Is it time to buy Bitcoin?

The Bitcoin into which I placed my life savings at $64,000 is down a bit. With stocks, the best time to buy is usually right after a big slide. Is it time to buy more Bitcoin?

Stress tends to reduce a large field of competitors. From Wikipedia:

Starting with Duryea in 1895, at least 1900 different [auto manufacturing] companies were formed, producing over 3,000 makes of American automobiles. World War I (1917–1918) and the Great Depression in the United States (1929–1939) combined to drastically reduce the number of both major and minor producers.

There are some use cases for crypto, e.g., Hunter Biden transferring painting sales revenue to hookers and drug dealers, but why do we need currencies in addition to Bitcoin? If all of the money and faith that people have put into 19,000 digital currencies went into Bitcoin, it could go back up to $64,000, no? (Another way that Bitcoin could get to $64,000 is via continued U.S. government money-printing… $64,000 could be the price of a Diet Coke.)

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How will we pay for our mail order fentanyl now that crypto is cratering?

“Cryptocurrencies Melt Down in a ‘Perfect Storm’ of Fear and Panic” (NYT, today):

A steep sell-off that gained momentum this week starkly illustrated the risks of the experimental and unregulated digital currencies.

The problem is not that a string of random bits has no inherent value, in other words, but that the U.S. government is not regulating Bitcoin.

(For those that argue that fiat currency has no inherent value… you need it to pay your taxes, without which you will be put in prison. So its inherent value is at least whatever your freedom is worth to you.)

The price of Bitcoin plunged to its lowest point since 2020. Coinbase, the large cryptocurrency exchange, tanked in value. A cryptocurrency that promoted itself as a stable means of exchange collapsed. And more than $300 billion was wiped out by a crash in cryptocurrency prices since Monday.

The crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies. Even as celebrities such as Kim Kardashian and tech moguls like Elon Musk have talked up crypto, the accelerating declines of virtual currencies like Bitcoin and Ether show that, in some cases, two years of financial gains can disappear overnight.

The moment of panic amounted to the worst reset in cryptocurrencies since Bitcoin plummeted 80 percent in 2018.

It recovered from the 2018 crash so we just have to buy and hold? 16 percent of Americans agree:

During the coronavirus pandemic, people have flooded into virtual currencies, with 16 percent of Americans now owning some, up from 1 percent in 2015, according to a Pew Research Center survey. Big banks like Northern Trust and Bank of America also streamed in, along with hedge funds, some using debt to further juice their crypto bets.

But crypto’s decline is more severe than the broader plunge in the stock market. While the S&P 500 is down 18 percent so far this year, Bitcoin’s price has dropped 40 percent in the same period. In the last five days alone, Bitcoin has tumbled 20 percent, compared to a 5 percent decline in the S&P 500.

Let’s go back to January 2021 when I wrote Bitcoin being pumped up a fraudulent Tether? Bitcoin was then valued at $36,000. Today it is quoted at approximately 30,000 Bidies (mini dollars). How’s Tether doing? Actually not too bad!

This week, Luna lost almost its entire value. That immediately had a knock-on effect on TerraUSD, which fell to a low of 23 cents on Wednesday. As investors panicked, Tether, the most popular stablecoin and a linchpin of crypto trading, also wavered from its own $1 peg. Tether fell as low as $0.95 before recovering. (Tether is backed by cash and other traditional assets.)

Regulators say that more regulation is the answer:

“We really need a regulatory framework,” Treasury Secretary Janet Yellen said at a congressional hearing on Thursday. “In the last couple of days, we’ve had a real-life demonstration of the risks.”

Why would it make sense for the folks in Washington, D.C., who have failed to maintain a stable value for the U.S. dollar, to try to monkey with Bitcoin? People who want a currency that is subject to the regulation and manipulation of technocrats in D.C. already have one: the U.S. dollar.

Would any HODL readers like to make the case for buying cryptocurrencies right now? If so, which one(s)?

Crypto Believer at the local strip mall this evening… (I was at PetSmart)

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March Madness: How has Bitcoin done relative to the S&P 500 and inflation?

For basketball fans, today is the beginning of March Madness. For the rest of us, the primary kind of madness to which we’ve been exposed is the idea that humans can control a respiratory virus with bandanas as PPE. But what about the second maddest form of madness, i.e., the belief that “they’re not making any more bits” and therefore that Bitcoin is inevitably valuable?

What if we’d bought the S&P 500 and reinvested the dividends over the past year? How would that compare to a dividend-free investment (not to say “speculation”!) in Bitcoin? And how have both strategies fared compared to the inflation that we are assured is both minimal and transitory?

Let’s look at the S&P 500. It seems to be up about 6.6 percent. Then add in a dividend yield of just under 2 percent and we get an 8.6 percent bump in nominal terms:

Of course, inflation has been at least 10 percent (if we count the cost of buying a house) and therefore an investor in the S&P 500 has actually lost money over the past year (he/she/ze/they is down about 20 percent measured against the cost of buying a house in South Florida). Bitcoin is an inflation hedge like gold and therefore must surely have done better, right? Yesterday’s chart:

Down 32 percent! What about gold itself? Or, in this case, GLDM:

Up 15 percent, so losing value compared to real estate but perhaps roughly even with most other items.

What if we’d bought tanker trucks full of gasoline? It has gone up from $2.71/gallon to $4.10/gallon (, a 51 percent bump in nominal dollars.

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Finally a use case for cryptocurrency? (currency conversion fees)

I did a lot more research after Portuguese stocks or Lisbon real estate for the next five years? (May) and, as part of an EU citizenship project, decided to purchase stocks over in Portugal rather than take on more real estate ownership hassles (one of the big joys of our Florida move has been saying goodbye to homeownership).

Moving money from Bank of America to Bankinter led to some discoveries about international wire transfer costs. If you move a small amount in euros, Bank of America says that they won’t charge you any fees:

But the exchange rate was actually 1.17 on 9/24. So this is a 2.65 percent fee (still only about $31, plus whatever Bankinter will charge to receive the wire (0.05 percent, minimum €5, maximum €30)).

What about for the million euro transfer that is necessary to get the golden visa/passport process kicked off? Compared to the quoted market, the hidden fees within Bank of America were about 0.75 percent (e.g., about $7,500 on $1 million). If sent in USD, however, and converted by Bankinter, the non-hidden cost is 0.5 percent, a little cheaper than BofA, but still about 80X more than the cost of a Bitcoin transaction on the blockchain, right? (right now roughly $60 to the miners?). Given that we supposedly live in a seamless global economy, I’m kind of surprised at how much it costs to change a couple of database records at two banks that are already tightly coupled.

Could this be an argument for cryptocurrency, assuming that just one of the Ponzicoins prevails and becomes a worldwide currency?

(Why is it fair to call these Ponzicoins? Whoever creates a cryptocurrency can mint the first few million or whatever at almost no cost and then they gain value when he/she/ze/they convinces others to buy in.)

Separately, let’s look at the motivational factors from May:

At least to judge by our media, the U.S. is embroiled in white v. Black, white v. Asian, white v. Latinx, and hetero cisgender v. LGBTQIA+ fights. We’re also adding $trillions in debt, welcoming millions of new welfare-dependent citizens, and instituting dramatic changes in government (every day we hear a new and exciting idea for a bigger more powerful central government!). It seems like a good time to ensure that children have the option to study, work, and live in Europe. The Europeans bumped up against the limits of how much government could be responsible for and don’t seem anxious to go back to the 1970s.

There is no way to predict whether Portugal, Italy, Germany, France, or Sweden will be a better place to live than the U.S. in 2030, but keeping only a U.S. passport is essentially a bet that the U.S. will be a better place to live than anywhere in the E.U. Would we want to make that bet?

Now that we’ve had a full summer of rule by Joe Biden and the Democrats, do the above factors still apply to the U.S. as reconceived from Washington, D.C.? Let’s take them one at a time.

embroiled in white v. Black, white v. Asian, white v. Latinx, and hetero cisgender v. LGBTQIA+ fights

The conflicts described in May don’t seem to have been resolved. To these we’ve added roughly half of Americans who now hate Texas and Texans (see “Boycott Texas,” for example, from The Nation, 9/14: “With SB 8 following a crazy new gun law and mandatory mask ban, the Lone Star State has more than earned the cold shoulder”). We also have the hatred of the vaccinated for the unvaccinated, a new-since-May phenomenon.

adding $trillions in debt

“America’s Need to Pay Its Bills Has Spawned a Political Game” (NYT, 9/26): “The Covid-19 pandemic continues to ravage the United States in waves, frequently disrupting economic activity and the taxes the government collects, complicating Treasury’s ability to gauge its cash flow.”

