SharperDingaan

My feeling is that they are really lost. Satashi is either really patient and really believes in bitcoin, or he’s already extremely rich enough that billions of dollars doesn’t tempt him at all. I know I would have sold some by now if I were him. The other 2 possibilities are that he lost the keys or he is dead. Satoshi Nakamoto is the 'pen name' of the people who wrote the seminal paper on Bitcoin and the distributed ledger. We understand that they were at least 4 individuals, and we're pretty sure they're still alive. Give the ethos of time; they probably put their private keys on a USB stick and tossed it into the ocean - to permanently remove all temptation. Leaving the ultimate 'golden acorn' ! - as per the kids movie 'Ice Age' SD

The very funny part of this are the 1,041,715 Satoshi coin that are supposed to be 'lost'. At today's close of USD 17,369, they are worth just over USD 18 Billion. Find a way to borrow against them, & we'll find out if they really are lost ;) SD

1. Watchwoord is the better person to answer this. Bitcoin is the anointed one because the underlying Nakamoto paper showed how to do it on a distributed ledger via a blockchain, and named the currency. When Moses comes off the mountain and gives you the tablets to do it, everyone else is pretty much a wannabe. 2. Add a few texts on manias through the ages, and the psychology of crowds. Integrate it with the Rules for Rulers, and you're going to be pretty hard to sway! SD

We sold off 75% of our Bitcoin holding today. A little over 9 token at an average price of USD 17,160 after an incredible run-up. We're still stunned, and think we're among the sane ones! But it looks like the smart thing now is to take a page from the HF's ...... 1) As at today, to arbitrage Bitcoin - a HF has to go long the coin, sell a call, and buy a put. A one-way trade on Bitcoin. 2) To get more coin, the HF has to buy the dips as everyone panic sells existing coin for fear of missing out. 3) To keep up the flow of coin, the HF needs to progressively run the price of Bitcoin up and down. Not our preferred way of making a buck, but we couldn't ask for a better learning experience. SD

What should really raise eyebrows is that retail isn't the 'dumb' money. These things can now be shorted, traded with up to 100x leverage, and for the most part - entirely unregulated. The money made in the run up to the GR is essentially 'tip', when compared to these. https://cointelegraph.com/news/hedging-bitcoins-with-options-on-the-world-wide-web-expert-blog https://www.bloomberg.com/news/articles/2017-11-27/calling-a-bitcoin-top-here-s-how-you-can-short-the-digital-coin https://www.bitmex.com/ Roll up, roll up! Spin the dial. Everyone's a winner! SD

“Whatever state issued “digital cash” comes out in the near future, I’m suspecting it will be centralized with mandatory key private key custody or escrow. When that happens it shouldn’t even be called crypto-currency, call it something else like “pseudo-crypto” or “fauxcoin” to differentiate.” This is the CBDC/I-CBDC spoken of by the BoC researchers. “Backed by nothing” The Bitcoin owner places ‘trust’ in the hash to confirm no double spend, and the design of the Distributed Ledger. Hence the Bitcoin is backed by the ‘trust’ in its design; the same ‘trust’ that backs the widespread use of a fiat currency. The issue is that the ‘trust’ just looks different. ‘Tulipmania’ is not a perfect comparison, but it has many similarities. Ultimately the ‘winner’ discovers the prize is only worth what someone else can pay for it (ie: liquidity is the limitation). And we've all learned - repeatedly - that even the worst bond in a strong wind (high liquidity) will get a strong bid; but when that liquidity dries up, the bond goes ‘no bid’, and its price falls into the low teens. There's nothing wrong with riding the train - just don't drink the cool aid. It tends to disagree with ones disposition. SD

"Every other knucklehead on the planet is picking up a little bc right now to play the rush. They have no clue how the technology works or what its intrinsic value is. I'm not saying bc is valueless, its actually has some neat uses. So do tulip bulbs, they can grow lovely flowers." ... Just to add to this. I've had 4 students approach me this week alone - asking to meet for a beer, & talk about how Bitcoin and Etherium works. Shocks the hell out of them, when I tell them where the Etherium ATM is! SD

