Bitcoin, crypto currency and block chain...

[Script]

Theoretically, if it splits and everyone's previous holdings exist on both chains, like btc (bitcoin) and bch (bitcoin cash), the market value should decrease in half. For instance a stock split will usually have a market value that follows this.  Because it takes awhile for exchanges to start handling the new coin (like bch) there is a waiting period to get a real market value.

Yes, theoretically. And practically?

(You seem to know much more about bitcoins than me. I'm not playing dumb at all here and I'm really interested.)

Does the comparision to a stock split explain it appropriately? Isn't it rather like a demerger, which leaves two parties that do not compete with one another cos they are operating in different areas?

Also, as soon/as long as whatever type of bitcoin follows market demands (while also  competing with other currencies), the idea of a ceiling is thwarted, no? And with it the single-most persistent argument from the early phase of bitcoins -- namely bitcoins as a realistic alternative to capitalist fiat currencies. That would be 'myth busted', no? Or is  the notion of a ceiling only an idealist endpoint, provided the purchasing power of all other currencies will have evaporated into bitcoins? This always sounded to me like a purely academic/ideological idea.

Anyway, a final ceiling would naturally lead to deflation. Well, I live in a country that is just recovering from a long period of deflation and I can tell anyone that deflation is a highly undesirable environment -- not just for companies, but more so for employees.

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Yes, our finance industries use up massive amounts of energy to extract directly from us. But it's the same argument as for bitcoins. Anyway, in both cases I wouldn't be exactly unhappy if quite a few of them had their plugs pulled

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BTW, out of curiosity I tried trading bitcoin CFDs on a virtual account (so no real money involved). Gosh, trading it is stressful! No fundamentals to base decisions on and chart formations do not necessarily follow the same patterns as with other, more 'conventional' investments.

Also, and this is something to consider because trading bitcoin CFDs are massively touted as of late as the easiest way to 'buy into' and participate in the 'bitcoin wonder': with CFDs the spread is quite high, meaning trading platforms scalp their margins (some nearly 100 pips).

Two reasons why bitcoins are less than ideal for trading!

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I think bond markets are definitely in a bubble. The rest is a consequence of QE. In historical comparison, stock markets are sure above long-term moving average by now (so no longer as dead-pan cheap as in 2010-2014), but also not euphorically high, as was the case shortly before the burst of the Internet bubble. FANG stocks are an exception here. Yes, stocks are high in terms of figures and probably also (still) high in terms of 'purchasing power'. Anyway, I expect those figures to remain more or less, but the 'purchasing power' will adjust once inflation finally permeates the markets (project 'soft landing').

 

[JohnRoberts]

BTW, out of curiosity I tried trading bitcoin CFDs on a virtual account (so no real money involved). Gosh, trading it is stressful! No fundamentals to base decisions on and chart formations do not necessarily follow the same patterns as with other, more 'conventional' investments.

Also, and this is something to consider because trading bitcoin CFDs are massively touted as of late as the easiest way to 'buy into' and participate in the 'bitcoin wonder': with CFDs the spread is quite high, meaning trading platforms scalp their margins (some nearly 100 pips).

Two reasons why bitcoins are less than ideal for trading!

There are exchanges trying to create a trading equivalent but currently too volatile.

I mentioned Square (payments processor) the other day and should have bought some since it looks like it is up another 10% since mentioning it might accept bitcoin. This could become a cheaper way to trade bitcoin, but that could overwhelm the normal business...

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I think bond markets are definitely in a bubble.

yes...  lots of price distortion and bubbles do not generally end well.

The rest is a consequence of QE. In historical comparison, stock markets are sure above long-term moving average by now (so no longer as dead-pan cheap as in 2010-2014), but also not euphorically high, as was the case shortly before the burst of the Internet bubble.

yes high, but not top yet...

FANG stocks are an exception here. Yes, stocks are high in terms of figures and probably also (still) high in terms of 'purchasing power'. Anyway, I expect those figures to remain more or less, but the 'purchasing power' will adjust once inflation finally permeates the markets (project 'soft landing').

I own 2 of the FANG stocks and they keep going up... when things turn they may feel it harder than smaller cap stocks, but while the music is still playing they look good, until they don't.

One significant risk for FANG is government antitrust actions as they become too big and powerful for effective competition. I am getting nervous but haven't sold them yet.

JR

 

[Script]

If central bank money is 'fiat',
bitcoins are pretty much 'spērāte'.

Another thing to consider with bitcoins is that any gain should (and probably will soon be) subject to taxation -- either capital gains tax or income tax (better, IMO). It's not a reality yet, but I see it coming... (Europe has made preparations already).

 

[Phrazemaster]

If central bank money is 'fiat',
bitcoins are pretty much 'spērāte'.

