The #BitcoinBreakdown: Before You Buy, More Caveats

Initial bitcoin ramp First Appearing on HedgeAccordingly.com

Fifth in a series.  Part 1Part 2Part 3, Part 4

By @sellputs

Let us regard the wonders of technology & innovation: Suddenly, we now have multiple easy ways to lose money betting on bitcoin. Giddyup!

With incredible speed, from your laptop or even your smartphone and without even thinking about it, you can open up a new account, inject real U.S. dollars into it, use that to buy a teensy piece of your favorite cryptocurrency, and begin surfing the bitcoin wave. Or begin getting crushed by that wave, depending on your timing, smarts and luck.

This occurs to me on a recent Thursday night, as I visit an old friend in Brooklyn and bring along Big Guy, a college pal who stands 6-feet-4 (“and a half,” he feels it necessary to point out).  The Big Guy and I had been hanging out at the famed Waverly Inn in the West Village in Manhattan, where I had the vodka martini, marked down on special: just $28, down from $30 list.

This next point has nothing to do with bitcoin, okay? I gotta say: Anybody who regularly spends 30 bucks on a martini is a P.T. Barnum-scale sucker.  What a waste of money.  Waste it, instead, on something really irresponsible. . . . like bitcoin.

Anyway, we’re standing around a table in my friend’s apartment in Brooklyn, and Big Guy is taking swigs from a bottle of Blue Point Winter Ale and staring into the screen of his smartphone, as if mesmerized by some new videogame. Instead, he is tracking his own cryptocurrency trades.

“Uh oh, Ethereum is flash-crashing,” he says. He had gotten got into Ethereum (ETH), a newer “altcoin” alternative to bitcoin, a few days earlier at $620, watching it rise to $740 in a day or two and holding on, only to see it crash instantly down to $650 just this moment.  Should he sell?

Guy resists the urge and doubles up on his bet, adding to his ETH holdings (as well as Litecoin, LTC) “to lower my cost basis and scalp the bounce-back from the flash crash,” as he describes it later.  By 3 a.m. that same night, Ethereum had re-inflated to rise back up even higher, to $850. Whew.

Big Guy had put $10,000 into a new account he opened at Coinbase, a digital exchange akin to the New York Stock Exchange (except it is unregulated and carries no particular guarantees, far as I can see).  He had bet his stake all on bitcoin, pulling out after a 53% gain in a week, after commissions.

Guy opened up a second account, this one on GDAX, a 24/7, online platform in the rather unregulated, Wild West of crypto (it is owned by Coinbase). GDAX offers FDIC guarantees up to $250,000 (what happens to your money as a result of your trades is on you). On GDAX, he bet his bitcoin profits on the two lesser lights, ETH and LTC.  He says he can take profits out of Litecoin in only minutes, while transferring money out of bitcoin would take several hours. (LTC is lighter-traded than the binge-fueled bitcoin.)

GDAX charges him 25 basis points (0.25% of the total value of the trade) for “taking markets,” that is, buying coin shares on offer, and no fee at all for “making markets,” or selling on the platform.  Coinbase’s buying fee, at 1.5%, is fives times as much that of GDAX. A few days after he sat out the mini-flash-crash, Guy transfers some LTC from his GDAX account to another coin platform, Binance, where he wants to sell LTC and spread the proceeds among various coins trading below $5 apiece.

And a day or two after that, Big Guy is beaten down: He was up 75% and lost most of it all when he panicked and fled ETH and LTC at the bottom of a later plunge. Too fidgety. Easy come, easy go. He’s back in Ripple, though, and it has been “outperforming.”

Yes, the Big Guy admits, he does worry that in a flash crash or especially high trading volume, he may not be able to minimize his losses and take out cash.  In cryptocurrency trading, the bigger question than whether to sell may be: Can you sell? 

