Bobbi welcomes back Robert Farrington to talk about his Cult of Money blog for the crypto curios. We discuss everything from how to invest in crypto, to understanding Web 3.0, NFT’s and how to avoid scams.
Money Tips
How does it work
How do we start? Is this through a brokerage or are there special accounts?
What do we do with it? Is it just for trading?
Is there a lot of fraud? How do we know it’s legit?
Is this a long term investment? What’s the future?
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Website - https://www.cultofmoney.com
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Full Transcript:
Bobbi Rebell:
Hey, grownup friends. A big thank you to so many of you that have already bought my new book, Launching Financial Grownups: Live Your Richest Life by Helping Your Almost Adults Kids Become Everyday Money Smart. This book was not easy to rate because I had to get honest with myself about what was working with my teen and young adult kids and what was not working, and I also had to be prepared to share it with all of you. So first of all, thank you for your support and your wonderful responses to it. There's definitely some things in there that you may not have been expecting to hear. By the way, I got a lot of help from my money expert friends and also financial therapists and parenting experts.
Bobbi Rebell:
I am really happy with how Launching Financial Grownups came out, even though it really was hard to be, like I said, that honest, and it was a lot of work, but I really love doing it and I'm really happy with how it came out. On that note, if you have not already, please pick up a copy of Launching Financial Grownups today. After you do, please share it on social media. Please leave a review on Amazon. Those reviews are super important because the algorithm picks up on them and that can make the book a lot more visible to more people. So I truly appreciate it and I really also appreciate all of your support.
Robert Farrington:
Now instead of the big game companies extracting 99.9% of the value of all their customers, the game company might only be extracting 50 or 60% of the value, but they're giving the rest to their gamers. And these gamers can either buy their way to the top by buying NFTs or they can hustle their way to the top by really grinding away and playing the games and then selling what they earn and actually making money.
Bobbi Rebell:
You're listening to Money Tips for Financial Grownups with me, Certified Financial Planner, Bobbi Rebell, author of Launching Financial Grownups because you know what? Grown up life is really hard, but together we got this. Are you crypto curious? I know I am and I have so many friends that have invested in cryptocurrency and somehow for them it all makes sense. And while I can't say I'm ready to dive in, I do think we as financial grownups need to know what's up with this whole Web 3.0 world, which includes not just cryptocurrencies, but also other emerging investment options like NFTs. And yes, I say that skeptically, but what do I know?
Bobbi Rebell:
I invited my friend Robert Farrington back on. You may know him from the college investor, but he's been quietly growing a blog called Cult of Money, which is for the crypto curious. In our interview, Robert explains what this whole world of what a lot of people call Web 3.0 really is how the different investments works, who holds what, where, how do you actually invest? Can your kids invest without you knowing? How do you control your risk? And this one was a big one, how do you avoid getting scammed? And we even talk about taxes.
Bobbi Rebell:
Yeah, apparently there's a thing with getting taxed on crypto. It's a little bit complicated still but you do have to pay and well, I'll let him explain, but don't think you're not going to get caught. It's at the end of the interview. So listen to the whole thing. The answers were a big surprise to me. You will learn a lot here. Here is Robert Farrington. Robert Farrington, you are a financial grown up. Welcome back to the podcast.
Robert Farrington:
Hey. Thanks so much for having me. I'm excited to be here.
Bobbi Rebell:
Well, I'm excited to have scored this interview because you have a new project. I hesitate to say new because just before we started you said it was a pivot from something else you did, but you'll explain that to us. It is for the crypto curious. It is a website called Cult of Money. So congratulations on the relaunch and rebranding or I don't know, what is it, Robert? Tell us about Cult of Money.
Robert Farrington:
That's exactly what it is. So it's a rebranding because I have been crypto curious myself and I decided if I'm going to do all this research and work and dive into this, I should probably share my learnings and what I found out and help other people that have been seeing all this stuff about Bitcoin and cryptocurrency and all the other related products and services. While if you're like me and you're crypto curious, we share all that and hopefully help you digest and understand it from a personal finance perspective.
