Blockstream Talk #25 – Bitcoin Reserve

Welcome back to blockstream talk today We're talking to Andrew and John from Bitcoin Reserve Bitcoin Reserve is a Non-custodial OTC and brokerage platform That supports trading in Bitcoin liquid Bitcoin and tether this conversation Covered a lot of ground but one of the Key discussion points was how important It is for investors from Moms and Pops To institutionals like hedge funds and Family offices to as much as possible Custody their own assets and of course We run through some recent industry Events where investors Got Run Over By Unexpected counterparty risk recently There's also been a lot of news and talk About exchange as finally integrating Lightning in an effort to help offset Surges and transaction fees we also Talked about why liquid is probably a Better layer 2 solution for Traders and OTC desks given the fast settlement Times confidential transactions and the Ability to do more meaningful size last But definitely not least we talked about The relationship between Jiu Jitsu and Bitcoin I'm getting over an injury but The idea of a Bitcoin or Jiu Jitsu Attorney maybe in El Salvador got me Fired up anyway enjoy the conversation And let us know what you thought in the Comments below Thank you Foreign

I show You how To Make Huge Profits In A Short Time With Cryptos! I show You how To Make Huge Profits In A Short Time With Cryptos! Welcome to the Future of Money

Thanks for joining the podcast today Great to be here thank you for having us Can you give a quick introduction to who You are and what your role is at the Company yeah uh so Andrew Howard I've Been at Bitcoin Reserve since 2020 and I'm currently the chief Business Development officer Slash wear of many hats so that's what I Do go ahead John uh yeah my name is John Um I am doing All Tech things at Bitcoin Reserve I'm the engineering lead and my Background before that is I worked in Big Tech Um walked away from that life in 2020 Time frame Um and been working on bitcoin things in Various capacities since then do you Want to give a quick introduction to Bitcoin Reserve what it does what is bit One Reserve Bitcoin Reserve is a Non-custodial Bitcoin brokerage which Serves people worldwide outside of the US and Canada and we help people buy any Amount of Bitcoin so if somebody wants To buy 100 euros worth of bitcoin and Just stab small sass they can do that With us if there's a high net worth Individual or a family office uh or a Company corporate entity that wants to Buy and sell Bitcoin in large amounts 10 Million plus 50 million plus hundred Million they can also do that with Bitcoin Reserve as well and then just a

Few additional notes we offer stable Coins as well as liquid Bitcoin which I Know we'll be getting into as well very Cool so first question how does a Bitcoin OTC desk or broker differ from What we think of normally as an exchange Like bitfinex what is the difference Between an exchange and a brokerage so An exchange is where buyers and sellers Directly are put together and actual Price Discovery happens uh with a Certain asset so Bitcoin in this case or Crypto Um so that's an exchange a brokerage an OTC desk like Bitcoin Reserve we have Designated liquidity providers so when Somebody buys Bitcoin with us or sells Bitcoin with us we're utilizing one of Our amenity many uh liquidity providers Now what is the advantage of an exchamed Versus an OTC desk a few different Things Primarily if there is a large uh buyer In the market or a seller if you were to Go to an exchange and plays a huge order Then you would move the markets and Not Only would you move the the price of Bitcoin but you would also be able to See that that there is a large buyer or Seller in the market because exchanges Have what is called public order books So you can actually see how many people Are buying Bitcoin and at what price They're buying it and how much they're

Buying so OTC desks do not have a public Order Bush and they're much more private In that sense and they do not uh Necessarily move the market or move the Market as much as you would on an Exchange so that's essentially what it Is in a nutshell the OTC desk in Bitcoin Is a little bit different than I Remember like a facilitation desk or Something being in Banks so for for a Facilitation desk normally you know the Desk might take some risk or I guess the Whole idea is kind of it's about Liquidity right and so somebody comes to You with an order Um the if it's equities the stock is Relatively a liquid so the the Facilitation desk will maybe take some Risk they'll put it on their books They'll try and hedge that out with Derivatives or options and then they'll Probably sniff around with other clients And see if there's anybody else that has Liquidity and they can match that up but I think in the Bitcoin context it means Probably splitting an order up across Multiple trading venues right is there Much of that Hands-On stuff with the Phone like calling up people who you Know hold Bitcoin and say hey I've got a Big buyer at this price are you a seller Is there any of that stuff or is it all Mostly automated through different Liquidity pools that's a great question

So it used to be the latter it used to Be if we're talking seven eight years Ago uh you would have that you would Have people uh at OTC desk calling Individuals up saying hey I have a buyer Or seller for Some enormous amount of Bitcoin and are You looking to sell or buy Um now it is what you actually just Mentioned it's a lot more Um organized you should say where there Are uh companies in the space who to Provide liquidity in very large amounts And if there's a huge order right then We would have to utilize multiple Liquidity providers Um but uh yeah so things have definitely Evolved over the last eight years in OTC So what is the benefit for a a Trader so If you're a big Trader and you've got an Order because I think Bitcoin has even Now liquidity is low but you could do a Fairly large order if you kind of drag It out over time right if you just kind Of work your order split it up I guess It's for somebody who Maybe Maybe the value out of the OTC desk is That you know you're you're a fund that Wants to buy Bitcoin but you don't have Dedicated traders to sit on and work the Order right is that kind of it somebody Will come to you with a large trade and Then you guys will maybe work it for Them over a couple of days correct yes

