The Differences Between Crypto and Government-Backed Money

This one is for the noobs again. I like to think of myself as an intermediate noob: I’m not a coder, a miner or even a day trader (I’m a proud Hodler, thank you very much). However I follow the news, check my altcoin investments 35,562 times a day and I have the mad skillz to get my real estate transactions done.

Unless you’ve been living under a rock, you know that Bitcoin has recently BLOWN. UP. My mother and ex-husband called me within 24 hours of each other asking how to buy. Seth Meyers did a hilarious skit about it. A rando friend of mine posted his new Trezor and Bitcoin for Dummies book. Yes, there’s a growing curiosity (okay, more like a frenzy) about how people can get in on the action, and although Bitcoin itself has become a favorite buzzword, the clear majority still don’t have a clue as to what cryptocurrency actually is.

Let’s start with the basics. We all know what government-backed money is, right? Geez, I hope so. Investopedia’s definition is pretty succinct: Fiat is a currency that a government has declared to be legal tender, but it isn’t backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that money is made of.

So, government backed = centralized. The feds have control over the banking industry as interest rates determine the cost of money borrowed. When the centralized banking system fails (remember the S&L scandal? 2008?) the public takes a major hit. We’ve also seen Greece declare bankruptcy while Venezuela is on the brink. Don’t get me started about the new tax bill – the money that’s been promised to the banks to “stimulate the economy” is mind-blowing. In case you’re wondering where I stand on this issue, you can watch Rachel Maddow’s take on it.

Most banks can’t get behind the idea of cryptocurrency and have been very vocal about it for obvious reasons. Without getting too technical, cryptocurrency is decentralized, and each transaction is recorded onto a transparent, immutable public ledger called the blockchain. We’ll call it community-backed currency, even though the IRS considers crypto an asset/commodity. It behaves like a stock and one can spend, trade or transfer it back to fiat. The thing that irritates me the most is that these Wall Street dinosaurs write article after article comparing cryptocurrency to the behaviors of stocks and fiat trends and try to predict the next bubble while dumping on the validity of cryptocurrencies. They can’t seem to wrap their heads around the fact that yes, while crypto behaves similarly to a stock, IT’S NOT A STOCK, it’s a CURRENCY YOU CAN BUY SHIT WITH.

The Bubble Scare

I just read an article by Jerry Welch, about how crypto fails the duck test, which I think is a ridiculous analogy (he does reference a passage in his book, Back to the Futures, as to how Darth Vader struck down the pin-striped pork bellies known as stock future contracts…starting to see a trend here?), then goes on to compare epic bubbles such as the Dutch Tulip Bubble of the 1630s (!!!), Japan’s real estate market bubble of the 1990s and of course the dot-com bubble, and hints that the crypto bubble could be just as epic of any of those. But he, like so many other old-school finance “experts”, is putting old-school rules like the duck test onto cryptocurrency. No shit does it fail, and keeping in the vein of horrible, over-used analogies, it’s NOT a duck - it’s a honey badger, and honey badgers don’t give a fuck.

And while comparing a nearly 400-year-old bubble to Bitcoin is completely and totally rational (it’s like comparing the Titanic to IOTA), I honestly don’t think there is a Bitcoin bubble and many experts with much more experience than I have will agree. A great point of reference is Lou Kerner’s article. He takes a look at Amazon stock when the dot-com bubble hit and compares it to the overall performance. Still apples and oranges, but we’re at least on the right track. However, I do believe there’s going to be an ICO bubble, but again that’s another article.

Hacks

If a bank with a centralized server gets hacked, everyone is screwed. Depending on the bank, the FDIC only insures up to $250,000. Anything after that is your loss. The key point here is that centralized banks have centralized systems, and the hacking ease is much greater. Yes, there have been a few exchange hacks over the years but in most cases, the exchanges have been able to give back two-thirds to three-quarters of the fiat back to its customers. There is also the 51% Attack theory, in which if 51% of the Blockchain mining could be taken over with malicious intent to control the network. This would be extremely difficult to accomplish due to the massive amount of computing power needed.

Who Has Control

As mentioned briefly above, centralized banking is controlled by the feds and we as consumers have always been helpless with regards to inflation spikes, interest rates, and so forth. Cryptocurrency, however, is community-based for all intents and purposes and the price is derived upon simple supply and demand. Sure, the price is affected if a country like China speaks out against ICOs and Bitcoin and corrections are made, but once the news dies down then the price shoots right back up. We’ve seen just recently the price of Bitcoin was affected by the holidays – perhaps people were cashing out a little to get the Christmas shopping done, but it’s crawling back up and hanging steady around $15,000 at the time of this writing.

Another little amusing thing is that the old-schoolers in traditional finance love to discredit crypto because it’s based on “nothing.” Let me make it clear that fiat is literally based on nothing. No gold to back it anymore, no real infrastructure, nothing other than what the feds declare. To reel in inflation, the feds put more money into circulation, sometimes flooding the market and driving down the value of the dollar. Bitcoin will never have more added to circulation because it was designed that way. There are 15M in circulation now with 6M in reserves to be added at specific times throughout the life of the Blockchain. The Blockchain is at its infancy and just like the Internet, will be used in various industries over the next few years and will most definitely become mainstream. There are different Blockchains that power cryptocurrencies (Bitcoin which is closed-sourced and Ethereum which is open-sourced), and they’re not going anywhere anytime soon, if at all.

