G&G Associates: Top Bitcoin (Crypto) Questions Answered

This is 

G&G Associates 
Tax, Financial & Veteran Consulting Services

e-Newsletter

Top Bitcoin (Crypto) Questions Answered

Imhotep (Wisdom to You) G&G Readers,
 

Given the sudden fascination with bitcoin and other cryptocurrencies, I’m sharing some must-read information to try and provide some insight to some of the most common myths out their about Bitcoin and the new cryptocurrency market. I hope you enjoy it and it’s helpful to you in your journey of deciding if you ‘should’ or ‘should not’ invest in Bitcoin and any other cryptocurrency.

The world of bitcoin is plagued by silly – and pernicious – rumors and misinformation.

These mistruths can cost you money... in the form of big opportunity cost.   The truth is, a lot of what you read about bitcoin and cryptocurrencies is simply wrong. I have seen articles in the likes of the Wall Street Journal that are factually incorrect. And now that the bitcoin price has soared, the media seems determined to "warn" investors about the dangers of bitcoin.

So … let me break down the top 5 myth’s I’ve come across in my research.

-------------------------------

Internal Sponsorship:

                                     G&G FINANCIAL CONSULTING SERVICES

*** Want to learn more about Bitcoin and the new Crypto Markets? ***

Sign up for a GGIS Lifetime Subscription and you’ll get a 50% discount “FOR LIFE” on getting your Taxes Prepared AND 25% off financial consulting fees.

DON'T WAIT ANOTHER DAY!

- 1 year subscription - $199 

- 2 year subscription - $349 

- Lifetime subscription - $999 

*** Membership Guarantee *** If you don't make your money back from being a GGIS member by the end of your subscription...we'll refund 100% of your subscription fee back. That's how confident we are that this will be one of the best financial moves of your life.

-------------------------------

 

? No. 1: Bitcoin is not real money...

The fundamental characteristics an asset must have to be considered money are:

Uniformity: In other words, every "dollar" or bitcoin is the same as the next one. When you're talking about using seashells or cows as currency, uniformity is hard to achieve.

Divisibility: Dollars and bitcoin need to be divisible, broken up into small increments to cover a wide range of value transactions. Cows? Not so much, unless you're hosting a barbecue.

Portability: Your currency must be easy to transfer and store.

Durability: Older, agriculturally-based forms of money had a shelf life. Gold is the ultimate when it comes to durability. Paper notes deteriorate.

Limited supply: A currency is worthless if there's no scarcity to it. Example, there is a $500 million note issued by the Zimbabwean government – it's a simple reminder of what ultimately happens when governments try to endlessly print their way to prosperity.

Acceptability: To be considered money, the asset has to be widely accepted. People all over the world will take U.S. dollars. They won't, however, take Turkish lira.

Bitcoin holds all of these characteristics with the exception of acceptability – although that is rapidly changing. Japan passed a law earlier this year that made bitcoin acceptable as legal tender.

And the digital element of bitcoin? Well, more than 90% of all money that exists today around the world is not even physical. It's purely digital, existing only on computer servers.

? No. 2: Bitcoin can be hacked...

In certain circles, bitcoin and cryptocurrencies in general are synonymous with hacking – thanks to some high-profile hacks of cryptocurrency exchanges, like Mt. Gox in 2014 or Bithumb in 2017.

In an area so nascent, of course there are hackers looking to exploit individuals' inexperience or find technological loopholes. Hackers have always and will always be a risk to ANYTHING where value resides on a computer network.

But bitcoin is one of the most secure assets an individual can own – it's just that it's 100% up to the individual to secure it themselves.

Cryptocurrency exchanges have been hacked. They are third-party platforms where you have no visibility as to how customers' digital assets are being secured. That's why if you plan on investing in bitcoin or any other cryptocurrencies you shouldn't keep large amounts of them on an exchange... because when it's on an exchange, you don't own it – the exchange does.

