Ihaveasurefireway of using bitcoin BTCUSD, +2.95%, ethereum ETHUSD, +2.29% and other digital currencies to finance your retirementbut I cant recommend it.
Go out and buy a bunch of bitcoin (or other digital currencies), get a receipt, and then immediately sell them. Keep the receipt.
Then, when these currencies next collapse in price, as they are highly likely to do, go out and buy a bunch more. Immediately sell the ones youve just bought, and get another receipt.
You will now have two receipts. One will show you bought a ton of bitcoinor whateverwhen the prices were up high, as they are right now. The other will show you sold the same amount of Bitcoins when it was much cheaper.
So long as you are careful not to leave any documentary proof of the other two transactions, you can then claim these fictional losses on your tax return. The IRS considers these digital currencies as property or investments, and taxes them as such.
You can use these losses to shelter any other (real) capital gains, and up to $3,000 a year of income, from tax. Savings? As much as you can claim.
Sure, if you get caught, youll probably go to jail for tax evasion. Im not recommending it. But Im passing the information on.
(By the way, if the IRS audits you, I can only quote the Miami Heralds Dave Barry in similar circumstances. If you follow my advice, and the IRS asks you where you got your information, he told readers, remember to give them my full name, George Will.)
OK, so technically this maneuver is illegal. But, hey, maybe you wont get caught.
And anyway, since when has whats legal mattered to investors in bitcoin or other digital currencies?
The number one utility of cryptocurrencies is breaking the law. Digital currencies are fabulous vehicles for financing terrorism, drug deals, child pornography, murder for hire, money laundering, and pretty much anything else that is illegal but which you could in theory pay for online.
A study in the Review of Financial Studies found that about half of all bitcoin transactions world-wide were associated with criminalactivities. We find that approximately one-quarter of bitcoin users are involved in illegal activity, the researchers found. We estimate that around $76 billion of illegal activity a year involves bitcoin (46% of bitcoin transactions), which is close to the scale of the U.S. and European markets for illegal drugs.
For anyone who wants to take part in legal online transactions, there are much simpler mechanisms than buying cryptocurrencies and setting up virtual wallets. You can just useeryour debit card and bank account. And things like Google Pay and Apple Pay and PayPal PYPL, -4.56%.
Yet digital currencies are now becoming so popular as investments that you can hold them in a variety of individual retirement accounts. I received yet another news release the other day about a company allowing us to hold cryptocurrencies in IRAs.
Meanwhile hedge-fund manager Paul Tudor Jonesnot to be confused with Tenpole Tudorwaspromotingbitcoin on CNBC recently as an inflation hedge and comparing it with the great technology investments of the past.
Its like investing with Steve Jobs and Apple, or investing in Google early, he said. His rationale? bitcoin has this enormous contingent of really smart, sophisticated people who believe in it, he said. Youve got this group of peoplewho are dedicated to seeing bitcoin succeed and becoming a commonplace store of value.
He added, Ive never had an inflation hedge where youve had a kicker where youve also had great intellectual capital behind it, so that makes me even more constructive on it.
Its not clear how much Tudor Jones had invested in bitcoin when he went on TV to talk it up. Ive reached out to his public relations team for clarification, but they declined to comment. Tudor Jones said during the interview he had a small single digitsor is it, small, single digits?allocation to the cryptocurrency. A small single digits allocation might be as little as 1%. On the other hand, a small, single digits allocation could be pretty much anything below 10%.
His firm, Tudor Investment Corporation, manages around $8 billion in assets,sothat could potentially be anywhere up to nearly $800 million in the cryptocurrency.
Tudor Jones arguments about bitcoin are interesting. Some might reply that Apple AAPL, -5.60% and Google GOOG, +3.43% didnt succeed simply because they had a lot of smart people behind them, but because they provided great products and services thatconsumers loved. Nokia NOK, +0.59%, BlackBerry BB, -2.60%, Yahoo and the like also had lots of smart people working for them, and it didnt save the stockholders.
Actually, there were lots of really, really smart people working at Enron, too.
It is a perennial argument of bitcoin champions that it must be a wonderful investment because the technology is so amazing. It reminds me of the old joke about the inventor who created a really clever device for scrambling eggs inside the shell. Yes, its very clever, but why do I need it?
Is bitcoin a credible inflation hedge? Sure, if you fear that the U.S. dollar is going to lose purchasing power, many things that arent dollars will be inflation hedges. Ditto real estate DWRTF, -0.41%, timberland, gold GOLD, +2.14%, art, wine, euros EURUSD, +0.26%, yen USDJPY, -0.00%, energy futures, and possibly luxuries like Rolex watches.
But what inflation are we talking about?
Gasoline, clothing and some other prices are falling. But in the past12months, used car and truck prices have risen 10%. Foods up 4% and medical services 5%. Housing prices in the suburbs are up and apartment rents in the city are falling. Which ones do we want to hedge?
The official overall consumer-price index has risen 1.4% in the past year. The bond market is predicting it will rise about 1.6% a year over the next five.
Meanwhile, a look at the price for digital currencies shows the obvious issue. Take a look at our chart. It shows the price of bitcoin adjusted for the official consumer-price index.
Even since bitcoin went mainstream, in 2017, there has been no correlationnonewith the CPI. The real, inflation-adjusted value fell nearly 80% at one point, and thats just looking at month-end prices and ignoring the even greater volatility when you count daily prices. (Actually there was no correlation before it went mainstream in 2017 either.)
Hold bitcoin in an IRA and you wont have to pay capital-gains taxes on any profits, although you will have to pay ordinary income tax on the money you eventually withdraw from the account. But if you hold bitcoin in an IRA, whether a pretax traditional IRA or a posttax Roth IRA, and you wont be able to claim any losses on your taxes either.