In other words, the U.S. will continue to bury itself more deeply in debt so long as coronapanic continues. And, absent an enormous advance in treatment, we know that coronapanic will continue so long as the virus has the capability of evolving.

(Of course the U.S. also buried itself more deeply in debt before COVID-19 emerged, but at a somewhat slower pace (St. Louis Fed))

welcoming millions of new welfare-dependent citizens

This one might have changed. In order to hit our goal numbers for Americans dependent on government-provided housing, health care, food, and smartphone, we’re no longer relying on immigrants (the “welcoming” part of the headline). We’ve got the new $3,600 per year per child handout, which started in July. Going forward, the NYT tells us that what we used to call “welfare” is our common destiny: “From Cradle to Grave, Democrats Move to Expand Social Safety Net” (9/6, regarding $3.5 trillion in new spending, “a cradle-to-grave reweaving of a social safety net frayed by decades of expanding income inequality, stagnating wealth and depleted governmental resources, capped by the worst public health crisis in a century.”). Tens of millions of additional residents of the U.S. will be dependent on government support (no longer called “welfare”) going forward, but, due to the massive expansion of the welfare state, most of them will be native-born.

On the third hand, once chain migration (wives, cousins, kids, parents, etc.) is mostly complete, we’ll have at least 1 million new citizens from Afghanistan as a result of our spectacular defeat in August and decision to evacuate mostly men mostly at random rather than simply pay the Taliban not to bother people on a list. If these folks are like previous immigrants from Afghanistan to the U.S., they and their descendants will be among the poorest of the poor here, eligible for every form of government assistance for at least three generations. (See “Challenges to the economic integration of Afghan refugees in the U.S.”: “Afghan refugees’ earned incomes are the lowest of seven refugee/immigrant comparison groups”)

instituting dramatic changes in government (every day we hear a new and exciting idea for a bigger more powerful central government!)

Other than the welfare state expansion that the NYT describes above, I can’t think of anything new since May from the Biden administration or Congress.

If an EU passport was a good idea in May 2021, therefore, it seems like it might be an even better idea today. If you want to buy yourself and your children the option to study, work, or live in Europe (or simply travel back and forth during lockdowns), I would recommend acting ASAP. The Portuguese love hardcopy, notarization, etc. and it will take a two months to jump over the bureaucratic hurdles, even with two-day FedEx delivery of signed hardcopies. Email if you need recommendations for a lawyer and bank over there.


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Why isn’t the cost of mining Bitcoin more or less equal to the current price of Bitcoin?

A comment on Is inflation already at 15-30 percent if we hold delivery time constant?:

GPU scarcity is entirely due to the growth of digital currency mining and the corresponding increase in demand for the chips that do the mining most efficiently. A top-end GPU can recoup the list price from digital currency mining in two months.

Why is the return on investment quick/high for Bitcoin mining? If the price of Bitcoin goes up, shouldn’t there be an almost immediate flood of people into the mining business such that the cost of mining rises to just below the selling price of Bitcoin?

An explanation of the mining process:

Once miners have verified 1 MB (megabyte) worth of Bitcoin transactions, known as a “block,” those miners are eligible to be rewarded with a quantity of bitcoin (more about the bitcoin reward below as well). The 1 MB limit was set by Satoshi Nakamoto, and is a matter of controversy, as some miners believe the block size should be increased to accommodate more data, which would effectively mean that the bitcoin network could process and verify transactions more quickly.

Note that verifying 1 MB worth of transactions makes a coin miner eligible to earn bitcoin—not everyone who verifies transactions will get paid out.

To earn bitcoins, you need to meet two conditions. One is a matter of effort; one is a matter of luck.

2) You have to be the first miner to arrive at the right answer, or closest answer, to a numeric problem. This process is also known as proof of work.

