The Last Trade E018: Bitcoin's Custodial Landscape Through a Legal Lens with Gavin Feary

What you're telling me is that music is about to stop, and we're going to be left holding the biggest bag of bodarous extras ever assembled in the history of doubtless 1974198792972000? Whatever we want to call this, it's all just the same thing over and over. We can't help ourselves. I say when we sell, hey, I say when we sell. Logan Only Ninja launches on TFTC. This is a very professional operation. Well, you say that he just ninja launched on you. Welcome back to the last trade. Thanks Logan. Very excited for this conversation. We're joined by Gavin Fiery from Winstead, prestigious law firm here in the state of Texas at the cutting edge of regulatory issues and compliance. Pertaining to Bitcoin in the company's building in the space, this is definitely a fresh perspective on this show, diving into the regulatory side of things, which I know many Bitcoiners don't like to think about, but it's becoming increasingly important, especially considering the landscape that we find ourselves in with the SEC beginning to crack down on a bunch of crypto projects and this SEC and CFTC sort of fighting for ground. In this space. But before we jump into the meat of the conversation, Gavin, why don't you just introduce yourself what you're doing and how you found Bitcoin, and then we can talk about a lot of really cool things you've been doing in the space for many years now. Yeah, absolutely. Thanks so much for having me at at Winsted. I joined them in 2017. So we I sort of started in investment funds of the 22 year lawyer and have also done a fair amount of time working on Commodity Futures and and work with the CFTC. And so we looks like my dog's leaving right now. So, so basically there's a bunch of hedge fund managers in Fort Worth and back in 2017 we were helping them with their own portfolios and allocations to to Bitcoin and figuring out custody. And then by 2018-2019 we were launching funds and some of those are registered investment advisors or Texas. Exempt reporting advisors, so regulated entities and subject to the custody rule. So we had to kind of figure out custody. So it was kind of fun talking getting on a phone way back in 2017 with like Wensa Cesares and Zappo and and others, and trying to figure out how we were going to get the the investment funds Bitcoin. Or Bitcoin exposure, depending on how they did it. Get it all sorted. So Gavin, does that mean that whensys was part of your journey to Bitcoin, you were just finding out from one of the earliest Ogs that Bitcoin had value For these reasons? Or did you get into Bitcoin before that point? Yeah, I I did get thrown into it. I've been in house for Commodities Trader, so I I sort of had to deal with all different types of futures and spot commodities and interests outside of just the regular securities industry. So that was part of my part of my job for 6-7 years here in Texas and literally, you know. The week before I started, my boss said I got a project for you and he said bitcoins of commodity and you've got some work to do and I sort of at that point fell down the rabbit hole in terms of custody and how we can possibly satisfy the custody rule and talking with. And could you explain the custody rule for people who aren't familiar? Yeah. So it it's it's a rule that sort of has an 80 year history, but it comes out of foreign investment advisors specifically registered with SEC. And so it it comes out with out of a sort of Bernie Madoff type situation that human weaknesses as they are. You generally need to have the the assets cut somewhere else in a separate location from the person. The, the manager, the third party that's that's looking after your investment portfolio, so with a qualified custodian and then you have to have transparency periodically into that portfolio and maybe periodic verifications that the assets are really there. And so obviously there's no rule that gets around straight up fraud like in a Bernie Madoff situation necessarily, but there are. Technological things. Proof of reserves, for instance, That can help prove the assets are there. So the rule's been in place for many, many years. In fact, there's a new proposal to try and switch it up now. Yeah, and it's very interesting with Bitcoin specifically, because. Just of the nature of the protocol and the primitives that exist on the protocol that allow you to custody Bitcoin in a very unique way when compared to incumbent financial assets, whether it be stocks, bonds, commodity, futures, whatever it may be. And I think that's one of the most interesting things of this particular point in time in the context of regulators trying to understand Bitcoin and bitcoiners trying to explain how this thing works to regulators, is that we have. A brand new way to custody a a bearer asset in the digital age with Bitcoin in the way the private public signatures work. And I think that's one of the biggest frictions between the Bitcoin industry and regulators right now is that we're here screaming like, hey, there's a better way to do custody natively on the protocol. And you wanted you want us to do it in this sort of? Archaic fashion as laid out by the rules that were set 80 years ago. And so in your experience, I know you wrote a paper with Caitlin Long and Brian Bishop literally five years ago yesterday that you sent to the SEC trying to explain this. So what is your experience been like from your perspective trying to get regulators to understand like, hey, there's a new way to do custody with this asset? Gavin, before jumping in I actually wanted to just take one step back on the custody rule because I think it's important and at least from our my personal understanding the custody rule doesn't apply to spot Bitcoin applies to securities and and if if they if you can correct me if I'm wrong but if if that is true is it partial the confusion the past you know 5 plus years. More related to who wants oversight as what we'll talk about in this conversation, whether it's the CFTC or SEC or is it more from a just pure understanding because what we're talking about is a commodity, but it's digital in nature. So it resembles a security in the sense that it can evaporate overnight or like it can just be taken and then that's where the. Or a custody rule comes into play and this like not fully understanding that this is a digital asset, but it's a bearer asset that that's similar to a commodity. If you can touch on that before because I think it sets the framework for like what the letter was sent. Yeah. There we we were had conversations with with Fin Hub when it was produced the Valley of shirts Panic Division of investment management about how our clients would satisfy the custody rule and and there were sort of three big problems that that needed to be sorted out one was. Is Bitcoin funds and securities? Because the old rule applies to funds. So it kind of the question is can you spend it sounds a lot like funds, but traditionally commodities have not been fallen into that group. So is it funds and securities? That's one problem with that rule. And then another problem is who's a qualified custodian? Is a Trust Company enough under the definitions there? So that was another. Sort of longstanding question and there were questions about bankruptcy, remoteness even back then and and so funds and securities qualified custodian. The other thing it has an exception that kind of gets exposed by some of the early Bitcoin trading. So let's say you take your Bitcoin out of cold storage and you put it in someone's hot wallet and you transfer it to an exchange or a trading platform to get the trade done. The digital asset world, sort of, at least as things were done, exposes the fact that it leaves the custodian's hands when it goes out of the cold wallet onto some hot wallet for for the exchange in order for the trade to happen. So there was a there's a sort of authorized trading exception in the custody rule that says Okay, we can kind of leave the. We can leave the used to allow assets to leave that, but that exposes the fact that during that period there's no protection, there's no custodial protection for the asset. You're exposed to whatever exchange and whatever commingling is happening there. So those are kind of the issues we were dealing with. That last part is so interesting because. It it kind of shines a light on how with traditional assets that that just wasn't an issue of like the asset leaving the custodian and then being on a trading platform. I suppose it's probably handled with like it it some accounting thing of of it's being lent out from the custodian and still technically sitting at the custodian when it's being traded. But in digital assets, there's like a greater level of transparency and an actual physicality in the sense of like where it is, where this asset is sitting at any point in time, it's clearer. And that that in a way makes digital assets like a superior instrument in terms of accounting and trackability and all that in terms of the clarity of what's happening at any moment in time than we have had with the traditional asset world. Yeah, I guess another way to say that is, and correct me if I'm wrong here, Gavin, but the protocol is the clearinghouse at the end of the day. Yeah. No, that's that's that's fair. That might rub up against some of the traditional securities kind of establishment of rules, but absolutely, that's right. And so, so now maybe Gavin, it would be great to hear the story of how you know you you're starting to work with digital assets in your capacity as a lawyer. You know that your your boss puts this, puts this on your plate. And then Fast forward a little bit, you're you're in a room with Tour de Mr. Caitlin Long, some other folks trying to hammer out what you've learned, you know about like this is how it should be done and the regulators should be aware of this and how there's a better way. So how did that come about? And and and what was that, you know, what was that experience like writing that letter? Yeah. So this this 2018 we sort of put together a group I had been sponsoring with with Winstead a a sort of smart custody workshop that was on a Blockstream that that Brian Bishop had been put together with Christopher Allen who's a a cryptographer that that helped. Co-author the the TLS security standard so for you know a lot of payments right now still on the Internet he helped co-author that standard So he was looking into adversaries on for smart custody Bitcoin and so we were sponsoring that and and sort of at that event out of that event came getting to know Brian Bishop a little bit as well as Caitlin Long. And Angus championed to Crespi at Ian, he was that you know then at EMY. So that all and Tour de Meester of course was also sort of part of the the discussion. So we we we were working with tour on a fund at the time. So, so all of that came together with OK, the SEC