Bobbi Rebell:
The first question for my financial grown up community about crypto is how does it work? What is this thing? Because it's going up and down and we hear about it and we hear some things that are a little bit scary, but then we have a lot of fomo. So what exactly is this crypto world?
Robert Farrington:
Basically think of it as a digital currency that is backed by other people's beliefs in this currency and it's technology based. So instead of a central bank or a conglomerate banks or a country controlling, it is controlled by individuals and institutions that hold these currencies. You probably heard of Bitcoin. Bitcoin is considered the digital gold these days. It is expensive, but it is a little more stable in the cryptocurrency world, it only fluctuates five to 10% here and there, which is stable in the crypto world. Then you have Ethereum, which is more akin to a digital cash. So people really love Ethereum because you can transact and you can do a bunch of different cool things with it. So those are the two more popular ones. You go down the list and you have a bunch of different varieties.
Robert Farrington:
I think there's over 2000 today, and I think where it gets a little scary is that probably number 50 to 2000 are akin to penny stocks in the world. And they are flyers and they are things that are very risky and there's a lot of scams and Ponzi scheme type things there. But the fact is that crypto's been around for almost 20 years now and it's really getting more mainstream in the last five to seven years. And now you're seeing products and services and all these things that are interacting with it. So it's important to understand what you're dealing with here. So that's what we're talking about and hopefully that sheds a little light on it without diving into the technical nuances.
Bobbi Rebell:
Yeah. There's a million little mini questions, but we're going to stick to the high level stuff. So basically to summarize that though, those are the big brand names and in theory, while nothing's guaranteed, those are the more reliable names if somebody wants to get involved with it. The names with more of a track record, but these are not government backed and they're not regulated as of now?
Robert Farrington:
They are not regulated, they are not government backed. There's actually a lot of questions on who even regulates these things. And then every state and every country treats these things differently as well. So it's very much the wild west of money these days. But again, at the same token, I think there's a lot of popularity around these as well because of all the concerns with what the Fed is doing and how corporate banks and investment institutions are handling things. So people are like, "What's the alternative?" And this technological currency is emerged as an alternative to it, but at the same token, it's very much the Wild Wes.
Bobbi Rebell:
And you said at the same token, do you mean at the same time, I'm just curious or is that a deliberate cause you said it twice and I was like, "Wait, what?"
Robert Farrington:
Yeah, same time.
Bobbi Rebell:
You have tokens on your mind?
Robert Farrington:
I do have tokens on my mind and we are talking about tokens and time, so man, I'm having trouble talking today as well.
Bobbi Rebell:
Wait, okay, so the governments don't really know what to do about this. It's not officially recognized. So how do we start? Can we do this through our bank account? Where do we do this and how do we know we're dealing with somebody legit?
Robert Farrington:
So there are two ways to go about investing in cryptocurrency. One is to go to an exchange. So people probably heard the name Coinbase these days or Binance. And you can go on these exchanges and they're very akin to the fidelities and the vanguards of the world where you open an account, you deposit money and you can purchase a cryptocurrency. And these exchanges will hold those cryptocurrencies for you. You can trade them, transact with them. The other way to go about it is to self custody your cryptocurrency where you don't have to interact with any government entity or company and you can do it yourself, but this is for the technologically savvy folks. And there is very high risk to this because you got to own your own stuff. It's very much like, I always like to use this reference, but I gets lost on the young kids these days of having your own share certificates.
Robert Farrington:
So Bobbi, you might remember having share certificates of a stock and you could put those in a safe deposit box and you could hold onto real shares of a company. Well, it's the very much the same thing of self-custodying crypto as you can actually own your own crypto, hold it on your computer and transact with it directly on the blockchain. But it takes a little more work, a little more technical savvy, and it's also a little more risky because the onus is all on you to keep your stuff safe and not get scammed and things like that. Whereas if you're on an exchange, the onus is more on the exchange to help those transactions go through.
