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TILP #04: How to buy Bitcoin w/ Ben Epling
89 Plays1 year ago
In this episode Jim is joined with/by Ben Epling who works at the Bitcoin-only financial institution River. Ben walks us through what River does, how exchanges really work, and the practical steps to actually buy Bitcoin.
Ben's Twitter: @benepling
River's homepage: River.com
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Transcript
Introduction to Intentional Living and Bitcoin
00:00:00
Speaker
Hi, I'm Jim Kreider and this is the Intentional Living podcast where we have conversations about how to use your resources, your time, your money, your talents for what's important to you in life in an efficient and effective manner. I'm glad you're joining with us today and I look forward to this journey with you.
00:00:24
Speaker
Hey, in today's episode, Ben Epling joins me to discuss how do you actually buy Bitcoin? So again, we discuss buying Bitcoin, also how do exchanges work, what's going on behind the scenes, and some trends that they're seeing at the exchange that Ben works at, River. Let's get started.
Catching Up and Shared Interests
00:00:42
Speaker
All right, Ben, thanks for joining me and I'm excited to jump in and have a conversation with you today. Yeah, thanks for having me as well. I'm missing Telluride. It's been a while since we last hung out in person, so I'm glad we can have a conversation virtually here as well. Yeah, man, glad you were able to come. Yeah, such a good diverse group of people out there hanging out, talking Bitcoin and business.
00:01:04
Speaker
world and economics and things that for some reason are exciting to us, but probably not most people, reasonably so. Yeah, not yet, not yet, but there's no better place to do it than Colorado. It was absolutely gorgeous. Yeah, it was amazing.
The Necessity of Owning Bitcoin
00:01:19
Speaker
Well, hey, I wanted to have you on today to, I guess, talk through a few things and primarily to talk about
00:01:26
Speaker
actually buying Bitcoin in the most practical sense. You know, we talked through this, you know, theoretical, like, okay, what is Bitcoin? What problem does Bitcoin solve? And that's where a few weeks ago I had a conversation with Preston Pish and then had another one with James Lavish talking through the current macroeconomic landscape and the current financial scenario that we're in and monetary policies and all that fun stuff and the debt spiral that
00:01:54
Speaker
paints this relatively grim picture and how we all believe that Bitcoin is the most probable thing to help remove us from this dire situation. So if that's the case, it's like, all right, maybe I should own some Bitcoin. How do I acquire this? So that's where I want to go today, is buying
River Financial and Simplifying Bitcoin Acquisition
00:02:11
Speaker
Bitcoin. And I thought, who better than Ben with River? River, Ben, you work with River? I guess, tell us a little about that. Like, what do you do? Who are you?
00:02:19
Speaker
Yes, yeah, for sure. Happy to give a quick intro there and dive into how it's the acquisition of Bitcoin piece as well. So yeah, I've been with River for coming up on three years now, a relationship manager here, also help on the operational side of things across many operations and a few different teams as well. So join the team back in 2020.
00:02:38
Speaker
2020 at this rate. So it's been a while. It's kind of crazy looking back on it. But yeah, to give context on us, the organization company who is River just to lay the groundwork in that sense. We are a Bitcoin only financial services firm. So our flagship kind of product of what most people know us for is a Bitcoin brokerage, Bitcoin exchange, where clients can buy and sell Bitcoin, custody Bitcoin, transfer Bitcoin, deposit Bitcoin, all the functionality of what you would imagine a Bitcoin exchange products being that's kind of our bread and butter. So
00:03:08
Speaker
With that in mind, definitely have the knowledge in terms of how that works in the back end, as you mentioned. For a lot of people, they know they want to get access to Bitcoin. They know it's something that they should get access to, but there's not really an easy way to do it or they don't know of an easy way to do it. And that's really where River fits into that picture for a lot of clients and their financial journey in terms of getting exposure to the asset class itself.
00:03:33
Speaker
So River really is that easy on-ramp for a lot of clients, and a lot of times it really is the place where clients go for the first time in their Bitcoin journey when they're first dipping their toe into the water to either A, learn more about it, or B, get their first exposure to it, whether that's
00:03:50
Speaker
a dollar, whether that's $10, $100,000, whatever that looks like. It's a wide spectrum in terms of what everyone's first foray into the asset class is, but that's where River builds that bridge for a lot of clients from traditional finance to their first exposure to Bitcoin.
00:04:05
Speaker
Perfect. And I guess when it comes to buying Bitcoin in exchange, it can seem sort of strange. Like, all right, so it's like buying a stock. And obviously, Bitcoin is not a stock. It's not a bond. It's an own asset class. It's money. Bitcoin is money.
00:04:22
Speaker
And I think when we position buying Bitcoin itself, I view it less as or not even less as not as the same thing as acquiring a stock. So less is a a stockbroker. You go here, you give us money. We are buying something that we're going to turn around and trade it.
00:04:38
Speaker
later on, but rather an exchange. So if you flew into another country, you flew there with US dollars and you land and you're going to need rupees for your month-long trip through India, you would exchange your USD for rupees. And based off that current exchange rate,
00:04:58
Speaker
You're probably not going to stand there and watch the exchange rates in real time and try to trade it in and out. You're going to use it for your intended stay in that trip. And that's when exchanges, you are literally exchanging this currency or this money for another. Would you, I guess, that's again, I'm a pretty simple minded person. Would you, is there anything along those like basically like what is the exchange that you think would be important for us to understand?
Understanding Bitcoin Exchanges and Conversions
00:05:24
Speaker
Yeah, in terms of, I think you described it pretty well from a simplistic way. And I guess from even a higher level, the step that you need to complete is converting fiat or US dollar into Bitcoin. That's really what your goal is. It is that exchange of your currency that you may be using at the time, US dollars, convert that into a new currency, a new form of money, as you mentioned, and that is Bitcoin. So it's a bit different than if you were going on to TD Ameritrade or something like that and buying a stock.
00:05:50
Speaker
as you mentioned. Now, when you are making that exchange, since it isn't as simple as just buying ownership in a company like it would be with buying a stock, there's a lot of complexity that comes up behind the scenes in terms of making sure that that is happening and happening correctly and smoothly for the individual who is wishing to convert their dollars into Bitcoin.
