NVDA earning are out. SpaceX IPO excitement is growing. Key interest rates driving higher. And we are talking crypto – with our …
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This episode is sponsored by Interactive Brokers. You research your investments. You analyze markets. You manage risk. But have you researched your broker? For the past three years, Interactive Brokers individual clients averaged an annual return of 24.3% compared to 23.1% on the S&P 500. That's right. IBKR's lower trading costs, competitive rates, efficient execution, and access to more than 170 global markets help investors keep more of what they earn and put more capital to work. Over time, the broker you choose matters. Interactive Brokers, member SIPC. If you care about performance, find out why the best informed investors choose Interactive Brokers at ibkr.com/performance. Visit ibkr.com/performance. The Disciplined Investor is all about you, your money, [music] and the markets. Sit back and get ready for this edition of The Disciplined Investor [music] podcast. This episode of The Disciplined Investor is sponsored by Horowitz & Company. If you're looking for [music] a portfolio manager, look no further. Horowitz & Company, from seed [music] through harvest, cultivating financial success. >> [music] >> Nvidia earnings are out. SpaceX IPO, the excitement is growing. Key interest rates driving higher, and we're talking crypto with our guest Pat Commuso, a CPA and a crypto tax expert. All this and much more on episode number 974 of The Disciplined Investor podcast. >> [music] [music] >> Well, the summertime is here and I am just getting over an awful gout flare-up. I don't know if you've ever had gout, but man, it sucks. [music] I mean, it sucks. It feels like someone literally put a sledgehammer right to my foot. Stepped on it. I think it's from the Swedish fish. We talked about this at length on the DHM Plugged podcast. Uh myself and John C. Dvorak on Tuesday, we talked all about what the theory is and what's going on there, but I got to tell you, it's no fun. It's absolutely horrific. So, if you're interested in hearing about my situation, well, you can go over there and listen to it more. Hey, I'm Andrew Horowitz and thanks for joining me on this podcast. Each and every week we line up some great guest topics for discussion and the idea is obviously to do one thing and one thing only and that is to make sure that you are taken care of, that you are essentially on the road to financial security, financial independence, and that you've got the tools that you need in your tool shed, in your tool kit, in your tool belt to make it happen. That's what it's all about. And this week we're going to talk about things that you should know about. Whether or not you're invested in crypto or not, by the way, you should know about what's going on because one day you may. But, I want to talk a little bit first about what's going on in the markets, the dynamics when we see that investing today, right now, this week with Nvidia earnings out on Wednesday after the close. They came in. 30-year Treasury hitting the highest levels that it's seen since the Great Financial Crisis. And Japan's 10-year the yield on the JGB, the Japanese JGBs, hitting a level that we haven't seen since, get this, 1996. Six. Pretty amazing. Chart is crazy if you look at it. In fact, this is parabolic move that happened. Remember something, Japan for a long time was one of the only places that you can get, if you wanted for whatever reason, just like if you want to get a flare up of gout, that was the same thing. You can go over there and get negative interest rates for a very long period of time. And then, when COVID happened, the rest of the world snuck into that crazy mode. And what is happening now is the fact we see finally some inflation ticking up in Japan. Yields are going on up, but we're not talking about a slight move up of their bond yields. It has been an absolute parabolic move, just a straight up move, and it's pretty crazy from this negative rate that we saw to a complete unwind. And that is what's it most interesting to me right now. Because the intermarket correlations, the conditions that we look at that compares things like, well, yields are going up and what happens to stocks, or gold is going up and what happens to silver, or what happens when oil moves this direction and maybe that's a reflection of what's going on with the US dollar. The intermarket correlations are kind of broken. And no matter what happens right now, it seems that stocks just want to go higher. And that's a really interesting phenomenon that you don't see very often. Usually rates moving up this fast, both domestically and internationally, are caused to believe that there is something that's going to happen. Because they say, whoever they are, that the fixed-income investor, the bond market, is a lot smaller than the stock market. Doesn't get spooked as easily, but has a better vision of what's really going on. And this week I was thinking about those moments where you could almost feel the gears shifting underneath the market. This This situation is happening now, not really gradually, but in chunks. A little bit over here, a little bit over there. We're seeing that the beginnings of a little bit of a shift is what's happening. And lately it feels like one of those periods is really happening. I've talked about the things in the past like for example, the idea that sometimes when you see certain stocks leading the market and other stocks not where you have like what we've seen with the mag seven doing really well, but everything else not doing well. It's almost like um where you have a sinkhole developing. You've heard me talk about this before. The idea that the ground underneath isn't as strong. It's caving way to a river that's flowing, but yet on top everything looks really good. That top does cave in then all of a sudden we get this big sinkhole that gobbles up cars and trains and cows and houses and all this stuff is really getting out of control and that is possibly what's going on with only a few leaders out there right now. Now, in all fairness, yes, there was a broadening out during last month, but there's some things that are going on pulling on the threads on the fabric of what's happening in our markets right now. It's been quiet, but I think that some of the things that are going on right now particularly with a change in command when it comes to the Fed and Kevin Warsh was uh accepted. He's in, right? We got crypto legislation that's going on getting traction. Uh growing chatter about what's going on that is happening with yields. A lot of things that are going on with you know, limited leadership, questions about what the outlook is going to be for Nvidia, long-term yields pushing up to the highest we haven't seen since you know, whatever year it is whether it's 2008, 2009, 1996 like JGPs. But let's start with with crypto and what's going on there cuz that's going to be a little bit of the show that we're going to be talking about with our guest today and you know, for many many years crypto I would say existed in the gray zone, right? Where it was part innovation. It was part speculation. There was very little concern about regulations and taxation, but what we're seeing now is the legis- legislation process really kicking up and really gaining some traction. Um in the past it was speeches, maybe some enforcement by lawsuit, but the attempts to define the rules of the road really are being crystallized right now. Stablecoin, for example, is a great example of what's going on, and that's front and center. There's proposals being pushed out uh of what to do with this and how to deal with this. The reserve requirements of what's going to happen, disclosures on what they actually own, who owns what, and I think what we're seeing is a changing in the tone. And and it's not about it's it's not about shutting down, discontinuing, putting a stop to any kind of crypto ownership or trading, nothing like that. It's about integrating it. It's about it's about making it so that it can be either yes, it is a security or it is a asset, whatever it is. That's going to be defined particularly over time, but polic- policymakers are finally beginning to accept the idea this this global asset is not going away. And you know, my take on this for years has been that it is not a store of value, it is not a currency, it is a speculative asset, which is fine, by the way. There's no reason that we can't have a speculative asset out there, as long as there's regulatory oversight, whether what you know, making sure that we have um a system that creates transparency, understanding, that nobody's getting ripped off. And I think that they're trying to build that. I think we know they're building that. And when the government moves from this area of resistance to framework, good things can happen. And historically, what happens is capital becomes much more comfortable with the notion that yeah, we can be investing that way. So, it's important. Regulatory guidelines on this are important. It does cut both ways. It legitimizes but it also limits sometimes. We have that that could happen depending on how this goes. It could you know could compress margins because it's going to be costly to oversee it. It forces transparency which is a good thing overall. And I think when you look at the the outcome of what is happening now, I think good things can be could be seen. So, you know, if you're looking at crypto at this point, you know, 77, 78,000 of Bitcoin, whether it's Ethereum, whatever it is, it's clearly less than the wild west that we saw years about go. Um but the institutionalization of the ecosystem and the companies that are involved in it is going to be something that we're going to have to watch. We saw for example that just recently Charles Schwab got into the fray. For a long time this was you know, only in the areas of Robinhood's um in the areas of very specific companies like Coinbase that would deal with it. But you know, you see the interactive brokers of the world and the the Charles Schwabs of the world coming into this. Really interesting um when you look at this from a a perspective of not revolu- revolu- revolution uh of the product but institutionalization of the product which is actually a good thing for those that want to own it in my opinion. Um this this discussion is no longer on the fringe. You know, it's it's no longer that this is an asset that is uh going to be you know, here today, gone tomorrow. So, that that's also a good thing. Now, this discussion that also is going on, switching gears for a second, to what's happening with with uh Kevin Warsh, you know, that the markets maybe are testing him. The credit markets are kind of like, "Hey, buddy, how are you?" Right in the face, right? You know, uh uh this happens almost every time a new Fed chair comes in. The fact that his name is the one that's being circulated as somebody who's going to reduce rates and all that. Now, shoving him a a condition where we see higher interest rates as we are inflation that's kicking up. Really interesting situation. He's historically been seen as more hawkish, but yet the powers that be have been framing him as somebody that's actually going to be more dovish. He's more skeptical of prolonged easing policies, more focused on financial stability of the markets. Importantly, I think really when we look at what's going on with him, he's very attuned to the unintended consequences of Central Bank interventions. So, what does that translate to? I think it translates to less tolerance for inflation drift, less willingness to necessarily be involved in a quick and and and knee-jerk reaction to a cut, and perhaps greater emphasis on the credibility of the Fed itself. I think that's the most important part of all this that I believe is going to happen is the the credibility issue. And and you know, that whole transitionary period and where credibility is out the window and where the White House has been knocking him. I mean, right now we have a fresh face who has been appointed by President Trump, confirmed by Congress, and I think all of that is going to play well for this. So, markets don't just need to react to just policy. The They they they get involved in the expectation of what's going to happen. I think that's going to be a repricing of risk in somewhere some ways in