Sunday, April 22, 2018

Bitcoin Buyers Are Hungry

This is the most significant Bitcoin news I've seen for some time now:

"For the first time since March 2017, buy orders now compose over 92% of market activity. Hot on the heels of a massive $120 billion recovery, the massive surge in buy orders heralds an impending bull market that could potentially exceed the monstrous late 2017 run up.

Data from TurtleBC demonstrates that cryptocurrency buy market percentage across a diverse range of coins including Bitcoin, Ethereum, Ripple, Dash, NEM, and money is currently at a massive 92.86%, greater than the December 2017 high of 88%." -- S. Town

Wednesday, April 18, 2018

Bitcoin Whale's $100 Million Cannonball Creates Only Small Splash

It's in the Bitcoin news this morning that a couple of "Bitcoin Whales" sold off $100 million of BTC yesterday, causing a "crash" of $200/BTC.

Two things:
  1. If a "crash" is now defined as a $200 move, I'd say we're in good territory again, and
  2. If these two were selling, that means people were eagerly buying, which kept the price from falling much further and hints that life is returning to this market post tax day.
BTC is at $8091.13 on Gemini as I type this.

 
"The balance of wallet 3D2oetdNuZUqQHPJmcMDDHYoqkyNVsFk9r — an anonymous digital account which is valued at $1.49 billion — fell by 6,500 bitcoin Tuesday, with the average sale price sale being $8,146.70, a total value of just over $50 million, according to bitinfocharts.

The sale comes a day after the third-largest wallet, which famously purchased over $400 million in bitcoin in February, let go of 6,600 bitcoin at an average price of $8,026. All told, the two whales dumped over $100 million of bitcoin within 24 hours." -- A. Hankin

Thursday, April 12, 2018

Bitcoin Spiking As Tax Season Ends?

Tax season in the United States ends next week with the Federal income tax filing deadline fast approaching on April 17th. I just finalized my Federal and state taxes this morning. All I have to say about that is, "next year will be better" (thanks to the Trump Administration's tax cut passed late last year that are in effect now).

Between my pest control work picking up massively as we head into spring and having my head in the paperwork nightmare that is our tax system these days, I haven't kept up with this project. But in terms of cryptos and other investments, I also haven't seen much that is new and noteworthy either.

Except for one thing that I came across about a week ago that I thought was interesting: TechCashHouse discussing  Bitcoin regaining upward momentum after tax season passes, a prediction made by Fundstrat's Tom Lee.

Why? Basically that people are selling to raise money to pay tax bills. Once that need passes, so will the major selling.

When I first heard the idea, I shrugged and said, "well, it's as good a prediction as any other." That is, it will be believable when (if) it comes to pass.

Then today, this happened.

Given the position the Bitcoin market has been in as of late, maybe there's something to this after all...


Tuesday, March 06, 2018

Actually Hacking Bitcoin: It's Easier To Win The Lottery

Since this past weekend I keep seeing headlines about the latest "Bitcoin heist," which occurred in Iceland.

For accuracy, the headlines should read something to the effect of, "Bitcoin-RELATED heist," or, "Bitcoin EQUIPMENT stolen." But, no, of course we can't have that. The headline must be attention grabbing and sensational! If it's misleading, well...

What really happened: thieves broke into a mining center and stole mining computers. They didn't steal anyone's Bitcoins at all (but notice the headline Fortune put on this, still implying that cryptocurrency was stolen).

That's why a guy by the name of Brian Liotti of Crypto Aquarium put out this:

This is a table showing you the chances of guessing the private key of a random Bitcoin wallet, with funds in it, and the odds of guessing the private key of a specific Bitcoin wallet, versus winning Powerball.

Nine. Times. In. A. Row.

Previously I've written about the difference between the security of a Bitcoin wallet and cryptocurrency exchanges, what a private key represents (in two parts, here and here), and how the media frequently (maybe even intentionally) conflates a hack of an exchange with "hacking Bitcoin."

I explained then how it isn't really possible to hack Bitcoin itself, and I even posted the public address of one of my Bitcoin paper wallets for the world to see.

