Tuesday, March 20, 2018

Yes, There Are Taxes On Your Crypto Gains

Quick post today as "bug season" is in full swing now and my time and attention is turning more toward killing ants and spiders for fun and profit.

There's a persistent myth in crypto circles that somehow this "magic internet money" exists outside of tax law. As such, I've come across many folks who insist that their hopping in and out of cryptos "doesn't count" unless they actually sell them for fiat currency. Here in the U.S., in a limited number of cases in the past this may have worked, provided things were done just-so, but that possibility was shut down with the passage of the 2017 tax reform law. Now if you sell or trade a crypto, it creates a taxable event.

Such is the cautionary tale of this poor fellow, who in his own words said, "I feel like I might have accidentally ruined my life because I didn't know about the taxes."

Take the advice given toward the end of the article: if you sell off a crypto asset for a gain, set aside 30% of the proceeds in something like a money market account so that your tax liability is fully funded when April 15th(ish) rolls around (keep records of losses, too, because you can use up to $3k of losses each year to offset other income on your taxes).

The rest of it is yours to drive Lambos across the moon with.

Monday, March 19, 2018

Another Crypto Ad Ban, Dead Altcoins, And Big Bitcoin Predictions

I spent my afternoon yesterday taking in more financial education videos via YouTube while relaxing on my couch. My pest control business went from activity of about two days per week to ridiculous hours overnight last week, so I'm back to the part of my season where relaxation time is well and best spent doing exactly that.

While I was taking in the videos, I noticed that the price of Bitcoin, which has been falling for two weeks, started spiking up significantly. Since I was already sitting in front of one news source, YouTube, I looked to see what "Bitcoin" would bring up.

That's when Tom Lee of Fundstrat started popping up all over the place in my search results. Tom Lee is someone I've mentioned on this blog before: he is the creator of the "Bitcoin Misery Index." As I wrote about then, his index has been flashing a "buy" signal on Bitcoin. Lee is coming up as a top search result again bceause of his newest Bitcoin price prediction: $91,000 USD by March of 2020, two years from now.

It's been known for some time now that the price of Bitcoin tends to correlate with Google searches for it and related terms, basically as an indication of whether Bitcoin is on people's minds at the moment or not. Sure enough, around the time that the articles about Lee's prediction began to be published, there was a spike in searches for "bitcoin" (without capitalization, as most people will not bother to capitalize stuff while searching):

I've circled the spike in activity, which occurred roughly one hour after these articles started to appear, which was roughly twenty hours ago as of the time of this writing.

I don't know if Lee's prediction is worth anything, and I generally ignore specific price predictions entirely (like John McAfee's call for Bitcoin at $1,000,000 USD per coin within the same time frame as Lee's prediction - yikes!). However, such claims do get people curious, curiosity leads to exploration, and at least some of the time, buying.

The next thing I came across that I think is relevant to what's potentially happening with this latest price spike was one mention of a significant piece of news about the alt coin space: a major exchange, Bittrex, is delisting dozens of alt coins that are under performing or are completely dead.

The reason this is significant is that people who have funds in those coins have to withdraw them from Bittrex before the delistings or their funds will be lost forever (if they're not already because of the coins on the list that are already dead). Owners have a choice to move their coins to other exchanges that will still list them (for now), to private wallets outside of any exchange, or, the most likely outcome, to exchange them for other coins as all of the coins on this list are likely doomed. Bitcoin stands to gain from this as money flows out of these dying alt coins and back toward proven, reliable blockchains, Bitcoin being the first, longest running, and most known of them all.

A third factor that came up in the last couple of days is news that now Twitter will join Facebook and Google in banning cryptocurrency advertisements.

As per the usual, much of the financial media out there wrote their headlines on this news as, "Twitter To Ban Bitcoin Advertisements," in keeping with their habit of either outright lying about Bitcoin, or using "Bitcoin" as shorthand for "cryptocurrencies," which is grossly misleading. The fine details of the story, at least what has been commented on by Twitter thus far, read differently: the focus of the ban will be on "cryptocurrency wallets, exchanges, and initial coin offerings, with limited exceptions."

What "limited exceptions" means exactly is impossible to say at this point, but in light of recent news on the regulatory front, it probably means "vetted." This also builds on something I blogged about just a few days ago, that these crypto ad bans are basically only targeted at all of the ridiculous alt coins that are out there, because they absolutely need advertising to exist at all. Bitcoin and other "household name" coins like Litecoin and Ethereum, and a coin like Ripple that is rapidly gaining traction in international money transfers by traditional banking players, do not need paid advertising. People already know of them, and they are reported on daily in the financial media. That is because they, unlike the sea of copycat crap coins that are out there, actually exist as original solutions to real-world problems, not just as pointless also-rans. They're relevant; the vast majority of alt coins simply are not.

Finally, at the end of the 24 hour period in the market where the price spike began to occur, the result at the end of the day was the formation of a bullish "hammer" candlestick, occurring below Bitcoin's 200 day moving average in the midst of "oversold" conditions on the Relative Strength Indicator, on a spike in trading volume, my favorite setup for a buy:

Where to from here? Who knows. Like I said before, I don't like price predictions. I do like combining fundamental analysis with technical analysis and then identifying entry points (exit points I'm fairly lax on because I tend to just sit on assets until something in my life makes it advantageous to liquidate them, not because I think I've found the "top" in a particular span of time in a market). In fact, as I am typing this paragraph, Bitcoin just broke through $8500 and appears to be moving higher, significant because round numbers tend to act as "psychological barriers" in markets. When these barriers are surpassed, more traders jump in, momentum builds, and the action really heats up. Combine this with all of the factors I described above, and this could be the starting point of big things.

