Episode Description - How To Find Hidden Cryptocurrency In Divorce
If your spouse has cryptocurrency and you're heading into a divorce, you can leave a fortune on the table without even knowing it … and your lawyer might not be much help! Certified fraud investigator and cryptocurrency forensics expert Chris Groshong breaks down how digital assets like Bitcoin can be hidden, and more importantly, how they can be found. From blockchain's permanent transaction record to the hardware wallets that look deceptively like USB thumb drives, he explains what clues to look for and why they matter.
In this podcast episode, we dive into the practical mechanics of uncovering hidden crypto: what questions to ask your spouse in discovery, how to subpoena Apple and Google for app download histories, and why a simple screenshot of a wallet balance is about as trustworthy as a picture of a bank account balance on a bad day.
Chris also explains the difference between crypto held on a centralized exchange versus crypto held in self-custodied wallets. (That distinction dramatically affects how easy [or impossible] it is to track.)
Perhaps most surprisingly, the discussion reveals that finding the crypto is only half the battle. Deciding what to do with it (i.e. how to divide crypto in divorce) is just as important. Should you take the dollars or keep the crypto? The answer depends on the crypto’s tax basis, market timing, and your risk tolerance in holding a volatile asset that has historically gone from pennies to $100,000.
If you or your spouse has any kind of cryptocurrency (or you’re not sure if you do!) this is a podcast episode you’re not going to want to miss.
Show Notes
About Chris
Chris Groshong is a Certified Fraud Investigator (CFI) and a leading expert in cryptocurrency forensics and blockchain compliance. With over a decade of experience in the crypto industry, he specializes in uncovering hidden digital assets in complex legal matters, including high-asset divorce cases, bankruptcy, and fraud investigations.
He is a member of the CFCIA (California Financial Crimes Investigators Association), Government Blockchain Association, The Chamber of Digital Commerce, and has served as an Expert Witness in a Federal fraud case involving Bitcoin and Monero. He also has a public-private partnership with the FBI through Infragard.
Connect with Chris
You can connect with Chris on LinkedIn at Chris Groshong and on Facebook at Coinstructive. You can follow Chris on YouTube at Coinstructive. To learn more about how to work with Chris, visit his website at Coinstructive.
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Key Takeaways From This Episode with Chris
- Chris Groshong is a certified fraud investigator and leading expert in cryptocurrency forensics and blockchain compliance with over a decade of experience in the industry. He specializes in uncovering hidden digital assets in complex legal matters such as high-asset divorce cases and fraud investigations.
- Cryptocurrency operates on blockchain technology, which acts as a permanent digital ledger that allows investigators to track transactions even years after they occur.
- While crypto is often thought of as anonymous, it is actually pseudonymous, meaning transactions can be tied to real identities when they interact with centralized exchanges.
- One of the most effective ways to identify the existence of crypto is by reviewing past conversations about market spikes or looking for "euphoria" related to investment gains.
- Hidden assets can often be found by tracing traditional bank statements for transfers to exchanges or by finding specific apps and hardware wallets on a spouse’s devices.
- Hardware wallets like the Ledger device do not store the actual crypto but hold the private keys, which require a 12 to 24-word "seed phrase" to access the funds.
- During the discovery process, it is critical to subpoena Google or Apple for download histories to see if crypto applications were recently deleted from a device.
- Screenshots of wallet balances are often insufficient evidence in court because they only show a single moment in time rather than the full transaction history.
- When settling a divorce, spouses should carefully consider the tax basis and future upside of holding crypto versus taking a cash buyout.
- This insightful conversation empowers listeners to move from intimidation to action when facing the high-tech challenges of modern asset division.
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Transcript
How To Find Hidden Cryptocurrency In Divorce
SUMMARY KEYWORDS
cryptocurrency, divorce law, asset tracing, financial fraud
SPEAKERS
Karen Covy, Chris Groshong
Karen Covy 0:10
Hello, and welcome to Off The Fence, a podcast where we deconstruct difficult decision making so we can discover what keeps us stuck, and more importantly, how we can get unstuck and start making even tough decisions with confidence. I'm your host, Karen Covy, a former divorced lawyer, mediator, and arbitrator, turned coach, author, and entrepreneur. And now without further ado, let's get on with the show.
With me today, I have the pleasure of speaking with Chris Groshong. And Chris is a certified fraud investigator and a leading expert in cryptocurrency forensics and blockchain compliance. With over a decade of experience in the crypto industry, he specializes in uncovering hidden digital assets and complex legal matters, including high asset divorce cases, bankruptcy, and fraud investigations. He's a member of the CFCIA, the California Financial Crimes Investigators Association, the Government Blockchain Association, the Chamber of Digital Commerce, and has served as an expert witness in a federal fraud case involving Bitcoin and Monero. He also has a public-private partnership with the FBI through InfraGuard. Chris, welcome to the show.
Chris Groshong 1:27
Thanks for having me, Karen. Great to be here.
Karen Covy 1:30
I am excited to talk to you, but I have to admit, I'm a little bit intimidated because my knowledge of cryptocurrency is basic at best. So, let's start. You're going to have to be educating me along with everyone else here. So let's start with the basics. What is cryptocurrency and Bitcoin?
Chris Groshong 1:49
So, cryptocurrency and Bitcoin are basically the same thing. Well, Bitcoin was the first cryptocurrency. So, we really only had Bitcoin initially. And then as technology and people move forward, then we were looking at the creation of multiple different kinds of cryptocurrencies where the technology is basically copied, some parameters are changed, and then boof, you have a whole brand-new cryptocurrency.
Karen Covy 2:20
Okay.
Chris Groshong 2:21
So, and then the technology behind that is called blockchain. And blockchain is basically, you may have also heard the term distributed ledger technology, DLT. That was kind of a fad when like the banks and the technologies or the technologists were like, boo Bitcoin, but we like the idea of this digital ledger that we can use to track and like with a permanent record of how the transactions occur, when they occur, and like the data that's involved in that. Now you can design blockchain technology in multiple different ways. But the essence of how it works with Bitcoin is you have people that are recording transactions and that data then becomes permanent. It’s basically a big ledger. And that ledger is something that will never disappear. So that's why we talk to people who have been scammed or in divorce cases, where they go, Well, the you know, these transactions happened, you know, eight, nine, ten years ago. And we say that's fine because the record's permanent and we can always go back and look them up.
Karen Covy 3:42
So, it may be permanent. And I don't want to get too in the weeds about how the blockchain technology works and what makes it permanent, but let's just take this, you know, at face value that it is permanent. Can it be hidden? Because it could be permanently there, but if you if you can hide it or you don't know where to look, a spouse could easily hide their digital assets in a divorce.
Chris Groshong 4:07
Yes. So, there's this term called pseudonymous, like pseudo meaning like false. Um and that basically means that it's somewhat anonymous. Um, there are identifiers and there are ways to de-anonymize transactions, especially when the transactions end up at a centralized entity like a crypto exchange, because that that trans transaction is going to be held at an account at that exchange, and that account has an account holder, and that's a person and a user. And so then now you can tie an actual person to a somewhat anonymous transaction. And so, from there, you can then kind of pull at different threads to understand where the money has moved and uh whether that's a withdrawal from an exchange or a deposit to an exchange. Now you have um another place where you can start to ask questions.
Karen Covy 5:15
So, if how does even if a spouse is getting divorced, how do they even know if their spouse has cryptocurrency? I know, I know that there is a box, a checkbox on your income tax forms now that says, do we do you have cryptocurrency? And I'm sure everybody is 100% honest when they check or don't check that box, but let's assume the box isn't checked, but you suspect your spouse has cryptocurrency. How do you know if that's true?
Chris Groshong 5:45
Well, one of the best ways to tell is usually from past conversations. Like I hear that more often than not. Because here's the thing about crypto is that it kind of in the past has been almost like perfectly aligned in a four-year cycle of these ups and downs of the market. And if you go back, you know, 12, 13 years and you look at the historical price of Bitcoin, you will see these spikes and then and then a retraction in the market. And it's almost it's almost been like clockwork. So, if the spouse has been through at least one of these four-year cycles, it's usually a 10 to 20x increase. And if that's happened three times, I mean, look at I mean, Bitcoin's been around now about 15, 16 years, um, 17, almost 17 years now. And we're looking at, you know, each hype cycle has, you know, we've gone from basically pennies to hundreds of dollars to thousands of dollars to $100,000. There is no asset in the world that has gone from $100 to $100,000 in a shorter period of time. With that comes euphoria, right? Like, oh my gosh, I put in $10,000. It's now worth $200,000. You know, you're going to like want to share that information, right? And this may not be the case three years later, right? As the market has recorrected or corrected. But at some point, usually there's this conversation of, oh my gosh, my crypto assets have really, you know, blossomed and increased in value. And you kind of want to like share that with somebody. And so, you have these conversations, and then that's one of the first things is like, hey, I know that I've had this conversation. My spouse has shown me the wallet and said that they have this much money in it. And now they're only telling me that they have this much. And so, one of the other things that I like to bring up in this situation is yes, the taxes is because previously you had to self-declare. So, if you had these conversations and you know that there's been taxes or there's been crypto over a several year period, you know, has it been ever been filed? Right. And if it's never been filed, that actually would be one of the first things that I would suggest you talk to your attorney about, which is the innocent spouse relief through the IRS. Because what happens is if you get audited three, five years down the road after the divorce is complete, and say your spouse has lost their job or has a much lower income and almost no savings, it the IRS doesn't care who pays the bill, they're gonna come after whoever has the money to pay it. So, it may not even have been, you may not have understood what the transactions were or how the money was being moved or what they were doing with it. But every trade has a capital gain, you know, uh part to it, and you could be liable down the road.
Karen Covy 9:08
Wow. Okay, so let's just say, but if it if crypto works the same way as stocks or bonds or an investment, typically you're only paying income tax on um the appreciation that's realized. In other words, if you make the trade and you get, then you get money, or you know, even if it stays in your account and then you pay income tax on it. But if you just leave the money in stocks and bonds, maybe you don't get taxed on it, or do you?
Chris Groshong 9:43
No, you wouldn't. You wouldn't be taxed on unrealized gains. So, if you just bought and held, yes, it would there, that would be one avenue that you wouldn't be able to necessarily use to go back and find those assets. Now, another way is traditional bank statements. How do you find these undisclosed assets? Because you have to use dollars at some point to purchase the cryptocurrency, right? Like you just don't acquire the cryptocurrency out of thin air, right? So, there's usually a record on a bank statement somewhere that money has been transferred. Now we know that that so if you don't have historical bank records, it's gonna be really hard to go back, excuse me, all the way in time to gather those. So that's a that's an issue that can that can present itself. But again, usually there are there are clues within the traditional bank statements, and then there's other things like um uh apps on the phone. That's another great way, or on the iPad, right? Or something or on a tablet. That's another great way to identify potential digital assets. So, uh most there's and there's two so there's two kinds of ways that digital assets are stored. Usually, one is through cryptocurrencies held at an exchange, and that's a centralized service, kind of like a bank. And they have the responsibility to maintain and um provide statements and um and track that the history within their own account. So, all the trades, all the deposits, uh, whether they're dollars or crypto, and all of the withdrawals, everything. So, you can get historical data from those exchanges, right? And that could be tied to an app. So, if you find the Coinbase app on the phone, right, then there's a good chance that there's gonna be historical data that can be acquired. There's also things like hardware wallets and things like that, which I think we're gonna get into probably a little bit later. But those are other key um components. So, if you've seen, I have one actually right here. Let me grab it. Um this is this is a thumb drive looking device, right? And but it's not a thumb drive. People think, oh, this is a thumb drive. Like this is actually going to contain the cryptocurrency. It doesn't, it actually has what's called the private keys, which the private keys are like the password in order to move the cryptocurrency. And each one of these devices has what's called a uh a secret um a secret or a key, a secret key or secret phrase, and it's usually the seed phrase, um, which is uh like a history or a 12 to 24 word phrase randomly, and they tell you when you set these things up to write these down. So, if you've seen um maybe in the safe uh a piece of paper with 12 or 24 words that just seem randomly written down on it, that is that is the thing that can recreate the wallet. So even if you took this wallet, gave it to your lawyer to hold and said, Look, I've got the crypto, it's all right here. Technically, with the seed phrase, you can just buy another one of these guys and spin up the exact same wallet and then move those assets out. So, it's not like a thumb drive where the data is on that device. This is just the keys to the kingdom.
Karen Covy 13:30
Okay, so with that, so and you're when you're for those who are listening, you're showing what looks like a thumb drive, right? And so having that, if I'm hearing you correctly, if you've got the random words, you don't need the physical thumb drive looking device. You can spin everything up itself. So, really, the thumb drive device is useless.
