It’s been a long month since our last all-time-high post. I’ve been waking up with anticipation every morning for the last week or so as BTC has wavered around the sixty-thousand range, but I saw the Trading View alert that I had set on my phone recently and was elated. Just yesterday I wrote a post titled On your marks… and it looks like it was right on time.
The current 200-day moving average is $31960, and can be seen as the blue line in the chart below. My “sell” target is 3.6x this number, which is currently about $115,000. The vertical yellow dotted line is my retirement date. I’ve been tracking the 3.6x number based off of the 2017 blow off top, which hit 3.8x of that number. The BTC price, expressed as a multiple of the 200-d MA, is known as the Mayer Multiple, and I’ve written about it numerous times in these pages. It’s basically my strategy to prevent me from making the same mistake I made in 2017-18, which was not taking profits. Since this is a moving target, I’m not sure whether we’ll ever hit it. We would have to have a very fast climb to some 2x our current price, maybe in a week, two at most. And I’m skeptical that we’ll see something like that this cycle. Maybe I’m losing hope, or maybe I’ve just forgotten how crazy 2017 was.
Already there’s been talk about this being a cycle top. There’s been some fuss about the Pi cycle indicator, but most on-chain metrics aren’t showing any indication of a top. GlassNode and TheBlock are two such subscription services that are going to be critical to watch in the coming weeks and months. They are both good sources of on-chain graphs, charts, and research. I just have to figure out which one to go with first.
I’ve got about 45 days left until my retirement date. I’ve told Missus that I’d pay off the mortgage, but I’m really hoping I can convince her otherwise. While I can technically afford it, the opportunity cost at this point in the cycle is just too great. We’ll see how the next few weeks play out, but I’m hoping a more gradual payoff is in order instead of a large lump sum. I might reconsider this if we do break $100,000 by June, which I think is possible, but my current feeling is that we’ll need at least one more pullback before we breach it well. I’m guessing somewhere between $86,000-94,000.
Cryptoequities are looking good this morning, most are already up between 5-8% in premarket: CAN, RIOT, BTBT, MARA, NCTY, GBTC and Voyager are leading. I’m going to be trimming these considerably in the coming weeks as I continue moving funds to my checkbook IRA, but I have some other positions that I’m going to trim first. Even winners like Paypal, Apple and Netflix are losers when compared to crypto plays, and while I’ve been holding these for years, it’s time to let them go.
I’m taking a day off with my wife to have a date. We’re splitting the kids, Elder is going to her grandmother’s, Younger to the neighbors, and heading out to an amusement park for a food festival. It will be much fun, and much needed. Before COVID we had season passes for the park and brought the kids three or four times. I never once got to ride one of the big coasters, Missus never got to see a single performance show, so we’ll be taking turns today. I hope the weather holds up, it’s going to be cloudy all day.
We also booked tickets to Bitcoin2021 in Miami. Airfare was free thanks to some credit card rewards. We didn’t have enough points for the hotel room, but that should be a business expense, as is the tickets themselves. June will be exciting: I “retire” June 1, we spend three nights in Miami, (again no kids!) and then fly back in time for my birthday the following Monday. I am so stoked. Afterparty here we come!
There’s not a lot I want to cover today. I put some money into the Opolis genesis launch, and spent some more time on BSC chasing insane APYs on random projects on Beefy.Finance and elsewhere. It’s all pocket money right now, but there’s some serious TVL locked up in BSC right now. I think it’s probably the catalyst behind the BTC price stagnating around $58k for the last few weeks. I’m only playing with pocket change right now, these are likely test runs before I start increasing my stake. Eight percent daily returns is nothing to shake a stick at, especially as gas fees are practically non-existent. Most of them are likely scams and ponzis, just forks of forks that don’t bring any actual value to the space, still there’s money to be made if you can avoid the dumps and rugs. It’s all about risk management, basically.
I also staked some funds in Alchemix yesterday. This one really excites me. I finally understand it and why it’s important, and I’m really hoping that it does well. And I can understand why the traditional finance types are losing their minds over it. At its core it’s a standard staking contract, generating yield of off the Yearn yDAI vault. Once deposited, you’re allowed to borrow up to 50% of what you’ve staked, a loan against the future yield off the funds that you’ve staked. That’s right, the vault earnings pay back the debt. I put in $2500 DAI, took out $1250 in alUSD, (which I staked), and the current maturation date of the loan is sometime around November 2022.