So that's that's another difference is So with the company like Bitcoin reserve One thing we do is we'll have high net Worth individuals who do not handle this Process on their own and uh it also Applies to the situation you mentioned Where we actually do the trading for the Client as opposed to the client going on An exchange trying to fill a you know Limit order in or a market order and do Everything on their own so the advantage Of that is is uh it's a lot more Convenient I mean that's that's a big One right and uh one thing I'll tell Clients is our goal is that if there is An 85 year old wealthy gentleman Who does not know anything about Bitcoin He should be able to finish working with Us and have Bitcoin securely in his Wallet that's great and you know a key Part of your guys's value proposition Too is around maintaining user control Over the assets right so that the users Have access to their own Keys that's a Big differentiator is right as well Right it absolutely is and frankly you Know you you have Technically it's less Pro convenient for A client because they actually have to Put in the work and have sovereignty Over their money and we would probably Have more business if we just let people Keep their Bitcoin on our platform but Uh as we will get into in detail on this

Podcast you look at the insane events That recently happened with prime trust Uh it it defeats the entire purpose of Of Bitcoin you know I mean Bitcoin You're supposed to hold your own keys And uh we we don't have anything Different than the Legacy Financial System if people are trusting other Institutions with their money so with Bitcoin Reserve uh we don't even give Clients the ability to hold Bitcoin on Our platform they are essentially forced To withdraw or take custody of the Bitcoin in their own wallet so right When they made a purchase they have to Submit a receiving address at that time That the Bitcoin is sent to so Um and I think right now you know given All the debacles uh recently you've seen A lot of coins move off of uh binance And historic amounts to you Um this message seems to be a lot more Important to people right now as of Recent yeah for the moment I'm kind of Are kind of negative on that I feel like It's a lesson that people need to learn Every cycle and just I think a lot of You know you get actually it's it's it's The cycle that happens every time right Is it people come in something blows up Hopefully you know you don't get caught In it and then you learn your lesson About you know Trace Mayers was going on About this forever right about years ago

About not your keys not your coins Um and it was so difficult to get people To do anything and I completely agree That that's one of the unique things About Bitcoin you know as opposed to Something like gold right is that you Can force honesty in the system by Everybody withdrawing Um and and uh you know for the moment I Think people have that in their mind and I hope that stays but it's just as price Goes up I think that will fade and then We'll have to go through this cycle Again but the good thing is that with Every cycle you get more people that Become familiar with that message Totally agree yep 100 I was gonna I was Gonna ask like how much pushback do you Guys get from that model because as you Mentioned it's it's easier to have the Platform custody and then also I think Think that's the way the Legacy system Is structured and I think that people Probably underestimate to some degree The Regulatory and the Mandate Restrictions that kind of push fund Managers and and and uh Financial Services providers in in that direction So I think probably in a lot of regimes Globally it's still difficult for Financial service providers to have Bitcoin on their balance sheets and then Typically like a hedge fund structure The funds aren't able to self-custody

Assets like they're supposed to work With a custodian so how much pushback do You do you guys get on that that is a Great question and uh it is true that uh Sometimes they they don't even have the Ability to self-custody and then in the Case of family offices family offices Are uh so accustomed to Uh essentially having their assets uh With somebody that they can call up and If something ever goes wrong then for Lack of a better term somebody's ass is On the line so Um but they're you know there are Different ways you can go about this I Mean some That being said some family offices they Do they definitely take Atrocity of their own Bitcoin and they Hold their private Keys then that Doesn't mean the the uh the head honcho Of the family office is uh just storing 24 words on a piece of paper and his Closet somewhere they've got a multi Multi-suit setup Um we've got a number of multi-sid Providers that we can refer High Network Clients to but uh it is it is definitely An issue that needs to be addressed Um because something like this you know With with uh self-custody the situation Is entirely different with a fund or a Family offices family office or a Corporate entity compared to a pleb on

Twitter who's stacking a thousand bucks A month it's just an entirely different Scenario yeah exactly right and I think Also that's the appeal of things like The gbtc or a Bitcoin ETF or it's also The reason why in 2021 all the Valuations for the listed Bitcoin miners Blew out Um is because you know this was a way For these the funds and and kind of Institutional players to get access to Bitcoin without having actually having To worry about figuring out how to do Self-custody as they could get like you Know a lot of The Upside by just buying Microstrategy stock so I think that's Still an impediment I mean it's kind of It's an impediment for them it's Probably a bit of an impediment for Bitcoin price but it's really unique and Then it's the first time that you know Plebs like us can kind of get ahead of These guys and that we could buy Bitcoin And self-custody well these Institutional players are are figuring It out and it's amazed me like how long Has taken people to figure it out I Guess it's because of the cycle thing is That people will win it's a hot Market People will work to try and figure it Out and then the market collapses and Then they put the Bitcoin investment Plans to kind of like the back and then The bubble goes again so maybe maybe

