How high can it go?
Back in Sept I blogged about buying some cryptocurrencies, and posted my Ethereum purchase transaction. At that time ETH was trading at $230 US. Today the price is over $700 US. Sweet mother of mammaries! 🙂 And just last month when Bitcoin was trading at $7,300 US I tweeted that the price would climb to $10,000 US, which would be a 37% increase.
Bitcoin is on its way to $10,000 😉
— Liquid Independence (@Liquid_f35) November 3, 2017
Within a month Bitcoin had hit $10,000 US, lol. 😀 Unlike NASA, Bitcoin may not return back to earth once it reaches the moon. 😎 As I’ve written in the past I started to buy Bitcoin, Ethereum, and Litecoin earlier this fall and have been regularly accumulating them. My biggest winner appears to be Litecoin. For example I purchased some when it was $80 CAD. And now each Litecoin is worth over $400 CAD.
However, after the dramatic rise of the cryptocurrency market capitalization during the last 30 days I believe this asset class may be overvalued now. So I have decided to lower my financial risk by moving some money from cryptocurrencies to the stock market.
Why I’m Taking Some Profits
Since we are nearing the start of a new year, I want to collect some cash to fund my retirement account. When January comes I will have additional contribution room in both my RRSP and TFSA. This is why I have decided to divest my cryptocurrency investment. Earlier this week I took some profits by selling roughly a third of my digital currency holdings. Doing this has freed up a few thousand dollars of capital. I can use this new cash (minus capital gains tax) to begin funding my registered investment accounts in the new year. 🙂 As far as I know there is no way to hold cryptocurrencies inside an RRSP.
I’ve used this effective investment method before with my marijuana stock, Canopy Growth Corp (WEED), where I bought 300 shares at $2.55 and sold at $12.10. But instead of selling all my WEED stocks I kept 200 shares and continue to hold them today. A partial sell of a position like this accomplishes 2 things:
- First, it reduces the risk of my initial investment. I’ve already recouped all my money back, plus a tidy gain. Thus, it is now impossible to lose money on this investment as a whole, even if the future value of the stock drops to $0.
- And second, if the pot stock continues to climb in price then I stand to make additional money due to my continued long exposure to it. 😉
In other words, there are no bad outcomes here. That’s why I have used the same strategy with my cryptocurrency holdings.
Another reason why I think digital currencies might be in a bubble is because they have become too mainstream. Every news organization is talking about Bitcoin. And some people who don’t necessarily understand blockchain technology are risking almost everything they have to speculate in this space. Even regulators are raising their concerns. See the recent headline I found below on CNBC.
Yikes! Those homeowners who are mortgaging their homes to bet on Bitcoin are a lot braver than me. Maybe brave isn’t the correct term to use here. Anyway, the last reason to reduce my cryptocurrency exposure is because of regulatory uncertainty. Authorities don’t like Bitcoins. I guess you can say governments hate the idea of a “Proof Of Work.” 😛 The IRS is already going after people’s Bitcoins. A federal judge in San Francisco ordered the popular Bitcoin exchange, Coinbase, to provide the IRS with information on over 14,000 account holders including their name, date of birth, address, tax ID number, transaction statements and account logs. Luckily I don’t use Coinbase and I’m not in the U.S. so I don’t have to deal with that. But if the CRA decides to go after Canadians then that could become an inconvenience for me.
——————————————————————–
Random Useless Fact
Congrats on booking some profits, Liquid. The rise in prices has been quite alarming and no wonder its catching the mainstream media’s attention. Seeing a lot of FOMO in the space and I am glad I got in before the crowd. Now the trick will be to figure out how to leave before the stampede.
cheers
R2R
I hear ya. Getting in is easy. Knowing when to get out is the tricky part. 🙂
I like your strategy. It’s never a bad thing to take some profits and move on especially in an asset class undergoing so much speculation. Tom
There may be a time when I buy some more BTC, maybe when it drops below $1,000 again, if it comes to that. But at this time it’s hard for me to justify the price.
I’m as baffled by people going all-in with cryptos as I am by people who think it’s a new asset class.
Considering you’ve merely done a currency conversion, there should be no reason to fear the CRA.
Cool. That’s good to hear.
There’s no way the CRA isn’t expecting you to declare that. You purchased it for the purpose of investment…
How they’d ever call you out on it if undeclared I have no idea.
I got in Crypto in early jun with minimal investment,BTC,ETH and LTC.I did make some money in LTC.Check out GBTC.
Wow. Good for you catching the trend that early. 🙂 I wish I had bought BTC in July.
How do I buy put options on Bitcoin?
I’m not sure. Another commentator mentioned the publicly traded Bitcoin Investment Trust (GBTC.) It looks like an OTC security. If there is a derivatives market for that company then options trading may be available.
“I believe this asset class may be overvalued now.”
