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Blake Oliver: [00:00:12] Hello everyone, and welcome back to Earmark. I'm Blake Oliver, joined today by Noah Buxton, founder of the network firm, co-founder and CEO of the Network firm LLP and an expert in digital assets. Noah, welcome to the show.
Noah Buxton: [00:01:39] Thanks, Blake. Thanks for having me.
Blake Oliver: [00:01:41] I got to start with the number one digital asset in the news in the world. And that is Bitcoin. The Bitcoin price today is as we record this in December 101,000 United States dollars. That is wild. Did you ever think we'd be here? No.
Noah Buxton: [00:02:01] We picked a good a good day. Yeah. To be here. Uh, this is, I guess, a little bit of a my. I told you so moment. So did I know we would be here, uh, in one way or another? Yes. It took me a while to figure that out. It took me a while to get there. I had to go down the Bitcoin rabbit hole, as people like to say. Uh, but yeah, once I sort of understood the technical mechanics, I understood the macroeconomic aspects of what, uh, Bitcoin could be. And then I thought additional adoption seems probably more likely inevitable than not. I thought, yeah, we'd we'd be here roughly.
Blake Oliver: [00:02:40] I'm so grateful to be talking to you because I have been a Bitcoin skeptic for years and years, and I still call myself that, even though I see that price, I just don't get it. So I'm hoping that maybe you can change my mind. Or if not, we can at least have a discussion about it. And I can understand more about, you know, the point of view of the Bitcoin believers and understand this price. And I, I guess I should start with, you know, my my question, my big question, which is what what is there that about Bitcoin specifically that justifies any price. Because it's not that I don't see it having value. You know, I first heard about Bitcoin when it was like a dollar. And I bought some bitcoin when it was $250. And then I sold it after I made a good amount of money on it, because I never felt like there was like I never believed any of these arguments that it was going to replace money as we know it today. Um, and so I still feel that way, even though I see the the price and yeah, you know, maybe I have a little bit of FOMO about not holding until this price. I just, I also feel like the price could be 100,000. It could be a thousand, it could be a dollar, it could be zero. It could be a million. I don't understand why it why it should be what it is today. Like why other than other than speculation, which is what it feels like. There is a ton of. Sure. So can you help me understand this?
Noah Buxton: [00:04:29] Yeah. I'll try. I think look, first on the skepticism point, that's not an unfair place to start. I think in the accounting world, professional skepticism is actually a really big component of what we do. Especially if you sit on the audit side, you're probably naturally inclined to be a skeptic. So I think that's a totally acceptable starting place. Uh, can I convince you today? I'm not sure I can. But when I said I went down the Bitcoin rabbit hole and I understood some of the macroeconomic aspects, um, I would, I would kind of lean there. Right. I think that that's the important part to start to grapple with where people can eventually reach maybe an aha moment. And that's basically what happened for me. So when I thought about the history of money, uh, that that really led me down a path to learning more about even what I'm even doing in this accounting space, right. It helps contextualize what we're even doing here generally. Uh, but then I started asking myself, you know, like, are seashells valuable to me? You know, uh, is gold valuable to me? Do I want gold? Do I want seashells? Do I want rice and grain? Uh, you know, these are all commodities, essentially, right? That people have used, uh, to, uh, to serve the function of money at some point in history, in our human history, and so is any one of them better than the other? Uh, that's really not the starting place.
Noah Buxton: [00:05:58] Uh, the starting place for what is something that can act as the function of money is to look at the qualities of money and to look at the purposes of money. Right. So money is all about can it be a unit of account, a medium of exchange and a store of value. So if you want to have the real conversation about bitcoin, that's where we need to start. Now you think about okay those are the functions of money. But what are the qualities of a good money. Well there's gosh I'm gonna I didn't prepare for this. So I'm on the spot. There's uh there's ten or so. Right. But there's the durability of it. There's the divisibility of it, there's the acceptability of it. Um, it goes on. Right. But basically you can start to think about all of these things like seashells, you know, uh, or.
Blake Oliver: [00:06:42] Which were in history, use as a form of currency. Exactly store of value. A way to a form of money.
Noah Buxton: [00:06:52] Exactly. Anything that's not a barter transaction, right? Needs some unit of account and some medium of exchange. Store of value. Right. We're essentially abstracting, uh, barter transactions through a currency. Now to your other point. Can this actually be a money? Can it be right? I think today what we if you look at Bitcoin you would say, actually, no, it's not necessarily a currency or a money. Right. Is it a store of value. Well certainly for people that held maybe a little bit longer than you I would say that's a store of value. Uh, is it a medium of exchange? Well, certainly you can transact in it anytime you want in a self-sovereign way across borders. And so, I mean, it's pretty good, uh, you know, way to transact. But is it widely accepted, you know, is it a way that you can sort of just like you can with a dollar bill or a credit card transaction, show up just about anywhere and buy a good or service? No. Not necessarily. Um, and is it a medium of is it a. Excuse me? A unit of account. Again, people don't account for things in Bitcoin today. So as a money it doesn't stack up. Great. And so the narrative of Brown Bitcoin has changed quite a bit over the years. Right. It used to be hey this is going to be the new the global currency right. This is going to replace money. Right. Uh and that's evolved to actually be what I think is more an honest and more honest reflection of what it is, is a digital commodity. And so is, is do you hold gold? Do you hold gold bars in your house? You know, I'm not asking you personally, right? This is sort of a rhetorical question. Right. But do we hold valuable in my.
Blake Oliver: [00:08:28] Backyard, perhaps.