Bottom Line

If you’re going to invest, invest at your comfort level. If you’ve got the stomach to ride the ups and downs of cryptocurrency, then do so. However, I will leave you with this: The 2017 stock market has produced about a 9.7% ROI, while Bitcoin’s 2017 returns have been 1375%, and 2018 will only be better for Bitcoin as well as Ethereum and other promising cryptocurrencies.

 

 

My Road to Investing in Cryptocurrency/Coins to Watch

My life changed about a year ago when a nice family from back east randomly found me online. They were living and working downtown, and had been looking all over Los Angeles for a place to finally call home. Trying to get a feel for the diverse areas in which they could settle, they landed on Manhattan Beach as a possibility. We hit it off instantly upon first meeting. I showed them around the area, did my spiel about why I loved the South Bay so much and how Manhattan was one of the most ideal spots in LA County, and they got excited. After a few showing and as we were homing in on their wish list, they said, “Oh, by the way, we want to pay for it in Bitcoin.”

The road to crypto is paved with good intentions.

As a hungry Realtor with a can-do attitude I naturally said, “Sure, we can do that!” not knowing **WTF** I was doing or how I was going to do it. Maybe they were kidding? No. They weren’t.

I called my go-to lenders to see what they knew about this Bitcoin thing. Not much. One said he bought one just for experimentation purposes, but the best thing for my buyer to do was to exchange it for USD and let it season for a couple of months. Nope. We found the house they wanted, they were sick and tired of living out of suitcases and needed to move NOW. So, years were lost off my life getting the deal done but we GOT IT DONE, and went on to do three more transactions this year. I’ll bore you with the details in another blog post someday.

All this to say at the time, when we were standing in the house they had decided was theirs, my buyer showed me his digital wallet. Holyfreakinmoly. One BTC was around $760. I thought that was insane. Who would want to invest in a digital currency at that rate?? Um, yeah. Fast-forward to one year later, and at the time of this writing, it’s at $7,750 and has been flirting with $8,000. I expect it to be there by next week, barring any manipulating statements from China or JP Morgan (who bought the dips, but again I’ll save the rage for another post).

I’m not proud to say I’ve done some dumb things in the past with stocks, like sell my Apple shares and invest in the “next eBay” upon advice of a friend (ever heard of AuctionCities? Didn’t think so. It’s sitting there in my portfolio at $0 with its middle finger in the air). But after a couple of more real estate transactions using Bitcoin, I decided to finally take the plunge at (gulp) $1,800. I lost sleep that night. Then I saw it go up. And up. Then bought at $2,200, $4,000 and just bought the dip when they announced the SegWit2x fork had been cancelled. I’m not to most savvy trader in the world. Although it’s become an obsession of mine, I don’t day trade or sit at my computer waiting to see what’s going on so that I can cash in. Since last this time last year, BTC is up 919%. That’s not a freaking typo. And because of my crazy journey in the past year I have met fascinating people in this new world of cryptocurrency. They watch the coins, they know when to buy and sell, and then they tell me. Unlike my awesome stock portfolio that gains 10-12% on a good day, here are the coins that I’m vested in (Note: I AM NOT A FINANCIAL ADVISOR, just a chick who likes this stuff and hoping you will too):

NEO (up 27,023% from $0.17 Dec. 2016 to $46.11 Nov. 2017)

Ethereum (up 3,421% from $9.57 Dec. 2016 to $337.98 Nov. 2017)

Litecoin (up 1,162% from $3.95 Dec. 2016 to $68.44 Nov. 2017)

EOS (up 84% from July 2017 to $1.94 Nov. 2017) – one to watch. Trust me on this one.

Monero (up 1,612% from $7.86 Dec. 2016 to $134.63 Nov. 2017)

Walton (up 396% form $1.04 Aug. 2017 to $5.16 Nov. 2017)

OmiseGo (up 1,432% from July 2017 to $8.12 Nov. 2017)

Other coins to keep watching: SALT, ChainLink and KyberNetwork. Do I wish I had bought into these a year ago? You bet! You’re probably thinking it’s too late to get in the game, but it’s not. I tell everyone to get in now, even if it’s ¼ of a Bitcoin or any of the above coins. In another year, you’ll most likely stand to make more than this year’s best performing stocks (According to SeekingAlpha.com as of October 2017):

Dynavax Technologies (DVAX - healthcare) – up 444%

Straight Path Communications (STRP – telecommunications) – up 432%

The following seven are in the healthcare sector as well (!!!):

Sangamo Therapeutics (SGMO) – up 391%

Calithera Biosciences (CALA) – up 384%

Pieris Pharmaceuticals (PIRS) – up $309%

Kite Pharma (KITE) – up 301%

Esperion Therapeutics (ESPR) – up 300%

Puma Biotechnology (PBYI) – up 290%

Immunomedics (IMMU) – up 280%

Of course, this could all go to hell by the time this is published. Just like traditional fiat hedge funds, there have been numerous crypto hedge funds popping up. Some good, some bad, but my favorite so far is MT Digital Assets –  they cater to the beginner, intermediate and savvy crypto investors, and go over and above to make sure you have a diverse portfolio that fits YOU, plus they’re just super cool guys.