00:06:11
Speaker
It's by no means a novel concept or a novel process. There's a lot of complexity behind the scenes, which I'm happy to dive into some of those complexities that may be fruitful or top of mind for some listeners as well. And really the end state is converting those dollars to Bitcoin. There's a fiat on and off ramps. You may hear people mention that in the media or some listeners may hear that as well on other podcasts.
00:06:36
Speaker
Be up on and off ramps are the way in which you're getting the dollars that you're exchanging for Bitcoin either on to an exchange to make that conversion or off of the exchange to make that conversion. In order to do so, you need to be able to at least have an ACH, which is a bank transfer from a checking accounts or savings accounts. And you are transferring those dollars from a bank to an exchange such as River or any other exchange out there to then convert those automatically into Bitcoin.
00:07:04
Speaker
Or you could go with a wire transfer as an alternative as well. I'm sure most listeners are aware of the ACH and wire transfer process, but those are just the on-ramps to get dollars to the platform or to an exchange. And then from there, that conversion happens. Well, with that conversion, there's also complexities. Not sure how deep we want to dive into the complexities in terms of exchange rates and how, I guess, liquidity flows and things of that nature. Happy to dive into that as well though.
00:07:31
Speaker
Yeah, let's go there behind the scenes. And then I sort of want to try to poke holes through things. There's a lot of, I would say, for anyone who's,
00:07:40
Speaker
Quasi familiar with the crypto space probably has some level of distrust for exchanges based off of other crypto exchanges going all the way back to Mt. Gox and as recent as FTX. So I think that's a hesitation of, I thought this thing is supposed to be something that I'm not placing trust in any centralized party, but here I am in order to even acquire it. Yes, you can acquire it through mining, home mining, something like that.
00:08:08
Speaker
But in general, most people will acquire their Bitcoin through an exchange, which pretty much mandates some trust in a centralized party. So I do want to address some of those concerns. But before we go there, maybe this conversation will help alleviate some of those. How does this work? So I go online, I create an account with you guys and say, all right, I've got $1,000. I want to turn those US dollars into Bitcoin. Tell us about that process.
00:08:37
Speaker
Yeah, in terms of that process, first step, as I previously mentioned, is really just getting the dollars to River. It's going to be an ACH transfer from a bank account or a wire transfer from a bank account as well to River. That's going to be step one, no matter what.
00:08:53
Speaker
initial currency to convert into Bitcoin. We need to have that on the platform in order to convert that. Or you can have it automatically pulled as well. But what that looks like is once that does arrive, say that your scenario, $1,000, you're looking to convert that into Bitcoin, looking to invest in Bitcoin through River,
00:09:11
Speaker
When you go on the platform, you're going to make a purchase of $1,000 of Bitcoin. Now, what does that mean? What does make a purchase of $1,000 of Bitcoin look like? That's going to pull $1,000 US dollars from your bank accounts. It's going to automatically, at that moment in time, instantaneously convert those $1,000 into $1,000 denominated worth of Bitcoin. So that conversion automatically takes place.
00:09:36
Speaker
That conversion takes place at an exchange rate, right? That exchange rate isn't agreed upon. It was shown to you in the user interface when you make that exchange. That is going to be the Bitcoin price in which you are acquiring that $1,000 US worth of value in Bitcoin, if that makes sense.
00:09:55
Speaker
that exchange rate is denominated purely by the market, right? That's the beauty of Bitcoin being really truly one of the only free markets or free market kind of tools in the world is that it is purely a market denominated price from supply and demand. So that will fluctuate every second. When you go by at 1 p.m. today, it's going to look way different than 1 p.m. tomorrow and vice versa, right? There's no kind of stagnant price in that sense. So that will always change. And when you go to make that $1,000 purchase, you will see that exchange rate
00:10:25
Speaker
in that price. That exchange rate and price is being displayed to you is a little more complex than just displaying you a mid-market price. There's different sources essentially of where that price is being derived from. We are showing you the best quotes in that time. And that's something a lot of people understand is we're showing you the best execution price, but there's multiple execution prices out there on the markets at that time. We're just giving you the best one for your quotes at that time.
00:10:53
Speaker
So for example, say in that $1,000 purchase order example that you mentioned there, there may be 10 order books or liquidity providers out there. Then when I say liquidity providers, what does that mean? That just means other exchanges, other marketplaces out there.
00:11:10
Speaker
that have access to deep pockets essentially for liquidity in the Bitcoin markets. They may have 10 different price quotes. We're pulling in that best price quote, that best execution price at that time and displaying it to you. So that's kind of the first step of complexity that a lot of people realize is that there is no one kind of agreed upon execution price across exchanges. That varies wildly. If you go on Coinbase, if you go on Kraken, if you go on River,
00:11:35
Speaker
Wherever you're looking where you can purchase Bitcoin, the prices may look different because they're sourcing their liquidity from different providers, or they may also build a spread into the order, which that introduces a whole different complexity.
Market Principles and Bitcoin's Future Scarcity
00:11:53
Speaker
Step one, exchange rates, that's being pulled in from the market.
00:11:56
Speaker
at that time. Step two is a lot of providers will add a spread on top of that exchange rate. So that spread is being realized by the exchange itself as a result of facilitating that transaction. What that spread does, say it's 0.2%, 20 basis points, that spread is inflating that purchase order or that exchange rate rather by that 20 basis points. And that's being realized by the exchange in order to facilitate that transaction.
00:12:26
Speaker
Now, in practice, what that spread does for a lot of exchanges is it actually hedges against slippage and volatility risk, which I'm not sure if that's getting too deep into the weeds or not. But what that does is when you go on an exchange and you're placing an order, especially on river, we're hold that quote for you for a set amount of time. When we're holding that quote for you, the market could drastically change, right? We saw a week ago, two weeks ago, the price just went skyrocketing up. So if you're on the order page at that time and we're holding a quote for you,
00:12:56
Speaker
We built in spread for a certain percent or a certain order size in order to hedge against that slippage and volatility risk in case the market were to move one way or the other while you're deciding if you want to actually go through with this purchase on the confirmation page. So it does have some utility aside from just building on top of that execution rate from an exchange fee standpoint. It's more so to hedge against that slippage and volatility risk.