Noah Buxton: [00:08:30] Yes. Or at an off site location. Right. Highly secured. And. Yeah. So, um, you know, uh, we invest in assets, right? We try and protect wealth for our families in many different ways. And people have their own perspective of how to do that, right? And Bitcoin for some people is a way to do that. It's a digital commodity that can act as a store of value.
Blake Oliver: [00:08:52] So I agree with you on that. It's a unit of account. I mean it can be it could be used that way because there is a, you know, certain number of Bitcoin. It will cap out eventually and it can be divided. Yes. Many, many, many decimal decimal points enough to be used as a unit of account. Um, it can be used as a store of value. And people are doing that. Um, although it is extremely volatile. So that makes it difficult to, you know, use as a store of value. Um, and people tend to forget like the massive drops that we have had in, in Bitcoin over the years. Um, giant plunges in the value of it. So like, I wouldn't personally, I look at that history and I don't think, well, this is a great place to save, to store my my money. But like, with.
Noah Buxton: [00:09:46] Anything, right? You're not 100% invested in Tesla stock, and you're not 100% only in cash. Right? So there's always some idea of diversification here too.
Blake Oliver: [00:09:59] And I think the one I have the biggest problem with, and this is why I ultimately decided not to invest in Bitcoin was I saw for years people promising that it would become a medium of exchange, and it clearly hasn't. And I don't feel like it will because it's very inefficient. It's a really inefficient medium of exchange, except for very large transactions. It's very expensive for small transactions, and it's very inefficient. And people have talked about like the, you know, energy usage of Bitcoin now exceeding those of entire nations. So there are alternatives for medium of exchange that are much more efficient. And there's also alternatives for it as a store of value that are much more durable, such as stablecoins that are pegged to the US dollar. Like, you're much safer storing your money in Usdc or even tether than in Bitcoin, because those are pegged to the dollar.
Noah Buxton: [00:10:59] Yeah, there's a number of things you brought up, but on that store of value point, right. Like a stablecoin, right. Is a there's a number of types of different stablecoins. But just for the quick educational point for folks that aren't well versed in this, stablecoins are an invention of crypto. And essentially they are a token that runs on a blockchain. And the fiat backed or centralized, fiat backed, uh, stablecoins essentially make their promise to stay at a dollar value by having a reserve of assets, dollars or treasuries, cash equivalents, essentially at the same number. Right? So the same count. And so they maintain a peg at a dollar. Uh, the store of value point, though, is actually, I wouldn't say that cash is a store of value, and therefore I wouldn't say an abstraction or a derivative of cash. A stablecoin is a store of value either. I mean.
Blake Oliver: [00:11:48] That's what people do with like money market funds. The safest place to put your money is in US government bonds right now. That's what the world uses for its reserves.
Noah Buxton: [00:11:59] Yes, yes. So I think it's all viewpoint dependent, right? Facts. Facts and circumstances matter for me, of course. Yes. Some of my savings is in is liquid and some of my savings is not as liquid. And so what I meant about the store of value point is really more about the interplay with inflation, essentially. Right. The purchasing power of the dollar essentially going down over time. So a stablecoin is going to effectively have lower purchasing power over time as well. Whereas the argue one of the qualities of money that I forgot to mention, which is really important for Bitcoin is the scarcity aspect. So a money to be, to serve the function of money, or let's just say, a digital commodity. Even an important point of that is scarcity. Gold has long been, you know, a store of value of in investors minds because of its scarcity. And then because of it's also relatively predictable emissions or inflation rate. Right. So the the price of gold of course has or excuse me, the supply of gold has some relatively predictable emissions or inflation in its total supply because of how much is mined. Right. How much extractive activity happens each year. And that's what Bitcoin's code sets is, is sort of a digital proxy for that. It sets this emissions or inflation rate. So Bitcoin is inflating its supply but only to a fixed cap right.
Blake Oliver: [00:13:20] And so the idea is that because it has this limited supply that there like we don't have the inflation we have with fiat currency. But at the same time you know Bitcoin is not a productive asset. And there's a famous video of, you know, Warren Buffett talking about how if he could, you know, I mean, he could he certainly has the funds to do it. He could buy a lot of Bitcoin, but he hasn't done it because he'd rather buy farmland. He'd rather buy businesses. He'd rather buy productive assets that deliver a return. And Bitcoin does not produce a return. So unless you are betting that people will continue to want to pay more than you for Bitcoin, there's no reason why it should continue to increase in value.
Noah Buxton: [00:14:14] Yeah, right. And again, I think that people should consider Bitcoin in a larger context of ways that we try and protect wealth. Right. And so it's not Bitcoin 100% and nothing else or vice versa. I don't think for anybody. Right. If Bitcoin isn't in your ideal portfolio because you don't necessarily believe, let's say, that it's a productive asset or many other things that you might believe about it. That's totally fine. But it is interesting to look and just make an analogy to our public markets, right? Our public markets have largely been thought of as a way to protect wealth. That's where the vast majority of retirement savings goes into mutual funds and into our public markets. Um, is peloton a productive company? Well, certainly they have intellectual property. Certainly they produce goods. Certainly they have subscribers and technology. They have revenue. Right. Um, is there is their price to earnings ratio make any sense? No it doesn't. Do most of the the public companies price to earnings ratios make any sense. No they don't right. And that's because the similar market dynamic that Bitcoin has we have demand coming in. Right. And only certain number of sellers. And what happens the price goes up. So I think that the public markets sort of you exhibit a lot of the same dynamics that a digital commodity market like Bitcoin. Right. Exhibits to that's that's in place in any, any security, any financialization essentially. Yeah.
Blake Oliver: [00:15:39] But that doesn't convince me that I should buy Bitcoin. It just convinces me that I should. Be on a better I should be on the lookout for better assets to invest in that are productive. Yeah, and I.