Point taken ;) It's a hard reach for anyone who has lived through the experience of a CB debasing its currency (Zimbabwe, Argentina, Lebanon, East-Block, Germany, etc.) to now suddenly trust it. Bitcoin, and its distributed ledger, was designed as the solution - and it works very well. Arguably so well - that the CB's are doing their best to replace it! But .... when nobody accepts the CB's scrip/fiat ($Z, Peso, etc.) in their store, we all switch to USD/Euro/Franks instead (another CB's fiat currency!). Hence the observation, that not all CB's are the same. 'Tall poppies get cut down', simply because they are too disruptive. We would humbly suggest that the lawnmowers are coming. SD

As already mentioned, not all CB's are equal! Its also a bad idea in the crypto/block chain world to immediately dismiss the concept behind an idea - simply because it was poorly executed first time around. Think of a 'petro' as a digital currency used for global o/g settlement (versus USD), and the business case looks very different. Sadly, I don't work in such esteemed CB circles (yet!); but know good research when I see it - and how to reference it. Just a humble lecturer in how to develop and implement block chain solutions for everyday business ;) SD

The CB trust issue reflects the cyberpunk movement of the 1990's; anarchy as the solution to corrupt society, resulting in the Nakamoto creation of Bitcoin. The reality of course is that at the day-to-day level - we all have to trust the state authorities where we live; and the CB is just another authority. At the practical level, most would prefer doing business alongside a CB - versus a drug dealer/money launderer. Additionally, not all CB's are equal; we might trust the Bank of Canada, the Central Bank of Russia - not so much. This is a digital currency block chain, running on a database; with the value of the currency always 1 coin = 1 $ fiat, and guaranteed by the CB. Compare Sections 5 and 7 against Bitcoin, to determine the disruptive features. We would suggest the answer also depends on the users purpose; ZERO price volatility is great for transactions, but a nightmare if your Bitcoin is held for trading. SD

Re fees, see p 9 Central bank fees. "The central bank does not charge fees for distributing exchanging or storing CBDC, or for making payments using CBDC. Commercial banks could, however, decide to charge fees for services related to CBDC." Once Bitcoin reaches the 21M coin design limit, miners are paid in cash - at whatever price the market will bare at the time. Re control, see p 9 (2.7 Summary) and p 22-23 (6. Conclusions). The CB actually gets too much control, particular in times of stress. Commercial banks cant charge a fee to keep your money, and must offer > the CB interest rate if they are to retain a customers deposit. We might not like it, but if we trust our central bank enough to use its fiat currency, then we also trust it enough to use its CBDC. Alternatively we could use gold, rice, sea shells, or Bitcoin - but we run the risk that nobody will accept them. In most places it's still really hard to pay for a beer with Bitcoin. SD

CBDC is just another digital currency, performing the same functions as Bitcoin. Better, faster, and more securely. Agreed that Bitcoin is simply an Oracle running block chain on a distributed ledger. With CBDC, the CB is simply a similar Oracle running block chain on a data base. The data base permits scaling, faster processing, and comes with the network advantage of every citizen in the nation also having a digital wallet at the CB. Bitcoin just isn't competitive. Bitcoin is also an inflation machine. As the only way a miner gets paid is in new bitcoin - steadily increasing the supply of Bitcoin at a declining rate up to the design limit of 21M coin. Thereafter we are simply to BELIEVE that the 21M design limit will never be raised; the same way we are simply to BELIEVE that the central bank will never increase money supply. Same belief, but who do you trust more? SD

The reality is that there is a very large market that Bitcoin serves extremely well, it isn't going away. However, the presence of the CBDC will severely limit the long term demand for Bitcoin. While it is highly likely that Bitcoin will be used to develop the options/futures/loan markets for crypto-currency, it is also highly likely that it will not be able to hold its market share against competing CBDC counterparts. Given the choice; aren't you far more likely to prefer transacting with a fully convertible coin backed by a central bank, versus taking your chances on a coin exchange to buy a Bitcoin backed by squat? Welcome to the market. Do we really still think that we're going to see Bitcoin at USD 50,000, when these things are present? SD