Chris Groshong 13:56
It is a good indicator that there is there is crypto, right? And yeah, I wouldn't say that it's useless, but yes, if you don't, these are usually password protected. And so, if you don't have the password, even if you had the device, you wouldn't be able to get into it. And the way crypto wallets work, they have what's called a derivation path. So not all crypto wallets are the same. And if you use the seed phrase for a um like a hardware wallet, and you want to recreate it in a software wallet like a mobile app, you can do that. But if they have two different derivation paths, meaning um the technology behind it on how they populate the data to show what assets are tied to the seed phrase of that wallet, you may end up populating a wallet and it shows nothing in it because it has two different derivation paths. And so, the way it's gonna look for the data and how it's gonna populate it could be um at odds with each other. And so, if you but if you find uh a mobile wallet that uses the exact same derivation path and you put in that seed phrase, you will get an exact copy of everything that's in that wallet.
Karen Covy 15:23
So, let's say that you as you're going through a divorce, you think or know that your spouse has crypto and you go in, you get the they for some unknown reason, they've left their phone unattended, you grab the phone and you have the seed phrase and you go in there. Is that the kind of thing that you can screenshot and email yourself? Or how do you what do you do with the data when you say, oh no, I went in there and I saw it because so much of divorce is a he said, she said. So, what if that's the situation you find yourself in, what do you do in that moment to create proof of the cryptocurrency? Because you're not gonna have your spouse's phone there, you know, in court with you. Um and by that point, they will have changed everything.
Chris Groshong 16:16
So, there's a couple things that you can do when it comes to like the phone itself. Uh one is you're not gonna be able to usually find the seed phrase um on the mobile apps within the phone, because it's something that happens once when you set it up. And the crazy thing to think about with crypto is if you lose the seed phrase, that's it. It's like you would never be able to recreate. So, if the phone got destroyed, um and you downloaded the app again, if you don't have the seed phrase, that crypto's lost, it's gone, it's permanently gone. No one can recover that for you. So, these are, and this is the difference between self-custody and custodial exchanges, right? So you can have mobile apps on your phone that are not tied to any specific entity, you are in control of your own assets. And if you make a mistake, if you send them to the wrong address, they are gone. If you lose your private keys and try to recreate the wallet, they are gone. So if you don't have the correct seed phrase, so it can be a little bit nerve-wracking to do self-custody, and that's why not everybody does that. That's why they leave their crypto on exchanges, and that's always not the best situation either, because exchanges can be hacked and you can lose your money. So there just crypto inherently is a risky asset in the first place, but the upside is so big that people are willing to take those risks. So, one of the things you can do if you do have access to the phone, or if you suspect, you would in discovery ask for all of the wallet applications. And if you feel like you've seen the applications or you know what they are, and you're not getting that full list, one of the things you can do is subpoena Google and Apple, depending on the phone, right? And get the download history of the applications that have been downloaded to the device, right? We're not asking for you know access to each of the applications, but we are wanting to see which applications were on the phone because it's very easy to delete the application from the phone. And if you know you have your seed phrase, you could have that device inspected, it wouldn't show anything, and then you could just download the application and reinstall it and put in your seed phrase, and then everything is back. You have access to it again. So, so even and we have the capabilities of doing device inspection, so it will allow us to find crypto artifacts, things that have been downloaded to the phone or downloaded to the computer, uh, mobile wallets, uh wallets that are in the browser. There's a lot of different angles to explore. But things like nowadays, like PayPal and Cash App, right? Those and uh those have crypto. You can get crypto in those apps, right? So basically, any almost any financial, I mean, if you have a Fidelity, Fidelity has digital assets now. Um, like there's a real possibility that some of the traditional apps that we think of, well, for moving money and paying our friends or whatever gifting, uh yeah, actually you can have crypto in there.
Karen Covy 19:54
That's fascinating. But so how many just talking about specifically crypto apps, how many are out there right now, approximately?
Chris Groshong 20:05
Hundreds. Hundreds. I have a lot. Like if I was to get divorced, it would be it would look like I have a hundred wallets because I I've been in this space for such a long time. Sometimes I just download them to understand how they work, right? So that I can use that knowledge in a case, right? So I technically have probably 16 or 17 crypto wallets on my phone alone, but I don't use all of them. Some of them are specific for an individual type of cryptocurrency, some of them are multi-currency wallets, which can have multiple different kinds of cryptocurrency held within them. And so, it really depends on the user and the assets that they are uh involved in.
