Crypto

Episode 51: All Things Crypto with Dan Hannum

Ben Lakoff, CFA
July 5, 2021
61
 MIN
Listen to this episode on your favorite platform!

This episode is all about Crypto – from an investor, VC, and operator… also a bit around the confusing aspects in crypto – taxes and accounting.

The content here is evergreen and valid for anyone interested in learning more about the crypto space overall from a veteran.

Listen on your Platform of choice:

Check out https://anchor.fm/investinalts for all the listening options (Spotify, Apple, etc.)

Show Notes

0:00:00   Welcome and context

0:02:10   What got you into Crypto?

0:07:36   How does the crypto market changed since 2015?

0:19:05   Ventures investing in crypto

0:24:50   What assumptions are currently popular?

0:34:34   What curators you’d recommend people to follow?

0:43:00   What is ZenLedger?

0:55:10   What are the most common mistakes crypto investors make?

1:01:40   Where can people find out more about you?

Show Links

Cryptoassets

ZenLedger

Bankless Podcast

Cooper Turley

Dan on Twitter

Episode Transcript

Ben: [00:00:00] Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor. Here’s your host Ben Lakoff.

Hello and welcome to the, to asset allocation podcast. Today’s interview is with Dan Hannam. This episode is all about crypto from an investor, VC and operator, and also about one of the most confusing aspects of crypto, which is. Taxes and accounting, this episode was recorded on the 25th of February. The crypto market has basically done this. We’re right about where we were earlier this year. And really the content is pretty evergreen. I’ve been absolutely slammed. I’m finally getting back to this and the content is still really good.

And I think you’ll enjoy it before we jump into the episode. I want to take a cent second to thank you for all of the great questions and feedback. I get messages all the time, and I really, really appreciate it. You guys really rock. If you’re getting some value from this podcast, please drop me a line or a review or give it a like on YouTube or wherever you’re listening to it.

This really helps. All right, Dan Hannam, all things script out. Enjoy

Dan, super excited to have you on the all to asset allocation podcast. Welcome to the show,

Dan: [00:01:15] Ben. It’s a pleasure. Thanks.

Ben: [00:01:17] Yeah, it’s actually crazy. We were randomly looped together on an email. I’ve just moved to LA as somebody that I should meet in the space and in the city.

But we had already scheduled this podcast episode. Quite serendipitous, but super, very much looking forward to this conversation, learning a little bit more about you and what you’re doing.

Dan: [00:01:36] Absolutely. It’s a, it’s a pleasure to be connected and excited to, to dive deep into some crypto today with you.

Ben: [00:01:42] Absolutely. I really wanted to have you on the show today because you have this unique viewpoint of being an investor in the space, working in venture, also being an operator.  I guess I can call it a startup, but a, a company operating within the blockchain crypto space. But before we kind of dive into all of those, I want to just start off a little bit about you and your background and what got you interested in crypto in the beginning.

Dan: [00:02:07] Sure. Yeah. Yeah, my background is largely in traditional finance. Went to the university of South Carolina and got my MBA there. So it was pretty enthralled with econ and finance and the markets in general you know, grew up really wanting to be on wall street and getting into a traditional stocks and bonds and equities and commodities and all those fun financial instruments.

So left South Carolina after my MBA and went up to New York and started working at wall street. Made a few stops at a few different firms, you know, really got to go through the ropes of getting my series seven and 63 and 65 and really just kind of being a sponge and absorbing all this information.

That led me to kind of my final chapter on, on wall street, which is at TD Ameritrade. So as a portfolio manager at TD Ameritrade, really looking at more traditional traditional equities, more on like the buy side of our business. So that was a really amazing experience going from kind of low man on the totem pole of just being a traditional analyst, doing a lot of grunt work to then kind of jumping up the ladder to a junior portfolio manager of really understanding how a kind of sitting in the middle of, you know, once an analyst and leading in let’s provide reports, how does a portfolio manager actually use that data and that knowledge to allocate capital and then was able and fortunate enough to kind of jump into actually allocating some capital at the end.

And this was in late 15 really at that time crypto and blockchain was starting to become really popular in late 15, early 16. And then obviously we saw. What happened in 2017. So I had really started to get super bullish on, on, on Bitcoin and then the rest of the crypto crypto ecosystem, which was relatively small at that time.

You know, I think the theory had just ICO and that was kind of, what’s launched what’s happened over the last five or six years. But but yeah, it was kind of just chasing my passion, really trying to get out of traditional finance and you know, sitting there for 40 50 years and waiting to become partner really wasn’t in the cards for me.

And I was, you know, young and hungry and willing and, you know, had no wife or kids or any other responsibilities. So it was like, all right, I’ll go chase this. If it, if it doesn’t work out or crypto is you know, magic internet money and it fails and I’ll have, you know, a good resume, a good experience to lean back on.

So made the bullish decision to kind of drop everything and move all the way across the country, out to out to the west coast and started doing some analyst work for a few different funds in this space was doing work for blockchain capital towards kind of like the end of, of that period.

And that was really amazing, you know, was able to, once again, kind of really just be a sponge and a fly on the wall and really understand, you know, once I understood how to allocate capital, there’s a huge difference from allocating capital and traditional equities versus crypto. And especially crypto back in 15 and 16, it was such issue, new landscape, new frontier.

And we had, you know, really amazing general partners and managing partners and analysts at a, at B capsule was able to kind of really understand how to evaluate a crypto company, whether it’s a protocol or open source protocol versus a traditional equity play. So yeah, that kind of was my early intro into into crypto.

And then that led me into a 2017. Was this kind of the rise of the ICO. So I was fortunate enough to be the ICO advisor to a project called gear, which is a green energy and renewables token. And we had the likes of like Larry King, Stan Barty, Jim Rogers on board as as co-advisors. And that was really amazing to be able to kind of be in that type of company and be able to work with, you know kind of world icons on, on a, on a big stage.

So we raised a lot of money, had a lot of great development and that really led me into starting my own fund. So I think we were able to get most of our advisors and early investors into the token app, you know, something crazy like 0.0, 0, 0 1. And then the token went up to like 12, $14 in like three weeks.

So they made a previous significant amount of money in a very short amount of time. And, you know, one thing rich people like is making more money. So we kind of sat down and, you know, they were like, Hey, we have. All of our asset checked thoughts. You know, we have someone running our real estate portfolio, someone running traditional venture capital or private equity, everything was checked off except for crypto.

And they were like, we don’t know how to get in. We don’t know where to get in. Do we go through a fund? We go through a fund to funds. Could we become LPs? Do we start a fund? Like what type of exposure do we have? We’re not going to sit here and day trade. So that was kind of like the aha moment of being like, okay, I’ve already shown them the value that I can provide.

I’ve already been able to make them a lot of money. And I was fortunate enough to be early on in crypto as well. So will, was able to make a decent amount of money myself and put up the first million dollars and was able to get Larry to commit to five standard 10. And then we’re at, you know, 15 $60 million fund.

And then when you get Larry King on board you know, may he rest in peace? He was able to to open up doors that I never imagined could be opened. And, you know, he’s interviewed everyone from presidents to prime ministers to anyone doing anything. It seems like over the last 80 years, So, yeah, Larry opened a bunch of doors.

We’re able to cap our first first one at 25 million. And that was in early 2016. And then I’ve been allocating capital through that fund ever since. So hopefully that wasn’t too long of a background, but hopefully there’s a little bit of a picture of where, where I started and where I’m at now.

