Joshua Klooz 0:01 Welcome to the wisdom and wealth podcast, a series of conversations designed to equip our listeners with helpful insights necessary to simplify the critical decision points of life. We believe true wealth is the thing Money cannot buy, and death cannot take away. Furthermore, we also believe our calling is to enable others to fulfill their own. And to that end, we endeavor investment advisory
services offered through CWM LLC, an SEC registered investment advisor. Welcome in again to another wisdom and wealth podcast. Our topic today is on cryptocurrency. And as always, I'm Josh Klooz, Senior planner here in The Woodlands office. I'm joined today by Jamie Hopkins, our Managing Partner of wall solutions. He holds about as many advanced
degrees and certifications as one can in one in one short lifespan, but he's also more importantly, a lifelong learner. And from a planning perspective, he just lends an interesting perspective to our topic today on cryptocurrency. So with that, Jamie, thank you so much for joining us today. Jamie Hopkins 1:10 Hey, Josh, great to great to hear from you. Glad to be on here. And yeah, we'll have some fun today. You know, this is I think our topic
that will hopefully stick on is one that's kind of near and dear to me and tracks back to some of my my earlier work. So that'll be good. I'm looking forward to it. Joshua Klooz 1:28 So inevitably, when you I bring up the topic of cryptocurrency, you elicit some strong opinions and strong beliefs. And so whether it was we've seen different digital currencies in the past whether it was Digi cash, Mondex, cyber, cash, Eagle, Ash, cash bit gold, whatever the case that gold was so close, so close. But anyway, bad joke, but there's been multiple, multiple currencies that just haven't quite worked in the past. And so if, with that in mind, though, if you even go back four years, Jamie, you know, the market cap of the cryptocurrency market was what? 200 billion and today it's what 1.9 trillion. Right? So there's definitely a lot of, of scale there in just a short period of time. I'm just curious, from your perspective, why do you think now is the is the time where
it's increased in popularity and increase in, in usage? Jamie Hopkins 2:30 It's a great question to say kind of the why is it now? A part of it is look, the world has become increasingly digital to eyes in general, right? Like, when we start talking about, you know, why is it happening with money? Well, it happened with music. It happened with art, it happened with TV, it happened with write special effects where we, you know, we used to have Jim Henson's muppets and now it's CGI. And, you know, look like that's going to continue to happen, right computers, and you know, the digitalization of our world, right? It's there's probably some negatives to it, but it creates a lot of efficiency and scale. That other you know, other things
just haven't kept up with. You can even say the storefront, essentially, right? We went from stores, to a lot of virtual stores, right, like E commerce. While originally there were people that said, Look, Amazon's not going to work, right? You go back to the late 90s and say, Look, that's not going to work people like client trying on clothing. Fast forward. People do not like trying on clothing they like it sent to their house the same day.
And if you don't like it, you send it back way easier. So that's a little bit what's occurring here with money. If you dive a little bit deeper, I actually I think we kind of overblow the it's occurring right now. Because we've used visa for a long time. Visa is in essence a digital currency. There's very rarely any dollars actually moving in physical dollar
sense. It's it's numbers in a computer ledger. It's numbers on bank Ledger's it is really digital money at this point. And they're doing more you know, Stripe and visa, you know, doing more transactions and any other dollar amount is we don't carry around a lot of physical dollars anymore. Like I'll check. I do have a wallet here. But yeah, like it's 5050 Right?
Like I have no money inside of my actual wallet. Something like that nuts. Yeah, I still have a George Costanza looking wallet. I know everyone won't be able to see it. But hopefully they can picture it like I have this big of a wallet with no. I hope you
Joshua Klooz 4:38 don't sit on that. Or let's not you can't see it would be a chiropractor's nightmare. Jamie Hopkins 4:43 Yeah. And so when I first started talking about digital assets, I had a lot of pushback or people were just like Are these even important? Well interesting today I don't get the pushback our digital assets important anymore, but I will get the you know, our digital currencies right You know, cryptocurrencies if you want to go down and more narrow aspect of it, are they important? And you can have arguments around that one, and I'm sure we'll get to some of that. But the other one I always tell people is like you've been using digital currencies, even if you say, well, visa is not really its lending, it's not really a currency, I was like, alright, that's fine. You've been using digital currencies for a while now. And you just haven't thought about them in
that form. So like, raise your hand if you have a credit card, and you get credit card points, right? Visa credit card reward points are a digital currency, it exists in no other world, it is not a centralized bank that created that mechanism. And it tracks not to a centralized dollar amount, most of those right actually track to other companies, and what they're willing to transact with you for those points. And they're not equivalent, right? So if you go on, like my point thing, and I redeem points at, say, Home Depot, I get a different reward points for US dollars to Home Depot than I do to Amazon, right? Amazon rarely discounts. Some of the other places discount the points down. That's a digital currency, airline miles,
hotel points, digital currencies, we've been using and transacting with these for years, and they don't have $1 $2, you know, transaction kind of algorithm. And if those companies go out of business or go bankrupt, those go away to, you know, hurts went through bankruptcy, the summer had a bunch of hurts points, they're they're gone. Right, like, value gone. And that's been around for a while. Now, you said, why is it occurring? I think that even though
some of the pricing you might see in Bitcoin and other things has been very volatile reality, as people became aware of it, we got pushed away from each other inside of COVID. We realize how inefficient dollars are in transacting, when I can't see somebody, I can't hand you $1. So digital transaction becomes better. So we're seeing more technology around that. So I think just that's macro, right? I mean, the US government wants a digital currency, they've talked about it. Now. We've got a couple other countries that are exploring digital currencies, the EU, Bank of England, we're going to see countries also get into digital currencies. So when you hear me use that terminology, there is a difference from
cryptocurrency, which is typically more quote unquote, decentralized, meaning that you're not what most people mean, there's like you're using cryptography, cryptography, and you're decentralized from a government or central authority. However, you can have centralized blockchains, which is sounds weird, but you can. There are some people out there that argue with me about that. But the technical definition of blockchain can be centralized. And like IBM has a centralized blockchain. Joshua Klooz 7:49 Yeah. So needless to say, it's multifaceted.