Karen Covy 20:56
Is it possible to send a subpoena to a crypto app company and get the data for a particular person?
Chris Groshong 21:06
In a non-custodial app, the answer is no. Because these companies create the technology that you can use, but they don't have access to your assets. Because, again, the seed phrase, if you give that, this is how people get scammed. So, like one of the biggest scams was on these devices, the there was a data breach. This is this device is called a ledger. And ledger had a data breach, and it didn't provide any secret keys or phrases or anything, but what it did tell the scammers is email addresses, home addresses, names, things like that. All you needed to know was that these people, if they bought one of these physical devices, likely has crypto on it. And so, they were setting up fake websites that looked very much like the original website. And because this is a piece of hardware, hardware needs to be updated every once in a while as security changes or technology changes. So, they would be prompted, they would get an email saying, Hey, you need to update your device. Go to this website, click on this. So, they click on it, and then they go to the website and they tell you, all right, and the company, the original company tells you, never share your seed phrase, because that is the keys to the kingdom. If and then people were going to these fake websites and then typing in their entire seed phrase and then hitting enter because they had a momentary lapse of judgment, or they, you know, they were distracted with what's going on with life. And then boom, everything in their wallet starts getting drained and sent out. Right. And so, because they've just given someone else access to everything. That's like giving someone access to your bank account and then just sitting back and watching wires go out, right? Except there is no way to reverse a crypto transaction. Once it's sent, it's gone. The only thing you can do at that point is follow it on the blockchain to see where it's going and hopefully try to get ahead of it and contact law enforcement, contact um uh different exchanges where you think the money is going, and then and then and try to get ahead of it. So the seed phrase is actually really, really important. And that's and that's one of the biggest the biggest issues that people find themselves in is how do I get the information that's within those apps if I don't have the seed phrase? So you can't necessarily, you can only subpoena uh entities that are custodians, essentially, like Coinbases, the Kraken's, the Geminis, those kinds of institutions that that hold cryptocurrency on behalf of their customers.
Karen Covy 24:02
So, it sounds like if you are in a divorce situation specifically and you suspect or know that your spouse has crypto, if your spouse is keeping it in one of these institutions, you can it's easier to find than if they just, you know, if they have it on a little thumb drive looking thing.
Chris Groshong 24:23
Yeah, absolutely. And one of the best things that one of the red flags that we see uh consistently in crypto divorce cases are in discovery, they're providing um like screenshots of their of their mobile wallets, like they're trying, would say they're trying to be truthful. One is sometimes people don't really know how to access the transaction history. Sometimes people don't really know like how uh how to do the to get the information off of the phone. But if I was to tell you in Discovery, like here's a screenshot of my bank account, and it has only $186 in it. No person in their right mind would be like, oh, well, that must be how much money you actually have or had, right? We would want to see the monthly statements, right? Right, because you could have withdrawn $100,000 the day before, and the balance just shows what the balance is today, at the moment that the screenshot was taken. Well, people are using that same concept. Here's the screenshot of the balance of my mobile wallet or of my exchange account, and then ask, and then going, oh, and lawyers and the spouse are like, oh, well, that's funny because you know they said they had $200,000 like two years ago, and now they only have $1,000. Like, what do I do? How do I how do I figure that out? Right. Well, then that then you can do things like a motion to compel to actually provide and download the transaction histories that are kind of in the background. So, you get a list of all of the activity so you can show, like, okay, the month crypto went out on this date, um, crypto came in on this date. And then you can put together a holistic picture of what's actually happening, and then follow those funds and see what's where they've gone, what they're doing with them. They may be, you know, placing them in other crypto exchanges, they may be cashing them out into dollars, but at least then you'll have more information and you'll be able to have, like what I said, we're looking for those threads to pull at. And so, each time you get a little bit more information, right, you're looking to put them back into a corner saying, look, you're only being partially truthful, you haven't shared the full information. But again, like you said, if you don't, if you don't know what questions to ask or how to evaluate the information that they're providing, you might just go along with it.
Karen Covy 27:06
So how do you know how do you get that transaction history? I mean, is the only way to get the transaction history from the person with the crypto or with the wallet, or is there another way to get it?
