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If you are planning to buy bitcoin BTCUSD,
for heaven’s sake, do it in your individual retirement account.
I’m not saying you should or shouldn’t buy digital virtual currency, which is booming again. I’m just saying, if you decide to buy it, as an investment or a trade, do it in your IRA account or some other tax protected account. (An increasing number of these allow you to own bitcoins).
This way you can ride the latest craze, maybe make a quick profit and not have to pay any taxes when you collect.
The IRS treats bitcoin as “property,” which means that any earnings you make outside of a protected account will count as ordinary income.
Bitcoin has grown 70% since the beginning of October and is nearing an all-time high. The price has more than doubled in one year. Ah yes, the boom times are back. Bitcoin fanatics are reappearing after their three-year hibernation. Cryptocurrency “experts” will soon appear on cable TV, if they aren’t already.
The traders riding this high-risk bandwagon are behaving like bandits … for now, anyway.
And then there’s Thanksgiving.
It was Thanksgiving three years ago that sent the cryptocurrency craze into orbit. Relatives who had made money with bitcoin relayed the news to other relatives about the turkey and explained what bitcoin was and how it worked. The other relatives returned home and joined them. Bingo.
Bitcoin has tripled in about a month.
Could it happen again this time? Sure. Why not? Nobody knows.
You could make a quick profit. Again you could make a quick loss.
But if you want to play and reduce the risks, play with house money.
It’s an old Wall Street trader trick, it was explained to me years ago by an investment analyst at the start of the dot-com bubble.
Start by buying, for example, $ 1,000 in bitcoins (or $ 100, or $ 100,000 or whatever fits your budget). If it increases and you start showing a profit, buy a little more. Every time it increases and your profit grows, buy a little more … and a little more …
But don’t buy if it starts to drop. And cash out if it drops to a trigger point set in advance, such as 20% off the maximum price. Be willing to take a loss and walk away.
Take the train as long as it continues. Just remember to get off before it falls off the cliff.
The disastrous end of the latest crypto bubble was signaled quite clearly in advance: a front-page article in the Style section of the New York Times cheering for the bubble, titled “Everyone is getting hilariously rich and you aren’t.”
That was the peak of the market. Bitcoin then plummeted by 80%. Other cryptocurrencies have collapsed even more.
You can set the clock based on these things.
Bitcoin has been around for over a decade now. Technologists and fans say the software and the design behind it are quite brilliant.
But of course this has nothing to do with investing.
Bitcoin is a largely useless asset. I’m still waiting for a single bitcoin fan or expert to explain to me what bitcoins are really useful for, aside from money laundering. I already have my choice of other fiat currencies and gold. It’s quick and easy to transfer money online nowadays.
Some suggest that bitcoin could provide low-cost banking services for the poor and “bankrupt” around the world. Goat herders in Turkmenistan will keep their money in cryptocurrencies and manage it on their smartphones.
I’ll believe it when I see it.
The other day I asked a cryptocurrency fan what the legal usefulness of bitcoin was. “Attestation,” he replied. I asked him to explain what he meant and he sent me a link to an online dictionary.
Certificate: “A proof of concept”. OK. Big deal. Why would this make it valuable?
Of course, cryptocurrencies are excellent for laundering money. If I was in the business of selling illegal drugs, evading taxes, supporting terrorists, or blackmailing local authorities and hospitals with computer viruses, I would love this stuff.
In the meantime, remember that the bitcoin market is effectively a Ponzi scheme. Old investors can only be paid with the money of new investors. No, it is not the same with stocks and bonds. Bitcoins do not generate income of their own. They pay no coupons or dividends.
So you can buy bitcoin for $ 18,000 hoping to sell it to someone else, say, $ 20,000. Why would that person buy it from you? They hope to sell it to someone else for, say, $ 25,000. And why would that person pay $ 25,000? They were hoping …
You have the photo.
Bitcoin, and the blockchain technology behind it, is apparently a fabulous technology. But what then? Without a compelling application it’s just a bit of very clever technology, like the old joke about the inventor coming up with an ingenious kitchen appliance that can scramble an egg inside the shell. Yes, it’s brilliant. But why do I want it?
If I wasn’t writing about bitcoin, I would probably trade it. Never let a bubble go to waste. So maybe you can make money (real money, measured in US dollars or the equivalent). It is high risk. But good luck.
Remember: Save your taxes and headaches by doing it in a tax-protected account, like an IRA. Oh, and pay attention to the end of the song.
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