Now this may seem trivial, but it seems fairly revolutionary to me. It’s iterative in the sense that they’re taking Maker’s CDP and putting the underlying assets to work, but I don’t know if this kind of loan against future earnings exists anywhere in the TradFi space, but I think it opens up a huge possibility for crypto, especially once they open up BTC and ETH vaults. They’ve basically built up another way to prevent people from selling their BTC. I’ve probably made this point several times before, but it bears repeating:
In earlier market cycles traders would try to swing trade their BTC, trying to time the top of the market cycle, hodl and accumulate during the bear market. We’ve known things are different this time around because of centralized lending platforms like BlockFi that allow you to take 9% interest USD loans against your BTC. This never made sense to me, as I’ve got good credit and have debt in the 3-4% range right now. From a capital gains perspective, it might make sense for others, but it’s never been compelling to me. On the contrary, I’ve felt a better solution is to lend USDC for the eight (or forty) percent gain, and use that as income. But I do have a lot of debt that I want to pay off this cycle.
I’ve been vacillating between selling crypto or cashing out my IRA to pay off my mortgage, I’m not going to rehash that as well other than to say that I’d really like BTC at $120,000 for me to justify the former. I’d much rather take the extra tax hit, to be honest. But Alchemix flips this around a bit. Now I don’t expect yields on wrapped BTC to remain anywhere near the rates we’re getting for stablecoins right now, the demand just isn’t there. The Yearn crvHBTC vault is getting over 10%, but wBTC is only half of that right now. I expect that long term, I would expect them even lower.
If you look at it as an alternative to my current mortgage or student loans though, the choice seems rather clear, and it’s why I want Alchemix to succeed. Let’s use my student loan debt for example. I’ve got over $60k in debts that come due in September. The ten-year payment plan is something like $600/month. Let’s assume that Alchemix has opened up a wBTC vault that’s getting that five percent. I stake two wBTC, take my $60,000 and pay off the debt. Using the five percent compound interest, the debt should be paid off, or mature, in about eight years, and I get my deposit back.
Now, this isn’t even taking into account the BTC price action. I haven’t heard the details as how Alchemix is going to deal with debt to value, i.e. if they’re going to be subject to forced liquidations like with Maker, but on the flip side, if BTC does continue to have another cycle or two left in it, say to $500k or $1m, then a conservative estimate on debt repayment could be less than half that time.
Now I’m not about to dump hundreds of thousands of dollars of BTC into Alchemix as soon as they open the vault, there’s a lot more due diligence needed to see how, and if things are going to work. Still, it’s making me think, a lot, about the possibilities of both my own debt repayment, and about capital allocation in the future. Again, what Alchemix is doing might already have analogs in the TradFi world, but it’s a novel concept to me. I think much of the pushback I’ve been seeing from the critics has more to do with the yields than the mechanics.
Still, it gives me a option to preserve my Bitcoin wealth and pay off my current debt. It also gives people with significant crypto wealth an option for raising money to buy homes, fund education or other endeavors.
So I read this “Roadmap for the Future” post last night and it’s all I can think about since I woke up this morning. There are about four or five replies chained to this thread, so it will take about twenty minutes to read. Other than a few points about the long-term ramifications of UBI, I think the piece is spot on. I’m waiting for a hard copy to share with friends. This is basically the resignation letter that I’ve been wanting to write.
I’m going to break this down later. As the FEI launch is later today and I’ve got a lot of catch up to do to figure out whether and how much I want to allocate to the launch. An associate of mine said he’s deploying $25k, but I didn’t ask what sort of risk management he’s got on that. Smart contract repos and audits are available, as well as several medium articles, so I’ve got a lot of catching up to do. I was able to get in touch with the man behind DeFiSafety.com, and he gave me permission to use his process quality report. It’s mainly a deep dive into code coverage and test quality. He said he’d be willing to post my contributions on his website, so that’ll be nice. I started working though Integral yesterday, but the repos aren’t available yet.
I’ve deployed half of my B-risk tranche into the Yearn Iron Bank vault after seeing this tweet from one of the Curve devs:
For those who aren’t familiar, the range shows the CRV rewards on vault deposits. You have to stake CRV (veCRV) to get the higher boost, but the Yearn vaults earn this and compound their rewards. I’d be stupid not to put funds here, but I’m sticking to the framework that I’ve established and not going all-in. This is almost a C-tranche deposit, as the Iron Bank is very new, but Yearn/Curve are established player. These rates are only good for two weeks, which equates to about a 70% return during this period. If my numbers are right, this should return roughly the same amount I’m anticipating out of the A-tranche over the entire year.
I spoke to a wealth management expert yesterday. It was an interesting conversation, to say the least. They had reached out to me via LinkedIn because we share the same alma mater, and I figured it was good timing, given my current interest in wealth management, and generational businesses.
They were actually fairly familiar with crypto, they had a background in information systems. He had heard of DeFi, but I think I lost him explaining that and when the subject turned to the work we were doing with MUG token. He wasn’t judgy at all, either.
