Blog Posts by Snow

Blog posts about economy and Bitcoin

  • Why does the Crypto market have a 4 year cycle?
  • How could it be predictable?
  • Will it always be a 4 year cycle?

All markets operate in cycles, but the cause of these cycles could be greatly different. Day traders search for patters typically caused by other traders. Long and short positions in the traditional market aim to predict the business cycle, which has a lot to do with how different businesses and governments interact, changing incentive and profitability over time.

In commodities the cycles are predictable, but traders often change the predictability of the value of the commodities.

Why are commodity markets predictable?

If the wheat harvest is in September you can predict that the farmer sells it afterward. The processor then sells it after processing, and the wholesaler then sells it to the retail store. While our economy is a little more complex than this picture, it's the fundamental basis. If you know when the windfall happens in advance you can place investments to capitalize from it. As more investors recognize a very predictable pattern they invest earlier and sell earlier until the value proposition has market equilibrium or has been randomized by the investors.

Is Bitcoin a Commodity?

Yes.

Some may debate semantics here, and there are plenty of cryptos that fall under the definition of a security, Bitcoin and most major coins are commodities. They are found or made through effort, not decree. They exist individually, as in, cannot be copied. I do see a future clarification between physical and digital commodities because they are very different, but both are commodities.

United States Court rulings have also deemed Bitcoin, Litecoin and some other cryptos as commodities.

Predicting the Cycle

Bitcoin has a supply cycle that is publicly known to anyone willing to look. Bitcoin blocks are about 10 minutes apart, and every 210,000 blocks the amount of bitcoin units able to be found by a miner is halved by the network consensus rules. This means there is less new bitcoin that can be sold every 4 years. In the world of commodities, something that is in demand but has a lowering supply increases in value. Less bitcoin to be sold but equal buyers means higher prices. One could buy wheat in October, then sell it in August, like one could buy bitcoin in 2015 and sell it in 2017 then buy in 2019 and sell in 2021.

Because of existing stock each Bitcoin cycle should have less market effect than the last and because of the nature of investors the cycle could be dulled to no price effect, or greatly over invested to highs far beyond the expected effect.

What about other coins?

Coins besides Bitcoin have their own network rules and cycles. Even so, almost all follow the Bitcoin cycle because they rely on Bitcoin popularity to grow more than their own fundamentals. This may change in the future, but as of writing in 2021, it is proving true again.

So every 4 years bitcoin price will go up?

If only it were that simple. Investors will ultimately decide where to put their value. If there were only basic miners and users that always existed at the same levels it would be extremely easy to predict the exact future value of 1 satoshi. Because the market is much more complex, other factors could far overshadow the supply metric. Additionally, each Bitcoin cycle has less effect on the existing stock, so each halving should be less relevant compared to outside factors.

List of popular exchanges with the good and the bad.

While we want to invest in a new financial space our typical investment accounts are not the place to start except under specific scenarios. Unfortunately it's very difficult to buy bitcoin or any crypto using a traditional retirement account, which means we are left searching for where we can buy it without these instruments.

It is possible to buy within a self directed IRA or 401k, but these accounts are more difficult to setup. We are working on an article for this topic and I will link to it here once it is done.

Before I move on to list where and how to buy, I would like to take this space to talk about where NOT to buy, and why.

Do not buy from Paypal or Robinhood

These services allow you to bet on the price, but it's important to understand that bitcoin and most other crypto's are real commodities, not securities. There is no price authority, the price is what you pay, or in these cases, whatever the service says it is. These services do not allow you to take your purchased coins, so you cannot own them yourself, and you cannot sell them where you wish. They cannot be transferred elsewhere, and there is no legal limitation to the buy or sell prices offered by these services. If you own coins on these platforms now it would be best to strategize the best way to sell them and buy coins elsewhere.

Why are you buying?

