For an audio version of this post, please click on the speaker icon (top left).

 

 

 

 

Welcome to another installment of the X-ray Beam series.

Unless you have been living under a rock, it is hard not to have heard about Bitcoin, the most popular cryptocurrency out there with a (at the time of writing) one trillion dollar market share.

There is a lot of information on the internet circulating about Bitcoin, some based on facts, some based on speculation, and some from people who are truly misinformed.

You may have contemplated about buying some cryptocurrency in the past but have not pulled the trigger because the whole process seems so foreign.

I was in exactly that position a couple of years ago but after reading some posts about cryptocurrency by a highly respected fellow blogger, Gasem from MD on FI/RE, I decided to take the plunge.

Bitcoin, or other variants of cryptocurrency, may not be everyone’s cup of tea, even if you are well-versed on its concepts.

It is a highly volatile asset class that can have double digit gains and losses in a day that can be played out over weeks or months.

It is certainly not for the faint of heart.

Cryptocurrency is certainly not without risk and common advice to individuals trying to enter the space is to not invest more than the amount you are willing to lose completely.

However those who take the risk are often handsomely rewarded as bitcoin has outperformed every asset class this past decade (of course past performance does not predict future performance).

I have personally purchased on 2 cryptocurrency exchanges/platforms:

• Coinbase (with the referral if you purchase $100 of Bitcoin you and I will receive $10 of Bitcoin as a bonus).
• Voyager (with the referral if you purchase $100 of Bitcoin you and I will receive $25 of Bitcoin as a bonus).
  • This platform currently is only available as a mobile app.

 

Another popular exchange is Gemini, founded by the Winklevoss twins of Facebook fame (with the referral if you purchase $100 of Bitcoin you and I will receive $10 of Bitcoin as a bonus).

I thought I would invite Quentin Lobb, founder of the Facebook Physician Cryptocurrency Group, to share some insight about cryptocurrency and offer advice to those who are considering putting it in their portfolio.

 

 

Thank you so much for doing this interview.   Can you tell us a little about yourself? (Medical specialty, age, marital status, kids?)

I am 43 years old, board certified in anesthesiology.

I attended undergrad at Baylor University and medical school at University of Oklahoma.

I did a surgical internship at University of Tennessee, Chattanooga-Erlanger Level 1 Trauma, and then my anesthesiology residency at Oklahoma University Health Sciences Center-Level 1 Trauma.

I am married to my best friend Kelley Lobb, MD, a primary care physician.

We met in high school in band camp in 1994 on the drumline.

We have been married now for 16 years.

We have 3 children: an 8-year-old son and 5-year-old twin daughters.

I am also a drummer, 17-time marathon finisher, 3-time ironman and 5-time half ironman triathlon finisher.

You are the founder of a Facebook Group called the Physician Cryptocurrency Group.  Can you tell us a when you were first introduced to cryptocurrency?

My brother, who is 2 years younger, brought Bitcoin to my attention in 2013 during the first bull run just after the first halving event.

At that time, I was very skeptical but also very curious.

I began reading everything I could find on the topics of Bitcoin and blockchain technology.

Soon, I realized the proverbial “rabbit hole” that I had entered went much deeper than just computer code and “magic internet money.”

Before long I was reading up on the differences between Austrian Economics versus Keynesian Economics which eventually gave way to Modern Monetary Theory, as well as doing studies on the importance of historical events such as the Federal Reserve Act of 1913, the Bretton Woods Conference of 1944, the removal of the USD from a gold peg in 1971, and the subsequent dissolution of the petrodollar; all this and HOW it related to Bitcoin.

A decentralized, technological creation such as Bitcoin seemed to be a logical and natural evolution in the effort to counter the disconnected, bureaucratic policies of the global centralized banking system… And one of the best parts of Bitcoin’s design: nobody and no entity can stop it.

What was the “Aha moment” that made you decide that this was something you felt comfortable incorporating into your portfolio?

As physicians, we are essentially scientists trained in a fashion to discern among available decision paths and their probable outcomes based on both past experiences melded with current-standing and new-found evidence.

With that said, my skepticism was profound enough that I did not make my first Bitcoin purchase until early July of 2017, four years after first hearing about it.

It was not an “aha moment” per se, but a slowly developed mathematical thesis fostered by my aforementioned readings, by my observations of gambling behavior as it relates to house odds during trips to Las Vegas in addition to mathematical/statistical assessments of current adoption, public sentiment, and Moore’s Law.