is you know considering ETF's this is 2018. Hard to believe that it's still still the place but now. That what do they need to be thinking about? Because if they start treating, you know Bitcoin and in sort of fungible bulk or or they allow rehypothecation from the ETF or there's no way to receive the actual Bitcoin from the fund for instance, that would be nice. We even mentioned that and and just understanding that that. There is no lender of last resort in this case, so if you're this is before you know the meltdowns happened in other digital assets. But in terms of, you know, margin lending rehypothecation, there could be a lot of uncovered undetected uncover exposure if all if these assets are being rehypothecated and Bitcoin natively doesn't really. You need to have reserves to be able to meet your commitments because there's no way to print it. Yeah, it's incredible. I'm looking at an excerpt. One of the key point in bold is we believe that digital assets are unique asset class with unique strengths and abilities. And then followed by that as as a result of division of Labor, any economy will overtime develop services that it assist savers in keeping their assets secure. The institution of third party custody itself is about as old as civilization with earliest records dating back to 3300 BC. There's just so prescient, you know, reading that, especially being close to, you know, a day away from five years and still having these discussions and also just debating on custody and having. Intermediaries facilitate and trusted their parties. Given that, if if Bitcoin is to succeed, we're going to have trusted parties across the spectrum and how an economy ends up, you know, being created and delivering value across it. Yeah, absolutely. And and obviously a lot of the providers at that time were coming at it from a sort of omnibus account. Point of view and that from their point of view they're used to omnibus accounts and it facilitates you know sort of intraday off chain settlements and some other things like that. That we had a big debate back in 2018. You know other circumstances in which if you properly disclose it, or in which in which you can and can and should be having omnibus accounts even though Bitcoin is natively, natively segregated. And so we we sort of just having to kind of battle with that and we had some pretty good disagreements about it. Yeah, I think the other one that's most, I don't know if relevant but really hit home was you know you guys called out multi sig. And basically one other key bullet point was we should leverage the technology of this as a class to protect investors in ways not previously possible. I thought that was another really kind of key point that was recognized so early on and we're even seeing this today with the ETFs. They kind of hit on the opposite of what you guys described as the right way to create, you know, a product for the market. And it's similar to Jesse's piece and calling out you mentioned some of the uncovered calls, but then also just the central points of failure that exists with a single counterparty that we've seen the past, you know close to 15 years now in this industry. Yeah. One of the big things I've been surprised about, and this is sort of the risks that we warned about, is. Is people sort of assumed that because it was Bitcoin, you could just, you know, or or other digital assets, you could just, you know have a books and records that segregates at the books and records level. And then you can keep the, you know, keep the the actual assets or the keys in in different addresses and you can have multiple dresses that suit what you need. But those don't match even even necessarily what's what's a platform asset versus what's. A. A customer asset and it's pretty, pretty amazing to me that that that sort of is the was the modus operandi for for many of the exchanges was we'll do everything we need on books and records and then you have a complete disassociation with the actual wallet structure of where it's actually been kept and that that sort of was extremely you know. That it led to a lot of the dangers with with wallets being mislabeled and even with auditors coming in and looking at say what was in FTX, not knowing what wallet was belonged to what asset etcetera. But that that mindset that that you don't segregate by wallet address was kind of crazy to me. Yeah. It strikes me as a bit of a lag still that we're still living through with with the digital asset industry as a whole of. People are coming in and applying what has worked in the traditional world in terms of all operational aspects, custody, accounting being part of that. And you know, as a result of that like people are designing their, their systems, their custody and how they're accounting for individual client balances, not in line with what's possible with. With wallets and digital, digital addresses and you know, it's sort of too bad that like you guys put out this, this advice in 2018 and I don't think the regulators are there yet still you know five years later in terms of understanding that you know. That that an example of how digital assets allows a greater level of clarity and and transparency real time about where the assets actually sit and how that became a problem with the clearing houses example. You know that that plays out with custody too that we we have a greater level of fidelity and and granularity with accounting and and reporting that's possible here and people still haven't adopted that as to build these systems in a in a Bitcoin native fashion. Yeah, I mean that that's what's been so exciting and fascinating like you know Gavin reading that and looking at it and Jesse, Marty and myself, we talk a lot about custody and you know the maturation of this market. And we've been looking at this problem for a very long time and whether it's providing services, building tools and so it it over time, you know, I think it's a, it's a function of like proof of work and being in the market and recognizing whether it's FTX or seeing products and services that are delivering. What the protocol wants and that makes sense from a long term sustainability of like securing the asset or building a foundational business. And so it also makes sense if somebody comes in into the industry from traditional finance or coming in from Wall Street and they have a mental model of the world that's different. But what's really fascinating to be curious is like how did you, how are you able to come to that conclusion so quickly because you mentioned coming in 17, this is put on your plates, you're looking at it. You have to be I guess somewhat curious or maybe not curious, but it was your, it was your job that you were forced to do it. But then like to put that together within let's call it three to nine months I would imagine was the time frame that it was so obvious that this was the way it needed to be done. Like can you share kind of some of the like to the extent you can, I know it was five years ago, what was going through or was it really the the support of the team that was that helped you kind of see that vision? Yeah, yeah. So when you are you know when you're lawyering you and in your say you're launching the fund you you start with a set of documents that that you've used before and then you tailor them for the asset and and you know the risk factors that no one reads are you spend a lot of time on those risk factors hopefully because. That we see products, especially in other digital assets have gone full cycle, D5 funds etc, definitely gone full cycle. And those risk factors become kind of important at that at that stage. So a lot of it was, you know, there wasn't a place to go on the Internet to to pick up really good disclosures about about Bitcoin and about the Bitcoin network. So in a in a legal way I wasn't like Coinbase had public filings at that point so so we or anything anyone else so, so we really sort of I basically locked myself for three weeks and and wrote a bunch of risk factors for for a Bitcoin fund that we were working on and part of that I I think was I needed to understand you know how. The properties of the asset were just fundamentally different and and what that meant what, what, what sort of risks does that create. You know a lot of the failures we've seen in other markets with with the FT X's in Celsius etcetera. Like you know those customer agreements sometimes with complete Rd. maps to the fact that they were going to take the assets and and use them somewhere else, so. My journey really was OK. I need to get involved in understanding the adversary's self custody. When is it appropriate to have custodians? How is this not centralizing the risk by by having a qualified custodian creating a honey pot? So we were just trying to figure out all of those those issues. Yeah, you brought up the concept of qualified custodian. I think that's been the big topic. In the news the last six months with the bankruptcy of Prime Trust and the subsequent purchase of Prime Trust by or not Prime Trust, Fortress Trust by Ripple. And so you had prime trust was a qualified custodian leveraging the Nevada charter I believe and then Scott Purcell same person start prime trust went and started Fortress Trust in in these two. Instances that they were qualified custodians, they checked the box. However, it became abundantly, it has become abundantly clear that they actually didn't know how to secure these assets properly and it led to a loss of funds for their customers in both cases. Luckily for Fortress, Ripple stepped in and bailed them out and actually I don't even know if that's completely across the line yet. So I think that's yet to be determined, but. I think it gets to the point of, again, this sort of intersection of the incumbent regulatory structure and this new asset and something that bitcoiners and people that are looking to get into space need to be aware of is yes, you may have certain entities out there that check the qualified custodian box. But if you actually do the due diligence and look into how they're custodying the asset, in many cases they're not doing it correctly. So it's really. There, there's a lot of landmines that exist out there, people sort of having undeserved levels of confidence in their custodian with this new asset. And I I guess the question being is like how do we ensure that somebody who's checking the qualified custodian box is actually securing and custoding the asset properly? Yeah, that's right. And and because it was all new. A lot of the agreements and the systems that everyone was using were completely all over the board. So you had sort of massive people you know obviously with a lot of FOMO and and wanting to just sign any contract that that came their way to get the the yields that they could get. And you know it all played out over not really that many years as to you know some of the leverage, some of the. Sub custodians some of the those