Noah Buxton: [00:15:49] Wouldn't well I would I would only convince you I'm not here to sell anybody Bitcoin. Right. But I would say, um, if over the last ten years, on a risk adjusted basis, you looked at Bitcoin. Versus every other financial asset, whether property commodity or financial asset it's had. Outsized returns. So will that continue forever? I don't know, but I can tell you over the last ten. Years that if you'd said, you know what, I'm not sure I fully believe in this Bitcoin thing. I'm not sure it's going to play out the way they say. They say it's going to um, although there's no they really it's just a decentralized market. That determines how this happens. Uh that you'd probably be in a pretty good place for doing that if you said one, two, 3% of my total earnings or if I did a very low risk sort of, uh, way of investing, of saying I'm going to dollar cost average a couple hundred bucks here and there. Uh, right. You would have outperformed your stocks. You would have outperformed your retirement. You would have outperformed the rental real estate that you bought, etc..
Blake Oliver: [00:16:50] Sure. But but again, that is based on historical trends. Hindsight is 2020, right? And we all know that just because something happened in the past, there's no guarantee that it will continue in the future. So what I'm asking for is for someone to explain to me why it will continue to go up forever, and why why if I buy it, if I buy Bitcoin at $100,000, you know what? What is the first principles type of argument to support that valuation?
Noah Buxton: [00:17:22] Mhm. Well I think the is it first principles? I'm not sure, but I think the reason that it goes up forever again, I'm not sure it goes up forever. Will it be generally an asset over time that protects wealth? I believe it will be. And that's because of looking at essentially the fiat system. Right? The fiat system is not something I'm trying to tear down. Right. There's a Bitcoin is not a monolith. The people that are in Bitcoin are not a monolith. Right. There is a segment of this market that is very anti-establishment. And Bitcoin again is supposed to replace all money. It's the new world reserve currency. Right. So I'm not making that case. But there is somewhere in between that that that more extreme case and the other extreme which is hey look fiat systems, every one that has happened, every fiat system in history has broken eventually. And how does it break? It breaks by runaway inflation. Um, now can Bitcoin be a 100% solution to that? I think that it's the only asset arguably that's not connected to that fiat system so directly. So. Right.
Blake Oliver: [00:18:28] That's sort of this is interesting what you're saying, right. So and I agree with you that every fiat currency in history, over the long run, every empire from the Roman Empire to the British Empire, the Spanish Empire, the Netherlands, they have all fallen victim to inflation, overspending, taking on too much debt increases inflation to a point where the currency people stop relying on it. Right? And some other currency becomes the global reserve currency. And currently that's the United States. And we shouldn't expect that to change. And we see debt levels increasing in the government and our politicians being unable to or unwilling to to fight that right. And so we should just simply expect that we will continue to spend and we will accumulate debt and eventually something will happen. And and the US dollar will not be the global reserve currency anymore and something else will replace it. I buy that. Yeah, but will that be bitcoin or will it be something else. Oh no I.
Noah Buxton: [00:19:40] Think it's the next. It's it's the next productive economy. It's the next place that other nation states can store value. Right. Because that's why we're the world reserve currency. Right. Is because we have a safe, legally bound framework and markets, right, where other countries can invest their assets.
Blake Oliver: [00:20:00] And we've got like a dozen aircraft carriers positioned around the world to maintain our dominance. Right. It's the US military ultimately, is what backs up the value of the US dollar.
Noah Buxton: [00:20:10] And it's all about relative strength. I think we're going deep. This is awesome. This is why I like your content. Because you're a good conversationalist and it's natural. Um, so I'm probably going to miss some some points here.
Blake Oliver: [00:20:21] No, this is.
Noah Buxton: [00:20:22] The Bitcoiners will be mad at me. But I do think that, uh, it's a measure. It's a it's a measure of relative strength. We're talking about a lot of intersections here. We're talking about national security. We're talking about macroeconomics. Right. But as you see the rise of China, the interest in, you know, Asian economies building their middle class, these become safer places for emerging markets, uh, emerging market countries, right to store their wealth. Right. And so you see BRICs gaining power. Um, and I think that Bitcoin is actually very interestingly and even let's just set Bitcoin aside for one second. There's another innovation in crypto which we already talked about stablecoins, which is a very, very powerful way for the US to maintain global dollar hegemony or dollar dominance being the world reserve currency. And that's through distribution of our dollar. Right. And so this has been the history over the past 50 or longer years of euro dollar markets, right. Where We're essentially creating bridges for the dollar into the furthest market that we can. Right. And this means that people abound abroad, can save in US dollars, or save in a proxy for US dollars.
Noah Buxton: [00:21:30] Stablecoins completely opens up that capability for people to hold stablecoins. And again, in this fiat backed stablecoin market, what they're doing is essentially the issuer of the stablecoin is now holding more and more treasuries. So stablecoin issuers are actually the 16th largest, I believe, holder of US treasuries. And this was just a few months back. The statistic is aged a bit. It's probably even better now. And that's a great way to distribute the dollar. So in conjunction with that or maybe separately from it, can Bitcoin be a store of value or a reserve asset for the individual or even for the country that can in some way protect against the ills of inflation or the eventual Breaking collapses that are caused by inflation. Maybe we have yet to see that. So I can't tell you yes or no, but I think that it has the actual qualities that it's possible. It's a it's a digital commodity. It's not tangible. It's hard to get your mind around, but it's possible that it's just a string of code.
Blake Oliver: [00:22:35] It's just it's just a key. Right. So with no.