And when it comes to hacking, you are far, far more at risk from other cybersecurity vulnerabilities. Just look at U.S. credit reporting agency Equifax, which announced recently that the Social Security numbers along with other personal information of millions of Americans may have been compromised.

That's a catastrophic breach. And this kind of thing happens all the time. So, there's no use worrying about bitcoin "hacking" when you can take full personal control and accountability for securing it yourself (rather than be at the mercy of an incompetent third party).

? No. 3: Bitcoin is used by criminals...

A recent Fortune magazine article published the following quote...

"Bitcoin's core use remains what's it's always been: paying for drugs or extortion fees on the Internet."

The suggestion that bitcoin's core use is for buying drugs and extortion is nothing new – and it's part of the media's ongoing narrative. It's understandable in many respects.  After all, there have been recent ransomware hack/virus attacks that demand users pay a small ransom in bitcoin to unlock their computers.

And also … there is the FBI's 2013 takedown of a Silk Road?  Silk Road was an online marketplace used to sell illegal drugs, dirty pictures, and stolen plastic.  These criminals thought that because bitcoin operated independently of the U.S. government, their activity couldn't be traced.

But they were proved wrong once the government shut Silk Road down, and made an example of this illegal marketplace.  You see, it turns out bitcoin is nowhere near as anonymous and untraceable as cash.

Bitcoin is pseudonymous. That is to say, a bitcoin address can be tied to a particular user. You may not know who that user is, but that user has an identity. Think of it like a username on a website. You may not know who's behind it, but that username is tied to a particular person – and their actions are tied to that username.  The whole point about bitcoin is that it's actually transparent. Every transaction is recorded on the blockchain and visible to everyone.

In short, just because bitcoin has been the method of payment used by some criminals, it's definitely not the currency's core use.

? No. 4: Bitcoin is not regulated...

A lot of people are worried about bitcoin because the government hasn't come out with an official policy about how it should be run.  In short, there's no financial system, like the U.S. Federal Reserve, managing its existence and value. And as a recent Forbes article warns, "there is no 'good faith and credit' of the government standing behind the currency."

But think about it: Does a government's promise that something is "money" protect its value?  The U.S. dollar can be printed at will... and only has value because the government says so.

Plus, more regulation on bitcoin is quickly being established. For example, the U.S. Commodity Futures Trading Commission, which regulates futures and options markets, already approved the creation of options trading around bitcoin.  And the U.S. Securities and Exchange Commission recently came out with a statement hinting that it will soon begin regulating cryptocurrencies.

These moves will only bring additional stability to the bitcoin market, and with it, some new money.  But what about in the rest of the world?

In August and September, China announced a ban on initial coin offerings, where companies create and issue cryptocurrencies to the public in exchange for bitcoin or ethereum (the second-largest cryptocurrency).

But China didn't "ban" bitcoin. And even if a government did want to ban it, the question is "how"? That cat's already out of the bag. And bitcoin doesn't answer to any government. There is no bitcoin head office, no CEO, no board of directors.

What's more, there's no incentive for any major economy to "ban" bitcoin. (Japan, the third-largest economy in the world, made it legal tender.) Any government that does ban it is simply saying "we don't want innovation, technology jobs, new companies, or enterprise in general."

Now, don't get me wrong – there is and will be regulation, and there may even be a temporary shutdown of the exchanges.  But regulation is a different story altogether. For example, don't think for a second that Uncle Sam is going to let you make 10 times your money on a cryptocurrency trade and not pay your "fair share" of tax to the coffers.

? No. 5: Bitcoin is too volatile to invest in...

Most people look at bitcoin's daily price changes and write bitcoin off simply because it's more volatile than your typical blue-chip stock. But these swings are growing smaller, as more and more people move money into bitcoin.

According to investment firm ARK Invest, at the beginning of this year, "bitcoin's daily volatility was about one-fifth that of five years ago, and 28% less than January 1, 2016."  And this trend should continue as time goes on... and more money flocks into this space.

