Bitcoin, crypto currency and block chain...

[JohnRoberts]

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.

True

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.

This is not as concise... I took a night course in computer programming (C) and did not get higher earnings that could be associated with that course.  Should I get to deduct that as an investment loss?

Do all the kids with sunk costs from college loans get to use them as investment basis to offset future earnings (profits?).

It is fair to "think" of education as investment, but it isn't very linear...  Some short term trade education courses (like welding or programming) are more calculable for ROI, as they almost immediately get graduates higher paying jobs.

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. 

There is no natural law that equates passive income (that involves an element of risk) with income from labor. The only law that equates these it tax law, to raise funds for government to consume. It is very popular to take wealth from the rich to redistribute to the poor, first made popular by Robin Hood.

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.

the economy is hugely distorted by crisis era liquidity injection and low interest rates, almost a decade after that crisis....  The primary distortion from tax policy is too high tax rates on business that drives them offshore to lower tax countries.

We need to fix both of those economic distortions before confiscating more investment return that would discourage investment (which typically supports economic growth and job creation).

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

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.

I can not predict the future and bitcoin could dramatically increase from here as more people buy into it for a gold replacement (to preserve wealth) and for an quick easy-money investment bet....  This looks and feel a lot like other past bubbles. Prices always stop going up at some point, and the odds that the government will ignore this as it grows larger is unlikely.  China has already clamped down on citizens trying to use it to sneak wealth out of the country. 

Good luck....  buy low and sell high. I recall trying to talk a younger friend out of flipping houses during the height of the housing bubble (he didn't listen). If i owned bitcoin (I don't), I would take some profits now, but not sell it short as it will likely end up higher from here. Between now and that higher future there could be multiple corrections. 

JR

 

[dmp]

This is not as concise... I took a night course in computer programming (C) and did not get higher earnings that could be associated with that course.  Should I get to deduct that as an investment loss?

Do all the kids with sunk costs from college loans get to use them as investment basis to offset future earnings (profits?).

My initial reaction is yes, it  would be a good thing to allow college expenses to be deductible. Careful consideration is always good though, because creating incentives can allow undesirable outcomes, that individuals figure out.
But ideally, educational investments are a REAL way to increase productivity and increase economic output (lift all boats), unlike givaways to the very rich (IMO).
A possible undesirable outcome would be education costs (tuition) could rise to higher level due to the increased affordability by potential students due to the deduction.
perhaps make it a deduction 10 yrs in the future against future earnings?

Good luck....  buy low and sell high. I recall trying to talk a younger friend out of flipping houses during the height of the housing bubble (he didn't listen). If i owned bitcoin (I don't), I would take some profits now, but not sell it short as it will likely end up higher from here. Between now and that higher future there could be multiple corrections. 
JR

Yeah, everyone thinks it's a bubble now. But people thought it was a bubble back in March when it first hit $1200. I sold some then only to re-buy later at a higher price. Timing is hard. I just like and believe in the technology and am along for the ride.  I can't predict or time market pricing. I didn't put in more than I could afford to lose and it's unlikely to go back so far that I take a loss. And I've diversified to about 10 different cryptos, several of which I like technically more than bitcoin, but don't have the name recognition.
"markets can stay irrational longer than you can stay solvent" JMK

 

[JohnRoberts]

My initial reaction is yes, it  would be a good thing to allow college expenses to be deductible. Careful consideration is always good though, because creating incentives can allow undesirable outcomes, that individuals figure out.
But ideally, educational investments are a REAL way to increase productivity and increase economic output (lift all boats), unlike givaways to the very rich (IMO).

I wasn't suggesting that....the thesis that college degrees automatically create wealth is another political fallacy (like expanding home ownership too much)..

Correlation does not prove causation. Historically smarter people go to college, so sending dumdasses to college will not have the same result as we have already seen with all the government lending.

A possible undesirable outcome would be education costs (tuition) could rise to higher level due to the increased affordability by potential students due to the deduction.
perhaps make it a deduction 10 yrs in the future against future earnings?