That's it but it is and maybe just the Slowness of institutional money is it's Just they're very they're very hurtish Um you know people talk about retail Being hurt I think institutionals are Very hurtish and just like very slow and Bureaucratic Oh yeah so I mean just to Um I guess rewind back a little bit a Lot of the times what the way we handle Somebody who is not Um willing or able to take self-custody As one as can we educate to them uh and Uh two uh are they like sort of Collaborative custody solutions that we Could refer them to Um I think and uh I mean collaborative Custody is not as uh I mean it's Obviously very nuanced depends on a lot Of things but it's still not as uh uh Good I suppose as fully self-custulating It but it is it is it might be a good Stepping stone to understanding how Things work and so on and Um you know this is one of those things That this educational work of like Helping people do custody is something That we we do want to like lean into a Little bit going into the future too of Like helping people uh helping people Understand multi-sig and uh being able To uh do it to themselves and you know We're big fans of block stream green and Uh it's we recommend it a lot to kind of

Um yeah It might not be appropriate for somebody Custodying several Millions worth of Bitcoin or something but like it is Appropriate for a lot of people the it's One of the I don't know underrated Products out there the multi-sig setup Of blockchain green yeah that's a good Point too and about having you know if If you're forced due to whatever Regulatory or mandate restrictions to Have a custodian in the middle then the Keys could be put with the custodian and I think that's a good point is that it's A learning curve right is it people get Comfortable with this and then over time Um they build up the capabilities and um And start really doing self-custody That's a good point another observation Is like even if even if um Um even if they're doing some sort of Collaborative custody this is just Something that popped into my head right Now it might actually be better business Incentives for that company to remain Separate from the OTC provider because When it's all together the OTC provider Might be incentivized to do weird things With their Bitcoin uh as we have seen Um and if it's a purely custody company And and the you know that's how they Make their money by customing incentives By be a little bit better aligned to be Good actors no that's it that's a good

Point as well I also wonder how much of This is like demographics too if it's Like a as as you know Tom Lee the Analyst back in from funstrad I think Like a number of years ago he had this View that Bitcoin adoption was tied to Demographics right that there's a lot of Millennials and post-millennials Especially in the U.S and that they're More prone to adopt this technology and They've just got a better understanding And more willingness to use it than kind Of the older people that are in charge Of funds and stuff now and I saw Recently a tweet from Eric balconis um Uh the ETF analyst I think mostly his Coverage is really really good and and I Like his his coverage but he had a tweet Where he said you know writing down a 12 Word um seed phrase is just an Unrealistic expectation for most people And I think maybe it is something that's Kind of alien to you know older people And fund managers but I think maybe as You know over time as the younger people Within a fund start to take on more Responsibility and positions of Authority maybe that whole attitude just Starts to change and they're just like More custom to doing that so that could Be kind of like a legacy thing that We're just kind of dealing with still That will erode over time yep I Absolutely agree with that I was uh

Trying to pull up this article I wrote About a month ago it's called why Bitcoin beat scrolled by 2030 and it's For that exact reason you mentioned that Just purely looking at the demographics Uh there is Uh massive likely going to be a massive Transfer of wealth into Bitcoin so I Know Coldwell Banker uh estimates here We go yeah so Coldwell Banker estimates The millennial generation is set to Inherit 68 trillion dollars by 2030 uh Bank of America estimates it's going to Be higher at 84 trillion uh by 2030 and It just purely looking at surveys and Statistics of how the millennial Generation feels about Bitcoin compared To the baby boomer generation it is Absolutely insane Um two-thirds of Millennials prefer Bitcoin to Gold Um The millennial generation prefers Bitcoin over gold 10 times more than the Baby born generation does that's a Different study that each study is going To report the same information but uh There are just so many statistics on This uh topic it's pretty insane and you Think about the amount of money that The baby remember generation is going to Be handing over to Millennials who have Much more uh open feelings toward Bitcoin it's going to be quite

Significant yeah it's it's the great Wealth transfer it's uh it's a massive Thing Um yeah I think that's a big Tailwind For for Bitcoin I want to shift gears a Little bit and talk about liquid you Guys offer liquid Bitcoin and liquid Tether on the platform can can you walk Us through you know what the benefits You think there are for your users we Deal with like even though and as Andrew Mentioned earlier we can deal with lower Volumes uh of like purchases and there Are people who certainly use that Platform that way a lot of uh a lot of Uh business comes from these uh um High Ticket purchases if you will and you Know on-chain obviously is kind of where You want to start with and then we add This kind of a couple of years ago of Like okay Layer Two everybody is talking About lightning and that's great we love Lightning uh we all use lightning but Just to Route around these huge amounts Of money Um that our clients are like buying Bitcoin from us lightning just wasn't an Option at the time and I don't think it Still is Hope you know that's changing and Um I think things will change but uh Lakewood was just like the most obvious Layer 2 solution for uh large amounts of Bitcoin

Um that was just there and it was really Easy to integrate Um it's Um it's almost like a a drop in type System into our infrastructure because We were already doing on chain and uh Like from the client standpoint you know Just like any Layer Two like they can It's faster Not as much on-chain fees Um and Um so there are there are clients who And we've seen an uptick of this uh in The last few months actually as uh uh Maybe the bull market is picking up Um Um that more people want to uh get lbdc Uh for Um different things I guess for uh Perhaps uh logging it in a contract and Minting uh something like Fuji USD or um I'm not really sure what a lot of people Are using it for but um yeah I mean um Liquid just like lightning Um with different trade-offs and so on But it's a layer two for Bitcoin so a Lot of our clients have uh Um yeah I think I think it really made Sense to us and to our clients uh to go With that Um and as far as the other goes yeah we We wanted to support the Um liquid ecosystem and tether is used Um in a lot of places for because people

Uh don't have access to the U.S banking System uh and they want to use tether They uh and one of the AHA moments for Me whichever was like just uh kind of Seeing the uh we're doing an International wire transfer seeing how Difficult that is and comparing it to How easy it is for the tether so I I Actually totally understand even though I'm personally not Have you tell the user or anything I I Have no need for it uh I can see how a Lot of people in it and Um so uh yeah we wanted to we want to Encourage people to use that more on on The liquid Network as opposed to drone Or ethereum or something and I think That ecosystem is growing and yeah we Want to be part of that tether on liquid Is is so fast and so cheap it's kind of Ridiculous like it settles in a minute And you pay pennies like literally Pennies I I think it's fast enough that It can be actually like you know I don't Know if the technical people at Blockchain would disagree with me but I Think it could be a retail solution when I'm at Starbucks buying my morning Coffee you know I wait longer than a Minute for someone to settle that trade Um and and then you know you can do your Liquid transactions don't fail like you Don't have to worry about Um you know managing channels and things

Like that Um I I don't know if maybe that's an Application but I've for an OTC desk I Think that liquid makes a lot of sense a Ton of sense probably more sense than Than lightning because you guys are Dealing in bigger size you're working Across multiple exchanges and you don't Want to flag the market to what's going On so you know being confidential by Default meaning that you can't see the Size or type of the transaction you Can't see if it's a security token like The block stream Mining Node or if it's Another you know if it's a Bitcoin Transaction there's just so many Benefits of that I think um you know That makes a ton of sense for an OTC Desk it probably more sense than than Liquid I mean than lightning would for An OTC desk yeah exactly and um uh with The recent recent developments in the Kind of lightning to liquid submarine Swaps Um the the interoperability is also Going to get better so if you you can Very easily send from a liquid boiler to A lightning wallet and vice versa using Services like that provide submarine Swaps so you have to rebalance your Channels especially in times when There's higher fees right so you don't Get dinged on those higher fees when People are doing nfts on ordinals and

Yeah To clog up the vimple Um all right so you guys are also a um a Liquid member Um what has that been like and and Um do you have any plans to become a Functionary and then you know maybe take This opportunity to kind of like Define What a member is and what a functionary Is and what the difference between the Roles yeah the Um we've uh various people in um uh Company has been involved with Um liquid Federation in race in Different ways for quite some time uh One of our co-founders was one of the Early members of the I believe the Oversight board I forget Um so Um yeah the Um we we are members Um and we do we do uh tag-ins back outs Although anybody can uh um do a pagan uh Payouts uh as Um something that you have to be a Member and get a pack out key to do so We have the ability to do that we've Done that in bulk for Um Um uh multiple clients and So yeah so and the functionaries are the Uh others I guess the special Um Members if you will who do the signing

And we we've it has come up Um you know internally of the Possibility of becoming a functionary It's just one of those things where Um we we are not at the Um we are at the position yet where we Have a secure Data Center and Um somewhere where we can host Um the HSM to do the actual signing so Uh it is something that's on our radar It is something that we would we would All love to do uh but in time probably Um and uh yeah the Uh as of we we do have long-term plans To Um be more independent in terms of Um the hardware on which we run Applications and maybe someday we'll um Have our own secure data center where we Can sign transactions on um and generate Liquid blocks do you have any interest Or intention to support other liquid Assets like would you have any interest In security tokens as well I guess that Kind of depends on licensing but would You be able to do that or are interested In that yeah absolutely we've we've um It is something that we are actively uh Considering and especially within the Context of the new laws that are being Passed in El Salvador and other places Where companies can issue equity and I Mean I don't want to speak too much for Like the company itself but like I

Personally think uh it's a great way for El Salvador businesses to bootstrap and Um if you if you can use the liquid Platform to issue equity on like for a Business in El Salvador you don't I mean You're basically like bypassing Um a lot of traditional Um I don't know paperwork and Um Uh uh I don't yeah bureaucracy I guess Uh to uh issue assets that's uh the and Race equity and race money Um and um yeah this is something that we Have talked about quite a bit Um we're not there yet maybe maybe we'll Work with bitfenex or something we'll See yeah no that would be great yeah I Think one thing on El Salvador that People maybe don't know but they Probably should know given the attitude Of um you know the president and the People involved like Max and Stacy is That Um you know the assets issued in El Salvador are going to be issued on top Of Bitcoin technology Um so I think that's uh that that's an Interesting detail that I think a lot of People have have overlooked I mean I think we'll be positive for Liquid and everyone else building on Bitcoin what about other layer twos are You guys um do you to support lightning Or looking to support lightning we've