Ben: [00:07:02] That’s fantastic. I cannot imagine making these asset allocation decisions in the crypto market in 20 15, 20 16. It is so different. And this is where people like talk about the correlations or. Trends that were happening in 2015 and 16. And why that should happen again this year. And you’re like, it’s a completely different market guys.

Like I had so good for you coming up through the, through those years. I’m sure that that was amazing. And I had no idea Jim Rogers was involved with gear massive fan. I’ve actually had him on the podcast as well. And I was just fanboying the entire time because he’s a, he’s an icon. I mean, I was given his books like long ago and yeah, he’s been kind of on my mind for a long time.

That’s for sure. Somebody like you that has been in the space for as long as you have the change of the crypto landscape from then versus now this is being recorded the end of February. It probably won’t be released for another month because I’m very far behind.

Sorry, but kind of in broad terms, How different is the market now from then, and kind of, where do you see this going next? What catalyst is, do we need to see to kind of like take crypto to the mainstream and big leagues? Like, yeah. Just give me, give me some updates there.

Dan: [00:08:24] Yeah. Yeah. Yeah, I mean, we, we joke all the time that, you know, crypto is kind of like dog years.

So, you know, every one year is like seven years in it, it rings true, you know, the longer that you stay in this industry. So it’s a, it’s been a wild ride. I mean, back in 20 15, 20 16, we were. Really getting off off the landscape, you know, I mentioned like Ethereum ICO was in 2015 and the, the kind of cool part is that was like my second or third ICL.

So it was into the ICO is kind of before they became became a thing. We we worked on with one with a Gera. Well, it’s at Mastercoin which is now, still still around, you know, six, seven years later, which is wild. But anyway, so the landscape’s changed dramatically since then. You know, if you’re in with just getting off the ground.

So all of like what we’ve seen from 2016 to 2021, I was really kind of just like dreams and wishes and goals. And now it’s, it’s crazy to see it’s all come together. So back then, I mean, it was still so early as far as traditional venture investments. You know, we, we had a lot of firms that were sitting kind of in, in parallel between open source protocol development and then also traditional equity plays.

So it was, it was an interesting landscape to see some of these open source ideas come to fruition. See the funding and then see kind of what was built on top of them. And I think that’s the really cool thing is crypto is you have these protocol layers that allow things to be built on top of them.

So kind of for listeners kind of like, you know, paving the roads and then you allow the city to be built on top of the roads. So we were kind of still putting down all the infrastructure, all the roads and, and really the space is so small. So the investors at the time. Pretty much all knew each other, the companies or entrepreneurs that are coming and raising capital pretty much knew, you know, everyone.

So it was a very small, tight knit ecosystem. And the amazing thing is everyone even today. And I think that’s one thing that really is amazing in crypto is the ability for the top funds, the top investors, the top operators, the top entrepreneurs that are willing to share the information and knowledge that they have is so drastically different than any other industry I’ve been in.

So that was the amazing thing, as well as you just have this really small tight-knit community that was so interested in building the future and so willing to share ideas and share, deal flow, and share this and share that. And it’s really led us to kind of build what cryptos turned in today. So that was kind of early on then, you know, after the Ethereum ICO, we started to see other ICO projects.

Really led us into like the 20 16, 20 17 kind of height market. And I imagine most of your listeners have heard of ICO. They heard something of crypto in 2017, they probably invested in something. And that was kind of like the mainstream moment where crypto really went mainstream for better or worse. You can definitely make an argument that we weren’t ready.

It wasn’t. Yeah. All right. Time ICO’s largely have under underdeveloped you know, of course until the amount that they’ve raised and the speculation behind them. But we also saw the amazing amount of human capital flooding into this space at the same time. And I think that was the really cool thing for me to see as the smartest people in my networks, in my worlds were starting to come into Crip, whether it was on the fund side or on the entrepreneurial side or on the trading side or starting their own fund, like they were just flooding into the space.

And that’s really, I think that 2017 bull run has really allowed us to be in position for the 20, 20 and 2021 bull run of getting all these smart people in place, giving them funding, given them. You know, runaway to go build and scale something that was kind of like the second kind of rise in crypto.

Then we kind of hit while we’d like to call crypto winter in 2018, where, you know, most asset prices went down 80, 90%. And that was a really good thing, in my opinion, for the industry, as we saw most of the quote unquote charlatans or the people that were coming in to make it quick. Kind of went out to the industry cause that quick buck wasn’t there.

So for pretty much the whole year in 2018, you really have like the tried and true people, the people that really wanted to be here. And the people that were really sticking their flag in the ground saying, Hey, this is what I want to spend the next five or 10 years of my life on people got work

Ben: [00:12:16] done that like, now that we’re back in a bull run, I realized how distracting it is with all the things going around.

But I never wanted to open up my black fully who in 2018 and 20, 20 19. And even, you know, the first half of 2020, it was like, Ugh, this is terrible. Like I questioned all of my life choices at this point. And I just wanted to throw that in because a bull markets are incredibly distracting from like a let’s put our heads down and work perspective, but yeah.

Dan: [00:12:43] Oh no. I mean, that’s a valuable point and I think it’s something that we saw. A lot of people come in and right back out because they were enthralled with the price action, not necessarily the technology behind what was creating that price action. And I think for a lot of like the founders and investors that have been in this space for a while, obviously the price action is great.

You know, it’s never a bad thing to open up your portfolio and see, you know, some nice green figures instead of red ones. But I think a lot of the people that have been early have obviously done very well and are in a position where the extra zero at the end of the net worth is not as important to spending their time and energy on actually building something with really smart people that can change kind of the world, whether it’s on a very smaller or large scale.

So yeah, 2018 really was amazing to kind of sit down and build it. That’s really how I kind of entered. The second chapter of my career is through our fund. We started making investments in, in really infrastructure type plays. So like exchanges, custody providers tax and compliance. And that’s how we got involved with Zen ledger, which is a crypto tax software company.

They were raising a there pre-seed and then seed round at the time. And you know, that was kind of an obvious aha moment for us is I was sitting there as a, an institutional investor through the fund, but also as a personal investor trying to figure out my crypto taxes and figure out how I’m supposed to comply with this.

And I’m trying, you know, I’ve made a decent amount of money, so I’m like, I’m not trying to get sued or have the IRS come knocking on me. Like I’d rather be compliant, stay ahead of the game and, you know, be here for the next 10, 20 years. I think I’ll make way more money being on the right side of the law then than the wrong side.

That’s how I kinda got involved with Ellender. We invested in the seed round and then I jumped on board as the chief operating officer and in 20. 2019 end of 18 and started 19. John

Ben: [00:14:25] didn’t really count, but that’s just like a bass pass year anyways. Right. I always say last year and it means 2019.

It’s like, no, actually not yet.

Dan: [00:14:33] The year we forget. You know, obviously, especially for our business, because we had, you know, January, February was like normal and then March it, and for people that are familiar with a text-based March and April, or like the bulk of tax season. So the fact that the deadline got pushed back to like June, like it skewed 20, 20 was a crazy year, but anyways, so I guess, you know, 20 18, 20 19, we’re kind of the end of the, the crypto winter into the kind of started the new bull rum started to see a lot of these  protocols or decentralized finance protocols come out.