That said, even with this level of volatility, bitcoin delivered better risk-adjusted returns than stocks, bonds, gold, and real estate over the past five years. In fact, over the past year alone, bitcoin performed twice as well as stocks, on a risk-adjusted basis.

I'm not saying bitcoin won't be volatile. Like any asset, cryptocurrencies will continue to experience rallies and corrections. Don't fall into the trap of thinking "this time is different" and that bitcoin will go up forever. The cryptocurrency could absolutely be in for a short-term price bubble. But over the long term, the upside is far from over. You just need to proceed carefully. And "invest" no more than you can absolutely afford to lose.

Don't believe the media hype...

As I said earlier, the media doesn't really understand bitcoin. So, what you read in the mainstream media on cryptocurrencies should be taken with a liberal grain of salt.

The truth is, bitcoin is just a cryptographically scarce and secure medium of exchanging value. Bitcoin, and the technology behind it – called the blockchain – is quickly changing the world. And it's here to stay. Being on the outside (and not understanding it) will limit your ability to profit.

So, if you're not familiar with it, now is the time to make the effort.  Stay tuned for more to come in this new “CRYPTOCURRENCY” space from the GGIS Portfolio newsletter in 2018.  If you aren't already a paid GGIS Subscription, sign up today. 

Until the next time!

Tuau (Thank You Much),
Asar Maa Ra Gray
Tax, Financial & Veteran Consultant Services
G&G Associates
757-271-6068 office
866-361-3872 toll free fax
www.gngassociates.net

G&G Associates is on Facebook, Instagram, LinkedIn & Twitter ... join our fan page.

**You must be a G&G Associates tax or veteran services client to receive the $40 referral fee

P.S. If you're not a GGIS Paid Subscriber reader yet, why not? Currently, our GGIS portfolio is packed with great plays to kick-start your portfolio for 2018.

G&G Associates - Your Taxes Are Likely Going Down (For Now)

This is

G&G Associates 
Tax, Financial & Veteran Consultant Services

e-Newsletter

G&G Associates Tax Tip of the Week

Your Taxes Are Likely Going Down (For Now)

Hotep (Peace) G&G Readers,

Tax "reform" is finally here.  Last week, Congress passed the most significant changes to the U.S. tax code in more than 30 years.

Why do I write ‘reform’?

Because as expected, the bill falls short of the dramatic improvements many had hoped for. It won't simplify the tax code in any meaningful way. It won't make it any less time-consuming or expensive for most folks to file their annual returns. And it won't significantly ease the tax burden for most Americans over the long term. But it isn't all bad.

According to non-partisan think tank the Tax Policy Center ("TPC"), most Americans should expect to see a modest reduction in their tax bill next year. The TPC reports 143 million will pay lower federal income taxes in 2018, compared with just 8.5 million who will pay more.

Overall, it found taxes will fall for all income groups on average. Folks earning $10,000 or less should expect to keep an extra 0.1% on average, while those earning $500,000 or more will see an extra 4%. Folks in the middle – those who earn between $50,000 and $75,000 per year – should expect to a see an extra 1.5% on average.

Congress' own independent auditor, the Joint Committee on Taxation, reported similar results. It found the average tax rate would fall from 20.7% to 19% under the law, including a drop from 14.8% to 13.5% for those in the middle tax bracket.

-------------------------------

Internal Sponsorship:

                                     G&G FINANCIAL CONSULTING SERVICES

Sign up for a GGIS Lifetime Subscription and you’ll get a 50% discount “FOR LIFE” on getting your Taxes Prepared AND 25% off financial consulting fees.

DON'T WAIT ANOTHER DAY!

- 1 year subscription - $199 

- 2 year subscription - $349 

- Lifetime subscription - $999 

*** Membership Guarantee *** If you don't make your money back from being a GGIS member by the end of your subscription...we'll refund 100% of your subscription fee back. That's how confident we are that this will be one of the best financial moves of your life.