And to your point, like, what are the use cases? I'm glad, so glad you brought up the the credit card points and whatever else like we've been doing this for a while, it's just that people haven't been putting percent of their net worth into it. Right. And so that's what makes it different. And for, you know, I guess, going back to Satoshi, Satoshi Nakamoto was, you know, first email, he said, You know, I've been working on an electronic electronic cash system that's fully peer to peer with no trusted third party intermediary. So that's the biggest piece. So I think it's funny how, just that route, you know, it's almost as if our, our convenience is winning out over our fear in some, in some instances, you know, hey, I don't want to wait to go through this process. I'm just gonna go ahead and go through
it. And then I ran across Hyman Minsky's, quote, you know, everyone can create money. It's just the problem is getting it accepted. So it's been around for forever. I think you mentioned on blockchain technology versus cryptocurrency. And I think it's very helpful for our listeners to understand the difference between the two in your mind out is how, what is what is the easiest framework for delineating those two things? Jamie Hopkins 9:15 Yeah, I mean, I think that, you know, if you think about cryptocurrency, we're typically talking about something that's built on a blockchain technology. So lots of other things can get built on top of the blockchain technology.
So you know, I think that is probably one thing, right? Like, generally speaking, cryptocurrency is a piece of blockchain. Blockchain is the underlying the way that these nodes are connected and links transactions together and then you have a bunch of people and they kind of clear up the data. I think one way I've tried to explain blockchain before is like, it's like a really efficient ledger, right is kind of the way to look at it right? It keeps better track of what's occurring than a lot of our current system. like emailing me and saying
a contract is done, and like then me forwarding it to somebody they forget to forward it on it doesn't get paid, then then you start hearing things like smart contracts being built on blockchain technology where as soon as the actions done, the next transaction can occur because it's being kind of solidified by the rest of it. Now, I will say like, cryptology, and cryptocurrency does not have to be part of a blockchain. So like, even though that's how we kind of describe it today, you know, bitcoins build on it, but not all cryptocurrencies are built technically on blockchain technology either. So, we will see different versions of cryptocurrencies, then just on blockchain, there's lots of other ways you could design them. And then some things that you might call digital currencies are not built on blockchain at all, and actually aren't all that secure. And so, you know, I think part of this is
just to understand, like, there's a lot of terminology out there. And a lot of this terminology is still a little wishy washy in the sense that, you know, people who are innovating new technologies came up with terms, but it's not generally accepted across the board. Back in like 2012, or 13. I remember, I was working with State Farm on a project and they had
a huge blockchain, you know, division of the company, but they were not looking at anything cryptocurrency related, right, it was all smart contracts, and how do we process orders and payments? And, you know, it's just kind of all like, can we make our internal systems significantly, you know, more efficient by this distributed ledger system. And that, you know, other places I mentioned before, IBM has used some internal blockchain technology. But the development of like, the currency side of it off of this is, you know, Bitcoins, a dominant one. It's what made this famous at this point. But we'll see other iterations. So one thing I like to bring up on this is like, if you go back in time, and you think about technologies that have been innovative, that airplane is one airlines. There's a great Warren Buffett quote, and one of his books about this back in the late 90s. And he kind
of talks about like, hey, if I wanted to save a lot of investors, a lot of money go get, you'd go back in time and get rid of the Wright Brothers, because like, for the first 100 years of planes existing right, the net investment into Airlines was still negative, right? Yeah. And they had not turned a total profit across all airlines and investments. So it's a net negative, but clearly airlines trip. I mean, arguably, airplanes were probably the most transformative invention of the last 100 years, right, actually, more than the internet, right? When you think about World Wars and transportation and logistics, travel, or air, airlines really in airplanes really transformed the world. And but they you couldn't make a really good investment play on airplanes in general. So technology, it was a net loser. But we knew that they were super useful. Same thing, like the first airplane kind of sucked, like likelihood,
and you thought it was amazing at the time. Likelihood is the first technology that we're experienced around blockchain and cryptocurrency and digital assets today, probably kind of sucks, right to be like, like not to put it down. But like, it's not the best version, wherever we're gonna see of it. Right? They have actually improved some of the coding around really what we saw as Bitcoin already today, we have better versions of that now, as you brought up, well, we get adoption of it, maybe not. We have cool technology, sometimes that doesn't get adoption. You know, I don't know how great the eight track tape was. And
if it was better than some of the other stuff and never really got adapted, right. It is a very short life. But I think that's an important thing to look out into the future is kind of trying to predict if anything today wins. And if you view it as a technology, that's likely to be replaced by a better version of a technology in the future, just like the dollar bill is being replaced to some degree by a more efficient, right, digital version of currency. Joshua Klooz 14:04 Well, and so, when you look at the opportunity out there, payment systems globally costs somewhere between a half a percent and a percent of GDP, right? Financial Sector costs seven and a half percent in just the US right of GDP. So it's a big opportunity, if you can get there, but it's your point. It's what