Noah Buxton: [00:22:38] Known person, with no CEO, with no government, with no politician, globally distributed and run in a globally decentralized way, I think that's a quality that we have yet to see in any technology, in any financial asset, anything in the whole world. And that itself, that one quality itself, its decentralized nature, might actually be the sort of linchpin that allows it to be that. Um.
Blake Oliver: [00:23:01] But here's the thing. There is no monopoly of Bitcoin on this technology. There are many, many cryptocurrencies, and there are newer ones that are more efficient than Bitcoin. So why? Why is the first one going to be the one that sticks around? I. That is something that I don't understand. Like, like why would all this value go into bitcoin when it could go into any cryptocurrency with the same algorithm? I could make bitcoin two, I could make bitcoin. Three I could make bitcoin four. So there really is no limited supply of cryptocurrency because anyone can make one. So this is this is the thing that I ask myself is why Bitcoin. Why not something else. And we could just stick with that. But I also have another question about like you know, the the the fact that like we all trust this algorithm that is controlled by no one and yet distributed and you know, the community. Like who's to say that will never break and that it will always work. So here you have all this value going into this Bitcoin algorithm created by an anonymous individual. And you know, we say it's decentralized but like doesn't look very decentralized to me. I'd love to talk about that. Like why like you put if everyone in the world puts a few percent of their net worth into bitcoin and somebody figures out how to break the algorithm or hack it, or perhaps like a superintelligent AI comes along and somebody figures out how to manipulate this, like there's no guarantee that Bitcoin will is the be all, end all and that it will not eventually collapse for some reason. Like you just said, every fiat currency has collapsed, right? Why are we so confident that The Bitcoin won't have massive problems that make it go to zero, or at least less than $100,000.
Noah Buxton: [00:25:18] I'm completely open to the idea that there are attack vectors on bitcoin. I think we're pretty far past the government attack attack vectors which have happened. I think we're probably pretty far past the copypasta, the copy and paste versions of Bitcoin being an attack vector for Bitcoin. It's pretty much withstood that. That's kind of the point you're raising about. Well what about Bitcoin cash? What about Litecoin. What about Doge. These are all derivatives of Bitcoin or just.
Blake Oliver: [00:25:47] Ethereum or any of these other cryptocurrencies that also act as a unit of account, a store of value and a medium of exchange. So there is no cap on crypto. We can always make more crypto.
Noah Buxton: [00:25:59] Uh, no, I don't think so.
Blake Oliver: [00:26:01] Um, I can make a new coin today and I can call it Blake Coin, and I can start distributing it. I mean, that's what people are doing all the time, right? Why shouldn't. Why? Why? Why couldn't that become the the dominant store of value? If I convince enough people to use it?
Noah Buxton: [00:26:17] Um, if you had enough people using it and holding it, that's one thing. There's also Bitcoin's proof of work mechanism, right? The way to.
Blake Oliver: [00:26:25] Copy that to.
Noah Buxton: [00:26:26] All of those productive. Exactly. All of those you can, um, but you need miners. You need people to put capital, property, plant and equipment into productive mining operations. You need technology companies like Bitmain and the other largest manufacturers of these ASIC chips to actually put capital and research and development into developing better chips. Um, that market is, you know, pretty well consolidated. I mean, 55 or so percent, I think it's about 55% Bitcoin dominance today. Um, in the bear markets, Bitcoin is a little bit more dominant because people fly to crypto investors at least go from Blake Coin back into bitcoin for relative safety. So yeah there's a lot behind bitcoin. Um you know the it's not tangible sort of aspect. Well there's a lot of folks that have balance sheets that are committed to Bitcoin, whether they're miners or they're manufacturing equipment or they're like the network firm that's servicing the industry, a lot of people committed to it. So, right.
Blake Oliver: [00:27:28] So the fact that a large number of people and businesses have already invested in Bitcoin is theoretically what will support.
Noah Buxton: [00:27:39] What gives it some staying power, it gives it some stickiness. Right. So I guess what I'm saying is, uh, you know, yes, people could hold Blake coin, people could even start mining Blake coin. And actually people are doing that, right. Like what you see on Solana today. The Solana network would be a good example. There's the meme coin. We're now in the meme coin phase. Right. And this is exactly what you can do. Anybody can click a couple buttons. They've got Blake Coin, they've got Blake with hat coin etc.. Right. And these are very volatile and very fleeting and. And why? Because there's not there's definitely nothing behind them. There's the meme. It's a bit of fun. But for instance, would I, as a minor, you know, sort of shift my whole business model, shift all of the capital that I've allocated into new coin. There are folks that do a segment of that. Sure.
Blake Oliver: [00:28:27] Yeah, but I've already invested in the equipment. Right. To mine another cryptocurrency is no big problem. I just put new software on my servers. Right.
Noah Buxton: [00:28:36] Uh, I think it's a little. It can be a little more complicated than that, but. Yeah, if you're working on a proof of work algorithm and you've got ASIC miners, sir, you can go mine Dogecoin, or you can go mine, Litecoin.
Blake Oliver: [00:28:46] Mine, whatever I want. Right. And that's what a lot of these miners are doing. They're they're diversifying. Right. I and some of them are investing a lot of money. If I invested a lot of money in mining bitcoin, I wouldn't want to just mine that right.
Noah Buxton: [00:28:58] Uh, I think you would. I mean, some of them are public companies too, right? And so their their commitment to investors is about being a Bitcoin miner right. Yeah. So that's that's the business model.
Blake Oliver: [00:29:11] So I guess my question is like what is the target. Like why should bitcoin be worth $200,000. Why should it be worth $1 million. Or is it going to go to infinity. Like that I don't I can't buy why that asset.