the 30-year price pushing to levels not seen since 2007-8. Well, that's not a statistic. That is a signal. And when you think we need to think about the implications of all that. Not the Fed necessarily moving rates. It's a lot more than that. And when we look at the market dynamics that are going right now, right? The the the issue of higher inflation while Secretary Treasury Secretary Besson says it's only Yes, he said it. He said it. transitory I'm not kidding either. The fact that I I can't believe he did that, but nonetheless, I think that when you look at the differential between headline inflation and core inflation, big differences. And those differences, um I think what Besson is talking about is probably core, not headline. The fact of a food inflation is there, the fact that we have energy inflation not going away anytime soon. And >> [clears throat] >> when we see that and we look back on history back in 2007 when when um yields were high because, you know, growth was strong. Yeah, check, we have that now. At least on the surface they were strong back in 2007 like we see now also. Credit was expanding aggressively like we see now also. And today yields are rising because the signs are much more, I think, a complicated environment. Yet, we have growth. We have um employment that is doing well. We have inflation on the rise for some good and bad reasons. Growth is probably a little bit more even than it was. Debt levels are significantly higher today than they were back then. And government is issuing massive amounts of debt. Companies are issuing massive amounts of debt. So, the question then becomes is the market saying we believe that there's stronger growth ahead and that's why we're pricing our treasuries and our yields this way or we saying, you know, we need to get bit paid a lot more for the risk that we're taking right now considering all the things that we see ahead of us. Two different messages, completely different messages that I think we need to pay attention to. That signal that I was talking about whereas we're seeing that rates are moving higher, that's the issue right now. So, higher long-term rates they have consequences, right? They ripple across the economy. They are change up the valuation model when we look at stocks, mortgage rates stay elevated, much more difficult for people to pay their their debt off, debt service off. Each valuation of a stock is under pressure. So, >> [sighs and gasps] >> that's where all these three themes, you know, with yields as they are, crypto, and the Fed watch, they kind of intersect because crypto wants it legitimacy institutional flows, higher yields provide an alternative for that. A real return is um the real return is safer assets, which raises the hurdle for a speculative capital, but yet if we have stablecoin, with treasuries, a lot more money comes in, and if we see higher rates, that's going to be a good thing. Now, more hawkish Fed policy, if that's what actually happens, or at least the expectation of what's going to happen, actually reinforces that dynamic, if you really think about it. And what that does is it gives us title liquidity conditions on one hand, doesn't eliminate risk-taking necessarily, makes it more expensive, but when we have better regulation and people willing to put money in, there's still some of that liquidity offset. We have things that may slow down in the short term, but with higher yields, that offsets the need to go into speculative assets as well. So, all these things are converging at once right now. It's it's a little bit of a complicated mess, to be honest with you. So, this doesn't mean necessarily that we are going to see anything happen that is horrifying. Capital's going to still flow into crypto, capital's going to still flow into risk assets, more selectively. The Fed will respond to economic weak- weakness, if that happens, but maybe not as quickly because they're trying a wait-and-see attitude and because at the end of the day, the 30-year yield not adjust about interest rates. What it is really, and the thing that really is the biggest concern of mine right now, especially with the way that things are going with the incredible amount of stimulus that's been poured on, whether it was from the inflation re- reduction act, haha, under Biden, or the one big beautiful bill act under President Trump, huge amounts of stimulus were pushed into the markets. And that's all about confidence. Confidence in fiscal policy, confidence in the ability to control inflation. And confidence in the long-term trajectory of growth and the economy itself. And right now, the markets probably asking some tough questions, but people are still willing to put their money into the opportunity, particularly when it comes to technology, long-term. So, not getting caught up in every headline right now is an important consideration for us as investors. Watching the big shifts, these tight tight tectonic moves in the underlying plates of the surface of the markets probably something that we want to look at as well. Policy direction, what the impact will be of uh how they move coming up, because these things don't reverse overnight. You know, it's like steering a a huge steamliner, and it takes some time. So, it it's it's an issue that we need to contend with that is right now, and I think that we all are watching very, very carefully. And I know that we made some very important course corrections. You know, you always got to trim those sails into various wind conditions. And if you're not doing that, by the way, if you're not course correcting as time goes on, you're stuck with something. I'll give you one quick example of something. Um a relatively someone I knew for a long time, but a relatively new client came to us with a pretty significant portion of their portfolio in in one stock. And they said, you know, I I did that because it's done so well over the years. And I looked at it and said, you know, let's let's take a look at just the last 5 years. I don't know, let's look. I said, you know, that stock is up nicely over the last 5 years. He says, yeah, I told you. Look at that. I said, you know, the S&P 500 has beat it by 44% over that same period. He said, what? What? Are you kidding me? I said, no, I don't know necessarily you'd be invested in just stocks, but if you think about it, you're only in one stock. So, you are concentrating your risk, you're concentrating your position. And we came to the realization together that, you know what? There's something to be said about diversifying cuz you can have the greatest stock in the world, but you may have one that's mediocre as well. And how do you know unless you take a good hard look at what's going on? So, with that, we'll uh get to our guest this week, Pat Commuso, and uh we'll start talking about uh some interesting topics, I hope, about crypto and crypto taxation. Before we get to our guest, let's just take a moment and talk about Interactive Brokers because you need to ask yourself a hard question. Will the Fed raise rates by 25 basis points in June 2026? With Interactive Brokers, you can trade that prediction market and others alongside your stocks, options, and bonds all on one integrated platform. IBKR prediction markets reflect market probabilities, and if you're right, you'll receive $1 per contract. You'll also earn interest while your position is open. Prediction contracts are not suitable for all investors. The last trading day is June 17th. Learn more at ibkr.com/predictions. That's ibkr.com/predictions. Without further ado, let's get right to our guest cuz I want to get down and dirty into crypto. Pat Commuso, CPA, is on with us. How are you doing, Pat? I'm doing great. Glad to be on. It's a nice Italian name, by the way. Is it Italian, right? It's kind of Italian and Irish all the same time. Oh, yeah. Oh, yeah. It's It's It's Italian. It stems from Pasquale to Patrick. It got Americanized There you go. generations ago. I love it. So, tell me I've always kind of I've always been interested in um in those who have gone into specialties that have been either cutting edge or have been off the beaten path. And you you've gotten into the specialty of taxation, tax matters, helping people in the area of primarily cryptocurrency. Take me a little bit through cuz I don't think we've ever talked about this. How you got there? Yeah, so my career started in the big four in the financial services space, tax-focused. So, you know, I was working with mutual funds, hedge funds, um private equity companies, and dealing with large financial data sets, and applying tax adjustments to it, and reporting the taxes for it. And I just personally got involved in Bitcoin early on as as an investment just through a personal interest, and was just really early to seeing the potential tax challenges associated with it. Just personally and just through like people that I knew. And you know, I took a risk and a big jump back in 2016 to start my own firm working with investors, mostly investors back then as well as Bitcoin miners, and have, you know, been through all the iterations of the industry, where, you know, we went from just Bitcoin to Ethereum to a proliferation of many different cryptocurrencies that have went through different waves of innovation through um DeFi and NFTs and and other other other permutations that you've seen with with different types of on-chain transactions. So, you know, what my firm does is working through all the on-chain accounting. There's a lot of challenges when it comes to the accounting, just dealing with the data, reconciling it, and making sure things are accurate from that perspective, as well as the tax characterization and tax considerations around these transactions, which are also, you know, challenging and in many cases on settled, so Um you know, that's that's that's that's the focus overall. We work with both investors and companies on that and um but you know, they all have that same overlap. Yeah. What's interesting is that let's just go back and let's peel this back a little bit. What you said was you started doing this early on and you had a personal interest, I'm paraphrasing, personal interest in in Bitcoin and crypto as a potential personal investment. And then you realized that there was something more here that it could be an issue that you need to become an expert in potentially because this is a niche where you could fill the tax niche. But what's interesting is back in the early days of crypto it was like, "Well, this isn't taxable." Remember that, right? Uh Well, yeah, that's what most of the industry thought. I could buy and sell all day long and make all sorts of money. Ah, what do I do it doesn't qualify as taxation. Yeah. Yeah. And that was one of the big challenges when I started my firm. Um you know, there was obviously low compliance to a certain degree there still is and um you know, there was notice 2014-21, which did establish cryptocurrency and Bitcoin to be taxed as property. So, you know, that there was that guidance back then, but there was just, you know, a lot of non-compliance and a lot of questions around the implications of of that tax notice and how it actually applied in practice. And um um yeah, you know, there's there's a large degree of non-compliance and I would say to this day there's still there's still a high degree of non-compliance. >> Right, because people this is still in a lot of people's mind uh an independent instrument that is away from governmental oversight, blah blah blah, fill in all the rest. And this is the people's the people's money, the people's currency. And therefore, what does the government have to do with it? We don't want any stinking governments involved. I think that's kind of the some of the baseline that goes through the heads of people who are uh and and you can confirm this uh sorely wrong about that thesis. >> Yeah, I I I I I agree with you. You know, the roots of of of of Bitcoin to a degree are based in these Cypherpunk mentalities. And you know, a lot of these Cypherpunks that you know, are are coding these these blockchains including Bitcoin. And they are very um you know, freedom-focused and these types of ideologies often times are opposed to taxation in general. And um you know, that's why you start to see the these these these types of ideas. What's interesting though is that at the same time, you know, for years the industry wanted to see institutions