Consensus Network: Cryptocurrency News & Education

As bitcoin, blockchain and other distributed ledger technologies become more mature, you will see a lot of the same financial models as you do for traditional assets like real estate and stocks—models that have been around for a long time.

For example, the earliest recognized futures trading exchange was the Dojima Rice Exchange established in 1710. And now, the Chicago Board of Options Exchange sells bitcoin futures contracts.

Not too far in the future, you will see bitcoin treated like any other commodity in the financial markets. Whether that’s good or bad for crypto can be argued. But the irony is that the very system to which bitcoin was a response, the system run by the big banks, will also lead to its value exploding over the next few years.

Obviously lending is a big part of the traditional finance world and it has already become an industry within the world of digital assets. One of the trailblazing companies leading the charge in this area is BlockFi—which has the support of many of the big players in the blockchain space like Mike Novogratz of Galaxy Digital.

If you are a crypto HODLR like me, you are going to love this discussion. It’s a great option to hold on to something tax free and still use it keep your money moving into other investments.

Shownotes:

• Zac Prince’s background
• Journey to Blockfi
• Borrow against the value of your crypto asset
• Best rate available
• The ultimate protection
• Coming soon: Become a lender
• Blockfi.com

It’s funny how long lasting paradigms perpetuate without question for centuries without being questioned.

It used to be in most places, specific religions were mandated by the government to its people and heretics were persecuted. Of course that still exists in many parts of the world but the point is that a large part of the world does not see that as simply status quo anymore.

If you live in the United States, for example, you would likely feel very uncomfortable with the idea that the government chose your place of worship, what you ate or drank, and what you wore. Why is that?

The answer to that, again, is that we tend to let outdated paradigms perpetuate without questioning them. They become part of conventional collective reality that few even think about questioning. Then, one day there is an awakening. The separation of church and state was one of those awakenings that has occurred gradually over time.

Similarly, while this may sound like a bit of a leap, I believe that bitcoin represents the first modern step in separating money from state. I have been watching and studying this space closely and I have come to the conclusion that bitcoin is real and it’s not going anywhere.

And when you look around and see the infrastructure that is being built around bitcoin at the institutional level, that belief is no longer outlandish. A lot of smart money believes it’s here for the long term as well. I’m talking about university endowments and even some pension plans. Bitcoin is not a fad. It’s a movement that is unstoppable.

It doesn’t matter what the price of bitcoin is today. Its value is in what it’s going to do to the world tomorrow and, in that sense, is grossly undervalued. In my opinion, you will regret it if you don’t take time to understand bitcoin and its implications now.

For that reason, I have invited a former Wall Street guy turned bitcoin purist for an interview on Wealth Formula Podcast today. His name is Tone Vays and you are going to want to listen to this week’s show so you can start the process of learning what will, in our lifetimes, become a new reality in our economy.

There is blood in the streets of blockchain and I won’t be surprised if there is more.

I suspect that it will get worse before it gets better. This whole thing started out with a consolidation and an uncharacteristically low volatility in crypto.

The question was whether it was going to break up or break down. For those of us looking solely at the macro picture, the involvement of institutions and the potential for an ETF made us believe things were going to break for the better.

In the meantime, the technical guys, the guys who just look at the charts, were calling it the other way. Tyler Jenks, who was on this show just a couple of weeks ago called this sell-off. But he also believes it’s going down towards $1000 before we are out of the bear market.

Maybe he’s right. For better or worse, we shall see. The interesting thing I’ve noticed is that a lot of these guys who called this sell-off and still see it heading south are, overall, very bullish on bitcoin. Tyler thinks after the sell-off it will head up into mid-six figure territory.

In other words, what we are seeing here is a very psychological event that really has no fundamental reason. Sure there was the bitcoin cash hard fork and the threat from Faketoshi about dumping one million bitcoin but that shouldn’t drive billions out of the market should it?

It’s all emotion and automation at this point. A lot of people program stop losses to lock in their profits so when the price starts drifting down, their bitcoin automatically gets sold off. You saw that a lot around $6000. Below that is the abyss. Very few people planned for it so the price is in free fall.

It’s important in times like this to understand, though, that this is not the first time bitcoin and crypto have been pronounced dead. It’s happened multiple times before. This time, there is institutional infrastructure built for this thing to succeed in the long run so the likelihood of “death” is really very small in my estimation.

Furthermore, underlying all of this volatility is a new technology that will have seismic effects on the world. If you believe that, you may still believe that bitcoin prices will be over $100,000 per coin over the next five years. I am in that camp.

