Kyle Lawrence [00:00:09]:
Welcome to Block & Order, the show that explores the legal issues facing the world of Web3 and beyond. I'm Kyle Lawrence and with me as always, he still shops at Blockbuster Video. Mr. Moish Peltz.

Moish Peltz [00:00:20]:
I'm a card carrying member.

Kyle Lawrence [00:00:22]:
Kyle, do you actually still have a card? I wonder if it's worth money.

Moish Peltz [00:00:25]:
No, I don't think I do. But I did grow up in South Florida and there were a lot of ton of blockbusters everywhere and Wayne Huizenga was, was a big figure in the South Florida world before Blockbuster imploded. So a lot of, a lot of good blockbuster memories be kind rewind. You know, that's instilled in my brain.

Kyle Lawrence [00:00:43]:
That's a good movie. I like that. It's true.

Moish Peltz [00:00:46]:
That's the phrase you had to rewind or you got fined.

Kyle Lawrence [00:00:49]:
It's true.

Bill Barhydt [00:00:49]:
I don't.

Kyle Lawrence [00:00:50]:
Did you actually get fined? Because I never rewind those things.

Moish Peltz [00:00:52]:
I'm pretty sure you got fined. I mean I never got fined because I rewind. I rewind, rewound my tapes.

Kyle Lawrence [00:00:58]:
But you know, producer Shaun probably has no idea what we're talking about. See, it used to be, Shaun, you had to go physically to a store, pick the movie you wanted and then pay somebody to rent it. Not like today.

Moish Peltz [00:01:11]:
Not like today. Segueing into our topic of conversation, which.

Kyle Lawrence [00:01:15]:
Did come up organically in the conversation, by the way.

Moish Peltz [00:01:17]:
Bill Barhydt about fast forwarding the financial system to today and a lot of the legacy institutions that Abra is CEO of are competing with. And I thought it was super fascinating because it really gets into all these crazy issues about the bitcoin taking over the world and the de dollarization and these like global macro issues that are.

Kyle Lawrence [00:01:41]:
Fun to talk about for sure. And he brought it up a couple times. What strategy, formerly microstrategy is doing with their Bitcoin holdings. We've talked about with our clients and have put forth a sort of roadmap for other clients, potential clients, as to how they can add Bitcoin to their balance sheet. It's the kind of thing we're going to start seeing a lot more of, especially as more favorable legislation comes out. Tumult in the markets just continues. You're going to see people looking for these more safer or I don't know about safe, but safer. There's such a thing as total safe, but something that's a little more predictable, a little less volatile.

Kyle Lawrence [00:02:20]:
I just think that we're at the tip of the iceberg here.

Moish Peltz [00:02:23]:
Yeah. And Bill talked about the different kinds of ways that individuals or enterprises can custody bitcoin. And he makes a pretty compelling case, I think and everyone should check it out and do their own research that Abra and companies like Abra are a really interesting way for a lot of people to think about custody of their crypto.

Kyle Lawrence [00:02:47]:
Yeah, I agree. He's a fascinating guy and so please stay tuned and check out our interview with him coming up. We are thrilled to have on Block & Order today Bill Barhydt from Abra. Bill, welcome to the show.

Bill Barhydt [00:03:04]:
Thanks Kyle, Pleasure to be here.

Kyle Lawrence [00:03:06]:
It's pleasure to have you. How are you doing today?

Bill Barhydt [00:03:08]:
Doing awesome, thank you. Beautiful Monday.

Kyle Lawrence [00:03:11]:
It's a beautiful Monday. The sun is shining. It's not super polleny outside which I'll somewhat take. I guess if I don't sneeze during the show it'll be a miracle. Bill, why don't you tell us about some of the great work that you and your colleagues at Abra do to kick us off.

Bill Barhydt [00:03:24]:
Yeah, sure. So we run an investment advisory that allows high net worth and upper middle class investors to get access to the cryptocurrency space. We're an SEC registered investment advisor. We offer the ability to buy, hold, sell, trade crypto, earn yield on crypto, which these days is pretty unique for for us to borrow against crypto holdings so you can deposit bitcoin, earn yield on it, deposit and stake your ethereum, Solana Sui, next generation tokens, etc. etc. A lot of early bitcoin holders are now borrowing against their bitcoin holdings to, you know, help with kind of tax advantaged ways to access the gains on their crypto. We're helping small, mid sized and even larger companies now execute the kind of microstrategy playbook of adding Bitcoin to their balance sheet. Many are using this for small amounts of leverage either to expand the business or even add more bitcoin to their balance sheet.

Bill Barhydt [00:04:25]:
So it just depends upon the perspective of the company. So think of us as a really easy way to bridge the traditional finance world with the crypto world. Give everyone access, make it super easy, legal, accessible.