All this on the foundation of a preprogrammed monetary policy based on absolute scarcity limited to 21 million Bitcoin.

My initial strategy was “buy Bitcoin, realize a profit, and then liquidate after a 30% ROI.”

That strategy never played out.

In July of 2017 I made my first “investment” in Bitcoin at just under $2,000/BTC.

I used parentheses for the word investment because my thesis on Bitcoin soon changed, which meant my strategy for how I used Bitcoin also changed.

Within a month of that first purchase Bitcoin reached a market price of $4,000/BTC.

My love for all things analytical, the sound theories of Austrian Economics, and my Libertarian mindset fostered a conviction that Bitcoin is fast becoming a permanent and immovable fixture in the global financial ecosystem.

I bought more and more.

My mindset was no longer “investing in Bitcoin,” it was “peacefully opting out of the centrally controlled global banking system.”

THIS was my new thesis and remains so today.

As I have posted on Facebook and Twitter numerous times, I came for the profits, I stayed for the principles.

THIS is why I have dollar cost averaged and bought the dips since 2017.

Early adopters recognize and accept that there will be much volatility.

We also realize with each passing day, and with each bear market recovery, Bitcoin proves to be a durable asset and is a great example of the Lindy Effect.

Following the change in my strategy I began to look at Bitcoin’s volatility as free entertainment.

I am here to stay.

The “ups” have dwarfed the “downs,” and those with strong hands who refuse to sell their Bitcoin are rewarded with exponentially increasing purchasing power.

So far, the ride has been anything but boring, and very enriching in a multifaceted way.

A lot of individuals potentially interested in Bitcoin or even the #2 cryptocurrency Ether (on the Ethereum network) may look at the stratospheric rise in value of these cryptocurrencies and feel that they already missed the boat.    What words of advice do you have to these potential investors that remain on the sideline because of these thoughts?

I hear this a lot, and my first thought is, “this person is looking at Bitcoin through the wrong lens.”

This “missing the boat” mentality tells me that the individual is looking at a unique, first-in-class asset like Bitcoin as if it were a traditional stock on the NYSE.

Stocks, when not manipulated by the market big dogs, are a reflection of a company’s capital, debts, leadership, outlooks, market share dominance, etc.

Most of the variables that go into assessing the value of a traded company have upper limits.

Take Ford Motors for instance: Ford can only physically create so many cars per year, there are only so many people that need a NEW car each year, and Ford has to compete for this market share with GM, Chrysler, Honda, Toyota, etc.

Theoretically, Bitcoin HAS no top.

As the expression by Max Keiser goes, if the dollar has no bottom then Bitcoin cannot have a top.

The seemingly endless liquidity injections of US dollars by the Fed have been a significant contributing factor to the increased value of Bitcoin when denominated in USD.

The potential value of Bitcoin is only marginally limited by the rate of economic growth, the growth of the human population, and the rate of Bitcoin adoption.

If we unpack each of these 3 factors, we see a solid mathematical basis for Bitcoin to grow without exhaustion:

• According to the data from the World Bank, the average composite growth per year of the world economy (both developing and developed countries) is 3-4%.
• According to the United Nations, the world population is increasing at a decreasing rate of about 80 million a year.
• According to Glassnode analytics, the number of both new Bitcoin wallets and daily transactions has been increasing exponentially over the last 8 years.

 

All of THIS to say to THOSE who feel they missed out… you in fact did NOT.

You simply did not hop on board as early as you would have liked.

Neither did I.

I should have bought in 2013 when I first heard of Bitcoin.

Bitcoin is a never-ending ascending economic escalator.

The decision for one to make is WHEN to finally decide and hop on.

Bitcoin will continue to rise.

There will ONLY ever be 21 million Bitcoin… EVER.

As long as economies, markets, and populations grow, they will all be chasing after a fixed supply of 21 million BTC, each divisible into 100,000,000 subunits on base layer.

As we say in the world of Bitcoin, BTC is NGU technology (number go up technology).

If you have not bought Bitcoin, you didn’t miss out, you’re just a little late to the dance.

Bitcoin is easily still in the early adoption phase, but this is gradually changing as we are now seeing Tesla, PayPal, Visa, MasterCard, JP Morgan Chase, etc. all enter the Bitcoin market.

We all know that physicians make a high enough income that they all can retire comfortably just by sticking to the proven strategy of index fund investing.    Why do you feel that physicians should even bother with investing in cryptocurrency?

Absolutely.