Experimented with lightning and we've uh Done some testing internally but um Again kind of Um the the kind of transactions we do There hasn't been much Um much demand from our customers to do Lightning it makes less sense for you Guys yeah yeah it never got into Production however Um it's um we might be like ever since The submarine swap uh Bridge uh kind of Got into production with balls and um I Believe Pier swap has something like That Um we we've uh that might be an easy way For us to interact trustlessly with the Lightning Network while not necessarily Making too much of an investment running Anode and routing and channel Rebalancing and so on right before I Forget I wanted to ask you guys when we Were talking previously about OTC Trading um do you guys see any Indie and We mentioned that it looks like Tentatively like the the market is Starting to warm up again and I've seen A lot of mention on on Twitter about More active OTC orders and obviously People pay attention to that because They think that's a proxy an indicator For broader institutional and corporate Interest and then maybe that's a sign That institutional money is starting to Come back and I think that fits in with

This new Narrative of ETFs although it Seems like we've been talking about ETFs For like 10 years But Maybe This Time It's Different do You guys see a pickup in in OTC activity on the platform at a moment At the moment we absolutely do uh and it Is pretty much directly coincided with Uh the Meltdown with prime trust as well And I don't think it's any coincidence That that is related to us actually Having our own infrastructure not using A custodian slash liquidity provider uh Slash central point of failure like Prime trust so yes we absolutely have Now if we want to talk about bitcoin Price or anything then we're we're not Your people because we we actually Strictly try and avoid talking about What we think the price is going to be I Know that's not the direction you were Going but I'm just putting that there no Just from a flow perspective like if you Guys are seeing more flows and that's an Interesting data point I think it is Yeah Henry I feel you chomping on the Bit so we're gonna we're gonna we're Gonna we're gonna jump into Um into Prime trust here Okay okay all right I've been ready you Guys seem to have navigated that pretty Well you didn't have any exposure Um how did that happen is that you know How did you manage that is it something

You planned for and then and then can You share you know whatever thoughts you Have around that let me explain what Happened first of all yeah definitely uh Okay so I have a whole doodle doc here So uh buckle up Folks I will get into this and just to Address as far as how it relates with us We have not been affected by this Whatsoever other than positively we've Had clients who've used uh Bitcoin Companies previously which depended on Prime trust and they then had Unfortunately bad experiences and they Chose Bitcoin Reserve because we have Our own infrastructure again we're Non-custodial and so we've been totally Ineffective uh by this in a negative way Uh rather and only affected positively So That being said here's the situation With prime trust So currently Prime Trust owes customers 85 uh million 670 000 in fiat currency They currently only have 2 million nine Hundred and four thousand dollars So they uh are not in a good situation They're additionally Prime trust also Owes about 1 million worth of crypto to Clients which they additionally do not Have And one data point I found interesting And concerning is that Prime trust has Had three different CEOs in the last two

And a half years so I'm gonna give People a timeline here of essentially What things have looked like at Prime Trust Since 2019. so 2019 Prime trust signs a Contract with fire blocks which is a Digital asset security platform and the Contract they signed was for fire blocks To store all of their cryptocurrency Assets held in custody so before this Prime trust was holding their own Customers cryptocurrencies and their own Wallets okay so that's 2019. you fast Forward we're in December 2020 to January of 2021 now so after Prime trust Migrated to using fire blocks for Custody of their customers crypto Prime trust then came Under New Management so Tom I may be butchering His last name Tom pagellar becomes the New CEO of prime trust and he replaced The founder and the previous CEO of Prime Trust Uh he was actually now the current Founder and CEO of Fortress so that Guy's name is Scott Purcell so Scott Purcell before this he was the founder Of prime trust and the CEO up to this Point January of 2021 comes along uh Tom Padeller replaces uh Scott purcella's CEO Now when this happened uh when the new Management came they were apparently Informed by the old management that all

Cryptos were maintained and accessible In the fire blocks platform okay so now We're going to fast forward further on In January 2021 Prime trust then Reintroduced their old wallets that they Were using before fire blocks before the Fire fire blocks integration Uh they thought that these old wallets Either existed on fire blocks or were Configured to forward to wallets Available on fire blocks This was the major oof on their part and We will see why very soon August 2021 will Fast Forward again Scott Purcell uh he was the again the Founder and CEO uh he leaves Prime trust For good so before he stepped down as CEO Prime trust uh back in January 2021 He was still uh with prime trust he Actually became the CEO Prime core which Was the owning company Prime trust it's All very complicated but he was still With prime trust just not a CEO then August 2021 comes about he leaves Prime Trust for good uh two months later he Founded Fortress Trust And interestingly enough Scott Purcell Just so happened to scrub the history of His work at Prime Trust on his LinkedIn Profile so he kept the he him pronouns But he uh somehow conveniently deleted The prime trust history there very Fascinating indeed Uh now December 2021 comes along crime

