What does Life Insurance look like when it’s all priced and done in Bitcoin? Zac Townsend (CEO and co-founder of Meanwhile) joins me on the show to talk about it. We discuss:
- Life insurance as a model
- Term or Whole life
- Bitcoin denomination
- Is it the next Celsius or BlockFi?
- Does it work under a deflationary monetary system
- Private credit fund
Links:
- X: @ztownsend
- X: @meanwhilelife
- Site: meanwhile.bm
Sponsors:
- Swan.com (code LIVERA)
- CoinKite.com (code LIVERA)
- Mempool.space
- nomadcapitalist.com/apply
Stephan Livera links:
- Follow me on X: @stephanlivera
- Subscribe to the podcast
- Subscribe to Substack
Podcast Transcript:
Stephan (00:00.972)
Zach, welcome to the show.
Zac Townsend (00:05.194)
Happy to be here.
Stephan (00:06.956)
So Zach, I know you’re building out this interesting idea of Bitcoin life insurance. So interested to get into this and hear a little bit more about the model, how it’s gonna work, and of course get into what I think some of the criticisms will be, but I think it’ll be interesting to hear from your perspective, you know, how you got into this and how you, you know, you got this idea to set up a Bitcoin life insurance company.
Zac Townsend (00:36.382)
Oh, amazing. Yeah. So I’ve been a, I’m not like an OG Bitcoiner, but I actually had this first company called Standard Treasury backed by like Anderson Horowitz, Index Ventures that I sold in 2015. And during that sale process, we actually had an offer. They were all like AquaHire, AquaHire Plus offers. And one of those offers was from Coinbase.
So I interviewed a Coinbase and I actually got my first Bitcoin from Brian Armstrong, him showing me how Coinbase worked. So that’s how I got interested in Bitcoin. And then I did a bunch of other things. But in the background, I had a weekly buy on Bitcoin. I really believed in Bitcoin. And for us, we really think that it’s going to be…
the heart of a long-term global financial system. So we look out 10, 20, 30, 40 years, and we think there’s going to be a robust Bitcoin economy. And that economy has all sorts of special features, which I don’t need to tell you about, which is that there’s no government behind it, and it’s decentralized, and you always have the option of self-custody and self-sovereignty. But we sat down at the beginning of…
running this business and we actually just made a list of all the financial institutions we think are going to need to exist in that economy. So like there needs to be an exchange, there’s going to need to be an asset manager, there’s going to need to be a bank, there’s going to need to be an insurance company. And we were sort of thinking about all those and we just got really fascinated by life insurance, both what it does for users and why it’s important for people to have life insurance.
And then the other hand, we think that life insurance plays a really critical role in economies. Like many of the mortgages in the country are owned by life insurance companies, many of the buildings, the infrastructure. Because what’s special about life insurance companies is that you make very, very long promises. But that also means that you can make really, really long investments. And we think that’s something different and new in Bitcoin. Instead of worrying about the price of Bitcoin.
Zac Townsend (02:46.83)
today or this month or this year, we should be thinking a few halvings ahead actually. That’s the kind of thinking you can do if you’re a life insurance company.
Stephan (02:58.728)
Yeah, fascinating. I think there are some commentators in the industry, people like Tuoda Meester, who I understand you know him also, that he’s been talking about this idea of Bitcoin based life insurance for years. And so I thought it was interesting that I sort of came across your profile and came across what you’re doing. Because this is like some in some ways, it’s an actualization of that idea. And so I guess
Just for people who aren’t as familiar with the life insurance model, like just at a very basic level, could you explain a little bit about this? And you know, are you doing term life insurance or whole or permanent life insurance? Just a little bit around the model if you could explain that for us.
Zac Townsend (03:35.222)
Yeah, yeah.
Yeah, and what are those things? Yeah, so there’s actually a lot to unpack there. So let’s start with what life insurance is about, right? So on one level, you can think we are all going to eventually die. I hope I’m not the bearer of bad news for anyone, but we don’t actually know when we’re gonna die. So at heart, life insurance is about, like all insurance really, is like a bunch of people get together.
and they say, well, maybe we should all pay, you know, a thousand of us should pay a dollar a month. And if the one poor person who died, the one unlucky person who dies, they’ll get a thousand dollars. Right? So the core notion of all insurance and life insurance is about protection. And in the case of life insurance, protection in case you die.
So actually, I just want to start there and say, these are relatively core financial needs. Life insurance, particularly burial insurance, is one of the oldest financial products in the world. Venetian sailors had life insurance. It’s hundreds and hundreds of years old. And it’s pretty fundamental, right? Life insurance is about what happens to my family or my loved ones, or even just the money I have if I die before I’m supposed to.
And an annuity, which is like the flip side of life insurance, it’s actually like, what happens to me if I live longer than I’m supposed to? I don’t have the savings. Like, how do I, you know, they sort of like, you have your own what’s called longevity risk. So on one hand, that’s like what it’s all about for users. How life insurance companies actually work is you, you sort of are like helping facilitate that, that shared risk pooling. What’s special about our company actually is
Zac Townsend (05:25.246)
We have a subsidiary in Bermuda. Bermuda, not the Bahamas. I just wanna be clear, sometimes these places are confused with each other. Bermuda is like the insurance capital of the world. You go to Bermuda, 70% of their economy is financial services, it’s all about insurance. You walk around, everyone you meet’s an actuary, a lawyer, an accountant. It doesn’t actually have that big a tourist business. This is what they do, is they do insurance.
There’s a fun whole history of why that is, but anyway, that’s what Bermuda is about. It’s way out in the middle of the Atlantic Ocean and the middle of nowhere. So we have an actual insurance company there. So we are regulated by the Bermuda Monetary Authority. I joke that I have all the problems of an insurance company and all the problems of a Bitcoin company. I have to deal with KYC and AML and Enterprise Resource Management and I have an independent board and all this stuff. But we have a real insurance company.