Research courtesy of the Bank of Canada. ‘Central Bank Digital Currency: Motivations and Implications’, Engert and Fung, 2017. https://www.bankofcanada.ca/2017/11/staff-discussion-paper-2017-16/ The Benchmark Central Bank Digital Currency (CBDC), Section 3.1, p 8-11 is a Bitcoin killer. It is legal tender backed by a central bank, there is no transaction charge to use it, and no charge for storing cash (security, insurance, etc.). Allow the central bank to track the owners or parties involved in CBDC transactions, and your ‘cash' can even pay you interest – as per the I-CBDC, Section 5.1, p 21-24. Negative interest rates are no longer practical - as all an owner need do is hold CBDC, and rely on the security of the Central Bank server to prevent theft. No more paying the bank for security to hold 'your money'. The logical next step is a World Bank issuing a global CBDC that all citizens of the world can use to transact with each other. Hello inclusiveness, and bye-bye PayPal, ApplePay, GooglePay, etc. Taken together, this goes a very long way to wiping out the business case for private crypto-currency. No Bitcoin, no Ether, no ICO. Worse still is that the only people who would use Bitcoin, are those who cannot stand the scrutiny of a central bank – the drug dealers, arms merchants, money launderers, dirty money, etc. And that money cannot get out of crypto – unless you or I buy crypto …. and pay in fiat. Clearly a very, very elegant solution – akin to ‘Raid’ for cryptocurrency. And pretty hard to see how the crypto bubble remains inflated – when this becomes the very real alternative. What are your thoughts? SD

SD, as I understand it you are a Canadian so I will address this for the Canadian point of view. Firstly, you are wrong that you are not taxed on FX for personal use. FX is taxed in Canada. It doesn't matter if it's for personal use or not. The CRA is not unclear about this. There is a small exemption. FX gains and losses under $200 CAD do not have to be reported - this intended to exempt most of the personal FX use. If the gain/loss the exceeds $200 CAD the whole gain/loss has to be reported and is taxed. It can be taxed as capital gain or income depending on the circumstance. Secondly, crypto currency in Canada is considered a security not a currency. So no $200 exemption as for FX. You need to report income/losses like you would for a stock. Thirdly, the offshore scenario you describe is impossible. There is no such thing as an entity that exists purely in cyberspace. Every legal entity exists in a legal and geographic jurisdiction. Furthermore Canada has very strict rules about offshore money. You need to have legitimate offshore command and control over the funds. That's expensive and you cannot have anything at all to be with the money, otherwise it becomes very taxable. Of course, you could do x,y, and z and hope that the government doesn't find out. But that doesn't fall into the legal bucket and is another cup of tea. Thanks for the update. It's been a while since I last went through the tax code. SD

Agreed that if trading is how you make your living - the FX gain/loss every time you buy/sell a Bitcoin is part of taxable income. But if you're not a trader - this is no different to buying Euro (Bitcoin) to spend when visiting Europe, and selling back whatever Euro you have left on your return 'home'. You aren't taxed on the FX gain/loss as the Euro (Bitcoin) you bought, was for personal use. There is also no stipulation that you have to buy the foreign currency (Bitcoin), immediately before you intend to spend it. No taxes. Nothing prevents a Bitcoin held for investment, from being held by an controlling entity domiciled in a off-shore tax haven. And nothing prevents that off-shore entity, from being owned by an entity that exists purely in cyberspace - it's what we pay tax accountants to do. No taxes. Because Bitcoin has dual use (its both currency AND a asset class) it's hard to make the case for taxing it. SD

The IRS has at least 2 major problems 1) If you bought/sold crypto via a fund, you have a gain/loss - that in theory, could be taxed. If you bought the same cypto directly, you just bought 'money' and the FX gain/loss is not taxable. Same asset (crypto), different treatment. 2) Crypto exists only in cyberspace, there is no domicile, hence the tax rate is zero. SD

Buying a Bitcoin is the same as buying a USD with CAD, in anticipation of a near term devaluation in CAD. If you're correct you book a CAD profit equal to the difference in the exchange rates x the quantity of USD owned. You bought 'money' (USD), with no intent of spending it - you are doing EXACTLY the same thing when you buy a Bitcoin. To buy a Bitcoin at USD 1,000 and sell it at USD 10,000, the USD/Bitcoin exchange rate had to devalue by 10x. Given that most of the globe uses USD to pay for goods and services, were crypto to largely replace the use of USD for this purpose; the USD would collapse. Hard to argue against crypto being a long term 'store of value'. 'Safe' is in the eye of the beholder. Know what you're buying, and why. SD

Sir, "if you have to ask the price, you can't afford it. :) May we suggest that 'other' alternative currency across the street from us" SD