move into the space. And you know, we start to see that maturity in our industry and that institutionalization. We're starting to to see that to a to a to a degree. >> [clears throat] >> Um but that kind of runs counterintuitive to that Cypherpunk mentality, right? So, um Well, I actually I think if I if I can interrupt interrupt you with something here, I think this whole idea of in a weird way crypto has lost its edge as that mentality that that cutting edge ever since it's become more mainstream. Ever since we got the ETFs, ever since we got the corporations a little bit post this point, but corporations utilizing as treasury shares. I mean the the idea that we have a a a I guess Michael Saylor the I don't know what he is. He's the he's the crossbearer of of Bitcoin and the savior. You know, talking about it every way. He's talking his book most of the time, but his company, if you look at the stock, has gone down the toilet in the last year or so, and he's ultra levered. Uh who knows what the company actually does anymore. But it seems to me that ever since it went mainstream, it's lost its edge. What do you think? Well, it's it's definitely, you know, it's it's changing over time, right? It's being institutionalized and it's gaining in regulatory focus and compliance is becoming um you know, an issue that's getting much more attention. So, in to to that degree, yeah, you know, it's not 2016 anymore um with with with Bitcoin. It's it's definitely changing in in a in a certain sense, but I think that's going to happen with any industry that's going to be maturing at all. Um you know, it's going to have to grow from those initial roots. And some of the growth is into various different types of coins technology. Uh one of the things you mentioned as you were talking about the early days was NFTs. Non-fungible tokens, which had its heyday for what, 6 months maybe of excitement? Right? Where we were buying all sorts of monkeys and weird graphics that people were buying for all sorts I I never Did you understand that whole phase by the way? Of buying JPEGs in an NFT for some absurd amount of money? Well, you know, the idea with NFTs is they're supposed to represent ownership on the blockchain due to the fact that they're non-fungible and they're unique. And, you know, people associated them with with JPEGs. Um you know, it was extremely speculative and obviously short-lived. Um There could be future uses for NFTs if there's more of a you know, regulatory architecture built around it and it can actually start to have some sort of representation of of of ownership. Um but you know, I would say that was a phase that we haven't seen get revived since that since that cycle. One of the things that I thought back in the day was, "Hey, I got an idea. You know, this whole idea and this whole concept of buying a house where you have to get the title and the mortgage and the and the records and the things and the fix-ups and, you know, all the the plats and the the the um the the the graphical analysis of, you know, the the plot area. You know, the the whole thing that goes into a home, right? The ownership of a land a piece of land and a house. So, from the land all the way up, you know, it's it's there's a lot of stuff in the courthouses and the systems and and a lot of stuff is not has not been kept up I thought, "You know what? I got an idea. Why don't we get an NFT that wraps a house? And when you buy that house, that NFT cuz it's ownership, right? is basically easily transferable to a new owner and everything inside of that is either or it is kept intact, you know, the the the property um information about insurance records, everything about it everything about this house is kept in there and then transferred to the next person for use. It seemed like a good idea. Yeah, I think it's very interesting. I think that they're, you know, it's not just a tech techno technological solution to a lot of these questions when it comes to that. It's very regulatory as well. And if you can actually like legally represent that on chain, it gets out a bit outside of my wheelhouse, you know, from a tax and accounting perspective, I would say, but um I think it's very interesting and you know, if we ever do see NFTs come back, I do think it's going to be in some form of, you know, real-world asset tokenization and it's representing, you know, assets on chain in a way that um you know, is is is the does have some sort of legal standing, but that's yet to be seen. That is the point, right? It's the tokenization of the real-world asset. It's the hard asset into the tokenization from the aspect of being on the chain and whether that's called an NFT or something else. That's the whole point of making it easily uh indestructible, by the way, right? The the the information. And easily moved around through technology. Yes, I think the the ease of transferability um as well as um being able to verify ownership as well and to reduce fraud, I think are are are two big use cases there. Let's talk about uh stable coins for a second, you know, this is something that has been uh blossoming in the area of crypto. And use cases are many, uh foreign transaction, uh easy easy ownership, uh uh currency uh move move of various currencies into one and have a stable coin that can be used for cross-border payments and settlement rams rails and things like that, emerging markets. So, uh this has been big, right? It's been growing dramatically. Yes. Yes. But A great example is paying over, you know, if you have like employees that are overseas, um, you know, that's a great example of of of a good use case for it. So, but but why can't we just wire money to Well, I mean, obviously the stablecoin idea, if you have money in US dollars or you you know, other kind of crypto or whatever it is, and you transfer it to stablecoin, then then it gets into that coin, but then you have to transfer to and usually it's USDT, isn't it? Yeah. I would say, you know, the difference is it's like say say someone is operating a remote business and they have an employee overseas, you know, they're going to wire them money and maybe pay a $45 wire fee and wait 3 to 5 days for that to hit the employee's account. Um, and not always without, you know, not always without issues through through that process. Where a stablecoin can be sent to that employee's wallet address and, um, you know, they can have it within minutes. Um, and it's the fees are, you know, immaterial, very very very small amount. So, I would say it's really like the quickness and ease that comes with it. However, from a taxation standpoint standpoint, there are some gotchas, aren't there? Yes, it gets it gets very interesting from a from a tax standpoint because cryptocurrencies or digital assets in general are taxed as property. And currently USDC or USDT or other stablecoins like you mentioned are, you know, still included in that in that in that definition and therefore they have to be accounted for and tracked for tax purposes. But how does that work then? How does that How does that make it a a currency worth worthwhile? How do you do that? I mean you track it like any other digital asset. It's It's a bit easier to track because it's usually less volatile, right? Cuz it's a stablecoin. But you do have that burden where you do have to have to have to track it and also report it on your taxes as well. Um So if I take stablecoin and I send it to you, walk me through the taxation of that. Because Because technically it's not like there's a gain on it when I sell it, right? But No. In that case there wouldn't be a gain, but you would you you you still should claim it and you and the problem is is that you may see tax reporting on it in certain in certain instances now that we have form 1099-B's and stuff. So, you know, let's picture um you're going to send me $10,000. You'd first maybe purchase $10,000 of USDC on your exchange on your exchange of choice. >> Right. And maybe you'll transfer that to a wallet that you control. And then maybe you'll transfer that to um my wallet. So when you first purchased the USDC, that would establish your basis in it, which would likely be, you know, 10K cuz it's a stablecoin. >> Mhm. Um that basis would follow over to your wallet and then you would send it to me. That would be you disposing of that of that digital asset, the USDC. So then you'd have a disposition at that point of $10,000 and you'd have to claim it on your form 8949 as a disposition even though it's US even though it's a stablecoin. But even if you're out of compliance on that, let's go through that. Let's say I did that 50 times. I gave you $10,000 50 times throughout the year and I was supposed to claim them all, etc., etc., right? As the transfer transferor of it, you know, the movement I I'm moving it. The the the the reality is at the end of the day, there is no tax implication on any of this. So, it's kind of moot. If even if if even if I got somehow the IRS came after me for something and they saw this as a way to slap me on the wrist. I mean, I guess they could penalize me for not for for reporting issues, but there was no liability. How does that play out? You're right to a certain degree that in most cases once all the facts are laid out and everything's reconciled that it should be tax neutral. But, you're you know, you're going to have to possibly deal with reporting issues and reconciling that with the IRS. Which is a pain in the ass. Exactly. You know, >> and that's like you need like a somebody that can do audits to kind of dig through the stuff. But, the point is are you saying that the US the the Well, let's put that aside cuz it's any government really. But, the Well, the US-based 1099-DA is the record That That's what you should be getting, right? What does it stand for? Direct uh uh What's DA stand for? Digital asset? >> DA stands for digital assets. And yes, this is the first tax season where people are receiving that for their activity that took place in 2025. Um and this is the form of recording. >> that's what you should be getting from the various You should be If I buy this on an exchange and then dispose of this by sending it Well, not dispose of it, but send it to my wallet, my own personal I don't know, call it my cold wallet, right? I can somehow get it over there. And then I then move it from there. I have to then issue what? A 1099-DA also? No, so the 1099-DAs are actually being issued by what the IRS defines as brokers, which to simplify here would more or less be exchanges. Um so, you know, if you if you um dispose of something on Coinbase for instance, or you know, like another exchange, that's when you can expect to receive these Form 1099-DA's. The biggest challenge with them is that, you know, it's a new form and it's also incomplete by design in a few different ways. Um number one, if you have assets that aren't that you know, that the the full life cycle of the asset didn't take place on that exchange, they're not going to have the cost basis information for it. >> that's what I was going to say. If you If I If you If I buy it on the exchange, I send it to my cold my my wallet, right? And I send it back, they may not look at that as a full round trip of the same asset. Exactly. At that point, you would break the the chain of custody for their 1099-DA. For instance, if you >> Pat. This is a mess. This is a mess. Yes, because because um non custodial wallets and exchanges got pulled out of the regs um through a Congressional Review Act in um 2025. So, originally, you know, these were going to be included. They got pulled out. And now taxpayers are left with the scenario where you know, not all of their activity is necessarily included on Form 1099-DA. And there's there's other types of transactions that are included as well, you know, USDC, there's there's there's there's a limit to where that's included, um certain other types of transactions aren't included. So, this It's really like this challenge with the cost basis is not going away with this form. It's just starting to make things more visible to the IRS in in an attempt to increase compliance. Um but yeah, there's this big challenge. When you when you when you break the the chain of custody, they're not going to have this basis information. And then even when it's a stable coin, you need to have an audit trail, and you have this burden of accounting for it and reconciling it, so you can report this