-------------------------------

Unfortunately, these cuts may not last long

Under the current bill, these individual tax cuts will expire in 2025. If no change is made before then, today's tax cuts will become tomorrow's tax hikes. Under this scenario, the TPC estimates a majority of Americans – including 69.7% of those in the middle – would pay even higher taxes than what they pay under our current law.

To be fair, Republicans say they won't allow these tax cuts to expire. But if they weren't able to pass a permanent tax cut today – under nearly ideal circumstances – how certain is it they'll be able to extend these cuts in the future?

The news is better for many companies...

The plan will permanently slash the corporate tax rate from 35% today to 21%. It will also repeal the current 20% corporate alternative minimum tax, exempt companies from paying taxes on money earned overseas, and lower the "repatriation tax" on overseas earnings from 35% to between 8%-15.5%.

These changes could drive higher earnings for a huge number of firms – particularly those based in the U.S. – across a range of industries.

But not every company will benefit...

In fact, the plan could create even bigger problems for those carrying large debt loads. As the Journal reported this morning (emphasis added)...

Full deductibility of interest has long made borrowing more attractive for companies when they needed money, instead of raising capital through selling equity...

The tax overhaul would essentially limit the net interest payments a company can deduct to 30% of its EBITDA, or earnings before interest, taxes, depreciation, and amortization. Any amount above that level would be taxable.

So if a company borrowed $1 billion at an interest rate of 5%, and its existing interest payments were already above the 30% threshold, it would have to pay an extra $10.5 million a year in taxes – $50 million in interest, taxed at the new corporate tax rate of 21%

In other words, heavily indebted companies that are already struggling could soon see the costs to carry those debts soar even higher. More from the Journal...

J.C. Penney (JCP) which has speculative credit ratings and more than $4 billion in debt, said in its third-quarter Securities and Exchange Commission filing in November that disallowing tax deductions on interest "could have a material adverse effect on our results of operations and liquidity."

Regular GGIS Portfolio Subscriber readers know weak corporate credits like the aforementioned department-store chains are already unlikely to survive the next credit-default cycle. But despite the bullish headlines, the new tax plan could actually accelerate their demise.

Speaking of the next credit-default cycle...

Longtime readers know I've been covering the growing risks in subprime auto lending for years. In fact, Clearly, many private-equity investors weren't paying attention. I hope they are now. As Bloomberg reported the following last week...

Private-equity firms that plunged headlong into subprime auto lending are discovering just how hard it might be to get out...

In the years after the financial crisis, buyout firms poured billions into auto finance, angling for the big profits that come with offering high-interest loans to buyers with the weakest credit. At rates of 11 percent or more, there was plenty to be made as sales boomed. But now, with new car demand waning, they've found the intense competition – and the lax underwriting standards it fostered – are taking a toll on profits.

Delinquencies on subprime loans made by non-bank lenders are soaring toward crisis levels. Fresh investment has dried up and some of the big banks, long seen as potential suitors, have pulled back from the auto lending business.

In short, these firms are getting squeezed from both sides... Losses are rising on existing loans as borrowers fall further and further behind. Meanwhile, banks are tightening credit in response to rising delinquencies and falling auto sales.

Here’s to Good Health, Wealth and Retirement!

Ankh Uja Snb (Life, Health & Strength)
Asar Maa Ra Gray

G&G Associates
Tax, Financial & Veteran Consultant Services
757-271-6068 office
866-361-3872 toll free fax
www.gngassociates.net

Become a Fan of G&G Associates on Facebook, Instagram, LinkedIn and Twitter.

“Philosophers aren’t psychics … they are good historians. Knowing your history will allow you to interpret and understand the present … Knowing how to interpret the present, will allow you to predict the future.” Dr. Kaba Kamene

LEGAL NOTICE: This work is based on what I’ve learned as a financial researcher and analyst based SEC filings, current events, interviews, investment reports, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice.