Six Things I Learned From Investing In Bitcoin

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Hi, I'm the worst. After umming and ahhing for the better part of a month, I finally committed to investing in cryptocurrency. I bought into Bitcoin at around the $US10,500 valuation mark and I've been refreshing Coindesk ever since like a complete buffoon.

I've gone through just about every stage you'd expect a Bitcoin noob to go through and I am here to talk to you all about that process today.

Here are the six things I've learned so far.


1. People Talk A Lot Of Shit About Bitcoin

I'd like to qualify this point that I also say some really stupid shit about Bitcoin. Everyone does.

But each and every time I do a Google search for Bitcoin a brand new terrible take arises from the ashes like a brain dead zombie hunting down eyeballs. Bitcoin Is A Ponzi Scheme, Bitcoin Will Send Millenials Broke, Bitcoin Is A Bubble And It Will Burst ALL OVER YOUR FACE.

The opposite side of that spectrum is equally as ridiculous: Bitcoin Will Be Worth $US1 Million By 2020, etc.

Best to join me, sitting on the fence, your genitals crushing between the weight of all these powerful takes.

The reality: yes Bitcoin is a bet. Yes, you probably don't want to put your mortgage on that bet. Just invest what you're comfortable losing and (hopefully) reap the benefits of an interesting new technology with the potential to reshape how money works.


2. Buying Bitcoin Is Actually Harder Than You Think

Actually maybe the best word is 'committing'.

Imagine me, 11pm, two hours past my bedtime, asking my wife to take a picture of me with my eyes bloodshot, passport in one hand, and a piece of paper with my signature in the other.

"Uh, what are you doing?"

"Relax darling, now can you nip upstairs and turn on the printer so I can scan my driver's license?"

I mean it's weird. Buying Bitcoin, no matter which exchange you use, is timely, tricky and requires a real leap of faith — particularly if you're a little paranoid about putting your personal information out there. There were plenty of times when I considered closing down the tabs and calling it a day.


3. Storing Cryptocurrency Is Relatively Simple, But Also Scary

I mean it's simple in the way that you transfer it much like any other currency — you key in an address and you hit send. The scary part is the potential to get it wrong.

Quick personal anecdote: I almost sent a sizeable amount of Bitcoin to the wrong address after — no shit — a QR code misread my address by ONE digit. Thank God I triple checked it.

The key here is to do your own reading, really familiarise yourself with the whole process and take it slowly. In the beginning there's a real temptation to rush into things, but it's important to learn the process and learn it with small steps. Buy a small amount. Transfer a small amount to your wallet. Do the little things, find your comfort zone and take it from there.


4. Cryptocurrency Is A Terrifying Rabbit Hole And It's Tempting To Dive Right In

At first you convince yourself you'll buy a set amount of Bitcoin and forget about it. That's step 1.

Step 2 is checking the Bitcoin price every single hour.

Step 126 is getting into arguments on r/btc about the differing benefits of Bitcoin over Bitcoin Cash and debating whether or not you should invest in IOTA over Ripple.

It's a rollercoaster man.

It's a seriously fun topic, with a lot of layers to it. There's a lot going on in the Cryptocurrency space and if you find a good group of people to share information and debate with you'll learn a lot fairly quickly.

But...


5. It's Hard To Stop Talking About Bitcoin And You're Annoying

I have struggled with this. My friends and work colleagues have struggled with this. If I'm being honest, I think there have been subtweets.

But my wife, spare some sympathy for my poor wife who is now being brutalised by my constant ruminations on which cryptocurrencies will fail and which will succeed. Who has to listen to me have the same conversation with every new person who darkens our door ("naysayer bankers don't get it, turkeys don't vote for Christmas!"). I'm sorry wife, but this is who I am now.


6. Buying Bitcoin Is Really A Bit Of A Moral Grey Area

I mean there are the positives right: Bitcoin is built around a technology that decentralises currency and allows you to store value without the involvement of banks and all the strangeness that comes from a financial system that exploits the poor and benefits the rich. Great stuff, right?

Right. But it's not all good news. The nature of Blockchain according to Bitcoin technology isn't that great for the environment considering the incredible amount of energy that's used either for mining or solving the problems required to transfer money across its bloated network.

Bitcoin uses a ridiculous amount of energy to maintain something that's essentially digital, which seems insane when you think about it. It's probably the biggest issue I have with owning Bitcoin, and also the thing I consider most when someone tells me I'm insane for investing in it. If there was a good reason for not investing in Bitcoin, energy consumption would be top of that list.

It could also be the reason why a number of altcoins (Litecoin, Bitcoin Cash, Ripple) are steadily rising in price in the wake of Bitcoins spike earlier this month.