what is the use case and and how do you get there in an efficient manner. So back back up to Bitcoin, which is the you know, got the largest market cap of crypto cryptocurrencies. Does the fact that no one knows who the creator was, you know, who, you know, Satoshi is does that does that ever bother you? Should it bother people so Jamie Hopkins 14:59 there's, there's some arguments here, right? I mean, you could go down different lines. I guess that's the nobody really knows is that is it? Was it an actual person? Was it a group of people? Was it a government? Was it a company? Is it a acronym for something we don't know. And there's a lot of you know,
that's the whole conspiracy, you can go spend the next 10 years of your life down the conspiracy hole there. So I advise people not to do that. But if you decide you want to pick up a new conspiracy theory, that's one you can live your life with. You know, I I'm kind of of the opinion, we might never really find out at this point. You know, it's a interesting
thing. I do have a friend though, that is a cryptographer for the military. And he kind of thinks it's nonsense in the sense that like, if, if a government like the United States wanted to find out who the person is, there's enough, like data out there that you could go find the person. So what we find out one day, maybe Does anyone care enough? Maybe not. But what I kind of say is like, you know, there's probably some stories you
could tell in your head, like, do I want to believe in a technology that was created by somebody that I don't trust? You know, maybe that's a holdup. But to be honest, like, a lot of times, we don't know who built something like an iPhone. Like, I know who ran Apple for a while, I don't know who actually created the iPhone, though. Like To be honest, I have no idea who that person was right? It was like a bunch of people as a team. I don't know who you know, most tech that I probably use, like the single click Amazon checkout feature. I have no idea who coded that. Like, it's super cool. Super useful technology. They Joshua Klooz 16:38 should be knighted, though. Yeah.
Jamie Hopkins 16:41 They gonna be knighted. But I would probably push back on that, like, how many pieces of technology did you use today? How many people? How many of those? Do you know who made it? And even if you were to look that up? Could you even figure out who made it. And a lot of situations, you're not gonna be able to figure out who made it, they'll be like, Well, Jeff Bezos made earlier Jeff Bezos didn't make that he was running the company, he had some ideas, he may actually make it. So like, those are different things to write. So I think to some degree, I don't worry about
that too much. You know, I, but it's got a lot of lore attached to it. Right. It's kind of mystical, the fact that there's this, you know, the papers and the emails and communications, and then it just kind of stopped. Right, like, and I think that's probably the stuff that interests people, right. It's like, here's somebody who today's you know, and, you know, the theory is that they still have a lot of holdings and ended, they can't really figure out what they're doing. Right. And so there's a lot of lore attached to it, but doesn't really bother me one way or another, I lose no sleep over this. Joshua Klooz 17:39 Absolutely. And so, is it too simplistic to
say, you know, hey, what's the difference between a cryptocurrency and, you know, $1 bill, you know, it's full faith and credit of, you know, in everyone else adopting that currency cryptocurrency versus full faith and credit of United States government or whatever else? Like, it's, it's based on adoption. And as long as you're patient with it, and not expecting too much from it, you're probably you're within within a tolerance of reason. Jamie Hopkins 18:14 Yeah, you mentioned one thing earlier, and a lot of people use this right, the global market cap of crypto, right, it's probably nearing 2 trillion whenever we're recording this and, you know, the market cap of Bitcoins, the dominant player in there, I think, market cap today as it relates to crypto is the wrong way to look at things. You know, I'll give you an example on that. Let's say that I decide
to create the hop coin right, and, you know, that's Jamie Hopkins is a new coin, and I say hey, I've created 1000 of them and I sell one to you for $1 $1 transaction has now occurred on there and I will then say that I have a market cap of $1,000 and that's the way the market cap works. Reality is though there's not $1,000 worth of dollars in play for it there's not 1000 people that want to buy it for $1 But I've sold one for so one of my 1000 Hot points for $1 So then we say the market cap is right 1000 That's different than a super liquid market into which actually like every direct there is enough buyers and sellers for that at a given time. Like you know 30 40% Right of crypto like has never been or like a Bitcoin some crazy number has never been transacted with right? It just sits right like if all that became in play, like what is the actual market cap of willing buyers and sellers very different thing. Now it's still useful in the sense like we can
see how prices are going up and the total global impact of it. But I do hedge on that sometimes because if you go look right, like the the market caps of some of these crypto offerings are like bigger than like, right? They're just there. They're like, ginormous Right? Like you can make the argument that back past a certain powers, yeah, like you can be like, hey, like, you know, there's more than silver or whatever now, right like, and that's just not true. Like, there are still more people willing to buy silver, like.