This is important. Why you are buying may change where you want to buy and which factors are important to you. If you are buying to invest purely as a financial move, then the traditional exchanges listed below will be right for you. If you want to invest, but would like to also support the overall movement towards a free market it would be best to use exchanges that do not promote regulation, or those who work to prevent more. Yes, Bitcoin, and by proxy, all crypto's promote an unregulated free market by making it as difficult as possible for regulatory agencies to physically stop these projects. This is a core function of a blockchain. Further, anonymity is considered important by many proponents of crypto. If you see value in owning crypto without anyone having direct knowledge that you do you will be looking for ways to buy that are not traditional exchanges.

Exchanges List:

Coinbase

Coinbase is very easy to use and Coinbase Pro is one of the easiest exchange interfaces to use. While Coinbase pro has some of the lowest fees, the regular Coinbase offer is one of the highest fee options with a spread on top, meaning the price they offer to sell you coins at is more than the price they will buy them off you. Comparing this pricing system to other exchanges requires placing an order on each to compare the total costs and return. The total spread on Coinbase is around 4%, which means about a total of 2% “fee” to buy or sell.

A common complaint about both platforms is that the website often crashes when there's high volatility in the bitcoin market.

Voyager

Referral Link Referral code, get $25 when you spend $100: 1AE3C8

A great mobile application that's easy to use. Unfortunately their claim to fame “100% Commission-Free” isn't very accurate. They price coins how they want to, and this is at a spread, meaning the price they offer to sell you coins at is more than the price they will buy them off you. This system hides any fees within it so it's not noticed by the user. Comparing this pricing system to other exchanges requires placing an order on each to compare the total costs and return.

This platform has a large selection of coins and is a publicly traded company out of Canada. You can earn interest on bitcoin and other coins. One of the co-founders was the CEO of E-trade. They offer a profit and loss calculator (a service I wish more apps had) and reportedly great customer service. They are also FDIC insured up to 250k USD.

Gemini

Gemini is a US regulated exchange that uses this as a point in advertising. They have promoted further regulation of the industry and are the leading platform in the state of New York, where being a bitcoin exchange is privileged by a board of private bankers and a non refundable fee that has no set amount but is typically more than $1,000,000. The exclusivity of their New York operations may be a driving factor in their promotion of further national regulation. This very pointed issue may not be a concern for every investor.

They offer an interest bearing account option and have moderate fees compared to other top rated exchanges. They also have a limited offering of different coins.

Binance US

I have less information about this platform that other. Binance has history on why they have a Binance US version. When the company began being pressured by regulators and tax authorities they moved their headquarters to Malta after a bid type negotiation with multiple small nations. When the United States made it clear that they would pursue them if they continued to offer services to US based customers they ceased operation in the country. After some time they opened Binance US, which is only for US customers and follows US regulations. I have heard that it is hard to verify on Binance US.

BlockFI

You can buy BTC on this platform at a slightly higher price and you can store your coins and earn interest on them, which does hold risk, read the risk statement from BlockFI.

Blockfi is planning to release a credit card with 1.5% cash back, which can be earned in BTC.

Kraken

Kraken has promoted the furthering of an open market within the United States and offers some of the lowest fees as well as leveraged trading. They also won a Bank Charter in Wyoming! This is not setup yet, and may change the position of this exchange once it is. Kraken takes up the bottom of the list because most customers have to wire funds in, which makes kraken the worst option listed for low volume purchases because of flat fees ranging up to nearly $100 to get funds on and off your account. On the other hand, if you're a business or looking to invest (or sell) for millions USD, then Kraken, or Kraken's OTC Desk is likely the perfect fit. Kraken has the least user friendly interface out of all that are listed here. It works, but it's not simple.

Where possible links to exchanges have been replaced with referrals. Using these referral links may offer you incentives, but it also helps this blog stay alive.

This post is part of a larger collaboration of Satoshi FI admins and moderators where each of us discuss our own choices for investment. We have private discussions and the drastically different paths we have taken are regularly a highlight. Because of this each of us will publish an article about our own choices, and particularly focus on how those pertain to crypto. I don't typically describe myself as a Bitcoin maximalist, but that's the role I play by comparison.