So it’s like a compound, a maker, a unit slop. And those were more of like decentralized the fi side. So they ran, they raised venture capital, then they built a protocol and then they issued a token. And then once that happened over the last 18 to 24 months, we’ve really seen the rise of like native DFI protocol.

So like a sushi swap and, and things like that that are like true. Like, you know, quote unquote, no founder, no, pre-race no venture capital come in and, and, you know, for better or worse that it’s, you know, kind of change the dynamic. So long story short, I think we’re now kind of in that final or not final, but you know, most recent bull run of, of defy yield farming and really seeing the asset prices skyrocket again, which has now brought in a ton of retail investment, but also over the last, you know, two to three years, we’ve really seen what, you know, people said back in 16 and 17, we’re going to see all these institutions get involved and the institutions are coming and they’re coming in.

They’re coming in. They didn’t really come too much. And now we’re really starting that to be in play, whether it’s institutional allocations into funds or, you know, I imagine most of your listeners will be you know, up to date on like square and PayPal and, you know like the company is now allocating off their balance sheet into Bitcoin specifically and more crypto broadly.

So yeah, I guess that’s kind of like the, the wave that we’re in now is institutions are here. Crypto prices are still kind of skyrocketing and now we’re kind of getting into a lot of the fun stuff, like defy yield, farming NFTs, and the kind of intersection of community crypto and culture.

Ben: [00:16:32] Yeah. A hundred percent.

Very, very great summary. And I actually, I quite liked it bringing me back to these fond, fond and terrible memories over the past couple of years. That’s for sure. And then just a few comments. Like talking about the 2017 bull market and mania completely agreed. I mean, we weren’t quite ready for all that influx of capital, but you know, I do actually believe that speculation is pretty good.

All this money comes in, it funds all of these crazy ideas and it’s almost like if you just fund enough crazy, terrible ideas, eventually there’s going to be one that like actually works, you know? Bring on the crazy ideas, give them the seed funding a lot of times, way too much than they probably needed, but like, you know, figure it out, throw stuff at the at the wall and see what fits.

I I’d like to jump into venture in crypto and how that differs from like the traditional world. You’ve talked about a lot about like back in the day 20 15, 20 16 of like building the infrastructure, the protocols. And I really liked that comparison of roads. You build the roads and, eventually there’ll be a city and these roads are to support the cities.

And it’s kind of a bit of a mindset change because you’re building these roads with no monetization strategy. It’s like, no, no, the roads will always be free. This is the idea. Maybe eventually we’ll start charging something, but somebody will just build another road if we charge for this road. We’ll, we’ll figure out the monetization on these cities or some other way eventually, you know, some of the key differences you see of venture investing in this crypto bubble that we’re in versus like traditional would be very helpful.

I think.

Dan: [00:18:16] Yeah. Yeah. Great question. I mean, I think there’s there’s paradigm shifts in crypto in that crypto shifts allow the venture community to either be ahead or, or be a little bit behind. You know, so as we’ve seen crypto evolve from 2015 to 17, 17 to 19, 19 to 2021, we’ve kind of seen different levels and different theories evolve.

You know, so, you know, you talk about protocols, you know, one huge kind of theory back in 2017 was the fat protocol thesis where all the value would accrue to the protocol, not necessarily what it’s built on top of that. And I think we’ve kind of seen that debunked a little bit, but we’ve also seen like once again, going back to like sharing knowledge, sharing value and sharing ideas, someone had to kind of say, Hey, here’s what I’m thinking.

Here’s how I value it. Here’s the framework that I’m viewing crypto out of. You know, I have CRISPR and Minsky’s cryptoassets book on my bookshelf right now. And that’s like, you open up a page, you know, All of this is wrong, but back in 2017, and this was like cutting edge research, cutting edge, like frameworks and the ECOS PQ was like, wow, that’s like, you can apply that to crypto.

And like, so it’s like, I was like the research and development. And, you know, as you talked about human capital has come into this space. We’ve really seen the frameworks of how to value a protocol or a company I’ve continued to evolving and get better. And the disparity between capital and value has, has closed.

So, you know, back in 2017 you saw like an EO or a block, one that raised $4 billion. It was a massive ICO. And like nothing’s really happened over the last six, four and a half years. So it’s like, you know, we’ve seen kind of like that. Over-funding, you know, just throw money into things and it’s worked for a lot, but it hasn’t worked for a lot.

So I guess to get back to the venture side, I know back in the day, the infrastructure really just made sense. It’s like, we’re going to have to build these things. You know, that road analogy makes a lot of sense. It’s like, we’re going to build these public roads, allow people to come in and travel. And when the time is right, we’ll, you know, we’ll add a little toll booth down the road and, you know, collect a little toll as people come onto these roads.

And that’s kind of what we’ve seen evolve. So, you know, from 15 and 16, it was all like infrastructure type place. So like, you know, some, a lot of stuff that we were focused on, like custody you know, tax compliance execution. So like trading venues, exchanges wallet providers. So like hardware, wallets and like, and things like that.

So really like how do we get people into crypto once they’re in crypto, what do they need? And then how do they get back into dollars? It was kind of like the three main buckets. And then as those buckets have continued to get bigger and deeper and evolve, we’ve seen other. Companies come into the ecosystem, which has allowed venture specific investors to really look at things differently.

And I was like a new company or new protocol comes into the team to the space. You see all these ancillary products and services being built around that company. And then you realize that like, those companies are going to need funding as well. So it’s kind of this like a MIG Della or like amoeba of kind of just like growing organism.

That’s like, you know, the Venn diagram gets bigger than the other circle kind of needs its own circles to rely off of. And then they’re going to have his own circles. And then the next circle kind of like all stem. So it’s, it’s all been this kind of a continuous improvement. And as like new, new ecosystems and new new kind of tracks and crypto emerge, we’re seeing the ecosystem and kind of form around that.

So like with defy, you know, obviously that’s a more recent trend, but even with DIFFA we needed other things around defy to help that. So whether it’s like a zero acts or like you know kind of, I’m trying to think of Yeah, the company we looked at

Ben: [00:21:34] like, are they or compound or,

Dan: [00:21:37] yeah, I was trying to think of, I can’t remember the exact company, but like aggregators.

So they kind of were allowing you to like, you know, basically route your order flow through an aggregator and then the aggregator can be like, yeah, like a one inch there’s one that was like, even predating that. But anyways it was like, you know, things like that. So it’s like companies come in, infrastructure is built and then like the infrastructure creates additional infrastructure.

That’s built around that. And then the tractor lane in crypto kind of evolve. So we’ve kind of seen that evolution across multiple sectors who live in crypto evolve. And I guess that’s how I’d summarize it now versus, you know, back then it was like, there was one track, one summary, one ecosystem, and now we have all these.

Conjoining ecosystems that all kind of build off each other, but all have their own separate lanes that all need additional infrastructure and funding and development research to kind of continue. And a lot of the stuff that’s being built now on 20 20, 20, 21 is really what’s going to drive the next round of venture investments.

And we’re seeing that, you know, today, like the defy Alliance just announced their respond. We’re seeing a lot of these like defy focus funds come in. So it’s. But typically it’s the technology first, then the funds kind of coagulate around that technology and help, you know, fund and provide experience and dollars to build the next thing.