Invermuda and what’s unique about that insurance company is it is entirely Denominated in Bitcoin. So it takes all its premiums in Bitcoin It pays all its claims in Bitcoin and then it does like all the insurance mumbo-jumbo in between in Bitcoin So we like calculate our reserves. We do our regulatory filings our capital insolvency our financials those are all in Bitcoin and what’s nice about that is that
And this is like a thing that lots of people talk about when they talk about Bitcoin life insurance is we do everything we can to avoid like currency risk or exchange risk. And by having all of our insurance assets and all of our insurance liabilities entirely in Bitcoin, we don’t have to worry about the price of Bitcoin. So in the two years I’ve run this company, you know, the price of Bitcoin has been at, or I actually like to say the exchange rate of Bitcoin has been at 60,000.
16,000, now it’s approximately 40. And that doesn’t matter. The promises we’ve made to our customers and the balance sheet that we have has just stayed the same. So that’s what the company is, is it’s a normal, well-regulated, risk-managed insurance company, just denominated in Bitcoin. Let me answer your last question, which is like, what is our product? So we have started with whole life.
Zac Townsend (07:47.15)
um, actually limited pay a whole life. And, um, you asked about term and whole life. So the thing about whole life is it’s very well named. It lasts your whole life. So because, um, back to what I said, you will eventually die. There will eventually be a payout. So, um, it’s much more, we frame it as it’s a, it’s a product to hobble, you know, it’s about intergenerational wealth transfer. It’s about protect intergenerational protection.
You pay the premiums, there will eventually be a payout no matter what, because eventually you will die, or one will die. And the way our product works is limited pay. So either for US tax reasons, you pay in 10 equal installments. So imagine a 10 Bitcoin policy, you pay one Bitcoin a year for 10 years. And then we make a guaranteed promise of what to pay out.
It depends how old you are and what your sex is and whether you’re smoking out and how healthy you are. But it might be 10 into 20 or 10 into 15. So you put 10 in, we promise you 15. And then for some people don’t want to pay overtime, they want to pay upfront, we have an option to do that where you sort of can pay us upfront and then we pay your 10 premiums. But to comply with the US tax rules, you have to spread out the payments.
Stephan (09:15.732)
I see. OK. So yeah, just quick overview. Yeah.
Zac Townsend (09:17.25)
So in summary, we are a life insurance company. We’re denominated in Bitcoin. We’re in whole life. We sell whole life.
Stephan (09:21.876)
Yep, gotcha. And so just for people who, you know, maybe they’re not as familiar, there’s kind of the, as you mentioned, there’s these two types or two main types. There’s term, and that might be like 15 or 30 years period, and people are sort of, you know, they are assigned a certain amount of premium that they are paying, and the company is then, obviously collecting premiums from the customers and then investing some of the, you know, in this case, you know, that.
Zac Townsend (09:29.666)
Yeah.
Stephan (09:47.1)
money and at the, you know, if you die in that period, they’re paying you out. But in this case, it’s a whole life period. And so there’s more of this concept of cash value or reserves where, you know, the person is contributing into this thing for their whole lives and they now have a, there’s like a cash value to this thing. So could you explain? Right. Yeah. And so could you explain a little bit about the cash value part? Yeah.
Zac Townsend (09:59.369)
Correct.
Zac Townsend (10:06.23)
Well, for 10 years in our case, limited to, yeah. Yeah, yeah. So you’re absolutely right on term life. So, yeah, yeah. So you’re completely right on term life. Eventually we’ll probably do a term life product, but what term life is about is it’s about protection over a certain term. So 10 years, 20 years, 15 years. And the ratio tends to be very high, right? Because you’re unlikely to die in the next 10 years.
In a whole life, yes, it lasts your entire whole life. And there is, we don’t call it a cash value because although we think of Bitcoin as cash, various regulatory authorities don’t, so we just call it the surrender value. But you can think of that as like a savings account inside the policy. So you pay one Bitcoin your first year, there’s a certain…
account value. In your second year you paid two Bitcoin, there’s an account value. And then that account value is accumulating over time. So after your 10 years, it’s going above the 10 you paid and then eventually it sort of amortizes up to the amount of your face amount, so like the death benefit to pay out. And I guess this gets to like what are the benefits of whole life?
And this, I’ll tell you the three things you get from whole life. And this is true of all whole life. It’s just that our whole life is nominated Bitcoin. So the first thing is you get protection. So from the moment you set, you buy, you bind, you sign the contract, you pay your first premium. If you died the next day, you’d get the full death benefit, right? So you put one in and then you put two, you put your second in your third premium in. Um, but over that time and for the rest of your life, whenever you die, when it, if you were to die.
your beneficiaries would get that death benefit of, I’ll just call it 15, so I have something to say. The second is, you’re absolutely right. Your insurance company, and we can talk about this because this is exactly the most uncomfortable part of it, your insurance company is making investments with the money you give them to like make that promise, right? To churn 10 into 15.
Zac Townsend (12:25.778)
We make investments, like our investment is in Bitcoin. Everything’s in Bitcoin, and then we make investments with that. And even if you thought you could get the exact same returns we could in getting Bitcoin yield, the promise we’re making you is higher because we’re compounding tax free. Normally you would owe interest income if you like get yield on your Bitcoin every year. So that’s like, you know, short term.
Cabell gains income, that’s what interest income is, it’s like income taxed, but that 10 into 15 is more than you get on your own because every year we’re not having to pay the yearly taxes. And then the third thing, and again, this is just true of all Hawaii policies, is you can take a policy loan, a tax-free policy loan against your surrender value. So what does that mean in practice for…
our Bitcoin nominated policy. What it means is, let’s imagine you’re in year 5, 10, 15. The exchange rate of Bitcoin has gone from 40,000 to 400,000 or under 4 million. I mean, I think many people listen to this podcast and us included, like we think the price of Bitcoin over the long term is going to go up. So then if you needed liquidity, you could, let’s again say you have a 10 Bitcoin policy where in year 10, you know, your surrender value is…
I’ll just say it’s approximately 10 because it’s like near the premiums that you paid. So you could borrow a Bitcoin back from us and it would be like you were getting a new basis Bitcoin. So you wouldn’t owe any capital gains if you wanted to liquidate that Bitcoin between 40,000 and 4 million. So in that way, we talk about the product, most importantly, as again, like a HODL product.