Go ahead and try to guess my private key and steal my Bitcoins. Or take all of your money and go buy Powerball tickets. You stand a better chance of your numbers being drawn in that game than you do of stealing my Bitcoins.

The reason Liotti created the table I've included above is simply that people's understanding of Bitcoin/cryptocurrency security is lacking, thanks in no small part to an often hostile, agenda-driven media that misrepresents the technology and events surrounding it ("FUD," in short). This slows wider adoption of the technology as it takes time for people to get legitimate news and information about it. It also warps the regulatory frameworks that governments erect around things, because regulation based on misleading or outright false information will be aimed at the wrong targets and ruin markets. Often that's good for entrenched special interests, and bad for the rest of us.

So go ahead and put a little money into a Bitcoin wallet instead of a Powerball drawing. Your chances of still having money for years to come are many times better!

Sunday, March 04, 2018

Stacking My Investing Cash In Life Insurance

I didn't blog yesterday because of two things, the first being going to weekly coffee with my mom, and the other being that I spent the afternoon refreshing my memory on the benefits of a particular financial vehicle I own, a cash value life insurance policy.

Let's get this out of the way first: I don't give a damn what Dave Ramsey thinks on this topic. Period, end of discussion.

A few days ago I wrote about how legendary investor, Warren Buffett, is letting Berkshire Hathaway's cash position swell because he and Charlie Munger can't find any good deals they want to invest in. In 2017, they made just one acquisition and accumulated a cash position of $116 billion USD. That's unusual for Berkshire.

In that post I asked the question that others are asking, too: "If Buffett isn't buying, why should I?"

It's a good question, especially right now. The U.S. stock market is at all-time highs, interest rate hikes and inflation brought on by low unemployment and wage growth is probably on the way, and tens of thousands of workers of the Baby Boom generation are retiring, possibly prompting them to rotate out of equities.

I don't think this should be looked at as a recipe for disaster, like some do (right before a pop-up ad appears on their site offering gold, freeze dried foods, and heirloom seeds for sale). Rather, it's just going to be part of a cycle, maybe even something to be expected that goes hand-in-hand with demographic trends the world over. In any case, it makes the argument that perhaps the best thing to do for now is prepare for big opportunities.

As such, I've recently stopped making any asset purchases and have begun stacking cash instead. Basically, I want fast access to capital; I want liquidity.

I also want a decent return, at all times. "Cash under the mattress" doesn't generate a return. In fact, thanks to inflation, it actually loses purchasing power whenever it is not put to work somehow.

That's where my cash value life insurance plan comes in.

I've had this thing for six years now. Basically, I purchased it with a vague plan to use it for an "Infinite Banking" strategy. Also known as "Bank On Yourself," this is an approach to saving and investing some use where the particular features of a cash value life policy allow them to act as their own banker to themselves.

The quick version: cash value life insurance can be borrowed against. You can request a loan from the insurance company, which will lend to you at contractually guaranteed rates (it's part of the insurance contract) using the cash value in the policy as collateral. Because the loan is collateralized, the insurance company won't ask what it's for, there is no underwriting process, and they won't say, "no." The loan also does not appear on your credit report. You then use the loan proceeds to buy whatever, then you "pay yourself back" by not only paying down the loan principal, but adding additional funds to your policy by also paying into it the interest you would have otherwise paid to a bank. In that way, you are your own bank, your total borrowing cost can be the same as if you had borrowed the money from someone else, but you keep the profits from the loan instead of that someone else getting them.

Now, the key thing going on here is that the cash value inside of my policy is always there, no matter how much of it I borrow. That's because policy loans are borrowed against the cash value, not from it. This means that during the entire time I have a loan out, my policy's cash value continues to earn interest, just like it was before I took a loan.

Think about it. While I have loan proceeds plugged into something that's generating cash flow (or maybe my next car), and while I'm paying myself interest on the loan that would have gone to some bank otherwise, the full amount of my principal is continuing to compound. Had I saved up my cash in a checking or savings account, a retirement plan like an IRA, a certificate of deposit, etc., any borrowings from those kinds of accounts take my capital out and halt its compounding. Depending on the type of account and the nature of the loan taken from it, there can also be penalties and interest owed to the IRS; not so with mine.