And then the next one comes in. Like we had ICO funds and STO funds, then DFI funds, like, so, you know, we’re going to look up and they’re gonna be NFT focused funds. And then we’re, we have two

Ben: [00:23:00] funds right now as well. Social token funds. They, they, they just keep going further and further down. And, and I agree with that, right.

It to have a crypto fund right now and there’s lots of them, there’s like a portion of their capital is liquid tokens, like Bitcoin and ether. A portion is venture. A portion is like arbitrage, which basically means they’re probably just doing something crazy and defy like, you can’t just have this like crypto fund that’s so generic because the space is.

It’s so dynamic at different and all of these different things and you could be a fantastic NFT investor and then you go into the defy world and just get creamed. Right. You’ve almost haven’t needed to have these like specific funds, which I’m sure just makes investors minds, like heads spin a bit.

Right. It’s probably just like, here’s my money. Just like, do what you do and whatever little sub-niche of the crypto market, but I just want to exposure and I’m tired of buying micro strategy and Tesla for it. I suppose. You mentioned crypto assets by Chris prince Hickey, Brittany ski.

Dan: [00:24:06] Yeah. I’m not, I’m not sure. Yeah.

Ben: [00:24:09] That’s the book, I’ll link it in the show notes and a fat protocol. But like, I, this is probably back to like the whole indie equals PQ, like, and this was in fat protocol. These were, these were the thesis. That was kind of generally adopted for investing at this, in the space at the time.

What sort of assumptions are you seeing these days? That kind of everybody kind of believes to be true that you think, you know, maybe in, well in crypto dog-ear, so in a year we’ll look back and say like really scratch our head at those assumptions.

Dan: [00:24:45] Yeah, no, it’s a great question. I think.

I think there’s a few that come to mind. I think it’s easy to look back in hindsight and be like, oh, well that like, that, that makes sense. But you know, going back to like Shannon, that knowledge and, and you know, research, and that’s been such an amazing thing in crypto is to have these top-notch investors or entrepreneurs really share, Hey, here’s how I’m thinking.

Here’s what I’m thinking. And here’s how, you know, I’m thinking about X, Y, and Z so that other people can look at that and be like, oh, well, that’s wrong. That’s right. And it’s kind of this like open landscape to share an ideate upon, which has been really amazing and probably has accelerated that pace of, of changing crypto.

I guess when I look at like, You know, what is happening now that we’ll probably look back on and see it was either wrong or a little bit excess. I definitely think it’s kind of the defy and NFC space. I think there’s a ton it’s kind of similar to the ICO space where like there’s a ton of innovation.

There’s a ton of like really amazing human capital. There’s a ton of really amazing funds that are, you know, evolving around this space. But at the same time, we’re still kind of looking for that like, aha moment with retail outside of pure speculation. And I don’t know if we’ve really reached that with NFTs or a DFI yet.

Like when you look at like the total unique addresses at touch defy, it’s still relatively small. Like we’re still under like 10,000 people that are using this like day in and day out. So that’s like extremely tiny in crypto, but then outside of crypto it’s like even more minuscule. So I think we’re still very early on.

It’s still largely a game of who knows, who, who knows what and who can get in before others. And that’s kind of how I CEO’s were. That’s how STOs, where that’s, how defy is. You know, it, you’re gonna make a lot more money if you get into a protocol earlier than, you know, person a and if you’re getting into a governance token earlier than person B, and if you got into your farming early, you made a lot higher APY versus what you’re making now.

So like the, the ability to kind of be that sponge, be that fly on the wall and absorb information and be willing to go try things on your own is really amazing. And that’s why you start seeing these like solo preneur companies, solo preneur funds of like person a who opt into a defy protocol, made a lot of money is now like, oh, I’m actually using these protocols.

I understand how they work. I’m speaking to the team on discord. I’m like understanding what they’re thinking about, and here’s how I can add value. And now I’m going to create a fund and then go use that, that model. So I, I guess, define NFTs. I think we’re going to look back and I think we’re going to start seeing a lot of things come from that.

Like the ability for defy and for permissionless, permissionless financing and commerce to exist on the internet is amazing. Like we saw yesterday, the entire fed wire system was down. Like you couldn’t make an ACH payment withdrawal deposit, like web to infrastructure and traditional financial infrastructure is broken.

It doesn’t work and it’s not going to get improved. So like that’s a natural relation. Like we’re going to see decentralized finance. We’re going to start seeing a skewed more towards the decentralized side than we are the seedy side or centralized decentralized, where like the, the unit swaps in the compound set of like raising venture capital, but also being decentralized and kind of in the middle.

So I think DFI has a lot of really amazing things, but I still think it’s largely a. Transition of wealth from the, the early and smart investors to the late laggards. And that’s kind of how, what ICO’s were as well. And then with NFT is I think there’s definitely some hubris going on right now, especially in like the, the art markets.

I think there’s been a game changing analogy and philosophy of attaching scarcity to digital assets, whether that’s art, whether that’s memorabilia, whether that’s, you know, like an NBA, top shots, like sports moments, or like crypto kitties and these like collectible things where like video games that can be central land or like axial infinity or things like that.

Like we’re spending to see really cool things being built. But I, I definitely think there’s a lot of hubris in like the art market. Like I think people had another sale yesterday for like 6 million on like one of his early frameworks, like good for him. Great for the space brings a lot of these, like, you know, as I mentioned early on, we’re kind of at an intersection of like culture and community and crypto, and we’re seeing all these entertainers and celebrities get involved, reminds you a little bit of the ICO bubble.

They come in a little late, they put their name behind something and it pops. And we’ll start seeing that over the next six to 12 months, it’s like these more traditional musicians, artists creators get involved, but the ability for the creators to paradigm shift the ownership of what they’re creating is something that NFTs is going to leave behind long after the, the financial kind of bubble evaporates.

And I think that’s, you know, going back to an defy and like decentralizing financial infrastructure and NFTs, and actually providing traders the ability to own their own end. Good and then own the end. Good in perpetuity moving forward. So the resale value of their good is like a really game changing situation, especially for musicians who have been at like the mercy of the Spotify and SoundCloud and record labels that control ownership rights.

They control them. The mechanical has to control the, the video is to control everything that you’ve created as an artist. So giving artists the ability to actually own their end product, whether that’s art or music or whatever is, is really cool. I don’t know. I guess that’s what comes to mind of, like, what’s kind of being a little overheated today, what we’re seeing people get into and kind of rush into without understanding right now.

And that’s where we’re starting to see the curation become a huge topic in crypto. Like how do you curate, like for a new investor? Like how do you pick what NFC to invest in? Like you kind of have to look and see what the quote, unquote curators or the, you know, the coach or drivers are investing in, because then you’re like, oh, well people selling for 6 million.

Oh, well he’s probably, you know, valuable. So I think curation is gonna be kind of the next topic of once we see this excess capital and kind of creation subsided a little bit, we’ll start to see more. Crea creation come into play. And we’ve seen that with like an NFT X or like a Showtime, which is like some really cool things happening in NFTs.

We see that with DFI whether it’s like a DFI primer, token, cetera, zapper is a you’re on which gives you kind of like broad exposure. So I don’t know. I guess that’s kind of a long ramble into like, what I think is kind of an excess right now. And then, but I think what we saw with ICO is, and what we see with NFTs and defy aside that excess, although the financial.