A (not so) Brief Background

I am now in my 30s, I have two children under 10 and my wife is, and always has been a stay at home mom. We started dating when we were barely adults. I had a short run at a community college where I paid for classes out of my own pocket, but when I couldn't fund more I opted to leave rather than take on debt.

I had hoped to acquire the knowledge necessary to push me into the IT field, specifically system administration. I already had years under my belt as a Linux user and amateur hacker. Around 2010 I was spending the vast majority of my time compiling customized Linux operating systems and releasing installable live boot images publicly. After a couple years I stopped this, partly because I never earned a penny doing it, partly because I started playing call of duty online. I was living paycheck to paycheck and I had great priorities /s.

When I stopped taking collage courses I began working full time in the gaming industry, first as a poker dealer, then table games, and eventually made a move to another state to be a supervisor, then manager in that department. This afforded me a decent lifestyle for the first time in my life. I was putting money into a 401k with company match and buying stock from the company I worked for at discount. My daughter was born and I bought my first house. I wasn't on my way to retiring early or anything, but I was doing well.

I learned about Bitcoin right around the same time. It was December 2013 and a coworker nagged me about it, saying it was money that was “like the Linux stuff”. I looked it up more to appease him than anything else, found bitcoin.org and read the whitepaper. This moment was monumental for me and I first purchased bitcoin shortly after using coinbase. Bitcoin was monumental to me partially because my coworker was right, it was open source money, partially because I understood this had the potential to free people from government control – at this time I wouldn't have viewed myself as libertarian or anarchist. I had resigned myself to the position that there was no hope, and no way to be free. Reading the white paper changed my perspective, I saw in it that freedom could be won through peaceful transition. I'll leave my political (or rather, anti political) views at that. It focused my enthusiasm in Bitcoin, and has only continued to over time.

By the end of 2015 I solidified my desire to hold as much bitcoin as I could, but lacked the income to make a significant investment. In fact this was a period of relative struggle. I was still putting money in my 401k and receiving the maximum match offered by the company I worked for, but it was paycheck to paycheck on my take home pay. I began searching for side hustles that might be able to earn me bitcoin. I'm going to skip the how and the what here to retain some level of privacy, but the side hustle I found was in the crypto space. In the spring of 2016 it grew enough to register a company name and have lawyers involved in the setup. I began making nearly as much as I was at my regular job and my wife helped convince me that leaving my job was the right thing to do. This was hard for me, I'm extremely risk adverse and my desire to hold bitcoin was based on the technology potential, and never about getting rich. I took the leap, which included selling all my stocks, closing out my 401k, taking a loan, and putting it all towards this business, then struggling like never before for the following two years.

My Current Investments

The company I created, and struggled to grow has become extremely valuable. I can't write about my investments without making this the focus, and I couldn't make this mention without the more in depth background. It's by far the largest investment I have, and I earned it through years of struggle. While I may have started a business in the right industry at the right time, many others did as well and failed. Growing a business as an investment isn't luck as much as determination and personal skill and respectability over competition.

My other major monetary investments are property and my personal bitcoin holdings. These are not large holdings compared to my business, but they are respectable and I am doing my best to grow these positions equally as I take business profits.

I've had to take pause on property investments because of covid-19 changing the value proposition. I'm waiting for foreclosures to start being processed again before continuing to buy property.

Crypto Investment Strategy

My crypto investment strategy is that the only “crypto” that's an investment is Bitcoin, anything else is a short term bet. I (almost) never attempt short term bets on other coins. I'm still risk adverse by nature and have to will myself to take any new risks.

I view my bitcoin as my general savings. If I find an investment worth buying I don't mind selling some bitcoin to take that investment. I do not sell bitcoin to “take profits”, I take profits in other investments to buy bitcoin. In this way I take the first steps to denominate my life in bitcoin, rather than dollars.

Not all Investments are Made for Financial Gain

I found the FI community in 2017. A friend invited me to FI related facebook groups. At this stage I was still struggling financially, but I gained insight into the FI mindset and very easily fit in – except when discussing exact investment choices of course.

Throughout my life I would take inventory every couple years. I evaluate what I've done, what I want, and how to get it. For the first time in my life, in 2018, I took this inventory and found that I didn't want to focus on making more money.