Chris Groshong 27:20
So, if it's a custodial exchange and they're not being forthright, then you could subpoena the exchange yourself, right? Obviously, that costs more money. They should be able to provide as much information as they can. So that's where a motion to compel would come into play. But if it's a mobile app, it's really the they're the only ones that can provide it. So, it's almost like you have to uh educate the attorneys, educate the mediators, uh, and educate the judges about why this is an insufficient piece of information that's being provided in discovery.
Karen Covy 27:57
So, let's start with the attorney. So, let's say that I'm a divorcing person and I suspect that my spouse has cryptocurrency, or I know that, and they're I know they're gonna try to hide it, right?
Chris Groshong 28:11
Uh-huh.
Karen Covy 28:13
What do I look for in an attorney? Because the just the little bit that you've shared so far is way above most attorneys' uh knowledge of cryptocurrency. Maybe I'm not being fair, but a lot of attorneys have no idea what cryptocurrency, how it works, right? So, what if you're the person who knows that your spouse is tech savvy and has crypto, do what kind of attorney do you need that can find that? Or do you, or will any attorney do as long as they hire an expert like you?
Chris Groshong 28:43
Well, that's a great question. So, we've over the last two years or so, we've realized that this is a kind of a growing issue amongst lawyers because they don't have the knowledge. And so they're used to um asking questions during like from the interrogatories, right, that are traditional financial questions. And so what we've actually created is um a list of special interrogatories designed for crypto in divorce, and we're selling that to attorneys so that they, you know, for uh u a less than what it would cost to consult with me, they have uh a list of questions that they can use with all of their clients, right? And that gives them the okay, now I know what questions to ask so that I will be certain to get the responses that I need in order to then determine what steps are to take next. And sometimes you might need to then hire the expert to um to decipher the answers that you're getting back to be like, is this enough? Like, is this sufficient? But at least now you know you're asking the right questions, right? And what we've realized is we were getting hired mostly initially just to help provide them with these questions, right? Because they didn't know where to even start. So, so with this, this allows them to get up to speed. And I think as they progress in there over time, because we all know like crypto is not going away, and but people are still getting divorced at the same rates they always have, like it's going to be part of many, many more uh cases, right?
Karen Covy 30:41
Yeah, for sure. Um, which leads me to another question. Putting together, I mean, what you said that crypto has the rises and falls, they have the bounces. The value is so volatile, right? So you've for divorce purposes, a, how do you value crypto, which is more of probably the question of when do you value it? Because the day that you value it on, the value can be very different than the day before. So, how do you deal with crypto valuation?
Chris Groshong 31:14
That's a that's that is a very great, that's a great question because it is it is a little bit arbitrary. Uh, one, the first date that you value the crypto is the date of uh separation, right? That's one of the key dates. Now, the other thing, the other date you can use is excuse me, towards the end of um the case where you're getting close to let's say a settlement, you can evaluate the crypto at any point in time. So maybe your divorce has been you know dragging on and it's been 14 months, and you're in a hype cycle. When you looked at the crypto 14 months ago on the data separation, the total value was $125,000. And um, and 14 months later, because the price of all cryptos has gone up, that value could be like $300,000, right? And so you need to take you might need multiple snapshots of the valuation to show that like what the value is currently, what the value was when we separated. And then there's the upside of like how do you then split those cryptos, right? Like, do I, as the other spouse who doesn't really know anything about crypto, do I just want to be like compensated in dollars for the difference or for that split? Or would it be better for me to actually take half of that and set up my own wallet and learn about some operational security so that I can protect those assets? Because we know, like I said, if the no other asset in the world has ever gone from $100 to $100,000 faster than Bitcoin has. So, there's huge upside. And what you wouldn't want to do is limit yourself by taking dollars that we all know is being you know devalued by inflation, whereas Bitcoin is specifically designed to be deflationary based on how its emission cycle is, for how new Bitcoin are created, and the scarcity of Bitcoin, right? Means that's why the value has gone up the way it has. It's designed to do that. So, if there was, let's say, two Bitcoin and it was worth $200,000, if you took $100,000 and let your spouse keep the two Bitcoin, in three, four, five, ten years, that two hundred thousand dollars could be worth a million. And you're still sitting on a hundred thousand dollars that you're getting one percent, two percent, five percent interest on, or maybe you've invested in some stocks and you're getting you've gotten a 20, 25% return. So, you really need to think about future estate planning, what the upside value is of just holding that crypto, because if you have especially like if you have children, right? I think that in my position, I would want half the crypto because there is no other asset that's going to increase in value as quickly as uh as crypto has.
Karen Covy 34:31
Okay, let me play devil's advocate here for a minute. Um, and I think I know the question, the answer to this question, but I'm sure a lot of people don't. And I also could be wrong. So, what to say that you, the spouse, you keep your crypto, you pay me a hundred thousand dollars, and I just go out and buy my own crypto.
Chris Groshong 34:53
Yeah, yeah, you could. You could definitely do that. Um, and that is that actually is a really great idea. Um and it would almost, and I don't know how this would be a more of a tax-related question because your tax uh liability is based on the acquisition, the price of acquisition, right? So, if you're acquiring the crypto at a higher value than it was previously, right? So, you may have this historical data that says, well, all the crypto was bought at a ten-thousand-dollar value, it's now worth you know, X amount. And I want to take my half, and now that I have my half, my cost basis is still that ten thousand dollars or half of ten thousand, so five thousand dollars. And now you're paying the difference on five thousand and whatever it is now versus buying it now and having the tax basis be at whatever the current price is. So, yeah, there could be a tax upside um by taking the dollars and then investing that. But what I see in a lot of these cases is that the people who are taking the dollars don't want to get into crypto in the first place, which is why they're taking the dollars because it scares them to a degree, right?
Karen Covy 36:22
Yeah. So, but let's talk about this because crypto, is there an unlimited amount or a limited amount of, let's say, Bitcoin or whatever kind of crypto you're talking about? Because, like you said, one of the things that makes it um appreciate at the rate that it has is that it's a little bit more scarce. So, can you, you know, how much crypto is there? Can everybody just buy some if they want?
Chris Groshong 36:50
That's a great question. So, not all cryptocurrencies are designed the same way. And so, when I what I mean by that is the parameters in which the technology that surrounds it is has been created. So, the two biggest cryptocurrencies that are kind of in the market like are Bitcoin and Ethereum. Bitcoin has a fixed supply of 21 million Bitcoin, and new Bitcoins are minted every 10 minutes when a block is solved. And these are why there's Bitcoin miners, because the miners are what are doing is checking the transactions and then writing those transactions to the blockchain, and as a reward for performing this security of the network, right? Because what we don't want is you don't want what's called a double spend. This is what Bitcoin really solved was this ability to avoid double spending, right? Think of like the Napster days where and like an MP3, right? You can take a musician's work that you should be paying for and make copies and send it in an email to all your friends. And now they all have a copy of that song. You know, you could print dollars on your computer, right? On your printer, right, and then use those dollars. You would get caught for money for yeah, for money laundering or fraud. So, but you would essentially what Bitcoin has done is that by the way that the system is designed, has allowed it so that I can't in one transaction send some to you and another person at the same time and try to trick the system. And that's what these miners are doing. They're not just like mining Bitcoin for no reason, they're actually providing the security to the network so that double spending does not occur. And their reward in doing so for all the electricity that they're spending in doing this is newly minted bitcoins, right? And so, the emission system for Bitcoin was every 10 minutes, new bitcoins are minted. The first four years or approximately four years, and the first 10,000 blocks that are created, it was 50 bitcoins every 10 minutes. And then what's called the halving happens. So that gets cut in half about every 10,000 blocks, which is approximately every four years. So, then it went to 25 bitcoins every 10 minutes, then it went to 12 and a half, then it went to six and a quarter an hour 3.125 bitcoin every 10 minutes. This is why the price has gone up because the value of electricity hasn't gone down, and it becomes more difficult to keep and maintain your infrastructure to secure the network, right? So, imagine on Tuesday you were making a hundred widgets, and on Wednesday, for like no fault of your own, the amount the maximum number of widgets you can produce is 50. Forever. You can never make a hundred widgets again in a day, it just will never happen. This is why eventually the price of Bitcoin goes up, and because Bitcoin has a fixed supply, right? Then there's this incentive, like, oh, I need to get some, right? But other cryptocurrencies like Ethereum have a totally different uh emissions schedule, and Ethereum actually does what's called burning. So, there's a constantly new um Ethereum, and the amount is not fixed, so it keeps increasing. The amount of Ethereum that gets created over time keeps increasing. Now, is there still upside to Ethereum? Yes, but you need to kind of do your research as to like what is the cryptocurrency actually doing? How is it, how is the technology behind it um uh adding value to it or creating the value around it? And understanding that is what gives people the knowledge to feel confident in putting their dollars into it.