00:13:20
Speaker
Here at River, we have a spread for anything under $15,000 US dollars in terms of trades. Anything above that is directly OTC or over the counter, which can dive into that there too, which one to pause since that was a decent bit of somewhat deeper in the weeds in terms of the exchange rate. Obviously, there's complexities aside from that, but just explaining exchange rate and spread, one to pause there and see, let you digest that and see if you have any questions there.
00:13:46
Speaker
Yeah, I don't wanna make these questions too simple, but I wanna keep it practical as well. So for instance,
00:13:54
Speaker
Someone goes on to River, says, hey, I have 10,000 US dollars, I want to buy Bitcoin with, and they execute that order through y'all. Where are y'all procuring those sats? Is River sitting on a mountain of Bitcoin that you're ready to employ in exchange for US dollars? And if so, are you then holding those US dollars? Or are you acquiring Bitcoin? Are you the middleman? How is that executed?
00:14:19
Speaker
It's a functionally great question. How that works is we are a Bitcoin brokerage. That's going to defer from a peer-to-peer exchange. That's kind of distinguishment number one. With a brokerage, you're technically trading in and out of River's Bitcoin position. We have a set Bitcoin brokerage balance or position. If the trade is small enough to be facilitated by our Bitcoin balance or our Bitcoin position, we can trade in and out of that position. If it's
00:14:47
Speaker
over that balance, we will then source liquidity from market providers. So kind of answering your question there, we will then source liquidity from other providers. So mostly other large exchanges on a global scale who will pull in those quotes in live time. We'll source the best quote and show that to you for whatever that order size may be. If it's small enough though, and we can essentially trade in and out of the art of Rivers Bitcoin position without having to access the open markets, we will do so.
00:15:14
Speaker
So it depends on the order size and threshold that changes every now and then. But typically, we'll source that from external liquidity providers to get that best quote. And when I say liquidity providers, that really is just other large exchanges across the globe who have access to deep liquidity, deep balances of Bitcoin, who are willing to sell it at that exchange rate.
00:15:38
Speaker
which, again, this may sound super simplistic, but I've got a simple brain. That's how a market is made, or at least a pure market is made, is a pairing up of willing sellers and willing buyers for an agreed upon price. So what happens, like right now, a lot of the Bitcoin that's in existence, right now, 93% of the Bitcoin that will ever
00:16:01
Speaker
be in existence has already been mined and out there. Now, a lot of that's actually lost and will never be recovered, or a fair amount at least. And the remaining 7% will be mined over the next, or yeah, about 116, 117 years before the remaining 7% is introduced to the fair and open markets. So with that, a significant portion of the Bitcoin that's in existence
00:16:29
Speaker
has already been locked away into people like you and me who don't intend on spending it right now. This is a long-term asset that we are going to hold until we feel like we can actually use this for day-to-day money purposes primarily. And I think there's a lot of people out there like us. You can look on on-chain analysis and be able to see how long Bitcoin sat in a certain wallet. And it's very bullish for
00:16:58
Speaker
People have high conviction. So with that said, a lot of the liquidity that's hitting the market is either through traders or also miners. So again, we talked about last week with Michael Schmidt talking to like the mining process. And if you mine a block, you're rewarded with X amount of Bitcoin and those miners.
00:17:17
Speaker
I'm sure they would love to be able to retain all the Bitcoin they mine, but they're also running a business with lots of expenses and significant amount of cost overhead. So they go and they have to sell some of that Bitcoin. And that's how a lot of the Bitcoin right now is hitting the market is through miners and that's coming on. Now, let's play this out where
00:17:36
Speaker
Let's say, over time, the mining reward, heck, in a few months, the mining reward is going to get cut in half. And that will happen again in roughly four years after that, and then four years after that again. So the introduction of new units that's a large liquidity supply is going to be reduced.
00:17:56
Speaker
as the understanding education of Bitcoin grows, I would assume that long-term holders in conviction will grow in tandem. So what happens, y'all have to, y'all have to go source, y'all are essentially sourcing sellers, either through y'all's own pile of Bitcoin or through other large sellers out there. What happens when there's not willing sellers for a purchase, for a bid or an ask, so when they're not matching up?
00:18:24
Speaker
Obviously, that leads to price increase. Tell us about that. Yeah. Well, I think the latter piece is the important piece that you mentioned there in terms of the price increase and the beauty of Bitcoin and just markets as a whole, kind of zooming out just any economic market. It's the beauty of economic actors being able to freely buy at the price they're willing to buy or sell at the price they're willing to sell, as you mentioned. And that's really what would happen in that scenario. As you mentioned, mining rewards are getting cut in half, and every four years they're going to do so. So it's continuing to dwindle.
00:18:53
Speaker
in terms of the open supply out there with the chart of Bitcoin being held over a year, over two years, it's growing up into the right significance. So supply out there is continuing to get smaller and smaller. In that scenario, even if demand stayed the same, inherently price is going to increase. And as you mentioned,
00:19:11
Speaker
I don't think demand is going to stay the same, right?
Bitcoin as a Store of Value
00:19:13
Speaker
We have ETF news. We have institutions getting involved. We have education in the Bitcoin space going up. We have financial advisors like yourself, right, that are educating clients and users on Bitcoin and kind of in an orange pulley in that sense.
00:19:27
Speaker
So, even if demand were to stay the same, the supply is getting cuts, inherently it's going to lead to a price increase theoretically in that scenario, in a pure theory, don't want to absolute price guess in that sense. But what that does is that when you're going to sell, the price in the exchange rate is going to react.
00:19:46
Speaker
natively to that, right? So if you're trying to sell, say on a global scale, and you're trying to sell Bitcoin right now, so you're trying to sell it at $50,000, there's obviously not going to be a whole lot of buyers for your Bitcoin out there at $50,000 because there's an agreed upon quote rate.
00:20:05
Speaker
at whatever it may be, or now 34, 35,000, whatever it's hovering at right now, and vice versa on the buy side for an exchange rate as well. That typically will go into equilibrium, and that's where that exchange rate's agreed upon. There's really
00:20:20
Speaker
I guess there could be a scenario at some point in the future where all supplies dried up and we wouldn't really be able to find a quote or any Bitcoin in that sense. But that would mean everyone in the world is also not being able to find a quote or any Bitcoin in that sense as well. So it really would just lead to a higher exchange rate to then incentivize people to be willing to sell at that price.