Coinbase limits how much money you can pull out of your account after you sell your crypto and convert the proceeds back to U.S dollars or whichever “real” currency you desire. So, in the event of a crash or some sudden, sharp de-valuation in bitcoins, your ability to act fast and sell your coins might be hampered, and selling your coins could be all but impossible.

Think of it as a football packed with cheering buyers, most of them unaware that there’s only one exit—and it is the size of a doggy door.  Buyer beware.  Puppies, too.

Next up: The high fees for buying bitcoin.

Comments

midlife Tue, 12/26/2017 - 21:00 Permalink

Your friend may not realize that cryptocurrency is and will be taxed it's currently treated in the USA as property own it for one year or more you will incur long term taxes on the profits when you sell it, if your in the 15% or lower tax bracket I believe it's 0%.Sell it in under one year you owe the IRS short term taxes on gains I believe equivelent to what your tax bracket is so probably 15%+ considering how much he's spending... he might want to factor that one in..as well as the fact that coinbase and other U.S.A. based exchanges are audited by the IRS just in case he happens to ''forget'' 

BobEore Tue, 12/26/2017 - 20:41 Permalink

Tards who need to convince themselvee that 'oldbugs'"envy" them... and their 'outperformin' profits are deluding themselves - bigly -I am happy for yas if you make gains of 1000% or whatever. I do not feel a twingeof envy for your gains. Tis all good.Conversely...when they need to 'hammer home' the fallacious notion that 'gold has gone nowhere - has no future - is dead in the water - over and over... in order to prime themselves up for the next daily waterfall slide...and respond to my reportage of the FACT that gold has given me the freedom to sit back and watch the carnage what comes to both 'crypto' and 'classic' Goldbergwerke in the western world...simply from being bought in the correct format, in the proper place, at the right time, by banging their vote meters with the futile fervor of the lab rat whose feed chute has been rendered shut...I smile, with the bittersweet wisdom of those who failed to listen to those friends o the lil guy who graced us with their 'advice' bout 'fundamentals' and 'mathematical certainties' year after year - here. "ENVY? what envy?" Next bubble pls.

BobEore bcking Tue, 12/26/2017 - 23:25 Permalink

Well said squire...iffnyou will allow for a small bit of editing by which I might induce the precisely correct context in which to place your words of wisdom...[I] am missing from that point in front of the big barn door... where 'financial geniuses' of all description mill and mingle... like crowds in front of Apple I stores were once wont to do...having peeked inside = to see hide after hide... strung up an a dryin,in what the painted over Happy Meals sign could still be vaguely made out to say  was "Moe Frankels' Abbatoir n Sausage Factory"Tain't no bubble, ya see.... its' the gelatin wrapper in which the "undetermined origin" meat products are placed.Smoked meat stick anybody? On the house!  C'mon... don't be squeamish Seamus! 

