predates fiat currency by hundreds of years and two it's the ability for you to be able to take risk in the world and being able to step forward and like take chances and not be totally destroyed if one thing goes wrong.

1:05:36It is a massive capital for capitalism. It's just a massive entire vertical and industry that I think it's a bad rep because you have state mandated health insurance and you have state mandated car insurance and all these things. But like foundationally, it's such a beautiful way for just making Bitcoin a safer asset for people to hold and have all these other positive flywheel effects too on capital formation. With all investment, all investment, right? It's a risk reward calculation that somebody is making. And when you de-risk various aspects, their appetite for investment goes up. So lower risk, more investment.

1:06:12And where you can see that already happening is Bitcoin-backed loans. Really, every loan provider is talking to us like, hey, both our liquidity providers and our borrowers, like both sides are both saying like, hey, we would feel better if the collateral is insured. Banks are saying, hey, we don't let you have a mortgage on a house unless that house is insured. We're just simply not willing to do this deal unless the collateral is insured. The same premise, what we see is that everybody wants the collateral insured on Bitcoin-backed loans. As it's insured, more lenders are willing to come in, brings down the cost of capital, right?

1:06:54Because we have eliminated a portion of the risk that we can through technology. through cryptography, through distribution of keys. We have eliminated a portion of the risk. So banks, even though you don't, maybe you're not Bitcoin experts, but you can feel confident because it's insured. You don't have to understand the Bitcoin part, but you do understand insurance. And okay, all right, all that tech stuff you just explained that I'm nodding my head like I understand blockchain, but really I understood none of it. But I do understand that at the end of the day, it's insured. Okay, that's interesting.

1:07:27And it's insured by an A plus rate. Okay. okay all right we're willing to do this right and we're seeing that today so i just i think we're going to see that but on a macro level yeah and i think the next three to five years is like when you say yeah it's the future of insurance yeah yeah let's put it let's put a notes on our calendars for three and five years from now and let's see how insurance has changed because i'll bet it's going to have changed a lot to the benefit of bitcoin all right do you guys want to hear the the stupid guard duty story. I'll make this quick. I love it. I'll make this quick.

1:08:00So this is my second year at West Point. And it was always the worst when we're out in the field. This is during the summer. This is obviously not during the school year. The summer you go out, they put you in the woods and you have to pull your guard duty. And sometimes your guard duty is like, oh, Preston, you got guard duty from 3 a.m. to 4 a.m. You got to wake up. You got to go out there. you got to sit there. And because we had weapons with us out in the field, you'd have to sit there at the arms room and make sure the weapons didn't leave the arms room. And I was, I'm tired. You're out there slugging around in the woods like all day.

1:08:35It's miserable. You haven't had a shower, just like all of it. Right. And I remember I'm sitting there and I'm guarding this guard, quiet, not a peep. And this skunk comes up. This skunk just starts walking right up there like, hey, bro, how you doing? And I'm sitting there and all I can think in my head is if that thing sprays you, you're always going to be known as the guy that got sprayed by the skunk during the summer camp while you were on guard duty. And I have never in my life stood so still, like didn't move an inch for at least the thing didn't move. It came trotting up there, sniffing around.

1:09:22He knew I was there. He was just kind of like, yeah, I see you there. Like, are you going to freak out and I'm going to spray you or are you going to sit there and just like, let me do my thing. And he went up there, he took his sweet time, just meandering around. And thank God, thank God I did not get sprayed by this thing and be known as the skunk guy or whatever. You would have absolutely. If you could have seen my heart rate, like it just went a million miles. I was like, oh my God. But anyway, that's my, that's my guard duty. That's my anchor watch. There you go. There you go. The anchor watch.

1:10:01That's right. That's right. Guys, if people want to learn more about you, more importantly, if you have somebody that's listening to this from Wall Street, or you have somebody that's working at a large institution, and they're hearing this conversation, they're like, oh my God, this is going to change all of insurance. Who is that? What's their call to action? How can they get in contact with you so we can start getting this thing going? Yeah. AnchorWatch.com. If you're interested in a policy, you can sign up for our newsletter. You can reach out to agent, A-G-E-N-T, agent at anchorwatch.com if you're interested in a policy.

1:10:34If you're on the commercial side, didn't mention it, but everything I showed and demoed is totally white labelable. So if you want to run your own custody solution and kind of go tap it in and leverage our infrastructure so you don't have to go figure out how the Bitcoin stuff works. You just want to run your own banking infrastructure. We're in conversations with multiple people right now around that. You can reach out to myself at rob at anchorwatch.com and then becca at anchorwatch.com. And the last thing I would add for that particular audience as well is we can also do custom policies and very large policies.

1:11:03Okay. So we can do billion plus Lloyds policies for a given entity. It's just going to be custom where we're going to go through underwriting and write a formal business plan for Lloyds. And we're going to advocate on their behalf to get them a policy that size. But we can also cover unique things that are not on our platform as well. We're working with multiple commercial entities to write custom policies for Bitcoin being held in different ways. And we just have to assess each one of those individually. So if you're an institutional player, what we've described today, you're like, wow, the concepts are really interesting, but it doesn't exactly fit our business model.

1:11:42Definitely just reach out to us. Hit us at Becca or Rob at anchorwatch.com, either one of us. And just let us know what you're trying to do. We'd love to chat about it. And chances are, we'll be able to help you out with anything Bitcoin insurance related. Guys, I love it. Thank you for your time to come on the show today. Becca and Rob, we'll have links in the show notes if you guys want to reach out to them. Thank you so much. Thanks for having us on. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com.

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