I have been maxing out an aggressive Solo-K retirement account (all in stocks) each year with employer matching since 2008 which was my first year out of residency and practicing as an anesthesiologist.

I have put way more USD into that account over nearly 13 years than I have put into bitcoin in over 3.5 years.

At this rate the value of my Bitcoin holdings will easily eclipse my Solo-K retirement account within a couple of months.

Bitcoin has an asymmetric upside growth potential that index funds simply cannot compete with.

Now, naturally with that rate of growth comes volatility, but as a long-term investor the daily to monthly swings should not cause one to shy away from Bitcoin.

When in doubt, zoom out.

Bitcoin has averaged annual returns greater than 500% over the last seven years.

The long-term growth pattern of Bitcoin is hard to appreciate on a linear chart.

Bitcoin is one of the very few assets that is better assessed on a logarithmic chart due to the rate of upside gains.

I am not aware of one single index fund that has this problem, and it’s a good problem to have.

There are often splash stories the media puts out there about individuals who have lost 100s of millions of dollars in cryptocurrency because they cannot remember their password or are locked out of their wallet.    What advice would you give to a potential investor so that he or she does not make the same mistake?

An excellent and very important question.

United States founding father Benjamin Franklin said something to the effect of, those who choose to trade their liberty for security will end up with neither.

A relatively consistent variable in the histories of the ever-growing power of nation-states is the general populous’ collective desire for freedom from responsibility.

When we choose to allow another entity, such as a bank, to custody and secure our assets, we run the risk of potential confiscation by that entity’s authority.

We as a nation saw this play out in 1933 when the US government banned the private ownership of gold and confiscated gold owned by citizens and held in the custody of banks.

When it comes to personally securing Bitcoin by transferring it out of an exchange account and onto a private wallet, I advise people to do a couple of things:

1. Use a hardware wallet. Since I am not sponsored by any of the companies that manufacture these devices, I feel I can objectively say I have much trust in both Ledger and Trezor.  I have used both.
2. Buy your wallet directly from the company that manufactures it. Buying from a third party introduces an attack vector in which the third party may have accessed the security information on the device, resealed it, and then sold it hoping to access the Bitcoin that will eventually be stored on the device by the purchaser.
3. Hardware wallets have a backup seed in the event the device is compromised (stolen, damaged, device failure). Do NOT store this backup seed digitally; as in do NOT email a copy to yourself, do not take a digital picture of it, do not store it as a digital file on your computer, phone, or any other device.  Either write it down or stamp it onto a titanium plate and store that copy securely and separately from your hardware wallet.  This separation of the digital realm from the analogue world, between the hardware wallet and the written/stamped recovery seed respectively, is a key part of the security of these devices.
4. When you first set up your wallet only transfer very small amounts the first couple of times to both familiarize yourself with the process and assure that it has been setup correctly.
5. Do NOT click on links in emails and texts, even if solicited, and even if they appear to be from the manufacturer of your wallet. If you have a concern regarding your device, go to the manufacturer’s website, login into your account (this is not the same as using your device) and look for any official statements regarding concerns of device integrity and security.  I have never experienced this.  These events are exceedingly rare. Ledger and Trezor have a great record when it comes to security.
6. If you are still in doubt and want an even higher level of security for your privately held Bitcoin, then I recommend going with the gold standard and utilizing a multisig set up with a company such as Casa.

 

The key take home point: make sure you have a durable, nondigital copy of your recover seed and that it is adequately secured.

The stories of people losing their Bitcoin are nearly always due to operator error or due to poor practices of OpSec (operational security).

My personal favorite authority on this topic is Jameson Lopp.

He has many great articles on digital asset OpSec and is considered the leading expert by many.

Some of the detractors of Bitcoin call it a Ponzi scheme or a “greater fool” game when trying to justify why Bitcoin continues to record continues all-time highs.  What is your defense against this line of attack?

I have debated this topic countless times.

In the traditional sense, Bitcoin does not meet the requirements to be viewed as a Ponzi scheme.

For one, Ponzi schemes are insolvent where all investors’ holdings cannot be claimed as there is either A. not enough asset to fulfill claims, or B. not enough liquidity to pay the investor in the event the asset has been sold.

By this definition, things like the USD, Silver ETFs, and even the GameStop short contracts were all Ponzi schemes.

Bitcoin is bought and sold on an open market at spot price.

If there is a Ponzi scheme in play it is at the exchange level and not the network level.

This can be verified due to the transparency of the decentralized blockchain ledger. FULL STOP.