Karen Covy 41:05
Wow.
Chris Groshong 41:06
Yeah, so it's not it's not just cut and dry, like, oh, I should just buy this one and I'll buy that one. Now, a lot of people want to just think that uh if I buy the top five cryptos, they'll probably all go up. Most of them probably will because you can look at historical data, right? But you really should understand the fundamentals behind each of the cryptocurrencies that you want to invest in to understand why they may go up or why they may go down.
Karen Covy 41:34
So, Yeah, I'm not a financial advisor either, but I I've looked at enough history to know that there have been bubbles since the beginning of time, right? Um, whatever you're calling it. And is crypto, you know, when somebody's trying to evaluate in a situation, do I take crypto or do I take dollars? I mean, is it possible for the value of crypto to plummet?
Chris Groshong 42:03
Yes. I mean, we've seen every time that it reaches all new highs. I mean, look at last November, December, we were at $120,000 a Bitcoin, and now we're at the $70,000 mark of Bitcoin, right? So, yes, it is a volatile asset, but that gives you the opportunity to dollar cost average, right? Buy in you put ten thousand dollars when it was at the top. If you have more money to invest, it would be maybe a good time to bring down your cost basis and acquire some more for almost half, you could get twice as much for the same amount of dollars, right? Right. And so um, yes, it is it is a volatile asset, and understanding and watching the markets like is a is a critical um component to understanding the value or potential value.
Karen Covy 42:56
Okay, let's get practical, tactical. You're it there's a couple, one spouse owns crypto, the other one doesn't know anything about it. What should the spouse who doesn't have the knowledge of the crypto, what is their best plan of action? So, you're gonna get a divorce, you know your spouse has got some kind of crypto, something somewhere. What are the most important things for you to do going into the divorce so that you get a fair exchange for whatever that crypto is worth?
Chris Groshong 43:32
Uh again, I think it really boils down to asking the right questions in discovery. Uh, if you don't ask the right questions, you're not going to be able to get the right answers. And the answer if by asking the right questions and getting incomplete answers or false answers, right, that really helps your side of the case in showing that there the other party is not being 100% truthful, right? And that sometimes is all like the difference between divorce cases and criminal cases, where criminal cases is you need to you need to have you know certainty in in knowing where the money is and where it's going. And but usually you have a starting point. Now, in divorce cases, you don't necessarily have a starting point. So, what you're trying to do is catch them in non-truths, full-on lies, or insufficient uh data that they're providing. Like I said, a screenshot. If they if you ask these questions in discovery and they're providing things like screenshots, that's insufficient, right? And that would be that would be reason for your attorney to then say, hey, you're not actually being a hundred percent truthful. We really need these things that we asked for in the correct way so that we can uh give an honest evaluation of what the assets are. And I think that's the number one thing is asking the right questions. And most people don't know what questions to ask. Okay. And I also and I provide free consultations, 30-minute free consultations to anybody who to wants them. So I'll make sure to get you a link for your show notes so that you can provide that to all your guests.
Karen Covy 45:18
Thank you. And for everyone listening, that will everything is going to be linked in the show notes. So, if you have questions about crypto or you suspect crypto is involved in your divorce and you don't know what to do about it, Chris is definitely the man to ask. And Chris, I could ask you a thousand more questions, but I don't know that anyone wants to listen to a 10-hour podcast on cryptocurrency. But I think you've provided us with the basics, which is like if you think that this is an issue in your case, what do you do? And how do you start, like you said, pulling out those threads so that you can figure out what do you have and what don't you have? So, thank you so much for being here and for sharing your knowledge. I really appreciate it.
Chris Groshong 46:06
Oh, it's been my pleasure. Thanks for having me, Karen.
Karen Covy 46:08
You're welcome. And for those of you who are out there watching and listening, if you've enjoyed today's episode, if you'd like to hear more episodes just like it, or maybe get Chris back again to do part two, um, do me a big favor: like, subscribe, drop a comment. And I look forward to seeing you all again in the next episode of Off the Fence.