Bitcoin inflation pays for the miners, up to the design limit of 21M coin; thereafter there is supposedly no inflation because miners are paid in cash (via token that the digital wallet already possesses). As we get closer to 21M total coin - the rate of inflation (miner fees) supposedly declines to zero. Under the current plan. The coin was designed for use an alternate 'medium of exchange' - but is actually used as an asset; and will be even more so, as soon as bitcoin options, futures, and syndicated loans become available. Most folks would argue that 21M coin will be insufficient for the need, and that the design limit will need to increase to something a lot bigger. Inflation. Bitcoin at USD 50,000 is achievable because the supply of bitcoin for sale is very limited relative to the demand; and as with a BRK share, few can afford to purchase. The solution is a share split that creates more affordable Baby BRK's - for Bitcoin, a material increase in the design limit. All fiat currencies get inflated, & it is largely why we create them - Bitcoin just does it a different way. SD

You may find it useful to 'reframe' your thinking, and compare it to what you already know. Think of a 25 year bond with a coupon of 8%, paying out interest every 6 months; in today's low rate environment the bond would value at a hefty premium. If rates rise (mean reversion) the value of the bond will fall, but the coupon payments could be reinvested at higher rates than are currently the case. The time needed for the additional return on reinvested coupons to recover the MV loss on the bond, is the bonds duration - and measured in years. It is how long it will take to recover the immediate MV loss, all else equal. Of course if you did not own the bond at the time rates rose - you would have no loss. If you thought the rate increase was a 'one-time' thing, you would also deploy your bond proceeds immediately after the rate increase to earn today's higher available return; but if you thought it was just the first of many coming increases, you would simply sit on your cash. In your example - liquidate the fund today, return the principal, and don't raise OPM again until you're pretty certain the rate increases have stopped. In the real world, OPM fees are addictive; liquidation is the last thing a fund manager wants, as it ends their employment income. However, an individual would simply use the bonds proceeds to pay off their debts and mortgages, save on their monthly debt service cost, and enjoy a big bump in their discretionary cash flow. Very different outcomes. The lesson here is that as long as you do the same as everyone else (be a sheep), you WILL get fleeced; but make a minor change - and YOU'RE the one doing the fleecing. SD

You might want to revisit some of your assumptions. Per the mexico article - they have the same problem that a oil/gas producer has. The product is essentially worthless (<2c/Kwh) where it's produced, as everybody has it - and in quantity. 'Storage' for this location is the on-site electric arc furnaces of the 'smelting industries' sucking up lots of surplus green energy - not batteries. To extract value they need to sell the product elsewhere, creating a distribution problem. They have an enormous advantage in that they can distribute EITHER by ship (processed ingots), or by electric grid (assumes its capable). It creates a floor price for the energy, and the more smelters they can attract (additional demand) - the higher that floor price will be. Nice place to be. SD

Consider when motorcars replaced the horse and buggy; the disrupter was the internal combustion engine. You did not know how it was going to work out, and had to place your bets PROACTIVELY. The long side of the staddle was easy; any one of the motor car manufacturers, and there were literally hundreds of them. The short side of the straddle is always harder; it is a LONG POSITION in a industry/company that benefits as the horse/buggy goes into decline. To most people the obvious choice would be to own a labour exchange - earning a commission on finding work for every one of those now former horse and buggy men. No matter what you would get very, very rich - AS LONG AS the motor car was able to disrupt the horse and buggy industry. Positioning yourself to benefit like this, is the crux of the 'antifragile' portfolio. SD

An AntiFragile portfolio is simply one that benefits from significant change - it's just a long straddle on the market that pays off big if the market either booms or busts, within a specified period of time (maturity date of the put and call). A long-short portfolio straddling a specific market disrupter. Select the timeframe (short, medium, long), the disrupter (shortage/glut, technology, etc.), and take your best guess on who wins/loses. Nothing magical. SD

The supply of Bitcoin is essentially vertical, and moves based on todays expectation of tomorrows price. If we think prices are going up we do not offer our Bitcoin up for sale - reducing supply, raising price, and fulfilling our expectation. The same thing occurs in Real Estate, and is common practice. It is highly likely that the introduction of both Bitcoin options and syndicated loans (Bitcoin as collateral) will generate (material new) institutional demand (cryptocoin hedge funds) for Bitcoin. Most folks would expect that new demand to raise the price of a Bitcoin, and hold back their Bitcoin IN ANTICIPATION of selling later at a HIGHER price still. The result is something very similar to the Tulip Mania of the Netherlands, that occurred way back when. Manias are by definition - not rational by normal standards; they have their own internal logics - & every one is different. The only common denominator is that they require a bag holder - & everyone is convinced that it is not them. SD