Can you please explain exactly how you calculated the overvaluation, or more to the point, exactly how you calculated its value in the first place.
I’m thinking either of these calculations would be almost impossible being that there is currently no way to value BTC (or any other crypto).
Some people are saying it will go to $1,000,000; if that’s the case then cryptos are desperately UNDERvalued.
But with no value system, both $0 and $1,000,000 are correct calls.
You’re right. There’s currently no standard to properly value BTC. I think a reasonable way to start is to look at the growth of BTC holders over the last 12 months and double it to get BTC’s value. This isn’t based on any scientific research but it’s what I’m currently using.
“Another reason why I think digital currencies might be in a bubble is because they have become too mainstream. Every news organization is talking about Bitcoin. And some people who don’t necessarily understand blockchain technology are risking almost everything they have to speculate in this space. Even regulators are raising their concerns.” How is this different than 24/7 stock market news etc? BTCs price parabola is happening exactly because it’s mainstream — supply and demand! Has nothing to do with people not understanding the tech (e.g. Tesla) or people using debt to buy price (e.g. everything all the time) or concerned regulators (laughable, they are only concerned because they have no way of getting a piece of this money pie). Almost 100% of recent crypto skyrocketing price is due fundamentally because of mainstream popularity. Blockchain works on a network effect, the more people join the network (miners), the more mainstream it becomes, the more demand for supply of bitcoins (in this case). Same principle as how facebook works — it’s only worth that much because it has such a massive network. If there were no BTC miners then its price would be $0, regardless of it’s inherent value. Are Apple/Google/Facebook/Microsoft… Read more »
It’s different than stocks because BTC doesn’t generate any revenue or profits by itself but a S&P500 stock does.
BTC is a company (blockchain) with a product (cryptocurrency).
There’s just no way to value it.
Another reason why I think digital currencies might be in a bubble is because they have become too mainstream.
– By this logic and by publishing crypto posts, you are part of the problem, exacerbating the bubble.
Good point. 🙂 As a Bitcoin owner it’s only natural that I blog about it.
Is it?
Seems to me one trait I read about in The Millionaire Nextdoor was ‘discretion’.
But ya, that was before the Age of the Internet. #publiceverything
What does your current crypto portfolio look like?
I don’t give out specifics about my crypto portfolio for the same reason I don’t disclose my physical precious metal portfolio; I don’t want to risk the possibility of the government to take my valuables by force. In the U.S. from 1933 to 1974 it was illegal for most U.S. citizens to own gold. Earlier in 2017 Russia, China, and South Korean cracked down on initial coin offerings and cryptocurrency exchanges. It’s a gray area in Canada but who knows what new regulations we’ll face in the future. Besides, BTC is still too speculative and volatile and don’t have a significant effect on my net worth anyway so it’s not important to my overall financial plan. I won’t care too much if I lose all my money in crypto currency since it’s not a lot to begin with. 🙂
congrats on booking some profit. Thanks for your post back in september after reading your post I also bought a small amount of Etherum from quadrigacx just to give it a try. looking back i should have bought some lite coin aswell as it was the cheapest but well who knew this would skyrocket.
Right now i am just wondering how you can sell it and cash out. if i want to sell etherum do i need to create a wallet. i dont have wallet. can i just sell and withdraw the available cash balance via direct bank transfer /EFT . can you please let me know. Thank you
You should be able to sell ETH back into CAD currency. And then use the withdrawal function to transfer the funds back to the bank that you have linked to your Quadrigacx account. You don’t need to create another wallet. But if you want to hold your cryptocurrency for a long time you can consider buying a physical wallet to transfer your ETH onto it for safe keeping since online exchanges are susceptible to being hacked.
Thank you very much. I really appreciate it.
How long did your sell transaction take to complete? Thanks
It took a couple of minutes to go through. I put in one order but it was broken up and filled separately. Now I’m in the process of withdrawing the money. The website says it should take 7 business days.
Hello,
I’m wondering about the CRA too; they have extensive powers to compel organizations to produce records about their customers, so in theory they could get the info. With the surge in prices, the total capital gains by Canadians must be significant, and I don’t see the CRA giving up on that money that easily. For everybody who buys and sells their digital currency through an exchange (Kraken, Coinbase, etc…), they could have the exchanges identify Canadians and provide records about them, since you must provide ID to become verified.
Liquid, what is your strategy to report those capital gains to the CRA? You’ve now publicly stated you made money, so they can come knocking on your door any day now, right?!? ;-P
Lol, you’re right. I will simply report them as capital gains when I file my 2017 taxes this April. If they do ever get the records from my exchange the numbers should line up. 🙂
That’s my plan too. And given the comfortable returns many people enjoyed, they should should be able to accept giving the taxman a small piece of that…
Any opinion on the exchange you are using? They get pretty mixed reviews. -j
They are pretty good so far. A little slow to get set up with the account. But otherwise okay to deal with.