00:20:42
Speaker
You and I, we're long-term holders, right? It won't necessarily incentivize us if the price is 10% higher, whatever that may be, but a lot of economic actors out there will see that and be willing to sell now the price is 10% higher, so then there will be bids that will flow into exchanges on a global scale as a result of that price increase.
00:21:00
Speaker
I don't want this to sound condescending to listeners, but just in a very practical sense, how our markets made is actually really interesting. Again, markets are simply a whole bunch of buyers and a whole bunch of sellers. If you had, if I came in and said, Hey, Ben, I'll give you a hundred bucks for a Bitcoin right now.
00:21:17
Speaker
you would turn it down because you have thousands of other people who will offer you a better price and vice versa. If you said, Jim, I'll sell you a Bitcoin for $50,000, I would not take that offer because there's a large group of people who'd be willing to sell it to me for a better price. It's that gathering around a generally agreed upon price in real time that creates the market itself.
00:21:37
Speaker
And that's for any good, right? And that's, I guess, for listeners as well, right? It's a really interesting theoretical question to think about. Like, I could sell you a shovel right now, right? But if I'm selling it to you at $20, but there's somebody down the street who will offer you $5 for it,
00:21:55
Speaker
you're not going to buy my shovel or you're going to buy their shovel. And that applies to really any markets. And obviously it also applies to Bitcoin from a theoretical standpoint as well. So it is just an interesting kind of thought and question to think about. When you're laying your head on the pillow at night, those are the questions I think about. Not sure if that's normal for everybody, but that's usually what I'm thinking about.
00:22:14
Speaker
Again, it's super simple, yet something most people gloss over and don't think about is how do we reach prices for things? And again, that supply demand. Now, you started going somewhere a second ago with if there's no more supply, which I think that's a common concern amongst people who don't understand Bitcoin is, if you're telling me this is money,
00:22:35
Speaker
yet people don't spend it, and it's somewhat highly concentrated amongst a few people. How in the world is that funny? How will I be incentivized to spend this when you simply view it as a savings mechanism? Can you speak to that? How will that play out if you and I are long-term holders, but it's supposed to be used as money? Tell us about that. What are your thoughts?
00:22:58
Speaker
Yeah, I think my thoughts on that really are, I guess right now, where we are in the Bitcoin story or the Bitcoin trajectory is that it really is a sort of value for most people across the globe. Now it is obviously a medium exchange and it is used as currency, as money in many countries, such as El Salvador and other places as well. And also even people in the US utilize it.
00:23:20
Speaker
We've been spoiled over the last 100 years to have access to a somewhat stable, and I use stable very, very, very, very loosely, currency from a dollar perspective to use that for transactions. Obviously, the governments can print as much dollars as they want. And that's where, as you mentioned, that's the difference with Bitcoin is that scarcity, is that finite supply, that cap of 21 million
00:23:46
Speaker
decreasing circulation of new supply due to the halving, as you mentioned as well, on the mining side of things. And I guess it all comes back to the market and economic actors in terms of if and when Bitcoin is used as money and traded. It's being traded at its fair market value, that exchange rate. So if you were to price something at Bitcoin, I think there's some really good articles out there as well on Twitter and on the internets of if you bought
00:24:15
Speaker
If you valued your house maybe back in 2010 in bitcoin and valued it the same today, the price discrepancy is pretty crazy in terms of the difference per bitcoin, since the bitcoin-nominated value of your home.
00:24:30
Speaker
So it really is the inherent value that you're trading, whether that is denominated in dollars or in Bitcoin. Getting access to the currency to trade it, that's where a lot of people get turned away from Bitcoin because it seems very intimidating to
00:24:47
Speaker
go buy this magic internet money. A lot of people have these preconceived notions that Bitcoin is used by criminals, super shadowy coders in their parents' basements with red and green flashing lights popping up on their computers, and they don't know how to get access to that. They're very intimidated by it. Getting access to it is kind of step one in order to use it as currency. As that supply dries up,
00:25:13
Speaker
getting access to it, unless it doesn't get harder, it just leads to an increase potentially in the exchange rates. As the demand continues to grow for it to be used as money, the demand for the assets will also grow. The demand for the currency will also grow. Similar to what we saw
00:25:28
Speaker
studying throughout history with different global currencies. When a new global currency is introduced to the world, such as the US dollar, potentially Bitcoin in the future, other currencies 100, 100 years ago, the demand for that currency rises. Therefore, the value of that currency denominated against other currencies will also rise in par with that. Obviously, fiat currencies
00:25:50
Speaker
You can print as much as you want. Bitcoin, you can't print more Bitcoin. So that's a key difference for listeners when thinking through that as well. But just kind of my thoughts on that. We have to remember that money itself is simply a means of communicating, storing, and transferring value across space and time. So right now, in the most practical sense that we're talking about,
00:26:14
Speaker
Transferring storing value through Bitcoin is first taking the the value that has been stored in US dollars converting that to a new storage unit of Bitcoin and then holding on to that that would be like
00:26:30
Speaker
Maybe I was going to a barbecue and I need to keep something on ice. So I could just simply lay my brisket over a bag of ice itself and then take that to the barbecue. But that bag of ice is not well insulated and will melt.
00:26:48
Speaker
and is exposed to other elements. So the protection, I can transfer that easily from my house to the park where I'm having the barbecue. So I can transfer that from one place to another, but the storage of the energy is going to reduce quickly.
00:27:04
Speaker
Then I could take that and I could place that and exchange just that ice for something else that is a better means of storing energy across time. So I can take that bag of ice and my brisket and I could throw that into a cooler and that cooler is
00:27:22
Speaker
as easily kept and taken across space, but also is going to retain that energy over time far better than the bag of ice alone. So again, we're not talking about
00:27:35
Speaker
exchanging simply US dollars for something because eventually that will break. We're talking about exchanging value for one thing in value. Money itself is a means of storing that value. So if I went and I mowed your yard, you said, Hey, Jim, I
00:27:53
Speaker
I don't have any money, I'll pay you in apples. Maybe I don't want, I don't know how many, a thousand apples in exchange for mowing your yard. That would be a poor transfer, especially if I don't need all those apples before they go bad, that did not work out well. So we have to have something in agreed upon unit that represents the value I presented and that agreed upon unit is money.