It’s not a product for your whole stack. It’s a product for like a portion of your stack. Again, because there’s, we’ll talk about custody, hypothecation, investments. So there are all these things that make Bitcoiners uncomfortable. But you get these intergenerational hodl benefits. So you get the protection, you get the hodl. And then if you needed liquidity, you ever had to sell a Bitcoin because you want to buy a house or whatever, it’s a great vehicle to have done that in.
Zac Townsend (14:48.778)
because you wouldn’t pay capital gains from whenever you put into the policy to whenever you get out.
Stephan (14:56.828)
Right. And so because you would be not borrowing at the, okay, let’s say today, just to use those numbers, you said, as an example, it’s a 10 Bitcoin policy. And the price now today, let’s just for easy numbers, let’s say it’s 400, sorry, 40,000. And let’s say in a few years time, it’s 400,000. You now get to borrow at the value at 400,000, not at 40,000. And you’re not paying a capital gain on that.
360,000 worth of appreciation in this example. Let’s say in the future you’re borrowing one Bitcoin worth to buy a house, and it’s a $400,000 house, just to make the numbers easy. So that’s roughly the example we’re working with in this example.
Zac Townsend (15:32.736)
Yeah.
Yeah, you will have been able to liquidate one of your Bitcoins without paying any capital gains.
Stephan (15:41.228)
Gotcha. And so that’s one aspect where, so I guess the trade off for listener thinking about term life as this whole or permanent life is you’re paying more, but you’re getting this long standing asset in a sense.
you know, at the end of it, right? Whereas I think historically, you might’ve heard different financial advisors and planners and people talking about this, this terminology, they say, buy term and invest the rest, because term is cheaper, right? That’s like a typical thing you might’ve heard in the life insurance world, people might say, but then that’s kind of one of the counters, yeah.
Zac Townsend (16:13.461)
Yeah.
Yeah, I will say there’s this whole countervailing narrative of be your own bank, which is what you can do with whole life. We don’t necessarily subscribe to audiovisual. I think fundamentally what made us uncomfortable about starting with Term Life is you’re basically telling people, I own some Term Life, because I’m married, I have two kids.
If I drop dead, I have a term life policy equal to my mortgage. So then my wife wouldn’t would just like get our house, right? That would be, I guess, the benefit of me dying. But so I do think that term life has a role. But I think as a first product for us, one of the things that is just uncomfortable about term life is you pay for 10 years and if you live, then you’ve paid and you haven’t gotten any protection. And we’re primarily like our customers are mostly.
Bitcoiners right so they’re mostly like folks in their 30 there. They like bought Bitcoin in their 20s They’re now in their 30s a lot of them are getting married a lot of them are having kids That’s like a core demographic is like a 35 year old male Bitcoiner You know engaged to has one or two kids, and I think to sit that person down and say like Hey, you have a lot of Bitcoin So you’re you probably are in a decent financial position
the most important thing for you is to buy this policy that you’ll probably won’t use. And I think that’s just a weird customer value prop. Whereas I think what’s nice about Whole Life is you will absolutely get a payout and it like absolutely does have these tax benefits. So you’re still getting the protection, but you’re also getting this compounding and it’s more like a savings product and all of that. So that’s why we started there. Eventually we’ll…
Zac Townsend (18:05.494)
Our long-term ambition is to do term life and accidental death and fix deferred annuities. I talk about there are 57 countries in the world with inflation rates over 10%. We feel that if you’re in Argentina and you’re middle class or above, you should 100% buy a life insurance policy in Bitcoin, not Argentinian pesos.
Although right now what we are is a Bermuda-based life insurer that does whole life primarily for crypto, like people who have like pretty big stacks. Our long-term ambition is to be the world’s largest life insurance company. We think that Bitcoin is the basis on which to do that for people all over the world of
Stephan (18:58.193)
I see. But for now, starting with the product in America only, right?
Zac Townsend (19:06.574)
Yeah, most of our customers right now are Americans, but we are slowly expanding our ability to sell to people who are resident or citizens of other countries. It’s basically like back to running a full financial institution. I have to know your customer and any money laundering and I have to underwrite people. So our barrier to selling to a Portuguese Bitcoiner or a Cyprus Bitcoiner or a Chinese
is actually us having the operational infrastructure to underwrite those people and do KYC AMO. But yeah, right now most of our customers are.
Stephan (19:47.016)
Okay, understood. And so yeah, as you mentioned, it’s probably, it’s funny that the demographic you mentioned is probably a lot of those are sort of similar to me or listeners of my show are sort of in that sort of millennial to Gen X demographic. So that’s probably aligning there. But I think so to getting to some of the more hairier questions, I think, I think, for a lot of people, they might have the question of, hey, you know, this is a relatively new Bitcoin startup.
Zac Townsend (19:59.831)
Yeah.
Stephan (20:14.016)
What happens if meanwhile the company is not around in 30 or 40 years when I die?
Zac Townsend (20:22.25)
Yeah.
Zac Townsend (20:25.89)
Fundamentally, I think the important thing to know is that we have to, there’s this insurance company that we own and we operate and the Bitcoin goes in and then there is a really strict separation. Sometimes I feel like you have to say these things that should be true of everyone, but just like haven’t been true of a lot of people. There’s a really strict separation of like our capital versus the capital.
that we’re holding for our policyholders. And if in the hopefully unlikely scenario where we don’t persist, what would happen in practice is, again, there’s a regulator, there’s a bunch of service providers in Bermuda, there’s an independent board, we would pay everyone back their premium and go on our merry way.
Because the way it works is that every time we write a policy, we have to put up our own capital. So that’s how insurance companies work. So for every policy we write, we have to put up our own Bitcoin. And you could think of that as a buffer if we did do stupid things or didn’t work out. And that buffer, it’s like first loss capital or whatever. And if we got even to losing…
25% of that buffer or something. We, yeah, the regulator would either make us put more Bitcoin in, or they would make a shutdown. And if we shut down, we would just like give everyone their money.
Stephan (22:04.176)
Okay. Yeah, because I guess that’s obviously the… Right, yeah. And then, I think the other aspect of this is… I think people are going to have a lot of questions about the Bitcoin denominated returns aspect, right? So we need to cover this point, because obviously, as I’m sure…
Zac Townsend (22:06.194)
That’s sort of the downcase.