So it's it kind of presents a little bit of a false reality there, as you know, but it's not useless. I just I don't think it's the correct way to kind of compare it today. So I know that we don't have video for this too. So it's harder, but people can imagine this. And I'll do it for you. Anyway. So right here, I do this on stage. Sometimes it's one of my favorite things actually now to do on stage and I say what's in my hand? Well, I have a penny here. And everyone can imagine a penny in their hands. You've held one before you know what it feels like. Oddly enough, somebody told me this to like, you kind of know what a penny smells like even though you don't walk around smelling pennies, like it wasn't really as like, I actually do know what a penny smells. I think it's because your hands
eventually smell like coins, right? But like, I don't think I've ever actually sniffed the penny. But I do know what a penny smells like. But you can verify Jamie Joshua Klooz 21:06 is not sniffing a penny right now. Jamie Hopkins 21:08 I am not. It's like a foot and a half away from my face. But when you look at this, right, like we're so accustomed to the fact that
we make these the government still makes these, and you want to talk about efficiencies, it costs about 2.1 cents to create a penny. Well, if I had a business opportunity for you, Josh, I said, Kevin and say, Hey, Josh, I've got a great deal for you. Give me $100, right, and I'm gonna come back and give you 40. And I'm gonna do it over and over and over again. And I'm never going to change that. That's my new business, you would be like, Jamie,
and I'm not sure you know how business works. Right? Like, what you're telling me is you're going to take right, my money and turn it into something that's worth less, and you know, it's going to be worth less, but you're going to continue to do it over and over and over again. And that is the inefficiency and kind of like the issues where sometimes we get, you know, we accept something because we've always done it. We should not create currencies and dollars that cost more to create than they're worth. It does not make sense.
And the reality is, look, if the penny went away, what our our economy crumble, would we no longer be able to transact? Would I not be able to buy gas? Look, if we got rid of pennies tomorrow, we'd probably have an infinitesimally small impact on the economy in the sense that, you know, there might be a store here and there that get impacted, but realities Joshua Klooz 22:39 across the country would float in space, Jamie, Jamie Hopkins 22:44 right. And look, you can go through a lot of stuff like that the nickel is actually like equally as bad. You know, it's cost way more, and they've tried to reduce costs, but we just, we can't get there anymore. Even the $1 is no longer an efficient thing, because it has like a lifespan of seven years or something like that. And because it gets us it goes in circulation, they break down. So you've seen other companies like the EU and Canada move to like, smaller, more transactional currencies like $1, right? You move the coins, they have a longer lifespan a little bit more efficient. So I think when we look at all of that, and you start really putting your
macro hat on, you're like, wow, we've got a lot of really dumb stuff that we do today like spending 2.1 cents to create one cent. How do we get away from that? Well, we have a digital currency it costs them has nothing to create from the US government and we can turn transact in the same way we had before. Okay, that seems like a pretty good idea. Like we just became a more efficient government, we're wasting less resources, we're wasting less time. That's that's where we're going to move right now. We all know that inertia is a powerful force and object not in motion doesn't move unless something pushes it. And I think that one of the great things about bitcoin and cryptocurrency and the the money that's gone into it, and it has forced governments, regulators, companies, technology offerings to react to it, whether or not you believe in the other ones, but you have to react to it today. So you know, advisors, the SEC, FINRA, I mentioned before all the global banks, the US Treasury, they're all looking at this now. And so then we get innovation because
people have been forced to move. Yeah. Joshua Klooz 24:20 So literally, in the example of the penny, we are almost ripping over dimes to pick up pennies. We're all we're all we're well on our way to trying to say, Yep, good, bad, bad analogy. So I think the next piece since
you brought up just, you know, the Federal Reserve and the currency is a whole regulation is the next big frontier for this piece. And I think that will shore up and clear up a lot of things that we're talking about, as you see it. What do you see in the landscape or From a regulation perspective, do you think this is it's on the offing? Or do you think we're still a ways away from true regulation taking shape around the cryptocurrency markets? Jamie Hopkins 25:09 So I think I know the date, right, march 9 of this year 2022. In case somebody's you know, in 20 years is still listening to this
is 2022. And Tom Brady returned from retirement to go, you know, and we'll be again in 20 years from today returning from you know, but back on March ninth, right, we got the White House, and an executive order from President Biden saying, look, we've got the we've got to ensure basically responsible usage of digital assets, Joshua Klooz 25:47 Jamie, executive order, then nevermind. Jamie Hopkins 25:51 We got an executive order, but it was it was just another step from the government, right saying, Look, we need regulation, I need the agencies out there to go look at this and bring something back. The SEC has been looking
at this for a while, right? It's not new to them. They, you know, I'd say Not that I'm disappointed in the SEC from the sense like they've done anything wrong here. In my view. I'm a little bit disappointed, though, in the sense that I think the SEC has known for a while they needed to do something here and they've kind of punted, right, they just sec could have probably gotten here a little bit faster, but we will get there. And, you know,