00:28:17
Speaker
Now, eventually, like so, I have a few feet from me, I have a picture of kids in post-World War I Germany building a tower of their currency that was inflated away.
Economic Comparisons: Bitcoin vs. Inflation
00:28:30
Speaker
There got to a point and it wasn't a linear smooth transition of this is worth something and now it's not. It was very volatile of those German marks priced against gold. It was very volatile.
00:28:42
Speaker
There are days that you look like a fool for turning in your marks and buying gold. And there's days that you look like a fool for holding onto your German marks and not buying gold. In the end, they became worthless though. And there's a place of transitioning value is kept. Like if we play that out, so go back to 1920s Germany.
00:29:02
Speaker
and we're talking about this currency that is being inflated away, it would be hard to grasp the concept of exchanging the value of the German mark against gold when the German mark is no longer even relevant. I also have on my desk next to me, I have a $50 trillion Zimbabwean note.
00:29:24
Speaker
Again, if we went back not too long ago and said this is 50 trillion dollars, that would not register because the value that represents is enormous. But suddenly it's inflated where that value is meaningless and it's simply something I have as a relic. So again, the transfer
00:29:44
Speaker
Primarily of money is not to transfer denominations, but rather value. And that's something we've lost touch with. Money is so globalized to us, but yet skewed that we think that it's simply a means of exchange rather than a means of transferring value.
00:30:03
Speaker
And also how you kind of denominate production, right? And that production inherently is value, right? Especially here in the US, whether you're looking at GDP or you're a construction worker or you're working, whatever labor you're doing, it's also a way that you are converting your production into value and not having to barter, as you mentioned. I love the brisket example. I haven't heard that before. That's an awesome one. I'm going to steal that for myself, but love that example in terms of the transfer of the value as well. That was awesome.
00:30:30
Speaker
When again, this is something I commonly hear is, well, how will Bitcoin ever actually exist if it's owned solely by a small group of people who don't want to part with it? And it's not that I don't want to part with it per se. It's just I think that this thing retained its value better than other things. And the
00:30:50
Speaker
Other things have a certain amount of value of prescribed to them based off of their utility. But the cost of those assets in general is inflated because we have the
00:31:02
Speaker
the intrinsic value of something, the use cost of something, but then we also have this monetary premium built in because we're trying to use these other assets to store value in. And I think that's gonna cause a lot, the cost and the value of other assets in comparison to Bitcoin to eventually dwindle down to their actual use cost and value. And then that premium will be transferred into a better store of value and better form of money. And that's Bitcoin. So that's why I own Bitcoin.
00:31:31
Speaker
Now, long term, and people could see this as being bad for markets and bad for the economy. So you're saying that the primary means of money is going to be something that no one wants to ever sell. But again, if you talk to someone who actually understands Bitcoin, it's not that we don't want to ever sell our Bitcoin. It's that we want something that later on we can exchange it directly for energy, for use cases, for
00:31:58
Speaker
whatever, for an exchange for value in a way that makes a lot of sense. We remove the noise and we're able to exchange it. And that's when like, yeah, I will partner my Bitcoin to go and I hope one day to want to deploy assets, sell Bitcoin to go buy stocks again.
00:32:15
Speaker
because this stock, the expected growth rate of this stock is better than the growth rate of my Bitcoin. I hope that the Bitcoin gets to a point where it is very boring and we don't talk about it. We talk about it in the same sense that most people talk about money now. And when that happens, I will gladly part with my Bitcoin for useful assets. Because again, we're transferring it for other means of value. Money is not really meant to be something that's just
00:32:43
Speaker
sat on forever, otherwise the system would break. But again, our current system was broken for another reason. That's because we can't sit on for a long time because the melting brisket, very poor analogy. I think exactly what you're describing is really hard for a lot of people to grasp that situation. You described it very well, and I think listeners will grasp it after that. I think it's just really hard for a lot of people to grasp it because we've become so
00:33:11
Speaker
accustomed and also numb to inflation and to the current kind of structure of money and how it is and how it, this is how it has to be, right? People just kind of go through their daily lives saying, oh, every year I'm going to lose 7% of my income as a result of a invisible tax. I don't even realize it's being done to me through AKA inflation. We've become so accustomed to that. It's hard to grasp that money is that transfer of value. A lot of people just don't picture it.
00:33:37
Speaker
that way because the relationship with money has become so tainted because of inflation, because of these monetary fiscal policies. It has skewed a lot of people away from learning about the actual economic actors and what is money and answering that question. And when you do answer that question, it makes you ask yourself a million other questions in terms of deriving that.
00:34:00
Speaker
I don't think it's just individuals, and we've talked about this before as well, but I think institutions are starting to wake up to this in terms of the money they're holding on their balance sheet.
Buying Strategies for Bitcoin
00:34:12
Speaker
A, sometimes isn't their money, right, in terms of fiat banking collapses. They're starting to realize with fractional reserve banking and all of that that there's inherent counterparty risks that come with that. But there's also treasury risk when you're holding a currency that is not transferring value well, like you mentioned. When you're holding that as a company, as a corporation, as an LLC, you're at an immediate disadvantage as a corporate treasury or as the person or the treasurer responsible for that.
00:34:41
Speaker
because you're immediately trying to beat this hurdle that is, you're basically starting negative as a result of inflation. And if you hold dollars, you're just having your treasury, your balance sheet inflated as well. So we've seen a lot of institutions start to wake up to that here at River and just in the Bitcoin industry as a whole over the last 12 to 18 months as a lot of inflationary risks continue to play out, as a lot of counterparty risks in the fiat system continue to play out, just an interesting trend that we've been seeing on our end as well.