In reply to by bcking

midlife BobEore Wed, 12/27/2017 - 00:55 Permalink

Gold's great but as you mentioned it doesn't bring about 1000% increase in gains if anything it's been relatively stable in price-especially when you factor in inflation gold is gold tried and true, but I wouldn't downplay the new digital age's currencies as though it were a faux pas. When you buy something online you don't want to send them gold via mail its too slow and I doubt anyone here would say that credit cards are somehow doomed for failure. There just a medium of exchange I could have a credit card that redeems itself in gold instead of USD-possibly.The downfall of digital ledgers as everyone points out is that you can't eat bitcoin and at least you can hold gold but gold really doesn't have much use other than jewerly. So when crisis time hits gold remains the same in value but appears to gain greatly same as  certain cryptos while the USD tanks but you know whats really going to win? Food, gas,guns and ammo. That will skyrocket and even gold will go fast in order to obtain such truely valuable resources especially food- if it were in limited supply.Digital currencies differ from credit cards in the sense that besides just offering a fast medium of exchange through digital checks and balances they also serve as a denominated currency themselves. This allows for some truely amazing things with money affectively being created by independent people such as1.) Lower fees much lower than the standard CC's 3% fee in some cases virtually no fees, 2.)the ability to circumvent traceability of currency I.E. black market,''grey'' area online casinos or just restoring privacy to individuals 3.) Decentrilization 4.)I can buy shit online with it, even Newegg.com accepts bitcoinReally though the reason why your seeing 1000% gains in a lot of cases I think is because massive sums of USD(think retirement funds loaded into the stock market) are forced to change into another form or lose there value via inflation. Gold's great but it seems odd that I can't think of any busisness who would invest in it, it always seems to be the stock market?  You would think that there would be a retirement fund or busisness invested into gold but I've never even heard of one maybe someone can enlighten me here?With litecoin you can buy with a credit card and have it digitally in minutes. Stocks are fishy in the event of a global economic downturn what stock isn't going to be affected? Crypto has defined rules that cannot be changed without a large consensus (again depending on the currency some are centrilized) when regarding quanity of coins meaning no worry someones just going to e-print a billion coins. Yes it could be hacked but it proves that it is almost impossible to do so because obviously if it could be hacked someone would of already of done so, that day could come though with quantum computers and then yes we're going to eat piles of shit for decades and decades. With almost a trillion pumped into ecoins ultimately you just want to try and pick the right ones and ride the whale (busisnesses and retirement funds that invest) yeah I kind of cut that short- But they are not going away until at least they are regulated and ultimately made illegal except for Uncle Sam's official new crypto? Possible but that's still a long ways offStocks vs cryptos my $$$ is on cryptos

In reply to by BobEore

BobEore midlife Wed, 12/27/2017 - 01:55 Permalink

Credit card tied to your gold holding has been functional for about a year and a half now. "GOLD MONEY" was the first to introduce it.Fortunately they are such poor marketers and arrogant pricks that I decided to skip the option... and found somethin much more suitable instead. If the major selling point of cryptos is the speed and ease with which on line commerce can occur for the individual[leaving the speculative 'gains' element out of the conversation]then I agree it is alluring - en potentia - butit's the very disutility of gold -outside of its person to person... eye contact role -  which has helped me transform from a person addicted to buying things from all over the world... to someone who sets their scope of activity to a local level, and uses the resources found there to the max. I believe it to be the only suitable method - ultimately - of staying whole in the coming digitilization scam(which P Koenig talks about in the post appearing on this site concurent with the present one)when cash is removed and the ONEBANK is in charge of every element of your financial life. Me no believe in BLOCKCHAIN fairy tales. Me Know $power ALL T@@ WELL.I've said it before - I'll say it agin! Gold is for OUTLAWS ... those who are ultimately refuseniks to the end... after all the rest have been wiped out. And everybody in the western world is indeed... to be wiped out. We might end up that way too... ORwe might end up like Liu Yongfu and his Black Flag Army.... BADDESS BADASS o all time... who lived to a ripe ol age remembering the glories of his great campaigns against the French.

In reply to by midlife

midlife BobEore Wed, 12/27/2017 - 03:13 Permalink

Consumerism is hard to break free from so good for you, I'd like to see glass bottles no plastic bags recycling areas to return glass bottles outside stores. Farms returning back to workers instead of workers being owned by farm owners who just bank the subsidy and do almost nothing while becoming huge. The auto industry returning ect basically I'd like to see what America would of been if it had not outsourced all but the most trivial of jobs.. if Detroit had stayed if a lot of that industry had remained and NAFTA never got passed if pesticides hadn't been invented or restricted greatly in use and plastics only for long term items such as computers>tvs no throw-away bottles for a throw away society but now im just dreamin' .Instead I just shop at the brick and mortor run of the mill stores and sit around watchin' the dope box in weak health and living with my parents who were sucessful but now older and need some help anyway.. nothing like a brain anuerism to ''bust'' your bubble

In reply to by BobEore

hongdo frmnthng comesnthng Tue, 12/26/2017 - 21:39 Permalink

I found what he says true from experience.  Even the $30 martini is believable - I went to a wine bar in Manhatten and I thought the price was for a bottle but it was a glass.  I am still waiting for a wire transfer from Coinbase that was supposedly sent around 10 days ago.  High conversion fees, high transfer fees, high privatized risk, socialized gains (taxes) and everything takes a long time.  The exits are very small.