risks so again I'm not sure it got a ton of airspace but we we wrote to the SEC as part of a legal working group I'm part of because Wall Street blockchain is alliance and and it's a mix of of lawyers that's been talking to each other every two weeks for you know probably the same amount of time at least four years for me and. We sort of wrote a a a list of of things for the new SEC custody rule. The proposed one this, you know, they asked you know what are some of the things we should be looking at for a qualified custodian. So we sort of did a little bit of a of a of a list and I think the the problem is just that everyone's doing things in different ways and it's kind of hard for the SEC as being the. The one that is regulating investment advisors, there's a lot of custodians, traditional custodians that are really upset with the new proposed rule. I think 29 organizations like the FI Futures Industry Association and and is the and all these large trade associations wrote to the SEC about the rule and said look, you are. In trying to extend this rule for things like digital assets to try and change some of these concepts you're you're completely messing up traditional custodianship of other assets. And so that that's still that's still playing out and you can see you know custodians like why is the SEC regulating me, I'm, I'm not the investment advisor. And so there's that friction is still there is is who is regulating the custodians? Yeah, actually Logan, can you zoom us out because I think this is a really important conversation. There's three like key components if we can kind of dig into, there's QC and is it even qualified custodian, is it even required for an RRA or individuals because we're talking about spot BTC. If it's a investment funds trading derivatives, it's a different story but just spot Bitcoin. And then the second part is what to Marty's point is I think the qualified custody has confused a lot of individuals because they hear that term and they think of somebody like a prime trust is dealing is a qualified custodian, but they have the state charter in the recognition of the, you know bankruptcy remote, the legal rapper. But then they outsource the sub custody to an inferior solution versus somebody like a bit go who has a South Dakota trust charter but also has their internal world class custody similar to like a Gemini, right. Gemini has a New York State charter coupled with their and it's similar to the coin base. And so they're very different. And so people I think get confused on that. And then the last point is that new custody rule and I think that's been a conversation and I initially was very like concerned or skeptical of it as well. But then I became a lot less and you can tell me if this is incorrect after realizing that this falls under all assets. It's like alternative assets, real assets, real estate, alternative investments. And this is like it seems like a very like gross overreach from the SEC from a federal level onto state level and there would be so many people up in arms. It's much larger than digital assets that I can't imagine it ever gets actually enforced. So I know there's a lot, but maybe like working down if we can like talk through is QC actually required for spot BTC and then some of the like confusion between QC and custody and then maybe we can dive into like the enforcement and is it actually realistic Cuz I think that's on a lot of people's minds or they hear about it and they don't really have that like dispelled into those different like cohorts. Yeah, for sure. So the. Let's start with with what's the security and what's not a security. So, so there's kind of two different things going on. One is, is does this fall under the CFT C's jurisdiction? Does it fall, is it a security, so it falls under the SE C's jurisdiction, right. So there's that top level discussion or is it some other type of asset? And then because frankly, investment advisors, right, they invest in real estate, they invest in artwork. They invest in all kinds of real assets that that are not secured like securities at all. And so when it comes down to this custody rule, what they've tried to say is it used to apply just to fund and it still does because it hasn't the new rule hasn't come into effect. So this is just for a registered investment advisors and any state investment advisors that are subject to the custody rule and some exempt entities are like in Texas some. Some hedge funds are managers are subject to it. the IT used to be and it still is funds and securities does Bitcoin spend. So you can totally disagree about that. Bitcoin spends its funds if you don't keep it that simple. But traditionally commodities were not viewed as subject to the rule. So what you have now is a new rule, one of the parts proposed rule. One of the proposed rules is. Let's extend this to all client assets. And what's kind of funny is that people didn't notice, but in Dodd Frank, there was a new provision of the Investment Advisors Act, that statute that never has come and been used until now, that says safekeeping obligations of investment advisor apply to all client assets, not just funds and securities. That was part of Dodd Frank 1213 years ago, right. So, so now it's finally being kind of used and and as I mentioned these 29 trade associations have just written on September 12th of this year to to the division of investment management saying we don't like your rule because your requirement, your proposed rule because you first of all you're extending it to things like loans and. Real estate, artwork, precious metals, physical commodities. And you're trying to is the tail wagging the dog. You're trying to redo how that our traditional custodian models work in those areas. And the irony of this is partly that digital assets are the reason that that that one of the reasons that C C's been trying to grapple with. With the native properties of digital assets and whether how you bring it into the rule. So and if you take it at one step further like we didn't even bring up the fact that they're trying to not recognize the state charters as part of this, right, is like the South Dakota and they fall under the qualified custody or stripping them of that kind of like credential. Right. So I mean, you can imagine this rule kind of upsets all of these different businesses that work in certain ways. Like the rule says, for instance, the proposed rule says that you must have possession, that the qualified custodian must have possession and control, right. So the way they said, you know kind of for digital assets, they said okay, we think the possession and control is. The qualified custodian must participate in the change of beneficial ownership. So if you take private keys right you you, one of the requirements is one of those private keys or two, depending on how you read the the Rule 11 key must. The qualified custodian must sign a transaction to participate in that change of beneficial ownership. So that creates a bunch of problems even in digital assets, right? If. If. You know there's some model where the asset goes to a hot wallet that the custodian doesn't control. So, so that's that rule is upsetting all these other people where there are other types of assets, precious metals, real estate, where is the qualified custodian participating in the change of beneficial ownership? What does that mean? Why are you making us rethink everything? So I don't think the answer is as close as people would like, you know? 29 trade associations asked the the rule to be withdrawn and they basically said, please take a look at how custody actually works before you come up with a new rule. That's basically what the letter says. And so it's it's ironic that that that digital assets are actually forcing, you know, well, maybe the qualified custodian should in theory participate in the change of beneficial ownership. You know, maybe they should, right. And so. You know, I don't think we've seen every the longer I'm in the space from writing that letter, the more you realize that this is a huge time frame of change. You know so. Well, and then that begs the I was gonna say that begs the question, should I mean, we've been talking about this in the context of asset allocators trying to bucket Bitcoin to a particular sleeve of their. Portfolio allocation, is there something similar on the regulatory side where you just need to separate this from all other assets and treat it completely differently? Yeah, I think it does beg the question of what what the division of Investment Management will do next. They have the regulatory authority on the deck front at Frank in my personal opinion. But do they? Do they have to rethink and say, well, what's custody? What works for custody in one asset isn't what works necessarily in another asset. So trying to find a unified rule is trying to make reality 20 different realities fit a rule. It's kind of hard to write that rule. Sounds like an impossible task. Yeah, it sounds like the dreamed up solution of a centralized planner trying. To come up. With a unified theory of everything, custody for all assets, it's impossible. Well, they did. They did put a lot of time into it and our conversations with them started 6-6 years ago and now we're just at the proposed rule stage getting criticized by various traditional custodians. So yeah, I think it does. To answer your question, Jesse, I think it means that all rules have to take into account the asset that they're trying to ensure it's. Reasonable. And and I wanted to tease out how it sort of feels like part of part of what Michael's #2 point there. And and what you were talking about, Gavin, is that qualified custodians don't necessarily have the, the competencies, the, the, the score, the core skills and competencies for for executing digital asset transactions. And many of them that have like dipped a tone to the space they are. Trying to bolt on those competencies to how they've done things for their whole careers, right, like the Scott Purcell example, the Prime Trust. This was just a growth area for a custody business. So they, you know, decided to say that they were, they were open for business to be a digital asset qualified custodian and without really having developed those skills of like what does it take to be a. A responsible skilled knowledgeable platform for that and and what are the risks inherent in all the surface area of attacks that you have to make sure you're accounting for And so like it didn't work for prime Trust and it didn't work for Fortress because they had this sort of bolt on approach to digital asset custody as opposed to someone like Bitco who has grown up in. A Bitcoin native participant in digital asset custody and has the chops to set up systems the right way. Yeah, it's a real, I was going to say it is a big gap in the space from we had Matt Mcclintock on. I don't know Gavin if you're familiar from Bespoke and he I consider you like