00:35:10
Speaker
I want to talk through what you're seeing on the institutional side. But let's finish up a few things from the individuals right quick. So buying Bitcoin, there are people out there, I'm sure, who bought a bunch of Bitcoin at the high of $69,000. And then it dropped a bunch. And now they're sitting on the sidelines thinking, I have friends like this. I have a really close friend of mine. And he
00:35:35
Speaker
reminds me regularly that I'm just waiting to get back in the money on his Bitcoin positions, at which point he will just, he'll sell it all and be done. And he doesn't understand Bitcoin. That's the funny thing here. It's hard for me to talk with him about this because he doesn't want to listen from a long, he views it as a stock rather than the long game of basically more of like internet adoption is how I view this more so. Anyways,
00:36:05
Speaker
So I'd like to talk through the ways you can buy it. So lump sum, there are inherent risks of making large lump sum purchases, but there's also inherent risks of not buying or not buying lots of it at a certain time. So you can get a lump sum purchase. Also River facilitates recurring automatic purchases through a dollar cost average. So I'll let you talk to this, but right quick, a couple of things.
00:36:35
Speaker
If you have an asset that goes up linearly or more than it goes down over a prolonged period of time, if your timing is good, then it makes more sense to make a lump sum purchase. I remember reading a study a few years back of, and this was related to the general stock market, but historically, statistically, it makes more sense to make a lump sum, if available, over a dollar cost average in. Now, Bitcoin is much more volatile at the moment than a general stock market.
00:37:03
Speaker
And that's a way of, dollar cost averaging is a way of hedging your risk of poor timing. Again, if you bought a whole bunch of Bitcoin at 16,000 earlier this year or end of last year, then you've done really well from that. If it's 16,000, you saw dollar cost averaging at X dollars or X amount of Bitcoin per day or per week or per year, per month, it made more sense instead to do the lump sum.
00:37:28
Speaker
Now, if instead I saw about a week or two ago, Dylan McClaire tweeted that had you started anyone who started buying Bitcoin the day of the all time high at sixty nine thousand, if they bought daily all the way through about a week or so ago, they are now in the money on their total Bitcoin acquisitions. So that's where obviously banking a large lump sum purchase versus dollar cost average.
00:37:52
Speaker
makes a big difference to better the dollar cost aperture. So you want to just talk through those and what you see as far as people who buy there and how that works. Yeah. Yeah, for sure. And I think the root of the question is also partially risk appetite, as you mentioned, with lump sum purchases.
00:38:11
Speaker
If you time it well, the upside potential is a lot higher if you're trying to time it, but the downside is also a lot higher. It's really where your risk appetite and what your risk is within your pick and holdings or your portfolio as a whole. But in terms of acquisition strategies and what we see and what a lot of clients do, as you mentioned, there's a market buy. That's just a lump sum purchase. You're buying at the exchange rate at that time. There's a recurring order. That's a dollar cost average order.
00:38:37
Speaker
daily, weekly, biweekly, or monthly, whatever cadence a user wishes to deploy their assets or their dollars to exchange Bitcoin for, they can set that. And that will automatically occur based on that set cadence.
00:38:50
Speaker
Thirdly, we also have target price orders. A lot of people may know this basically essentially as a limit order, structured very similar to that where say you want to buy Bitcoin at $30,000, you're thinking it's going to drop over the next few weeks. You can set an order to buy $10,000 worth of Bitcoin if the exchange rate hits $30,000 and vice versa on the sell side. Say you have two Bitcoin, if it goes to $50,000, you want to liquidate it.
00:39:20
Speaker
set a target price order for those two Bitcoin out of $50,000 exchange rates. If the price were to hit that, you would sell your Bitcoin at that time. So those are really the three different ways in which you can acquire Bitcoin through River. What we see most clients doing is a mix of the first two in terms of kind of percentage basis wise.
00:39:40
Speaker
It's a mix of a lump sum and mix of a recurring order. So a lot of clients will initially do a larger lump sum order depending on what their assets look like, deploy that, get their exposure, and then set a recurring order to get that kind of smoothed out exchange rates or smoothed out cost basis.
00:39:58
Speaker
So it helps to kind of decrease that risk with a lump sum, right? Because you're smoothing out your cost basis over time by having that daily or weekly or monthly recurring order because you're getting exposure to the exchange rates over that time as opposed to just the one lump sum purchase. And to the recurring order and dollar cost average piece, for a lot of people, the old version of time in the market always means time in the market is true for a lot of people in Bitcoin. And that's why they love the recurring order or that dollar cost average feature.
00:40:28
Speaker
just because it allows them to get that exposure over a set cadence. Because as you mentioned, the price obviously fluctuates wildly. It's very hard to time. Most people aren't in the business of day trading Bitcoin. They just want to get exposure to it over the long run. And if they do have that low time preference, and they want to get that long exposure, there really is no better way than just setting the recurring order, having zero fees in those orders here at River, and then going and having that executed on the set cadence as well.
00:40:54
Speaker
That's where owning a volatile asset, it can certainly pay off to have regular recurring orders through a dollar cost averaging mechanism to achieve an overall lower cost basis.
00:41:10
Speaker
Yeah, so it certainly helps also, yeah, from a risk appetite. You know, if you, Bitcoin's at 35,000, whoever it is today, if you went and bought a whole bunch of 35 and it drops to 33 or 30, you might be kicking yourself. If it goes up to 40, you might think you're a genius, versus if you set a certain amount at a stake of 35 and say, all right, over the next X amount of time, over the next month, six months, year, I will buy on a regular recurring basis this much, and you just scoop it up.
00:41:40
Speaker
reducing your regret on the downside, but at least you took a large enough stake at the front where if it goes up, you have a stake and you continue to buy on the way up. And I think that's usually a great way to go for most people.
00:41:55
Speaker
I mean, if you plan on buying this over X amount of time, and since you are going to dollar cost average, that's where like a 401k plan is helpful, is it's automatic force savings on a regular occurring basis. The average savings rate of an American is abysmal, and most of the average savings comes through outside of force savings mechanisms like social security or pension plans, is going to come through 401ks because you can set it up and be done with it. And that's where
00:42:22
Speaker
If you have an investment, if you have something you want to invest in or own, but you just never purchase it, you don't deploy dollars to it, even if it goes up 1000X,
00:42:33
Speaker
you're on the sidelines all the time or maybe had a small exposure versus if you have something that goes up, not very much at all, but at least you've been saving towards it, you're going to outperform. And that's where at least starting with setting healthy habits can make a massive difference. In a way of a healthy habit can be just having automatic recurring orders that just happen on the backend and just know that you are saving regularly to an asset over a very prolonged period of time. That's a big fan of dollar cost averaging.