Now at this point in the debate, the counter argument trends towards a nebulous stance in which an oft cited variant of a Ponzi scheme is brought into the discussion.

The claim is made that for Bitcoin to be a worthy investment, you have to find someone to buy it for MORE than the seller originally paid for it.

If THIS is the definition of a Ponzi scheme (and it’s not), then are not ALL investments Ponzi schemes?

Again, Bitcoin is openly bought on exchanges at what price the market dictates.

It is transparent and transactions are irreversible.

Say an individual does decide to invest into Bitcoin.   Is there a certain % max allocation you would recommend for Bitcoin in their portfolio?

For the newcomer and the veteran alike, I do not make recommendations for portfolio allocation.

However, for the newcomer that is hesitant I usually pose the following scenario:  if you awaken tomorrow morning and find that your net worth is down by 1%, would this derail your life?

Chances are the answer is “no,” as we often see this happen temporarily a couple of times a year with stock market corrections.

Therefore, put 1% of your net worth into Bitcoin today.

Now what if your net worth dropped by a 3%?  Would THIS faze you?

If no, then go ahead and start with 3% of your net worth.

Once you make this initial entry into your Bitcoin investing, whether 1%, 3%, or greater, set up a recurrent weekly purchase you are comfortable with and dollar cost average carrying on.

As for why I do not make recommendations regarding what percentage a portfolio should be allocated to Bitcoin: its exponential growth makes it hard to land on any given number.

3% today could grow to become 15%, 20%, 30%+ of your net worth next year.

If your goal is to stick to 20%, you would create a taxable event by having to sell some Bitcoin and reallocate in order to stick to your strategy all the while missing out on future gains that will most likely outpace the stock market.

In my opinion Bitcoin is too valuable to sell, and why miss out on future upside gains for the sake of adhering to a predetermined percentage.

It’s easier to adhere to these allocations with slower moving assets; that’s simply not the case with Bitcoin.

In 2017, Bitcoin had a boom, jumped dramatically to $20k, but then precipitously fell in 2018 when people felt the Bitcoin bubble popped, losing 80% of its value.    Do you feel a similar scenario like this can play out again?   And if not, why do you think this time is different?

This CAN happen again, and that would be okay.

Let’s consider the top of the 2017 bull run at nearly $20,000.

If you were to have begun dollar cost averaging into Bitcoin at the top and continued do so all the way down and then continued on its slow rise; within 2 years you would have realized a nearly 40% ROI.

That’s 20% averaged over those two years.

And those were considered DOWN years for most investors in Bitcoin.

Most investors are happy with 10% a year.

Even when Bitcoin pulls back it continues to perform quite well.

For fear of sounding cliché, this time does seem different.

This bull run has been embellished with several events that may prevent, or at least attenuate the anticipated pull back in 2022.

For starters, COVID…. The unprecedented expansion of the money supply, not just the M2 supply in the US but globally, has sent corporations searching for ways to stabilize the purchasing power of their treasuries nominated in local fiat currency.

My hat is off to Michael Saylor, CEO of MicroStrategy, who took $425 million of his company’s $475 million cash holdings and bought Bitcoin at just over $11,000/BTC.

He has since gone on to acquire additional $1 billion in Bitcoin.

Square, PayPal, Mass Mutual, and now Tesla have all followed suit.

Not to mention the disclosures that Guggenheim, Fidelity, and BNY Mellon have all taken on Bitcoin.

I am leaving some out… quite a few actually.

The list is growing fast.

Also, consider the consistent supply crunch of Bitcoin.

There is only so much Bitcoin available for purchase on the exchanges and most retail buyers are buying fractions of a Bitcoin.

At the time of this writing, February 20^th, 2021, there are currently just over 18.6 million Bitcoin in existence of the programmed upper limit of 21 million.

The last of the 21 million will be mined in the year 2140.

Bitcoin underwent a block reward halving in May 2020.

This means the amount of Bitcoin entering circulation went from 1,800/day to 900/day.

The amount of Bitcoin being purchased and moved off exchanges into “cold storage” is in the thousands; significantly higher than that entering circulation, sometimes by a factor or 4.

The next halving is projected to occur late April, early May of 2024.

When this occurs only 450 Bitcoin will enter circulation per day.

So, when you pair the acceleration of institutional adoption with this supply crunch…. Bitcoin has never experienced this before.

The simple, time-tested laws of economics provide a considerable argument that there may not be enough downside pressure on Bitcoin to see a bear market like the ones that have occurred following the previous two halvings.