Bobbi Rebell:
But I hear these things, some of these exchanges, I mean these are not FDIC insured the way that a bank is. And brokerage firms, you're not protected from if you own a stock and the value of the stock goes down, but you are protected from the brokerage firm just taking your money.
Robert Farrington:
So for example, Voyager was a publicly traded crypto exchange and it's in bankruptcy right now and it commingled its own assets with customer assets and it lost a lot of money including customer assets. So one of the things you see with the fidelities of the world is that customer assets are kept separate from the banks assets. So theoretically, even if these big and brokerage firms go under, your own assets are separate. Well, there's no regulation on these crypto companies and we saw Celsius have the same thing happen and Voyager. So again, that's why actually people like to self custody in the crypto space because you get to hold your own assets and no one can steal it.
Robert Farrington:
But whether it's a question of fraud or not fraud, in those cases, it was a question of these companies got greedy and over-leverage themselves taking out loans and use their customer assets as collateral. It's wrong. I don't know if you'd call it fraudulent, but it's wrong. But there is also fraud in the sense of people create fake coins and mean coins and there's a lot of pump and dump schemes and there's things like that that you really have to be aware of. You don't really see that with the "blue chip" cryptocurrencies like Bitcoin and Ethereum.
Robert Farrington:
But again, when you get to the low cap brand new cryptocurrencies that are way down on the list, you can definitely run the risk of more fraudulent activities taking place, especially from the sheer fact that the amount of dollars moving in, and again, it akin to the penny stock situation. If someone buys a thousand dollars of a thinly traded cryptocurrency, it makes that price jump up significantly and that could have been an insider transaction or a celebrity or something else, and then they fake the hype around these coins and then people buy into that hype and then they get victimized as a result. So it is very much the Wild West, but it reminds me of the Wild West again, of penny stocks or other financial instruments that have happened all throughout time. This just happens to be the current modern version of it.
Bobbi Rebell:
Tangent question, what do you think about all these celebrities that went on endorsing, I think of Matt Damon obviously with that Super Bowl ad. I mean, has there been any development with that? Were they really investors in it? Were they paid in crypto? What do we know about that? And are they all stopping it because there's been more controversy about that. I mean, this became a big celebrity thing.
Robert Farrington:
The FTC is cracking down because these people are bound to disclose if they're advertising or not advertising. So there's definitely been some crackdowns on it and some different things around that. A lot of these big celebrities stayed out of it in terms of what they're endorsing and they're very careful. But I see it with a lot of small time influencers, especially like social media centric influencers that did know better, and especially the younger ones. When you're a young teenager and someone says, "Hey, I'll give you $500 to tweet this," they might not know that they shouldn't do that. In part two, that's a lot of money. So it's very hard for those to navigate that. So yes, there are cracking down on it. You need to be mindful of what you shared.
Bobbi Rebell:
We know that it can be traded. Okay, moving past that, a lot of parents might have their kids coming to them saying, "I need Ethereum because I want to do X, Y, and Z on the internet." Tell us more about, first of all, what parents need to know and also the different uses of crypto that are realistic right now, the mainstream uses of crypto right now.
Robert Farrington:
Absolutely. So there's two really ways to go about this is you have the financial approach and you have the technical approach. On the financial side of this, we talked about trading but one of the biggest uses of cryptocurrency right now is payments. So sending international payments, sending payments to other people, crypto is way better at sending payments to people than a bank transfer or a Zelle or Cash App or any of these other things, especially internationally. So where you're seeing some of the biggest developments on the financial front of cryptocurrency is all in payments because it's very easy to have a verified authenticated transaction in minutes versus sending a wire transfer and paying a $50 fee and then heaven forbid it's international wire and all this crazy stuff. So cryptocurrency does that very well and that's huge and that's what you're going to see Bitcoin and Ethereum are thriving in that space.