Noah Buxton: [00:29:25] Price is a bit arbitrary, right? To me, like if I just think about personally my my sort of personal net worth, which isn't as high as I want it to be, it's actually all about relative. Like, I don't care if Bitcoin is 100 K, 250 K or ten k. What I care about is that the money that I invested into it is on a net inflation adjusted basis, better off than it was when I invested. So. Right. So it's a bit of an arbitrary thing about price, right? Yeah.
Blake Oliver: [00:29:51] So I mean my question is like why? Why what is there fundamentally about Bitcoin or any of these other cryptocurrencies That supports it going up above any other asset that I could buy for the long term. Yeah, buy real estate. And you know, real estate has historically been the best place to put your money if you're wealthy, because there definitely is a limited supply of it and it's a productive asset.
Noah Buxton: [00:30:25] You can make it a rental. Yeah, you can make it a productive asset. There's some good tax rules around it. You get some depreciation in there right. Bitcoin definitely doesn't have a depreciation benefit.
Blake Oliver: [00:30:35] Or just because Bitcoin's outperformed real estate over the last ten years doesn't mean it will do it over the next ten. Right. So like to me, the only reason, the only reason to buy bitcoin that I can think of is because I believe that some idiot is going to come along who will pay more for it than me. Right now it's the greater fool theory. I can't think of a better reason and nobody can give me one to say, well, everybody wants.
Noah Buxton: [00:30:58] To buy real estate too, right? I mean, you don't. You buy location, location, location. Why? Why do you buy that location if it's a rental property? Because you're going to arguably have a higher rental production during that rate. But also why? Because when you sell that asset.
Blake Oliver: [00:31:13] Right. There's a there's a there's a human need that people have to like live and to work and to do it in proximity to other people. Yes. And this is like something that is likely not going to change. But like, there is no human need to own a string of digits on a blockchain.
Noah Buxton: [00:31:33] Yeah. My point there was that you buy. You don't buy just any real estate, right? You buy certain real estate because you think that over time it's still going to be a salable asset, right? You still think that value is going to appreciate, i.e. there's a bigger fool willing, willing to step into your shoes. So I think that there isn't.
Blake Oliver: [00:31:51] It will still make money, right? And that's what supports the value. Bitcoin is not a productive asset. So if unless somebody else comes along in the future and is willing to pay more for it, there's nothing that will increase the value of what I have today, right? And I don't have to sell my real estate in order to make rental income from it forever, right?
Noah Buxton: [00:32:10] Yeah, and I think that's one of the things with Bitcoin too. Is that it? Yes. It's not a productive asset. But there are other commodities that aren't productive either necessarily. Right. I mean yes gold. Can it be used in manufacturing chips. Yes. That's part of the gold market. Uh, the paper gold market, GLD uh, on the stock exchange. What is that? That's a speculative market. That's a that's a ledger of placeholders, right, for, for, uh, speculation on gold. And so this is the nature of financialization in many regards. Uh, you know, we've got crypto financialization and we've got standard financialization, right? I haven't convinced.
Blake Oliver: [00:32:49] You. You haven't convinced me. But it didn't come in here expecting to be convinced. Um, I mean, look, I think the reason to buy Bitcoin is actually pretty, uh, I don't know, scary one, which is the crypto lobby is working to get the US government to establish a national Bitcoin reserve and wants to use taxpayer dollars to buy $5 billion of Bitcoin every year. And why would they do that? Well, when you get the government guaranteeing to buy bitcoin at whatever the market price is, that is what drives up the price and that's what keeps the price floor. But you wouldn't have to do that if there was really an actual use for Bitcoin other than for the thing we haven't talked about, which is like massive tax evasion, fraud, crime, which is like the primary use of of Bitcoin as a medium of exchange, which is, you know, hacking you and making you pay me in Bitcoin. So it can't be traced. Right. And like you said, people in other countries using bitcoin to, um, get their money out like in China, right? I buy Bitcoin, I can get my money into a store of value that the Chinese government can't touch. But like, those are not. Those are not like long term. It seems as a as a lover.
Noah Buxton: [00:34:02] As a lover of freedom, I think that actually an asset that's globally decentralized and allowing someone in a communist country with currency controls and privacy invasion and the inability to live a free life, what I would say is a free life. I think that's actually a pretty good use case. You threw some other things at me too, which are mostly sort of misconceptions about the space. Um, look, we are a professional services provider that works with the industry and works with players in the industry. So working with good players is what it's all about. And there are many good players in the space. There are also bad players that give the space a bad rap. The idea that Bitcoin is largely used or crypto generally is largely used for scams, fraud, etc. is not true. Um, you know, the national security report from our own government, right? Shows it's the anti-money laundering report. I'm going to forget the exact name of it, right? But we see that actually in terms of money laundering violations, that crypto still makes up a very small portion of it, right? You said, oh, they won't be able to trace it. Right. Well, actually, that's one of the things. Right. This is a this is an immutable ledger. So if you want to launder money, if you want to perpetrate fraud, it's probably not actually the best place to do it, where you're going to leave an immutable trail behind of evidence.
Noah Buxton: [00:35:18] Um, you know, it's true that nation states use Bitcoin. Uh, you know, it's true that North Korea has used crypto to to finance terrorism and other, you know, um, efforts that are arguably adverse to the US interests. It's true that, uh, ransomware, uh, has payments for ransomware have been paid in Bitcoin. These things are all true. It's also true that the FBI actually, uh, in a large ransomware, I forget it was the East Coast. Um, I'm going to forget the exact case now. Right. It was a utility, I think, on the East Coast. And in that case, the FBI was able to actually use this immutable ledger to trace down these payments in a way that's not possible with others. Right? And we always have to compare. Everything is relative, right? So when we look at our traditional banking system, are we saying that this is a paragon? You know, are we saying that money laundering doesn't happen through our existing banking system, that human trafficking, terrorist financing, etc. doesn't happen through those those rails? Well, it does actually. That's really where most of it happens. The vast majority still happens through our existing financial rails. Right?