Yeah, everyone thinks it's a bubble now. But people thought it was a bubble back in March when it first hit $1200. I sold some then only to re-buy later at a higher price. Timing is hard. I just like and believe in the technology and am along for the ride.  I can't predict or time market pricing. I didn't put in more than I could afford to lose and it's unlikely to go back so far that I take a loss. And I've diversified to about 10 different cryptos, several of which I like technically more than bitcoin, but don't have the name recognition.
"markets can stay irrational longer than you can stay solvent" JMK

I was not saying to diversify into other crypto currencies... (while etherium is growing faster than bitcoin) they will all be hit by the same secular hammer if the government gets involved. A basket of cryptocurrencies is smart for investment purposes, but still keep them to a modest fraction of your total personal assets.

If you have tens of $K in profit and don't own a home or car, maybe take a little off the table for something more solid and practical (while maybe not a new car).

JR

PS: I didn't say sell low and buy higher.... I expect I have missed the window on this as easy money (not the first or only time), while opinions vary. I have the investing discipline to take a pass.

 

[dmp]

I wasn't suggesting that....the thesis that college degrees automatically create wealth is another political fallacy (like expanding home ownership too much)..

Correlation does not prove causation. Historically smarter people go to college, so sending dumdasses to college will not have the same result as we have already seen with all the government lending.

Increased productivity in the last century has been largely driven by technology.  Think about how much one can get done with a spreadsheet program - machines - etc...  vs without.
Most technology is developed by highly educated people. I work in a tech company where I have a 'low' level of education with a M.S. Most have PhDs.  All of this incredible technology that has revolutionized our lives did not grow on trees to be picked and sold.
I don't know exactly why you thought I was arguing to "send dumbasses to college" but I guess you can politicize anything. But along those lines, the children of wealthy parents dominate the enrollment at top Universities, when they are their because of birth rather than merit. That is a bigger waste of resources. Allowing ways to make top notch education available to the most qualified, regardless of the money they are born into, is a worthy cause. Making it deductible might help.

I was not saying to diversify into other crypto currencies... (while etherium is growing faster than bitcoin) they will all be hit by the same secular hammer if the government gets involved. A basket of cryptocurrencies is smart for investment purposes, but still keep them to a modest fraction of your total personal assets.

Bitcoin has been beating Ethereum recently, but Ethereum had a pretty spectacular rise for awhile. I first bought at $20 and sold most of it a few months ago. I think they will have a much more difficult time since they have foundation that overseas it (authority) and have set a precedent to rollback the blockchain. Once the government starts getting involved, they'll have a very difficult time. 

 

[JohnRoberts]

Bitcoin has been beating Ethereum recently, but Ethereum had a pretty spectacular rise for awhile. I first bought at $20 and sold most of it a few months ago. I think they will have a much more difficult time since they have foundation that overseas it (authority) and have set a precedent to rollback the blockchain. Once the government starts getting involved, they'll have a very difficult time.

These crypto trades are pretty volatile so it depends on when you look at them but for the year (according to coinbase website) Bitcoin, ethereum, and litecoin are all up 30-40% for last month.  (looks like more domestic buyers and pac rim sellers but this is hard to confirm)

Bitcoin is up 1100% since last year...  Litecoin claims 1900%, and Ethereum 4700%. While they all existed one year ago I don't think they traded seriously before several months ago.

Be careful this is a crazy rate of price change, so easily disrupted in the short term... longer term it looks up (lower left to upper right), but rocky ride between here and there.

Short term trading these price moves requires steel cojones, and luck ( I have neither).

JR 

 

[Script]

...I took a night course in computer programming (C) and did not get higher earnings that could be associated with that course.  Should I get to deduct that as an investment loss?

Yes, fully. Though not as 'investment' loss, but as 'education' cost aimed at 'opportunity'.