Another thing to consider with bitcoins is that any gain should (and probably will soon be) subject to taxation -- either capital gains tax or income tax (better, IMO). It's not a reality yet, but I see it coming... (Europe has made preparations already).

God forbid anyone should make money without the government getting a lot of it.

 

[dmp]

Yes, theoretically. And practically?

(You seem to know much more about bitcoins than me. I'm not playing dumb at all here and I'm really interested.)

I think the technology is really interesting and the blockchain with no appeal to authority was a tremendous innovation. I wouldn't be surprised if it were considered the major innovation of the 21st century (several decades from now).

But I have no idea on what a fair value is, whether it is in a bubble, etc. etc.
I'll make no arguments trying to justify the price today or anytime. Predicting markets is impossible in my mind - too many moving parts. 
I do try to counter critical arguments that are uninformed-  if that makes me appear 'bullish', it is just because I am a believer in the technology.

 

[JohnRoberts]

I think the technology is really interesting and the blockchain with no appeal to authority was a tremendous innovation. I wouldn't be surprised if it were considered the major innovation of the 21st century (several decades from now).

But I have no idea on what a fair value is, whether it is in a bubble, etc. etc.
I'll make no arguments trying to justify the price today or anytime. Predicting markets is impossible in my mind - too many moving parts. 
I do try to counter critical arguments that are uninformed-  if that makes me appear 'bullish', it is just because I am a believer in the technology.

+1 the technology is a completely different issue than bitcoin as an investment (cough... bubblicious).

Blockchain is expected to scrape a lot of cost out of mortgage record keeping (and mortgage insurance cost).

Many opportunities for financial transaction handling.  For investment you don't want to be the last man standing without a chair (buyer) when the music stops...

JR

 

[dmp]

+1 the technology is a completely different issue than bitcoin as an investment (cough... bubblicious).

Blockchain is expected to scrape a lot of cost out of mortgage record keeping (and mortgage insurance cost).

Many opportunities for financial transaction handling.  For investment you don't want to be the last man standing without a chair (buyer) when the music stops...

JR

I think the current financial system sees some potential cost reduction through using the blockchain technology. But when you combine blockchain with the technology to remove the authority (i.e. the banks) then the banks are left completely out of the equation.  As we are seeing Sears near bankruptcy, maybe in 10-20 years we will be seeing JP Morgan, Citigroup, Wells Fargo, etc...

 

[JohnRoberts]

I think the current financial system sees some potential cost reduction through using the blockchain technology. But when you combine blockchain with the technology to remove the authority (i.e. the banks) then the banks are left completely out of the equation.  As we are seeing Sears near bankruptcy, maybe in 10-20 years we will be seeing JP Morgan, Citigroup, Wells Fargo, etc...

Except banks do more than exchange currency (think marginal reserve banking).

I will sell my bank stocks before 10-20 years (if still alive)... In the short term they will get a bump from interbank interest rate increases (allowing them to charge more). Longer term  WWW based micro lending may (will probably) erode their loan business... 

recent bank news is sub par bank lending  rate of growth (oh oh).

JR

 

[Andy Peters]

God forbid anyone should make money without the government getting a lot of it.

And why should income from passive investment gains not be taxed, while income from labor is?

 

[Script]

And why should income from passive investment gains not be taxed, while income from labor is?

+1
That's why I'd suggest taxation based on income. Low incomers pay less tax anyway, whereas high incomers and capital-strong private people can easily pay more. Sounds fair to me.
(Said differently in 'jargon': If it's not taxed, it'll make the rich disproportionally richer.)

 

[Script]

Blockchain is expected to scrape a lot of cost out of mortgage record keeping (and mortgage insurance cost).

Yes. But we'd also need a legal framework that obliges banks etc to pass the cost reductions down to us. Otherwise it only makes bank surplus sheets look better.

 

[JohnRoberts]

And why should income from passive investment gains not be taxed, while income from labor is?

I converted my ira to ROTH years ago, because I already paid taxes on that money once when I first earned it (from my labor).

Investment involves risk that you could lose 100% of that investment. I pay taxes on all my successful (non ira) investments, while I can only deduct a fraction of my losses. Luckily I don't have many losses recently (fingers crossed, market is always a crap shoot, and we are past due for a correction ).

Taxes need to be raised to fund essential government operations (like defense). Tax policy should not be used to implement some version of social justice by transferring wealth from successful to less successful citizens.  We are already moving down that road, and carried to logical extremes we will run out of rich people to take wealth from. 

JR 

@ script  we already have a very progressive tax rate structure. The wealthy already pay high taxes, but they don't have enough money to support the government's huge spending habit, so the middle class gets taxed too (because as Willie Sutton famously said,"that is where the money is"). 