Robert Farrington:
On the technology front, you're starting to see things like NFTs and different things like that, which are smart contracts and there's a lot of opportunities in the smart contract space to potentially build tools and actual useful things that just automatically run themselves. And we're seeing a lot of this in gaming. So for all the teenagers out there, the gaming front is huge in crypto because the ecosystem that exists right now is that you have to go buy a fortnight skin or you have to do this and it's all in the game and you're not really supposed to trade your accounts or sell your accounts. It's illegal and against the terms of services and different things. And we're seeing crypto really revolutionize that with Axie Infinity in different games where you can take things that you earn in the game and you can sell them outside of the game and then bring them back into the game.
Robert Farrington:
So they've created marketplaces based on cryptocurrency, really it's the NFTs that are layered on top that really add a lot of value. So now instead of the big game companies extracting 99.9% of the value of all their customers, the game company might only be extracting 50 or 60% of the value, but they're giving the rest to their gamers. And these gamers can either buy their way to the top by buying NFTs or they can hustle their way to the top by really grinding away and playing the games and then selling what they earn and actually making money.
Robert Farrington:
So those are the two biggest use cases today. But again, we are so early on in this that I think things are going to continue to evolve and going forward, but if you hear your kid saying, 'I need to buy Ethereum because I want to buy an NFT," it might not just be an eight picture. The eight pictures, they're like not the best use case for this. A lot of the gaming stuff, there's music, there's different things that involve royalties. And I'm actually even seeing content creators create digital communities using an NFT.
Robert Farrington:
Gary Vaynerchuk is a great example where he sold his conference as an NFT, people could then resell their passes to the conference and stuff by the blockchain. And the premises is that if he adds value, the value to his conference ticket will go up in price. And then you as a consumer can decide whether I want to go or not go. And if I don't go, I could sell that ticket and maybe make a profit, maybe not. But as the creator of this event, you get a royalty of all the secondary sales. So there's this premise here that if I add value, everybody wins. And that's the holistic good idea of NFTs and crypto.
Bobbi Rebell:
And Gary Vaynerchuk still gets a piece of it as well? Continuing on the way that NFTs are resold, there's a continuing ownership. Unlike if an artist sold a painting, the secondary market, he or she, it's out of.
Robert Farrington:
100%. So the premise, again, if you want to use the art as an example, it's another great one that if I create 100 great paintings and each one continues to add value, well I still benefit from that first one I ever painted. So I have an incentive as an artist to not just be once and done. I have an incentive to continue to add value to my followers in my community because I'll get that monetary compensation as well.
Bobbi Rebell:
So for parents, what do they need to know? I mean, can kids set up their own account behind our backs if we don't know about it? I mean are there restrictions? I know with opening a brokerage account, you have minor accounts and things like that. How does it work with crypto? Is there any restriction or can just anyone set it up and we can find out that our 11 year old is and hopefully a fabulous NFT entrepreneur, but maybe not?
Robert Farrington:
So if your kid is tech savvy, they could set up a non-custodial account by installing MetaMask and just going to town with this. They need to get some money into the system, which is a little harder because they have to figure out how to link that and can get the payments into it. But theoretically, if they create an NFT and get paid for it, that's their money and they can have an account for it. You'll also know that a lot of major brokerages are now starting to allow crypto.
Robert Farrington:
So if you do have a custodial account for your kid, a lot of the apps like We Bowl and Robin Hood and stuff allow you to buy cryptocurrencies. Even Fidelity is getting in on this with allowing crypto being traded on their apps and stuff as well. So it is possible even for your kids to do it if you set up those custodial accounts. I think just like anything with teaching our children about investing in money is that if they're interested in it, you should probably let them but teach them that this is high risk, high reward and you can lose it all.