accurately. Well, the good news is this keeps you in business for a long time. Well, you definitely you definitely need a good uh crypto CPA if you're transacting in digital assets. That's That's That's for sure. And you know, as as things move forward, I it's it seems that we'll, you know, be seeing more complexity. And um you know, things are not going to be getting getting simpler um for the foreseeable future, especially if we start to see things like wash sales and, you know, other other um provisions. This seems to me to be like the equivalent of pickleball with orthopedic surgeons that you look at them, you're like, "Hey, you got a lifetime of potential here uh due to this sport." This seems like to be the same thing for accountants who specialize in crypto. This kind of form is lack of this lack of quality laws. It is It is um it's a it's a it's a unique specialty. And um you know, my with form 1099-DA is, you know, it it's exposing this issue to a lot more practitioners who are, you know, getting more people with with these forms. And there are liability concerns and due diligence considerations for preparers. So, you know, they're left in a position where many times they're partnering with firms like mine to do these do these calculations for for them on behalf of their clients, so they can make sure that it's accurate and that they're covering all their bases for it. Um so, yeah, you know, I think I think that there's a real need for it. And um you know, it's it's it's extremely complex, and there's going to be more and more firms and practitioners that continue to encounter this as you start to see more people get these tax forms. >> Yeah. What about the legislation that's coming out? There's some I think there's some new things on the table I've been reading about. I know they talked with with you about it before. Um with regards to uh staking, mining, things of that nature. What what's going on there? Yeah, so there's nothing nothing that's finalized yet. Um but there's some there's some interesting bill provisions and you know, these are some trending provisions that we've seen attempted before but that are you know, picking picking up picking up steam and I would say like the some of them that I would want to point out because there are several um would be you know, the biggest trade-off in in most of this is wash sales getting applied to digital assets. And again, it's currently not not not applied, but we we do we do see this in a couple in a couple um in a couple bills. >> [clears throat] >> And this is kind of like the concession that we're seeing in most proposals um between the between, you know, the industry and regulators. Mhm. Um the other very interesting thing is staking. Where, you know, we're still seeing a push to not to have a deferral on recognizing staking income. That um may or may not be elective. You know, we'll have to see. But um you know, the timing of the recognition of staking income, I would say, is is another big one. Um and the wash sales one is really interesting because it's going to create, you know, more of a deeper accounting requirement for all of these transactions that again are fragmented across different custodians and in non-custodial environments. Um and then you know, the wash sales is a 61-day period and you know, crypto's obviously very volatile. So, it's going to it's going to be interesting to see you know, how this how this actually applies to investors if if that if that does pass. Um another another interesting one is the de minimis exception. So, you know, trying to create legislation some that apply only to stable coins and some of them that apply to you know, digital assets more broadly where there is a de minimis exception to where if you're spending crypto under certain thresholds, for instance, $300 that you know, there's a there's there's a tax exemption for that. Um so, I would say it's some those are those are some of the most common ones that I'm seeing right now. And we'll see if they do get passed and um if they do, that's going to be a lot of what we're going to be working on with our clients is you know, how that applies to their portfolio from just a tax consideration standpoint and also from an accounting standpoint. Does does some of this get cleaned up a little bit with the likes of Interactive Brokers, Charles Schwab, and others in the business now? The biggest announcement being recently that Charles Schwab has entered into the crypto business albeit with a small grouping of cryptos uh coins that they can actually hold. But, does some of this start to get more normalized and better reporting capabilities as we see these big boys uh enter enter into this into this space? To a degree, yeah. I would say I would I would say yes, you know, I was just talking to an investor earlier today that has you know, this and this is very common for our firm. This this this you know, have hasn't done the historical accounting and has all this cost basis fragmentation and data issues for the better part of the past decade. Um you know, going back I think to 2018. Mhm. So, um you know, we're we're we're working to get everything cleaned up and reconstructed for them. But as I was talking to him, that's basically his plan is to get get it all cleaned up and dispose of this year. And then move it move move into something where, you know, he he he gets all this reporting taken off his hands. So, there's definitely that that subset of people. Um, I think with the 1099-DA for people that have very simple fact patterns, you know, that are not moving across custodial and non-custodial environments or across like multiple custodians and they don't have significant legacy assets, you know, they have maybe like more of a simpler transaction footprint. I think the 1099-DA as this this phases in can start to simplify things on on that on that spectrum for people. But on the other end, you know, you still have people with very complicated fact patterns. You have the widespread non-compliance from the historical standpoint. And you still have people that are, you know, operating um, you know, like I said, in these non-custodial environments like with all this DeFi activity and just business activity in general. So, I think from those perspectives, you're you're you know, you there's there's still going to have have have these reporting gaps and and challenges and reconstruction burdens. Um, but for some people, I think there are paths to simplify it. Well, not for not for Wayland Wilcox. No. No. What happened there? So, you know, that's an interesting case. Um, you know, it's it's one that I've been following [clears throat] for some time that's now has basically settled intri- intricate you know, interesting with with with probation only and a fine um of 150,000. And of course, you know, like the the taxes that he already had to pay. >> [clears throat] >> Um, which you know, is a better result than previous indictments that we've seen from the Justice Department with the likes of of Frank Elgar and for instance which was the first pure crypto tax evasion case which led to him getting sentenced to a few years in jail. Um so you know what happened with Wayland Wilcox and he was just sentenced back um this April was he sold just under 100 NFTs um crypto punk NFTs for which I believe totaled just above 12 million dollars. And he didn't report report the transactions. >> should he? I mean it's just you know it's it's not their business. That's the same that's the same thesis that we Well the the problem for him is the transactions existed on a public immutable ledger. And um he you know he ended up getting indicted for this and um you know they say that he saved 3.3 million dollars in taxes approximately that he had to pay back along with another [clears throat] million in interest along with the fine along with probation and you know he avoided prison. It it's it seems like based off of the reporting from April on what what we finally settled with this. But he's still better off than the people that bought this crap that's worth nothing now. That's true. That's true. You know they bought 12 million dollars worth of NFTs. Let me just do a quick calculation on the back of my napkin here. Probably worth a dollar fifty now. Yeah most of them have lost value for for for for people that are holding them. Frank Elgar Elgar and is more interesting. He's he's not a recent case. Was that the original isn't this the original? He's he's the first pure crypto tax evasion case and he was sentenced you know maybe like two years ago maybe back in 2024. I could be off on the year could be maybe a year earlier. Um but he was sentenced to several years in prison I believe three years and um you know, he had significant assets. That was reported. I believe they reported, and this is from memory, $120 million on his on his um cold in his in his wallets. Um and he had to as part of his sentence, I believe turn his private keys over to the Justice Department and isn't allowed to even move any of the funds without their approval, in addition to having having jail time. So, I will say like Wyland Wilcox seems to have gotten, you know, not as severe as of an outcome as Frank Algrin did. Um And you know, Wyland under Wyland didn't report from what I understand in the case, where um Frank Algrin did report, but inflated his cost basis. So, you know, they're they're they're a little bit different fact patterns to a certain degree. >> Yeah, but both were Um but you know, this is this is I think, you know, the first of what we'll see of more cases that they're going to start rolling out for for people that are um you know, severely non-compliant with with crypto to to to a point to where it is criminal in nature. And you know, these types of cases serve as an example, you know, as they're even saying um you know, in the in the headlines like the IRS criminal invest investigators said, "Let this case serve as a warning." So, you know, these types of cases are meant to serve as a warning and an example. At the same time, you start to see form 1099-DA going out, which is, you know, designed to push a higher degree of compliance just through third-party reporting. So, um you know, we'll see how this plays out and how this impacts the um compliance rate going forward. Yep. Pakin Musso, always a pleasure having you, expert in the area of crypto. We'll make sure to have the information on where people can find you for those people that are going to be getting those 1099 DAs, I call them ducks ass. That's a DA from >> [clears throat] >> from my day when you had a certain hairstyle, you would say, "Hey, I'm going to get a DA." which was a ducks ass looking feathery thing in the back of your head. Have you ever heard about that? No, I haven't. >> every time you see a 1099 DA, you're going to think about it. Sorry that I put that into your head. That was back in the 19, I think, seven late '70s or '80s or some maybe late '80s, something like that. Anyway, Pat Commisso, CPA expert in cryptocurrency, always wonderful having you on. Thanks so much. Yeah, appreciate it. That's going to wrap up another show, another episode of The Disciplined Investor Podcast. Please make sure to go over to I don't know where it is. You want to go to Apple, that's a great place to do it. Go give a review, put some five stars on it, give some love. Check it out on Spotify and Amazon. Also, make sure to follow. By the way, we got a lot of new clips and videos going up on on X, Twitter, whatever you want to call it. Follow me at Andrew Horowitz, that's one word, Andrew Horowitz all together, no spaces, no check marks, no no underscores, no dashes. Andrew Horowitz on Twitter {slash} X, whatever you want to call it. And we have some great things that are going up on a regular basis with our interviews and our discussions. And of course, you'll get the first dibs on when these podcasts do in fact go up on Tuesdays and Sundays each and every week. 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TDI Podcast: Crypto Camuso (#974)
Summary
NVDA earning are out. SpaceX IPO excitement is growing. Key interest rates driving higher. And we are talking crypto – with our …Transcript