Blake Oliver: [00:36:24] Sure. I'm just I'm bringing this up because when we talk about bitcoin as a medium of exchange, people using it as money, it seems to be that like when people actually use it as money, it is most often involved in circumventing the traditional financial system for illegal purposes. And I agree with you. Like it's great that it exists in these other countries where, you know, people can't live free. But like, to me, that is not the foundation of a stable, uh, you know, currency or store of value or anything like that. So, like, that's I just am not. I'm not, um, I'm not convinced of any other reason to buy Bitcoin other than for speculative purposes, I guess is my point of view. And I, I, I know we don't have I want to get back I want to get to your practice and and digital assets and talking about like that your your your practice. So I don't want to go on too much longer about this. But the one other thing I would love to discuss with you, which has been sticking in my head, is this idea of like decentralization. Mhm. Um, and this question I asked myself about whenever I engage in a transaction. Right. I like to think, okay, I'm buying this thing. Why is the person selling it to me? I want to know what's the reason. So 10,000 wallets control over half of all the Bitcoin supply in the world. Do you agree with that? I don't know that.
Noah Buxton: [00:37:52] Number off the top of my head, but what I there's would there be concentration in holding. Yes. Yeah probably.
Blake Oliver: [00:37:57] So I look this up you know I researched this on perplexity. Something like 10,000 wallets control over half of the entire Bitcoin supply. Um, it's a larger number that controls, like, the vast majority, but it's still not that many. And so, like, to me, I always wonder like, well, why if Bitcoin is is constricting in supply and if it will just go up, why would anyone ever sell it? Right? Like, who are these people who are selling bitcoin to all the new entrants into the market? Okay. Why would they do it?
Noah Buxton: [00:38:34] Okay. Yeah. Um, so first off, the concentration of wallets, I think it's it's probably true that the distribution of holding of any financial asset is roughly going to map against the distribution of wealth, right? So we tend to have a pretty top heavy wealth spectrum in the US. Different countries, different levels. But generally speaking you're going to map those things are going to be rough proxies for each other right. So whatever. The largest holders of Bitcoin are also probably very wealthy individuals. The other thing is in other respects, the the other thing is that the 16,000 or 10,000 wallets or whatever the number is, is a bit misleading because of the way that people interact with this digital asset world, which is essentially through middlemen. I'm going to pause here. You can point out the irony of the decentralized get rid of the middleman system relying on middlemen.
Blake Oliver: [00:39:29] Well, and that's it's. Yeah, exactly. But but what that is this current financial system that is full of middlemen, and we're replacing it with another financial system that just is full of middlemen. Right.
Noah Buxton: [00:39:39] And those middlemen here are exchanges, right? They are the key on ramp and off ramps. So they allow you to go on with cash and invest, and they allow you to sell and go off with cash right there, essentially like a securities brokerage with with crypto. Right. The way they hold the digital assets on behalf of the customers is in pooled or commingled wallets. And so if you do this sort of on chain investigation, right, what you're going to see is, yeah, a lot of it, the vast majority of these assets is going to sit at exchanges. And so that's that's why that number is a bit misleading. I think it's probably a little bit more distributed than that. But well.
Blake Oliver: [00:40:13] The way I the reason I bring it up is because what I picture is, I picture, uh, you know, the Winklevoss twins who bought bitcoin when it was like a dollar and own billions and billions of dollars of it. Yeah. Um, very happily selling it to new entrants. And and what's happening is that as the price goes up, those folks are slowly selling down their holdings. And the end result will be, especially if the government gets involved into buying Bitcoin, is that taxpayers will enrich millionaires and billionaires who are most of the people who hold Bitcoin and bought it at its very low original cost. And and then.
Noah Buxton: [00:40:56] This brings up a really interesting point. You know, I, I see all sides of this. You know, I'm not sort of like a blind, um, you know, subscriber to to the all of the crypto ideas. I do believe in a lot of pieces of the space. The question about taxpayers subsidizing or sort of being exit liquidity, as we would call it, uh, for, um, you know, for millionaires and billionaires or for early entrants into bitcoin, um, I.
Blake Oliver: [00:41:24] Think millionaires and billionaires as a result. Yeah.
Noah Buxton: [00:41:27] I mean, to me, what I would say is the the other side of that equation or the way to say that a little bit differently would be that some taxpayer assets will be used to, to, to buy into a hard money asset. Right. To buy into something that is inflation protective is good for national security, is good for global dollar, dominance is good for our market. And so would that be a good way to use taxpayer funds I think in some again, you know, sort of balance proportion maybe that's arguably a good thing. You know the Winklevoss twins I don't know if they are selling their Bitcoin per se. I know that they've created a New York business called Gemini. I know that they employ hundreds or maybe well over a thousand people. Now, I know that they pay taxes based on their business activity. Generally speaking, I don't do their taxes right, but assume that there's some productive benefit to our economy. And so I think this is one of the areas that's a trap when we talk about bitcoin and digital assets is yes, there are their negatives. Are there ways to frame it that could be, you know, taxpayers or exit liquidity for billionaires? Well sorry. Newsflash I think a lot of US taxpayers are exit liquidity for billionaires in many respects outside of crypto. But aside from that, like, should we. Should we let this go offshore? Because it is inevitable? Uh, it is inevitable that people will continue to invest in digital assets.