 

[Script]

Really an aside:
ROTH is an interesting model indeed. I had never heard of it until I first read about it a year or so ago. It has both advantages and disadvantages, so it sure is not for everyone. UK ISA seems more flexible, but most other European countries don't seem to have anything like it.

 

[JohnRoberts]

Really an aside:
ROTH is an interesting model indeed. I had never heard of it until I first read about it a year or so ago. It has both advantages and disadvantages, so it sure is not for everyone. UK ISA seems more flexible, but most other European countries don't seem to have anything like it.

I converted to ROTH years ago because I do not trust the federal government to not keep expanding and increasing taxes... of course I must rely upon them not changing the rules again... 

Switching to a consumption tax would negate any benefit of protecting against income tax.

JR

PS: Roth on paper is not a huge benefit... people will presumably be in a lower tax bracket after they retire so paying regular tax on funds pulled from a 401K after retirement should be lower than the tax rate during peak earning and a pretty good deal... I just have trust issues.  :

 

[Andy Peters]

Really an aside:
ROTH is an interesting model indeed. I had never heard of it until I first read about it a year or so ago. It has both advantages and disadvantages, so it sure is not for everyone. UK ISA seems more flexible, but most other European countries don't seem to have anything like it.

The Roth IRA lets you contribute post-tax money and gains are tax free. A "traditional" IRA lets you contribute pre-tax money but the gains are taxed when you withdraw them.

The assumption behind the traditional IRA (which includes 401(k), SIMPLE and other such plans) is that your income in retirement (which includes withdrawals from a retirement account) will be lower than your income during your working years. In other words, you will be in a lower tax bracket. Contributions are pre-tax, which means that the amount you contribute is deducted from your gross pay, so you current income is lower for your tax assessment. (If you make $100K and you contribute $20K to the IRA, your income for taxing is $80K.)

Further, this assumes that your expenses in retirement are lower, therefore your cash needs are lower. The house is paid off, the kids are out of college, etc. Remember, only the money you withdraw from the IRA is considered income, and you are taxed on the withdrawals alone, not on the balance that remains in the account.

The Roth flips that.  Contributions are made post-tax, so you do not deduct them from your gross income at tax time. This means your working income is higher and you pay more tax as a result. The gains at retirement are tax-free, which means that your taxable income in retirement is lower than with a traditional IRA.

The decision you have to make is whether the tax savings now outweighs possible tax savings in retirement.

Many people work for an employer that offers a 401(k) plan, so by default they have the traditional plan. They can also open a Roth IRA. Both plans have annual contribution limits.

(BTW, "retirement" is not defined as "no longer working," but simply an age. One can start withdrawing from an IRA at age 59 1/2.)

 

[bruno2000]

Many people work for an employer that offers a 401(k) plan, so by default they have the traditional plan. They can also open a Roth IRA. Both plans have annual contribution limits.

As an employer, we offered both flavors.  We also had an option of transferring some $$$ out of the "company  plan" to a "self managed" plan where the participant could convert from a traditional IRA to a Roth.
YMMV
Best,
Bruno2000

 

[john12ax7]

The long term goal of bitcoin and crypto should hopefully be a low cost transaction system and a store of value.  A competitor to banks that gouge their customers and governments that devalue their currency.  If it always remains  speculative investment I would say that is a failure.

Regarding investments imo it is a great con job that allows them to be taxed less than labor.  Yes the millionaire athlete pays a boatload on their income. But the high priced company executives take low salaries with high compensation in stocks and options which can then be taxed as "investment". Therefore they end up paying less taxes than hard working middle class folks.  I can't see how anyone thinks that is fair.

The middle class shouldn't have to do all the work and also pay for everything.

 

[Script]

Another aside and then I'll shut up, cos this thread is about block-chaining

Tax exemption for retirement portfolios is a good idea, I think. I wonder whether there is a 'capped' version anywhere around, meaning gains are tax-free up to a certain amount that is needed to secure livelihood in 'retirement' (e.g. a per-year accumulated multiple of current poverty line), while everything above that threshold would be taxed fully. Could be a model.

Everything else could really be taxed equally. Exceptions: Long-term savings, if clearly for retirement/education of kids/maybe health issues etc, with individual investment hold times of more than 1 , 2 ... 5(?) years (as opposed to short-term speculation, i.e. bought and sold within a year -- already the case in the US). Probably also exempt (or cap) gains from property sale if it's a primary house, that is if clearly used by sellers themselves, cos nobody would want people having/wanting to move face having to be satisfied with a smaller house.