This episode is sponsored by Interactive Brokers. You research your investments. You analyze markets. You manage risk. But have you researched your broker? For the past three years, Interactive Brokers individual clients averaged an annual return of 24.3% compared to 23.1% on the S&P 500. That's right. IBKR's lower trading costs, competitive rates, efficient execution, and access to more than 170 global markets help investors keep more of what they earn and put more capital to work. Over time, the broker you choose matters. Interactive Brokers, member SIPC. If you care about performance, find out why the best informed investors choose Interactive Brokers at ibkr.com/performance. Visit ibkr.com/performance. The Disciplined Investor is all about you, your money, [music] and the markets. Sit back and get ready for this edition of The Disciplined Investor [music] podcast. This episode of The Disciplined Investor is sponsored by Horowitz & Company. If you're looking for [music] a portfolio manager, look no further. Horowitz & Company, from seed [music] through harvest, cultivating financial success. >> [music] >> Nvidia earnings are out. SpaceX IPO, the excitement is growing. Key interest rates driving higher, and we're talking crypto with our guest Pat Commuso, a CPA and a crypto tax expert. All this and much more on episode number 974 of The Disciplined Investor podcast. >> [music] [music] >> Well, the summertime is here and I am just getting over an awful gout flare-up. I don't know if you've ever had gout, but man, it sucks. [music] I mean, it sucks. It feels like someone literally put a sledgehammer right to my foot. Stepped on it. I think it's from the Swedish fish. We talked about this at length on the DHM Plugged podcast. Uh myself and John C. Dvorak on Tuesday, we talked all about what the theory is and what's going on there, but I got to tell you, it's no fun. It's absolutely horrific. So, if you're interested in hearing about my situation, well, you can go over there and listen to it more. Hey, I'm Andrew Horowitz and thanks for joining me on this podcast. Each and every week we line up some great guest topics for discussion and the idea is obviously to do one thing and one thing only and that is to make sure that you are taken care of, that you are essentially on the road to financial security, financial independence, and that you've got the tools that you need in your tool shed, in your tool kit, in your tool belt to make it happen. That's what it's all about. And this week we're going to talk about things that you should know about. Whether or not you're invested in crypto or not, by the way, you should know about what's going on because one day you may. But, I want to talk a little bit first about what's going on in the markets, the dynamics when we see that investing today, right now, this week with Nvidia earnings out on Wednesday after the close. They came in. 30-year Treasury hitting the highest levels that it's seen since the Great Financial Crisis. And Japan's 10-year the yield on the JGB, the Japanese JGBs, hitting a level that we haven't seen since, get this, 1996. Six. Pretty amazing. Chart is crazy if you look at it. In fact, this is parabolic move that happened. Remember something, Japan for a long time was one of the only places that you can get, if you wanted for whatever reason, just like if you want to get a flare up of gout, that was the same thing. You can go over there and get negative interest rates for a very long period of time. And then, when COVID happened, the rest of the world snuck into that crazy mode. And what is happening now is the fact we see finally some inflation ticking up in Japan. Yields are going on up, but we're not talking about a slight move up of their bond yields. It has been an absolute parabolic move, just a straight up move, and it's pretty crazy from this negative rate that we saw to a complete unwind. And that is what's it most interesting to me right now. Because the intermarket correlations, the conditions that we look at that compares things like, well, yields are going up and what happens to stocks, or gold is going up and what happens to silver, or what happens when oil moves this direction and maybe that's a reflection of what's going on with the US dollar. The intermarket correlations are kind of broken. And no matter what happens right now, it seems that stocks just want to go higher. And that's a really interesting phenomenon that you don't see very often. Usually rates moving up this fast, both domestically and internationally, are caused to believe that there is something that's going to happen. Because they say, whoever they are, that the fixed-income investor, the bond market, is a lot smaller than the stock market. Doesn't get spooked as easily, but has a better vision of what's really going on. And this week I was thinking about those moments where you could almost feel the gears shifting underneath the market. This This situation is happening now, not really gradually, but in chunks. A little bit over here, a little bit over there. We're seeing that the beginnings of a little bit of a shift is what's happening. And lately it feels like one of those periods is really happening. I've talked about the things in the past like for example, the idea that sometimes when you see certain stocks leading the market and other stocks not where you have like what we've seen with the mag seven doing really well, but everything else not doing well. It's almost like um where you have a sinkhole developing. You've heard me talk about this before. The idea that the ground underneath isn't as strong. It's caving way to a river that's flowing, but yet on top everything looks really good. That top does cave in then all of a sudden we get this big sinkhole that gobbles up cars and trains and cows and houses and all this stuff is really getting out of control and that is possibly what's going on with only a few leaders out there right now. Now, in all fairness, yes, there was a broadening out during last month, but there's some things that are going on pulling on the threads on the fabric of what's happening in our markets right now. It's been quiet, but I think that some of the things that are going on right now particularly with a change in command when it comes to the Fed and Kevin Warsh was uh accepted. He's in, right? We got crypto legislation that's going on getting traction. Uh growing chatter about what's going on that is happening with yields. A lot of things that are going on with you know, limited leadership, questions about what the outlook is going to be for Nvidia, long-term yields pushing up to the highest we haven't seen since you know, whatever year it is whether it's 2008, 2009, 1996 like JGPs. But let's start with with crypto and what's going on there cuz that's going to be a little bit of the show that we're going to be talking about with our guest today and you know, for many many years crypto I would say existed in the gray zone, right? Where it was part innovation. It was part speculation. There was very little concern about regulations and taxation, but what we're seeing now is the legis- legislation process really kicking up and really gaining some traction. Um in the past it was speeches, maybe some enforcement by lawsuit, but the attempts to define the rules of the road really are being crystallized right now. Stablecoin, for example, is a great example of what's going on, and that's front and center. There's proposals being pushed out uh of what to do with this and how to deal with this. The reserve requirements of what's going to happen, disclosures on what they actually own, who owns what, and I think what we're seeing is a changing in the tone. And and it's not about it's it's not about shutting down, discontinuing, putting a stop to any kind of crypto ownership or trading, nothing like that. It's about integrating it. It's about it's about making it so that it can be either yes, it is a security or it is a asset, whatever it is. That's going to be defined particularly over time, but polic- policymakers are finally beginning to accept the idea this this global asset is not going away. And you know, my take on this for years has been that it is not a store of value, it is not a currency, it is a speculative asset, which is fine, by the way. There's no reason that we can't have a speculative asset out there, as long as there's regulatory oversight, whether what you know, making sure that we have um a system that creates transparency, understanding, that nobody's getting ripped off. And I think that they're trying to build that. I think we know they're building that. And when the government moves from this area of resistance to framework, good things can happen. And historically, what happens is capital becomes much more comfortable with the notion that yeah, we can be investing that way. So, it's important. Regulatory guidelines on this are important. It does cut both ways. It legitimizes but it also limits sometimes. We have that that could happen depending on how this goes. It could you know could compress margins because it's going to be costly to oversee it. It forces transparency which is a good thing overall. And I think when you look at the the outcome of what is happening now, I think good things can be could be seen. So, you know, if you're looking at crypto at this point, you know, 77, 78,000 of Bitcoin, whether it's Ethereum, whatever it is, it's clearly less than the wild west that we saw years about go. Um but the institutionalization of the ecosystem and the companies that are involved in it is going to be something that we're going to have to watch. We saw for example that just recently Charles Schwab got into the fray. For a long time this was you know, only in the areas of Robinhood's um in the areas of very specific companies like Coinbase that would deal with it. But you know, you see the interactive brokers of the world and the the Charles Schwabs of the world coming into this. Really interesting um when you look at this from a a perspective of not revolu- revolu- revolution uh of the product but institutionalization of the product which is actually a good thing for those that want to own it in my opinion. Um this this discussion is no longer on the fringe. You know, it's it's no longer that this is an asset that is uh going to be you know, here today, gone tomorrow. So, that that's also a good thing. Now, this discussion that also is going on, switching gears for a second, to what's happening with with uh Kevin Warsh, you know, that the markets maybe are testing him. The credit markets are kind of like, "Hey, buddy, how are you?" Right in the face, right? You know, uh uh this happens almost every time a new Fed chair comes in. The fact that his name is the one that's being circulated as somebody who's going to reduce rates and all that. Now, shoving him a a condition where we see higher interest rates as we are inflation that's kicking up. Really interesting situation. He's historically been seen as more hawkish, but yet the powers that be have been framing him as somebody that's actually going to be more dovish. He's more skeptical of prolonged easing policies, more focused on financial stability of the markets. Importantly, I think really when we look at what's going on with him, he's very attuned to the unintended consequences of Central Bank interventions. So, what does that translate to? I think it translates to less tolerance for inflation drift, less willingness to necessarily be involved in a quick and and and knee-jerk reaction to a cut, and perhaps greater emphasis on the credibility of the Fed itself. I think that's the most important part of all this that I believe is going to happen is the the credibility issue. And and you know, that whole transitionary period and where credibility is out the window and where the White House has been knocking him. I mean, right now we have a fresh face who has been appointed by President Trump, confirmed by Congress, and I think all of that is going to play well for this. So, markets don't just need to react to just policy. The They they they get involved in the expectation of what's going to happen. I think that's going to be a repricing of risk in somewhere some ways in the 30-year price pushing to levels not seen since 2007-8. Well, that's not a statistic. That is a signal. And when you think we need to think about the implications of all that. Not the Fed necessarily moving rates. It's a lot more than that. And when we look at the market dynamics that are going right now, right? The the the issue of higher inflation while Secretary Treasury Secretary Besson says it's only Yes, he said it. He said