TwoCitiesCapital

Better off asking a tax professional. I've never been through a fork myself and only personally have researched the tax ramifications that mattered to me for the activity I was doing.

Can't speak to Canadian taxes, but in the US you'd be expected to pay the capital gains on the BTC disposed. I have used the VWAP or closing price on the day of a transaction to determine the gain/loss.

The general consensus seemed to be the low volatility of recent would spark a break-out/high volatility event. Though, most seemed to think to the downside with lows of 9-12k being thrown out all over the place. Now that we've bounced to 21k, a few questions. 1) is BTC still going to be highly correlated with equities and we can expect this to be a leading indicator for positive stock returns in the near future? 2) or has the available supply become sufficiently limited that BTC is now trading on its own supply/demand mismatch with little correlation to other risks assets 3) was 15.5k the low? Or do we get another drop in the event if a global recession?

1. Gold & short term bonds 2. Commodities & emerging markets 3. Long term treasuries & cash 4. Developed market equities Ordered from left to right, top to bottom. 2021/2022 was obviously inflationary boom period. Since then, inflation has been decelerating and and growth has been decelerating taken us diagonally to the left towards deflationary bust (why I've been advocating for an allocation to cash/duration for a few months now). My guess is the the govt prints and the Fed eventually pivots - whether that takes us back up to Stagflation or Inflationary Boom is anyones guess, but I'll be buying gold and base commodities/producers if we do get a bust.

Yes, I think that's largely the argument. If they lock in current 5-10 year yields, their fixed income portfolio alone would generate $1.3-1.5 billion fairly sustainably. The current price is about 10x multiple on those earnings without including the lumpy incremental earnings from insurance, non insurance subs, and the equity portfolio. The real question is what rates/duration have they locked in. Don't want to give them credit too soon seeing as we missed the turn on 2018/2019 and shareholders had 4-5 years of declining interest income, and no duration exposure, while waiting for the short term posturing to pay off. Then we have to consider that things seem to be looking great for their insurance business which is growing double digits every year and will provide some lasting tailwind to earnings of another $1+ billion a year barring catastrophes. And then, while lumpy, their equity and non-insurance subs portfolio seems primed to do very well over the next few years where the pre-2020 years were fairly lackluster in that regard. So it's definitely a set-up where it seems a very low hurdle for them to do significantly better than prior years on a semi-sustainable basis.

I'm not sure what point it is you're trying to make re: lightning network? It's a later 2 solution. BTC works reasonably well on its own, but like gold (and even USD) layer 2 solutions will remove friction and lower transaction costs. You can still choose to transact in gold if you like (like the US pre-depression) or transact in physical USD (like now), but most people prefer to swipe a card (layer 2). Similarly, you can choose to spend BTC directly on chain, but many will prefer the speed and low cost that comes from the layer 2 solution in lightning network. As far as what is stopping someone from starting another layer 2 for another crypto? Nothing. But the whole point of using LN is because you believe/own/transact in BTC. The differentiation between the two will be in the base layer supporting the layer 2 - not the layer 2 itself. I don't care if someone starts a LN comparable for doge coin. Doge coin has NONE of the characteristics of money that make me want to hold/spend it. Just like Doge has failed to grab sustainable market share from BTC, so to will any layer 2 solution that supports it versus BTC. For the last 10-years, BTC has been the unequivocal leader in this regard despite thousands of cryptos being made and most falling by the wayside. I believe it will likely continue to be the leader in all things payments/store of value with only CBDCs competing on the payments front.

The lightning network literally does all of that? And is the middleman? Ledger entries have the potential to be corrected as nothing is formalized on the actual BTC blockchain until pairing is closed and the balances netted out. The lightning network is Visa. They're the middleman. They're processing BTC. Until transactions are finalized on the BTC Blockchain, there is a potential for them to be altered/corrected/changed pending the authorities at the lightning network. Visa is the middleman. They process bits/bytes that represent USD (and other currency). They can also alter/correct/change transactions.

You're going to have to find a quote where I've said its here to replace the USD. I've definitely said it's a payment system. I've said I believe it's a long term store of value. But what I've actually said is the US will be one of the last to use it, if it ever does, because it has the most to lose and that BTC isn't here to replace the USD as much as it is here to replace Visa/Mastercard. I can find the exact quote for you if you'd like. Using BTC as currency in developing countries OR using it to settle global trade isn't the same thing as saying it'll replace the USD. Also, differentiating lightning network from BTC is like trying to differentiate the bits/bytes sent over the visa network from USD. Functionally its the same.