These interest earnings I'm receiving daily within my policy (that's right, mine credits interest every single day) are also accumulating tax free. Right now with annual bonuses, my policy's interest rate is effectively 4.69% with a guaranteed minimum of 3%. Because this is tax-free accumulation, however, in my 2018 tax bracket of 22%, this is a taxable-equivalent yield of just over 6%.

Does anyone reading this know of a stable savings vehicle earning a 6% pre-tax yield that will continue to compound interest while it's leveraged into another investment?

Finally, in my later years, I can actually use this policy as a source of tax-free retirement funds, also by borrowing from the accumulated cash value. Life insurance policy loans do not necessarily need to be paid back. If you don't pay the interest on the loan each year, the insurance company simply adds it to the balance of the loan. If the balance of your loans ever equals the cash value of the policy, the insurance company simply closes the policy and pays off the loans with the cash value. If however there is still cash value left in the policy at the time of your death, then the loans evaporate and your beneficiaries receive the benefit payout, or in the case of the manner in which my policy is structured, they get the specified benefit plus the net amount of accumulated cash value. It's just a matter of timing the loans versus life expectancy and sizing them correctly, which because they are loans are not taxable as income. I can also do this any time I want to, not only after a certain age that the government decrees.

You can get close to this with a Roth IRA, but unless you liquidate everything in it and keep it in idle cash, you could face wild swings in the value of it during your retirement years, and unlike the capital in my life policy, yours would not be continuing to compound by any significant amount.

There's a few more benefits to this approach that I'm familiarizing myself with again, such as being able to structure the loans from my policy to a business endeavor in such a way that the interest paid to my insurance company and to myself are fully deductible by the business. Suffice to say, there are a lot of benefits to be had here. There are some costs, too, the chief one being the cost of the insurance itself. And that's where a lot of the critics of this method focus, by chanting the platitude that "insurance is for insurance, not for investing" and then comparing the cost of cash value life versus term life insurance. Without going too far into why they're wrong, I'll just say this: the kind of insurance I have should be called "life insurance," because I can use it during my lifetime, whereas the kind of insurance the critics prefer should be called "death insurance," because you can't do anything with it during your lifetime, only pay for it, and it only provides a benefit to someone else after you've died (assuming you don't outlive the term of the policy, in which case all of your money is just gone...).

Why haven't I been more aggressive with this asset of mine in the past? Well, basically it's because I haven't been thinking in terms of building up a war chest ahead of anticipated big opportunities. I do fund my policy monthly, but nowhere near the maximum amount that I can each year. I think from here on out, good markets or otherwise, I'm going to make it my default investment every time I allocate cash. After all, I'm not getting 6% with stable value and rapid, tax advantaged access to my cash from anything else that I have at my disposal...

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For more info on this topic, you can Google "infinite banking" or, "bank on yourself." YouTube searches for this topic will turn up tons of materials, too.

Also, if this sounds intriguing to you, find an insurance agent who is familiar with these topics and work with them. Remember: the younger you start, the cheaper the costs and the more time your money has to compound.

Wednesday, January 17, 2018

Budgeting for Peace of Mind and Resiliency with 70/20/10

Bitcoin and virtually all other cryptos remain in a murderous decline today, with coinmarketcap.com showing that only three are in the green over the past 24 hours (yesterday there were just two).

I realized it is a good day to reiterate something I tell interested parties often, especially at times like these: for every dollar you put toward investments, put two toward your debts.

Why do that? I'll explain (strap in, this is a long one).

I've been using a budgeting strategy for nearly two decades now that was inspired by the book, The Richest Man in Babylon by G.S. Clason. I've been using it all of these years because, frankly, it works.

I blogged about it here years ago, too, though upon review of that post this morning I discovered that the flow chart I had created to illustrate how it all works became lost forever on an image hosting site I once used. No matter, it's easy enough to recreate (and retain a copy of on my hard drive, this time...).