top of your class and what your background coupled with digital assets and similar with him and trust planning. But even at his level when it comes to trust planning you have to get the assets out of the estate and going into a qualified custodian and right now that means giving it up to a third party and that's the best that we have. Well what happens if that their party goes out. He referenced I believe Anchorage and I know even bit go being world class like what happens in 10 years when you need to pass those assets on at the exchange. You know, the history of the past 10 years hasn't been good for exchanges, so it's a real problem. And just like how do you actually plan long term for the transition of these assets into your estate? Yeah. And I would just add like 1 little thing. I think that's driving a lot of frustration within the Bitcoin industry of people who grew up in this space and understand the primitives of the protocol intuitively much better than any. Qualified custodian does. And in the case of Prime trust, like, they made the biggest Bush league mistake that you could, which is they threw away the private keys that they previously had ownership over and we're allowing customers to send funds to wallets that they did, they destroyed the keys to, which is. Allegedly. But let's let's pretend like that's actually happened. If that did actually happen, like, again, that's like a Bush league mistake that any. Individual Bitcoin or knows like don't don't do that. The fact that a qualified custodian made that mistake is mind boggling. Yeah. And in that 2018 letter, we actually ended this was someone else's point, but they actually said, look, you actually need to hire qualified engineers like in the safety of a Bitcoin, you know, and I know it's about disclosure and then not necessarily that. Then here's the problem, right? If the problem is that the current law regulates investment advisors and. There's these rules about qualified custodians and then using them there's not really in the United States other than these trust companies and a very you know one or two federally charted before that got put on hold. Just just there's not really a comprehensive regime, if you like, for for regulating custodians and. I know that I can't tell you when federal regulation will will come, but that that actually is the part of some of the proposed federal regulation that certain custodians would be regulated and you know, by a federal entity. So whether that's the right or wrong, that's part of the problem. And to Jess's point, like that you can see it from a regulator's point of view, right? They're like okay. I know what a Trust Company is. You go hire a technology company that's totally separate, we'll kind of regulate your you as because we know what you are and then we'll make sure your contract looks kind of good with the technology company. And that way we don't really have to figure out the technology piece, right. So you can see why under the current law, that's the way they prefer things to go. Yeah, but from a pure like just. Pragmatic, logical, game theoretical perspective. It absolutely is insane, just like what we know. But then also like BlackRock is the premier example of this, like if it's all successful, that means Coinbase holds billions and billions, potentially trillions of dollars. That doesn't end up good for anybody. And we've seen this with like Block Five was a great example of those mismatches on like the liabilities versus and they were outsourcing, you know they sent it off to Gemini. But these like custodial agreements, like there's one thing to build it in house and have the competency and that's already like very scary because you, you know if you have any breach, any kind of individual inside that ends up going rogue. And ideally you have the, you know, permissions and the ceremonies in place to prevent that. But you still have that over your head. And then you extend it by giving up all of that, look what you referenced to a contract in a third party. Now you're hoping to God that they nothing happens with them, but they're also holding everybody else's assets and they're generally commingled. It's just not a sustainable, pragmatic way to think about how this industry will, like, grow. If it is to become, you know, 1 trillion and $10 trillion, there has to be a better way. And and to you guys on the technology front, like one of the questions I like the risk factor I had to write back in 2018 was was, you know, short, the risk of short squeezes in the market. Like what is the question to you, like what happens when you know a trillion dollars needs to find Bitcoin and needs the actual asset. Imagine what the, you know, the liquidity issues that could play out worldwide. I don't know that to me not being, you know, I'm just a lawyer, but that seems like it's a big concern. It it actually is. We just talked about this as far as redundancies, right? Building the space you want redundancies across bank accounts, liquidity providers and making sure that you can always source the Bitcoin as the market takes off. You want to be able to never look at a client and say Oh yeah, you want your exposure and that you're going to have to wait or you have to find Bitcoin and that will happen. We, I mean, everybody always talks about this. It's like the. The mother of all short squeezes when everybody's trying to get through the door and it's like this big. And and Gavin, you're kind of projecting for the, you know what we, what we've seen over the last couple years, three years has been a decline of balances on on exchanges. And how far does that go? You know, does that just keep chugging along for another six years and then there's basically no Bitcoin on exchanges and then somebody gets caught in a in a massive short position they have to cover? Suddenly the price is gapping up because there's no willing sellers and you know the the price of Bitcoin might at that point be 100,000 and they can't find anybody to fill that amount of of Bitcoin necessary until you know 200,000. Like, that's the those are the the forces that collide here when you have a finite supply asset that nobody can print more of, and many people will continue to speculate against it. Already is so ready for that in his bones every this is a little inside. Every couple weeks I get a like 8:00 at night. The text it's like, I'm so bullish right now and one day the right it's gonna turn out the price just like rips and he's like I told you I. Felt well. Again, this points back to the beauty of the supply schedule. Many people neg it, but it was important. That's so she set it up the way he did so that the supply could proliferate and you could incentivize people to plug in minors and. Acquire Bitcoin. But I'm looking at the supply right now there's 19,490,993 Bitcoin on the market. So we're we have less than 1.6 million Bitcoin left to be dispersed to the market. And as Jesse mentioned, hardened hobblers who understand the value prop of Bitcoin have been pulling their their Bitcoin off the exchanges and so the free flow. Of Bitcoin on exchanges between, I believe, one and two million right now, maybe 2 and 3 million. And that's not a lot of Bitcoin in the grand scheme of things. And so, yeah, I can definitely see a short squeeze happening sooner than people realize, especially if that trend of draining the exchanges continues inertest moving forward. And that's like the crazy psychological thing about this as time moves forward, we're approaching 15 years since the white paper launched. Like people? Fundamentally understand and grok what Bitcoin is and what it represents and its potential in the future more and more every day. And so they become more convinced in their strategy to huddle Bitcoin. And we've been saying it the last few weeks like this is the first time in human history that individuals been able to frontrun Wall Street. And that's going to be a fun lesson to watch play out as Wall Street learning they go, maybe we should have gotten in earlier and they're going to be buying at significantly higher prices. Kevin something that Marty just in what we're chatting about here made me think like how have you like what's your personal kind of perception of the the market and and just seeing it like we we talk a lot about like risk adjusted and you know getting into this space whether it's buying Bitcoin building it feels like we've just been in this like you know 20 roughly 20K for practically 5 years it would hit you know top tick 20 at at late 17 and. We've done a bunch of stuff between then, but you've seen first hand of people building a space, regulation, infrastructure, liquidity globally. Like how do you just like there's not really direct question other than like how do you see it from a fundamentals perspective and what's happened and what the difference is between from 18 or 17 to 2023 going into 2024 and all the things that Marty just referenced with BlackRock and and the, you know, 19,000,000 Bitcoin sitting in people's hands. Yeah. So I mean talking about the United States, first of all, you know, again, I'm just a lawyer. So but if you think about you know one of the reasons why division of investment management was so slow in the SEC too or or got guarded if you like on this the custody roll updates was that they realized that there didn't quite know what the bankruptcy remoteness treatment was of or at least they they didn't. There wasn't certainty and how quickly it will play out as compared to like a broker dealer or a commodities A futures Commission merchant. There's a bankruptcy regimes where kind of for smoothness suddenly these masses of customer accounts can get moved over to a different broker and there's the SEC knows what that treatment is. So part of the reticence is do we understand bankruptcy, remoteness and then also is it our job. And I think they kind of recognized that that you know that there are other federal regulators. You know you look at the OCC and the and the work that Brian Brooks did before it kind of got put on hold to to charter custodians basically thanks to their custodians and then some of the work to kind of stop states being able to charge their custodians like that. That process just talking about the United States has taken is not resolved and it's taken six years And during that time you've had like entities that were very sort of well regarded maybe not in the bitcoiner space. But we're we're large entities completely come and go. You know just just entities that everyone was doing business with outside of of, mostly outside of bitcoiners and those entities just don't exist anymore and and they look like they were ruling the roost for a while. So I think it's a lesson in realizing that the change takes a while and I, I, I, I keep coming back to I hate it. You know, I I did. I don't know if Parker was Lewis was the first person to come up with the gradually then suddenly expression. Do you