Noah Buxton: [00:42:49] It's also inevitable that the technology underpinning digital assets, the blockchain technology, specifically public blockchains, will allow for allow for tokenization of actual real world assets. Right. So now we talk about financialization, where you can talk about buying that productive property asset in a tokenized form. This is inevitable because it's better, faster and more transparent. And just like we went from, you know, stocks on paper and wheelbarrows, you know, across New York for from the trading floor to the to DTCC or whatever. And we went to a digital ledger for the securities brokerages. Uh, the same thing will happen with real world assets, right? Whether it's art, uh, other commodities, precious metals, real estate, etc. like a lot of this still has to be built, but that's going to happen. So should we let all that go offshore? Um, should that not accrue to the benefit of US companies and US taxpayers in terms of the development of IP and personal wealth? I think it should. And I think that if we only talk about one side of it, we might we might do what we've done for the past four years, which actually a lot of good things happen in the past four years. But one of the bad things was essentially saying, hey, all of this potential innovation in digital assets, all this financial innovation that could accrue to our benefit, we don't want it, we don't want it, we want to stomp it out. And so a lot of companies moved offshore.
Speaker3: [00:44:15] Mhm.
Blake Oliver: [00:44:16] Blockchain is a great technology. It's an incredible technology. It's like one of the most transformative technologies that we've we've ever seen. Right. A distributed way of of exchanging value and assets and tracking that.
Noah Buxton: [00:44:31] The biggest accounting innovation it sends double entry accounting.
Blake Oliver: [00:44:35] Right. Shared shared distributed ledgers. Right. But like. Doing that with real world assets is one thing because there's an actual asset A there is a physical asset, um, there's some sort of asset that we're using. We're actually storing value with as opposed to like just a literal string of digits, which represents nothing other than itself.
Noah Buxton: [00:45:04] Most cryptocurrencies probably go to zero. Bitcoin arguably has some qualities and some market stickiness and some participation that keeps it from going to zero.
Blake Oliver: [00:45:14] Okay. That's interesting. You say that you say most cryptocurrencies go to zero.
Noah Buxton: [00:45:18] Yeah I think that most cryptocurrencies become gas for this other system. They become the lifeblood sort of the the currency the we call it gas right. Transaction fees and crypto is called gas. When you send on chain on Ethereum. So it becomes the way to fuel transactions in these other tokenized assets or real world tokenized assets. I think largely that's what happens in the long, long frame. And I think that if Bitcoin maintains its sort of store of value, old, old and slow and simple technology, it's the it. I think it has the potential to maintain that spot, at least in the crypto landscape. Yeah.
Blake Oliver: [00:45:55] So I think that's where I have a slightly different viewpoint, which is why would it be Bitcoin and why would it not be some other cryptocurrency that ends up being the currency. And so that's the risk you're taking when you invest in Bitcoin is you're betting that this is going to stay dominant. But how often in human history has the very first application of a technology ended up being the dominant one. You know Facebook wasn't the first social media platform, Right? Apple didn't, but it didn't end up being the dominant one. It ended up being the dominant one, but it wasn't the first one, right? Well, yeah.
Noah Buxton: [00:46:36] You're right. Sorry. What was it? Myspace?
Blake Oliver: [00:46:38] Yeah, Myspace. And like some other ones, they were like 12, I think. Yeah. Social media platforms that got big before Facebook. Mhm. Um, and so like that is my that is my thing. Like I can see investing in crypto broadly. I can see investing in like a broad portfolio of cryptocurrencies. But like I just can't stomach the idea of everybody's 401 (K) getting invested into Bitcoin. You know I just like to, to to to say that this is unhackable when in human history has anything been unhackable?
Noah Buxton: [00:47:16] I don't think anyone's whole whole retirement should be invested in bitcoin, right? Hopefully I made it clear.
Blake Oliver: [00:47:21] But even like like.
Noah Buxton: [00:47:22] But if even if it's a public.
Blake Oliver: [00:47:23] Crypto, the the hope of the crypto people and the Bitcoin people is like, we want 3 to 4% of all everybody's money in Bitcoin someday. Right. That's how you that's how you keep the value going up. Well yeah.
Noah Buxton: [00:47:38] I think one of the I mean one of the signals of demand is I mean if, if everybody in crypto wanted that, but nobody with, you know, institutional brokerage accounts or people that couldn't otherwise easily access Bitcoin wanted it, it wouldn't happen. Right. Fidelity has done this because they have customer demand for it. So others have done it because they have customer demand. The Bitcoin ETF issuers have done it because they think there's a public market there for them of institutions, right. That need that level of access. Yeah.
Blake Oliver: [00:48:06] They're just creating products for people to buy. Yes. But the demand what is supporting the demand feels to me like FOMO more than anything. And to me that is like the definition of a speculative asset. And I just think back to the housing crisis. And maybe that is sticking in my head because I graduated from college. I think we're around the same age. Noah I'm guessing like I graduated from college, like in the middle of it. And it really messed up my, uh, my, my my start in the American economy. And, you know, what was that ultimately? Right. It was a speculative bubble.
Noah Buxton: [00:48:45] Yeah. Driven by particularly interesting financialization and creation of products of bundled right mortgages. Right. We're improperly rated and all that. Yeah.
Blake Oliver: [00:48:55] And what what is starting to happen right now is the the the crypto bros have teamed up with the Finance Bros to create these products to get, you know, people's retirement accounts, to get CalPERS and, and, and everyone buying this asset. And that just looks to me like, hey, we're repeating the same mistakes of the past. Um, yeah. I think at.
Noah Buxton: [00:49:20] The institutional level, I don't think it's all necessarily doom and gloom. Uh, you know, I won't speak to the teaming up piece, but I do think that if you think about an institution holding an asset in a fiduciary way. Right. A fiduciary responsibilities, uh, are they going to ride it to zero? No, I think they've got some stop loss measures in there. So I don't think that we need to worry so much about a 2% allocation, you know, um, being sort of the end of retirement. So.