the IRS has been a little bit clearer. You know, we have fairly clear tax rules actually, like you might not like them. tax rules are fairly clear, in my opinion around crypto. Now, the issues become when is something a security versus non security, that part is messy. But if we know what it is, we actually do know what the tax rules are. So it's not as bad as we would think the crypto world would say that the rules are terribly unfair to digital assets and cryptocurrency and that we're kind of overly taxing it. And it's not
really, you know, we're not treating it, you know, like it should be treated and needs separate rules. The tax world, we've never really created separate rules for new things. We say, hey, look, we tax things in motion. And when things go in motion, we tax them, like Welcome to the US tax system. Joshua Klooz 27:19 has been Ronald Reagan, you know, if it moves, regulate, it keeps moving. Nevermind. Jamie Hopkins 27:26 Yeah, right. So like, where it's, that's,
that's how we operate. So like, to me, I don't think we need as much clarity there, I think on the what is a security, what's not a security, you know, as some of the probably some of the marketing and security of these, you know, we've been talking about more mainstream things that we, you know, are a little bit clearer. But when you start diving into the crypto world today, I mean, a lot of this stuff really unsecure. It is like, not clear what the value
is, that's, you know, a lot of fraud going on, right, a lot of broken promises out there that probably were never expected to be met. That's the stuff that's really harmful. And, you know, to me, we the if we get some regulation here, it actually adds a little bit more trust back into the overall technology. And moving forward. I think that we need more regulation here. Sometimes people don't like that. Wow, really, regulation is going to fix it. We need innovation. But regulation has been shown to be important in new industries before we've needed it in the food world before. We've needed in the housing world before safety
matters. We've needed it in financial markets before because without it, we get a lot of fraud, we get things not secured, people lose their livelihoods, and then they commit suicide and families get ruined. That's what happens without regulation. And we've gone through those. And for as much as people might say, they want more freedom. There's a balance
between the two somewhere where you don't over regulate, but you provide security inside of the system. So people are not being taken advantage of. Joshua Klooz 29:11 And on that note, I mean, with Gary Gensler being the the head of the SEC, I think it's coming right, more clear regulation and more clear guidelines are coming. It's just a matter of time. Just given his background, and he's he hasn't hit the ball on any of it personally coming into that that role. You had mentioned the How secure is it? And I think you alluded this earlier, I think it's it's important for people to understand that a lot of the hacks that we see are different than mainstream right? There is a lot of nuance involved in what what's going on. But what is your what is your thought around the different quote unquote hice that Are eye catching in the news? Jamie Hopkins 30:04 The heists that occur out there, it's also important to break down where those are occurring. A lot of times people think and they go oh
look like Bitcoin or cryptocurrency isn't safe because that can be hacked? Well, so far, really the larger cryptocurrency blockchains like a, like a Bitcoin now will somebody come up with another issue with at some point in the future, possibly we've talked about 51% attacks and you can get forks in which, you know, bitcoin cash came out. So those things can occur, but like the actual blockchain is fairly secure. And I'd say that, you know, like not that somebody won't come up with something that works in the future. A lot of the stuff what we thought was secure before people find ways around it. So they can't say that with 100% security, and I'm not an expert in that side of the world, weigh on cryptography and coding. But generally speaking, we haven't seen hacks to the actual chains
in the large sense. Now, there's been some fraud ones where people have kept the majority of control, that's a different thing, right? Like if you enter into a and that's the 51% attack or notion is like, if you enter into any type of agreement where somebody else controls the majority of it, they're still in control. And that is an issue even in the blockchain type of world. But most of the hacks have more come to what I would refer
to as like the holding grounds for things. So like, you hold your keys there, right, which is like to use an analogy, you know, it's not that the US dollar system gets hacked, but you sit your dollars in your car, and you leave your car unlocked, and the car gets broken into and the dollars are gone. Well, dollars that are not safe. Well, yeah, not because the US system got hacked, but because you set your dollars in an unsecure location, that's where a lot of these hacks have occurred. So people are sitting there, you know, digital dollars in, you know, different types of custodians and holding areas that are less secure than they might be. I don't believe that there's a perfect solution out there for this yet, either. And I think this will continue to prove like I'm looking around, like, I've
got a lot of props here for an audio only presentation. But I've got, you know, for instance, like my, you know, what's that we created new terminology here for this too, but your cold storage, so it's basically a flash drive, right. And I've got that here. And, you know, that's one way that you know, I've actually got like four of them. So, you know, I've got, you know, Ledger's, a company that made some you can put your keys on there, and you can pull it off of what they would say is hot storage, which is something connected to the internet, and more likely to have breaches, and then putting it here. Now, the downside