Kyle Lawrence [00:04:41]:
Certainly a hot topic right now with the just everything that's going on in the space, a friendlier environment, a friendlier administration and I think I just saw earlier today or over the weekend strategy, it added another 1.4 billion in Bitcoin to their portfolio. How, how has your business evolved or changed since the election? I'm assuming there was just been a. It's a tidal shift of people coming to your platform and expressing interest in participating in the space.

Bill Barhydt [00:05:09]:
Absolutely. I mean there's, there's probably three interesting things that have happened at the same time. One is we now have kind of the tailwinds of the ETF and kind of BlackRock saying, you know, we're going to come into this space. There's growing acceptance that it's, that there will be more and more companies globally, especially tech and libertarian leaning companies that will add Bitcoin to their balance sheets. And then we have the regulatory headwinds which have turned into tailwinds for us. Right. So there's not this perception that the government is trying to kill us anymore and that we're here to stay and that bitcoin is a viable store of value that cryptocurrencies implement. The future of banking via defi, which is doing just tremendous growth for lending and yield and traditional banking services, but on chain.

Moish Peltz [00:05:58]:
So that's fascinating and I think it's really easy to watch a company like strategy say, okay, we're going to add another billion dollars in bitcoin to our balance sheet. And you know, you know, for clients like ours, like smaller mid sized companies or companies that have raised like a seed or a series A that say hey, we want to start getting some exposure or just putting money that we're reserving for a rainy day instead of putting into T bills or we're putting it into Bitcoin. How can a company like that, you know, what's the playbook that they should think about from you know, drafting investment policy decisions, onboarding custodians, talking to investors to help perhaps a venture funded tech company start its first initial bitcoin allocation.

Bill Barhydt [00:06:41]:
Right. I'd outline kind of, I think in threes again. So maybe three key stages. The first is education. Every director, key decision maker, finance team needs to be willing to put in 50 to 100 hours of time to understand what it means to devalue the dollar. You'd be shocked how many CFOs I talk to when I explain dollar devaluation. When I explain dollar hegemony and how the stock market has grown.

Kyle Lawrence [00:07:12]:
Oh no, I'm upset about what you're about to say.

Bill Barhydt [00:07:13]:
In tandem with dollar devaluation for 75 years I get a blank stare and I'm saying, okay, so start with the basics. What does dollar devaluation mean? How does bitcoin actually work at a high level? You don't need to understand the nuances of elliptical curve encryption, but you need to understand the nuances to have a decentralized monetary system that is ultimately deflationary. And trust me, if you put 50 hours in, everything I just said will make perfect sense to you. Okay, so it's not rocket science, it's just time. That's, that's, that's step one. Step two is you need to understand the cash flow and balance sheet situation of your own company, because the way strategy has done this is unique to them. And I can give you other examples of playbooks we've executed which are variations on that, but are. Each one is unique and nuanced to the company that we work with.

Bill Barhydt [00:08:12]:
And so in some cases it's converting 90% of the balance sheet, in some cases it's converting 10%. And then you decide on future cash flows, you decide on leverage. What's our plans? What are our plans for going public? How does this impact that if we're private or public, et cetera, et cetera. So you have to understand and dig in and map the two. Meaning how does Bitcoin work? How does it protect us financially in the mid and long term? And what does that mean for the existing balance sheet that we're bringing to the table? And third is the execution strategy. How are we going to do this? Who do we trust to hold the Bitcoin, to manage the Bitcoin, to potentially give us small amounts of leverage? Right. You know, MicroStrategy is trying to create a perpetual motion machine by constantly leveraging the Bitcoin. It's simply an assumption that the dollar is being devalued at this rate and Bitcoin is being adopted at a steeper rate.

Bill Barhydt [00:09:09]:
And in between the two, they have found, at least for now, an arbitrage opportunity that's allowing them to create what to the public just looks like some perpetual motion machine. I assure you it's not. It's basically the difference between Bitcoin adoption doing this and dollar devaluation looking like this. And if you believe, as those of us who've been in the know for many years do, that this is not going to stop, then this seems like the ideal way for companies and individuals, family offices, to simply protect their wealth.

Kyle Lawrence [00:09:44]:
It's a really fascinating way to approach it. And I think that, you know, viewing it as a perpetual machine is a great, I think a great analogy. You know, part of the problem that I encounter as part of my business, as a traditional securities lawyer, mergers, acquisitions, corporate governance, is people come to me and they say, you know, what's this Bitcoin? What are these cryptocurrencies? I explain it and they think it's a flash in the pan, they think it's a fad. You know, they look at NFTs and they're like, well, NFTs are dead, even though they're not. But that's the perception. How do you, when you're undergoing this education part of your practice, of your platform, how do you break through that? What's the key that you use to break through that? Just resistance that people have.