In reply to by frmnthng comesnthng

hongdo Yellow_Snow Wed, 12/27/2017 - 09:31 Permalink

My wires TO Coinbase were also fast.  The wires FROM Coinbase are the issue.  They had a notice posted that wires would take an additional 5 days unter current heavy traffic conditions.  I assume 5 additional business days which over the holidays is a long time.Thus my opinion of the size of the exit door if Coinbase cannot handle the traffic, and perhaps the liquidity?Anyway, one anecdotal data point, make your own evaluation.

In reply to by Yellow_Snow

aloha_snakbar Tue, 12/26/2017 - 21:53 Permalink

What people should be focused on is not arguing with each other, but the adoption of a digital/gov fiat in your country, that would lead to a 'one world' currency. Game over. They win. Its brilliant marketing, if you think about it; appeal to the idealism of youth (Millennials) with a script of 'bad bankers, bad/evil system', throw in some bank for the early adopters, and the rest will literally stampede/walk over the others to get their piles of fiat. It is exactly the same script they use to get volunteers for their wars; create a few false flags, invent bogeymen/terrorists, and before you know it youth will be flocking to hell holes in a desert somewhere to fight the rich mans wars. Seems like a great idea, until you end up in a VA hospital with no arms or legs, and you need a nurse to scratch your balls for you.Same thing here, except what is a stake is what remains of what little freedoms we still posess...

yadayadayada Tue, 12/26/2017 - 22:22 Permalink

11/29/2017After the scope was narrowed, the IRS argued that Coinbase admitted that the targeted information still involved 8.9 million Coinbase transactions and 14,355 Coinbase account holders. However, according to the tax agency, "only 800 to 900 taxpayers reported gains related to bitcoin in each of the relevant years and that more than 14,000 Coinbase users have either bought, sold, sent or received at least $20,000 worth of bitcoin in a given year." That suggested "that many Coinbase users may not be reporting their bitcoin gains." The IRS, the court found, "has a legitimate interest in investigating these taxpayers."============================================================================================================Ouch...thats going to leave a mark. Well, just so long as people have paid their 35% capital gains tax...not to worry. The IRS is recognized for their fairness, and will probably not let the fact that cryptos are traditionally used by terrorists and those who frequent the dark web color their perceptions about who to give a fiscal enema to. Probably....

Shift For Brains yadayadayada Wed, 12/27/2017 - 09:27 Permalink

There IS a work around...Bitcoin Investment Trust. I bought a flyer position in it for two reasons:

  1. It was an easy way for those who want to jump in but don't have the time or interest to learn buying the underlying asset--think small fund managers and retail.
  2.  I hold it in a Roth. It is an amount (about $4000) that, should it go to zero is easy come easy go. If it goes to $100K or, dare one hope, $1M, it will all be TAX FREE LEGALLY.

I used the same strategy with a triple leveraged silver ETF and made enough tax free to pay down one/third on a nice loft in a beach city. There are some ways to do this if you don't go nuts and sell off your PM to fund it. Think of it as going for a homerun in the upper stands. Doesn't happen often but if it does, I will do what I did with the silver fund: Bid the IRS a fond  F U C K  Y O U.

In reply to by yadayadayada

ouropreto7 Tue, 12/26/2017 - 23:07 Permalink

I prefer 'chokehold' to the term 'exit'. When looking at speculative ventures (much like when in crowded venues), the first places to suss out are the entrance and exit points and how easily one can reach them to safety. I would think that someone wanting to offload substantial holdings in bitcoin might find taking possession of pm's attractive. I know I would. 'Buy the dips' still holds true but I predict some crypto buyers will wise up into exploring diversification strategies to bring their digital wealth into tangibles. 

