Yes, Bitcoin Is A Speculative Frenzy. No, It’s Not Going Away.
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Bitcoin has had a meteoric rise. The price per coin has risen almost 100% year-to-date and close to 500% over the last twelve months. Its 52-week range is an astounding $3,966 to $57,805 as of this writing. Such a run stirs memories of the 1999‒2000 U.S. internet bubble or even Amsterdam’s tulip speculation craze of 1637. While it is true that Bitcoin lacks any structural ties to a fiat government currency, it does have its merits. In fact, events so far this year are increasing the likelihood that Bitcoin is here to stay.
Bitcoin was originally introduced by the ephemeral Satoshi Nakamoto, author of the Bitcoin: A Peer-to-Peer Electronic Cash System white paper in 2008. To this day, it is unclear if Nakamoto is a single person, a group of authors, or a nom de plume. Initially, it appeared Bitcoin was almost an academic exercise for a small community of global cryptographers. The first Bitcoin, created in January 2009, was essentially worthless.
However, from the outset, it was clear that Bitcoin had several valuable attributes. First, and perhaps most significantly, there is a finite amount of it. Bitcoins are issued when a new block of code is created by ‘miners.’ Currently, there are approximately 18.6M Bitcoins in existence. The production of Bitcoin will cease when the total amount reaches 21M, which is likely to occur in 2140. This is because of the way the Bitcoin blockchain is configured. Every ten minutes, miners discover a new block by solving a cryptographic puzzle, in return for which they receive a fixed reward that halves periodically, reducing the reward toward zero. The most recent halving occurred in May 2020.
In contrast to fiat currencies, which have an ever-expanding supply, Bitcoin is scarce. As such, it should act as a good store of value and offer protection from inflation and currency devaluation, one reason why it is so popular in emerging markets such as Nigeria, Vietnam, and Turkey. This is also important given the current U.S. situation: in response to pandemic-induced economic challenges, there has been significant fiscal and monetary stimulus. The U.S. Federal Reserve’s balance sheet has doubled over the past year to ~$7.5T.
Second, Bitcoin is global and decentralized. It operates outside of traditional currency systems, making it harder for a single government actor to influence it. While tighter regulation, particularly in the U.S., is a risk, Bitcoin’s decentralized nature should insulate it from the vagaries of government policy. Third, although some digital wallets and crypto-exchanges have been hacked, Bitcoin’s utilization of complex encryption and a public and private record of ownership make it relatively secure.
After a long period of consolidation, Bitcoin broke through some important resistance levels October … [+] onwards. This has been driven by various factors, including increased institutional adoption of the cryptocurrency. Due to ultra-loose monetary policy, the investment world appears to be on the search for new safe-havens and uncorrelated assets. We may be at the foothills of a long trend of institutional adoption.
These attributes have solidified Bitcoin as a viable cryptocurrency. It appears here to stay. This has led to increased institutional adoption, which has accelerated over the past twelve months for the following reasons.
First, more than 50% of Bitcoin transactions occur in U.S. dollars. The majority of global participants still view the U.S. dollar as the most ubiquitous and frictionless currency, encouraging Bitcoin’s adoption.
This is a strong stamp of approval from Wall Street. Increased institutional adoption, combined with Bitcoin’s relatively low correlation with traditional asset classes, suggests to me that it should be included in investors’ asset mix going forward. Though I would suggest, particularly for individual investors, limiting it to a relatively small portion of your total asset allocation.
None of this means that volatility has left Bitcoin prices for good. It has had numerous drawdowns of 20% or greater, with some as large as 80%. While I think another 80% drawdown is improbable in the near future given the number of new supporters and participants, I do think the most recent price spike makes a 20‒30% drawdown likely. To put that into perspective, however, a 20% move would put Bitcoin’s price back near $45,000. So for those looking to invest in Bitcoin, I would suggest scaling into the digital currency gradually.
Ruhell Amin, Equity Research Analyst at William O’Neil + Company, an affiliate of O’Neil Global Advisors, made significant contributions to the writing for this article.
No part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed herein. O’Neil Global Advisors, its affiliates, and/or their respective officers, directors, or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein.
Author: Randy Watts
Cape Cod’s Largest Hospital Gets Bitcoin Donations Worth $800K – Bitcoin News
One of Cape Cod’s largest hospitals received two bitcoin donations this year totaling $800,000 in value. The Massachusetts-based not-for-profit medical centre (NPO), Cape Cod Healthcare, explained that an anonymous donor donated $400k last Friday and the NPO received a $400k bitcoin donation last month as well.
The hospital Cape Cod Healthcare (CCHC) is considered one of the leading providers of healthcare services in Cape Cod, Massachusetts. This week, the NPO told the Boston Globe staff member Anissa Gardizy that it received two bitcoin (BTC) donations worth $800,000.
CCHC’s senior vice president and chief development officer, Christopher Lawson, said the donor wished to remain anonymous and sent an email last month asking the hospital to accept BTC donations. Lawson said the donor had helped CCHC before the two crypto donations, and had just recently asked if the hospital would accept his BTC gift.
Lawson told Gardizy that before accepting the donation, the administration had to see if the hospital could deal with transactions sent in cryptocurrency.
“Before we responded, Lawson said. “We had to make sure there were not any issues. It required a good amount of research,” he added. “My office probably spent a week or two doing our best to learn who else was doing this.”