It seems more and more likely the increasing supply crunch may attenuate the effects of a price overshoot, mitigating the subsequent drop that classically follows the top of a bull market.

Another concern about cryptocurrencies in general is the technique called “Pump and Dump.”    It feels like market manipulation as holders of these coins promote them via social media channels, etc. and when the price reaches a certain value they cash in on the profits by selling, causing new investors to hold the bag and endure the losses.    Do you feel that the Bitcoin cap value has now reached a level where this is unlikely or can it still be subject to manipulation by large volume holders?

Bitcoin is essentially immune to the “Pump and Dump” schemes for several reasons: there was not an initial majority allotment of coins dispersed among the developers as Bitcoin was developed by a person or group of people under a single moniker which controls 1 million Bitcoin that have not moved since they were mined over 12 years ago.

Even if these 1 million Bitcoin were dumped onto an exchange, the previously mentioned supply crunch dictates that these would be absorbed by both institutional and retail buyers in addition to hardcore, old-school Bitcoiners that would buy a whole coin or more out of this million Bitcoin simply to claim they own a Bitcoin originally mined and custodied by Bitcoin’s creator.

Another thing to consider; every time a large volume holder of Bitcoin (referred to as a “whale”) dumps 1,000+ Bitcoin onto the exchanges, this is not all bought up by another whale, but rather bought up by a multitude of investors most of who are buying fractions of a Bitcoin.

Every time a whale dumps Bitcoin the remaining whales move further up the endangered species list.

Logic dictates this is why we are not seeing the same level of volatility as we have seen in the previous two bull markets: today, there are far fewer whales swimming in a supply crunch sea that is hungry for Bitcoin.

Explain the term “HODL” and do you consider yourself a HODLer?    Is there a Bitcoin price target where you feel like you would start selling Bitcoin and locking in the profits?

All likelihood points to HODL being a misspelling of the word “hold.”

In the beginning of 2013 Bitcoin was trading for about $14/BTC.

The first block reward halving occurred in November of 2012.

Nobody had any historical context upon which to begin forecasting what the halving would do to the price of Bitcoin.

At first things seemed stagnant; in other words, no delta.

Six weeks into 2013 the price doubled.

By the end of August, the price 10 X’d and was over $140/BTC.

By December 14^th it is was up 100 X on the year at over $1,500/BTC.

Four days later is had fallen to $530/BTC; still up over 37 X on the year, but a lot of people bought the hype during the end of the year and were now in the red.

That same day a Bitcoiner posted a rant titled, “I AM HODLING.”

I feel this is an unintentional misspelling because in the body of the post they write “WHY I AM HOLDING.” This time “hold” was spelled correctly.

The post is fraught throughout with misspellings and grammatical errors as if the author were truly inebriated (it was posted at 10:03 am).

He ends his post with, “so I’ve had some whiskey, actually on the bottle it’s spelled whisky.”

This observation of the spelling of “whisky” likely implies the author was consuming Scotch as opposed to Bourbon or the like.

Nonetheless, this post went viral and the word HODL became the war cry of hardcore Bitcoiners who hang onto to their Bitcoin with hands of steel.

Over the years the word HODL has come to mean “Hold On for Dear Life,” as this is the strategy best adhered to in order to appreciate the gains one can achieve when investing in Bitcoin through its ups and downs.

And for the record, yes…. Yes, I am a HODLer.

I have never sold Bitcoin. I have only bought more and more.

Do you feel that Bitcoin can one day replace national currencies or do you feel its role is better suited as a storage of value akin to Gold?

I think it can eventually do both but not simultaneously and not on the same level of coding.

As Bitcoin currently exists on the base layer it is much more well suited as a store of value.

The limiting factors that make Bitcoin a better store of value as opposed to a national or even global currency are mostly due to its throughput.

Each block in the bitcoin blockchain is 1 megabyte (MB) and each block takes 10 minutes on average to generate.

There are actually some benefits to this smaller size, but that’s another discussion.

Suffice it to say block size has been a considerable point of contention in the past and even lead a blockchain fork in late 2017.

The fact that Bitcoin has survived numerous blockchain forks and continues to be the dominant cryptocurrency is only a testament to its integrity, fidelity, and staying power.

While Bitcoin is a digital asset, bitcoin is a global network… the most powerful computer network ever to have existed; currently at roughly 157 quintillion hashes/second at the time of this interview and growing.