Trust then realized that they And basically messed up big time and That they were unable to access the Cryptocurrency from the old wallets they Were using okay so again they had old Wallets they were using they then went On with fire blocks the management Changed and the management said that uh Everything was held with fire blocks December 2021 comes along they realized That the old wallets they had started Started using again were not associated With fire blocks and the funds in those Wallets did not be retrieved okay so This is an absolutely Major uh catastrophic screw up here that They apparently negligently made and It's also very ironic because in this December 2021 the same exact month they Realized that they had all of this Client cryptocurrency and wallets that They couldn't even access the same month The CEO at the time Tom padeller made This statement so this is the statement Tom Padilla made the exact same month That they realized they did not have all Of these tens of millions of client Funds he said this has truly been an Amazing year for Prime trust as we've Been able to accelerate our offerings And meet the growing needs of fintech Innovators through the hiring of Exceptional Talent strategic Partnerships and the expansion of new

Systems within the payments and Alternative asset assets markets we've Been able to build it best in-class Financial infrastructure that not only Helps our clients launch quickly but Fuel is a new economy so I I just it what happened is basically If if somebody from Prime trust wrote Down all of their you know had all their Client funds on a Bitcoin wallet and Wrote the 24 words from the private key Of that wallet on a piece of paper and Then put it in their pants and then put Their pants in the washing machine That's basically the same effect of what Happened with prime trust and then that Same time they realized that they don't Have access to these funds the CEO makes This sweet statement Just crazy so we're we're almost done Here with this Prime trust story that We're on this journey we're on through Prime Trust From December 2021 which is when he made That statement to March 2022 in order to Satisfy the withdrawal requests from Their customers in which case they Totally did not have the Cryptocurrencies that the customers Wanted to withdraw Prime trust then made The uh gloriously genius decision to Purchase more cryptocurrency using their Own clients funds so not only did they Lose access to their clients

Cryptocurrency but they and not only did They not inform people that they lost Access they made a positive statement About the company at that same time and Then a few months later used their Client's fiat currency to buy Cryptocurrency in order to satisfy Client withdrawal requests so Sorry but this is more than just Stupidity this is like this is uh uh Just this is question of morality at This point What this is also a tale as old as time I mean we've seen this multiple Iterations of this like over you know The 10 years or so that I've been in Bitcoin you've seen this happen just so Many times Um some iteration of it I was just gonna Say the problem is you have people Saying that oh well this company is Regulated and rehypothetication is Illegal for this company to do and and It doesn't mean anything at all they're Going to do whatever they want I have a Particular bone to pick there because You often see especially comes from the U.S that there's um there's this talk About onshore versus offshore and Offshore is pretty offshore is Everything that's not American by the Way so it's the whole planet As a Canadian Living in Taiwan I take Like a little bit of an exception with

That and it's presented by American Investors as offshore is Shady because It's not American and and onshore is Better because it's presumably regulated Now you know I'm not I don't want to Name names but if we go through the big Blow-ups of the last 18 months most of Them happened in major Financial Centers And were regulated by The Regulators of Major Financial Centers Um almost all of them any even you know Uh the big exchange that blew up they Seem to have deep involvement with Regulators to the point that they were Even setting you know policy Frameworks So people need to get I would think need To get Beyond this idea of you know Onshore is better regulated is better I Think reputation is extremely important You know the ability to not only survive Multiple Cycles but to thrive through Multiple Cycles is is probably more Important than than than regulation in Terms of just like an investor safety Perspective and then you know the key Thing that we've learned of all these Things is if you can hold your own Assets you need to develop those Capabilities you really need to do it It's much better to you know if you and You can diversify within your own Custody solution right and do different Things I think it's better to screw it Up on your own than to have somebody

Else screw it up and it really isn't Something that people should screw up I Mean you can It just takes a little bit of research And um I think that's the key takeaway is it But you know people it's just going to Keep happening and people need to With every cycle more people like we Said in the beginning more people it's Just like adoption right that people Will the adoption cycle is that people Come into Bitcoin and um you know they Mess around with different coins and Tokens they get their face ripped off And then they come back to bitcoin and I Think it's the same thing probably with Self-custody uh yeah it is and Reputation is important but it's better To just operate with companies that Don't even have the ability or incentive To screw people over in the first place So and that's you know that's the Interesting thing is prime trust had a Pretty decent reputation up until I Would say a year ago Um we had major major companies using Them kratens one schreich uh the list Goes on and on and they were all using Prime trust Um I had just I had just two last uh Points on here in the timeline to to Keep people up to speed if if that's Dude with the oldest clothes out here on