of this, though, is like, people have thrown these out, they've lost them, they're gone right? Now there are, there are ways to do backups, you can do to have three, three of five authentication items to that gets pretty complicated for like an individual person, once you're talking about significant amounts of assets. And you know, larger scale projects, you can get a little bit more safe with some of these things. But it's not too dissimilar from you think like a safety deposit box is another analogy here, right? Similar thing Joshua Klooz 33:24 in the Wall Street Journal this spring, the number that they used was, in the last year around $14 billion in cryptocurrency values been scammed, right. But most of that is getting into your point is where it was stored. It was on the end user and, you know, back to the the hot wallet, the cold wallet, that there was just no diversification of how it was stored, who had it so on and so forth. It wasn't the it wasn't the end blockchain that broke down. For the casual owner of cryptocurrency,
you know, do you think that there's, there's a line at which, you know, they kind of need to go to that next level of security. What's your take? Jamie Hopkins 34:17 So this is where I started into this whole digital asset side. So I'm an attorney by trade, I started off in that world and I started doing some research and work on digital assets and just kind of understanding like what you could bring into a legal case and looking at the different encryptions on things and metadata, and getting really deep onto that side of the legal world. And it was super interesting. Spent a lot of time with that. And that was back in 2010. And that's what
I started writing about this. I realized that not a whole lot have been written about it at that point. So I've published a bunch of law review articles and it's been cited in federal court cases, and so by Works has a little bit of an impact out there and shaping some of the direction here of where this ultimately would go. And the short answer is like, we
actually have to pay attention to the digital security, the estate planning, the ownership and location of these digital assets. And I am saying digital assets, because I'm taking a broader, which means you know, your email, your Facebook, your Twitter, your business account, your blogs, if your videos who owns that, right, who has a right to it after you've passed away, and you know how safe it is. And all of those things become important. Because Interesting enough, you will agree to a lot of weird stuff when you enter into those terms of service agreements that she called ptosis. I like saying that word I don't get to in like normal daily life. But that said, you know, that's that document that when you're setting up your online account, you scroll to the bottom of as fast as humanly possible and said, I agree. I read
Joshua Klooz 36:02 every word. Yeah, especially when it's on my iPhone for the update. Jamie Hopkins 36:10 Yeah. Your bank just updated your account. Yeah, I need to get in there. I agree. And we don't read them. And you agree to a lot
of things in those. And then one of the main things that exists in almost every one of those is that you have a non transferable lifetime lease to that account. Meaning that when you die, Josh, you pass away, you can't leave it to your spouse, you can't leave it to your kids. And sometimes people got really shocked by this, you go back and look at like iTunes and your rights to those songs you spend. I forget who it was maybe Bruce Willis, one of the famous actors got, like really upset when he found out about this because he had spent like $30,000 on like iTunes songs. And you know, buying movies and stuff. And
you found out like, I don't actually own any of that, like I can't leave it to anyone is totally different than having a CD or record. If you die, your kids can get your record collection. It says like, Hey, this is a non transferable lifetime lease and you die your rights to the end. Now fast forward from there, we got a we did get legislation on this one, which was called RW Fada Revised Uniform fiduciary what refer to Revised Uniform, and well, I'm drawing a blank on the name right now. But uh, access to digital asset act, fiduciary access to digital asset act. So there we go, the Revised Uniform fiduciary access to digital asset act, it just rolls right off the tongue and you're like, how could you forget that Jamie? So that's Ruth Fada and refer to basically set state level rules around who can have access and what steps you need to take to give people access, like your fiduciary to your digital accounts. Now you can't change ownership, meaning that if you agree to a
lifetime lease, you can't then own it outright. That's a change in contract, but we can give your beneficiaries your fiduciary access to those accounts for the purpose of rack wrapping them up. So that's very important that then applies to digital assets, cryptocurrencies. And actually, when you're using things like coin base, or some other solution in which you might be storing your digital assets, you should read the Terms of Service, and understand how do those apply. So if you were to die, do your kids have access to those accounts for purposes of wrapping it up? I haven't read Coinbase as in a long time now, so I shouldn't really comment on what their says today. But I would just suggest that people read through those on important accounts. So to really answer your question, you said
like, is there $1 amount? Honestly, I think the question is just part of life, like, are you okay with losing $1,000? And if the answer is no, then you should take the extra steps to secure it. If it's $200, you say, Look, I don't really care if I lose the $200 I lose $200. And I'll live without it. All right. That has to be a personal decision. I know people with 10s of millions of you know, or, you know, as 10s of millions. Yeah. So I know people with probably 30 $40 million of investable assets that are more upset about losing $1,000 And somebody who has $100,000 That's just a reality that might tell you something about behavior and like how to accumulate more money. Right? Don't be don't be good with losing it. But like I you know, to be honest, I have one cryptocurrency that like one of my friends talked me into buying and it's done terrible. And I've done nothing to secure that one and
right like, I don't even know what it's worth. Now, I haven't logged into the account and to whatever Joshua Klooz 39:44 you do, don't buy a pizza with it because everybody still uses that guy as the case study, but whatever. Jamie Hopkins 39:49 Yeah, so we have somebody at Carson who back in like 2012 or 13 did buy beer with his Bitcoin too. So like that's actually no we have somebody at the front or who, who did that he was in college then Right? And I actually, you know, I did a Bitcoin transaction back in like 2013 or 14, two, because it was pretty small. But