know or does he get that from somewhere? What's the Hemingway reference? Isn't it? It's Hemingway. Sorry, we just gave him a. Lack of Hemingway saying how he went bankrupt. Yeah, how do you go? How did you go bankrupt? And he, a reporter asked him that and he answered well, two ways gradually then suddenly and so, so I kind of you see that we've seen that play out in this space, you know, a block 5 Celsius. They suddenly grew here, Even the FTX, they grew huge. And then for reasons good and bad just went away over overnight. And so again in a bankruptcy context. So I think that you you're within the US you're you're going to need some more certainty and laws and and and Congressman probably to come up with some kind of and the industry some kind of acceptable regime that gives a bit more certainty to regulating custodians probably although that may be unpopular just so there's certainty and I think to answer your question like Michael like gradually then suddenly you know if you know there's a reason why spot BTF's have not been approved just because you know and I doubt it's because the difference between futures market surveillance and the spot Bitcoin surveillance. The stated reason it it's what are we unleashing if we approve one of these things and what's going to happen to the price of Bitcoin and do we want you know this is a regulator thinking do we want you know our country's citizens to have exposure to these to this asset they know and and and that's in my view that's sort of what's happening in in the reticence to approve a a spot Bitcoin ATF. With the pretty valid excuse of yeah, I I think it's largely driven by they don't want to to unleash this while finance is still the dominant player who is like flouting US regulators. And doing all all sorts of potentially illegal things. I think that's a very convenient excuse that they probably have rallied around as as a reason to not allow it yet. And that that's why I kind of like the building slowly approach that a lot of people in the Bitcoin spaces have used very, very sort of steps that seem you know, just seems slow right in some ways, but gradual building as opposed to these you know companies out of nowhere that come and go within a three-year cycle. And so I'm sort of bullish long long term, but long term might be longer than any of us want. Who knows when the suddenly part happens? We touched on it last week about private banking and I made this reference. We didn't go too far into it because it wasn't the topic of the. Conversation. But I feel like we're in an era of private banking because in my mind, all it means is you can fulfill your obligations. Your free banking. Yeah, what did I say? Private banking. Yeah, free banks, free banking. But similar, I mean similar concept, right? Private free, like the the idea that there is no Fed to backstop you. And so I think of finance is just a a free banking like they're fulfilling all the obligations on the liabilities and block 5 Celsius and all these firms haven't and the free market is ultimately like delivering on that. And you reference the evaporating with these firms. And that's the scary part of all this. As we've seen companies whether it's just like traditional tech and free money and what it happens to the quick cycle of somebody's life like in and out. And then Bitcoin and crypto is even faster. And that's what makes us it's like a catch 22, because people can't get into the space because they're afraid all their money's going to evaporate and then people come into the space and all their money evaporates. And that's what's like, so you know concerning about these ETF's and being centralized is because. They don't know that. All they know is being backstopped and the Fed saying, here's some extra liquidity and there are no bailouts in this space. And that's part of this conversation. We do it every week. It's like a lot of people are gonna get wrecked in this place because this is the first time we're experiencing something of a digital bearer token. And the 2nd, it's gone. It's gone forever. Yeah. And the funny like building on that, The funny thing is up to this point since the regulators. Seem not to understand what they should be doing and are moving extremely slow. The onus of regulation has been thrust on the free market and like on us as individuals like on TFTC rabbit hole recap like we were screaming about prime trust for years before it and I believe blew up we were screaming about block 5 Celsius FTX even. And So what we've found, like the best regulation within the space has been self regulating where it's. Creating informational resources and building a brand and the trust with an audience to say, hey, I like to think that I understand this space pretty well and who's doing custody right and who's doing custody wrong. And that has been the extent of, I would argue the most successful regulation is a self regulation of educating people about what this is and who they should be doing business with and. I think that's free banking. Like that's how free ranking exists, is like by reputation and where do you take your money and where you don't because you know that there's a fire. There might be a potential mismatch. One of the provisions we always draft and fund documents is the ability to redeem people in kind and say there might be situations and when a securities portfolio is just you know it, it's a portfolio that we can't recognize on to over three-year period. So we spin off an SPV and then we give it back you know, so you own the the actual assets through the SPV. And then we we redeem in kind. And I think one of the beauties of the ability to you know in a product where you can actually obtain, you know potentially the Bitcoin if you choose to go into an ETF or a fund and you can't actually obtain the Bitcoin. There's some complications there, taxes and and and that custodianship and transfers. And that that to me is like a mechanism of honesty, right, because you have to have the asset available and that's you know one of the things we came up with in the Texas law that that has come into effect that affects some some of the larger trading entities and custodians in in digital assets is you have to have that asset available to to to get it back. And I think the same thing is true that that that kind of honesty mechanism is ultimately like a good product design. I think that that's part of the like the free banking example here is the the winners emerge because they're trustworthy, because they've set things up right in the interests of the clients and and the reputation follows. And with Bitcoin we have the ability to implement these like these asymmetric setups the provide asymmetric leverage in terms of fulfilling custody specifically what we're trying to do with on ramp. But we've what we've spent a lot of time setting up multi institution custody that that takes Bitcoin's native multi sig properties. And maximizes security while minimizing counterparty risk because we have multiple institutions as key holders for the vaults that hold the Bitcoin, and that's not possible in the old world. It's possible in the new world, and in my opinion, it reduces the risk inherent in custody by an order of magnitude or two and in that free banking scenario. That proves out over time as a better model for for doing, for doing business, for clients to trust, because it leverages the technology in a way that you know holds up the interests of the clients at the end of the day. Yeah. And that's what makes like this whole space so interesting, whether it's building, investing in it or finding your counterparty. Because what Jesse just alluded to, this isn't just. Tied to on ramp like I think Unchained Capital is a great example of when we think about free banking on the lending side and being one of the last lenders, Bitco another one and how they collateralize the loans and also how the keys were segregated and always able to fulfill those obligations. Similarly with their custody product and holding only one key, they can't lose clients funds. It's it's, it's impossible. Now though the client can lose their funds they have to hold two or three, but it's still a much better model than holding you know with a coin base or another firm that you basically trusting unilateral control with. And similar to what we're doing on ramp, the the ability to, you know, have multiple institutions holding those keys, when you think about it just makes sense as a better model when you look at this asset. And what's again most exciting is the incumbents. Inherently will not most of them. I can't, we can't. It's an over generalization saying all of them, but I would say 90 plus percent cuz we've talked to them That model is completely antithetical to their whole like being from how they make money to how they think about the their industry and coming into this space even some of the best firms of the best names, they would never give up control of that asset. And so from a just a pure kind of opportunity standpoint of thinking that Bitcoin's going to be here, there's such a white space to create in it. Because again, just talking with Gavin and what we're discussing here from a game theoretical like logical perspective, this asset can't centralize with large entities because it's a recipe for disaster and it just opens up so much like you know, opportunity to engineer around it and develop products. That just makes sense to build that reputation as Jesse's referencing where you cannot mess things up singularly. That's not to say that things can't happen but it makes it a lot harder than what we've seen the past 15 years. Yeah. The other thing that the the new Texas Lord that that came into effects in September we kind of Texas Blockchain Council and and really worked with some of the regulators on and I helped on a a working group for it was just you know to your point Jesse just the fact that commingling isn't just as something that has to be solved at the books and records level it needs to be solved at a wallet level. So you you can't have without proper disclosure. At least you need to have the unspecified reasons you need to to have your wallet structure working so that there's no coming their customer funds platform assets. Except in limited situations. And so the new Texas law has that and has maintaining the customer funds in a way you you you can't maintain them in a way that you can't fully withdraw them, and you also can't use the assets of 1 customer to secure or guarantee the transactions of another customer. So obviously every law has its scope and application and questions about who it applies to but but that and then the requirement to have like auditability. You know accounting standards are kind of still catching up to what works and doesn't work reserves and does it what's its place and what's its function alongside other controls. But it it just seems like a good accounting standards are critical within the