00:43:01
Speaker
Yeah, and you're saving an asset that's scarce, right? Going back to that conversation, you're saving an asset that can't be inflated in terms of printing more. It just adds a difference of appetite or risk profile to a portfolio. That's why a lot of clients love the biweekly or the monthly recurring orders.
00:43:17
Speaker
Because the structure is very similar to say you get your paycheck biweekly, right? Say you have $100 biweekly recurring order, you just have $100 pulled from your bank accounts, biweekly, essentially on that cadence where you get your paychecks as well. Don't have to think about it. You're just getting exposure to Bitcoin over time without any manual inputs. It's just being deducted automatically. So super, super convenient and a great way to get exposure over the long run as well.
00:43:39
Speaker
Couple last things on the person I want to address. That's going to be the fear of exchanges. I alluded to this earlier with FTX and Netflix. So, yeah, what am I talking about there?
Trust and Security in Bitcoin Exchanges
00:43:53
Speaker
Like, exchanges collapse. What leads to that? And how are y'all different? And should, even with y'all being different, should we trust it and trust our Bitcoin with you guys? Do you advocate for moving it to a wallet? How does that work? All of those questions.
00:44:06
Speaker
Yeah, for sure. Happy to address that. First and foremost, the end state and most secure option for Bitcoin clients, Bitcoin users, Bitcoin holders is to self-custy. So if someone's comfortable with self-custing, they can move their coins off a river at any time. They can hold that self-custy. We will help them transfer it off of the platform. So by all means, when someone gets to that portion of their journey, they can always transfer off in self-custy.
00:44:30
Speaker
With that being said, we also believe that right clients can trust us as well. And where the lack of trust in the industry has come into play as a result of FTX and the whole host of exchanges that have gone under is really a lack of
00:44:46
Speaker
I guess operational efficiency, a lot of times engineering issues and also just building products and co-mingling assets and a lot of funny business in the backend to say the least. And where that comes into play and where River is different than a lot of those companies is we really are the vertically integrated solution. So what I mean by vertically integrated solution from a Bitcoin exchange standpoint is we are the custodian
00:45:10
Speaker
and the exchange. A lot of times those are two separate entities. With River, we are both of them. And what that means is that we built all of our own infrastructure. So we have our own custody, our own multi-sig native cold storage custody, full reserve, no lending, no re-epothecation. We have full control over that. There's no counterparties involved that can have a say over that.
00:45:32
Speaker
that reduces counterparty risk for any end user, for any client who's buying through us, and any client who's costing Bitcoin on our platform as a result of that.
00:45:41
Speaker
In order to do that, there's a lot of complexity behind the scenes from an engineering and security standpoint, but there's also a lot of complexity from a regulatory piece. Not a lot of people realize that regulatory, that matter piece is also a big hurdle in order to be the custodian and be the exchange. It took us years and years to get all these licenses. We are registered in every state we operate where it's required as a money transmitter.
00:46:05
Speaker
that allows us to exchange currencies. That comes with a whole host of other things that we're bestowed upon from regulators, financial audits, surety bonds, having different operational processes with the file with them, different things that we have to submit essentially to auditors, to regulators to hold those MTLs. And on a federal level, we are registered as a money services business by FinCEN, so Financial Crimes and Enforcement Network, as a money services business or MSB.
00:46:35
Speaker
Now, a lot of companies don't hold those. They're essentially built on top of other companies who hold those. So that introduces counterparty risk, whereas River, we are the custodian and we are the exchange and the regular entity having full control, having truly Bitcoin-only custody, where a lot of exchanges, especially ones that have collapsed,
00:46:56
Speaker
They were co-mingling other cryptocurrencies, hundreds of different assets. They had lending products. They had credit card products. They're splitting up on top of these yield generating products where they're promising set yields. Whereas with River, full, simple, one-to-one reserve. There's no lending, no rate of propagation. There's no fractional reserve banking. The number you see on the screen is backed fully one-to-one with Bitcoin in cold storage on your behalf, but you don't have to worry about
00:47:21
Speaker
figuring out keys, doing all of that. We will handle the complexity in that sense for you and hold that in full surge on your behalf with no custody fee, no ongoing annual fee or account management fee. We think security should be default so we don't charge clients for that kind of ongoing custody as well. My wife actually about a week ago, we were talking about Bitcoin and she...
00:47:44
Speaker
she was asking some questions along these lines and said, well, if Bitcoin is supposed to be something that no one can create duplicates of, and it's supposed to be safe in this bearer asset and all that fun stuff, then how did this whole thing with FTX and Sandpaper Freedom, how did that happen? And again, that comes back to that's not Bitcoin, that's an institution that just happens to be related to the broad crypto network and some Bitcoin in a sense. And then even explaining about how that took place.
00:48:13
Speaker
how they were able to essentially inflate and manipulate the exchange rate of Bitcoin based off of inflating the supply or at least creating a false level of supply. And that is you use that word a moment ago is rehypothecation.
00:48:29
Speaker
So you mentioned a second ago, if you see on your screen when you buy Bitcoin at River and Exchange, and it says that you own one Bitcoin, is there actually one Bitcoin backing that? And you mentioned a second ago that you said that River does that versus like FTX. If I went on there and I bought, I gave you $35,000 and it says now you own one Bitcoin and there's, that was a screen. And that would be, and again, a common analogy I use, and I talked with Kendra about this, would be if
00:48:56
Speaker
If I wanted to sell her and a whole group of friends a beach house in Hawaii, and I even had a picture of that beach house, I said, hey, give me a million bucks and this house is yours. And I know that most people aren't going to go to Hawaii for quite a bit, despite the fact they really want to go there. It's just, it's a long ways from here. So they give me a million bucks. They can have a picture of the beach house as well. I can go sell that same beach house to a hundred people.
00:49:21
Speaker
And they all, let's say even maybe the beach house does exist. I just made a picture of where I grabbed off the internet. Maybe I own one beach house and everyone decides to fly out there at once. Who has claim to that? And that's what rehab application is. And they fly out there and the locals say, that house doesn't even belong to him. You grab that thing off of Google. That's a picture of someone else's house. That's essentially what was happening. You had a picture of an asset that was not actually backed by the asset itself.