Adjuvant utilities can, and have, been programmed upon the base layer of bitcoin.

One of the most recent and very impressive advancements is the launching of the Lightning Network on layer two by Jack Mallers.

This second layer can potentially revolutionize the global transaction experience by using bitcoin infrastructure.

On the lightning network, unlimited amounts of money, in any global currency, can be immediately transferred and settled in either Bitcoin or local currency in seconds and for fractions of a penny.

Imagine trying to wire $5 billion to the other side of the world using the banking system.

First, in the conventional banking system you would be limited in performing such a transaction during banking hours, then you’d need to set up an ACH, wait for transfer verification, and pay a sizable fee to complete the transaction.

OR, using the Lightning Network you can transmit that same fund 24/7/365 for fractions of a penny in a peer-to-peer manner without the use of the banking system.

THIS is the future of money, it’s VERY early, it transacts very fast, it’s very affordable at fractions of a penny, and it’s growing at an exponential rate.

Advancements in Bitcoin such as these provide an avenue for Bitcoin to become a global medium of exchange and not just a store of value.

Speaking of Gold, which is one of the main hedges against inflation, why do you feel Bitcoin is superior to this precious metal?     Do you feel, like some out there, that there will be a flip and Bitcoin will indeed capture the majority of Gold’s market share?

When considering assets for an optimal store of value it’s important to strive for something that is scarce, durable, easily divisible, easily transferable, easily verifiable, and fungible.

Bitcoin beats gold on nearly all of these measures:

Scarcity: there will only ever be 21 million Bitcoin.

On the other hand, we are still mining gold.

We are still discovering new locales of gold.

We have located an asteroid, Psyche-16, comprised of enough precious metal that its estimated value is between $10 and $14 quintillion dollars.

Keep in mind the entire global wealth on earth is estimated to be somewhere between $360 trillion and $1 quadrillion.

Think that asteroid is out of reach?

Tell that to Elon Musk who aims at a manned mission to mars in the next 4 to 5 years.

Durability: maybe an argument can be made here for a tie between gold and Bitcoin.

However, if one were to amalgamate gold with mercury, the process of reversing the reactions means that money/value must be exhausted to do so.

Bitcoin is a decentralized monetary asset that is permanently programmed into the blockchain and therefore always accounted for.

Divisibility: If you wanted to buy a cup of coffee with gold, you’d need a scale and a way to shave off gold slivers until market value had been matched to the market price for the cup of coffee.

Bitcoin can be digitally fractioned, transferred, and verified in seconds on the Lightning Network.

Transferable: Let’s think big…. You need to carry out an international transaction in millions or even billions of dollars.

The recipient of this transaction demands a hard asset (gold vs Bitcoin).

Think of the logistics of transferring millions of dollars’ worth, let alone billions, in gold.

The expense of transportation, security, verification, and assay all add to the expense and inherent chance of theft when dealing in gold.

Bitcoin: peer-to-peer means no security needed, verification is bilateral and transparent on the blockchain, and since there is only one blockchain and thus only one way to transfer bitcoin, assay would be redundant and therefore unnecessary.

Keep in mind, the recipient could have their Bitcoin in seconds.

Verifiable: during a 2020 audit, it was discovered that there were 83 tonnes of counterfeit “gold” bars in the market in the form of gold-plated bars of tungsten.

To verify the authenticity of gold requires physical assay.

This requisite is obviated when transacting with Bitcoin.

Fungible: again, as long as gold has been verified, this one is potentially a tie between gold and Bitcoin.

As for the flip when Bitcoin captures a majority of gold’s market share… Yes, and sooner than most realize.

Look at where wealth is flowing.

Gold is an analog store of value whereas Bitcoin is a digital store of value.

In the US, Baby Boomers (as a demographic) possess most of the wealth.

Baby Boomers grew up in an analog world and witnessed mass adoption of the desktop computer and the smart phone towards the end of their careers.

Generation X is the transition generation.

They know how to both use a rotary phone, fix a cassette recorder, and utilize digital technology.

Suffice it to say they are relatively multimodal when it comes to technology.

Generation Y and Z are the heirs of most of the wealth created during the 20^th century.

They are the ones currently either already in, or entering, corporate America.

They are the ones who are, and will be, writing policy and legislation, and directing industry into the second half of the 21^st century…. When their grandparents and parents pass on and leave behind their wealth, this younger generation wants to digitalize everything.

They don’t want to hold gold, treasuries, bonds, or collections of records/coins/cars/etc.