United States that that that to embrace like the properties of of Bitcoin and its auditability and then its native segregation. So to me, those are. Critical. So I have a accounting background and I think it's fascinating how digital asset space is still sort of catching up to why audits exist and like. You know, we we've, we've gone from a a world where there's no accountability in in terms of reporting. And then now you know the big exchanges, the the crypto casinos are pledging that in proof of reserves as this great innovation, this great breakthrough that they're going to provide this visibility to the reserves that they have when really that's 1/3 of an audit. You know that is that is proof of the assets on the balance sheet but not taking into account the liabilities or or or how the equity plays out there, which is comical. Comical to me from my accounting background because it the whole picture matters. The whole health of the business, the whole health of the balance sheet and the other financial statements. You have to see that all together in order to feel confident that you know the this is a. A going concern business and they are sound you know so in the example of like finance they have implemented proof of reserves, great, you've got, you've got assets but do those assets come from liabilities like are are are those are some of those borrowed assets that you owe to somebody, We don't know because that hasn't been you know a part of what the, what customers demand from. The businesses they they work with in the digital asset space yet and regulation is still sort of like catching up to that as well in terms of what is what is required of which digital asset businesses it's it's all just kind of funny that like there's 100 years, 150 years of learned wisdom about how to. Keep track of who's a healthy business and not in the accounting and audit space in particular. And we still haven't fully embraced that. And but it's, it's coming slowly. Yeah, yeah. Those accounting standards probably take 2-3 years to get created. Exactly. And we're seeing that right now with the, the updated FASB guidance, which I was just digging into this weekend, my latest writings on that. Micro Strategy and Michael Saylor have been advocating for this for three years, ever since they got into, you know, they went on a Bitcoin standard. Historically, Bitcoin is expected to be accounted for as an intangible asset, which means that when the price of it goes down, you have to mark down the value of your assets and record that as an impairment loss on your earnings statement. Which kills your your profits whenever the price of Bitcoin drops. But you're not allowed to record the the corresponding rise in price as a gain. So micro strategy is carrying a $2 billion loss on you know cumulative over the last three years on their on their earning statements and balance sheet. And they've been petitioning the whole time for Fadsby to update the guidance to do fair value accounting, which they are. They have now unanimously said can happen starting January 1st, 2024 and that's going to be a big, a big step forward for accounting of Bitcoin and micro strategy is going to be the big winner in that. Gavin, on the one of the things like personally and and I think the audience would be helpful is on the UCC ruling of the intangible assets and and. Where it started with Wyoming and it and I think Texas being I think probably 2nd and really the adoption of it. Can you share any of like the the recognition of Bitcoin as property and how that was big for Wyoming and where Texas like it has adopted that standard and what that means and I guess a little bit of like the background I was listening to? He was one of the guys that was familiar with this, I think in Wyoming and he basically went as far as saying that you shouldn't operate in a state. This was his words. You shouldn't operate in a state that does not recognize that the UCC ruling has Bitcoin as property. And I didn't fully, I mean I kind of directly understood it, but it'd be curious if you can kind of like help. Must understand that to the extent and I don't know if I'm putting you on the spot here but if you did extend. Yeah so I'm not a UCC expert but but one of the things that the custodians did when they wanted to obtain certainty under the law is they said I'm gonna put more or asset managers I'm gonna put the asset with a third party and I'm going to treat it under the UCC. Article 8 is like a securities in to me jury because I know what happens when you're securing a a an interest in in Bitcoin at that point a security interest and and then I kind of got around all of the uncertainties of Article 9. And so really Wyoming was you know way out there with with with Caitlin long and sort of saying well what is recognizing Bitcoin as property. You know obviously you can understand why a state like why Wyoming would be very in favor of property rights. But also just having certainty in that very boring mechanism that we are subject to every day where, you know, we get a car and it says there's a secured interest on the car if there's, you know, a loan, all the basic basic principles of of finance, you need the certainty. So Wyoming went out there and and Caitlin Long and others went to basically war with the Uniform Law Commission And and the other entity that if, you know UCC is like private law, it's like let's all decide how we're going to treat this and you know, we'll come up with the standard. You know, the Uniform Law Commission is not a government entity and then states can adopt it. And so it's a unique process where you say Okay state, does the state want to adopt this, this essentially a private law concept and say how do I get a proper secured interest in Bitcoin and do I recognize it as property. And so the Wyoming came up with a law and basically Caitlyn and others went to kind of war with the Uniform Law Commission about how they were thinking about things. And eventually there was a big swing internally in the Uniform Law Commission and the other entity that that kind of helps create standards in this private law. And so they came up with a definition of something called a controllable electronic record that that basically says, how do I get control over the asset? Do I go file a UCC statement? What do I do? And so they came up with a test that basically says you have to have the power to prevent someone else from using the asset, and you have to have the ability to avail yourself of substantially all the benefits of the asset. And there's a third requirement that is escaping me right now. But those there's these requirements that actually fit the way that multi signature works and digital asset works and is recognizes that you know like Marty says it's to some extent it's like a bear asset. So the definitions are kind of hard to understand and they create confusion. But it's just a critical mechanic. If you're going to be holding Bitcoin, for instance, and you want to secure, you want to get dollars. You don't want to sell your Bitcoin, You want to get dollars for for everyday expenses or or or whatever. And for those transactions to happen, you need this certainty. So you see the Wyoming let the way the sort of people who understood digital assets found their way into those private committees and then you know I forget the number if it's 20, some states are sort of behind that those laws and then so I hope that's answers your question. Yeah, I think that ties into some of the Texas stuff, but it'll let Marty go. But yeah the I think just the recognition like you reference with the prover deserves and knowing that kind of like back story of like Wyoming leading the way and then Texas you know starting to adopt some of it and taking further steps with the the prover reserves is helpful. Yeah, I wanted to really extend this conversation of how states are going to look at this and try to project forward like, Gavin, your opinion. Like how do you see this playing out in the future? I mean, just to give some context, when the federal government came out and was sort of postured like, hey, we're going to tell the banks not to bank crypto and Bitcoin companies, you had Ron DeSantis stand up in Florida and say, hey. Our state charter banks are open for business. If you're a company in the Bitcoin space that needs a bank account and you're within our state, you can use the state charter banks. And it seems like even outside of Bitcoin, that sort of posturing of individual States and their charter banks verse the Federal Reserve System is going to heat up, whether it be about the ability to give loans to fossil fuel companies or people beginning to have their transactions censored for. Doing things that the federal government doesn't like in states saying, hey, we think you should be able to do that. So you can do that within our banking system like moving forward, do you see this trend accelerating and the sort of juxtaposition of individual States and what they allow their individual, the banking sector within their states to do business versus the federal government. So, so you have like in Texas for instance the Department of Banking came out with guidance that you can custody a bank, state charted bank and custody Bitcoin. But has that really happened at large scale, not so much. And part of the reason is that that the banking system in the United States is so complicated as to what the state regulator does versus their federal regulators and the fact there's more than one federal regulator. So what the Federal Reserve does and whether or not you can give a state charted entity a a, a master account to be able to settle more frequently that sort of thing. There's still a massive dependence on the the various banking federal regulators and they are under the current administration not open in the same way that that they perhaps were with Brian, with Brian Brooks was at the OCC to embracing banks holding digital assets. And it's in part just because they don't understand it, you know, the risks, etc. And and whether it's whether any public blockchain is consistent with safety and soundness principles in banking, that's not something that the federal regulators have even conceded. So you could see some push to private blockchains because they they find that fits into their safety and soundness rules better than they understand with public blockchains. So you're going to see some major resistance without a change in administration in my view to at least at the federal level, the banking regulators really allowing the industry to move forward in the way that, you know now even some of the biggest institutions wanted to. Yeah, Jamie. Jamie Dimon Coin Marty. Is that the? That's the new thing. JDC is the new BTC. You heard of your first? Gavin, the the thing you reference with the state banks and banks in general seems very similar to like the SEC and the ETF. Because I know there's other regulations