The goal is to be happy, so my investments have shifted to general happiness and of course, safety. I'm still extremely risk adverse!

I have focused on spending time with my family, keeping emergency food, water, and other supplies, and I'm actively working to homestead. I spent much of my childhood living and working a farm and the lessons I learned farming helped shape much of my adult life for the better. I see this pursuit as an investment in my children and a way to focus on activities we can spend doing together.

This may sound like prepping. I've almost always lived in rural areas, storms and long term power outages are assumed. Situations arise where these precautions are used often enough to have them. Taking it farther, producing as much of what is necessary for life ourselves is the best preparedness one could have, but also enables teaching my children lessons I learned growing up that shaped my work ethic and problem solving capabilities.

I think being prepared for multiple possible futures is the essence of diversification. It can be applied generally to life as well as financial decisions. Many traditional investors are beginning to see that an investment in bitcoin is a financial prep – diversification away from nearly every other investment option today.

My Ideal Investment Strategy

If I were new to bitcoin today, but held much of the knowledge I have now, I would buy bitcoin with the intent that each purchase would be held for no less than 4 years. I think this would limit the purchase amounts to what I could handle emotionally at that time and provide a horizon to look to.

I hope that I can one day live on investments in a way that reduces or eliminates tax. This isn't a position of greed. I personally feel partly responsible for atrocities funded by tax dollars, that partly came from my pocket. This deserves mention because eliminating this would give me peace of mind. The goal is to be happy, to be fulfilled in life. I think many people achieve greater income and forget the true goal. They continue to pursue more money at the cost of years of potential happiness.

Financial Independence

I regularly define Bitcoin as financial independence. I mean this in that one is free to use bitcoin exactly as they wish. No entity can prevent or force you to spend. No country can debase the bitcoin supply. These are only true for the bitcoin held in a private wallet, and sometimes only for the bitcoin no one knows you hold. Political refugees, particularly from Venezuela, flee their country, but have everything of value stripped on the way out. Holders of bitcoin have been able to escape with their bitcoin, and no other possessions of value. Even if the likelihood that this might happen in your country is extremely low, it's still possible, and to have financial independence should mean having a respectable portion of ones value held in bitcoin, in a private wallet, and hopefully some that was obtained without any knowledge – without kyc like a name or ID.

I know this isn't exactly what is meant by the FIRE community, but I see wealth preservation as a vital part of financial independence. Bitcoin has been the only route to wealth preservation for some people, and it continues to be for others. It may not be likely for most people, but it remains a possibility.

The Future

I can only hope I can consider my future as being financially independent. I hope to achieve my goals and continue my pursuit of happiness. Continuing to support Bitcoin and helping others will likely be a part of this, regardless of any financial incentive. If Bitcoin can usher in a renewed age of hard money, enabling an honest economy and eliminate incentive for most war and similar conflicts then I could only be that much happier. USD has been used to drive value from those who create it to those do not.

This wasn't meant to be a how-to. If I were to highlight the best financial decisions I've made it would be avoiding debt and taking risks, particularly betting on myself to start and grow a business. I have surrounded myself with business owners since, many of whom are in traditional markets, owning restaurants, bars, stores, both physical and online only. Most have had a similar experience of a couple years of struggle followed by success after they refused to give up. If I gave the most honest advice, it would be to focus on happiness first, financial gain second, and when you have some wealth to protect, to do so in the best ways you know how.

In my constant study of economics I continue to learn why Bitcoin has potential to succeed. If bitcoin can be used as money it will become less expensive to simply use BTC, instead of exchanging with currencies. A free market gravitates towards the most efficient solution and because of these facts, as well as some history about nations using material other than gold as money in a global gold economy, I don't believe there will be a wide market of cryptos as monetary devices. There will likely be many crypos, but they will have little to no hope in competing with the market of money, which is the largest market there is in the world.