First, the basics:

The budget prescription given in the book breaks one's income down three ways by percentages. Wages and "windfalls" (tips, money you find on the ground, prizes, etc.) are all part of your income, and for most people will start out as their sole source. 70% of this goes to your living expenses, 20% to your debts, and 10% into investments.

From there, I customized things a bit, which this flowchart illustrates:
(click to enlarge)
Clason's original work recommended a strict adherence to these categories; basically, once funds entered one of the three categories, they and all funds subsequently generated by them stayed in that category. Living was strictly that, the maintenance of one's day-to-day life. Debt repayments were strictly confined to that category, and the income generated by investments was to be retained and compounded.

It would be perfectly fine to do things as such, but the reasons I don't are these:

1) Debt payments essentially have two components, a required monthly minimum (most of the time) and a discretionary additional payment on the principal balance. I think the required monthly servicing should be part of one's "living" expenses, because:
  • this will make them less comfortable to carry, and
  • this gives the 20% debt category far more impact as it's then entirely additional payments on principal
2) Compounding dividends and interest is a great thing, but any amount of passive income can improve one's life now. For most people the 10% put into those investments will have far more impact on their growth than reinvestment of the income they produce, and the additional funds to apply to debt will have a greater impact still. That said...

3) Combining points 1 and 2, the amount that debts cost an individual in terms of their minimum obligation have a huge impact on the sum total of their required income, such that eliminating the debts and their corresponding required minimum payments will typically propel someone toward financial independence (no longer needing to work for money) faster than investment growth usually will, so this ought to have a greater priority.

Therefore, as you can see by my flowchart, I have my budget set up in this way, with my passive income redirected back to the "top" of the chart so that it may filter down through the three categories (as such, there is some compounding of my passive income, but it's not prioritized). This both makes life more comfortable now, and it moves me closer to not having any debts faster while still building assets.

That leaves just two other tweaks to the system, one of which was actually suggest by Clason: if you have no debts, the 20% allocated to them could be broken up between the living and investment category as you see fit. When I get that far, I plan to just dedicate all of it to investments; since I'm feeding the income they produce back into the budget anyway, I figure that doing so will grow the living category with the resulting additional passive income plenty enough to keep me happy, so why not?

The other tweak is that when I do have a capital gain from my investments, I reinvest the full net amount of it, typically into something offering a higher yield than what the gain resulted from (one exception to this are those rare occasions where cashing something out and eliminating a debt with the proceeds could yield greater over-all cash flow, which was the case when I sold some REIT shares this past spring and then nuked my student loans in one go).

I have my investments spread out over lots of different asset classes, markets, and industries, far too many to list here without it becoming a blog post of its own. Among all of the options out there, I think dividend stocks are the easiest to access. Costs in the form of commissions can greatly hamper initial efforts and the resulting yields, which is why I recommend using Robinhood for this. Robinhood offers commission free purchasing and the interface is a smart phone app. Not having to pay investing commissions is huge, because it makes small purchases reasonable to do and profitable (you can literally buy just one share of something and not have your future capital gains and yields killed by commission expense), and it puts this avenue for generating passive income within easy reach of anyone.

Lastly, depending on your spending habits and inclination to frugality, the constant input of 70% of your income into the living category can result in a hefty balance building up within it. You could just let it do so and take comfort in it as a "cushion" against uncertainty, but past a certain point it might come to represent some missed opportunity just sitting there as "idle cash." What I do is set a limit on how much I allow this category to build up, which for me is five months of living expenses (five months is the typical duration of the slow season in the work that I do). When the balance of that category exceeds five months of my budget, I put the surplus toward debt, as getting rid of them removes their payments from my budget, thus shrinking the sum total of five months of living expenses, creating more surpluses...

This has become a long one. So to sum up then, this is what I have been doing for nearly twenty years now, and it works. My liabilities are shrinking, my assets are growing (and my net worth is positive, something that's unfortunately becoming increasingly rare these days), my passive income is also growing, and most importantly, the amount of money I need to earn from working is rapidly approaching zero.