Bill Barhydt [00:10:26]:
It's two things. It's time and it's nuanced conversation slash education. There are no shortcuts. Right. If you aren't willing to take the time to understand the basics and the nuanced difference between a deflationary monetary system, which what the dollar was, by the way, 75 years ago, and the inflationary system that's debt based that we have now, then there's not a lot we can do for you because you have to take the time to understand the difference. Okay. Historically, familial wealth, family wealth for family offices and very high net worth families has been stored in art and real estate. Why? Because those two things tend to transcend space and time when it comes to store value.

Bill Barhydt [00:11:16]:
Meaning as empires come and go, as money systems change come and go, art, especially well known dead artists, tends to retain value across multiple generations. The wealthy families, intergenerational families, understand that. Right. It's counterintuitive to everyone else because we don't think about it. Right. So. And real estate's a little bit worse because its value is taxed away, especially by late stage empires every 50 to 60 years. Right.

Bill Barhydt [00:11:50]:
Whereas with art it tends to escape that. And I actually think that NFTs and NFTs basically are just a way to encapsulate your rights to something else, whether it's art or property. It's not the art itself. It can be, but it's not what it's designed to do. It's just basically from a legal perspective, since you're a lawyer, it's an encapsulation of rights, that's all it is. And it makes those rights peer to peer, transferable. So if you don't spend like a modicum of time to educate yourself, it's going to be very difficult to get past the, oh, it's a fad, it's a scam and it's not. It's technology, right? But the technology is basically at the edge of disrupting a system that's worked for thousands of years.

Bill Barhydt [00:12:34]:
I mean, gold is thousands of years entrenched as the hardest money that people have known hardness generally refers to this idea that you can't inflate its value away by creating more of it. There are a fixed number of atoms of gold in the universe. Right. We haven't found them all, but scientists will tell you we're not creating more. So that's a hardness value. And Bitcoin is the hardest form of money we've ever had because we know exactly how much will ever exist. We know exactly when they were created, which is not true for gold. We don't know when.

Bill Barhydt [00:13:17]:
There was just a recent gold discovery. I'm trying to remember where it was. I think it was in Mongolia. I don't know. There's a huge gold mine that was just discovered. Right. And that changes the stock to flow the rate at which gold is being discovered, which obviously devalues the current supply by definition. Right.

Bill Barhydt [00:13:33]:
So. So that can happen with Bitcoin, but we're at the edge, which is. Which is where these big disruptions happen. And they're never pretty. Right. When you have a revolution in science, and this is technology, it's not science, but there's always extreme pushback to maintain the status quo. And that's what we're going through now. Right.

Bill Barhydt [00:13:55]:
I don't think the dollar is going to die anytime soon, but I do think most fiat currencies are going to die very soon. And as they all do, and will come down to three or four, which will last through the next kind of cycle of empire, which will probably be a competition between the US, China, and decentralized systems. Right. And so this is a disruption we've never had before. And so it's. For people who don't intuitively understand the Austrian economics or the technology or both, it can be very daunting and very confusing.

Moish Peltz [00:14:32]:
Well, is the state, in particular, the US State, destined to be in competition with Bitcoin, or are some of the conversations we're having about United States companies adopting bitcoin, Congress enacting legislation that is conducive to companies, is it inherently a competitive environment, or is there a way that the US adopts it and creates this pathway that makes this a really good place to be a company that denominates its activities in Bitcoin?

Bill Barhydt [00:15:04]:
I think it's the ultimate insurance policy for mankind, because what it says is if you all don't get your act together and if you don't stop printing money to create more debt at an unsustainable rate, then we're all just going to abandon you and adopt something that you know, doesn't leave us at the altar every two weeks and, you know, treats us in our relationship the way we deserve to be treated. And that's what bitcoin does, right? I mean, it's, it's, it's the, it's the boyfriend that's going to treat you right. So if you stop, look, if we went to a gold standard tomorrow with the dollar and convinced China to do the same, Bitcoin's value would flatline and go up slightly because it's still being adopted. And its value would continue to go up slightly, not at the exponential rate it's going now because it's still as an insurance policy on us continuing to do that because we can't break the bargain between us and bitcoin. Bitcoin doesn't care about our monetary policy. But if we went back, if you look at, for example, the value of a house in the United States priced in gold, it's the same now as it was 50 years ago. People are like, huh, how can that be? Gold's up 10x because the value of the dollar has fallen 10x since then. Right? And it's very counterintuitive for people.

Bill Barhydt [00:16:26]:
It's like, how do you explain to a frog that's been put in cold water when the gas has been turned on that it's being boiled to death because it's just happily swimming around in the water and it doesn't realize that it's being boiled to death. That's what 2% inflation does to you over 50 years. And so to your question, having bitcoin there is the ultimate insurance policy. I gave a talk at Ted. I think it was the year after bitcoin was launched because the UN had just come out with a research paper saying that the dollar was no longer a reliable long term store value. And actually gave a talk which was, does Bitcoin represent the future of that? Of course, no one in the audience had ever heard of it. And the point was we need an insurance policy on what's going to happen next because this is cycles. If you read Ray Dalio's book on, you know, principles of a Changing World Order or the Fourth Turning, they all say the same thing.