it. transitory I'm not kidding either. The fact that I I can't believe he did that, but nonetheless, I think that when you look at the differential between headline inflation and core inflation, big differences. And those differences, um I think what Besson is talking about is probably core, not headline. The fact of a food inflation is there, the fact that we have energy inflation not going away anytime soon. And >> [clears throat] >> when we see that and we look back on history back in 2007 when when um yields were high because, you know, growth was strong. Yeah, check, we have that now. At least on the surface they were strong back in 2007 like we see now also. Credit was expanding aggressively like we see now also. And today yields are rising because the signs are much more, I think, a complicated environment. Yet, we have growth. We have um employment that is doing well. We have inflation on the rise for some good and bad reasons. Growth is probably a little bit more even than it was. Debt levels are significantly higher today than they were back then. And government is issuing massive amounts of debt. Companies are issuing massive amounts of debt. So, the question then becomes is the market saying we believe that there's stronger growth ahead and that's why we're pricing our treasuries and our yields this way or we saying, you know, we need to get bit paid a lot more for the risk that we're taking right now considering all the things that we see ahead of us. Two different messages, completely different messages that I think we need to pay attention to. That signal that I was talking about whereas we're seeing that rates are moving higher, that's the issue right now. So, higher long-term rates they have consequences, right? They ripple across the economy. They are change up the valuation model when we look at stocks, mortgage rates stay elevated, much more difficult for people to pay their their debt off, debt service off. Each valuation of a stock is under pressure. So, >> [sighs and gasps] >> that's where all these three themes, you know, with yields as they are, crypto, and the Fed watch, they kind of intersect because crypto wants it legitimacy institutional flows, higher yields provide an alternative for that. A real return is um the real return is safer assets, which raises the hurdle for a speculative capital, but yet if we have stablecoin, with treasuries, a lot more money comes in, and if we see higher rates, that's going to be a good thing. Now, more hawkish Fed policy, if that's what actually happens, or at least the expectation of what's going to happen, actually reinforces that dynamic, if you really think about it. And what that does is it gives us title liquidity conditions on one hand, doesn't eliminate risk-taking necessarily, makes it more expensive, but when we have better regulation and people willing to put money in, there's still some of that liquidity offset. We have things that may slow down in the short term, but with higher yields, that offsets the need to go into speculative assets as well. So, all these things are converging at once right now. It's it's a little bit of a complicated mess, to be honest with you. So, this doesn't mean necessarily that we are going to see anything happen that is horrifying. Capital's going to still flow into crypto, capital's going to still flow into risk assets, more selectively. The Fed will respond to economic weak- weakness, if that happens, but maybe not as quickly because they're trying a wait-and-see attitude and because at the end of the day, the 30-year yield not adjust about interest rates. What it is really, and the thing that really is the biggest concern of mine right now, especially with the way that things are going with the incredible amount of stimulus that's been poured on, whether it was from the inflation re- reduction act, haha, under Biden, or the one big beautiful bill act under President Trump, huge amounts of stimulus were pushed into the markets. And that's all about confidence. Confidence in fiscal policy, confidence in the ability to control inflation. And confidence in the long-term trajectory of growth and the economy itself. And right now, the markets probably asking some tough questions, but people are still willing to put their money into the opportunity, particularly when it comes to technology, long-term. So, not getting caught up in every headline right now is an important consideration for us as investors. Watching the big shifts, these tight tight tectonic moves in the underlying plates of the surface of the markets probably something that we want to look at as well. Policy direction, what the impact will be of uh how they move coming up, because these things don't reverse overnight. You know, it's like steering a a huge steamliner, and it takes some time. So, it it's it's an issue that we need to contend with that is right now, and I think that we all are watching very, very carefully. And I know that we made some very important course corrections. You know, you always got to trim those sails into various wind conditions. And if you're not doing that, by the way, if you're not course correcting as time goes on, you're stuck with something. I'll give you one quick example of something. Um a relatively someone I knew for a long time, but a relatively new client came to us with a pretty significant portion of their portfolio in in one stock. And they said, you know, I I did that because it's done so well over the years. And I looked at it and said, you know, let's let's take a look at just the last 5 years. I don't know, let's look. I said, you know, that stock is up nicely over the last 5 years. He says, yeah, I told you. Look at that. I said, you know, the S&P 500 has beat it by 44% over that same period. He said, what? What? Are you kidding me? I said, no, I don't know necessarily you'd be invested in just stocks, but if you think about it, you're only in one stock. So, you are concentrating your risk, you're concentrating your position. And we came to the realization together that, you know what? There's something to be said about diversifying cuz you can have the greatest stock in the world, but you may have one that's mediocre as well. And how do you know unless you take a good hard look at what's going on? So, with that, we'll uh get to our guest this week, Pat Commuso, and uh we'll start talking about uh some interesting topics, I hope, about crypto and crypto taxation. Before we get to our guest, let's just take a moment and talk about Interactive Brokers because you need to ask yourself a hard question. Will the Fed raise rates by 25 basis points in June 2026? With Interactive Brokers, you can trade that prediction market and others alongside your stocks, options, and bonds all on one integrated platform. IBKR prediction markets reflect market probabilities, and if you're right, you'll receive $1 per contract. You'll also earn interest while your position is open. Prediction contracts are not suitable for all investors. The last trading day is June 17th. Learn more at ibkr.com/predictions. That's ibkr.com/predictions. Without further ado, let's get right to our guest cuz I want to get down and dirty into crypto. Pat Commuso, CPA, is on with us. How are you doing, Pat? I'm doing great. Glad to be on. It's a nice Italian name, by the way. Is it Italian, right? It's kind of Italian and Irish all the same time. Oh, yeah. Oh, yeah. It's It's It's Italian. It stems from Pasquale to Patrick. It got Americanized There you go. generations ago. I love it. So, tell me I've always kind of I've always been interested in um in those who have gone into specialties that have been either cutting edge or have been off the beaten path. And you you've gotten into the specialty of taxation, tax matters, helping people in the area of primarily cryptocurrency. Take me a little bit through cuz I don't think we've ever talked about this. How you got there? Yeah, so my career started in the big four in the financial services space, tax-focused. So, you know, I was working with mutual funds, hedge funds, um private equity companies, and dealing with large financial data sets, and applying tax adjustments to it, and reporting the taxes for it. And I just personally got involved in Bitcoin early on as as an investment just through a personal interest, and was just really early to seeing the potential tax challenges associated with it. Just personally and just through like people that I knew. And you know, I took a risk and a big jump back in 2016 to start my own firm working with investors, mostly investors back then as well as Bitcoin miners, and have, you know, been through all the iterations of the industry, where, you know, we went from just Bitcoin to Ethereum to a proliferation of many different cryptocurrencies that have went through different waves of innovation through um DeFi and NFTs and and other other other permutations that you've seen with with different types of on-chain transactions. So, you know, what my firm does is working through all the on-chain accounting. There's a lot of challenges when it comes to the accounting, just dealing with the data, reconciling it, and making sure things are accurate from that perspective, as well as the tax characterization and tax considerations around these transactions, which are also, you know, challenging and in many cases on settled, so Um you know, that's that's that's that's the focus overall. We work with both investors and companies on that and um but you know, they all have that same overlap. Yeah. What's interesting is that let's just go back and let's peel this back a little bit. What you said was you started doing this early on and you had a personal interest, I'm paraphrasing, personal interest in in Bitcoin and crypto as a potential personal investment. And then you realized that there was something more here that it could be an issue that you need to become an expert in potentially because this is a niche where you could fill the tax niche. But what's interesting is back in the early days of crypto it was like, "Well, this isn't taxable." Remember that, right? Uh Well, yeah, that's what most of the industry thought. I could buy and sell all day long and make all sorts of money. Ah, what do I do it doesn't qualify as taxation. Yeah. Yeah. And that was one of the big challenges when I started my firm. Um you know, there was obviously low compliance to a certain degree there still is and um you know, there was notice 2014-21, which did establish cryptocurrency and Bitcoin to be taxed as property. So, you know, that there was that guidance back then, but there was just, you know, a lot of non-compliance and a lot of questions around the implications of of that tax notice and how it actually applied in practice. And um um yeah, you know, there's there's a large degree of non-compliance and I would say to this day there's still there's still a high degree of non-compliance. >> Right, because people this is still in a lot of people's mind uh an independent instrument that is away from governmental oversight, blah blah blah, fill in all the rest. And this is the people's the people's money, the people's currency. And therefore, what does the government have to do with it? We don't want any stinking governments involved. I think that's kind of the some of the baseline that goes through the heads of people who are uh and and you can confirm this uh sorely wrong about that thesis. >> Yeah, I I I I I agree with you. You know, the roots of of of of Bitcoin to a degree are based in these Cypherpunk mentalities. And you know, a lot of these Cypherpunks that you know, are are coding these these blockchains including Bitcoin. And they are very um you know, freedom-focused and these types of ideologies often times are opposed to taxation in general. And um you know, that's why you start to see the these these these types of ideas. What's interesting though is that at the same time, you know, for years the industry wanted to see institutions move into the space. And you know, we start to see that maturity in our industry and that institutionalization. We're starting to to see that to a to a to a degree. >> [clears throat] >> Um but that kind of runs counterintuitive to that Cypherpunk mentality, right? So, um Well, I actually I think if I if I can interrupt interrupt you with something here, I think this whole idea of in a weird way crypto has lost its edge as that