Capital was probably subside. The technology technological impact will, will remain and continue to accelerate moving forward, opening up new, new kind of financial marketplaces and, and new quote unquote bubbles moving forward. We’ll see another thing in two years, we’ll see another thing in two years and other things in two years, and they all kind of build off of each other, which has been really cool to, to kind of see.

So I guess that’s a long rambling way of answering your question now.

Ben: [00:31:19] I completely agree. The fact that defy is so gigantic and there’s probably only 10,000 users just literally borrowing from this protocol to lend out on that protocol, using that as collateral to re lend out on that clinical protocol and then collecting all of these short term governance token sort of thing.

But like you said, this is, this is a speculative mania mania, and then things will bubble out. And the, the amount of innovation and cool things that are happening. All it takes is to go to maker, dao.com or whatever, the pro maker’s website and go to their, their borrowing platform.

You take your ether or your WTTC, you lock it into a CDP and you pull out a loan with a few clicks and a smart contract. And everything’s done automatically. I’m like going through the process of getting a traditional loan. It’s like sending over this and that, and it just freaking takes forever.

And it’s like, I can actually just like eat gas prices are expensive right now. Maybe for a couple of hundred bucks, like access the capital without touching my Bitcoins. There’s there’s a lot of cool stuff in this space. That’s for sure. And completely agree about NFTs as well, by the way, a massive market, huge potential, a little frothy right now.

You talked about curators are being kind of the next big thing.  Just for like the average listener, do you have any, give them a shout out on Twitter or whatever, but like some, some smart people that you would recommend people to follow in this space because there is a lot of noise or, or newsletters or anything like that.

Dan: [00:32:54] Yeah. I mean, I think there’s a few that come to mind. I think the curation, the reputation and the credit, you know, you go back to like you know, financial credit as far as like a maker Dao versus like a traditional credit, but like the reputational and curation aspects of crypto are just now starting to form.

We’re starting to see curation be really massive. We’re starting to see how do you, how do you form a reputation on crypto? And obviously we’re still kind of on that web two PSI where like most people, you know, I use my own Twitter name. Like my Twitter name is me. It’s not like a non account, but we’re starting to see the rise of like these eight on accounts, starting to see the rise of like these addresses where you don’t know who owns what behind.

So you see a zero. ABC, but you’re like, there’s no way to say, oh, that’s been through that stance. I mean, there is, you know, through like blockchain analytics, do you think that apple, like yeah. You know, for the average person, it’s just not it. So how do you provide like a reputation behind an address? And, you know, we talked earlier about like a rabbit hole and things like that, where two are starting to kind of curate that reputation on the social layer, which is really fascinating, but taking it back to the curator, I think Andrew Stein law does a really good job on the NFT space.

I think he has a podcast and a newsletter called Zima read like on his podcast. Big thing. Yeah. Yeah. Really smart guy. You know, once again, someone who saw this early and kind of made their niche around that specific element, whether, you know, whether it’s NFTs or defy or anything else, like that’s definitely a recommendation for any listener or somebody who’s kind of sitting on the sidelines trying to get into crypto.

It’s like you can really own a topic and own own a piece of crypto and become kind of that thought leader. Pretty easily, if you really do the research and the work and then share your thoughts and ideas. And I think that sharing is something that’s not natural to most people, because it’s like, I did all this work.

I’m going to keep this like secret internally, but it’s like the more you share your thoughts and ideas, the more people start being like, oh, he knows what he’s talking about. Oh, like I want to go share my thoughts and ideas with him and then it kind of bubbles up. But anyways, Andrew is really amazing.

Cooper, Turley who’s kind of doing like a hundred different things. And in crypto, a fellow LA guy really smart guy, you know, he’s working on audience, which is, you know, kind of sitting in the intersection between musicians and crypto and NFTs and musician, musical rights. I’m really smart guy.

So I guess those two kind of come to mind as kind of like the top two in like just pure information and like newsletter types. And then one thing that I’ve recommended to like my friends, colleagues, family, everything else. To get on Twitter and to use it as like a platform for knowledge and not for like friendships friendships formed from knowledge sharing, but not necessarily, like, I think that’s a big thing that I’ve seen with my friend groups of like, oh, I have Twitter, but I follow like everyone from high school and everyone from college, it’s like, don’t get me wrong.

Like, keep those connections, use that for Facebook. But like with your Twitter, like you can get access to like the smartest people on the planet who are sharing their real world insights, knowledge, you know pretty much anything that’s going on in their brain all day, every day for free. So it’s like, get on Twitter, follow Ben, follow me, follow.

Like, you know, you’ll start probably once you start following people will start seeing recommendations. And then once you find people that are smart, see who they follow and see kind of like that. Obviously you create a little bit of an echo chamber by doing just that. But I think it gives you a little bit of a ability to kind of formulate the center of your spider web and then start kind of like splintering out from there into what you find.

Interesting. And then obviously, you know, Ben’s podcast is great. And then there’s a ton of other really amazing podcasts in this space that do a really good job. Some of them are, you know, four or five years old now that have done a great job of giving rundowns of what crypto was back then, how it’s transitioned, what we’re doing now, what the future looks like.

They have really great guests and really great speakers come on. I think those would be kind of like the, my, my biggest like resource or recommendation is really getting on Twitter and using that platform for the maximum viability that it offers and getting outside of your own friend group and into.

The unknown of the ether and getting into like, just jiving out with people that you don’t know. Like I have a lot of people that I speak with on like a daily or weekly basis that I’ve never met in real life that are probably some of the smartest people that I ever will meet in real life. And they’re willing to share their knowledge and share deal flow, and share what they’re thinking about right.

Wrong indifferent. So that’s just been a really amazing resource if you’re looking for how to get into crypto, how to get exposed and how to get a lot of knowledge and value for free.

Ben: [00:37:16] I agree. And I would also add the Bankless podcast and YouTube channel that those guys do a great job of like breaking down things and trying to stay like a bit neutral on it.

Obviously they’re huge like Ethereum poles and everything crypto related, but, you know, I I’d also include that, but Twitter hands down, it’s a super, super power. And like all of the guests kind of Reiterate that, and I would also add now days as you know, I mean, clubhouse, although it requires about like eight hours of listening and interacting to get probably like a few little nuggets of wisdom, like the friendships and the connections and like that, that you need insights that I get not, that’s not fair.

Probably, probably there’s a lot. I’ve gotten a tremendous amount of value from it, but it requires quite a bit of time versus just, you know, 45 minute podcasts, throw it in while you’re working out or whatever. It’s a little bit more engaging and it’s work, but it’s it’s proven to be very, very useful thus far.

Dan: [00:38:17] Yeah, clubhouse has been great. And I, you know, that goes back to that curation aspect. It’s like, if you go on clubhouse and you’re just going to pop into every random room, you see, you’re probably not going to get much value, but it’s like, once you understand who provides value and who is important to you and, you know, frankly, there’s a lot of people that like, don’t find crypto interesting.

And it’s like, you know, if they, if they jumped into the late night crypto room, like they’re not gonna, they’re gonna be like, alright, these people are probably a little while. Like, they’re you know, they’re doing what they’re doing. So it’s like find what works for you. And you know, if crypto is not your job, there’s other rooms that you can get into, whether it’s music or art or sports, or, you know, anything else that, that, that jobs with you.

But I guess it goes back to that curation landscape. Figuring out who to follow and who to listen to and who to spend your time with is super important, especially in a digital age when we’re, when we’re largely online and not being able to meet in person. And I think the clubhouse rooms are really interesting because it allows you, Twitter is kind of like that medium, where you can share your thoughts and ideas.