This uh This whole Prime trust Journey Yeah so Basically uh when that happened so they Were uh using client Fiat to buy crypto And satisfy withdrawal requests that's From December 2021 to March 2022. Um and November 2022 basically what Happened is the board from everything I Gathered it looks like the board fired The CEO Tom padiller and replaced him With the new interim CEO who was Jordan Law and uh at that time he said Prime Trust holds a lot of promise We have a great clients a suite of Products that is unparalleled in the Marketplace in a strong Core group of People seems like uh these seems like These when efficiently run companies can Really emerge to be runaway winners so Uh and then later on June 2023 bitco as You guys know they announced that uh They called off their initial plan to Acquire Prime trust and then just days After that uh Prime trust was placed Under receivership by the Nevada Financial institutions division so yeah Exactly like you mentioned Jesse they Are not offshore they were a regulated Custodian in the state of Nevada and all Of this happened so and now you know They owe 85 million dollars to their Clients which they can't pay back So Hell of a situation why does this bother

You Andrew is it because investors have Been hurt is it because they're a Competitor is it because you feel that Their security approach was the wrong The wrong direction uh yeah that's a Good question I mean for one Well I mean like I mentioned it seems at This point that it was maybe it started Off with just negligence of they didn't Handle their their wallets accordingly And they they just had that op sack and You know there was a there was a Technical mistake but then it it clearly Was a known issue that they did not Publicly disclose and then they tried to Resolve that issue by essentially Stealing their clients money so there's A huge morality aspect there Um that bothers me it also bothers me That uh Well you know I mean uh Bitcoin Companies in the space that were I would Say very well respected previously took A pretty big hit regardless if they want To admit it or not they did and the the Only other options that they have at Least in the United States is Fortress Which has the same CEO that was Previously the CEO Prime trust he's the Founder and the CEO and there's debate About okay when did that CEO leave Prime Trust and when did this situation happen With with client funds being lost it's It's really murky and you should blame

It very well on the new CEO that Replaced him but either way it's not a Good indicator that the previous founder And CEO Prime trust here he is deleting His his information on Prime trust off Of his work history on LinkedIn he Starts Fortress I don't know if that's a Very reliable option so that's one Option uh Bitcoin companies have in the US the other option is just to have Their own infrastructure which is Extremely as we know we have our own Infrastructure it is a giant pain in the Butt it's very costly it's very time Consuming you have to get eat you know Every single individual bank account uh Deal with a ton of more regulatory Burden uh it is it is a pain but if you Want to stick around for the long run Then having your own infrastructure is a Lot safer for your clients and uh It's just a lot more reliable no that's That's good so maybe we can draw a good Um distinction here between the two Platforms can you maybe elaborate a Little bit on uh Bitcoin reserve's Non-custodial policy and how that's Implemented and how I think we're pretty Clear on how that benefits customers at This point but maybe in terms of you Know how does that give people more Security and control they don't have to Worry about anything like this happening I mean the only inconvenience they have

With this is just the first step which Is setting up a Bitcoin wallet which Really is not rocket science and we have A service where for our high net worth Clients if they're buying 50 000 Euros Or more we will literally hop on the Phone with them and they can talk to a Real human being 24 7 and guide them Through the entire process of setting up A wallet securely so uh and at the end Of the day you know you're gonna sleep Soundly at night because you have Control over your Bitcoin and there's Just no possible way something like this Could uh should happen with clients so I Don't know John am I missing anything There I mean yeah no that's um uh that Pretty much colors it and uh a bit of a Tangent I guess is you know uh speaking Of like Um the one of the advantages of having Your own infrastructure is you can do Things like this where uh you know we Decide we are not holding the holding on The Bitcoin for you but if you are a Company that is kind of built on top of Prime trust for example you have to Follow brand Crossroads Um so I believe I I'm I'm not 100 sure About this but they actually have a Period Um after which you can withdraw no it's Not immediately uh so you buy it and They need to hold on to it for a while

And there's actually a reasonably good Explanation for why that is it's because Fiat has clawbacks right Um so if you give people Bitcoin Immediately uh some malicious user could Revert to the Fiat transaction and keep The Bitcoin and so on uh so uh I mean we Uh we we have a mitigation for that but Uh the point is when you have your own Infrastructure you can decide to do such Things Um and if you are built on top of prime Trust even if uh even if you wanted to Do it I don't think you could looking Forward into the future what do you guys Hope to see the direction that what how Do you hope to see Bitcoin Reserve Evolves over say the next five years or So where do you guys want to be in five Years from now yeah sure yeah I mean you Know Um these things are always kind of um Evolving and Um uh as as the market changes we change And uh I can kind of my my personal uh I Guess dream uh Vision whatever you want To call it is Um be a full stack solution to anybody Who wants to buy custody Bitcoin Um and Um and any Um assets uh on this new Financial System that we are building uh and you Know we kind of obviously the uh the

Purchasing part on ramping from Fiat to Bitcoin is kind of what we mostly focus On as an OTC desk and we kind of do all These other things sort of on the side As the need arises but Um I'd like it to be a full stack Solution for uh for somebody who knows Nothing about Bitcoin to First learn About Bitcoin buy Bitcoin and hold Bitcoin and Um spend Bitcoin Um and the same thing with uh with Um Securities and whatever assets that Like we that's going to get built on This on this new Financial system Um I I love the idea of holding your Stocks in your wallet instead of on a Custodian I mean we didn't We didn't get into this too much but Like Um uh uh a better asset stock Is uh way that you can trade Peer-to-peer is such a New Concept and I Don't think that's going to happen I Think the bearer the bearer Securities Route is not can happen there's not Going to be a regulator around that'll Put a stamp on that yeah that's true It's just not going to happen in in Today's world I mean Bearer assets are Especially Securities it's just I don't Think that's going to be possible but Liquid is a good it offers a good middle Of the road path right so if with