Expenditure for (further) education is/should generally be fully deductible from income in one way or the other, I'd say. Not every (further) education makes sense though: think a clerk taking a two-term night course in the art of ikebana...

 

[Script]

Latest price volatility due to French-based Tobam investment company aiming to launch first bitcoin mutual fund in Europe (announced Nov 22) ? Hmm...

Plus bitcoin future by CME group? Double hmm.

 

[Script]

There is no natural law that equates passive income (that involves an element of risk) with income from labor.

True, but...
(1) Labor too involves risk.
(2) Active -- passive, it shouldn't really matter, it's both income, as in 'money coming in'.
(3) Exceptions are necessary. Question is where and for whom.

 

[john12ax7]

For the people that actually make good money with investment there really is nothing passive about it. It's a job just like any other.

 

[Script]

The Swedish Riksbank apparently is thinking about block-chained based E-krona, I hear, as 80% of all payments are already done via credit card there anyway -- also due to distances between banks and shops. Norway also considering.

 

[JohnRoberts]

The Swedish Riksbank apparently is thinking about block-chained based E-krona, I hear, as 80% of all payments are already done via credit card there anyway -- also due to distances between banks and shops. Norway also considering.

There is no doubt that blockchain will be widely used for many (all?) financial transactions, ranging from home ownership, to tracking produce shipments (seriously there is an ad about that).

Bitcoin OTOH has emerged as a faddish digital gold store of value, that many (like me) consider a bubble.  That does not mean it will not go up huge from here as the slow money finally discovers it, but try not to be left standing without a chair when the music stops.

It seems natural for government central banks to adopt blockchain (not bitcoin) for large transfers.

There are multiple exchanges vying to trade futures contracts for Bitcoin that could reduce volatility somewhat, but I still can't predict the future.

JR

 

[dmp]

There are multiple exchanges vying to trade futures contracts for Bitcoin that could reduce volatility somewhat, but I still can't predict the future.

JR

It looks like next week some exchanges offering futures contracts. I'm worried that having the 'pro's in the space with algorithms and deep pockets might make things very chaotic. I expect interesting times over the next couple weeks.
But as I've said before I have no faith in my instincts to time the market. But there are a lot of people jumping in now because bitcoin is 'famous' for the gains now, not because they are excited about the tech. Part of the success of the past few years is the 'hodl'ers that have had strong hands when volatility hits. That came from understanding and belief in the tech. 

 

[JohnRoberts]

It looks like next week some exchanges offering futures contracts.

Starts today

I'm worried that having the 'pro's in the space with algorithms and deep pockets might make things very chaotic.

In general it should make things more stable. Futures should allow people to hedge the future price of bitcoin, just like oil futures allow people to hedge against higher oil prices, but that assumes a mature, efficient futures market that may not happen overnight (if ever).

Market makers are very nervous about the risk of being unable to clear positions during a very volatile price move sticking them with losses. Because of that they are requiring larger than typical margin accounts.  Most large trading firms will not touch bitcoin trading, even with our money.

I expect interesting times over the next couple weeks.

Hard to be more interesting than last couple weeks with hyperbolic price moves occurring over mere hours.

But as I've said before I have no faith in my instincts to time the market. But there are a lot of people jumping in now because bitcoin is 'famous' for the gains now, not because they are excited about the tech. Part of the success of the past few years is the 'hodl'ers that have had strong hands when volatility hits. That came from understanding and belief in the tech.

It would seem smart to prop up bitcoin prices, waiting for the mass inflow of dumb money that is still expected. Many in the public still have no idea what bitcoin is, or how to buy some.  The first application to sell a bitcoin ETF making it easier to hold bitcoins was turned down, but they are expected to re-apply if the futures experiment proceeds without a massive melt down.

If/when the dumb money piles in bitcoin can go a lot higher from here, until it stops going up, then the dumb money will head for the exits, right after the smart money has already left the building. This is just one possible future, of course bitcoin could always go up to infinity. (cough : )

JR

PS: Anyone reading this who is holding bitcoin, please cash in enough to at least cover your basis (cost). That way you can't lose, no matter what happens from here.