After getting approval from CCHC’s finance department and the hospital’s CEO Mike Lauf, the firm launched a donation address. Lawson said that because the donor gave the $800k worth of bitcoins to the hospital, he will be free from paying taxes on the funds.
“It makes it an asset that is attractive to donate,” Lawson stressed. “You get maximum impact on the value, and any gains you get, much like stock, you don’t pay the tax,” the hospital administrator added. Lawson did detail, however, that the CCHC finance team immediately converts the donations to dollars.
The first $400k donation was sent on January 28, 2021, and the following month on February 19, the donor sent another $400k worth of bitcoins. CCHC’s senior vice president said that other NPOs could also set up bitcoin donation support in order to accept the crypto asset.
“I’m really excited. We are coming out of a period during COVID when donations were hard to come by for a lot of folks,” Lawson emphasized. “This lets people know that we have the capability of accepting these cryptocurrencies in donation, and we have the infrastructure in place.” Back in May, Cape Cod Healthcare furloughed more than 600 employees.
“It is not widespread but it is becoming more mainstream,” Lawson concluded. “People are accumulating these assets, and they are looking at opportunities to donate them,” he added.
What do you think about the two bitcoin donations totaling $800k sent to Cape Cod Healthcare? Let us know what you think about this subject in the comments section below.
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If you joined the GameStop frenzy or dabbled with bitcoin, get ready for the tax man
Many first-time investors who jumped into the 2020 bull run are now finding themselves drowning in tax time paperwork — as could be any newbies who joined this year’s GameStop frenzy or bitcoin bonanza for next year’s tax return.
Every time a trader sells a stock or cryptocurrency it counts as a taxable moment. Because these traders may move in and out of different stocks and coins several times a week or day, they can be surprised when hundreds of pieces of paper arrive at their door. The IRS wants a peek, and may want a cut, of all of it.
“My Robinhood tax form for 2020 is 374 pages. Day trading is fun,” said Mike Zeimer, 35, a marketing and music entrepreneur from Dallas, Texas, in an online message. When the pandemic shut down his live event business he pivoted to day trading. The gains let him pay his bills and build a recording studio, but now he has to dump hundreds of extra pages on his accountant.
“I did let him know in advance that I survived through 2020 day trading and that my tax forms would be more complicated,” Zeimer said. “I just received them last week, so he’ll be getting all of them this week.”
The stock market run, with the S&P 500 ending the year up over 16 percent, paid handsomely for those with the right timing and stomach, drawing in players from all walks of life from farmers to engineers to the bored and laid off and desperate. Now comes the hangover.
Image: Marketing and music entrepreneur Mike Zeimer, 35, from Dallas records an instructional stock trading video in his production studio. (Anna Marie Taylor Cavitt)
“There were massive capital gains made last year from every stripe and age. Almost everyone comes in having booked a solid $200,000, half million, $1 million, and didn’t pay estimated taxes. They have massive tax bills coming due April 15,” Robert Green, a CPA with Green, Neuschwander & Manning, a firm specializing in tax issues for frequent traders, said in a phone call. “They’ve never paid tax bills like this before.”
New traders may struggle with reporting their transactions, especially when dealing with foreign-operated and more obscure exchanges. Some exchanges allow transactions to be downloaded, while others let customers use third-party software that can download their trades to make filing easier. Robinhood sends its users 1099 forms for them to file, though forms were delayed for some after the company missed a deadline.
Tax experts and the IRS say taxpayers need to be aware of several unique issues to day trading stocks and cryptocurrency.
Day traders of stocks and crypto may execute frequent transactions as part of their trading strategy, but that can expose them to higher taxes. The IRS considers stocks and cryptocurrency both to be property, and that’s where capital gains tax comes in.
Property held for at least one year qualifies for long-term capital gains tax, with a maximum rate of up to 20 percent. Property held for less than a year is taxed as ordinary income, subject up to a 37 percent tax rate.
To help clear up whether the IRS is interested in crypto holdings, the agency moved a question about cryptocurrency holdings to the top of the 1040. Now there’s no avoiding it, even though some may want to.
“A lot of crypto type people are noncompliance kind of people,” Green said.
The IRS has been trying to get more of a handle on the situation and trying to get greater visibility into the partially anonymous nature of some crypto transactions.
“The IRS has also had some success in obtaining from third-party cryptocurrency facilitators records of taxpayers who have engaged in cryptocurrency transactions,” said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, in an email. “The IRS may also use this information to look for tax returns that fail to report cryptocurrency transactions. “
With the volatility of the 2020 bull run, equity investors can be facing either steep gains or losses. But there’s a silver lining to the losses. Taxpayers are only taxed on net gains — so they can subtract their losses from their gains to reduce their ordinary taxable income, up to $3,000. Losses over that amount can be carried forward and used in subsequent years.
A speedbump that can ding Robinhood-type day traders is if they sold shares at a loss and then bought more of the same stock within a 30-day period. Then the IRS won’t let them deduct the loss of what is termed a “wash sale.”
Retail day traders may also qualify for a coveted “trader tax status” if they can meet certain requirements showing that they’re trading frequently and continuously. That allows you to deduct some business expenses, setup costs, and home office deductions.
Experts recommend traders set aside one-third of their gains to cover taxes, but many won’t, Green said.
“They should look at their marginal tax bracket and put in an estimated amount. But if they’re up big they don’t want to…they want their capital working in the market,” he said.