Coercion Free
Daily Ramble
Here’s an innocuous tweet I came across this morning. I initially continued my scrolling, but this nagging sensation pulled me back to reflect further. It may not initially look like much to you either, but it both ties into the Serious Ramble I wrote a few days ago, and its implications are surprisingly bigly. Yes, I intentionally wrote bigly — sue me, grammar police.
To explain the bigly nature of this tweet, let’s lay some foundation. Capital gains are the taxes we pay when we make a profit on assets we own. For example, if you own a home and it increases in value by €100k from the purchase to the sale date, you pay taxes on the €100k profit, or capital gains, you made at the time of sale. The tax rate on the capital gains changes by jurisdiction and the amount of time you held the asset, but the capital gains tax is a fairly standard way for governments to levy taxes. Charging capital gains on crypto is problematic because individuals can manage their assets outside of any centralized exchange. A user is likely to purchase on one centralized exchange and sell on another, but it is up to the user to report the purchase and sell prices. The exchanges cannot know—and that’s a big red flag for government taxation.
Back to the tweet… Jeff Stein is a White House Economics Reporter for the Washington Post. He is quoting Jason Furman, who was a White House Economist for former President Obama. Jason is referring to the capital gains tax specifically related to crypto sales, i.e., taxes on profits made on buying and selling crypto. The fracas he is speaking of is the shock Washington has experienced in the last week as the crypto industry has slowed the completion of the entire infrastructure bill. To the gnashing of teeth of the political class who had intentioned on sliding in a $28B tax on the crypto industry to help pay for the infrastructure bill, the cyber hornet’s nest was kicked. The most passionate group of political actors on the planet, Bitcoiners, lept to protect the network via the legislative attack on Bitcoin mining. No fewer than three different sets of political groups have attempted to address the oversight. Shockingly, the White House has stated that there has been no effort to wrap the Bitcoin mining community into the tax code by the language used in the bill. However, the Joint Committee on Taxation has stated that the tax raised on crypto would decline by more than $5B if the Bitcoin mining community were specifically excluded. Is anyone shocked by political double-speak? Nah, me either.
Now that the foundation has firmed, let’s go back to Jeff Furman. Reading between the lines, I hear the rageful cry of someone realizing their monopoly on power is being undermined…and it’s too late to stop it. The coercive ability to tax capital gains through centralized entities has been eroded by crypto technology itself. Instead, capital gains taxes will have to be reported and paid voluntarily by citizens because the citizen is the only one with the knowledge. Let me repeat the important bit: reported and paid voluntarily.
Taken to its logical conclusion, as this tax base grows, the relationship between citizens and government will be forced to change as well. Governments beholden to their citizens to voluntarily pay their taxes seem like an awfully nice dynamic to me. Did I hear a “we’re a service-oriented government” in there?
Welcome to the age of the Sovereign Individual.
Latest Data Things on the Interweb
If you’re under 50 and vaccinated, the latest data from the Public Health of England says that you’ve increased your COVID survival rate to 99.98% from 99.97%.
Bitcoin Price Prediction
Yesterday: $35.5k - $39.8k
Today: $39.8k - $45k
Tomorrow: $41.5k - $45k
After sending yesterday’s newsletter, the price of Bitcoin pulled a 180 and more than reclaimed the ground it’d lost on yesterday’s intraday pullback from $40k. If there’s ever a strong bullish signal, it’s when a bearish setup fails, and yesterday was exactly that. I mentioned yesterday that things looked worrisome if we didn’t see a bounce at $38k. And bounce we did. The price moved up over $43k in just a few hours. As a result, the range breakout is highly likely to complete. It couldn’t come any sooner, given the weekend around the corner. I’d breathe comfortably if we close the day over $42k, with almost complete confidence that the bottom at $29k was the end of the downtrend, but even a close over $41k would tell me the bears have lost the three-month battle started in May. If there was ever a “high confidence, low-risk” time to enter the market, it’s today.
Bitcoin Q & A
Q: How is a seed phrase related to my private key for my Bitcoin?
A: A seed phrase is used to generate the private key, which provides ownership of your Bitcoin.
A seed phrase is typically either 12 or 24 words. These words are passed through an algorithm that creates a unique numeric private key. The words are chosen from a set of 2048 possible words available. The number of word combinations available for 12 or 24 words out of 2048 makes an almost infinite number of private keys available for a Bitcoin wallet. Since it is much easier for us to remember words rather than a string of random numbers, a seed phrase has become a proxy for a private key.
Thanks for reading,
Kent
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