I just wanted to see what the transaction looked like, right? Because I was writing on it, and I'm talking to legislators about it, I'm talking to judges about it, I'm doing law reviews on it. And like, that's why I did not think of it as an investment. And I did not think of, you know, really as it is this growth vehicle or replacement of money at the time, I thought of it as a different way to transact at the time, so I wanted to buy it, hold it, go through the experience, move it to a hardware wallet and just see all of it. And I think that's important. For most people, if you're gonna try to learn about things, best thing to go is to go do it, right. I mean, figure it out. Now, do
you remember when you transact with it, any growth in it is a taxable event, you buy pizza, it went up in value, it is a taxable event. Luckily, back in the day, then everyone was buying and kind of transacting and it was like the same dollar amount, then like it wasn't really loving, so, but today, it could be all over the place the same day. Joshua Klooz 41:05 So there's a lot of fear of missing out, I think, primarily in the marketplace. But practically speaking, just for your, from your vantage point, and for your your perspective, what are the most practical ways that clients get exposure to this type of technology within their portfolios today? I know we at Carson and especially here in The Woodlands have looked at you know, well, what what do you own that is going to benefit from the technology? And you're decentralizing your risk in that? What is your what is your your thought processes? You look at that going forward? Especially? Jamie Hopkins 41:50 Yeah, I guess I'll start, you know, before compliance already comes in and puts a disclaimer in Right. Like, I think today, most people
in the advisory and RIA space kind of stopped short of recommendations on crypto currency directly. Absolutely. Right. So part of that is we don't have good regulations on it, the SEC hasn't fully decided where they want it to fit. There's a lot of volatility. Now, the flip side is, you know, I personally own cryptocurrency, and I have owned it going back decades plus now. And, you know, I have also in my books, I think I wrote that in
17 2017. I think that's right, and I told people, probably one to 2% of net worth might make sense. And cryptocurrency there's been some research since then, that has actually supported that you get people like Rick Adelman has also talked about that out there, right, as a fairly prominent Edelman Financial Engines, right? refers to that idea, too. I think that the FOMO part of it is something that also has to be addressed, I never, ever think you should invest in anything because your fear of missing out or because your neighbor dad or your Uncle Joe did it, that's not a reason to invest or to spend or to buy into anything. And so if that is your reason, don't do it. If you have a different reason that you believe in the underlying technology, that you want exposure to it, just from a diversification standpoint, right? Like, What is your reason for putting money into this? And are you viewing it under an investment philosophy? Are you view it under a, you know, just life experience philosophy? I think that's where we have to get through because technically, the stuff isn't for the most part securities today. So even talking about as an investment
gets a little bit, kind of tough. Now, there's, you know, the next part is without telling anybody what to do, right? You can directly invest into it, right? So you go actually acquire the underlying coin. So ether, right Litecoin, Bitcoin, that are part of the blockchains, Ethereum and Bitcoin and you can also do stuff where you're, you're kind of buying into a fund of sorts, right? That is holding companies that benefit from it, which you kind of brought up and there are, you know, there are kind of blockchain funds and ETFs, and things like that out there today. So, I don't know how perfect of a correlation all those things are going to have long term. But there are a little bit of a way in my have a more mainstream
channel, you've got some trust operations out there. GBTC, and things like that, and which you can hold this now to, they're kind of buying future contracts and other things on it. So they don't always perfectly track to the price of the underlying coin either. So, again, pluses and minuses to all these different things out there today. So short, there's a lot of possibilities in which you want to engage in this. The other thing to remember is like this was built to be held by an individual And so like, it wasn't built to be wrapped into ETFs, and mutual funds and trust, right, like there was built, as you mentioned, right? Like, hey, this is peer to peer, like two people come in, and we'll be able to share an exchange. So system was kind of built for that. And, you know, the kind of the, there's a lot of peer, Bitcoin and pure crypto enthusiast out there that actually rail against all of this entering into the traditional systems and into ETFs.
And funds and trust. And say, that's not the point of this, the point of this is to hold the coin outright, because that's the important part of it long term. And I think those are all bouncing pieces, right? I'm trying my best not to make recommendations here. But I think it's always good to be transparent with what you do yourself, right? Like, what I hold everything direct, I don't invest in any funds. But there's a lot of companies out there that do. And I have the opinion, I lean towards the you know, I would be surprised
if we don't see some ETFs and things like that eventually more mainstream on the market here in the US. You know, there's a lot of applications in front of the SEC. We're waiting on that. And then there's other ways to get involved. There's a lot of lending style programs out there where people stake stuff and the defy world. Again, there's probably more complexity and uncertainty in what's going to happen there than there is with just regular coin. So I don't recommend a lot of people to go happen to that immediately. One of our good friends and I know Josh genome to Tyrone Ross, he always says educate before you allocate.