Dangerclose Wed, 12/27/2017 - 05:25 Permalink

Only true noobs ever bother with Coinbase or GDAX after trading any fiat for cryptos there.RULE 1. Only use Coinbase as the entrance portal. Once you have some of your crypto in the bigger names, MOVE IT OFF THE EXCHANGE!! There are dozens of exchanges that can be opened with nothing more than an email address and a password in less than a minute. There may be restrictions on moving a certain amount of bitcoin without ID but you can decide on that later.RULE 2. Trade wisely. Research the "alt coins" that have been exploding in value relative to Bitcoin. While everyone is debating if Bitcoin is going to double or triple in years, many alt coins are doing 1000's% in weeks.Rule 3. Get control of your crypto private keys by moving your coins to a personal wallet whether it be a PC, hardware wallet or paper wallet. There are even prepaid cards that you can load with various cryptos that can be used anywhere Visa is accepted and have exchange rates usually only reserved for banks!Rule 4. Get started now. Cryptos are like the PC industry, internet and cellular industry happening all at once. Their growth is going to be astronomical while it transforms everything in our lives from banking, accounting, legal, transportation, politics and government. The people who are calling this a bubble just do so because they cannot wrap their minds around such large changes. So, you can sit on the sidelines like some old rigid man denouncing the rise of the "horse-less carriage" or you can get in on the biggest wealth creation vehicle ever seen in history. The choice is always yours. Choose wisely.

Jo A-S Dangerclose Wed, 12/27/2017 - 15:41 Permalink

I cannot agree with rule 4.  Money, indeed, whichever currency you choose to mention, is a means of exchange, a means of barter.  It only exists if people believe/trust it.  Once the trust is lost, you're fucked.  Atthe moment, dollars/pounds etc are trusted by the vast majorit of the population.  Bitcoin etc aren't......  I might be a luddite but I'll stay with what is believed by the vast majority......

In reply to by Dangerclose

qr259100 Wed, 12/27/2017 - 09:12 Permalink

CloudCoin will own this market in a few years. CloudCoin is ready made for transactions. Bitcoin is a fantastic idea as it potentially gets the money out from under the control of the governments. But it has flaws. The block chain is getting to big to handle so transaction times are getting longer, new quantum computers will be able to crack the encryption and are probably already doing it. It isn’t truly private the public ledger is, well public. I could go on.For a full analysis of the differences between Bitcoin and CloudCoin and the flaws of the block chain check this site out.https://cloudcoinconsortium.com/index.htmlGet a free book called “Beyond Bit Coin” and 5 free coins here. http://digitalfrontiernews.com/?affiliates=25

daedon Wed, 12/27/2017 - 09:45 Permalink

We're on our way to 1000 cryptocurrencies.The day the capitalization of all these cryptocurrencies reaches oneof the numbers on this page (www usdebtclock org),they will all magically go to Zero.In the meanwhile, enjoy the casino. 

cheech_wizard Wed, 12/27/2017 - 11:41 Permalink

$28 for a vodka martini?  I'm curious, which vodka did they use?That's almost as bad as the guy that stated he paid $180 per cord of wood on some other thread here at ZH, in Oregon, no less.Standard Disclaimer: Seriously, you couldn't have arranged a corkage fee at that price? 

Jo A-S Wed, 12/27/2017 - 15:41 Permalink

  Money, indeed, whichever currency you choose to mention, is a means of exchange, a means of barter.  It only exists if people believe/trust it.  Once the trust is lost, you're fucked.  At the moment, dollars/pounds etc are trusted by the vast majorit of the population.  Bitcoin etc aren't......  I might be a luddite but I'll stay with what is believed by the vast majority......