They are moving everything onto the digital rails of finance.

Just Google NFTs (NonFungible Tokens) and you’ll get a sense of where this is unquestionably headed.

I forecast the flip from gold to bitcoin will be realized when a critical mass of the Baby Boomers  have left their estates to their heirs.

As the expression goes… it’ll be “gradually, then suddenly.”

Some of my readers may be intrigued with smaller “alt coins,” many of which are in their infancy, in hopes of trying to capture the next rocket to the moon.   What words of caution do you have for these individuals?

You must look at alt coins differently than Bitcoin for a number of reasons:

Bitcoin is purely decentralized.

Bitcoin has no CEO or governing body that can be subpoenaed to testify before a governmental body (a la Mark Zuckerberg when Facebook first announced Libra coin in June of 2019).

Bitcoin has an unchangeable hard upper limit.

Currently, only Bitcoin is trending towards mass adoption.

While there are spurious opportunities to make lots of money in some of the alt coins, Bitcoin is by far the surest investment of all cryptocurrencies.

With that said, I do own very small amounts of various alt coins.

I do not EXPECT to make any money on any of them except for Ethereum.

I made these investments as a pure, high-risk speculation just in case one of them were to suddenly increase in value exponentially.

In my opinion, of all the alt coins out there Ethereum shows the most promise.

One of the risks a Bitcoin investor has is if a government decides to make it illegal to own/trade.    Several countries have already done so or have legislation in the works.   Do you feel that the United States may take this course of action one day?

This honestly does not phase me one bit and here’s why: once you have taken personal ownership of your Bitcoin onto your private keys by either using a memorized word seed, or a hardware wallet, or a multi-sig set up, Bitcoin is essentially incapable of being confiscated.

Bitcoin has no locale.

I analogize it as follows: Bitcoin is the Schrödinger’s cat of value.

It exists everywhere and nowhere simultaneously; in state of quantifiable entanglement irrespective of geography to include political borders.

For a fleeting moment when a transaction is signed with a private key one could make the argument that at that moment Bitcoin temporarily exists where that private key was just physically used, but then this transaction is immediately updated and verified among the 15,000 plus nodes all throughout the world and in our satellite system.

Let’s take it a step further.

Let’s utilize the Tor Network to transact in Bitcoin.

By utilizing Tor I can easily sign a Bitcoin transaction using a network terminal in Munich, Tokyo, Moscow, or anywhere randomly on the overlay network.

Now, unlike the previous example, the argument is made that for THAT fleeting moment in which the private key is used, Bitcoin in that transaction could be said to be located in Munich, Tokyo, or Moscow… only to disperse on the newly updated decentralized ledger and no longer localized.

When taking geopolitical strategy into consideration it helps to playout scenarios using game theory.

The first major economy, if and when they ban Bitcoin, will find themselves at a near immediate economic disadvantage.

There is a considerable amount of private, global wealth stored in Bitcoin, most of it in the US.

If the US were to ban Bitcoin, then it would behoove the US’s economic competitors to foster an economy that allows for it and subsequently receive the outflows of wealth seeking sanctuary in foreign lands with friendly banking practices.

At any rate, a law banning Bitcoin would be ineffective.

It cannot be confiscated, transactions cannot be denied or reversed, and Bitcoin can be accessed and transacted remotely from all over the world by the holder of a private key.

I truly do not see the US making an effort to ban it, but I do foresee them installing regulations at on/off ramps such as domestic exchanges.

Additionally, we now have Cynthia Lummis of Wyoming in the US Senate.

Educating fellow members of congress on the benefits and advantages of Bitcoin is one of her main focal points.

She is definitely NOT the only legislator that holds Bitcoin.

The more legislators that end up holding Bitcoin before regulations and laws are written essentially allows for one to conclude that these eventual regulations and laws will be relatively mild.

Why would a legislator be interested to legislating away their personal wealth?

There is a phrase amongst crypto enthusiasts, “Not Your Keys, Not Your Coins.”   Can you explain the meaning behind this?   

One of the most valuable attributes of Bitcoin is its Peer-to-Peer nature as mentioned in the opening statements of the Bitcoin white paper.

Peer-to-Peer obviates the need for a third-party custodian or mediator to facilitate a transaction.

When one buys Bitcoin on an exchange and leaves it in their exchange account, what they have is essentially an I.O.U. for Bitcoin from the exchange.

For instance, if you buy gold and receive a certificate that says you own a particular amount of gold at some secure location, what guarantees do you have that you can actually make a claim on that gold and take physical possession.

