A few thoughts - Tuesday, April 22, 2014
Posted: Tue Apr 22, 2014 12:00 pm
Today's random thoughts:
1. There's an article circulating where the author postulates that the price of bitcoins will fall as low as $120 before the next bubble begins. While I don't agree with the technical analysis he uses to reach that figure, I know that if bitcoins are ever worth $120 again, I will go back on my word that I had maxed out my stake and will probably be purchasing 250 of them.
2. In the same chart, the author predicts that a bubble will top out at $4400 two months later. 30x returns are the sort of figures where millionaires are made. Who needs to wait for bitcoins to reach $100,000 when you can be rich now (if the price falls that low first)?
3. Some people are arguing that nobody believed there was going to be another bubble the last time a bubble happened. First, I want to point out that, a month ago, people were saying that bitcoins were done and there won't even be another bubble. Second, before the last bubble, there were some very prominent authors who correctly predicted a dramatic rise weeks in advance of the bubble. The owner of the Genesis Block is one person who comes to mind. I certainly wasn't surprised when I saw the price rising into a bubble.
4. Yesterday, I demonstrated that, by trading .04 bitcoins across a $24 spread, it is possible to earn as much as **18 cents** after taxes, exchange fees, and bank transfer fees. You're not going to get rich by trading one bitcoin back and forth, because one needs to consider the idea of opportunity costs. Even if you could make $50 per day this way after taxes, you could make $100/day by working at McDonald's, and a job at McDonald's has zero risk of losing any money. Even if you win more than 50% of the time at trading, you could still be losing money compared to what you could be doing instead.
5. Speaking of taxes, a good rule of thumb is to divide what you earn from bitcoin trades in half. In my case, I get about 56% if I were to make daytrades. That comes from a Federal tax rate of 28%, state taxes of 5%, local taxes, exchange fees, and bank account fees. However, those who earn less can see slightly greater profits from trading.
6. Many people here also aren't considering that a 50% win rate at trading isn't good enough. If you earn money, you pay taxes, but if you lose money, you take fewer deductions than if you had earned money. That's because state taxes don't allow you to deduct losses the same way that Federal taxes do. You actually need to win more than about 55% of the time in order to break even. That's a tall order, and it's why so many people are losing money at this. In conclusion, people need to do their homework and review the actual and opportunity costs to decide if it is worthwhile to make frequent trades. In most cases, it probably isn't.
7. On a side note, it is quite disappointing that GHash.io released a multipool. While it disappoints me from a competitive standpoint, the major problem is that we have yet another anonymous bitcoin organization whose founders are too dishonest to reveal who they are expanding into greater territory. They almost gained a majority of bitcoin hashing power in January, and now they could gain a majority of altcoin hashing power before I can get (edited: my pool although the joke below is good) released on May 23. And yes, for those who thought they read wrong, I said dishonest. There is no acceptable reason for Middlecoin, GHash.io, BTC-e, and similar people to hide their identities. Their names and addresses should be on their websites for everyone to see.
8. To prove that I stand for transparency, you can read all of my personal information at http://remixsquared.com/artists/quintin3265. And I don't (yet) hold anyone else's bitcoins. Why don't members of the bitcoin community expect the same of people who handle millions of their dollars?
9. Finally, I edited this post to point out a striking revelation that is so obvious that nobody pointed it out. In that article mentioned earlier, it is pointed out that there were exactly 234 days between the last three bubbles. The odds that exactly 234 days passes in two separate events due to chance alone are near zero. 234 days from the last peak is July 24.
1. There's an article circulating where the author postulates that the price of bitcoins will fall as low as $120 before the next bubble begins. While I don't agree with the technical analysis he uses to reach that figure, I know that if bitcoins are ever worth $120 again, I will go back on my word that I had maxed out my stake and will probably be purchasing 250 of them.
2. In the same chart, the author predicts that a bubble will top out at $4400 two months later. 30x returns are the sort of figures where millionaires are made. Who needs to wait for bitcoins to reach $100,000 when you can be rich now (if the price falls that low first)?
3. Some people are arguing that nobody believed there was going to be another bubble the last time a bubble happened. First, I want to point out that, a month ago, people were saying that bitcoins were done and there won't even be another bubble. Second, before the last bubble, there were some very prominent authors who correctly predicted a dramatic rise weeks in advance of the bubble. The owner of the Genesis Block is one person who comes to mind. I certainly wasn't surprised when I saw the price rising into a bubble.
4. Yesterday, I demonstrated that, by trading .04 bitcoins across a $24 spread, it is possible to earn as much as **18 cents** after taxes, exchange fees, and bank transfer fees. You're not going to get rich by trading one bitcoin back and forth, because one needs to consider the idea of opportunity costs. Even if you could make $50 per day this way after taxes, you could make $100/day by working at McDonald's, and a job at McDonald's has zero risk of losing any money. Even if you win more than 50% of the time at trading, you could still be losing money compared to what you could be doing instead.
5. Speaking of taxes, a good rule of thumb is to divide what you earn from bitcoin trades in half. In my case, I get about 56% if I were to make daytrades. That comes from a Federal tax rate of 28%, state taxes of 5%, local taxes, exchange fees, and bank account fees. However, those who earn less can see slightly greater profits from trading.
6. Many people here also aren't considering that a 50% win rate at trading isn't good enough. If you earn money, you pay taxes, but if you lose money, you take fewer deductions than if you had earned money. That's because state taxes don't allow you to deduct losses the same way that Federal taxes do. You actually need to win more than about 55% of the time in order to break even. That's a tall order, and it's why so many people are losing money at this. In conclusion, people need to do their homework and review the actual and opportunity costs to decide if it is worthwhile to make frequent trades. In most cases, it probably isn't.
7. On a side note, it is quite disappointing that GHash.io released a multipool. While it disappoints me from a competitive standpoint, the major problem is that we have yet another anonymous bitcoin organization whose founders are too dishonest to reveal who they are expanding into greater territory. They almost gained a majority of bitcoin hashing power in January, and now they could gain a majority of altcoin hashing power before I can get (edited: my pool although the joke below is good) released on May 23. And yes, for those who thought they read wrong, I said dishonest. There is no acceptable reason for Middlecoin, GHash.io, BTC-e, and similar people to hide their identities. Their names and addresses should be on their websites for everyone to see.
8. To prove that I stand for transparency, you can read all of my personal information at http://remixsquared.com/artists/quintin3265. And I don't (yet) hold anyone else's bitcoins. Why don't members of the bitcoin community expect the same of people who handle millions of their dollars?
9. Finally, I edited this post to point out a striking revelation that is so obvious that nobody pointed it out. In that article mentioned earlier, it is pointed out that there were exactly 234 days between the last three bubbles. The odds that exactly 234 days passes in two separate events due to chance alone are near zero. 234 days from the last peak is July 24.