And clubhouse is kind of that second medium, where it allows you to expand on those thoughts and ideas and really get context and nuance behind those, which has been really cool to see some of these like really cool or popular people tweet, but then also be like, all right, well getting a 20 minute rundown versus like a five tweet thread is like a whole different way, like absorb the information.

And then the last thing I would share is just the defiant. You brought up Bankless Really great job of doing like a daily newsletter. She wrote a book about like the history of a theorem, which is kind of like for viewers or listeners that read like Nathaniel popper is digital gold and kind of like the history of Bitcoin.

It’s kind of like the same type of book, but for Ethereum, which gives you kind of like the history of the rundown and what’s being built now. So he in does a great job and has a newsletter called defiant, which is like a daily, a newsletter kind of keeps you very up-to-date on what’s. Oh, yeah,

Ben: [00:39:56] I’ve given that book actually a, the infinite machine, but it’s, it’s very good.

And I mean, it reads like a, like a fiction book because it’s entertaining and all of these things, and that’s the actual history of it theory which, you know many of us think will be a very big deal someday. It is already in, in our small echo chamber on that topic about the echo chamber, like the amount, the echo chamber accelerant.

That is my clubhouse in my Twitter feed. Now I need, almost need somebody to do like the anti echo chamber app or something that I go on. And it just like takes whatever is in my echo chamber bubble and like feeds me the exact opposite that like Bitcoin’s a complete scam and that modern monetary theory MMT is like the savior or, or, or something just like, so I can get the opposite view because otherwise I, I just stay in my echo chamber, but it’s, it’s nice and comfortable in here.

I don’t mind it. Awesome. Dan, this has been very, very helpful of the space and kind of investing in the space and where we are right now. But I, I don’t want to take up too much of your time, but I also do want to jump into Zen ledger because as we talked, I mean, some of these auxiliary services that kind of we’re bullish on crypto, which is this, but then you assume that, okay, I’m investing in crypto.

I have to deal with taxes. It’s murky, there’s, you know, transit transactions flying everywhere. And then you have like KYC, AML sort of things. If everything’s on Tran and SU on chain and pseudo anonymous. Maybe you have chain analysis and things like that. But I’d like to just hand it over to you to talk a little bit more about and ledgers the problems that you’re solving and kind of where you are with.

Dan: [00:41:41] Sure. Yeah. Think I mentioned, you know, we got involved with the company from a pure investment perspective first, before actually jumped on board as the COO. So it was kind of, you know, one of those infrastructure plays that was kind of a no brainer, you know, as you mentioned, like, what are people, you know, those three buckets, like, how do we get people interested once you’re here?

What do we give them? And then how do they get, you know, that backward it back into Fiat or back into compliance and regulation. And obviously, you know, tax and accounting, artists is such a huge bucket and traditional world, you know, you talked about the three things you can afford in life. And, you know, it’s, for me being at the intersection of crypto and accounting, it’s like, those things are not going away anytime soon.

So building a business that kind of intersects both is like a huge total addressable market. And also like from a venture perspective, when we’re looking at venture plays, we’re looking at like the team, the technology, the market and then also like what type of exit or liquidity that, that position could provide.

Like, is there a clear MNA opportunity? Is there a clear. Public opportunity and public has kind of been off the, off the shelf until like now, like we’re now starting to see Coinbase go public, but we’ll probably see maybe two or three others in the next, like 12 to 18 months. They’ll Publix. And now it’s starting to become an actual viable route.

Not for every company, certainly, but bef you know, up until right now, like we haven’t seen that public nature of crypto and that’s going to change the landscape of venture and M and a but I knew it’s getting Mexican Susanna specifically. Like we, like with most of our investments, it’s like, it was built by a team of people that really enjoy crypto that were in the weeds in crypto and who built a product for someone that they need.

And I think that’s always like, we always get that question. Like, how do I start a startup? How do I start a company? And it’s like, people are always looking for like how to start something, but it’s like, find something that like sucks for you and go build something. And it’s like, you think there’s more people like you around there that like, are, is going to need this.

You probably have something to start it off. And I was kind of like the origin of Zen ledgers. A lot of people getting into crypto, a lot of people making a lot of money in crypto and the government’s obviously going to want their cut. So it’s like very clear that this is going to be a thing. And then you looked at like the landscape of crypto and saw the bifurcation of exchanges and wallets.

And the fact that like, when you move, you know, let’s say, I ha I buy one big point on on Binance or Coinbase. And I move it to a ledger wallet. As soon as I make that move, the cost basis is already tarnished and basically destroyed unless you can track that cost history between Wallace and exchanges.

And that’s something that I guess I preset for, like the conversation is like for investors that are listening, then they’re like, oh, I use, I need to trade at TD Ameritrade, a Schwab or a whoever. Most of the time, like they all have reporting and accounting and tax kind of built in, so you get a nice 10 and nine B at the end of the day, but that’s the coffee’s is, can be transferred between each place.

So if I move from Schwab to TD Ameritrade, I can transfer my cost faces in and out with no problem. So then when I get my 10 99 from Schwab or Ameritrade, whoever I moved to, it’s like very neat, very easy that part’s like dumb. None of that exists in crypto even now. And it definitely didn’t four or five years ago.

So tracking costs faces across the changes across Wallace was like virtually impossible. You know, I was using like Excel docs and Google sheets and like handwritten notes and being like, I traded this there and that there, and, and it was this much then, and it’s this much now. And I traded this much and it’s , it was just like, it was a nightmare.

So it’s like very clear, easy opportunity.

Ben: [00:44:58] And then you hand that to your accountant and you’re like, Hey, good luck. Here’s my, here’s my napkins.

Dan: [00:45:04] An accountant doesn’t want your receipts. You know, they don’t want to shoe box. Random forms like most accountants don’t understand crypto. They don’t want to understand crypto.

And that’s kind of been, you know, as, as we get into Zen ledger a little bit, that’s been like a huge aspect of our business providing tax professionals, like a very easy to use suite for their tax professional needs, where they can add in clients. And, you know, instead of trying to do all this for them, they just come in, they download 89, 49 and the schedule on the schedule D and they’re done in and out.

Boom. But anyways, so yeah, so that was how the origin of just like this, this concept makes a lot of sense that people are gonna need this pretty much. Every US-based investor needs this right now. And then globally, you have another huge market depending on the country and how they handle incoming and capital gains taxes.

But anyway, so that was kind of like the origin. I’m invested in the team, really amazing team pat Larson, the CEO you know, U S air force academy, graduate and Chicago with MBA was leading multiple business units to the Amazon has been in tech, understands crypto for been in crypto for a while.

So really like kind of understood what he’s doing. Brian, the CTO has been in was at Microsoft for about 15 years, led the internet Explorer team that killed Netscape and then has had, you know, four or five of his own startups since then with his last company assurance with a $2.4 billion exit.

Great team team. That’s been there, done that team that’s had exited this team, does understand how to scale a venture backed company, which is a lot different than scaling a bootstrapped company and especially a SAS FinTech company. So anyway, the teammate sends the market made sense. The product made sense.

It was like, you know, pretty much when you’re looking at an investment from a venture perspective, you’re looking at some of these buckets and they all made sense. So the investment made sense fast forward, you know, 12, 15 months they were raising their seed round. And at that time they were looking to kind of beef up the team and kind of go from young, hungry startup into like real company.