Once you’ve made your fortune in crypto investments, call me to park it in some real estate. ?

 

 

Forks 101: What Every Investor Should Know

If you’re a crypto investor, you should most certainly know about blockchain forks and their impact on the crypto market. Just like news of changes happening in any random stock traded on Wall Street, news of an impending fork can cause a bit of a raucous in the crypto world (see, I used “raucous” because I’m a Gen-Xer and can get away with it…sort of).

First off, there are two types of forks: A soft fork and a hard fork. A soft fork is backward-compatible software change that follows new rules set forth while still adhering to the old (Confused yet? Just wait). A hard fork is an entirely NEW set of rules implemented that requires all users to upgrade to the latest version. Kind of like Apple forcing you to upgrade to the newest iOS – few are happy about it, and you must make a choice between annoying notifications and getting used to the unnecessary changes those Apple f*ckers who take pleasure in gaslighting made (okay, it’s really not that bad and yes, I’m a little bitter about the last one).

When a fork is executed, a new coin is created out of the “new rules” stemming from the updates. Throughout history, there have been MANY forks in the Bitcoin blockchain, creating several hundred coins throughout the years, most recently Bitcoin Cash and Bitcoin Gold. Depending on the buzz, Bitcoin will usually spike, then dip during the fork adjustment period, but then increase in significant value over time. Why dip? Fear of the unknown, but as Omar from Crypt0sNews was so nice to explain to me, Bitcoin is based on mathematical equations and history shows each dip is followed by a surge in price once the fervor subsides and traders’ confidence is up again (which doesn’t take long).

So the next biggie to look out for at the time of this writing: SegWit2x Hard Fork (around November 16th). I know, sounds like a name of a horrible video game at best. The first SegWit (short for Segregated Witness) was implemented back in August of this year, creating Bitcoin Cash. In short, Bitcoin Core developers felt the need for the software updates due to congestion on the blockchain, slowing down transaction times. This *kind of* helped, but the size of the blocks on the blockchain remained at their original size of 1MB, which was fine at Bitcoin’s inception but not unlike LA freeways, more and more traffic demands larger lanes, so SegWit2x is promising to fix that problem by doubling the block size (now if there could only be an LA freeway upgrade…).

Since the blockchain is a decentralized, distributed ledger that is always in play and never shuts down, think of airplane maintenance in mid-flight. Critics say the fork is coming too soon after SegWit implementation, but again, only time will tell. The main concern is that there will be yet another coin split – Bitcoin Core (or the Legacy Bitcoin) and the SegWit2x version, and there may be confusion as to which is the authentic Bitcoin. The best thing to do to according to CoinTelegraph.com is to transfer your BTC onto your own private key like a Trezor or Ledger Nano until the storm passes.

Crypto, Real Estate, and Capital Gains

Capital Gains: Taxes on profits from the sale of certain types of investments by a company or individual.

Another frequent question we are asked about is the question of capital gains, and the answer is YES. If you are a savvy investor, whether it’s property or other investments, you can always expect that the IRS will have their hands in your pockets (or at least die trying…wait, who am I kidding? The IRS will be the only thing left besides Keith Richards after the apocalypse).

A great article in thebalance.com goes into detail as to how Uncle Sam views crypto and BTC. Essentially, the IRS views cryptocurrency as property, and taxes it based on the capital gains formulas. Long-term holds (more than one year) aren’t taxed if you fall into the 10-15% tax bracket, but taxpayers in the 25, 28, 33 & 35% tax brackets are subject to 15% CGT. Short-term capital gains rates are taxed at the same rate as ordinary income (20%) and a 3.8% tax on net investment income for single taxpayers with an average income greater than $200K (more on taxpolicycenter.com). I don’t know about you, but it makes my head hurt already.

Now, what if you’re using crypto to buy real estate? It all depends on what you plan to do with it. Hopefully you’ve held onto your Bitcoin long enough to avoid the aforementioned happy fun times and now you’re ready to convert some of your investments into tangible assets (insert shameless plug here). So, if you DO fall within the long-term and lower tax bracket guidelines, you’re good on the BTC capital gains and according to bankrate.com, you’re also able to avoid CGT if you follow these guidelines:

  • You must be selling your principle residence.
  • You must have lived in it for at least two of the five years before you sell.

Of course, there are separate rules for married couples (those guys always get the breaks) and special rules for military personnel. Technically, you could repeat this cycle every two years. This, of course, doesn’t apply to second homes or investment properties.

Other ways to avoid are of course the old 1031 Exchanges, charitable donations, tax shelters, but my advice would be to find one of those rare CPAs who specialize in crypto anyway (and if you find one, let us know and we’ll add them to our preferred vendors!).