Zac Townsend (22:24.778)
Yeah, yeah. Well, so fundamentally, actually, you’re touching there. Yeah, I like to say that we do the three things that Bitcoiners hate. Right. So the first thing is that you have to send us Bitcoin. Right. So we are costing your Bitcoin. Now, what we usually like, we use Anchorage, just to be clear, we which we think is the most secure, centralized custodian. And like you’d have to kidnap.
a large number of people and have access to their phones. We feel very strongly that we have a pretty good custody set up, but you are trusting us with custody. So that is again why we talk a lot about, like this is not a thing, we’re not trying to pitch you on like cussing on your Bitcoin. We’re not trying to say that you should give us your whole stack. And in fact, the reason that some people really like that it’s a 10 pay, that is you pay every year for 10 years, is because you…
you get to see that we are still here in three years and four years and five years. And then people, I think, are willing to make that commitment and then make that bet. But yes, so the first thing is that we custody Bitcoin and you send it to us. The second is back to the risk sharing. Like everyone who is one of our customers, they send us Bitcoin and we put it all together in what insurance land is called our general ledger.
But you could think of that as like our policyholder funds. So it’s in that sense. It’s Hypothicated right there isn’t you have a surrender value like we talked about you have an account value You can go on our website and you can see that account value whenever you want, but there isn’t a literal wallet That you can go look at on chain that has equal to your exact amount right so we’re hypothecating all the Bitcoin And then yes, the third thing is we get yield on Bitcoin
How we do that is we basically, and I understand this can make people uncomfortable, we are running a private credit operation in Bitcoin. So we lend Bitcoin to institutional counterparties, we’ve never lent to a human being, and then we are doing a lot of stratify-y, off-chain stuff. So we negotiate 100-page master lending agreements. Where are we in your bankruptcy stack?
Zac Townsend (24:53.366)
What is all your collateral? Like what’s the parental guarantee? Like what are the covenants all this stuff and the distinction between us and other people? Well, the first distinction is we’ve been doing this for two years. We’ve had no credit losses. We’ve never lost any Bitcoin But the second thing is we’re incredibly conservative like the 10 to 15 thing basically those promises and those guarantees look like approximately 2% return
And our target yields are 3% and we have gotten 3% yields. We’re not trying to get 7% yields. We’re not trying to get 15% yields. And in fact, we think those things are dangerous. And if I, I’m actually getting like 3.1, 3.2% returns now and my board is breathing down my neck. They’re like, you’re getting too, like are you taking on excess risk? You know, so we have like a board and an investment policy and an investment committee and all this stuff.
to really target that particular return and particular risk profile. And again, we’ve had no credit losses in our two years, but these three things, like I’m just very, like I talked to every single potential policy holder and I’ve spoken to every single person who signed up. And we were very honest that like we ourselves, like I have a hardware wallet, like that’s an ethos we have.
Zac Townsend (26:24.146)
But the protection and tax benefits of insurance require under the IRS code that things work a certain way. And we have built the company we want to exist, and we hope in time to move that to being more trustless. Right now, we don’t think that’s possible. And so that’s why it’s all set up this way. And the way I often talk to people is like,
You should have a certain amount of your Bitcoin, it should probably be self custody. A certain amount of it should be at Swann or Casa or Unchained. And like this is for a small percentage of your Bitcoin. We hope that you would entrust us, you would learn more about our company, what we’re doing, but like we completely understand that in every Bitcoiner’s heart, there’s like a love of self custody on the one hand, I don’t know, and a love of not paying taxes on the other. And like you have to…
find where you are on that spectrum. And yeah, I mean, look, you know all these people too. I talk to some people and they’re like, well, I don’t think there’s gonna be an American government in 50 years. So I’m not gonna worry about paying taxes in 50 years. So thus, you know, perhaps our product isn’t for you. But if you think that as we do, that there’s gonna be this robust, globally important, globally used Bitcoin economy, and it’s gonna like overlay
on the existing economic systems in the world. And that’s super special and it’s important. And what partially makes it special is that you can always self-custody. And you do always have that ability to have self-sovereignty. And you aren’t relying on the government. But for that world to exist, then there has to be, like Bitcoin has to be money. It can’t just be gold in the ground.
which the analogy is your hardware wallet. It has to be useful. It has to be able to pay for things. There has to be capital markets. There has to be debt capital markets. There has to be insurance. There has to be these sorts of things. And that’s what animates me about Satoshi’s white paper is that the combination of trustlessness and money and use and currency, and we’re trying to build defining financial institution of that future Bitcoin economy.
Zac Townsend (28:44.182)
But different people have different visions, and I also completely understand, I talk to a ton of Bitcoiners, people who are like, this isn’t for me right now. It just has to be, it’s the right answer for some people and the wrong answer for others, yeah.
Stephan (28:53.672)
And so be it, right, yeah. Because the way I’m seeing it is, on a long time horizon, something like Bitcoin life insurance, I think it should exist. But the question is, for a lot of people, it’ll be like, is it right now? And is it the right model? Because for a lot of people, the obvious comparison, and I know you’re trying to address that in your recent answer, but the obvious comparison for a lot of people will be BlockFi, Celsius.
Terra Luna, all these things that kind of recently blew up. And so I guess the main for now, what people can sort of try to understand is if there’s a distinction in the way you’re running this business as opposed to the way the Celsiuses and Blockfires of the world, where maybe they sort of had this veneer of, oh, look how regulated, look how compliant we are, we have such good risk management, blah, whatever. And then actually in the background,
Well, in the case of Celsius, it was known that they were, you know, lending out to these random, you know, shit coins and things. And in the case of, I think in Blockfire’s case, correct me if I’m wrong, but my understanding is that there was a lot of lending out to certain actors who might have been going short Bitcoin, or maybe in certain cases, they were doing the whole grayscale arbitrage, you know, discount and premium trade. And so I guess that’s probably the one area where, you know, bit gone.
Zac Townsend (29:54.402)
Yeah, yeah.
Zac Townsend (30:19.518)
Yeah, yeah, and I should, yeah, it completely makes sense. And…
Zac Townsend (30:28.043)
I feel like this is the wonderful challenge of building in Bitcoin and I guess crypto more generally is like, yeah, there’s been a lot of Ponzi schemes and scammers and people who have lied. And I’m like another new person that’s shown up and said, no, we’re not lying. We’re doing things in these certain ways. So again, I think that’s partially why I get on.
every single customer call and we talk and I think that the people who have bought policies in the end are making a trust decision with us. And I think what I have so many things to say about what you said. One thing is like, we are trying, we look at the space and we say, we want to be the boring, conservative, long term people. So I think that’s why I like go out of our way, my way to say like,
we’re not trying to achieve 7% or 17% returns. We’re not trying to make a bunch of bets on altcoins or shitcoins or whatever. Right now, we’re just like Bitcoin through and through. We keep everything in Bitcoin. We think that is the only token that we feel certain is going to exist in 20, 30, 40, 50 years.
we denominate our loans in Bitcoin to get back Bitcoin yield, all of that. And we think that this is the cycle where being boring and low risk and low yield hopefully will resonate with people. And I think we’re seeing that so far. What did BlockFi do? I’ve now interviewed tons and tons of people who worked at BlockFi and Genesis.
I think fundamentally what happened is there actually were some like great credit folks at BlockFi and even and good and some good credit folks at Genesis. And what would happen is they’d be like, okay, here’s an investment memo, we should do 30% LTV loan again to this minor or to this trading counterparty. I know a guy who was like chief credit officer for BlockFi. He Voyager came in.
Zac Townsend (32:49.422)
he said we’re not lending to these folks and he was demoted. Because fundamentally their incentives I think were to increase loan size so they could increase interest payments so that they could increase revenues so that they could go public. And again it’s just words like people should come and like I’m happy to share documents and like have people meet board members or like see that we’re regulated on that we have a license and all this stuff.
But fundamentally, we’re trying to… I was the first policy holder, my co-founder was the second policy holder. We’re trying to build something that persists and is super conservative, and that structurally is easier. I think what is weird, BlockFi was basically running a bank, right? You could withdraw your money at any time, and they were doing all these loans. We’re actually the complete opposite. We make really long promises to our customers, which I…
I get can be uncomfortable, but we make really long promises to our customers. And then we’re out there being super careful, but we don’t have to worry about everyone withdrawing their money at once. We don’t have to worry about these risks that blew up some of these institutions. And that also allows us to, I guess, rewind all the way. We think that one of the most important things that we’re doing is helping to build an economy in Bitcoin that is…
at duration. So we are, we’re, we’ve had actually billions and billions of dollars of, or tens and tens of thousands of Bitcoin of borrower interest come to us. We sift through, we do due diligence in these people and almost all of them, we, we say no to, like we just need enough good credits to get the yield we need for our customers and to make sure we’re getting that.
year over year and that’s our focus. We want to be here again to build one of the world’s largest insurance companies and that is all about thinking in the long term.
Stephan (34:59.54)
Yeah, so one other thing that is perhaps an open question out there is, right, as you and all the listeners know, there’ll never be more than 21 million Bitcoin. And that means, you know, long term, in the far-flung future, we’re going to be operating in this kind of deflationary environment. And so I guess having positive Bitcoin-denominated returns…
is just gonna be a really hard thing to achieve long term. And I think maybe that’s where one area where, like for me personally, I would be kind of scared about maybe not like, okay, in the next, let’s say five to 10 years, but the longer term, if you’re sort of giving people this, I guess this promise that, oh, hey, we’re gonna, or our business model is reliant on us getting 2% Bitcoin denominated returns, I guess that’s one area where I’m still a little
That’s one thing that makes me a bit uneasy. What do you think? What do you think about that?
Zac Townsend (35:59.798)
Yeah, yeah. Well, I will say, as you know, we’re not going to get to 21 million until 2140ish. Yeah, so it is a little ways off. I guess that Bitcoin, I think, will be naturally deflationary. Let’s take post 2140, which is a long time away. But I think it’ll be naturally deflationary because obviously economic activity will probably grow.
Stephan (36:07.032)
2140 or whatever yeah
Zac Townsend (36:29.234)
But also, for better or worse, because of money laundering rules, you see parts of the chain essentially get pruned or keys get lost. So it will be naturally deflationary in the really long term. I think what I would say is two slightly contradictory things. One is we…
Zac Townsend (36:58.89)
Again, I think there will be a persistent economy built on Bitcoin, and that will mean that there is motion and velocity to Bitcoin and money. There is some limit to the size that our insurance company can get in Bitcoin terms, but I don’t think that means that if we held 1% of all Bitcoin and we were promising 1.0% of all
0.2% of all Bitcoin. I don’t think that actually means we would need to… We just need at the right time to have that amount of Bitcoin, if that makes sense, right? The balance sheet doesn’t naturally grow. What happens is people die every year. Yeah. Yes, yes. And the second thing is…
Stephan (37:39.4)
Yeah, I got you. So I guess you’re sort of arguing that there’s going to be a certain level of velocity through the economy.
Right, there’s going to be some velocity of action through the economy. Go on.
Zac Townsend (37:54.07)
Yeah, I think the second practical reality is that we are making promises now that will persist for, call it 50 years. And as I believe the Bitcoin economy will grow and grow and be a bigger part of the world in the next 50 years, between, I don’t know, 50 years from now, so what is that, 2084 and 2140.
Zac Townsend (38:26.414)
Yeah, the way the US tax code defines life insurance, it has to have a positive rate of return. I think that we would hope around 2100 that we would want to change the definition of life insurance so that we could include probably deflationary policies. That is literally a thing that we talk about as a company, but it’s hard to action now or make promises.
I feel pretty good about where we are now relative to the promises we’re making over the next half century. And then we can worry about the year 2084 to 2140 when we do. I think this is actually like, I don’t have a strong opinion about this. And I know it’s like, it is part of what attracts me to Bitcoin. But I am really curious to see if it happens anywhere in my lifetime.
As we approach that asymptote, whether we’ll stay at 21 million or, I don’t know, we’ll introduce a minor inflationary rate or something, I think that the human psychology is very bad at thinking about deflation. And I think that we will see how that works. From a mathematical and actuarial perspective, it’s very straightforward to think about.
Stephan (39:49.333)
Yeah.
Zac Townsend (39:53.814)
But anyway, I don’t mean to get philosophical, but…
Stephan (39:54.152)
Yeah. Right, yeah, I mean, I think this is not happening. I think you would have to convince too many people who are already hodlers to, why would they dilute their own supply, right? Unless they get propagandized so much, you know, by the Keynesians that we need an inflating money supply. I just, I don’t see it. But the other thing to think about though, because as you said, okay, fine. Maybe, you know, you know, I’m in my mid thirties and let’s assume for argument’s sake, I’ve got 50 years left, you know, I’m gonna die in my 85 or whatever, you know, in…
the year 2074 or whatever. The other aspect to this though is that most of Bitcoin has already been mined into existence. It’s what, 19.6 million or something last I checked. And I think there’s an interesting stat. I think it’s most of the Bitcoins, maybe 99% or so will be mined in the 2030s. And so maybe like, you know, to that aspect, it’ll kind of happen sooner than, you know,
Zac Townsend (40:50.722)
Yeah.
Zac Townsend (40:55.338)
Yeah, I think what we will let me take that into two different directions. One is that we expect that the exchange rate between Bitcoin and dollars will go up as many people expect. And then we will expect that our policy sizes will come down. Like right now, our median policy size is about 10 Bitcoin. And probably within 10 years, but certain…
Stephan (41:17.608)
As in, that’s how much they pay in, or that’s the surrender value? Sorry. The 10 BTC? Is that the paying in value, or that’s the surrender? Okay. Gotcha.
Zac Townsend (41:23.446)
That’s how much they pay him.
Yeah, that’s like the median paying in value. If I look out 10 years, I predict that will be an astronomical sum. And our policy size will, in Bitcoin terms, will decrease over time as the value relative to the dollar of Bitcoin goes up. So just to say that I think…
Stephan (41:49.229)
Gotcha.
Zac Townsend (41:56.626)
Yes, much of Bitcoin has been mined. We believe that there will be a persistent Bitcoin economy. That means that the value of Bitcoin relative to the dollar will increase. That will mean our policy sizes will decrease. Your question of how do we get yields? Again, I think the primary method that we do that will be that there will be a velocity of money because I think for, again, different people can have different perspectives.
We believe there will be an economy. There will be. And then if there’s an economy, there’ll be economic activity and there’s economic activity, there’ll be capital markets, there’s capital markets, there’s debt capital markets. And that, thus there’ll be velocity. Again, I think what makes Bitcoin special is the ability to like have no government and to have self custody if you want, but I think we see it a difficult world if every single Bitcoiner holls it in a wallet and does nothing with it.
Um, then there won’t really be an economy that doesn’t mean it won’t be a good store of value. There won’t be an economy. And we do worry a little bit about this. And back to your question of winding down. We we actually have an unusual clause in our contracts, which is that we can in the first 10 years cancel a contract and give everyone their money back.
specifically if we don’t feel that there is a way to get durable 2% returns. And that is our, I guess, our insurance policy because we are 100% focused on getting the conservative low yields that we are promising our customers. And we do not want to take on excess risk. And we…
would rather shut the company down than blow up. That is just where we’re at. So we have this clause in our contracts that if there aren’t debt capital markets, then we’ll give everyone their money back. But again, I am a believer that Bitcoin is going to be the settlement layer in the world. I think that you’re seeing a bunch of…
Stephan (43:59.116)
Gotcha. Yeah.
Zac Townsend (44:21.866)
energy producing nations start to do mining. I think what you’re gonna see is that like infrastructure projects are gonna start to be, like I’m not gonna do it, but I’ve been telling people someone should start like an oil future natural gas exchange, like a CME, but nominated in Bitcoin where the bid-ask spreads are in Bitcoin. Like I fundamentally believe that we’re gonna see much of the economy or at least a portion of the economy switch over to a Bitcoin standard.
And if you believe that is true, that Bitcoin will be this global settlement layer, and there’ll be a Bitcoin standard, and there’ll be infrastructure projects in Bitcoin, then all of that will naturally lead there to being a robust economy and yield on Bitcoin.
Stephan (45:09.504)
Right, yeah. I think one thing I would just add is I believe that, you know, moving into this Bitcoin deflationary world, I think there’ll be a lot less debt than we have today. There will be some debt, but it will be a lot less. And just because it’s a fixed, you know, it’s a fixed supply. And I think that’s just naturally what’s going to happen. In terms of your question or your kind of point about are people actually going to spend the thing or is everyone just going to hodl, I think longer term we will have to spend because, you know, you’ll need to
eat and have a house over your head or have a roof over your head and so on. So that for me is not so much an issue. I think people will naturally have to spend once we’re in the far-flung future into the Bitcoin denominated world. So for me, I’m not that concerned that everyone, because it’s literally impossible for everyone to hodl in that world because we got to spend to eat and so on. So I just think… So I think…
Zac Townsend (46:02.803)
Yes, exactly. Exactly.
Stephan (46:04.62)
That part is not so much a worry for me. And even, you know, and this kind of comes back to even some of the economic theory debates as well, because some people would say, oh, look, what happens if there’s not enough people spending and it’s that, you know, the Keynesian kind of hoarding kind of argument, which I think is wrong by the way, because really if a lot of people are just holding and not spending their coin, they are leaving those, the real resources of the world available for some other entrepreneur to bid away. So in practice, I’m not that worried about that part of it. It’s more just about like,
Zac Townsend (46:30.488)
Yes.
But I completely agree with you. And I do think that we’ll have, I hope we’ll have a world with less, particularly consumer debt. But I guess the question for us is, will there be like institutional credits in the world? And I, corporate debt or, I really see a future where,
Stephan (46:33.9)
How long does this take, you know?
Stephan (46:49.656)
Like corporate debt and things, yeah. Yeah.
Zac Townsend (47:00.066)
the next nuclear power plant or the next oil field, if you want to build that, that you would issue a bond in Bitcoin because there’s this natural connection between Bitcoin and energy and Bitcoin and power. So again, for me, the Bitcoin standard looks like, yeah, maybe a world with a lot less overall debt, particularly consumer debt. But I think that to your point about natural economies and the natural velocity of money,
Like I think there will still be ventures in the world and some of those ventures and some of that risk taking will be funded by folks. And yeah, we are definitely making a bet that there will be available yields, but that’s partially the reason of why we are making a bet that the yields will be very low. I don’t think that they’re going to
be outrageously high, I think they’re going to be low partially because the projects they’ll get funded will probably be relatively conservative, particularly relative to the value of the currency they’re denominated.
Stephan (48:16.736)
Got it. One other thing I wanted to ask you about, so I saw this in some of the news articles and things. I was reading that you also have, it says you have a private credit fund. That’s going to be a closed-end fund taking in USD and targeting 5% return denominated in Bitcoin. So is that still true or has that changed or is that a different thing?
Zac Townsend (48:36.162)
That’s a different thing. Yeah, sorry, we just didn’t talk about it. Not at all hiding very straightforward about this. Yeah, we have built this through the insurance company. We invest Bitcoin and we are getting approximately 3% yields against 2% promises. But as part of that, we’ve had to build an enterprise risk management framework. We have a chief risk officer. We have a credit.
Stephan (48:42.738)
Yeah.
Zac Townsend (49:03.01)
credit people, we have an investment committee, we have all this infrastructure. And we believe that, we had to build this skill, and again, a skill that has outputted no credit losses in a time with Celsius, BlockFi, Voyager, FTX. So we feel that’s a skill that we can use for other people.
It’s a different thing though, right? It is a riskier venture with a riskier IRR. We are not going to take the insurance company and try to get 5% yields, but we are saying like we’ve built this capability and we look at all the credits in the world and we think there are enough credits to support a fund like this. It takes in dollars or because
Stephan (49:55.372)
So these are segregated entities, like losses in one will not impact the other.
Zac Townsend (49:59.61)
Oh, segregated. Actually, they’re actually in like different countries. Actually, the fund is in the United States, completely segregated. And the insurance companies in Bermuda completely segregated. So they’re completely separate things. The fund is a private credit fund. So what does that mean? But it’s dominated in Bitcoin. So either you can contribute dollars and on the day of the close, we’ll convert all your dollars to Bitcoin or you can contribute Bitcoin. We take that pile of Bitcoin. Let’s.
We say 100 million, but actually what that means is 20,000 Bitcoin is about what we’re trying to get. If I did that right. Yeah, 20,000. Then the goal is that will produce 5% interest every year. We’ll pay out that interest, but it’s locked up. So it’s again, not like BlockFi. We’re not making promises that it’s liquid. It’s not a product that’s supposed to be for random retail people to put in.
attempt to Bitcoin. This is like an institutional commitment that you’ll lock up your Bitcoin for the investment periods three years. There are possible extensions. So I think what we look out in the space and say, there’s a lot of people who are offering like high risk liquid.
Like that is what the space is about. And I think that if you want to get high risk, high returns, with a lot of liquidity, you end up naturally gravitating toward altcoins and like trying to make money on tokens and pump and dumps and Ponzi schemes and all this stuff. And we’re trying to just be a different part of the ecosystem, which is we’re trying to be the like long duration, boring conservative guys. That is like…
how we’re building our company, it’s how we’re building our culture, it’s who we’re hiring. Private credit, we feel, is part of that. Because it is a, it is not about you handing us Bitcoin and us turning into a big pile of Bitcoin very fast, it’s about a longer term, institutional cross cycle investment.
Stephan (52:22.036)
I see, yeah. And I just ran the number just quickly just for people interested. So let me just check that. I believe, so about 100 million USD is about 2,385 Bitcoin, just at today’s prices. But yeah, so to your, yeah, yeah. Yeah, that’s not a big deal. And then so then, I guess, yeah, that’d be, yeah, that’s like a billion. But.
Zac Townsend (52:24.334)
That all make sense?
Zac Townsend (52:35.919)
Oh, 2020, sorry, I was off by the word magnitude. 2000, sorry.
Zac Townsend (52:45.314)
You get 20,000 real, a lot.
Stephan (52:52.428)
So I guess then the question could also just be how do you know how can people get comfortable are there audits are there other things that people outside of the company can see to make sure that you’re not you know doing a Celsius or a block fire or something like this
Zac Townsend (53:11.394)
Yeah, yeah. We have an internal auditor that is a big four firm. We have an external auditor. Can’t believe the external auditor isn’t gonna do an audit on us until we make our regulatory filings. So there isn’t one right now. I think, again, the way people are comfortable is if you’re interested, you could come sign up on our website or you can email me. I’m Zach at Meanwhile.bm.
And yeah, we have a bunch of material we share. I think one of the things that we’re not a non, here I am. I can tell you all the people who work for the company. I can tell you all the independent directors in Bermuda. I can tell people the names of the service providers. And then we’re happy to share materials on an individual basis. Yeah, and again, I think we…
Zac Townsend (54:11.006)
we’re trying to do the right thing. I know a lot of people have said that. And we’re very fortunate that a lot of, or some number of Bitcoiners, OG Bitcoiners included have gotten on board. And I think that that, it is partially because there’s a 10 pay, you pay over time, it is partially because we share materials.
But yeah, we also understand that we have to prove ourselves and we prove ourselves by doing every day what we say we’re going to do and that for some people, it’ll make like if we’re still here in three years, they’re going to be a lot more comfortable than they are now. And you know, that’s fine. I might do the same thing if I didn’t found the company myself.
Stephan (55:06.84)
Well, I think that’s probably… it just takes time. This is a new thing. And obviously what’s happened in the last few years has got a lot of people scared about the same kinds of mistakes happening again. So obviously it’s going to take some time for people to get comfortable. And I think the other aspect of it is, you know, going through a bull cycle. What happens in Bitcoin world is people start…
Zac Townsend (55:13.591)
Yeah.
Zac Townsend (55:22.586)
Yeah.
Stephan (55:35.18)
betting over their heads, they start gambling or they start, you know what I mean, they start just doing things that are crazy and irresponsible. And so then I guess the challenge will be, people will need to look at, you know, because there’ll be, you know, other companies like you, who have to sort of prove that they are conservative, even during a bull cycle. So I think that’s probably gonna be an interesting marker for people.
Zac Townsend (55:36.898)
doing stupid things.
Zac Townsend (55:55.019)
Yeah.
Well, look, I’m actually, I mean, I don’t want to say I was happy that there was a bear, but we raised our first round of funding in January 2022. And that was like Sam Altman and a bunch of a range of like crypto insurance fintech people. And then we actually raised our like second tranche of $13 million like post FTX.
And I think we’ve been really happy to be building in the bear. I think it like creates a good discipline. We’re a very like small focus team. And literally every day when or every time we talk about a potential investment out of the sort of like Bitcoin corpus, we talk about capital preservation first. And I think that culture
is going to persist. Actually, our first and foremost value, I know sometimes corporate values are like corporate speak, but is built for the long term. And we are, I was going to say, since you mentioned it, we’ve had a number of people who bought policies directly with the Bitcoin they got out of the Block 5 bankruptcy.
And I guess that could mean that those people were pretty foolish, but I think what we hope that means is that we’re different than those in the mistakes of the past. And that is certainly not just what we’re trying to project, it’s what we’re trying to live every day. And that’s why, by the way, I have so much respect for Swann, I have so much respect for Unchained and Kasa. Just you know, we…
Stephan (57:40.799)
One other…
Zac Townsend (57:51.978)
Yeah, we want, we feel culturally aligned with folks who not only believe in Bitcoin, but believe in this whole ecosystem as something that needs to persist and think very long term. And we think that that’s hopefully what’s going to distinguish this cycle from last ones. But as you say, I think there is always exuberance and exuberance leads to scams and scams leads to…
people being less trusting and that all makes sense to me. I’ve lived that every three years too for the last nine.
Stephan (58:30.14)
Yeah, two other questions I’ve got. One is around reinsurers. So this is a concept I’ve heard from the insurance world that there’s often insurance agency or insurance companies and reinsurers who sit above them. So do you have a reinsurer or what’s the model here?
Zac Townsend (58:48.19)
Yeah, we don’t currently have a reinsurer. It’s a big question about whether we will. We have talked to some of the world’s big reinsurers. There’s actually like structures that make sense for them and for us. I think we could have spent a whole other hour on like insurance and insure tech and economics. We think in the longterm,
Lots of insurance products are needlessly complicated and they’re needlessly complicated because there’s this whole stack of people in the ecosystem and they need to be incentivized in different ways and all this stuff. And one of the things that we love about starting an insurance company in Bitcoin is that we’ve really gotten to simplify the product down. I know it sounded really complicated and we had to spend 20 minutes on it, but like relative like
You have these products that are sold, it’s like, okay, you get principal protection, but it’s indexed to the S&P 500 with these three riders, blah, blah. And one of the nice things is that I joke is like, we get to run a life insurance company from like the 1850s. And we like that. Um, and we like the simplicity and the value props. And that comes with an element of control, um, excessiveness and conservativeness. Um, and so.
We may work with reinsurers. We may not, we’ll see.
Stephan (01:00:18.1)
Yeah, okay. And last question I had is, do you see the rest of the fiat insurance agency coming along to actually hodl Bitcoin as part of their own portfolios, or at least in the future offering a similar kind of Bitcoin life insurance like you are?
Zac Townsend (01:00:30.187)
Yeah, yeah.
Zac Townsend (01:00:36.322)
Yeah. So let me split that into two. Do I expect that incumbent carriers and reinsurers will do what we’re doing? Maybe it’s really hard actually, because if you think if you have a dollar balance sheet and you want to sell Bitcoin policies, then you either have to hold Bitcoin or hold Bitcoin derivatives or something. And because Bitcoin is volatile relative to the dollar, then you end up having to hold a ton of capital. So it’d be like super expensive and really difficult.
So I actually think that, back to your last question, instead of reinsurers reinsuring our mortality risk, although that may happen, we actually may be in the business of reinsuring other people’s Bitcoin risk, because we can hold Bitcoin and really no one else in life insurance land can. So yeah, we have some ideas that…
If you look at the ETF, for example, the ETF is a product that every like investment advisor in America can sell to get their people, like 1% exposure to Bitcoin, let’s say. There’s not an equivalent product for insurance agents. We could build such a product because we can hold the Bitcoin. Um, so that may be us working with a carrier who has a license in the U S
And then our Bermuda entity acts as a reinsurer to take on the crypto risk. So we’re like talking to some potential partners about that in the US and elsewhere. And that will be a way for the incumbent, like agents and salespeople to have a product that gives Bitcoin exposure to their users. I think that’s actually like very likely and we’ll hopefully participate in helping that ecosystem exist.
I find it less likely in the near term that New York Life or Mass Mutual or Northwestern Mutual or whatever will find a way to offer the product we offer just structurally and regulatory from a regulatory perspective would be very difficult.
Stephan (01:02:43.508)
Yeah, really interesting. Well, Zach, it’s been an interesting chat with you. Certainly, as I mentioned before, right, I think something like this should exist in the Bitcoin world. I just I just really I guess with the recent all the, you know, all the failures, the block fires, the Celsiuses, the three areas, capitals and all this stuff, the stuff, I guess that’s just what I’m hoping this doesn’t become. But, you know, I would like to see this kind of thing become a reality. So any closing thoughts from your side? And where can people find you?
Zac Townsend (01:03:15.858)
Yeah, my closing thought is yes, they can find, again, I’m Zach at Meanwhile.bm. Our website is Meanwhile.bm. People can sign up for our waitlist and then we pull people off our waitlist as we can service them, serve them and help and talk to them and help them become policyholders. I think what you said is absolutely right. And I hope that…
If people are listening to this podcast or watching it that they If they are at all interested and they have questions like they should reach out or we can jump on a zoom call And I know that some people that’ll mean we have a great chat and it’s not for them But for some people I think they can they hopefully get comfortable like we really believe that the world will move to a Bitcoin standard and
We’re trying to build a defining financial institution for that standard. And I don’t know if that means I’ll make the most money of anyone. Maybe I should do something less conservative. But I think the point is we are Bitcoiners too, and we really believe in this. And not only do we think something like this should exist, we’re building it to exist.
And I hope that resonates with folks out there.
Stephan (01:04:41.972)
Fantastic. Well, thank you for joining me, Zach.
Zac Townsend (01:04:46.562)
Thanks so much, I really appreciate it. I had a good time.