on the federal level with like custody and the one to one really parity with dollars to like that coin being held and it just feels like a kneecap in of the whole setup. I mean, what you reference is what you know Caitlin and Wyoming have run into with the. Custodia and basically getting access to the Fed window while they can operate at the state level and that's where they're in their lawsuit. So it sounds like until there's clarity there, maybe it's the ETF and then everything's all lights green. It it will be in that kind of like wait and see mode from these larger entities on how they're gonna get exposure or allow for exposure from their clients. Yeah. And and there was a, you know, albeit skeptical, but there was A and I forget the name of the V the the venture capitalist. But a famous venture capitalist gave some kind of equivalent of a a Ted talk recently about regulatory capture. And the example of like, you know the fact if if Elizabeth Warren goes after the assets for instance, suddenly her list of top ten donors include the largest digital asset companies. And that that's just that you have to understand these dynamics to understand how change is or is not going to happen. You know actively attacking an industry like writing to Texas about mining and Bitcoin mining etc Is has an effect of attracting donors which has an effect of increasing the and this is my personal opinion not not of the law firm increasing the the the sort of power of of you know in DC of the right people and so you you're not going to make change at the speed that you expect if if there are people that are making sure that their domain remains large and well funded. Yeah. However, this was sort of the the key insight of Sam Bankman freed in in pushing for the kind of change that he thought was a good idea. But. You know, your point is absolutely right. That like as Bitcoin succeeds in Bitcoin, companies and bitcoiners become a more prominent part of the the capital base and and industry that. Ability to exert influence grows in DC and that is a tailwind for better policy over time as Bitcoin's mechanics play out and hopefully it becomes a bigger. Part of the asset landscape. Can we do the Bill Gurley route where he said I was trying to get us far away from DC and let's say we're trying to let's forget about DC, Let's focus on Texas, right. Right. And that's what we have. We have a law in Texas now that addresses commingling and making sure funds are actually available in a way that Bitcoin actually works. So that's exciting to me and that's a great strength of being here. Yeah. And I mean on the Texas thing, it's not a accident we're all based in Texas soon to be one other individual on this call. But like Gavin, like you know, you you talked about politics and like how it works and it's been public. You know Lee was recently on with Nick Carter talking about Winstead and and TBC and some of that like to the extent you can share some of those dynamics like why you think you know Texas Wyoming's also part of it and there's like this natural kind of inclination for. You know, freedom and and sovereignty, but like how that ties in to also some of the work that's being done, you know, on the political side, the mining like just if you could share any of that dynamic because I'm personally as a native Texan, very interested and just excited that like have led this way. It feels like it's not going anywhere. You know we have the bullion depository up in, you know, North Austin that sits there and I think it's the only state sovereign bullion depository. So we're heading in this right direction. And so we think about building a business like it makes sense to be here. But you're at the forefront of it sitting in there be curious to kind of hear like what's going on and how you think we got here and and where we're going. Yeah. So when some of the early events that I that I attended obviously were like that that consensus event was pretty big that that that back in 2018-2019. And I remember seeing Gideon Powell who is does a lot of work in Bitcoin mining in in Texas. You know stand on the stage in New York with 8000 people and just said look bitcoin's coming to Texas and and talk about it and it seemed like a really typically brash and bold and and kind of wonderful moment. And then you know that was all before all of the changes with with China and and a lot more Bitcoin mining to coming to Texas and creating an environment that that supports mining where there's this kind of exchange with the the energy grid to try and stabilize the grid and this unique ability of miners to to to switch off at at peak demand times that that that's a whole another unique part of of Texas. And I think that you know I'm I'm still on my calls with with you know with the Wall Street Blockchain Alliance in New York you know New York DC lawyers for the legal working group. So I can keep up to speed and and we can exchange ideas on on kind of legal issues and there's been several weeks when they've just said look Texas, wait, it's all about Texas this week like what's going in Texas because. There, there's so much activity around mining that obviously Marty and Y'all can speak to really well, but that's also fantastically uniquely Texas. Yeah. And I think just bringing the mining aspect into this really adds like a layer of complexity for regulators, right? Because you have this digital bearer asset that many people view as money, some people view as property at a cruising value and then you have this connection to the physical world which manifest. Via the mining industry, which is very energy intensive and figuring out how to separate the the bearer instrument from the mining activity and like how do you tackle this behemoth that has been thrust on the world is again something I think slows down the process on the regulatory side. And I think really points to why you're seeing states leading the way, particularly here in Texas, because Texas understands energy. Obviously, we have ERCOT, which is very unique within the United States and it's becoming abundantly clear that Bitcoin mining is an additive positive positive value add to the grid system and that's why they're moving 1st. And we're seeing this begin to happen in other areas like Tennessee and Appalachia where the TVA is beginning to realize that Bitcoin miners are helping out there. But yeah, that's been my theory. For a while that states are going to lead the way, particularly in the mining industry, the energy rich states that really understand intuitively how the energy sector works and how you pull molecules out of the ground and turn them into electricity that allows you to turn your lights on. They're going to understand this quicker, and that's actually pulling this into the broader conversation we've been having for the last. Hour and a half almost, is that it gives me a lot of comfort knowing that these states are leading the way here and hopefully they can create the precedent that the federal government can say, all right, maybe you guys got this figured out. We won't get too involved with it. Yeah, and there's real there's real money and recognition we're long overdue for. We got to get a Gideon and our friend Griffin Habe. Maybe we could do a double on the mining side here in Texas. If you know we talk a lot about meetups and in Bitcoin and getting together. I think Houston meetup probably is one of the most special and different because when the market in the the I don't even know if this is politically correct or friend Griffin Havey will say checks it happened as the miners were leaving China and heading to Texas. Houston that that. That between Houston and Midland and the amount of native Texans that recognize, oh, there's no such thing as stranded energy and just fully embracing it, not even fully understanding that like, oh, I need to hold this long term. It's what I can transition physical oil and gas into this thing that I can get dollars for. The second they heard, it was like, oh, game on. And I've never seen it happen that quickly and then you that translates to politics and all of it because of the majors show up to these meet ups, they're still there. We know that they're looking at multi sig, they're looking at mining and all the things. And so that like entrenchment, to Marty's point, just sets the foundation for this not to leave and then to be like ripe for kind of innovation and continue to grow independent of anything at a federal level because now you're messing with actual individuals that are paying taxes to the to the state. And and Marty, I don't think it had ever really hit me before. You just mentioned, yeah, I most people probably don't even know that, that there are three grids in the country in the continental US There's there's the West, the East and Texas and that's, that's it. And because of that, because Texas has its own grid and has has to balance and and deal with, you know, grid stabilization issues on its own that that becomes a. A more pressing issue for Texas specifically to solve. And so Bitcoin mining becomes a solution that makes sense quicker, right and is more quickly embraced as part of how that problem is solved. And so I I've never really put two and two together before that like beyond the you know seasonality and and energy mix that. Texas has in the history that Texas has with energy, there's this, this pressing need to to solve the decentralization that Texas has with its energy grid. And here comes this decentralized energy solution that that can be a part of that. So interesting, yeah. And I've also kind of I just love going to see like Psycho facility that like you know Gideon built or someone else built and actually see how how it works and and and I still don't know much about the stranded gas and how you know that gets turned into the electricity that feeds the the the units that are right there. But that's. Yeah, I still think that the most badass video of of Bitcoin mining I've ever seen was was posted by Marty and it's a shipping container in the snow at night. With these machines whirring away and then the camera pans outside to, you know, a flare right there on the oil field. And it's this is how it happens this, this, this translation of that stranded energy in this remote and for hostile environment into energy in in, you know, digitally connected world. It's wild. Now you guys got me getting all nostalgic about Great America combining, but. No, it's beautiful too. When you see like particularly upstream on an oil gas well pad, like the visual, like the instant visual satisfaction of turning on us a Gavin, you ask like, how do you actually produce the electricity? There's generators, you bring them on and you pipe the gas that would have been going to a flare stack to the generator. Maybe if it's a bit dirty or you got to scrub it up first before you throw it through the generator. But then simple terms here's. Diverting that gas from a flare