Thebest casefor holding digital currencies in an IRA is that you wont have to track and report every single transaction on your tax return every year. That alone is valuable. On the other hand, you dont have to own the digital currencies at all.
The rest is here:
Want to retire rich on bitcoin? - MarketWatch
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- Uber wont buy bitcoin with its cash but would consider accepting it as payment, CEO says - CNBC - February 12th, 2021
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- Long-awaited bitcoin ETF could finally get approved this year, market analyst says - CNBC - February 12th, 2021
- Bitcoin outlook: the long term picture looks very sound - Yahoo Finance - February 12th, 2021
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- PayPals Bitcoin revenue expected to top $2 billion by 2023 - Yahoo Finance - January 17th, 2021
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- A Russian Operation Is Mining Bitcoin in the Arctic Circle for Cheap Electricity - Bitcoin News - January 17th, 2021
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- 3 Stocks That Are Better Than Bitcoin - The Motley Fool - January 17th, 2021
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- Bitcoin has become nothing but the new Che Guevara T-shirt - Cointelegraph - January 17th, 2021
- Why Jack Dorsey Sees Bitcoin As The Answer To Donald Trump Ban Controversy - Yahoo Finance - January 17th, 2021
- Analyst: PayPal Holdings Has 46% Upside Thanks to Bitcoin Surge - The Motley Fool - January 17th, 2021
- Bitcoin prices roar back towards $40,000 - CNN - January 15th, 2021
- Man makes last-ditch effort to recover $280 million in bitcoin he accidentally threw out - CNBC - January 15th, 2021
- Market Wrap: Bitcoin Hits $40K Again While Ether Volume Is Erupting This Year - CoinDesk - CoinDesk - January 15th, 2021
- With Bitcoins popularity increasing, what new regulations will we see? - Marketplace - January 15th, 2021
- What is bitcoin and why are so many people looking to buy it? - The Guardian - January 15th, 2021
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- Go read this NYT story about losing $220 million in bitcoin - The Verge - January 15th, 2021
- Bitcoin rally may be the 'mother of all bubbles' says BofA - CNN - January 15th, 2021
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- Bitcoin Will Break Wall Streets Heart - The Wall Street Journal - January 15th, 2021
- Bitcoin Cores Latest Release Is Out: Heres Whats in It - Yahoo Finance - January 15th, 2021
- Bitcoin Can Soar or Crash, but Square (SQ) Will Still Benefit, Says Analyst - Yahoo Finance - January 15th, 2021
- From tech to bitcoin, long-time bull Ed Yardeni worries a meltdown will strike the market - CNBC - January 15th, 2021
- JPMorgan says bitcoin could rise to $146,000 long term as it competes with gold - CNBC - January 5th, 2021
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- Daily Chart - The price of bitcoin has soared to record heights | Graphic detail - The Economist - January 5th, 2021
- Bitcoin crosses $34,000 first time in 12 years, rises $5,000 in 3 days - Business Today - January 5th, 2021
- Billions in lost Bitcoin: the buried treasure that people can never get back : Planet Money - NPR - January 5th, 2021
- Bitcoin prices may skyrocket to $2 lakh this year: Analyst - Economic Times - January 5th, 2021
- Bitcoin Surges Into 2021, Rose Nearly 20% Over Weekend - The Wall Street Journal - January 5th, 2021
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- Here's Why I Won't Buy Bitcoin, and You Shouldn't, Either - Motley Fool - December 21st, 2020
- Big investors new to cryptocurrencies appear to be behind bitcoin's rally to a record - CNBC - December 21st, 2020
- Bitcoin could see a 25%-30% sell-off in the new year, but it's still a long-term buy, trader says - CNBC - December 21st, 2020
- Bitcoin surges past $20,000, erasing 3 years of deep losses - The Associated Press - December 21st, 2020
- Ritholz And Brown Riff On Tesla, Bitcoin, And SPACs - Barron's - December 21st, 2020
- Bitcoins next stop will take it above $25,000 as it extends record rally, MKM Partners analyst says - CNBC - December 21st, 2020
- Bitcoin just hit $20,000 for the first time ever. Should you invest? - CNBC - December 21st, 2020
- Massive Bitcoin Gains Are Being Dwarfed By Ripples XRP, Litecoin, Ethereum And These Minor Cryptocurrencies - Forbes - December 21st, 2020
- Why Bitcoin Is Overpriced by More Than 50% - Barron's - December 21st, 2020
- What are the challenges faced by Bitcoin and its users and need to be overcome? - Blog - The Island Now - December 21st, 2020
- Bitcoin May Have Hit Wall of Profit Takers Around $19,500: Analyst - CoinDesk - CoinDesk - December 21st, 2020
- Beware the 2021 Bitcoin price crash. Im buying the best UK shares to get rich instead - Yahoo Finance UK - December 21st, 2020
- JPMorgan: Bitcoin is 'overbought' but will suck money out of gold - Cointelegraph - December 21st, 2020
- Bitcoin hits record high over $23,000; US jobless claim surge as it happened - The Guardian - December 21st, 2020
- Market Wrap: Bitcoin Pushes Past $19.2K; Ether at 3% of BTC Price - CoinDesk - CoinDesk - December 21st, 2020
- As bitcoin busts out new records, these market watchers see $250,000 and even $400,000 on the horizon - MarketWatch - December 21st, 2020
- Why India needs bitcoin and other cryptocurrencies? - The Financial Express - December 21st, 2020
- Uncharted Territory: How Technical Analysts Are Trading Bitcoin at All-Time Highs - CoinDesk - CoinDesk - December 21st, 2020
- Mark Cuban: Bitcoin is 'more religion than solution' and won't help in 'doomsday scenarios' - CNBC - December 21st, 2020