Bill Barhydt [00:17:23]:
It's like we keep recreating the matrix and then we keep destroying it over and over again because we're really good at it, right? And so what this does is it eliminates the human frailty from the equation that has enabled us to destroy the empire model over and over again. And the decentralized internet is the key that's been missing for the last thousand years to do that.

Moish Peltz [00:17:47]:
So then the flip side to that is, as you know, my argument's always been that stable coins are the greatest foreign policy thing that are possibly for the US dollars. Well now we have a canon, we can inject USDC into all the flower flung places of the universe. So how do you balance out from this macro vision? You were just saying the bitcoin ideology of we have hard money versus the adoption of USDC and it seems to be happening, right, that we are now talking much more seriously at the foreign policy level about stablecoins and their abilities to be used across the world.

Bill Barhydt [00:18:24]:
The stablecoins can help you stabilize rates to the downside because we are creating demand for bonds. When you create demand, the price goes up and interest rates move inverse. So interest rates should come down. But that doesn't solve the structural problem. It's a short term opportunity, certainly sub 10 years to address the interest rate issue, which we've always been able to address organically by being the world superpower. Right now the world no longer accepts that, which is why the bond issuances the last few weeks have not gone well. Because they're saying you're, you know, it's, it's the bonds are, you know, are not worth what they used to be worth. So you're going to have to pay me way more, which is the opposite of what this new administration wants.

Bill Barhydt [00:19:15]:
It's what the opposite of any administration would want. Right. You want to weaponize and financialize your debt at the middle class's expense. And if the, if the interest rates that you're forced to be to pay on new intuitions are skyrocketing, that's orthogonal to what you're trying to achieve. So yes, to your point, stablecoins could help in theory by replacing the fact that China and Japan are probably not going to be buyers of primary issuances going forward. And there's only so far they can push US banks who are already insolvent on a mark to market basis. That's just masked by the fact that they don't have to market the current value of bonds today. Right.

Bill Barhydt [00:19:52]:
They get to market them the value when they mature in 30 years, which is a duration mismatch with deposits. I don't know how much you want to get to that. But the point is it doesn't solve the structural problem long term, which is that we have to print money just to pay the interest on the debt, never mind the new debt we're creating. Unsustainable. Okay. Bitcoin acts as a, you know, my friend Shamac calls it schmuck insurance on this system because people have an out to say, look, get your shit together or I'm out.

Moish Peltz [00:20:30]:
That's fascinating. Yeah. No, I want to backtrack and talk a little bit about three points, right? Understanding, developing a strategy that's unique and nuanced for your business and then the execution strategy and enabling leverage. I guess on that third point, there's lots of different options on the market. How should companies think about the different options and the different types of custodian risks and the different types of, you know, regulatory regimes or that's in the US or outside the US and is that just dependent on the kind of business they want? Is it dependent? You know, what should companies think about, especially US Companies in analyzing the different types of, you know, availabilities on the, on the market and then the different types of custodian risks that are, that are available.

Bill Barhydt [00:21:21]:
It's a great question. So first thing I'll say is there are three basic ways to custody crypto today, right? The first is what I would call cold storage. Cold storage is a bit of a misnomer, but basically you're doing it yourself, right? Whether you're using a hardware device, paper based, you know, where you literally print out the keys, etc. etc. right. So, so that's the do it yourself route. Whether it's an individual, family, office company, all that method is. All three methods I'm describing are available to everyone.

Bill Barhydt [00:21:58]:
The second is the exchange route, right? And that is generally a money transmitter, whether it's Coinbase or PayPal, who basically offers something like an omnibus account where you're storing Bitcoin or Ethereum, Solana, whatever, stablecoins effectively on their balance sheet. And you're a liability to their balance sheet. Just like a bank would be a liability, you would be a liability in a bank's balance sheet. And then the third is a hybrid where you basically can work with a regulated entity that is a fiduciary that gives you a dedicated vault, right. Which is not commingled with other clients funds. So let's break them down. The cold storage is generally considered the safest from a theft fraud perspective. But most people we deal with have no interest in doing it because they lose the keys.

Bill Barhydt [00:22:57]:
There's phishing attempts to get access to it. They're afraid of the technology. Every time they have to move, they break out in a cold sweat. So as somebody who has a degree in computer science and Work for NASA? Yeah, I can use cold storage and I do sometimes. But I recognize that our high net worth clients and corporate clients just can't do it. They're not interested in doing it. I shouldn't say can't. They're not interested.