mentality that that cutting edge ever since it's become more mainstream. Ever since we got the ETFs, ever since we got the corporations a little bit post this point, but corporations utilizing as treasury shares. I mean the the idea that we have a a a I guess Michael Saylor the I don't know what he is. He's the he's the crossbearer of of Bitcoin and the savior. You know, talking about it every way. He's talking his book most of the time, but his company, if you look at the stock, has gone down the toilet in the last year or so, and he's ultra levered. Uh who knows what the company actually does anymore. But it seems to me that ever since it went mainstream, it's lost its edge. What do you think? Well, it's it's definitely, you know, it's it's changing over time, right? It's being institutionalized and it's gaining in regulatory focus and compliance is becoming um you know, an issue that's getting much more attention. So, in to to that degree, yeah, you know, it's not 2016 anymore um with with with Bitcoin. It's it's definitely changing in in a in a certain sense, but I think that's going to happen with any industry that's going to be maturing at all. Um you know, it's going to have to grow from those initial roots. And some of the growth is into various different types of coins technology. Uh one of the things you mentioned as you were talking about the early days was NFTs. Non-fungible tokens, which had its heyday for what, 6 months maybe of excitement? Right? Where we were buying all sorts of monkeys and weird graphics that people were buying for all sorts I I never Did you understand that whole phase by the way? Of buying JPEGs in an NFT for some absurd amount of money? Well, you know, the idea with NFTs is they're supposed to represent ownership on the blockchain due to the fact that they're non-fungible and they're unique. And, you know, people associated them with with JPEGs. Um you know, it was extremely speculative and obviously short-lived. Um There could be future uses for NFTs if there's more of a you know, regulatory architecture built around it and it can actually start to have some sort of representation of of of ownership. Um but you know, I would say that was a phase that we haven't seen get revived since that since that cycle. One of the things that I thought back in the day was, "Hey, I got an idea. You know, this whole idea and this whole concept of buying a house where you have to get the title and the mortgage and the and the records and the things and the fix-ups and, you know, all the the plats and the the the um the the the graphical analysis of, you know, the the plot area. You know, the the whole thing that goes into a home, right? The ownership of a land a piece of land and a house. So, from the land all the way up, you know, it's it's there's a lot of stuff in the courthouses and the systems and and a lot of stuff is not has not been kept up I thought, "You know what? I got an idea. Why don't we get an NFT that wraps a house? And when you buy that house, that NFT cuz it's ownership, right? is basically easily transferable to a new owner and everything inside of that is either or it is kept intact, you know, the the the property um information about insurance records, everything about it everything about this house is kept in there and then transferred to the next person for use. It seemed like a good idea. Yeah, I think it's very interesting. I think that they're, you know, it's not just a tech techno technological solution to a lot of these questions when it comes to that. It's very regulatory as well. And if you can actually like legally represent that on chain, it gets out a bit outside of my wheelhouse, you know, from a tax and accounting perspective, I would say, but um I think it's very interesting and you know, if we ever do see NFTs come back, I do think it's going to be in some form of, you know, real-world asset tokenization and it's representing, you know, assets on chain in a way that um you know, is is is the does have some sort of legal standing, but that's yet to be seen. That is the point, right? It's the tokenization of the real-world asset. It's the hard asset into the tokenization from the aspect of being on the chain and whether that's called an NFT or something else. That's the whole point of making it easily uh indestructible, by the way, right? The the the information. And easily moved around through technology. Yes, I think the the ease of transferability um as well as um being able to verify ownership as well and to reduce fraud, I think are are are two big use cases there. Let's talk about uh stable coins for a second, you know, this is something that has been uh blossoming in the area of crypto. And use cases are many, uh foreign transaction, uh easy easy ownership, uh uh currency uh move move of various currencies into one and have a stable coin that can be used for cross-border payments and settlement rams rails and things like that, emerging markets. So, uh this has been big, right? It's been growing dramatically. Yes. Yes. But A great example is paying over, you know, if you have like employees that are overseas, um, you know, that's a great example of of of a good use case for it. So, but but why can't we just wire money to Well, I mean, obviously the stablecoin idea, if you have money in US dollars or you you know, other kind of crypto or whatever it is, and you transfer it to stablecoin, then then it gets into that coin, but then you have to transfer to and usually it's USDT, isn't it? Yeah. I would say, you know, the difference is it's like say say someone is operating a remote business and they have an employee overseas, you know, they're going to wire them money and maybe pay a $45 wire fee and wait 3 to 5 days for that to hit the employee's account. Um, and not always without, you know, not always without issues through through that process. Where a stablecoin can be sent to that employee's wallet address and, um, you know, they can have it within minutes. Um, and it's the fees are, you know, immaterial, very very very small amount. So, I would say it's really like the quickness and ease that comes with it. However, from a taxation standpoint standpoint, there are some gotchas, aren't there? Yes, it gets it gets very interesting from a from a tax standpoint because cryptocurrencies or digital assets in general are taxed as property. And currently USDC or USDT or other stablecoins like you mentioned are, you know, still included in that in that in that definition and therefore they have to be accounted for and tracked for tax purposes. But how does that work then? How does that How does that make it a a currency worth worthwhile? How do you do that? I mean you track it like any other digital asset. It's It's a bit easier to track because it's usually less volatile, right? Cuz it's a stablecoin. But you do have that burden where you do have to have to have to track it and also report it on your taxes as well. Um So if I take stablecoin and I send it to you, walk me through the taxation of that. Because Because technically it's not like there's a gain on it when I sell it, right? But No. In that case there wouldn't be a gain, but you would you you you still should claim it and you and the problem is is that you may see tax reporting on it in certain in certain instances now that we have form 1099-B's and stuff. So, you know, let's picture um you're going to send me $10,000. You'd first maybe purchase $10,000 of USDC on your exchange on your exchange of choice. >> Right. And maybe you'll transfer that to a wallet that you control. And then maybe you'll transfer that to um my wallet. So when you first purchased the USDC, that would establish your basis in it, which would likely be, you know, 10K cuz it's a stablecoin. >> Mhm. Um that basis would follow over to your wallet and then you would send it to me. That would be you disposing of that of that digital asset, the USDC. So then you'd have a disposition at that point of $10,000 and you'd have to claim it on your form 8949 as a disposition even though it's US even though it's a stablecoin. But even if you're out of compliance on that, let's go through that. Let's say I did that 50 times. I gave you $10,000 50 times throughout the year and I was supposed to claim them all, etc., etc., right? As the transfer transferor of it, you know, the movement I I'm moving it. The the the the reality is at the end of the day, there is no tax implication on any of this. So, it's kind of moot. If even if if even if I got somehow the IRS came after me for something and they saw this as a way to slap me on the wrist. I mean, I guess they could penalize me for not for for reporting issues, but there was no liability. How does that play out? You're right to a certain degree that in most cases once all the facts are laid out and everything's reconciled that it should be tax neutral. But, you're you know, you're going to have to possibly deal with reporting issues and reconciling that with the IRS. Which is a pain in the ass. Exactly. You know, >> and that's like you need like a somebody that can do audits to kind of dig through the stuff. But, the point is are you saying that the US the the Well, let's put that aside cuz it's any government really. But, the Well, the US-based 1099-DA is the record That That's what you should be getting, right? What does it stand for? Direct uh uh What's DA stand for? Digital asset? >> DA stands for digital assets. And yes, this is the first tax season where people are receiving that for their activity that took place in 2025. Um and this is the form of recording. >> that's what you should be getting from the various You should be If I buy this on an exchange and then dispose of this by sending it Well, not dispose of it, but send it to my wallet, my own personal I don't know, call it my cold wallet, right? I can somehow get it over there. And then I then move it from there. I have to then issue what? A 1099-DA also? No, so the 1099-DAs are actually being issued by what the IRS defines as brokers, which to simplify here would more or less be exchanges. Um so, you know, if you if you um dispose of something on Coinbase for instance, or you know, like another exchange, that's when you can expect to receive these Form 1099-DA's. The biggest challenge with them is that, you know, it's a new form and it's also incomplete by design in a few different ways. Um number one, if you have assets that aren't that you know, that the the full life cycle of the asset didn't take place on that exchange, they're not going to have the cost basis information for it. >> that's what I was going to say. If you If I If you If I buy it on the exchange, I send it to my cold my my wallet, right? And I send it back, they may not look at that as a full round trip of the same asset. Exactly. At that point, you would break the the chain of custody for their 1099-DA. For instance, if you >> Pat. This is a mess. This is a mess. Yes, because because um non custodial wallets and exchanges got pulled out of the regs um through a Congressional Review Act in um 2025. So, originally, you know, these were going to be included. They got pulled out. And now taxpayers are left with the scenario where you know, not all of their activity is necessarily included on Form 1099-DA. And there's there's other types of transactions that are included as well, you know, USDC, there's there's there's there's a limit to where that's included, um certain other types of transactions aren't included. So, this It's really like this challenge with the cost basis is not going away with this form. It's just starting to make things more visible to the IRS in in an attempt to increase compliance. Um but yeah, there's this big challenge. When you when you when you break the the chain of custody, they're not going to have this basis information. And then even when it's a stable coin, you need to have an audit trail, and you have this burden of accounting for it and reconciling it, so you can report this accurately. Well, the good news is this keeps you in business for a long time. Well, you definitely you definitely need a good uh crypto CPA if you're transacting in digital assets. That's That's That's for sure. And you know, as as things move forward, I it's it seems that we'll, you know, be seeing more complexity. And um you know, things are not going to be getting getting simpler um for the foreseeable future, especially if we start to