Sorry for the miss yesterday. Lots of news today, plus a quick Bit pre-weekend…
[This is literally the thing I thought of when I was just waking up this morning. I’m hopelessly obsessed.]
I’m starting to assign more and more probability to the recent price drop to simple tax selling. Feel a little silly not having done the back-of-the envelope math sooner, but here goes:
$5 bn market cap = 100% gains from $0 cost basis, and this is the first year BTC income or gains has actually been reportable. Keep in mind that the true number at end of last year was actually closer to $10 billion of market cap.
Let’s say that this bitcoin has on average turned over 1.0x in the past five years (imperfect, but starting point for assumptions), which would create a “taxable event”, and that 30% of BTC is held in the US. That’s $1.5 bn in taxable gains.
Then let’s say that 1/3 of US bitcoiners actually pay their “new” taxes this year at the extended deadline of next Wed. That’s $500 million in taxable gains hit at a 20% average rate, which is conservative given much liability would be as incomes and short-term cap gains rates.
You get to a $100 million tax liability, and if half of those liabilities needed to be covered with additional BTC sales, that’s $50 million in short-term sell-side pressure.
Said another way, I hope TradeBlock or Coinometrics or someone else combs the block chain for this in the future. If you assume that the balance transfers between one’s own wallets are more or less offset by the hidden volumes of off-block chain transactions, it should be relatively easy to come up with a baseline taxable gains number just by looking at bitcoin days destroyed, unspent transaction outputs and the daily settlement price.
I’m sure the smart money traders made these calculations themselves. Don’t count on that exploiting that trade next year.
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Today’s Tid Bits
BitFury Pockets $20 Million, Adding to Big VC Inflows for Bitcoin
http://blogs.wsj.com/moneybeat/2014/10/09/bitbeat-bitfury-pockets-20-million-adding-to-big-vc-inflows-for-bitcoin/
BitFury, a bitcoin mining company, raised $20 million in new funding yesterday. The new funding will be used to increase the capacity at its data centers to 100 megawatts. BitFury specializes in manufacturing high-powered bitcoin mining rigs, and currently runs one of the world’s largest mining operations out of Finland, Iceland, and the Republic of Georgia.
TeraExchange Completes First Bitcoin Derivatives Trade on Regulated Exchange
http://www.marketwatch.com/story/teraexchange-completes-first-bitcoin-derivatives-trade-on-regulated-exchange-2014-10-09
TeraExchange, a swap trading facility, which is registered with the Commodity Futures Trading Commission (CFTC), announced the first bitcoin derivative transaction was executed on a regulated exchange yesterday. digitalBTC, the world’s first bitcoin-focused company to commence trading on a major stock exchange, and a hedging counterparty were the two participants in the trade. TeraExchange’s USD/Bitcoin swap allows institutional investors to hedge bitcoin’s price through a regulated risk transfer mechanism.
Rise and Rise of Bitcoin Documentary Gets Long-Awaited Worldwide Release
http://www.coindesk.com/rise-rise-bitcoin-documentary-gets-long-awaited-worldwide-release/
The Rise and Rise of Bitcoin will see a worldwide release tomorrow via “on demand” services. The documentary focuses on a 35-year-old programmer and early mining enthusiast, Daniel who teaches you the basics of bitcoin, and guides you through the bitcoin ecosystem. The film features cameos from Gavin Andresen, Roger Ver, Mark Karpeles, Jared Kenna, Charlie Shrem and Cameron and Tyler Winklevoss. The film will be available on 250 content platforms including iTunes, Amazon, Google Play, and Dish Network.
Digital Asset Liquidity Exchange Melotic Closes $1.175 Million Seed Round
http://www.coindesk.com/digital-asset-liquidity-exchange-melotic-closes-1-175-million-seed-round/
Melotic, a Hong Kong-based ‘curated’ digital asset exchange, has received $1.175m in seed-funding, which will be used to expand both its team and operation. The round was led by Ceyuan Ventures, Lightspeed China, Barry Silbert’s Bitcoin Opportunity Corp, and 500 Startups. Melotic does not sell bitcoins nor does it exchange with any fiat currencies, it focuses on altcoins, “appcoins,” and other digital assets.