Bill Barhydt [00:23:20]:
Okay, and then the second is exchanges. The biggest challenge with exchanges and the reason why I tell my clients, look, if you use an exchange to trade, fine. Do not leave your crypto on an exchange. You are a liability on their balance sheet. You are last in line when the hits the fan. Okay?

Bill Barhydt [00:23:45]:
When shit hits the fan, you guys come first. Right? You guys meeting lawyers. Right? You know, then whoever.

Moish Peltz [00:23:52]:
I think the federal government's first. Okay. But yes, we're second.

Bill Barhydt [00:23:55]:
You're second. And like clients who are liabilities on somebody's balance sheet are way down here, which is why people who are on FTX or Genesis or whatever are still waiting. And umpteen years later, umpteen months later, you know, Mount Gox still waiting to get their money back, still waiting a decade later.

Kyle Lawrence [00:24:13]:
It's not even. It's not even when shit hits the fan. I don't mean to interrupt you, but you know, people need to realize, you know, Coinbase can say, hey, your account is frozen temporarily for suspicious activity. You try offloading a million million dollars. It's crazy.

Bill Barhydt [00:24:25]:
Yeah. And it's not necessarily them being evil. I, I'm not a big fan of Coinbase for many reasons we can get into, but, but you know, they just may say, well, that's what we're told to do by the regulators. So that's what we're doing.

Kyle Lawrence [00:24:34]:
Right.

Bill Barhydt [00:24:34]:
You can't argue with that. Who are you going to argue with? Right. Your lawyer is going to say, well.

Moish Peltz [00:24:38]:
There's a legal process to that legal process. And disagreement with Bitcoin may not.

Bill Barhydt [00:24:42]:
So, so, so that's the don't leave your crypto on an exchange. And it's not just hyperbole. There's very good reasons not to do that. Okay, and then the third is, can I basically have the equivalent of a safety deposit box that a fiduciary can manage for me that I can see on chain and is protected? So let me explain what all that means. Right? So what ABRA does is we have formed a registered investment advisory and we've built effectively a qualified custodian. There's no SEC rules in the US yet for crypto qualified custody. There have been draft rules, but they haven't been formalized. And my guess is they'll start over with the new administration.

Bill Barhydt [00:25:23]:
But regardless, we've taken what we believe are best practices to build a qualified custodian. So each client gets their own vault. Your Bitcoin, Ethereum, Solana, Stablecoins, whatever are visible on chain. From that vault, you can execute transactions. You can have Abra as a fiduciary to you execute your transactions. And now we're launching capabilities actually this week, the end of April, to allow a third party fiduciary to act on your behalf as well. So like if you have another RIA that you're working with or a lawyer that has, you know, power of attorney over those assets or you've died and the power of attorney needs to execute, you can do that. And then there's also like a, you know, a workflow that says, okay, they can initiate the transaction, but I have to approve it in the second step, that kind of thing.

Bill Barhydt [00:26:12]:
Right. And so that model has two big benefits. The first is your assets aren't commingled. You can see them on chain. It's not some omnibus or schemes based fractional reserve system, which is what Celsius, Blockfi, Voyager, all those companies turn out to be. And second, if we go away, your assets are protected because you're retaining legal title to those assets. You're not a liability. You don't show up on my balance sheet.

Bill Barhydt [00:26:42]:
Okay, So I would posit to your question that that is the best way for the vast majority of people and companies out there to manage crypto. Okay? Nothing is-

Moish Peltz [00:26:54]:
Especially the high net worth enterprise-

Bill Barhydt [00:26:56]:
That's right.

Moish Peltz [00:26:57]:
type stuff.

Bill Barhydt [00:26:57]:
Nothing is risk free. But I'm giving you the pros and cons of each. Right? So you know, I manage it that way. Our corporate clients, we use our own balance sheet. That way it just makes the most sense. Right. And we can show every once in a while clients who are in the know, like, oh, can you send me, you know, the, the way to see the MPC wallet contents on chain. And we do, and they say, okay, got it.

Bill Barhydt [00:27:22]:
Right. And, and so again we, we, we invariably help clients move from the exchange model and they always start that way because they don't understand the nuances of what I'm saying. But once they usually have seven or eight figures of crypto on there, usually they dig in and that's when they realize this is a bad idea and they need to move the assets off into a model where they can retain title to the assets at all times.

Kyle Lawrence [00:27:52]:
I would think that after we heard all these horror stories after the Palisades fires of people losing their keys, a lot of people, high net worth people who kept everything in cold storage as you suggested, and now it's like, oops, well that just went up, literally went up in flames. So I'm sure you got a lot of more people who are a little more concerned about that. So it's a great insight as to the different options.