 

[dmp]

There was a $1000 price difference last week for bitcoin between two popular exchanges. You could sell on one exchange and buy on the other and clear $1000/btc! Bonkers. 
Even after considering the fees (~0.0025%) and sending the money back between the exchanges, the arbitrage was hugely profitable.
Bitcoin futures are live today and so far prices are up.

 

[tands]

There was a $1000 price difference last week for bitcoin between two popular exchanges.

For how long?

 

[JohnRoberts]

There was a $1000 price difference last week for bitcoin between two popular exchanges. You could sell on one exchange and buy on the other and clear $1000/btc! Bonkers. 
Even after considering the fees (~0.0025%) and sending the money back between the exchanges, the arbitrage was hugely profitable.
Bitcoin futures are live today and so far prices are up.

That sounds (too) easy... good luck.

The big trading firms are still a little afraid of this market because they don't want to get stuck holding large uncleared positions.

The option futures exchanges should tighten up pricing ubcertaintly..

I wouldn't invest my money trying to arbitrage with small, perhaps flaky exchanges, but I still don't own "any" bitcoin even though I am pretty confident it will go a bunch higher from here before it cools off.  Even the futures prices are predicting slower appreciation from here.

JR 

 

[dmp]

The big exchange coinbase (GDAX) has been adding a lot of new members with all  the excitement and FOMO. Bitcoin, litecoin, and ethereum are available on GDAX.
With bitcoin so expensive, litecoin and ethereum have been shooting up this week. Maybe new buyers? But both also can have lower fees and faster confirmation times.
Today, litecoin has had a 20%-30% price premium on gdax vs other exchanges. Again the arbitrage is ridiculous for someone with accounts on multiple exchanges.
It's interesting to see a market behaving when big finance wasn't there first. You never see arbitrage opportunities in stocks, etc, because algos and high speed traders are extracting profits all day everyday. It would be beautiful if wall street arrived just before a crash.  Most of the people who got in early on cryptos were small individuals.

 

[JohnRoberts]

The big exchange coinbase (GDAX) has been adding a lot of new members with all  the excitement and FOMO. Bitcoin, litecoin, and ethereum are available on GDAX.
With bitcoin so expensive, litecoin and ethereum have been shooting up this week. Maybe new buyers? But both also can have lower fees and faster confirmation times.

Is bitcoin cash (?) trading on coinbase?

Today, litecoin has had a 20%-30% price premium on gdax vs other exchanges. Again the arbitrage is ridiculous for someone with accounts on multiple exchanges.

Is it real? What happens if you personally buy some cheap and sell some expensive? How much are closing costs per trade?  I find it hard to believe the price arbitrage is real and exploitable, but nobody chooses to do it. 

It's interesting to see a market behaving when big finance wasn't there first. You never see arbitrage opportunities in stocks, etc, because algos and high speed traders are extracting profits all day everyday. It would be beautiful if wall street arrived just before a crash.  Most of the people who got in early on cryptos were small individuals.

There are real traders trading baskets of crypto currencies too...  and wall street is fully embracing blockchain, just passing on bitcoin. I expect an ETF eventually so even more dumb money can pile in.

The big investment banks are avoiding it because of the bubbleicious nature...

I expect it to go up from here, but I am willing to accept that I missed the big run up...

I have heard some predictions as high as Million dollar future pricing, along with predictions of $0 future... YMMV

JR

PS: Speaking of price discovery and efficient markets I read one suggestion today that consumer product price inflation is is being held down by shoppers using smart phone to check competitive prices at POS.... Not good for retailers but good for consumers.

 

[dmp]

Is bitcoin cash (?) trading on coinbase?

No, only BTC
Bitcoin cash goes by BCH. I like BCH more that the BTC. Cheaper and faster transactions.