If that’s the case, does it matter if you bought in at $6500 or $3500? Either way, you would do quite well. I know it’s hard to think rationally when your brain tells you to run away but that is what separates good investors from the bad ones.

Warren Buffett said, “Be fearful when others are greedy and be greedy when others are fearful.” There is a lot of fear out there right now so, again, it might be time to get greedy pretty soon.

That said, if you don’t want the hassles of dealing with wallets and trading platforms, there is a way to just buy the market when you think it’s bottomed out or stabilized.

It’s through a company called Bitwise Management. This week on Consensus Network, I interview HunterHorsely, cofounder and CEO of bitwise.

If you’re thinking about taking advantage of this crash but don’t know where to start, don’t miss this episode.

By the way, it was recorded before this crash so never mind the talk about the stability of the markets!

Shownotes:

• Hunter Horsley’s background
• Big institutes getting into cryptocurrency in 2018
• What’s holding back the investors
• What’s the cost if I DON’T invest
• Bitcoin vs everything else
• Bitwise
• Hunter’s typical investors
• Bitwiseinvestments.com

I am in a financial position that may seem somewhat unusual to you. You see, the IRS rewards me for my real estate investments by taxing me less. If, on the other hand, I keep my income in the bank, or invest it in traditional equities or bonds, the IRS shows me no mercy!

Admittedly this is by design. I am a real estate professional. One of the great benefits to that designation is that all of my passive losses flow through my personal tax returns. In other words, all that depreciation and mortgage interest I get by investing in real estate not only builds my net worth, but SAVES me money in the form of tax mitigation. Not a bad deal right?

To illustrate the power of these completely legal tax advantages, remember that with bonus depreciation even limited partners often end up with K1 losses of 50-100 percent of invested capital. Those losses add up in a hurry!

With that perspective in mind, why would I EVER consider investing in anything that is not tax advantaged? Think about the returns I would need to get in order to simply break even with the tax breaks I’m getting from investing in real estate. The returns would need to be HUGE. I’m not going to get that through Vanguard ETFs!

In fact, I truly believe that the only way I can get higher tax equivalent returns on capital is by investing in asymmetric risk type investments. For me, that means a little bit of bitcoin.

You may think I am crazy, but I actually don’t even consider investing in bitcoin all that risky. Sure it’s volatile, but I’m pretty darn sure that 5 years down the line anyone who buys bitcoin today will be pretty happy. I’m less sure about all of the alternative coins/tokens. They may have more explosive returns or they may simply go to zero. But bitcoin going to zero?—ain’t going to happen if you ask me.

Now I don’t overdo it with my bitcoin portfolio. For one, it’s important to have discipline and value add real estate is my bread and butter. In fact, I bought bitcoin with only about 5 percent of my investable assets this year. Aside from its riskier nature, buying bitcoin does not save me any money! It’s not tax advantaged.

So what’s a bitcoin HODLR to do? How about “Buy, borrow, and die”? That’s the mantra of the ultra-wealthy. The idea is that you can borrow against most assets that you own and invest in something else. You don’t get taxed on your loan and you’ve got a way to create liquidity out of an asset that is sitting around waiting to appreciate. If you invest those borrowed funds into real estate, not only do you get the benefit of investing your capital in two places at once, but you also get the tax advantages!

You can do this with all kinds of assets. Traditionally, the wealthy have done this with brokerage accounts and other real estate but also with gold and fine art.

The good news is that these days you can even do it with bitcoin and that’s what this week’s show is all about. Zac Prince is the founder of a cutting edge company called BlockFi. BlockFi is essentially creating financial products from the cryptocurrency ecosystem including the origination of loans and even savings accounts that pay cryptocurrency in interest.

In this week’s Wealth Formula Podcast, Zac tells us all about it and gives us his take on the massive infrastructure that is creeping slowly but surely into the bitcoin ecosystem. Whether or not you buy bitcoin, you are going to want to understand what’s going on in the digital ecosystem because soon it will be part of your every day reality. Don’t miss this show!

This week’s episode consensus network builds off last week’s introduction to the world of bitcoin, blockchain, and distributed ledger technology. If you have not listened or watched that show yet, make sure to do that.

One of the best teachers on this topic is Teeka Tiwari, editor of the cryptocurrency newsletter called Palm Beach Confidential to which I subscribe.

I was amazed at how much material we covered in this single interview and I think you will be too. We dove deep on topics such as bitcoin and smart contract protocols and got a good sense of what smart money is thinking of this new and exciting crypto asset class.