Bill Barhydt [00:28:12]:
That's right. We have clients who live there. We don't disclose our clients, but I'll tell you in general terms we do have clients who live there. And I did hear back anecdotally from a couple who said, yeah, I'm really glad that we were with you. And we just, it was, it's a lot of money for them now. I mean, in some cases it went from a little bit of money to a lot of money over because they've been with us for years. But. But yeah, I mean, it's a good feeling when you know that, okay, everything went south, but at least this one thing I know is safe and protected.

Moish Peltz [00:28:43]:
Yeah, anything that can help you sleep at night, that seems like a valuable service. Right. I'm curious about the. So you mentioned your fiduciary a couple times and if you can explain a little bit more what that means and then that I think will segue into. I have questions about what you thought about the last week of the crypto task force and they were talking a lot about custody and if there are any takeaways you had from, from those conversations.

Bill Barhydt [00:29:07]:
Yeah, so. So as a fiduciary, we have to put our clients interests first. Obviously we are allowed to make money. We disclose our fees in advance. Generally we only make money when our clients make money, with the exception of just basic custody where we'll charge, you know, a few basis points a year on those assets to, to manage the custody. But you know, we cannot put our interests before our clients interest and that's the easiest way to think about a fiduciary. There's, you know, there's more nuanced definition than everybody can look up. And I'm sure as lawyers you can explain it better than I can, but that's, that's what our clients care about the most when it comes to that they know that their interests come first and that I'm submitting myself to SEC oversight to that end.

Bill Barhydt [00:29:54]:
Because anybody can say that. There's nothing illegal about saying I'm going to put your interest first. If you're not RIA, it's just now I'm legally obliged to do it. And there are forms that you can see on the SEC website that we've submitted that explains the risks of all of this, that explains what our responsibilities are, what our clients rights are, et cetera, et cetera. And then they sign an investment management agreement that recognizes that we both are bound by that ADV that you can see on their website.

Kyle Lawrence [00:30:24]:
Are there any scenarios where you would limit a person's ability to withdraw? Like the analogous situation like a bank run, which is not so much a thing anymore. Would there any be scenarios? We'd say, look, we have to pause.

Bill Barhydt [00:30:37]:
For our RIA clients. Not that I'm aware of. I mean it's possible that somebody could be in legal trouble and that there could be like a subpoena or something. I don't know that that's ever happened on the RIA side for the vaults. But under normal circumstances there's no way that I'm allowed to block client access to the vault. So even in the case of like an Abra bankruptcy, that's still your vault. I can't block you from withdrawing access. On a prime brokerage that's different, that's regulated totally differently. There's lots of scenarios where a counterparty could lose access temporarily, some AML issue, some fraud issue, but that's a different part of our business.

Bill Barhydt [00:31:22]:
On the RIA and the investment advisory side with those vaults, clients should have 24/7 perpetual access to those assets.

Moish Peltz [00:31:31]:
So it sounds like it's a pretty nifty solution. I'm curious just to backtrack about your thoughts on the crypto task force. Why aren't more companies doing it this way? Why isn't there more?

Bill Barhydt [00:31:43]:
Yeah, it's a very easy answer. I mean it's hard. So it's much easier to set up an Oracle or SQL database and say here are the values of Bitcoin. If you use an exchange, what you're looking at on the screen is rows from a database that say this is how much Bitcoin you're entitled to, not how much you have, how much you're entitled to because you're a liability on the exchange's balance sheet, right? So that is much easier to implement because if you execute a trade, you're not moving any bitcoin, you're not moving any stablecoins or dollars or anything. It just stays rows in a database that move. It's much easier to implement. Okay, when you trade Bitcoin or dollars for Bitcoin out of your in and out of your Abra vault, every trade physically represents movements. Think of it as having physical gold in a vault and say, okay, I want to buy more gold.

Bill Barhydt [00:32:36]:
Well, I got to put more gold in the vault. That's what we're doing. So. So what we do is very hard to implement correctly. Right. It's also a big legal hassle because we have to lawyer up and basically implement it. It's almost like building a crypto bank. You know, the SEC wouldn't call it that, but.

Bill Barhydt [00:32:56]:
But that's kind of what you're doing because you have to build the equivalent of a qc. You've got to do all the disclosures, you've got to do all the filings with the SEC. You've got to submit to audits from the SEC. We're still an MSB from FinCEN's perspective. So we still get audited by the IRS, who does the FinCEN's MSB audits. And so you're subjecting yourself to way more oversight than just a money transmitter. I think that's a good thing if you want a fiduciary. But to your question, that's why I think it's not common.

Bill Barhydt [00:33:33]:
I think if it was, all things considered, if MSB could do whatever they want, it's just easier to not be an RIA. But that's not doing right by our clients, in our opinion. We analyzed all the contagion from the last lending cycle and yield strategies and all the fraud. And we said, okay, how do we do this in a way that protects our clients, protects us, reasonably forces us to do the right thing by themselves and we know has a moat around the business from a legal protection perspective. And this was the only model we could come up with in the U.S. you know, other countries do it differently, but specifically to the US this was the best model. And we have a lot of international clients who don't mind signing up with an US RIA because they see that they're protected now.