So they were looking for a chief operating officer to come on board and help run and scale and lead the company and handle operations and handle everything that comes with running a company outside of, you know, public facing COO duties or CEO duties. Running the dev team on the CTO side. So anyways, long story short, and we kind of covered like my background in venture and all that good stuff.

Being an investor and especially in a master in crypto is amazing. But like, for me, there’s always something missing. Like I was always providing capital and like meeting with like the smartest people on earth who were like sharing all their ideas and sharing of just the excitement behind their ideas and being like, okay, here’s capital and here’s resources and here’s connections to go chase your dream.

And then you can meet with them, you know, once a quarter, you know, you’d have board meetings and all that good stuff. And every time in these board meetings, I’d sit there and be like, wow, like great company. This is going to be great. Our LPs are going to love this. Always good to have way more money than you started with.

But then there’s always like this missing piece of like, what am I like building? Like, what am I creating outside of just making my LPs more money? Valuable service always will be a valuable service, but like I was missing that piece of like, I really want to build something. So long story short because of the investment, because of like working with the team, you know, very comfortable with the team, very comfortable with the metrics, understood the business inside and out, very easy path to just jump in and kind of make this like a full-time gig.

So that’s kind of where I sit now as the managing partner of hand-on capital management. And then also the chief operating officer. I was on a drip on the sound ledger side. It’s been like a fun journey. You know, like I said, I was really missing that, like building peace, building around like a team of young hungry people.

We’re up to about 20, 25 full-time employees now. So kind of like right at that inflection point where you go from like young startup to like kind of scaling it’s been, been a lot of fun and then, you know, the good thing with our businesses, we’re kind of in the intersection of all these different things within crypto.

So as we talked about earlier, like those tracks and, and. You know, landscapes in crypto are great, but also like what’s even better is to kind of be in the middle of all that. So whether it’s ICO or STO is your  like all of that have a taxable component to it. So we kind of sit in like a nice little middle where like, whether it’s previous stuff, whether it’s future stuff, you’re kind of always going to have to circle back to some type of tax and accounting.

So that was just been really cool. Cause we’ve been able to kind of be on the forefront of defy integrations on NFT integrations. So now investors, in addition to using like a Coinbase or Binance, they can import a unit swap address to get important, meta mask out a second import you know a Dharma account.

They can import a maker, a compound, et cetera. So that’s been kind of the nice thing and because it’s in a unique position of being a operator in the space and also an investment in this space, we’re really able to kind of stay at that forefront of what’s next. We had a define integrations built like nine months ago.

So like right before, like the real. Your farming summer. So like we were able to market that and build a great product, so great team, great product, really addressable market. And then the fun stuff had just been kind of keeping that up to date and, and expanding into that. So I know I mentioned kind of like the other side of our business was really the tax professionals.

So once we were able to hit kind of like 10,000, you know, used remark, we were like, okay, we have a lot of data. We’ve made a lot of improvements. We’ve like continued to advance the UI, the integrations, the ease of use, all that great stuff. Then we started having all these tax professionals that were. My clients are using crypto.

I don’t know what crypto is. I don’t really care to know what crypto is, but I do need these tax forms. So we’re like, oh cool. Like we’ll build you a suite that you can log in and use. You can view all of your accounts. You can click into them, you can pay on behalf of your clients. You can download their forms and attach them with, you know, all of their outside crypto activity and be, you know, a one stop shop.

So that was kind of like our second, you know evolution was really like retail then into tax professionals. And then the combination of those two has allowed us to really get into the BDG side or business to government side. So once we had a kind of like a world-class living product, we were able to go into federal contracts and state contracts and really be able to help provide them with not only a tax accounting software, but also a blockchain forensics and analytics platform.

So not necessarily like a competitor to like a chain analysis or an elliptic, which are more. Blockchain analytics and like on chain data, what happens often is just as valuable and that’s a missing piece that they don’t have. And that’s a missing piece that we have. So we can now work with the T analysis and Olympic to provide governments, whether they’re federal or state like a unique vantage point where they’re willing to pay, whether it’s a service contract or or technological contract, like on a per seat basis to really use that software.

In addition to some of the other softwares that they’re using. So that’s been kind of the, the fun journey of the last 1824 months is really kind of scaling this out. So. Retail. And then even in retail, like how do we scale beyond tax taxes? Great. Everyone’s going to have to do their taxes. They’re going to have to do them every year.

Great. But how do we get people interacting with the product every single day? So adding like portfolio tracking, adding in portfolio management, adding any like a brokerage where people can get accounting tax research execution has been really cool. So kind of continuing to expand that initial offering and really what we’ve done is built off that core IP along the way.

So instead of trying to get into like these, you know, nonsensical, tangental ideas that are like, oh, like, oh, let’s do this. Or let’s do that. It’s like, what are we really good at? What are our strategic advantages and how do we compound those advantages longterm? And those are the aspects that we built on top.

Like the portfolio tracking management, the brokerage, the tax professional side and the government side. But they all build all that core IP, which is like a really great, easy to use tax and accounting software. So that’s kind of a rundown of, of of Xeloda right now. And, you know, happy to answer any questions or expand on any any of those sides of our businesses.

Ben: [00:52:11] I love it. And I love the The idea that you wanted to like build something, something tangible in the space and give back. And like, I wonder how much you want that. Like, when you’re up at two, am watching a tutorial on how to fix a WordPress widget or something stupid, that takes so much time and it’s just impossible to do to do well.

But it’s kind of part of what comes with, with doing these sorts of things.  With crypto taxes, there’s a lot of unknowns. And it’s mostly just because people don’t want to know, but like what’s the most common mistake that you see, like the average crypto investor make when it comes to approaching their crypto taxes.

And don’t say like, oh, it’s, it’s pseudo anonymous. I just won’t have to pay the taxes. Cause that’s probably a big one, but we’ll skip that one. Cause that’s that’s too, too, too much of a softball one.

Dan: [00:53:01] Yeah. I I’d say. I’d say the biggest, like misconception that we’ve seen in crypto is, is what’s known as a 10 31, like kind of exchange.

And that’s what, like a lot of traditional investors are, are, you know, they, they understand. So it’s like if you trade one stock for another stock, it’s like, you know, there’s obviously a gain that comes from that. But like in crypto the light kind of changes does not exist. And that’s kind of due to the nature of regulation in crypto and how the IRS views crypto.

So a big kind of disclaimer for most people that are listening to this is like we say cryptocurrency, but from a tax perspective, the IRS does not view this as a currency or a commodity. They view this as a piece of property. So anytime you’re trading one crypto for another, you’re essentially selling a piece of property to acquire another one.

So that’s what kind of compounds the complexity and crypto is like every tray back and forth is a taxable event. It doesn’t mean you’re like, you’re taxing. You owe money on that. You could have lost money. Now you like your, your losses can offset your gains between, you know, the full year between you get the, between the time that you get your final tax report.

But anyways, any crypto to crypto activity is a taxable event. So I guess the three main buckets for like people to kind of be aware of is Going from dollars or Fiat into crypto? Nope, no taxable event. So that’s why like when you hear people say, you know, buy and hold Bitcoin, long-term, you know, typically very good advice.