Blake Oliver: [00:49:49] So no, I have used up all of our time on this question. You did and like, I owe you one. Um, it's all good. Well, I've really enjoyed this, like, I hope I hope I didn't disappoint any of our live stream viewers. I wish I came.
Noah Buxton: [00:50:03] More prepared, I wish I was ready for a Bitcoin debate.
Blake Oliver: [00:50:06] No, I mean, you are prepared. And I mean, this is like you've been able to answer these questions for me better than anyone, honestly. So I really appreciate it. And I would love to do another round with you and actually talk about what we were supposed to talk about. Sounds good. If you're if you're up for it and we will we will retitle this episode to something like, you know, a great Bitcoin debate or something like that. I would love.
Noah Buxton: [00:50:29] To do another one because I think what we do is interesting, right? We're definitely interfacing a new, crazy, fast moving space, but there's a ton of opportunity for accountants in this space. I do believe personally, there's some inevitability to this, that tokenization of real world asset piece, you know, I think is real. And I think that that our thesis is really kind of like, hey, all assets become digital assets in some shape or fashion, right? Just like I said about sort of stocks. Right. Going digital, just like we used to light cities with whale oil lamps. Right. It was inevitable that with technology we did something different. And so I think that cuts across all industries. That's going to touch all CPAs and accountants and consultants in one way or another. And so, uh, I still think you could be an early entrant here. You could find a bigger fool to step into your shoes. Right?
Blake Oliver: [00:51:19] Well, thankfully, all of my personal wealth is is invested into building earmarks, so I'm just going to have to hope that it can grow faster than than Bitcoin. Otherwise, I'm wasting my time. I'm working so hard I could just buy bitcoin and watch it go to the moon. Exactly. You know I'm going to be.
Noah Buxton: [00:51:35] On TNF so I feel the feel your position.
Blake Oliver: [00:51:38] There. Thank you everyone who joined us live. Um Noah, how about just tell us a bit about your firm? You know what you do? Like, what is the network firm? Um, yeah, sure.
Noah Buxton: [00:51:51] I can try and take us out with that. Yeah, sure. Uh, yeah. So we do. We're. I think we're actually the first, uh, definitely the largest today, 100% focused digital asset CPA firm. Uh, we're also we're unique in a couple regards. So, sure, we do a number of things that, uh, larger accounting firms do. We're also a startup business, so we don't do all of them. But we're expanding services, right. So we dress our services directly to the digital asset space. And again, I said it's about working with good players. The kind of the typical clients we work with are exchanges. Some of them are crypto startups. You know, we work with bitcoin miners, sort of productive businesses in the industry. And we're unique in a couple ways. One, in our structure, we're formed as an alternative practice structure, which, you know, I definitely want to talk more about. It's become a common theme in the industry. We're hearing more about it. Uh, in terms of firms being able to sort of shift their ownership model, take private equity money. And this is really driven by the need for accounting firms to be acquisitive, but they have to be acquisitive with cash because partnership equity is no longer the currency that does it in acquisitions necessarily. And so I saw that model. I learned about it. I thought, wow, we're starting a firm at the beginning of 2023.
Noah Buxton: [00:53:05] I thought, this is actually an amazing thing to start with from the ground up, because I don't need private equity money. I'm not interested in that. What I'm interested in is employee ownership and participation in the business to drive, you know, and incentivize talent and to create like create an upside for people, you know, sort of break the traditional mold. And so that's one way we're unique. The other way we're unique is over the years we've developed all these tools, frankly, to get this work done, doing crypto audits, seeing it on the balance sheet in an audit scenario. Not easy. Got to run your own node. You start with that. Then you got to index your own node. Then you got to figure out all this stuff, and then you got to do it for many chains. So we built all these tools. And so we're also kind of a hybrid software firm. And so we've got a product called Ledger Lens. It's actually the first and only crypto tool for auditors to get through financial statement audits and other attest engagements. Block explorer on steroids might be one way you could think of it. If you have heard about Block Explorers. And yeah, that's kind of the firm in a nutshell. We're 25 plus people growing and frankly, having a lot of fun because it is a very interesting space to be in.
Blake Oliver: [00:54:09] That's awesome. And that is really important work you're doing. Because if this when I and I believe it is inevitable when blockchain ends up being how we transact. When it comes to real world assets and digital assets other than cryptocurrency, that is going to be super important. Is auditing all of that and doing that with technology and software. And so like, that's that's the future. Um, so Noah, I'm going to get you on again real soon, and we're going to talk about that and your firm and like specialization in digital assets and all the stuff that is, uh, we promise to talk about today and didn't get to because you very kindly, uh, you know, I mean, you, you indulged me and like, I thank you.
Speaker3: [00:54:57] I want to.
Noah Buxton: [00:54:57] Come back, but you have to promise me you're not going to pick a dip in Bitcoin to bring me back. You're not going to you're not going to opportunistically bring me back during the crypto winter and then beat up on me. Are you?
Blake Oliver: [00:55:08] I mean I'll get you in here before Trump takes office. And so like we know we know it's not going to dip before then. Exactly. Okay, cool.
Speaker3: [00:55:15] I think I hope you.
Blake Oliver: [00:55:16] Have some time over the break, the holiday break. And we can make we can do it.
Speaker3: [00:55:20] We can do that. All right.
Noah Buxton: [00:55:21] Cheers, Blake. And thanks for everyone for joining.
Blake Oliver: [00:55:23] Thanks, Noah.