00:49:47
Speaker
You can recreate that picture over and over again and suddenly, if you do that enough, you can actually deflate the value of beach houses in Hawaii because suddenly there's so many more houses in existence, quote unquote, than really are out there. And that's manipulating the price of those. And you're messing up these, again, it's
00:50:09
Speaker
Money is a means of communicating value, and when you mess up the means of communication, you mess with the signal, you introduce noise, and it confuses a lot of things. The confusion can be the exchange rate of those means of money as well.
00:50:25
Speaker
I think the key part there, I love that explanation again, similar to the brisket one, love the beach house explanation. I think the key part of that is that it could have been any asset. It could have been a beach house. It could have been whatever that they were doing fraudulently. It wasn't as a result of Bitcoin or it wasn't Bitcoin or digital assets or crypto that was defrauding people. It was the actors within an institution that were defrauding people. It wasn't inherent to Bitcoin.
00:50:54
Speaker
That's a stigma, I guess, that education is starting to help people overcome that. A lot of people who aren't in the industry or haven't learned about Bitcoin, they see the FTX situation. They think that that's a result of Bitcoin. That was something that Bitcoin did. Whereas that could have been any other asset, as you mentioned, like a picture of a beach house. It wasn't something inherently native to Bitcoin as a result of that. It was just the practices in which the exchange was engaging. Exactly.
00:51:23
Speaker
Well, here, let's go right quick. I don't want to muddy the waters with too many different conversations, but just quite, let's keep it brief again, and I'd love to bring you on again to talk about this specifically. But you mentioned earlier the institutional side, Bitcoin for businesses, institutional side of things. What are you all seeing there?
Institutional Interest in Bitcoin
00:51:43
Speaker
Yeah, the institutional piece, the snowball is getting bigger and bigger, for lack of a better terms, over the last 12 months. It seems that a lot of institutions I mentioned a little bit ago are waking up to the risks of their treasuries, of their balance sheets, the inflationary risks that come with it, but then also the benefits that Bitcoin exposure and holding Bitcoin in their balance sheets can do for them and hedge against that.
00:52:08
Speaker
Now, there's a lot of complexity around the benefits of holding Bitcoin on a balance sheet. And there's also complexity of holding Bitcoin on a balance sheet as a whole, right? If you're a 5,000 person corporation, holding Bitcoin on a balance sheet can be quite complex, especially if you're self-custing or having different custody models, it can get a little complex from internal controls. So there's obviously complexity there. Don't have to dive completely into that. But from a
00:52:34
Speaker
advantage standpoint from what we're seeing for a lot of institutions who want to get exposure to it. That's really A, a reduction of counterparty risk, right?
00:52:44
Speaker
you're reducing your counterparty risks on fiat banks. You're also, I guess, mixing, not putting all your eggs in one basket for lack of better terms. Depends on your custody model, but it does decrease your counterparty risks if you're a corporation holding Bitcoin. It's a bit of an insurance policy as well against fiat debasements. As I mentioned on the inflationary standpoint, it's an insurance policy for a lot of businesses to have exposure to Bitcoin and get that kind of inherent
00:53:09
Speaker
I guess, yeah, insurance policy would probably be a better term. And then also, thirdly, having a 24-7 liquid market is huge for a lot of businesses. Say in the scenario of SVB, right? Say you are an operating business, you have to pay payroll, you have to pay vendors, you have to pay whatever expenses you have to pay.
00:53:28
Speaker
Even if you had FDIC insurance with SVP or any other fiat bank that went under up to $1,000, you still have to wait for those funds to arrive in order to do that. And you can't just stop your operations for weeks or months while you're waiting for this currency to arrive in order to exchange value, going back to kind of tie it all back together.
00:53:46
Speaker
Having 4%, 3%, 5% of your balance sheet in Bitcoin at 24, 7, 365 liquid markets allows you to at least have access to some sort of transfer of value in that scenario. So it's also an insurance policy for a lot of operations for
00:54:03
Speaker
corporations, LCs, all that good stuff in that sense as well. So really those three buckets are a lot of what we see here and there's complexities to each of those three. That's kind of just a quick rundown of really the three themes and three advantages that a lot of institutions are approaching us in terms of why they want to get Bitcoin in their balance sheet.
00:54:22
Speaker
CEO who's really best known for doing this. I watched an interview of him yesterday and he mentioned strategically this is a means of not only deploying your productivity of the company but also deploying your balance sheet of a means of growing the value of your company. So now you instead of having you're trying to
00:54:42
Speaker
grow your productivity so much that you are outpacing inflation plus producing profits. Instead, you're using and almost essentially fighting your balance sheet from an inflationary perspective. Suddenly, you're able to deploy your balance sheet as a means of overall complementing that with your productivity of the company to grow the overall value of your company. It's really interesting and curious to see how this progresses over the following years.
00:55:09
Speaker
Yeah, it's definitely super interesting and it's a big shift from I think previously five years ago if this question was prompted, it would be a lot of holding companies who are holding Bitcoin, right? A lot of trust and LLCs and things of that nature, but we're starting to see a shift to actual operational businesses such as MicroStrategy obviously being the biggest case that everyone knows about, but even construction companies, real estate companies, plumbing companies,
00:55:32
Speaker
all these different sorts of small, medium, large size businesses that are on the operational side and not just holding companies or funds that are getting exposure to it for those exact reasons as you mentioned. Super interesting shift just to pay attention to. Awesome. Ben, thanks for coming on. I know we talked a bit about handful of things. Some of it were real simple and unpacking the
00:55:52
Speaker
overly simple in a sense. And but we're able to scratch the surface on some more things as far as where you see Bitcoin come in. So glad to have this conversation and appreciate you joining me. Yeah, I appreciate you having me. It was a pleasure. Alrighty.
00:56:06
Speaker
Hey, thanks for listening to the Intentional Living Podcast. Now today's show is simply entertainment and educational in nature. Do not take this as tax, legal, or investment advice. If you are looking for tax, legal, or investment advice, you should go talk with a tax, legal, and or investment advisor. Again, this content is simply educational and entertainment purposes.
00:56:33
Speaker
Thanks again for listening. We look forward to you joining us on the next episode.