Kyle Lawrence [00:34:22]:
And especially how egregious the prior administration was. Having those registrations under your belt probably just gave you all kinds of clarity and gave your clients.

Bill Barhydt [00:34:33]:
That's right, that's right. I mean, there was nothing inherent, nothing consumer protection oriented about the last administration at all. This was a correct, a concerted, directed effort to completely kill our industry because there was a. Basically. And an ongoing belief that the next financial crisis will allow them to socialize the banking system to everyone's benefit, which is nonsense, but that's the belief. So if you want to socialize the banking system. What is the biggest threat you could come up with? Well, it's an always on banking system 24/7 with no off switch that you don't control. So by definition they have to kill us.

Bill Barhydt [00:35:15]:
They totally underestimated our staying power. But yes, I think that this now represents the future of this model for what I'm calling loosely crypto banking, because it's not a legal term that I'm using. But, but you get the idea.

Moish Peltz [00:35:30]:
So, so what's on your wish list then for, you know, what is now a more innovative, well, industry?

Bill Barhydt [00:35:37]:
That's a good question. So the first thing we need to do is we need to codify rules as law and not just regulatory policy so that this nonsense can't happen again in an unambiguous way. And while we're doing it, we need to avoid the regulatory capture that has happened in the past in other industries. I can go back to my telecom days, my early internet days and energy policy days, my Goldman days, and I can give you a dozen examples of industries where we inadvertently created regulatory capture for incumbents that by definition would be a disaster, in my opinion. And so not only do we need to codify the rules in a way where a new administration can't undo them unless they end up with a super majority in all parties, but we also need to avoid the regulatory capture that gives incumbents a big advantage. We need a level playing field for all parties. We need to make sure that defi is considered simply free speech. And so if you're executing code as smart contracts, it's hands off.

Bill Barhydt [00:36:44]:
If you're using an intermediary to access those smart contracts, which is what ABRA does, then yes, we are subject to oversight and regulation, and a reasonable amount of regulation I completely expect, accept and believe is just. And then you need to have the ability to, from an enforcement perspective, have checks and balances. We basically went through five years where policy was set by enforcement and reasonably funded startups had no chance because no one could afford to fight. I remember cases back from my internet days, DRW. And those folks, they would fight the CFTC and they would win, but at the end they would have spent millions of dollars to win. So what have you won? We need to figure out a checks and balances system that says, okay, there can be enforcement, especially for fraud, which is where I think the focus should be. But if you haven't committed fraud and you're accused of fraud, it shouldn't cost you $20 million to protect yourself and fight those charges. And so That's a big problem in the United States today.

Bill Barhydt [00:37:51]:
A big problem. And it's not specific to crypto, but we've been the tip of the spear in basically having them weaponize the enforcement system to set policy. And that has to stop. And it has to have checks and balances that are reasonable going forward, in my opinion. You know, we'll see.

Moish Peltz [00:38:11]:
So do you, do you feel that the legislative proposals that are winding their way through Congress right now sufficiently avoid the regulatory capture concerns that you see? Is there a way that the industry can be more active in ensuring that the ethos and culture of a decentralized, you know, web makes its way through this process?

Bill Barhydt [00:38:35]:
Yeah. So stablecoins are different than just kind of real crypto to me, because stablecoins are just basically way of tokenizing a real world asset. And so I think they're giving too much power to the banks to be able to pay and earn yield. Because if a tokenized treasury is basically taking the yield that the government is obliged to pay and is forced to give it to the issuing entity as opposed to the token holder, that makes no sense to me. That's just a way to protect the bank's turf. Okay, so that is a form of regulatory capture and I hope they do that. But I don't know. That's not my biggest concern because again, it's not really pure crypto, it's just a tokenized real world asset.

Bill Barhydt [00:39:19]:
I do have concerns about it though, because we're going to want to tokenize everything if we're making special rules to protect the banks when it comes to treasuries. Well, what about what happens with right funds and other tokenized assets that I think money market funds or other real estate funds or hedge funds and everything that we're going to want to tokenize and trade on defi networks. So I do have a bit of a concern that this transcends just this dollar issue. Okay. I'm much more concerned with what we're going to do around market structure and having a sandbox for future defi systems to basically become sufficiently decentralized over time. Being clear on the fact that a utility token for a defi network that effectively acts as the gasoline for that, that may even accrue protocol revenue is not a security, it can't be. And I also want to see a sandbox that basically says, okay, you can operate with minimal, certain disclosures outside of the security issuance rules. If you can show that your intent is to be sufficiently decentralized within X dozen months that would be amazing because it would create innovation and move a lot of the offshore innovation back to the US and basically open up significant capital formation opportunities in the US While still allowing the regulators to police for fraud.