Disclaimers

I am not an investment advisor and this is not intended to be investment advice. The article is an incomplete account of my own experiences and personal thoughts that should not be considered perfectly accurate. I have not included investment amounts by percent or dollars, and only eluded to some values vaguely. If you find any topics interesting I highly suggest doing your own research!

Thank you for reading

To own cryptocurrency you must have a wallet.

While it may be easier to leave coins with an exchange or other administrator, it's typically not recommended. Many exchanges and online wallets have suffered from security breaches in the past, using such a service is placing trust in them. If you choose to trust an administrator it would make sense you ensure a return on the balance.

A good wallet is private, open source, and well tested

A private wallet is one where only you have the private keys. This is most similar to holding cash in your hand. It does not mean it’s invulnerable to theft, it should be treated much like cash. Seeing your private keys is sometimes not an option from within the wallet software, so how can you know you have the keys? Most private wallets will prompt you write down a phrase of 12 or more words as a backup, this is known as a mnemonic “seed” and is capable of restoring your wallet even if your device is lost or destroyed. Since it is a backup of the private keys it will even restore crypto that is added to your wallet after making the backup. The seed phrase is your wallet, and it isn’t normally protected by a password and is not protected by a lock screen, it should be stored somewhere very safe and never stored on a phone or computer without expert precautions – do not screenshot or print seed words, write them by hand or use a metal storage device. Jameson Lopp periodically publishes stress tests on these devices which should be designed to survive a house fire.

There are many different kinds of wallets, including free software and hardware/offline wallets. It is extremely important to verify the wallet you intend to use. For new users this is likely only using a wallet found in the Google Play Store or Apple Store, and verifying positive reviews and a long track record of at least 6 months, beware of fake reviews and new wallets.

I highly recommend the following wallets:

Electrum

This is a widely trusted wallet and the oldest lite wallet (meaning you don't have to run a full node). It's available for desktop and android. I use this wallet on desktop and paired with cold storage devices or multisignature. It has a lot of advanced features and compete control of your coins, but also can be used in very basic setups where it's quite simple.

Bluewallet

This wallet has great features similar to Elecrum but is highly functional on a mobile device. Available for both Android and iOS this wallet is recommended by many seasoned bitcoiners. It can also be used in conjunction with Elecrum to create multisignature wallets.

Coldcard

A bitcoin only hardware wallet with advanced features, including air gapped setup and use.

Trezor

A fully open source hardware wallet supporting Bitcoin and altcoins.

Derek Justin McCloud posted on Facebook a link to S&P500 priced in gold as a way to value the market for “true inflation” as apposed to using the posted rate for product price inflation.

This isn't a new idea, nor an unknown debate. Product price inflation is an index of prices and the official inflation rate is posted regularly. Many economists and investors use this product price inflation as the basis of their adjusted calculations against the dollar. The debate is around if this rate is what should be used.

The average price of products is effected by many things. Is the value of money really equal to the average price of products? According to Ludwig Von Mises, one of the more prominent economists of the 20th century, the value of all money in an economy equals the need for money by that economy. Essentially the idea is that the value of money reflects how well the economy is doing. This could be more easily seen if the number of monetary units within that economy were finite, but that's not what happens with most national currencies. As governments issue more units the value of those units fall in relation the value of the economy because each unit is a fraction of the economy and creating more units makes the fraction each unit holds less.

I don't think gold is a stable medium to use as a basis in calculating the true value of the market – call this “real” inflation adjusted. I decided to create a chart to depict the real inflation as the M2 money supply. Even the traditional economists that use the product price index as their inflation amount often use the M2 money supply as the precursor or indicator of future product price inflation.

If the money supply were finite how might the market look today? Have the printers of new money awarded the value of the growth of the public market to the first receivers of the new money?

The first chart below shows the cumulative M2SL money supply, S&P500, and S&P500 adjusted for the M2SL money supply starting in 1985. These are all shown as percent compared to the first point.

The second chart shows the nominal price of S&P500 and the M2SL adjusted nominal price of the S&P500 starting in 1985.

Made with data from, https://fred.stlouisfed.org/series/M2SL#0 and https://finance.yahoo.com/quote/%5EGSPC/history