Robert Farrington:
On the financial side, like a Robin Hood or a Fidelity, they don't actually own the crypto, it's in the exchange. So that side is really only going to be for trading on price, which is truly speculating at that point in time. If they're self custodying and trying to do it for other things, there's a lot of technological learnings and different things that might be more valuable but again, know your teen.
Bobbi Rebell:
So my final question is just what is the future of this in terms of investments? Are we going to be putting retirement savings in this? Are we going to be able, you have your other website, the college investor obviously, is it going to be something we could pay for college with? And what about taxes? That was five questions. This is my last question, but I have so many questions and I like the tagline, five questions. So all the questions.
Robert Farrington:
Well, okay. The future of this is still extremely high risk, high reward, I can't tell you what cryptocurrency is going to win. I think I could say, is it going to go away? No. Is the technology going to probably exist here forever? I think so. But will we continue to have these individual tokens and exchanges? I couldn't tell you. So I'm not trying to pick a winner. I think you should really think about it in terms of a currency. I think we're going to have NFTs forever. I don't think they'll be called that. We don't ever say www anymore in front of the internet. We just say the website name. It's that same technology. We're on the worldwide web recording this right now, but we never actually say www. And that's how NFTs and crypto are like the technology will exist and it'll be here, but I don't know if we're going to call it some of these same names.
Robert Farrington:
So I think you should pay attention to it. I also really like the idea of self custody and understanding your own security and securing your own assets because it's really sad seeing people getting hacked and losing their money. But on the same token, it's really important to understand how these things happen, how you can secure your own assets and just basic online financial security is so important. Using multiple passwords, never reusing passwords, understanding what a hardware wallet is and how these things work are essential to our future. I think as we are just dealing with our own banks and stuff, please have two factor authentication. Realize that getting a text message is probably not that secure if you're using that to get your two factor. Things like that are very good lessons that we can take away from the crypto space and apply it to our own financial lives.
Robert Farrington:
And then finally, you touched on taxes. Taxes are a mess. So crypto is a capital gain, capital loss type thing, but every transaction can be a capital gain or a capital loss. You have the potential for collectibles. If you're doing crypto in gaming, you have the potential to rack up thousands of taxable transactions very quickly. So it's a tax nightmare. Just realize that crypto is a tax nightmare, not necessarily in the reporting of it. The reporting of it is super easy. You put your gain, you put your loss, you fill out the form, not a big deal. It's getting all those transactions in one place because none of these companies are obligated to report it. So you don't get a nice 1,099 from all this like you do from Fidelity or Charles Schwab or whoever you're using. You are responsible for creating your own, what is it? 88, 49 tax form and submitting that with your taxes.
Robert Farrington:
And for those of you that think you can avoid taxes because it's the blockchain, it's things, well that's the whole premise of a blockchain. It's a public ledger. People don't necessarily know who's who, but at this point in time, the IRS has subpoenaed enough people and knows everybody that it's like a giant Sudoku puzzle. That they know like 80% of all the addresses and then they can piece together the remaining 20 by just putting the dots together and realize it's public. So maybe they won't come after you this year, but at some point in time they're going to run all this through a super computer and they're going to put all the pieces together and people are going to get nasty letters from the IRS. So don't think you can avoid the taxes, but it is really a challenging tax situation and I think accountants are a little frazzled by it because there's no beautiful 1,099 that summarizes all your transactions at the end of the year.
Bobbi Rebell:
Somehow I think the IRS will eventually figure that out. We know they're staffing up unfortunately. But anyway, all that information and more is available on cult of money.com. Tell us more about where we can reach you and your other business, that old collegey business thing.
Robert Farrington:
So you can find me at the College Investor or the cultofmoney.com and we have our podcast, we have video, however you like to find us or enjoy your content, we're there. So just find us the College Investor or Cult of Money.
Bobbi Rebell:
Thanks so much.
Robert Farrington:
Hey. Thanks for having me. This is great.