What is unfair, or defensive, about pointing our how stupid it is to continue to parrot the "it has no value because it has no cash flows" argument as if it weren't a commodity where the value is determined by supply/demand? I didn't call you out specifically. If you think it's too illiquid, then we're going to have to define what is liquid enough for a market that regularly trades billions each day - not including any transactions over the LN or wBTC on Ethereum. As the price rises, so does the liquidity and volume so this is a problem that will solve itself with adoption. As far as having no utilitarian value? I dunno about you, but plenty of people pay fees to banks to do wires, forex, custody, etc that Bitcoin removes the need for and has way lower fees - again even before considering the lightning network. That's plenty of utility for the current market cap without considering it's other properties that lend themselves to being long term store of value and far more observable or measurable than stamps or art.

Really hoping Fairfax locked in some 5-10 year treasuries during Q4. Really looking more and more like intermediate and long term yields peaked back in October/November. If they didn't roll @ 4+%, going to very difficult for me to believe they'll extend duration now that rates have started coming down. 10-years is below 3.5% today from a high of nearly 4.25% in mid-October.

Probably not a sustainable rally, but feeling pretty good about this purchase so far. Bought SPY @ 350 9/15/2023 puts today VIX is low relative to recent history, S&P is simultaneously being rebuffed by the 200 DMA (@397) and the top of the downward channel it's traded in for the last 12 months (@406), RSI is short term overbought and setting up bearish divergence on the 1-year chart, and I think Fed continues to wreck equities with additional hikes. Trend has been lower lows, fundamentals are deteriorating, and Fed isn't pivoting yet. Seems like the perfect time to be buying protection while VIX is cheap.

I think they should just go back to being a lender of last resort and give up on money supply control, interest rates rejiggering, or employment targeting as if they have the ability to manage any of those effectively across the cycle.

See! Literally only took a single post. I've argued that it IS a commodity. And should be valued as such. And have provided a framework for it. As far as it being circular reasoning - it isn't. Just like FCF can fluctuate and thus so do stock prices in the intermediate term. OR you zoom out and observe the TREND in FCF and come up with a longer term value estimate s few years in the future. Adoption/new wallets is no different. View the high frequency data and adjust you short term pricing upward or downward OR observe the long term trend and come up with an estimate 5-years out and wait for it to be realized or proved wrong. This isn't hard...

Seems that some people are clearly missing the distinction by posting articles that attempt to cast BTC, and other tokens, in a poor light given the fraud/lack of security/etc of centralized entities...and then refusing to defend them because they didn't write the article ::eye roll:: The discourse in the thread is at a very low level. Bulls like myself who have tried to engage get frustrated because it's the same conversation and same debate every 10 days. Always seems to revolve around making distinctions like the one above, discussions on why you can't use P/FCF to value Bitcoin (would seem obvious - but plenty of y'all seem to think it's a 0 for this reason), and why BTC is actually pretty terrible for criminal activity. I get it. I was a Bitcoin skeptic for years. I had those exact same concerns. And then I learned that I was wrong and changed my mind. Outside of the frustrations of engaging in the same 3-4 debates over and over and over, most people haven't come with well supported bear arguments otherwise. There's been several times where I've referenced, or linked, to white papers that provide a Bitcoin valuation framework based on the size of network and observed adoption rates. Not a single person has probed/question/debated that methodology. Probably because it's not based on earnings and we all know if you don't have earnings your price should be zero. /sarcasm If bears want higher quality discourse, they need to bring it because us bulls have tried.

The outperformance has been significant and the shares remain cheap by most fundamental standards. It would not shock me to see this at $1,000 USD/share in the next 2 years. But, we must keep in mind that this cheapness has been obvious for last 2+ years and shares have traded significantly lower than they are today during that time. Given the significance of its recent outperformance, and the short-term nature of it being overbought, it wouldn't shock me to see a 10-15% pullback post-dividend where it'll establish a base for the next leg higher.

Yes. Sentiment matters in the short term which is why we've seen many bear market rallies so far ranging between 10-20% - each making a lower high and preceding a lower low. Eventually that pattern will break, but definitely think it's a little early to be calling for the bottom. Particularly with the weakness in leading indicators that is already present and a Fed that remains consistent in being willing to hike into weakness until unemployment rises to AT LEAST 4% (the latter part is important because they'll likely continue to hike, or remain steady, even after unemployment rises from the current level of 3.5%). The Fed is all but saying they're intentionally engineering a recession and I think we should be listening. I understand at times the market has been oversold and that every one seems to agree that a recession is inevitable which does concern me some that it's the consensus trade. But then I see the orderliness of the sell-off which defies any panic, we keep getting rallies of 10-20% suggesting buyers haven't exhausted themselves, there has still been a ton of excess in the market (like Rivian still being @ 20x sales in October despite a 75% drop preceding that), put premiums remain cheap and VIX isn't elevated, and we're still at very elevated levels of valuation even after the 20% decline. So yes, everyone SAYS there's a recession coming but nobody is behaving like they have conviction in that call. That gives me confidence that it's still the call and markets go lower before they go higher when talking about a bottom and a sustainable recovery. In the meantime I've been modestly adding on the 10-15% dips and then taking those profits on the 10-20% rips while remaining cautiously positiones between cash/bonds/equities.