Transfer restricted assets you can set Up a white list so everybody has been Kyc aml'd and and you know platforms Like bitfinex Securities we meet our Regulatory obligations but then within That white list the users have a lot More freedom of use so with the BMN you Know there's a telegram group where People are doing OTC trades and that's Fine because everybody's on the white List so I think that's the you know for Bitfinex Securities that's the direction We want to go I totally agree that it's I want to see some of the the Restrictions and controls that have kind Of evolved over the last couple of Decades if those can be pushed back Slightly and users can get more control Of their assets that's a great thing but To go the full Bearer asset route I Think that's probably a step too far and Just won't be feasible yeah one can Dream right 15. yeah that's true so what you know Second to last question here what do you Guys look forward to most in the Bitcoin Space in the next like say two or three Years well I'm curious to hear what John Has to say but I'm I'm looking forward To when uh my aunt and you know my my Second cousin that I haven't talked to You since the last Bull Run text me and Asked me what I think the price of Bitcoin is gonna be so

Um because that time's coming uh Sometime after the having which is also Coming up so you know I mean the reality Is that uh a a Bitcoin brokerage is uh We can do everything we possibly can to Not have our business entirely dependent On the site rules of Bitcoin and uh and We don't right like but uh the reality Is that volumes pitch up during bull Markets so that is a very exciting thing Um we want to coincide that with some Other products that we've been Discussing and and uh I know John's been Working on and I can't say what they are But um They should be solving Problems for bitcoiners really living on Bitcoin and that's something that needs To be addressed because there's a Drawing amount of people who especially In the younger Generations they uh they Live on bitcoin and and it's not like Some crazy thing but they they just they Have the majority of their net worth of Bitcoin they want to be able to spend it Easily and uh that started to be Addressed so I would say yeah I would say that's my Answer yeah um I think Um more people adopting Bitcoin Obviously Um Um the Um I think uh what Andrew just mentioned

This idea of being able to step back and Forth between the two worlds so the the Fiat world if you will and the Bitcoin World and being able to like live on Bitcoin but still be able to seamlessly Interact with the with with the Fiat World because a lot of people are still On there uh I mean you know if you're 100 100 in Bitcoin how do you how do you Buy something from your local local Grocery store you have to like sell the Bitcoin get the Fiat pay the Fiat can we Can be like um can we make that whole Process of stepping between the two Worlds smoother I think a lot of tools Are gonna Um uh evolve in the next uh I don't know A couple of years or so that that makes That stepping back and forth the Backwards compatibility I suppose you Could say uh um a lot easier so I'm I'm Looking forward to a lot of those things Mostly because I want to use them Um and looking forward to more of Lightning adoption Um lightning itself improving seeing so Many so many things happening in Lightning so Um yeah um And and more Securities on Um on liquid second layers now we're Talking yeah yeah Last question Jiu Jitsu so there's um You know Jessie J our producer he's a

Purple belt I'm a purple belt Andrew's a Purple belt when are we gonna get a Bitcoin Jiu Jitsu Invitational Um then I can go uh twist up some uh Master fours Hahaha I was not expecting this question To be the last one what a nice surprise This is great yeah Um there there's uh Jesse and I have Talked about this but it there's Definitely uh a larger percentage of Bitcoiners that do Jiu Jitsu compared to The general population I don't I don't Even know why exactly that is I tend to Think because bitcoiners are uh more Likely to be disagreeable people maybe Maybe that's part of it but uh Alex McCain you know another Jiu Jitsu Practitioner he and I have talked about This and one thing we were talking about Is how both both kind of kill the ego in A way uh so for example Bitcoin for many People buying Bitcoin is is actually a Very big deal and it's an act of Admitting that they were wrong about it In the past and uh so bitcoin's kind of Egotiler same thing with Jiu Jitsu you Think you're so tough you think you know How to fight and uh your first day of Training Jiu Jitsu even if you're a Really paid guy there's there's of you Die half your size he jokes you out in Less than 60 seconds you know he doesn't Even throw a punch so

Um yeah I think Jiu Jitsu is like the The Bitcoin of martial arts it's there There is no second best and uh and we Have proof because the original UFC was Was that was like the you know the the Martial arts Wars basically they wanted The whole point of the UFC originally Was to get all these different Specialists and martial arts and see Which Specialists would win and who won It was small Corey's Gracie who's 175 Pounds soaking wet he just destroyed Everybody so yeah all right well I I Think that would be great if we could Have some kind of like uh Bitcoin Invitational for jiu jitsu that'd be Great we gotta make it happen yeah Definitely definitely yeah all right um Good stuff guys really appreciate the Time this is a great conversation and And maybe we can have you guys on in a Couple of months or something that'd be Awesome thank you for having us Thank you

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