You may have a case legally, but you’re assuming there is enough gold available to fulfill all the I.O.U. certificates out there that lay claim to physical gold.

If you own gold in such a manner, have you ever received a copy of a recent audit of the physical gold holdings?

Let’s say a Bitcoin exchange is experiencing an insolvency event, whether due to internal fraud or an external hack; how do you lay claim to your Bitcoin then?

There is no FDIC insurance as it is impossible to “print” more Bitcoin to pay out to the customer.

Therefore, the best action to immediately lay claim to your Bitcoin and cold store it on your own private keys.

This is why I personally steer people away from PayPal and Robinhood.

Companies like these allow you to “purchase” Bitcoin, but not transfer it to your private keys for storage.

So, if it’s not on your keys, it’s really not YOUR Bitcoin, you simply hold an I.O.U. for future receipt of Bitcoin or the cash equivalent.

Say you do take your coins of a popular exchange into a private wallet, the responsibility of access than completely falls on you.    How can you avoid scenarios such as an investor suddenly dying and the heirs have no clue how to access the cryptocurrency?

There are companies such as Casa that provide estate planning specifically designed to secure and assure that when you pass on your Bitcoin is available to your stated heir(s).

Otherwise, you can secure your Bitcoin on a hardware wallet, store this device in a safety deposit box (or a copy of the recovery seed instead) along with instructions.

Then it’s a matter of amending the safety deposit box paperwork to allow access to the box by a specific heir or heirs IF they have an official copy of a death certificate.

How does the IRS tax cryptocurrency?   

The IRS looks at cryptocurrency as property, not currency; thus, it is taxed as a commodity.

If you sell Bitcoin within one year of buying it, it will be taxed at the rate of your current income tax bracket.

However, if you hold it for over one year it is taxed as long-term capital gains, currently 20%.

Holding it indefinitely is NOT a taxable event.

Transferring it from your exchange account to your private wallet is NOT a taxable event.

Many of us market investors are familiar with the “Wash Rule” when engaging in Tax Loss Harvesting.  Is there such an obstacle when it comes to trying to tax loss harvest crypto?

As of today, February 20^th, 2021, the IRS still has not made a statement on the Wash Rule with regards to Tax Loss Harvesting with cryptocurrencies.

So, it is definitely a gray area when it comes to buying back an asset previously sold for a loss within 30 days.

I am not licensed to provide tax advice, but personally I would avoid such a strategy if you’re hoping to avoid a potential audit.

Any last parting words to my audience who are on the fence to invest in Crypto?   Any sources you recommend so that they can get more knowledge on the subject?

I encourage those new to Bitcoin to commit to holding it for at least 4 years.

That way you can experience all seasons of a market cycle as it relates to blockchain halvings.

Chances are quite high that well before 4 years is up you will have bought more and have grown very reluctant to sell.

Consider never selling and making Bitcoin part of your personal treasury.

This strategy allows you to use Bitcoin as collateral for a loan and therefore not give up ownership.

Choosing to go this route means the difference in paying 20% in capital gains tax should you sell versus paying a much lower interest rate should you take out a loan against it.

By choosing the latter path you avoid the 20% tax while taking advantage of the value of your Bitcoin and NOT giving up ownership.

Some of my favorite resources are:

Podcasts: What Bitcoin Did, The Pomp Podcast, Stephan Livera Podcast, Swan Signal, CoinDesk, Bitcoin Audible

Websites: Bitbo.io, Digitalik.net, the TradingView.com BTCUSD news feed,

Readings: The Bitcoin Standard, The Bullish Case for Bitcoin by Vijay Boyapati, and essentially everything Robert Breedlove publishes (most of his writings are available on Medium.com)

 

 

Ready to take the next step and actually purchase some Bitcoin/cryptocurrency?

• Coinbase (with the referral if you purchase $100 of Bitcoin you and I will receive $10 of Bitcoin as a bonus).
• Voyager (with the referral if you purchase $100 of Bitcoin you and I will receive $25 of Bitcoin as a bonus).
  • This platform currently is only available as a mobile app.
• Gemini, founded by the Winklevoss twins of Facebook fame (with the referral if you purchase $100 of Bitcoin you and I will receive $10 of Bitcoin as a bonus).

 

 

 

 

If you are interested in checking out previous individuals that were brave enough to expose themselves to the beams of the X-ray, please check them out here.

 

Note:

If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”

Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.