Simplifying Hive Bookkeeping
I'm a late bloomer when it comes to cryptocurrencies. I've dabbled in them since around 2017. I mostly bought into thinking of crypto as a new form of money. So, I would buy Bitcoin, Litecoin, or Ethereum with the intent of using them to buy things online. It was clunky. And, it is difficult to find reputable vendors that offer crypto as a payment option. Recently, my thinking has evolved because of the rise in fees for using crypto. If I'm going to buy anything, I would rather use Dash, Litecoin, or XRP. Monero has lower fees. However, I have to go out of my way to acquire Monero for spending, which is a transaction fee in itself. Therefore, my interest in crypto is now mainly to hodl. I have been increasingly unenthusiastic about spending crypto as if it were cash.
Even when it comes to low fee cryptos like LTC, Dash, and XRP, there is a hidden transaction fee that we forget about, taxes. Because of the way the IRS treats crypto, every transaction has the potential to result in a capital gain or loss. If you have a capital gain, then you pay tax. If you have a capital loss, then you don't pay taxes on it. But, it's still a loss. The realization that crypto is crappy money has been slowly creeping into my mind as I have tried fitting the square peg in a round hole.
The other day, I was watching an interview with Michael Saylor of MicroStrategy, in which he puts perfectly into words something that I have been intuiting but could not express. You should watch the interview where he explains how taxes are the basis for how we use crypto. He makes a good comparison of BTC to real estate and how you can sell or borrow from small chunks of an inflating asset indefinitely the way you can refinance a building to cash out the increasing equity.
My realization doesn't mean that I have soured on crypto. I am still a fan of crypto. In fact, I intend to increase my crypto holdings based on Micahel Saylor's thinking. I was already working to deposit my BTC in Celsius to use it as collateral for loans. I was also planning on using Dash or Litecoin as secondary collateral because I can buy small amounts every paycheck and transfer to Celsius without paying a large pecentage in transaction fees like I would with BTC. If I accumulate, for example, $10K in LTC, then I have a $5K line of credit available. Except that years later that $10K could grow to $20K simply from appreciation. It could be more if I continue to make contributions.
Having crypto as collateral for a low-interest credit line changes many things. In a previous post, I wrote about setting up a beer endowment. The idea is that for a given interest rate, you can figure out how much money you need to generate interest payments to buy all your beer for a year. Thus, your drinking is not "out of pocket" money. You could do the same for vacations, set up an endowment of sorts to cover your annual vacation cost.
What if you could also borrow money at a very low interest rate? Celsius, for example, is offering loans at 1%, 4%, and 8% depending on your LTV ratio. So, imagine you have the collateral and need to buy a car or want to go on vacation. You could pay for these with interest from deposits or borrow against your deposits. I tend to buy pre-owned $10K cars, for example. If I had $40K in crypto, I could buy cars at 1% interest with a 25% LTV ratio. With $30K I could buy a car at 4% interest with 33% LTV. And, with $20K I could buy a car at 8% interest with 50% LTV. These are much better terms than I have ever had in my life.
What I find most exciting in all of this is that we finally have assets that are less unwieldy to borrow against. If you own a home and want to get a loan, it is such a ball ache with submitting documentation, having good credit, and having to get it all reviewed for a banker to give his blessing. Title loans on your car can also be a pain. What else does the typical person own that they can collateralize to a bank? Certificates of Deposit? Stocks? I haven't tried CDs as loan collateral. These still require a credit check. I've tried margin loans. Margin doesn't require a credit check. Whole life insurance lets you borrow against it, though it takes a while to build up cash value.
With crypto, you bypass all that. There is no banker and no credit score needed. It is just cold calculated code. If you don't honor your side of the deal, you lose your crypto. Simple. It takes considerable talent to mess that up.
This is what is so exciting about crypto. It changes the entire fiat financial landscape. You can collateralize and borrow from a browser or app almost anywhere and at any time of day. The biggest hurdle continues to be banks, which take up to a day or two to clear a deposit. At least they won't jerk you around for a loan like in the past.
I still think it's important to have liquid cash at the ready. However, excess savings ought to be put into crypto and held forever. If we all do this, then cryptos like BTC will appreciate in value continuously. Unless you can transact tax free, there is no reason to sell crypto, ever.