And these severe down days in the crypto market, or any market, not that big of a deal. In fact, when one's affairs are arranged like this, these events take on the appearance of opportunity rather than calamity...

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One more time, here's my referral link to Robinhood, where you can buy stocks with zero commission cost, and by signing up both you and I get a free share of a randomly chosen stock: Robinhood, the easiest, cheapest way I know of to build passive income from stocks

Further reading:

Tuesday, January 02, 2018

Passive Income from a Video Game: Arkadia Moon Deeds in Entropia Universe

I have a small holding in the MMO game, Entropia Universe, which is now undergoing another expansion of the investment opportunities that exist there. What follows is a posting I made elsewhere in an investment forum I'm a member of, with a few updates to bring the information I'm presenting current to today. Not familiar with this game? Then please, read on...
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First, a little background.

Entropia started off over a decade ago as "Project Entropia." It was then what it is now, a futuristic SciFi online game. What was new about it among others was the full incorporation of a real cash economy in-game. Rather than merely tolerating secondary markets popping up outside of the game for in-game items (such as with World of Warcraft, for example), the creators of Project Entropia, MindArk, made it a key feature of the game, establishing a system where a player could deposit real world currency at an exchange rate of 1 USD to 10 "Project Entropia Dollars," AND vice versa.

The game took place on a planet, Calypso, and players began depositing, playing, and withdrawing. Some even began to make a living through the game.

Fast forward several years...

MindArk began to expand upon the in-game ownership opportunities by creating a new continent on Calypso, with a major new feature: player ownership of plots of land. These player-owned land areas featured a tax system on two key activities, mining and hunting, which generated revenue for the land owner.

The first major land area was put up for auction and quickly sold for around $27,000 USD. The buyer later reported that he recovered his initial investment in under one year...

Several years later, MindArk began to develop space, outside of Calypso's atmosphere. This opened up a whole new area for players to travel through, hunt, mine, and even hunt and loot each other. It also became the platform upon which MindArk created the first destination off of Calypso: a space station.

This space station later went to the auction block, too. It was purchased by a player who goes by NEVERDIE, who in real life is a DJ, producer, and amateur filmmaker. He took out a mortgage on his home and purchased the space station for $100k USD, then transformed it into a hunting, mining, virtual real estate sales (apartments were offered for sale to other players), and nightclub destination, CLUB NEVERDIE.

Nightclub? Yes, a nightclub.

NEVERDIE arranged things with MindArk such that DJs spinning in a sound booth in the real world would have their music piped into a club setting on the space station, complete with virtual turntables and an avatar to represent them. Players could purchase tickets to the venue and catch the shows via their own avatars.

NEVERDIE sold the station in pieces several years later (if memory serves, the total of the sales approached $750k USD), after reportedly having earned millions in USD from revenues over a period of about three years.

Sometime around this period, MindArk created "Calypso Land Deeds." These are essentially shares of Planet Calypso, notes that a player can hold ownership over that pay a weekly dividend derived from revenues earned by MindArk on Calypso. These debuted at a par value price of 1000 Entropia Dollars each ($100 USD). They trade in the in-game secondary market, too, the current in-game asking price sitting at an average of 1984 ED, an increase of nearly 100% over par, with an average annual yield at present of 7.49%.

MindArk then continued the expansion of Entropia by expanding on space in a brilliant way: the creation of new planets. But these were not planets created by MindArk; rather, MindArk created the opportunity for outside investors to set up new worlds incorporated into Entropia, with their own visions, themes, unique creatures, items, etc. At this point, "Project Entropia" became "Entropia Universe."

Several new worlds were created (NEVERDIE owns one of them, "Rocktropia," which is apparently where some of his profits from selling CLUB NEVERDIE went). Players were now able to travel space between the original world of Calypso, the space station, and these new worlds (in fact, several transportation businesses sprung up in-game after this, all owned and operated by players, not MindArk or other investing firms).

Then along came Planet Arkadia.