Who knows... Maybe McAfee won't have to break out the mustard in a few years after all...

Saturday, March 17, 2018

Old News In The Latest News: Criminals Don't Prefer Bitcoin

As increasing regulatory scrutiny is directed at Bitcoin, something that those of us who have been involved in cryptos for a long time know about is finally starting to creep into the awareness of the major financial media: criminals don't prefer Bitcoin.

One of the constant attacks levied at Bitcoin by critics who do not actually study what they're criticizing is that it's a tool for criminals, terrorists, and North Korea to launder money.

At one point, it was, no doubt. This is because names are not explicitly attached to Bitcoin wallets, and wallets can be generated anonymously. Instead, Bitcoin wallets are in essence "numbered accounts." A key difference between a classic numbered account and the blockchain within which Bitcoin wallets reside is that there is no central authority who actually knows the identity of the owner of such an account, who is charged with keeping that information secret.

However, unmasking the identity of a Bitcoin account owner is possible to do with associations between wallets, by tracing transactions between wallets with known owners and other wallets with which a known wallet has conducted transactions. All of this is publicly available information on the blockchain, and it always has been.

For example, here's one of my wallets, which I have posted to this blog before:

Now that the world knows that I am the owner of this wallet, it's possible to begin tracing my wallet's association with other wallets. In this case, you can see that this wallet has only ever received spends from other wallets. Most of these sending addresses trace back to Coinbase, and maybe a few to Gemini, where I was purchasing Bitcoin prior to storing it here in my paper wallet. 

So then, if I were suspected of conducting illegal activity of some sort, investigators could use this information to trace relationships between me, others suspected of the same crimes, and Bitcoin wallet addresses we had interacted with in common. As more and more of these associations are detected and mapped out, it becomes increasingly likely that the owner of a particular wallet can be unmasked. There are now many software tools that make this process even easier.

Basically then, Bitcoin was only ever "anonymous" when it was relatively new and no one had begun to map out the associations between wallets. But owing to the antics of people who used Bitcoin's early pseudo-anonymity for illegal activities, the attention and resources of law enforcement agencies were focused on it and that pseudo-anonymity quickly went away.

So while "anonymous Bitcoin" has never really existed, the myth has persisted. Finally, it appears that the reality of the situation is coming to light. Anonymous cryptos do exist, and that is actually where criminal enterprise shifted to a long time ago:

"According to a recent report, illicit activity that is typically associated with bitcoin is on the decline, with the cybercrime industry and money launderers moving away from bitcoin to so-called privacy coins, like Monero—coveted by the underworld for the anonymity of transactions—luring away those who once turned to bitcoin for such features.

“It was clear from this research and from other sources that Bitcoin’s moment in the criminal sunshine may be declining in favor of other types of VC,” officials at virtualization-based security firm Bromium wrote in a recent news briefing on cryptocurrency usage.

“One reason why criminals avoid Bitcoin relates to the transparency of the blockchain and the increasing number of tools for detecting how funds are transferred via bitcoin wallets,” Bromium wrote." -- A. Hankin
Monero (XMR) is one of a few so-called "privacy" coins that were built to do something that Bitcoin does not: completely hide the identity of wallet owners (I own a little bit of Monero, which I have mined with spare CPU cycles on my several computers using Minergate). Law enforcement agencies can pick off individual Monero wallet owners, but that would only be because they had seized equipment upon which said owner had a Monero wallet. Beyond that, the trail runs cold, because Monero and other cryptos like it scramble the identities of other wallets with which a particular one has sent and received spends (it even disguises amounts of Monero sent between wallet addresses, taking away all possible "bread crumbs" that could conceivably be used to map out relationships between entities).

It's good to see this information finally getting out there in front of a broader audience. The criticism, "Bitcoin is used by money launderers and blah blah blah" has force in that it can convince those who are not yet involved in cryptocurrency that they should stay away from it. Never mind the fact that the same criticism can be levied against the U.S. Dollar and that these same people would not stop using it; the fact of the matter is that they are already familiar with the USD and really can't stop using it, and that it's simply not relevant what someone else does with their units of USD to an individual's moral character. All the same, perceptions drive decisions, both personal and of public policy, so a misguided perception that Bitcoin is a tool of crime will be reflected in the actions taken in both spheres, which then is reflected in the price of the commodity. Greater awareness of what has been stated here, that those days are more or less behind now for Bitcoin, will in time bring more people into the space.

Friday, March 16, 2018

Panos Mourdoukoutas: Google Crypto Advertising Ban Good For Bitcoin

This will be a quick one since I have a 3am start time at my first job site today (yeehaw...).

Most of you probably have heard by now that Google is banning advertisements for crypto currencies from its ad services. That has caused a big slide in the market and made many think that it's all over.

But perhaps not...

What if instead, this only hurts the multitude of pointless crypto coins that have proliferated out there?

Bitcoin is a household name. But the latest crap coin to come along? No one knows of it and it needs tons of advertising to even crack .01 cent per coin.

"Major cryptocurrencies like Bitcoin, Ripple, Ethereum, and Litecoin do not need advertisement, because they are well-known in the investment community...

...banning cryptocurrency advertising on the part of Facebook, Google and other websites is actually cause to be bullish, not bearish, over the long term. At least for major cryptocurrencies for major cryptocurrencies like Bitcoin, Ethereum, Ripple, and Litecoin...

...Another reason is that the ban will help weed out scam coins from the market, and therefore, install confidence among investors in legitimate coins...

...Weeding out scam coins, in turn, will eventually limit the overall supply of coins, and therefore, help the prices of major cryptocurrencies rally." -- P. Mourdoukoutas
 Food for thought at we continue to slide.

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