Friday File: Hurricane Insurance, Gold, and GE
by Travis Johnson, Stock Gumshoe | September 1, 2017 1:03 pm
A few small transactions for the Real Money Portfolio, plus thoughts on Sandstorm, Maverix, GE, Berkshire Hathaway, Fairfax and Axis
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Source URL: https://www.stockgumshoe.com/2017/09/friday-file-hurricane-insurance-gold-and-ge/
“Cryptocurrencies are going up not because of their fundamental value, of which they have none yet unless you believe that “trust” in a new currency can be built in the space of just a few years and that trust has value”
It surprises me that so many under estimate, in my opinion, the utility value of bitcoin. The fact that, at least at this point, you could take it anywhere in the world without having to worry about seizure at airports or borders seems to me something that money and gold just don’t have. The war on cash that is increasing daily seems to me to be the biggest reason that Bitcoin or another completely anonymous coin like Monero have value. Trust is basic to that value to be sure but the utility of money that is difficult to control is the basic value. Unfortunately I don’ t have enough money to require this value but I still see it as valuable.
Indeed — but how does the utility of the blockchain drive a particular price for the specific coin or token (bitcoin, in this case)? I don’t disagree with “it’s going to be important” or “it does amazing things for transactions” … but how is that value recognized in the future, and to whom does the value go? The people or corporations who develop technology using blockchains, either existing ones or future inventions? The actual coin holders of one of the specific coins now being sold?
There are a lot of unknowns, which is why you can as comfortably argue that bitcoin should be at $50 as you can that it should be at $50,000 — the dollar amount for each particular coin is not based on anything that is at all predictable, as I see it, because it’s not clear that the utility of the technology creates value for the owner of each “coin.”
I could easily be wrong or misunderstanding the future, of course, but that’s what I think. One thing seems quite certain: if the price remains this volatile or is perceived to always be in a perpetually rising state, almost no one is going to use bitcoin for actual transactions (as opposed to trading other currencies), they’ll hoard it or trade it, pushing out any understanding of real-world utility further out into the future.
As one who worked in the US government’s international anti-drug efforts. I wonder how long it will take before Congress realizes that crypto-currencies are the “currency of choice” for the drug cartels. They no longer move money in suitcases or through bank transfers, leaving a physical or a paper trail. They now immediately convert their profits into a crypto-currency like bitcoin and transfer it with a tap on a computer button to somewhere in the USA or overseas. There is no paper trail, no visible records. It is a successful criminal’s dream come true.
Others who do not want to pay taxes are also using it. If you buy something for $1,000 and sell it for $10,000, you have a profit subject to taxation of $9,000. But if you buy it for $1,000 worth of bitcoins and sell it for $10,000 worth of bitcoins, there is no paper trail, no official legal transaction, no taxes due because the government will have no record of the transaction.
The only question is when the government will realize the problem and outlaw cryto-currencies. They are created by computer programs and the program has not been made that can not be hacked and shut down. How many investors just looking to make am easy profit on a rising investment will get burned, losing their entire investment when that happens?
That is one of the many risk areas, though I’d worry more about China cracking down on cryptocurrencies first — much of the trading of all of these coins (and the price setting) actually takes place in China, where there’s also a fairly desperate urge by the upper middle class and the wealthy to get money out of the country, something the government remains very worried about.
I don’t know if it will end up being a “cat and mouse” game with regulators and cryptocurrency users, or whether cryptos will be brought to regulatory heel and set some new standard that allows for wider use, but it’s awfully early days still. Lots of unknowns — and lots of people, including large companies and governments, who want to encourage the development and make sure that they are part of the development if it achieves the promise that so many folks hope for.
I wish that they would just legalize drugs and take the money out of it, tax it and be done with it. I believe there would be fewer lives lost, less collateral damage and a much friendlier relationship between police and people. I think there’s evidence of that from countries that have moved in that direction. PS: I don’t do drugs and am not a drug dealer :). Moving on the utility for people, say, in Venezuela, is huge. It’s nearly the only way they can function economically and there are numerous stories of how it’s actually saved lives there by allowing people to pay for healthcare they were not able to get. As for the tax avoidance there is still the need to change government money to bitcoin so there are bank records for that. Yes you could conceivably avoid some tax by putting some money in bitcoin, having it appreciate, then buying some stuff with it. But do that very much and the IRS will use a life style audit to recognize it. So my advice would be to do what you have to do with cash transactions, report them. It’s a small price to pay for not having the IRS show up to find out why you have the Ferrari on a 50k income.
I have not worked for the US Gov’t, but have gone as high Federal Appeals office for Taxpayers as POA REP. But I would think the US Gov’t is pushing for a cashless society, and that it would be IT capable,of tracking all digital transactions, and that would include drug dealers. Bit coin profits will be tracked by IRS for taxation. “IRS signs contract to track bitcoin transactions | Accounting…
http://www.accountingtoday.com/news/irs-signs-contract-to-track-bitcoin-transactions
Seems to me that if one performed their Due Diligence on a stock and found that they had soooo much lack of information on how a company worked and decided it’s actual net worth, one would avoid it like the plague.
THAT is my big question to those living the Crypto Craze. Trust???? Heck, just like the government these days….”pay no attention to the man behind the curtain!”
Thanks Travis for the excellent analysis.
I wonder about two things on the cryptocurrency. 1st how can I trade cryptocurrency? Currently I have Charles Schwab as my broker. I have not found a way to trade with Schwab. I would really appreciate anyone sharing with me how to join cryptocurrency franzy.
2nd, in regards to reporting the profit from trading cryptocurrency, wouldn’t the financial institution have a record about the trade and profit thus report it to the IRS?
Brokers don’t delay with cryptos yet, you’ll need a wallet and can trade them on an exchange — there are many, though I personally keep it simple and use Coinbase because I don’t care enough to learn which others to trust.
Wallet providers and exchanges may end up reporting to the IRS, but there isn’t much of a rule or standard yet that I’m aware of. The SEC calls the coins “securities” so there are beginning to be registration rules (and rules about “selling” the coins to US investors), and capital gains taxes on gains should be tracked and paid by individuals so far, as I understand it.
Thank you Travis.
Given the choices for crypto currencies, could their be a ETF available?
Maybe someday, there are a couple ETNs overseas but the SEC has not allowed a bitcoin (or other crypto) ETF in the US yet.
This ETF has 7% bitcoin in it: https://ark-funds.com/arkk
GBTC is an as stock traded vehicule on the bicoin (one tenth of the btc) but trades for a huge premium,last friday a top of +1000 $ but at close only 800$
GE is also touted as one of the companies to invest in for the president’s tax plan. Thinking that they use the money to do do what they have for years paying dividends and buying back stock. Your thoughts Travis? The plan unleashes on Tuesday and GE just changed CEO’s so seems like a good time to invest with the share price as low as it is right now.
Another way to play GE might be to sell some puts. The November 26 strike show a 3% return or 14% on margin as of close on Friday. Worse that happens is you own some GE. Thoughts?
Are there any Crypto’s that are backed by Gold?
I understand bitcoin was once bitgold.
Thanks for any response. JB
onegram coin introduced last monday ,one coin covered by 1 gram of gold with base in one of the Arabic Emirates,at least an altcoin backed by something tangible,is worth to take notice and put some money in I guess