Bobbi Rebell:
There is something I don't talk about publicly that I have decided to start sharing, even though it can be a bit embarrassing. I get digital overload and it stresses me out for good reason because when you have so much junk on your computer because you're not as organized as you should be because you get caught up and all the things that you have to do. If you don't deal with it, all that stuff on your computer starts to really slow things down and can become a total drag on your productivity. For me, there is nothing worse than finally motivating to get stuff done only to be derailed by a sluggish computer that is just not cooperating.
Bobbi Rebell:
A little while ago I decided I was going to stop just hoping that things would get better and I was going to deal with it. I downloaded something called CleanMyMac. It's from a company called MacPaw. I was skeptical but I took a deep breath and I tried it. Long story short, it totally worked. I loved how I could see it work through my files with clear and easy to understand graphics. I could see what was messing things up and CleanMyMac would ask me for my okay before deleting files so that something I did need to keep didn't go bye-bye. That was one of my biggest fears.
Bobbi Rebell:
I recently reached out to the company and they are offering 10% off to my financial grownup listeners who want to also get CleanMyMac. To get that 10% off of CleanMyMac, you do need to go to my link. It is bobbirebell.com/cleanmymac. I promise you, you'll be so happy. I want you guys to be in touch with me. Let me know how it goes. You deserve to lower the stress of data overload. Trust me, so worth it.
Bobbi Rebell:
That tax stuff was intense. Do you feel more or less ready to dive in or if you're already investing, do you have your doubts now or are you maybe a little bit more confident? I love hearing from all of you, so please be in touch on social media, whichever one makes sense for you on Instagram, I am @BobbiRebell1, on Twitter @BobbiRebell and it would also mean a lot to me because I'm really trying to grow this community, if you follow me. And if you do, let me know that you are a financial grownup listener so I can be sure to follow you back.
Bobbi Rebell:
And speaking of community, I love to give to all of you, so I put together a newsletter usually twice a month with more useful information for living your best financial grownup life and I would love to share it with all of you. It's free. Just sign up on my website, bobbirebell.com and also on my website by the way, you can get the show notes and full transcripts for free for this and all past podcast episodes.
Bobbi Rebell:
If you enjoy this podcast, please consider helping me out and supporting it. You can leave a review on Apple Podcasts or any other platform that takes reviews to help others discover the show. It means a lot to have an endorsement. You can also just take a screenshot on whatever device you're listening to right now and share it on social media. Tag me so I can thank you of course, or simply encourage your friends to listen and subscribe or follow the podcast. Make sure to check out Cult of Money for the crypto curious my friends. Biggest thanks to Robert Farrington for helping us all be financial grownups.
Bobbi Rebell:
Money Tips for Financial Grownups is a production of BRK Media LLC, editing and production by Steve Stewart, guest coordination, content creation, social media support, and show notes by Ashley Wall. You can find the podcast show notes, which include links to resources mentioned in the show, as well as show transcripts by going to my website, bobbirebell.com. You can also find an incredible library of hundreds of previous episodes to help you on your journey as a financial grownup. The podcast and tons of complimentary resources associated with the podcast's brought to you for free but I need to have your support in return. Here's how you can do that. First, connect with me on social media @BobbiRebell1 on Instagram and BobbiRebell on both Twitter and on Clubhouse, where you can join my Money Tips for Grownups Club. Second, share this podcast on social media and tag me so I can thank you. You can also leave a review on Apple Podcasts. Reading each one means the world to me. You know what? It really motivates others to subscribe.
Bobbi Rebell:
You can also support our merch shop grownupgear.com by picking up fun gifts for your grownup friends and treating yourself as well. And most of all, help your friends on their journey to being financial grownups by encouraging them to subscribe to the podcast. Together we got this. Thank you for your time and for the kind word so many of you send my way. See you next time. And thank you for supporting Money Tips for Financial Grownups.