Is it real? What happens if you personally buy some cheap and sell some expensive? How much are closing costs per trade?  I find it hard to believe the price arbitrage is real and exploitable, but nobody chooses to do it. 

Sure - I sold earlier today for $355/ltc on GDAX (0.25% fee) and bought the same amount on a different exchange at $296/ltc (0.15% fee).  The catch is you have to have the LTC on the right exchange and the USD sitting on the other. Once you do the buy sell, to do it again, you need to move the LTC across (easy&cheap) and the USD the other way (hard).  I can't move USD between the exchanges. I can move ETH, BTC, or LTC. But all three of them have a higher price on GDAX. So if I buy them just to move the money back over to the cheaper exchange, I lose money when I convert to USD, the opposite of the arbitrage I was trying to take advantage of. So I can't do anymore buying/selling to take advantage of the price difference, but once the prices equalize out between the exchanges, I can move the funds back the way they were.  Exchanges also have a daily withdrawal limit, which slows it down.
Someone with deep pockets on multiple exchanges could be making a killing today.

PS: Speaking of price discovery and efficient markets I read one suggestion today that consumer product price inflation is is being held down by shoppers using smart phone to check competitive prices at POS.... Not good for retailers but good for consumers.

Another theory is that wages are still not increasing much for some reason, and without more money to feel increased wealth, shoppers aren't buying more.  Latest data is unemployment is very low, record high amount of job openings, and business owners are reporting that finding employees is their #1 problem. Why aren't wages increasing more?
Dollar Stores have been doing great this past year, and one of the execs at the corporation (maybe on an earnings call?) said they have huge growth opportunities because so many parts of the country that used to not fit their business model, do now. Meaning, everyday people in  everyday neighborhoods are having to scrimp more and more because they have to make do with less.
The more I read and data I look at, the clearer it seems that there are two things going on in America. Stagnation/deflation (PCI type items) and  rapid inflation (stocks/housing/etc), between the poor and middle class (bottom ~50-80%) and the wealth (top ~10%).

 

[JohnRoberts]

No, only BTC
Bitcoin cash goes by BCH. I like BCH more that the BTC. Cheaper and faster transactions.
Sure - I sold earlier today for $355/ltc on GDAX (0.25% fee) and bought the same amount on a different exchange at $296/ltc (0.15% fee).  The catch is you have to have the LTC on the right exchange and the USD sitting on the other. Once you do the buy sell, to do it again, you need to move the LTC across (easy&cheap) and the USD the other way (hard).  I can't move USD between the exchanges. I can move ETH, BTC, or LTC. But all three of them have a higher price on GDAX. So if I buy them just to move the money back over to the cheaper exchange, I lose money when I convert to USD, the opposite of the arbitrage I was trying to take advantage of. So I can't do anymore buying/selling to take advantage of the price difference, but once the prices equalize out between the exchanges, I can move the funds back the way they were.  Exchanges also have a daily withdrawal limit, which slows it down.
Someone with deep pockets on multiple exchanges could be making a killing today.
Another theory is that wages are still not increasing much for some reason, and without more money to feel increased wealth, shoppers aren't buying more.  Latest data is unemployment is very low, record high amount of job openings, and business owners are reporting that finding employees is their #1 problem. Why aren't wages increasing more?
Dollar Stores have been doing great this past year, and one of the execs at the corporation (maybe on an earnings call?) said they have huge growth opportunities because so many parts of the country that used to not fit their business model, do now. Meaning, everyday people in  everyday neighborhoods are having to scrimp more and more because they have to make do with less.
The more I read and data I look at, the clearer it seems that there are two things going on in America. Stagnation/deflation (PCI type items) and  rapid inflation (stocks/housing/etc), between the poor and middle class (bottom ~50-80%) and the wealth (top ~10%).

There is a new economic book "A century of Wealth in America" (Edward Wolff), that is supposed to be very data intensive at 865 pages... I barely made it through The wealth of nations another dry read on economics...

It was in today's WSJ so you'll see the review.

JR