Not only because you’re going to make a decent amount of money, a pretty nice return historically every single year. But as long as you’re putting dollars into Bitcoin dollars into Ethereum, there’s no taxable event there. When you start getting into the complex stuff, as we mentioned, it’s like any of those traits, anytime you start earning income, if you’re using like a block via Celsius and Nexo, and you’re like using your deposits to earn interest or lend them out or staking and combining income income is another taxable event.

And then anytime you go from crypto back into dollar through, it’s a taxable event. So, you know, I buy Bitcoin today. I sell it tomorrow for dollars. Again, you know, that it’s a taxable event on the loss or gain that, you know, my cost base is two, was it higher or lower than my cost versus when I sold it.

So I guess those are kind of the three main buckets that are still relatively you know, we get some questions about like, oh, I didn’t sell any crypto this year. I don’t have any taxable events. It’s like, okay, well, did you buy crypto using another piece of crypto? They’re like, yeah. It’s like, well, that’s considered a trade and that’s taxable and you need to file that.

So I guess that’s a big misconception. And then, I mean, you mentioned like the,

Ben: [00:55:21] that every transaction falls to this, right? Like I’ve heard people say like, oh, it was, it was a hundred bucks, so it’s not, it’s nothing. And it’s like, actually, it’s, it’s like an accounting nightmare because you need to find out what your cost basis was for that.

And, and then you have a little gain or loss on that.

Dan: [00:55:40] Right? Yeah. So the, the, you know, the nature of crypto itself creates some issues. And then as we talked about earlier of like the, the exchange providers, haven’t really done a good job and it’s not just them not doing a good job, it’s a nature of crypto that doesn’t allow them to do a great job.

So like we talked about earlier, like if you’re using a Schwab at TD Ameritrade, you get your forms, you’re in, you’re out, you’re done. Like, we’ve seen some big issues with Coinbase. You know, they’ve been sued by the IRS for not providing documents. Then they started providing 10 99 Ks. And that was like another nightmare, especially to investors using.

So a 10 on an, a K essentially counts up all of your proceeds. And the proceeds term is super generic. So proceeds could be a cell. It could be a deposit, it could be a withdrawal. So if I’m withdrawing three Bitcoins today and at 50 K and I’m withdrawing one 50 Coinbase is reporting that I just had a proceed of $150,000.

That proceeds probably not even really a proceed. I probably moved it from Columbia to a ledger wallet, which is a non-taxable event anyways. So like 10, 900 case, where did this huge thing where we had all these, we had tens of thousands of IRS letters being sent out to all these investors. That being like you owe us a lot of money and it’s your dirty to figure out how much you owe us and figure it out and send us our money or else we’re coming out.

So anyways, so that’s the other side of crypto that a lot of people don’t understand is that like, if I’m using Coinbase or Binance or cracking or Gemini, or especially defy these platforms, protocols, providers, that they’re not going to be able to give you a complete tax form because you’re moving your crypto from protocol to protocol, exchange, exchange, wallet, to wallet, and many times in between.

So that’s why we have kind of a unique vantage point. And that’s why we’ve had a lot of success is you need a comprehensive tax provider that can handle all of that for you. So somewhere you can put in all of your exchanges, all of your wallets, all of your protocol. All of your coins, all that good stuff, all of your income, all of like everything that you do.

And then they can actually holistically provide you complete tax forms, your 89 40 on your schedule on your schedule, D your fence on your fact, all that good stuff. So that’s kind of another advantage. And another thing to be aware of, if you’re listening to this and you’re trying to get into crypto is once you move that asset off an exchange or off a wallet, those reports that the exchanges provide you no longer are going to do you any good.

And you’re going to need to use a software like ours. There’s other ones to choose from. So I’m not going to sit here and be like Zen ledger is the only one and use us. There’s a, a helpful, competitive comparison chart on our website, which kind of shows. The advantages of using us versus another competitor, whether it’s technological or UX or, or customer support wise.

And maybe we can link those in the show notes. But anyways, my suggestion is if you’re trading crypto use a crypto tax software, preferably use a ledger, but use it crypto tax software. And then obviously, you know, maybe we’ll link my Twitter or something in the show notes. If you have any questions around crypto tax or how to think about this, how to account for that or anything like that, you know, whether you use us or not, I’m happy to give you, you know, we have guides and tutorials and and obviously web webinars and all this good stuff.

So you can view all that for free and get a good understanding of defy crypto taxes, NFP, crypto taxes, centralized, crypto taxes, all that good stuff. And obviously if you need some help, we’d love to help.

Ben: [00:58:45] Awesome. Well, Dan, I could talk about these things for hours with you, but I know we’re jumping up against the time and I think I heard your calendar alert, bounce off.

I’ve got another call as well to that back in the startup trenches of never ending zoom calls and fires to put out. But yeah, I really enjoyed the conversation. Thank you for sharing all of your knowledge about general crypto market investing crypto taxes, which I think everybody should pay a lot more attention to, but you know I’ll link these things in the show notes, but do you want to send everybody to your Twitter or where can they find out more about you or is in ledger?

Dan: [00:59:22] Sure. Yeah. Our website on  dot IO, Z E N L E D G E r.io. So dot not.com, not.co.io for the Hinnom capital stuff. If you’re a if you’re an entrepreneur in this space, thinking about raising capital or, you know, just looking to start a company, whether you’re raising capital or not, and just want to get you know, another set of eyeballs on your projects.

My email is just D [email protected] And then my email on these analytics side of this [email protected] So if you have any crypto tax questions, comments, concerns, let me know if me and my team and I can help you out. Then, you know, as we talked about earlier, as far as like where you can find knowledge, I’m pretty active on Twitter, you know, sharing comments, ideas, thoughts, interacting with, you know, different entrepreneurs or funds in the space, kind of just share.

All these insights. So if you’re on Twitter you know D Hannah, H D H a N N U M eight you know, hopefully we can link that in the show notes for, for people to click on, but that’s probably where I’m most active. And then we mentioned clubhouse a friend and I run a clubhouse room every Wednesday night at 9:00 PM Pacific time.

It’s called late night crypto for a reason. So hopefully you can stay up a little late, whether you’re on Pacific time or Eastern time and come join us. But it’s a two hours every once a night where we get into pretty much everything in crypto, whether it’s hot topics, or we have like two weeks ago, we had whale, shark come on and whales kind of like a really cool person in NFTs.

It’s done a lot of really cool things. So we’ll have kind of like interviews, but we’ll also just have like Q and a, we’ll also have just an open platform where you can come share ideas and thoughts. So if you’re on clubhouse, come find us or find me if you’re on Twitter, come find me. And if you have any questions about, you know, raising capital or crypto taxes, happy to help in any way I can.

Ben: [01:00:56] Awesome. Dan, it’s been a pleasure, really enjoy you coming on today.

Dan: [01:01:01] Absolutely. Ben, thanks. Cheers!

Ben: [01:01:03] There you have it. Thank you for listening. Really appreciate your support. Show notes, transcript links, and more can be found on our [email protected] If you’d be so kind, please share this with anyone you think might be interested or get some value from this conversation.

If you have any questions or comments, please reach out. I’m always happy to hear them. Lastly, if you’re on YouTube, please like the video or subscribe to the channel. If you’re listening to the audio version of this, please subscribe to the podcast and or leave a review. This really helps more people find the podcast.

And I really appreciate it. Thanks again, and hope you have a fantastic day. Happy investing.

Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.