Apart from that everything else could really be taxed equally. And I suggest income based, because it might have the potential to make the entire system easier, more transparent and probably also more flexible in terms of short-term adjustments (to account for technological, demographic etc developments for example). One last one, just an idea:: I'd probably tax options, futures, swaps, high-leverage products and currency gains higher than 'traditional' investments.

I am well aware that this would make the chairs not only of many high-earners and capital strong individuals shake a bit. But the chairs won't tumble over. Corporate tax is another lever. In japan it's very high, resultng in most mid-sized company not making any gain worth mentioning. They all try to spend as much of it as possible before the year ends, so it gets taxed not as corporate but elsewhere. Several private health insurance companies (in Europe and US, in Japan I don't know) are an exception cos they don't have to pay capital gains tax (basically it's like state subsidized).

I'm against 'milking' individuals through taxes and against wasting taxes by the state, but distribution inequality has become a problem (due to demographic and technological advances) and I hypothesize that it might become worse. I am aware of the argument that stock and dividend gains are basically double taxed: corporate tax plus individual tax. And I am also very well aware that a risky investment can lead to a 100% loss. But nobody in their right minds would bet everything only on one horse, whereas even blindly investmenting in a range of whatever big-player stocks for example gives a higher chance of a gain (in the long run) than any lottery.

Back to bitcoins:
Bitcoin (the initial idea and the hyped currency for 'investment' as of now) to me seem a bit clouded by the dream of dropping out of the 'authority system' entirely: not only is it decentralized and there is no state or central bank authority, gains are also not taxed -- with the latter there's also no solidarity.

Again: I welcome the technology for its potential. It might even put some banks out of business (personally I wouldn't be too sad about that) but I doubt it. Whether it'll be called the biggest innovation with hindsight in centuries to come I'm not so sure about, maybe, but it sounds like an interesting hypothesis

 

[JohnRoberts]

While I don't expect the brewery to be a rich resource for investment advice I would like to share one investment strategy for any here lucky enough to own bitcoins and enjoy an outsized profit.

The current US price is around $10,000....  Unless you bought your bitcoins recently you probably have a healthy profit in your bitcoin holdings. The strategy I wish to share is called "playing with the house's money"  (a gambling term). 

If you have a several X increase, you can sell just enough to recover your cost basis, and still leave plenty to ride higher, as bitcoin price climbs to the sky.  That way if the future price of bitcoin collapses to zero, you lose nothing.

This is just prudent, and common sense after the fact.

Another general investment strategy is diversification, or do not put all your eggs in one basket, so if you are overweight bitcoin, consider diversifying into other Asset classes.

JR

 

[dmp]

I converted my ira to ROTH years ago, because I already paid taxes on that money once when I first earned it (from my labor).

Investment involves risk that you could lose 100% of that investment. I pay taxes on all my successful (non ira) investments, while I can only deduct a fraction of my losses. Luckily I don't have many losses recently (fingers crossed, market is always a crap shoot, and we are past due for a correction ).

Taxes need to be raised to fund essential government operations (like defense). Tax policy should not be used to implement some version of social justice by transferring wealth from successful to less successful citizens.  We are already moving down that road, and carried to logical extremes we will run out of rich people to take wealth from. 

JR 

@ script  we already have a very progressive tax rate structure. The wealthy already pay high taxes, but they don't have enough money to support the government's huge spending habit, so the middle class gets taxed too (because as Willie Sutton famously said,"that is where the money is").

So I've posted about this before.  First, you do not pay taxes twice on earned money that is invested. If you earn $1000 and invest it, and after some time you sell the investment for $1500, you pay taxes on the $500 profit - not the original $1000 you earned. If you instead used the $1000 you earned to take class in computer programming and then got a higher paying job, not only would you have expended the $1000, but you'd pay the full tax rate on the higher earnings you achieved through that investment.
The lower cap gains rate is a preferential benefit to the very rich and the upper middle-class goes along with it because they also benefit. But anyone that is knowledgeable about economics should be able to see this. 
Additionally, it has distorted the economy in the last few decades since it was enacted in the GWB tax cuts. Now, it is preferential to earn money through cap gains, so investment is directed that way.

But yeah, let's take this thread back to cryptocurrency.

Back to bitcoins:
Bitcoin (the initial idea and the hyped currency for 'investment' as of now) to me seem a bit clouded by the dream of dropping out of the 'authority system' entirely: not only is it decentralized and there is no state or central bank authority, gains are also not taxed -- with the latter there's also no solidarity.

The USA has said gains are taxed like other investments so capital gains rules apply. However other countries, like Germany, consider it private money that is not subject to cap gains tax. Some countries don't have capital gains taxes at all. So, it depends on where you live. Anyone who thinks it would be impossible for the gov to know needs to do more research. Converting fiat money to crypto leaves a trail.