So spend time learning about this before you just start dropping money into it. So start with the education, you know, inform yourself. And you know, read up on it, listen to podcasts, look at stuff but yeah, I also tell people take that with a grain of salt. Because not every educational piece out there on the cryptocurrency and digital asset world is an unbiased source is probably the best way to put it. There's a lot of pump and dump going on out there. And there's too so you Wild West? Yeah. And that's not really too regulated today. So
that's a scary thing. So just kind of understand if you're reading an article is that person disclosing like I did, right? Like i i own about five, six different cryptocurrencies? You know, so like, I'm trying to try to be upfront with that. So I'm not trying to convince anyone to buy or not buy, but I think it's good if you're talking to somebody that like you understand where they're coming from, kind of like yo, Elon Musk recently, we got a little bit of like news around that and it wasn't cryptocurrency, but it's kind of like, yo, it's it puts it in a different light now.
Joshua Klooz 47:41 Yeah, if there was one or two misconceptions with regard to the IRS or with regard to the taxation of this space, that you could dispel, like if you if you could just say, hey, that misunderstanding, like, what would they be? We've encountered a few locally every once in a while, but I'm curious for your take. Jamie Hopkins 48:02 So the biggest misconception on the taxation part is that you can exchange from coin to coin and not have taxes, right? Like it's, that's the biggest one like, Well, I'm gonna I'm gonna take my bitcoin and buy Litecoin and I don't have to pay taxes, wrong, right exchanges between coins cause taxation, a taxable event. The other one is it funny we actually, we heard a CPA say this not too long ago, and the CPA was on a call on the CPA said something I don't remember the exact wording anymore, but like, Oh, I really helped one of my clients out to go take a tax free vacation, I had the whatever the resort was down in Mexico was accepting bitcoin as payment. So they they paid it all with Bitcoin. And that was like, That's totally a taxable event, any any gain that you had in between those, you got to track your basis and everything, but like, transactions are taxable events, and that's the biggest thing people don't understand. I've also seen a lot of people that look like you receive Bitcoin as, like
payment for doing work. That's a taxable event too. And it's ordinary income. It's not an investable asset. At that point, you're not getting capital gains, it's not being treated as property, it's just being treated as ordinary income. So I've run into somebody, you know, I had, you know, literally like over 1010 to $20 million of income from cryptocurrency never pay taxes on it, and I didn't end up ever working with that person. But you know, they literally just never pay taxes. They got paid in crypto for their projects they were doing and yeah, like that's, that's a big issue out there, too. Ouch.
Joshua Klooz 49:37 unsporting that one should be a colorful exercise for sure. But thank you so much, Jamie. Really appreciate your work if listeners want to continue following your work. What's the best way to do that going forward? Jamie Hopkins 49:54 And we've got a couple of things right. I'm a part of our, you know, wealth solutions here at cars. Think through partners. So kind
of on the back end supporting a lot of our fantastic advisors inside the Carson network. I'm on Twitter at retirement risks, it's probably the place of most active retirement risks with an S at the end. That's really been my space. I love retirement planning, and I do a website, this is Jamie hopkins.com. And that feeds back in a lot of the work that we do here at Carson. So we're writing new articles, podcasts, webinars, anything like
that, that we're putting out there to the those are the best ways to reach out. But you know, I appreciate everyone for listening and, you know, appreciate you having me on here. And hopefully, hopefully, we didn't say anything too scary for anybody. When we you were like, Hey, let's go do this topic. And then, you know, compliance will be listening to it. And they'll be like, hey, compliance, you know, hopefully we did a good thumbs up
job here. And if we did it, they already deleted it out. So the person listening to this never actually gets to hear it. So. Joshua Klooz 51:01 Jamie, thank you so much for your time. Wish
you and your family, nothing but the best and look forward to talking to you again soon. Thank you. Well, that's all for today. Thank you again for joining us. We trust that you are better equipped to steward both your wealth and your financial resources. If you have questions or suggestions for future topic, please direct those to info Houston, Carson wealth.com. But you and your family encounter truth, beauty, and goodness. The opinions
voiced in wisdom and wealth with Josh Klooz are for general information and are not intended to provide specific advice or recommendations for any individual. Past performance is no guarantee of future results. investing involves risk including possible loss of principal. No strategy assures success for protects against loss to determine what may be appropriate for you. Consult with your attorney, accountant, financial or tax advisor prior to investing. Jamie Hopkins is not registered with CWM LLC as an investment advisor representative and does not provide product recommendations or investment advice. Investment Advisory services offered through CWM LLC, and SEC registered investment advisor. Our address is 17 at Hughes landing Boulevard Suite 572 Woodlands, Texas 77380
2022-05-11