see things like wash sales and, you know, other other um provisions. This seems to me to be like the equivalent of pickleball with orthopedic surgeons that you look at them, you're like, "Hey, you got a lifetime of potential here uh due to this sport." This seems like to be the same thing for accountants who specialize in crypto. This kind of form is lack of this lack of quality laws. It is It is um it's a it's a it's a unique specialty. And um you know, my with form 1099-DA is, you know, it it's exposing this issue to a lot more practitioners who are, you know, getting more people with with these forms. And there are liability concerns and due diligence considerations for preparers. So, you know, they're left in a position where many times they're partnering with firms like mine to do these do these calculations for for them on behalf of their clients, so they can make sure that it's accurate and that they're covering all their bases for it. Um so, yeah, you know, I think I think that there's a real need for it. And um you know, it's it's it's extremely complex, and there's going to be more and more firms and practitioners that continue to encounter this as you start to see more people get these tax forms. >> Yeah. What about the legislation that's coming out? There's some I think there's some new things on the table I've been reading about. I know they talked with with you about it before. Um with regards to uh staking, mining, things of that nature. What what's going on there? Yeah, so there's nothing nothing that's finalized yet. Um but there's some there's some interesting bill provisions and you know, these are some trending provisions that we've seen attempted before but that are you know, picking picking up picking up steam and I would say like the some of them that I would want to point out because there are several um would be you know, the biggest trade-off in in most of this is wash sales getting applied to digital assets. And again, it's currently not not not applied, but we we do we do see this in a couple in a couple um in a couple bills. >> [clears throat] >> And this is kind of like the concession that we're seeing in most proposals um between the between, you know, the industry and regulators. Mhm. Um the other very interesting thing is staking. Where, you know, we're still seeing a push to not to have a deferral on recognizing staking income. That um may or may not be elective. You know, we'll have to see. But um you know, the timing of the recognition of staking income, I would say, is is another big one. Um and the wash sales one is really interesting because it's going to create, you know, more of a deeper accounting requirement for all of these transactions that again are fragmented across different custodians and in non-custodial environments. Um and then you know, the wash sales is a 61-day period and you know, crypto's obviously very volatile. So, it's going to it's going to be interesting to see you know, how this how this actually applies to investors if if that if that does pass. Um another another interesting one is the de minimis exception. So, you know, trying to create legislation some that apply only to stable coins and some of them that apply to you know, digital assets more broadly where there is a de minimis exception to where if you're spending crypto under certain thresholds, for instance, $300 that you know, there's a there's there's a tax exemption for that. Um so, I would say it's some those are those are some of the most common ones that I'm seeing right now. And we'll see if they do get passed and um if they do, that's going to be a lot of what we're going to be working on with our clients is you know, how that applies to their portfolio from just a tax consideration standpoint and also from an accounting standpoint. Does does some of this get cleaned up a little bit with the likes of Interactive Brokers, Charles Schwab, and others in the business now? The biggest announcement being recently that Charles Schwab has entered into the crypto business albeit with a small grouping of cryptos uh coins that they can actually hold. But, does some of this start to get more normalized and better reporting capabilities as we see these big boys uh enter enter into this into this space? To a degree, yeah. I would say I would I would say yes, you know, I was just talking to an investor earlier today that has you know, this and this is very common for our firm. This this this you know, have hasn't done the historical accounting and has all this cost basis fragmentation and data issues for the better part of the past decade. Um you know, going back I think to 2018. Mhm. So, um you know, we're we're we're working to get everything cleaned up and reconstructed for them. But as I was talking to him, that's basically his plan is to get get it all cleaned up and dispose of this year. And then move it move move into something where, you know, he he he gets all this reporting taken off his hands. So, there's definitely that that subset of people. Um, I think with the 1099-DA for people that have very simple fact patterns, you know, that are not moving across custodial and non-custodial environments or across like multiple custodians and they don't have significant legacy assets, you know, they have maybe like more of a simpler transaction footprint. I think the 1099-DA as this this phases in can start to simplify things on on that on that spectrum for people. But on the other end, you know, you still have people with very complicated fact patterns. You have the widespread non-compliance from the historical standpoint. And you still have people that are, you know, operating um, you know, like I said, in these non-custodial environments like with all this DeFi activity and just business activity in general. So, I think from those perspectives, you're you're you know, you there's there's still going to have have have these reporting gaps and and challenges and reconstruction burdens. Um, but for some people, I think there are paths to simplify it. Well, not for not for Wayland Wilcox. No. No. What happened there? So, you know, that's an interesting case. Um, you know, it's it's one that I've been following [clears throat] for some time that's now has basically settled intri- intricate you know, interesting with with with probation only and a fine um of 150,000. And of course, you know, like the the taxes that he already had to pay. >> [clears throat] >> Um, which you know, is a better result than previous indictments that we've seen from the Justice Department with the likes of of Frank Elgar and for instance which was the first pure crypto tax evasion case which led to him getting sentenced to a few years in jail. Um so you know what happened with Wayland Wilcox and he was just sentenced back um this April was he sold just under 100 NFTs um crypto punk NFTs for which I believe totaled just above 12 million dollars. And he didn't report report the transactions. >> should he? I mean it's just you know it's it's not their business. That's the same that's the same thesis that we Well the the problem for him is the transactions existed on a public immutable ledger. And um he you know he ended up getting indicted for this and um you know they say that he saved 3.3 million dollars in taxes approximately that he had to pay back along with another [clears throat] million in interest along with the fine along with probation and you know he avoided prison. It it's it seems like based off of the reporting from April on what what we finally settled with this. But he's still better off than the people that bought this crap that's worth nothing now. That's true. That's true. You know they bought 12 million dollars worth of NFTs. Let me just do a quick calculation on the back of my napkin here. Probably worth a dollar fifty now. Yeah most of them have lost value for for for for people that are holding them. Frank Elgar Elgar and is more interesting. He's he's not a recent case. Was that the original isn't this the original? He's he's the first pure crypto tax evasion case and he was sentenced you know maybe like two years ago maybe back in 2024. I could be off on the year could be maybe a year earlier. Um but he was sentenced to several years in prison I believe three years and um you know, he had significant assets. That was reported. I believe they reported, and this is from memory, $120 million on his on his um cold in his in his wallets. Um and he had to as part of his sentence, I believe turn his private keys over to the Justice Department and isn't allowed to even move any of the funds without their approval, in addition to having having jail time. So, I will say like Wyland Wilcox seems to have gotten, you know, not as severe as of an outcome as Frank Algrin did. Um And you know, Wyland under Wyland didn't report from what I understand in the case, where um Frank Algrin did report, but inflated his cost basis. So, you know, they're they're they're a little bit different fact patterns to a certain degree. >> Yeah, but both were Um but you know, this is this is I think, you know, the first of what we'll see of more cases that they're going to start rolling out for for people that are um you know, severely non-compliant with with crypto to to to a point to where it is criminal in nature. And you know, these types of cases serve as an example, you know, as they're even saying um you know, in the in the headlines like the IRS criminal invest investigators said, "Let this case serve as a warning." So, you know, these types of cases are meant to serve as a warning and an example. At the same time, you start to see form 1099-DA going out, which is, you know, designed to push a higher degree of compliance just through third-party reporting. So, um you know, we'll see how this plays out and how this impacts the um compliance rate going forward. Yep. Pakin Musso, always a pleasure having you, expert in the area of crypto. We'll make sure to have the information on where people can find you for those people that are going to be getting those 1099 DAs, I call them ducks ass. That's a DA from >> [clears throat] >> from my day when you had a certain hairstyle, you would say, "Hey, I'm going to get a DA." which was a ducks ass looking feathery thing in the back of your head. Have you ever heard about that? No, I haven't. >> every time you see a 1099 DA, you're going to think about it. Sorry that I put that into your head. That was back in the 19, I think, seven late '70s or '80s or some maybe late '80s, something like that. Anyway, Pat Commisso, CPA expert in cryptocurrency, always wonderful having you on. Thanks so much. Yeah, appreciate it. That's going to wrap up another show, another episode of The Disciplined Investor Podcast. Please make sure to go over to I don't know where it is. You want to go to Apple, that's a great place to do it. Go give a review, put some five stars on it, give some love. Check it out on Spotify and Amazon. Also, make sure to follow. By the way, we got a lot of new clips and videos going up on on X, Twitter, whatever you want to call it. Follow me at Andrew Horowitz, that's one word, Andrew Horowitz all together, no spaces, no check marks, no no underscores, no dashes. Andrew Horowitz on Twitter {slash} X, whatever you want to call it. And we have some great things that are going up on a regular basis with our interviews and our discussions. And of course, you'll get the first dibs on when these podcasts do in fact go up on Tuesdays and Sundays each and every week. So, thanks for joining me this week. Next week we have coming up Wes, oh, Wes Gray's coming up from Alpha Architect. I am excited about that. Love talking to Wes. Thanks for joining me. I go over to the disciplinedinvestor.com if you have any desire to talk about your investments, you're worried, you want to think about the rebalancing process or even looking at what's going on with your positioning, we'll be happy to take care of you, look at [music] your portfolios, give you some quick update and see if something that makes a lot of sense. Thanks for joining me again next I'll see you again next week. Bye-bye. This podcast [music] is intended for informational purposes only and does not constitute personalized investment advice. Investing [music] involves risk, including the possible loss of principal and past performance is not indicative of future results. 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