Planet Arkadia is owned by a company outside of MindArk, Arkadia Studios, just like most of the planets in the game now. It started off as just another world with its own backstory, unique creatures, minerals, etc. But then Arkadia Studios created a new area within the planet itself, "Arkadia Underground."

But this planet owner, unlike the others before them, sought outside financing for this project. To do this, they worked with MindArk and created the "Arkadia Underground Deed," which distributes daily dividends from the revenues generated by players hunting and mining within the area.
200,000 of these deeds were then created and offered for sale, just like the Calypso Land Deeds years before. They went on sale through the Entropia Web Shop (outside of the game) at a par value of $5 USD each. All of them were sold about a year later.

Today, they are worth an average of $8.40 USD each, a gain of 68%, and at present offer a 4.35% yield.

Now the current news...

Arkadia Studios is doing it again. A new moon is to be added to the orbit of Arkadia, and deeds are now on offer that represent the entire area of the moon. They will function the same as the Arkadia Underground Deed, paying daily dividends, which will come from a uniform, fixed tax rate of 5% on all activities that take place on the moon.

A key difference this time is that the deeds will have a par value of 60 ED, but until the end of January are on sale for 50 ED. The moon will be launched in-game by the 3rd quarter of 2018.
Details here: https://www.entropiauniverse.com/bulletin/buzz/…

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Like I said, this is a small holding I have within my entire portfolio. My avatar has a cost basis of approximately $1400-1500 USD, and is at present worth just shy of $2900, not counting on-going revenue it earns from Calypso and Arkadia Underground deed holdings.

There's four reasons I hold this as an investment:

1) The fixed exchange rate of ED to USD, 10-to-1, gives this holding liquidity and stability of the in-game currency (for those of us living in the U.S. anyway; players from other countries must still contend with FX fluctuations). If I liquidate everything I own in-game and convert it all to ED, I know precisely how much I would then be able to withdraw from the game.

2) Because capital gains and revenues generated in-game are in an unrecognized currency, "Entropia Dollars," none of the capital gains I might realize, nor the revenue I receive daily and weekly, create taxable events. It would only be upon withdrawal of funds from the gain above my cost basis that I would owe any taxes to Uncle Scam. Thus, the revenues I'm earning in-game can be assessed on a "tax equivalent yield" basis, how an investor can gauge the worth of the yield of a non-taxable instrument, such as a municipal bond, versus a taxable alternative, like a dividend paying stock. As such, in my current U.S. income tax bracket, 25%, the yields I stated above for the Calypso and Arkadia deeds are the equivalent of taxable alternatives yielding 9.99% and 5.8%, respectively.

3) This is a unique diversification opportunity given that it's virtual property, but specifically it offers two things in that regard: it is about as non-correlating as you can get to things like stocks, bonds, precious metals, etc, and being international in nature, it is receiving cash inputs from players all over the world in numerous currencies, which confers some benefit from purchasing power entering the game through currencies that have greater or lesser amounts of relative strength at different points in time.

4) It's fun! I own property in a freakin' video game and I get paid to do it! lol!

Entropia Universe is but one more example among many of the investing opportunities that now exist, all thanks to cyberspace, that simply could not have existed earlier in our lifetimes. It's new, it's weird, people who don't understand it mock it, but it works. And it will keep working, and growing...

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(What I wrote to my fellow forum members, just this morning)

I've started accumulating the Arkadia Moon Deeds I wrote about a few weeks ago. I decided to make them a "January project" since they're on sale at about a 17% discount until the end of this month ($5 each currently, par value is $6).

As of this morning my avatar had a value of $2918.82 and is yielding $182.96, 6.29%, or 8.06% tax-equivalent yield in my new tax bracket of 22% (yeehaw!).

The income from these deeds will not kick in until the new moon launches sometime around May. I'm willing to wait though because if the price appreciation of two other types of deeds I own is a reliable guide, then from their inception to the present, I could be looking at 60-100% price appreciation of these new deeds once dividends start to flow.

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If you're feeling intrigued by this, take some time and check out the game. Entropia Universe is free to play, depositing is 100% optional. Enjoy!

https://www.entropiauniverse.com/index.xml

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