CFTC Acknowledges Bitcoin’s Long-Term Promise at DC Hearing
http://www.coindesk.com/cftc-bitcoin-hearing-dc/
Yesterday, the US Commodity Futures Trading Commission (CFTC), held a meeting to discuss bitcoin and its pending regulation. CFTC Commissioner Mark Wetjen believes bitcoin’s underlying protocol has lasting potential, saying “its here to stay.” The meeting notable coincided with the first CFTC-approved bitcoin swap, conducted by TeraExhange.
Why Bitcoin Fans Don’t Believe in Bad News
http://time.com/money/3479199/why-bitcoin-fans-dont-believe-in-bad-news/
In an interesting article from TIME, Jacob Davidson attempts to scientifically explain why bitcoin enthusiasts remain optimistic about the digital currency even when its price slips. He claims it’s a “Confirmation bias”, which fuels the community. When optimism is echoed on forums such as r/Bitcoin, a false impression of the currency’s true value spreads. He also claims owning bitcoin is a form of “ideological” investing. Of course the professor, Davidson references for his claims, believes bitcoin is a scam.
‘Bitcoin Guru’ Andreas Antonopoulos Appears Before Canadian Senate
http://www.coindesk.com/bitcoin-guru-andreas-antonopoulos-appears-canadian-senate/
Andreas Antonopoulos appeared before Canadian Senate today to make the case for bitcoin, and called for a better understanding of the technology before regulation is considered. Antonopoulos’ appearance occurred during the 11th meeting of the Senate Committee on Banking, Trade and Commerce’s special study on the potential threats, risks, and advantages of digital currencies. Antonopoulos discussed decentralization, the idea of bitcoin being “regulated by math,” and squashed skepticism.
MintPal Exchange Relaunch Plagued by Technical Issues, User Complaints
http://www.coindesk.com/mintpal-relaunch-problems/
MintPal, an altcoin-focused exchange, re-launched Tuesday, but not without some systemic problems that left some users unable to access their accounts. Moolah, digital currency services provider, purchased MintPal in July. MintPal’s re-launch was attempted to address declining trading volume after about 8 million vericoins were stolen from the exchange. The site is fully functional now.
Venezuelans Turn to Bitcoin to Bypass Socialist Currency Controls
http://www.reuters.com/article/2014/10/08/us-venezuela-bitcoin-idUSKCN0HX11O20141008?feedType=RSS&feedName=technologyNews
Tech-savvy Venezuelans are bypassing their dysfunctional economic controls through bitcoin, using the digital currency obtain dollars and make Internet purchases. Two New York-based Venezuelan brothers hope to start trading on the first Venezuelan based bitcoin exchange, in an effort to acquire dollars without going through the socialist government. In the past year Venezuela’s own bolivar currency has dropped nearly 60% against the dollar, making it almost as volatile as bitcoin.
Koinify Adds Vinny Lingham & Tim Swanson into Advisory Roles
http://newsbtc.com/2014/10/08/koinify-welcomes-vinny-lingham-tim-swanson-advisory-roles/
Koinify, a decentralized crowd-funding platform, has brought on Vinny Lingham and Tim Swanson as advisors. Vinny Lingham is the CEO of Gyft, a service that allows consumers to easily purchase gift cards online and accepts bitcoin. Tim Swanson is the head of business development at Melotic, a digital asset exchange. Last month, Koinify raised $1m in funding.
How Mainstreaming Bitcoin Makes it More like Wall Street
http://qz.com/278180/how-mainstreaming-bitcoin-makes-it-more-like-wall-street/
Recently, bitcoin transaction volume has been pretty stagnant. This could be in part because of the increasing amount of “off the chain” transactions occurring between users on Coinbase or Circle. Off the chain transactions avoid bitcon’s small transaction fee and are faster, but robs Bitcoin of its greatest characteristic, decentralization. Decentralization makes these transactions no different, conceptually, from what any Wall Street bank does with a payments business.
Serbia’s Bitcoin Community Pledges Response to Central Bank Warning
http://www.coindesk.com/serbias-bitcoin-community-pledges-response-central-bank-warning/
The National Bank of Serbia (NBS) issued its first warning statements on bitcoin earlier this month. The NBS does not consider bitcoin to be legal tender under the country’s laws, and prohibits banks and licensed exchanges from transitioning in the digital currency. Local Serbian bitcoin enthusiasts responded by declaring that they were “in the process of establishing a bitcoin association.” Those who in live in Serbia and use bitcoin were warned of the risks by the NBS, but this did not affect the local bitcoin system.
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