If mining is lucrative, e.g., because mining costs $5,000 in carbon-spewing electricity while Bitcoin is selling for $40,000, shouldn’t so many new miners flood in that it would be less probable to “be the first miner to arrive at the right answer”? This would effectively raise the cost of mining and the process should continue until mining costs $39,000+.

I suspect that I’m missing something. “Why The Actual Cost Of Mining Bitcoin Can Leave It Vulnerable To A Deep Correction” (mid-2020):

In early 2020, researchers predicted the cost to mine Bitcoin will be at around $12,000 to $15,000 after the block reward halving in May. But, it is now much cheaper to mine BTC than the initial estimates. The low breakeven price to mine Bitcoin may leave it vulnerable to a correction.

Bitcoin has become more affordable to mine in recent weeks due to two main factors: difficulty adjustments and cheaper electricity in Sichuan, China due to the rainy season.

A low breakeven price of Bitcoin can raise the probability of a price pullback because miners have more incentive to sell BTC, which may increase selling pressure in the short-term.

“To be completely accurate: Given current difficulty, 0.04$/kWh and S9 running custom firmware bringing it down to 71W per TH efficiency. The cost to mine 1 BTC is 8206.64$. Meaning its still profitable,” one miner said.

Maybe my theory isn’t contradicted by this article. At the time it was written, the market price of Bitcoin was $9,626. But what is the cost of mining today relative to the market price of existing Bitcoin?

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Is the crypto crash a buying opportunity?

Bitcoin and Ethereum have been down lately, right?

Could this be the right time to buy for those of us who have mostly missed the cryptocurrency wave?

I recently heard about an alternative to Bitcoin that is also popular with criminals seeking ransom. Here are the characteristics:

  • administered from central server
  • no limit to supply
  • 25 percent of the supply minted in last 6 months
  • 1 percent of holders control 30 percent of the currency
  • 27 trillion units circulating in the system

A good time to jump in?

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Is cryptocurrency the ultimate estate tax avoidance tool?

President Biden has promised to raise estate taxes (but wouldn’t it make more sense to get money from Melinda Gates, MacKenzie Bezos, et al.? See Would limiting charitable deductions raise more than a wealth tax?).

Crytocurrency has become more mainstream.

Could these two be put together?

Let’s go back to the family in Can billionaires marry their children to avoid Joe Biden’s new estate taxes? Jack and Jill have a lot of money that they want to transfer to children. Why can’t they buy cryptocurrency and give their children, Morgan and Parker, the relevant passphrases? After Jack and Jill die, if the IRS asks what happened to a big chunk of money that was wired to a crypto exchange overseas some years earlier, the survivors can say “Jack and Jill must have bought some crypto and lost the password” or “The password died with them.”

Morgan and Parker can quietly spend cryptocurrency for the rest of their lives, so long as they don’t lose the passphrase or spend so much in a short amount of time that they draw IRS attention.

Readers who are experts on crypto: What am I missing?


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Will people who get paid in cryptocurrency share with the IRS?

A friend has been selling NFTs and getting paid in cryptocurrency. He thought that he didn’t have to pay tax on this income until the cryptocurrency was finally cashed in for dollars. I did a bit of searching and told him that the IRS wants him to pay tax in the year that the cryptocoins were received. I directed him to “Virtual Currencies” and an IRS FAQ from 2014:

Q–3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?

A–3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.

How many people will do this? Maybe there will be a 1099 when coins are exchanged for cash and then the holder will be motivated to declare this as a capital gain (at President Harris’s new 75 percent rate plus 13.3 percent California tax?). But if there is no reporting to the IRS of any of the flows that stay in the crypto world, isn’t there a high likelihood that people won’t pay tax either because they don’t know that they should or because they don’t think they’ll get caught?

What’s the percentage of income received in cash that gets reported to the IRS? If Hunter Biden put a $100 bill into the hands of a hard-working dancer, for example, what is the chance that she reported that $100 and paid income tax on it? (Of course, when a friend said that the Daily Mail figured out that Hunter Biden’s laptop showed epic spending on hookers and booze, I responded “And he wasted the rest of his money?”)

From Tampa, 2014:

Disclaimer: I own no cryptocurrency and am bitterly envious of all of the people who were smarter than I!

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