Anyway, point being. I definitely struggle with the energy consumption issue, and also the fact that mining in any meaningful way depends on incredibly expensive rigs that are out of reach unless you have an insane amount of resources available to you. When Bitcoin is supposed to be a way to transform money in a more democratic fashion, it seems a little unfair.


Comments

    One thing I'd add is that you need to be aware of other commitments you're getting into. Like taxation.

    Like Uber and AirBnB, bitcoin is a disruptive technology, and causing various levels of issues with the standard way of doing things. That doesn't mean they're bad by the way, just that they blur the lines so the treatment isn't so easy.

    With Uber for example, standard rules means getting an ABN, etc if they drive just one fare. Normally, not a problem for a taxi driver, but Uber's ease of entry means plenty of people try it and stop, so theres potentially an unnecessary amount of paperwork needed for essentially $20. Nobody wants that.

    AirBnB are essentially considered the same as hotels, so have similar regulatory issues. Point is, with these disruptive technologies, there are often pitfalls that the ease of entry wont make apparent.

    With bitcoin, its still considered an investment, so when you eventually cash them in, any profit will be taxable. Think of them as shares. Main issue is that anyone that's really cashed in on them may be in for a nasty surprise from Mr Taxman when they sell them.

    So learn up and see what records you need to keep. There will be capital gains tax issues when you sell.

      Good comment! Will indeed be interesting when tax laws catch up. Currently it says things like "may" and "business" so no idea what individuals will have to deal with...

      https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia---specifically-bitcoin/

        They're a good example of disruptive technology. Because they can be used for capital purchases, or daily ones, the same rules cant be applied every time. It depends on every use.

        Right now, people that are jumping on the bandwagon are doing it to make a profit. The intention is essentially the same as investing in the stock market, so I'd expect taxes would need to be paid under capital gains tax laws.

        On the other hand, if some lucky bastard was getting paid in bitcoins, then converting them to cash wouldn't be a capital event. They don't have them as an investment, but as a payment. So income tax laws would kick in instead.

        Theres no way the general population can follow that either. Which makes them a pest :) And why vague works like "may" are used.

      With bitcoin, its still considered an investment,

      If your holding is below $10K and you didn't buy it for investment, it's 'personal use holdings' and not investment, and not subject to any taxes.

      How you and ATO will decide on if your purchase was investment or not, I cannot say....

        Don't want to type a long reply, but the personal use angle probably wont work. That's intended to take physical stuff you buy once a decade out of the tax system, not take financial stuff out of the system.

        Furniture, household goods, boats, etc, not financial investments. I get the personal use angle when its being used like a paypal account, and that use shouldn't get hit, but what about that person that simply sees the dollars and decides they can use it for better things? I can see that being decided as a capital gains event, and being taxed.

        I was just saying that its better to check, and get it in writing if they can, than be caught out by some rule that can fall either way.

        Right now, the system is trying to apply black and white rules to something that's anything but.

          No I mean ATO has literally released guidance specific to cryptocoin. If you buy <$10K worth and use it 'for personal use' (an example is purchasing stuff using Bitcoin) then it's a personal asset and no CGT, GST, other taxes apply.

          If you bought the crypto with the intent to 'invest', then immediately any gains are subject to CGT.

          So long story short, the ATO is being a typical gov organisation and saying "anything investment, pony up the tax". Entirely up to you what you do with that information,...... maybe you bought some Bitcoin and it just HAPPENED to have doubled in value, and then you changed your mind and sold it back for dollars ........ (I'm not lawyer)

          https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia---specifically-bitcoin/

          "Generally, there will be no income tax or GST implications if you are not in business [...]"

          "Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less."

            I think you're misunderstanding the part you quote. Its talking about the value of the bitcoin used in buying personal use stuff, not the selling of anything left over.

            Say you buy something worth $2000 with bitcoin. That 0.15 bitcoin (or whatever it is today) isn't subject to any taxes, and its that 0.15 they're referring to. Using it to buy something is the disposal.

            If someone spent $1000 on bitcoin a year ago, to use like a paypal account, they might have only done a couple of things through the year, and still have 0.9 bitcoins in their wallet.

            Converting that back to cash is also a disposal and the one I'm talking about, and in the determinations mentioned at the bottom of that advice is one that says that yes, its subject to ITAA 108-5 rules on CGT. That's not the same type of disposal the part you quoted is talking about though.

            How you're reading it is understandable, but its why I'm saying that people need to be careful. Its easy to read something like that and misunderstand whats said, like the term disposal. It means many different things, especially under tax law and barter type exchanges like how bitcoin is viewed.

            Just be careful is what I'm saying. Plenty of people over the years have assumed one thing and been caught out. With crypto's, the growth rate means the cost of being wrong is pretty big.