stack to a generator producing electricity, the mining with it on the back end. And so you have that direct efficiency gain with the reduction of flare and actually getting value out of that gas that you were just literally setting on fire moments ago. And then to your point, like how do you produce the electricity? That's another thing that I'm very confident about is that Bitcoin mining is going to create the incentives to have better generators at the end of the day, because uptime. It is of the utmost important. So when you talk about like the positive externalities that emanate from Bitcoin mining, whether it be behind the meter to do some load balancing for the greater upstream to do flare reduction, it's going to create these crazy efficiencies in many different areas. And that's just on the mining side. We're not even talking about the digital asset that creates capital efficiencies that creates. Efficiencies in terms of sending money globally, like the fractal nature of how Bitcoin improves systems in the physical world and digital is pretty insane when you sit down and really begin to understand what's happening. And then it's global. Like we know Latin America, Middle East right now, but Jesse's point about. The GAM video I think of when you reference that, I think of the the China stuff like there was a two that ring out where it's like a village in the middle of nowhere with the water using it into like this weird like. In the. Jungle, small generator. Yeah, in the jungle. And that's like making more money than they probably would make it in that local economy. And then the other one was just like, we think about anybody ever banning or all the stuff with Bitcoin, it's like. It's China and they still have whatever percentage of the hash rate. And then they had these like modular setups where they have like spotters to look when people are coming and then they just like literally close the gate on the, you know, the truck or how it's set up and then you just take off and you go to the next location. It's like there is no stopping any of this. It's just you either embrace it or you don't. Yeah, and and you guys got me excited about. What like gridless compute is doing in in Africa of implementing infrastructure in places where they haven't had a grid because there hasn't been an economically viable business case for for installing energy production. But now there's Bitcoin mining and so you've got all this hydropower and in in parts of Africa that you can set up a a micro hydropower energy producing unit and and for now the bulk of that energy is going to Bitcoin mining. But now there's energy in that location. And so if industry wants to set up there and say, well we'll pay you a little bit more for that energy that you're now producing, they can. And then you're bootstrapping industry and economies in a place that hasn't had that catalyst before. It's, it's beautiful, yeah. And I think one of the, you know, this is where like the boring stuff working to regulators is important because you know. Full circle here. Texas just taxes just came up with a tax incentive for using flared gas for onsite Bitcoin mining. And so there's not, you know, reducing taxes. So that sort of stuff is important. It's essential that adds a massive. Tailwind to what is a good economic force and it should be how, you know states especially we talked about how Texas has this particular need to incentivize this, this solution for grid stabilization and that's how you do it. And states can lead the way in incentivizing these things that are good for their energy system and the whole economy of the state. And Texas is leading the way because it has the greatest need for it. Yeah, it just reminded me of like Gavin and you know Jesse and I like building this business. You come across different individuals and I referenced Mcclintock in that same spectrum on the legal side where it's always fascinating to have like an expert but then an expert that's curious because that's when you like mirror what their personal interests and then the curious and then they find it and you find like just world class operators individuals and thinking about Winston and what you just reference like a is there even a would you. Like top five you guys have to be there and like legal firms in the in the world that understand this space partially because we're still so early but that's that's not it's also indicative of like what you guys are doing. But then two is like how much does that have to even do with being in Texas? Like could you have been able to operate or have this like free ranging thought or taking on the clients that you do if you were based in I don't know California Well I you know I I do love the fact we were like 300 lawyers at at Owensted and and so it's not like we have you know 10/15/20 people sitting around doing only digital assets. How we do have a lot of people working on energy and a lot of people working on real estate a lot of people working on construction and all of that is is you know the stuff of of Bitcoin miners. And so I like that. Yeah, I think we're you know that that places as well And then probably you know there's plenty of you know crypto law firm practices that are you know more focused on web three and things like that in other parts of the country you know in in in Silicon Valley and then in New York and DC. So I do like the the kind of unique Bitcoin mining and Bitcoin centric practices. You know, obviously projects come in the door that are other things. When you have 300 lawyers, however, that's that's it's always centrally been, you know, Bitcoin and Bitcoin mining that keeps us, keeps me busy outside of straight investment fund launches. Yeah, Bitcoin seems already hard enough from a regulatory and legal perspective to manage. I can't imagine having 1000 cryptocurrencies. And how do you think about? Custody and securities and what's a token and all the. Other stuff, right, Exactly. I mean that gets to an interesting point I'll just touch on briefly, but I think that's another thing people don't understand that bitcoins, native sig or excuse me, native multi sig properties are sort of unique to Bitcoin. But you can't do that with Ethereum and many other the popular cryptocurrencies. Which I imagine that sort of muddies the water when you're trying to create regulation around this, because it's even within quote UN quote crypto. Bitcoin is very different from a primitive's perspective to the other protocols. That's actually a really great point Maria. I sort of think like we end up you end up seeing qualified custody and arrangements or opinion letters around you know multi cig and some of the stuff we're in a multi institution. Probably quicker than we we would initially expect because it's uniform to, it's applicable to any, any custody arrangement, any exchange, any new business that would do it versus what we talk about year of like if you're building you know a crypto exchange or custody arrangements around it. It's all pretty proprietary to the to the infrastructure provider or the third party you're opting into. And so it's a lot harder to like, create the right framework so you can actually. Get that legal qualified custody wrapper around the actual underlying technological you know physical custody it's it's probably also you know it's it's the regulator's understanding you know the the nuances of even what Bitcoin is versus other digital assets like that that's that's a hard that's still it's still not easy to to achieve because that they have their own interests and their own people giving donations and their own you know so so that's complex and then yeah the work that Y'all are doing to to help everyone understand. So, yeah, I don't know, I I just think that sometimes in in the regulation, you know, to make things happen you have to sometimes you know, have strength in strength in numbers. So I think there's times when you need to your interests are aligned, and times when they're not so. And we wanna be respectful of your time. I know we've gone a bit over and you are an extremely busy lawyer, so you probably need to get back to your to your job, but before you wrap up, I guess just to tie things together moving forward. What should our audience expect from the regulatory perspective? From your opinion? Like it's just going to continue to move as slowly as it has. Do you think the regulator is going to overstep? Do you think we have some time to really educate them? How should people be approaching the particular problems that exists from a regulatory compliance perspective? Yeah. So you have to be realistic about making sure your business model of works with the current laws in order to have success. And sometimes that might mean being more focused in what you're doing and staying that way for a while. So that's probably the biggest lesson because you know it change the whole gradually then suddenly it, you know six years talking about the custody rule and we're still at a proposed rule that stage that change happens. You know it happens slowly and there's a lot of interests in deceive to make sure that frankly coins that could be censorable are a little bit more attractive to federal regulators in some ways. But understanding the security risks of that and implications and bitcoins unique properties in my is it all my personal opinion or you know absolutely critical. I just think that don't expect the custody rule to come into effect tomorrow. Don't affect, expect that the regulation that the federal regulation, it will come. It's just a question of when that actually solves who's looking after and regulate actively regulating spot Bitcoin custody and spot Bitcoin trading that will change. But I think we've seen it takes, it takes a long time and there's gonna be a lot of businesses that go full cycle in that time if they don't build slowly and well. Sage advice. Focus. Focus is good. Move slow. Do things the right way in the meantime. Us in the industry will be self regulating and calling people scammers and trying to hurt people towards the the good actors in the space which are hard to find. There's a lot of noise out there. Michael, Jesse, anything to wrap up with. I just. Want to thank Gavin for being gracious with his time and coming on. There's a lot of information. This is a an awesome show. I think to look back on her as in Evergreen, to just talk about where we're where we're at, where we came from, where we're at and then potentially where we're headed. So appreciate it, Gavin. Thank you. There's a lot of, there's a lot of Bitcoin podcasts, but very few of them have on like lawyers who know what they're talking about and can really dig into the law. So for the listeners who made it this far, I hope you guys enjoyed the rolling up the sleeves of a of a seasoned Bitcoin lawyer here that to really show us the ropes. Thank. You guys, thank you Gavin. That's all we got this week. We'll be back next week.