I just can't fathom how this keeps failing It's so blindingly obvious to anyone who looks at it but keeps being barred for technical reasons because the court reads the law as 'the government needs to sue itself' or 'we can't review the law because the law says we can't review it'. I figured a conservative court would have a field day with this, but I guess not. So much for checks and balances...

ValueArb has a point here. Blind probabilities assume we're also somewhat average in the distribution of historical earnings and multiples. But we weren't. The only time multiples (1-year P/E or the 10-year CAPE) has been where they were at in 2021 was basically the tech bubble and the preceding the Great Depression. And earnings? Had just been goosed by trillions in stimulus and record high corporate margins. Both will likely normalize. So we don't have a ton of observations, but certainly not 'average' in terms of earnings or multiple. Also inflation is historically high AND liquidity is contracting AND PMIs negative. I imagine if you limit your look to historical terms to timeframes where any one of those things were true you'd find returns to be quite a bit less attractive - let alone all them being true together.

That's not how it's historically worked. Plenty of times in US history where short and intermediate term bonds have persistently had negative real returns/rates.

The problem with a simple inflation adjustment is that then we should also adjust for other things like the normalization of corporate margins instead of giving full credit to record margins as if they'll persist into perpetuity. Also, along those same lines, as inflation rises the margins tend to contract - exactly like what we've seen in 2022. So if we're adjusting 2013 earnings for a decade of inflation to show what the same company would have hypothetically earned in 2022, do we not adjust base earnings lower to reflect a lower corporate margins and some normalization of margins to history? And then if course people will bring up discount rates and etc (which is double counting IMO). Ultimately, I still prefer the raw Shiller P/E. It's not a timing tool. It doesn't tell you when to be in 100% in or 100% out of the market. But I think it's does a hell of a good job of telling you when you should be willing to take tons of equity risk versus having a fairly cautious stance in equities and seeking better diversification of return streams. Seeing as 2018, 2020, and now 2022 have had huge rough patches in the market, it seems that caution was well signalled.

I'm struggling to see how asking for help in enforcing property rights is antithetical to the decentralization of money, but maybe that's just me I suppose if you don't think the government should be in the business of subsidizing high fructose corn, you also can't expect them to step in when a grocery store is robbed of products that contain it?

I like this idea of cost of production as a relative floor. But is $0.079/kwh reasonable going forward in the US? I only know what my rates are for power, which institutional would be less, but it's WAY more than $0.07 where I'm at for all forms - coal/gas/solar/etc and has been climbing year after year. I'm probably paying something closer to $0.11-0.12/kwh on average throughout the year and I expect it'll be higher next year. Is $0.079/kwh for institutional demand a sustainable input for the next 4-years that you're assuming the rigs operate for?

I think there's good argument to be made for labor holding up better than expected given the current shortage. Especially on the low-end. But I dont think that saves the stock market. Earnings are already falling. Margins contracting. PMIs negative. All before the labor market has even turned, which it likely will because the Fed has said they're ok with it being higher than what it is so they'll hike until they get there. All that stickier jobs really means is higher wages for those on the low end. But those aren't the people buying stocks and real estate. They're the people buying food and used cars. There will be a floor to those physical goods. A much lower floor for capital goods. And honestly - I think that's the best outcome we could hope for. The most vulnerable of society somewhat insulated from the recession, equities coming out of clear bubble valuations for reasonable forward returns, the ability to actually earn a rate of return without taking equity risk, and the wealthiest of society who have benefitted most the last 20-30 years bearing the cost of the fight of that inflation. My gut tells me it won't be this neat and clean, but I can hope. Really concerned that a spike in energy and commodities again, with China reopening and lessening the credit spigot, upends the calculations with inflation re-accelerating and then even low income people get the shaft of higher expenses while the Fed continues to tighten into a clearly contracting US economy.

This is interesting because both M2 and M1 money supply have been in contraction since March/April and both have "checkable deposits" as an input (along with travelers checks, CDs, currency, money market, etc). Which would suggest that revolving credit would have to be contracting even faster for the spreads in your post to have blown out like it has, but that's not true either. Revolving credit has been rising consistently over that time. So the difference must be in checkable deposits vs checkable deposits + money market + CDs + currency + etc. Doesn't the latter sound like a better measure of "cash" savings? And it's the latter that has been contracting for the last 9 months.

Yup. When sentiment changes, the deposits will likely come back. SI just needs to survive and have liquidity until then at which point earnings power will recover some. They did well managing credit risk through this down cycle. I imagine they'll be well positioned for the next one. Just a matter of diversifying client base more and paying more competitive rates on deposits to keep them. I expect at some point in the next 6-9 months we might see a sentiment change as BTC heads into the halving of early 2024.