Bill Barhydt [00:40:46]:
And so I have not seen sufficient detail to your question to say this is definitely happening but I will certainly fight and make my opinions known on that and hope hope that we end up with a level playing field.

Kyle Lawrence [00:41:01]:
Yeah, great, great stuff. Moish and I were at the Digital Chamber Summit in Washington last month and the market structure bill was top of mind and something that came up a lot. Now we know Bill Hagerty's genius bill is has been drafted and been moving through committee and whatnot. I don't think the market structure bill has come out yet unless, unless there's. The past we has-

Bill Barhydt [00:41:21]:
I'm actually okay with that. But I think take their time and get it right.

Kyle Lawrence [00:41:25]:
I agree. Exactly. I don't want to see them rushing. I'd like to see them sit down do it correctly with bipartisan support as well, which I think the market structure bill has to varying anyway.

Moish Peltz [00:41:36]:
To play devil's advocate is that if the stablecoin one gets prioritized and gets enacted then the political capital of the industry may have been spent and then market structure might have to wait till next Congress or something like that.

Kyle Lawrence [00:41:49]:
Well, at least the hope if there's bipartisan support is that everything just won't get undone in two years. To your point Bill.

Bill Barhydt [00:41:57]:
That's the key. But we can also basically make it difficult to undo things that don't make sense. Right. So if we don't end up with a sandbox and we still have ambiguity over DeFi protocol tokens, for example, and there's Wells notices flying under the next administration even with the market structure bill, that would not be a win. Right. So you can codify bad things too.

Moish Peltz [00:42:22]:
Well, so I'm curious because you've been in this industry almost as long as anyone, at least I think that we've had on the show about how you feel here in 2025 and if you were to project forward what's happening over the next five or ten years, what's 2035 Bill Barhydt thinking about where we are today and where you are then.

Bill Barhydt [00:42:45]:
Yeah, I think it's awesome. Look, one thing I know is true, that there's a group of people that have tried every which way they can to kill this technology and the companies that want to support it. And that thing is we're still here and the technology is not going anywhere. I think Bitcoin has now established itself as a new monetary network, a new monetary system and it's done that in less than 15 years, which is astounding. If you think about the rate of adoption of the Internet itself, Bitcoin is being adopted at a faster rate post adoption of consumer Internet. Again astounding, right. And so now I think the next phase is broad based defi adoption into the traditional banking system or in replace of the traditional banking system. I think you'll see a parallel system emerge with even new banks just the same way Netflix replaced Blockbuster which replaced traditional television and movie theaters.

Bill Barhydt [00:43:45]:
I think that you'll see de novo and new banks, neobanks that are purely defi based and I think you'll see the other banks try to catch up because obviously a bank that operates 24/7 that can process loans, 24/7 pays the yields daily 24/7 is way better than a bank that operates 35 hours a week. Systems are all mainframe COBOL based and the developers are dead. So you know, it's very difficult to compete when the people who develop those systems are gone. So I don't know how they're going to do that. But the moat that has allowed them to operate outside of the software is eating the world mantra is dead. I do fundamentally believe that they had a moat when software was eating everything else or almost everything else. It basically couldn't penetrate the veil around the banking system.

Bill Barhydt [00:44:46]:
Separate from the monetary system. Bitcoin has managed to pierce that veil of the monetary system. And I think defi is piercing that veil on the banking system this cycle.

Moish Peltz [00:44:55]:
Well that's fascinating and I think we'll see 2035. We're in a post COBOL era and the user interface that I think all the consumers enterprises need to really like put harness this technology and use it in their businesses I think is going to become a reality. So yeah, totally I agree with you there and I just want to thank you for one coming on the show and being such a vocal advocate of the industry and just really appreciate it.

Bill Barhydt [00:45:25]:
Yeah, my pleasure. Love what you guys are doing. Keep it up.

Kyle Lawrence [00:45:28]:
You too Bill. Thank you very much. Thank you for stopping by and we'll have you on again soon.

Bill Barhydt [00:45:32]:
Awesome. Have a great week guys.

Kyle Lawrence [00:45:47]:
Well, that wraps up this edition of Block & Order a very special thank you to Bill Barhydt from Abra for stopping by offering his time, his insights into all things custody stablecoins, the pros and cons of Bitcoin and everything in between. So don't forget that nothing in nothing on Block & Order is intended to be legal and or financial advice. Please consult your own representatives if you're going to take the plunge. Very special thank you to producer Shaun. Without him, the show would not be possible. Please like and subscribe. Follow us on all our socials. Links are down below in the show notes.

Kyle Lawrence [00:46:19]:
So on behalf of Moish Peltz, I'm Kyle Lawrence. Take care, everybody.

Moish Peltz [00:46:23]:
See you next time.