            Its probable that most people are safe, one of the key things that gets looked at is whether it would be considered a source of income, but even there it gets grey. Sell part of that remainder at various points, and keep a balance that keeps growing, then cash a bit more out, and suddenly its ticking other income rules.

              Yeah and I agree with you to be careful.

              Here's the part on selling (disposing):

              "If you have acquired bitcoin as an investment capital gains tax could apply"
              - If you have >$10K it applies regardless, however key words here are "investment".

              "However, if your transactions amount to a profit-making undertaking or plan then the profits on disposal of the bitcoin will be assessable income. "
              - did you undertake to make a profit, and/or did you have a plan?

              It's worded so vaguely on purpose, so they can nab you if they want. Once nabbed, good luck fighting it. I mean, the case can be made that "I bought some, it went up, I happened to sell it, it's outside your own rules" very very easily due to the vague phrasing, but this is the government so any such fight will be uphill at best. It along with the rest of the taxation law is designed as a catch-all. The status quo i: "did you get money? Declare it."

                For disclosure, I work in the ATO, and can tell you its not so we can "nab you" if we want :) It really IS a massively grey area. If they want to nab something, they make the position as clear as possible so there are no excuses.

                There aren't words like "could", "may", or "possibly". Those alone mean it creates uncertainty, which is enough at least to remove any chance of penalty at least if you are wrong. But not the taxes, which is going to be big enough to sting.

                Vague terms are there because they cant be specific, and to someone with 25 years technical experience, its scary to see them used. We don't like vague, its a loophole and this ones a big one. Which is why I keep saying to be careful. This just does not happen very often.

                And with bitcoins, the key vagueness is purely down to when you convert whatever bitcoin you have left over back into real money. What you do with bitcoins before that, it seems fairly clear either way what the rules are, and what you say looks the case. But that cashing out, I dunno. When I look at the guidance paper, I see it different to you, and from the inside looking out, it screams to me that people need to be careful.

                Nobody I know has a straight answer, and that's mostly because it comes down to a case by case basis, and possibly even an auditors personal view. Which scares me when the uncertainty comes from some of our smartest people.

                Government departments have rules and red tape for a reason, and part of that is legislation, which is meant to make it crystal clear whats meant to happen.

                Its also a sign of the times that this is happening across a range of things all at once. When you have crypto's, ridesharing, AirBnB, deliveroo/uber eats all upsetting the normal rules in a short time frame (and other things), its a good kick up the bum to modernise the rules accordingly.

                Good chat by the way, thanks for revisiting it. By the way, people will laugh, but the ATO really just wants people to pay the right amount of tax. No more, no less. And publishing the sorts of guidance you referred to is how they try to help people get it right. But it cant cover everything, especially in areas that need those sorts of guidance.

        What if I bought some bitcoin to pay a Cryptolock hacker, then had some remaining from years ago and ignored as value was just a few dollars, but then blew-up big? I did not buy it for an investment. :/

          Yeah exactly. Under the wording, you don't have to pay any taxes if it's <$10K value.

          You can see in the link that there's provision for using it for payments etc.

          Still, just like police who can arrest you for anything at all, ATO's vague wording allows it to say "we deem this investment" and you gotta fight it. Chances are probably pretty low though if you're <$10K anyway - they should have bigger fish to fry.

    Sounds like anyone with Bitcoin should follow the setup of Prime Minister Turnbull: put your money in a company in the Caribbean / Cayman islands, then pay yourself a salary.

    Profits from trading are kept in the offshore company account, and the company pays company tax on them - which happens to be zero in those countries. You only pay tax on the income your company pays you.

    Finally a bitcoin article that highlights the absurdity of the validation process.
    Every article i read says how easy it is to get into Bitcoin, this is not always the case, especially if you want to eventually sell/trade it.
    I chuckled about the wife taking the photo as I found myself in this exact situation, Ironically I've never needed a photo outside of standard Identification documents to purchase assets, this includes assets over 1mil.

    My number one question I have more people investing in Bitcoin is how easy is it to dump all your bitcoin and make it usable to you?
    Most don't realise that there are often limits to how much you can sell for $, which limits the attractiveness of being a 'bitcoin millionaire' but you can only access that million at a set rate, which will fluctuate depending on how else the market is going. The main exchanges put holds on selling bitcoin during the fall at the end of the year so there is always the risk of your exchange vanishing (as has happened on numerous times).

    As with any investment, don't invest anything you can't lose, make hay while the sun is shining because its going to be a big storm that wipes it all out sooner than later.

    I do not think it is very hard to take a photo of yrself or ID. Infact it made me feel much safer and trust the system even more. I do agree sending bitcoin with those addresses is scary though. I scanned a QR once and it was wrong. I would not trust QR codes for wallets. :/

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