We spoke for about an hour, I asked him to describe his professional career, and then I launched into my story of running a business (into the ground) in my mid-twenties, and getting started in investing shortly there after. I got into spec mining in 2014, bought ETH when it was pennies, then cashed out my brokerage account for crypto during the 2017 run, and watched my modest four-figure stack turn into six figures over that winter. The sudden success caught me by surprise, and, lacking an exit strategy, I held all the way down through the 2018 correction till my holdings were only 80% of what they had peaked by the start of 2019.
I spent the next two years continuing to invest in bitcoin, and doing spec mining and basically learning everything I could about the industry, and positioning my investments within my IRA among crypto-related equities like $GBTC, $MARA and $RIOT. Q420 was a blast.
As the bitcoin bull-market resumed in the latter half of 2020, crypto-related equities actually outperformed BTC by an order of magnitude. So while my crypto portfolio gained 10x, my IRA actually outperformed BTC, despite GBTC and the others only representing a modest portion of my original cost basis.
I talked about the FIRE movement, and how we came up with out magic number using the four percent rule. That, my new friend understand. I told him basically how we had set our FIRE by 2024 plan last year, (halving to halving), and how we were already hit our goal in one year. Well, almost.
We’re close, but not close enough for me to just call it quits and cash out. The difference between this cycle and the last is that we have plenty of lending platform that can provide a significant yield income on crypto and stablecoin deposits. Obviously there’s no telling how long it will last, but if things keep up we may have to rewrite the four percent rule to the twenty percent rule.
My wife has put some qualifications on my upcoming so-called retirement: no debt. So I’ve got to pay off our mortgage if I want to avoid separation. The question is, how to go about that? I’ve already decided that I’ll need a significant cash cushion, equal to a years salary, and I’ve started taking claimed profits from my highest generating project and selling that to stable coins. That’s not gonna get me all the way there, so I’m looking to liquidate some of my smaller, more speculative assets that have done well to cash as well. That may get me closer, but my plan is really dependent on a run to six-figure BTC — and beyond. Somewhere between $100-120k should do the trick.
I told my new acquantaince that if I can double my IRA, I’d have enough money to pay the income tax, early withdrawal penalty, pay off the mortgage, and still have enough left over to provide interest income to satisfy our new, lower magic number. More than half of our monthly expenses are our mortgage, so paying this off would lower our capital requirements significantly.
They pointed out a couple points that I had misunderstood. First off, I was under the impression that any pre-retirement distribution from an IRA would cause the entire IRA to be considered as income. He corrected me, that only the distribution itself would be, the rest of the IRA would be still be protected. He also pointed out that selling my long-term BTC holdings would only be taxed at fifteen percent, instead of the forty percent that an early IRA withdrawal would cost.
I’ve been running the numbers back and forth all day, trying to figure out what’s the right thing to do. I am more emotionally attached to the bitcoin I own, I’ve got a hodler’s mentality and have been telling myself that I’ll never sell them — although that’s not quite true. Right now my moving target, (3.6*200-day moving average) is around $87k and rising, so it may be a while before we get there.
Thankfully, I don’t have to make any decisions right now. I’ll just keep taking profits on the smaller positions and yield generating protocols every week or so, and revisit where we’re at in a month.
And here we are now, with BTC edging $80k and toying with new ATH. Things are looking very nice indeed.
I started reading Shantaram yesterday, and the way the author describes his writing habit makes me realize that I am still not a writer. Sure, I’ve been blogging almost daily for over a year now, but most days I still have to force myself to write. Days like yesterday I can just skip it and feel no remorse about it. I’ve been listening to Seth Godin on Knowledge Project about the creative process, and the words he speaks are just so damn clear. The man’s blogged daily and has a streak currently measured in the thousands, and I just don’t have the same level of commitment to writing that he does, or Penn Jillette, who told Tim Ferriss that he’s journaled every day for the last thirty years.
I’m growing more comfortable being honest here. Now that bitcoin has (currently) given me the feeling of financial independence, I’m not so concerned about saying what I think about work, or have any qualms about what anyone future employer might think is professional or not. I’m going to say what I want, and I do feel like I’m starting to find my voice here. I’m not quite ready to erase the veil of pseudonymity that I currently have, and announce on my LinkedIn that I’m Blockchain Man. I still respect my family’s privacy too much for that, and opsec is still a concern. Being your own bank has it’s risks.
I am, however being a bit lax about sharing details with some of my IRL friends and acquaintances. I only know one person who’s actually admitted to reading this blog on a regular basis (hi Britt!) but other than that I think the only people coming through here are those hitting the focused topic articles that I’ve written. This one here is for me, Dear Reader, for present me, so that I can focus my thoughts, and for the many future mes, so I can see this one or more years from now and remember where, and who I was. I went back and looked at last March’s entries, writing about going into lockdown as the pandemic started. It’s like going back in a time machine. Further than that though is a bit of a mixed bag, as they’re all caught up with technical things, or politics. I wasn’t writing in quite the same way I am now.
Things are coming together a bit lately. I made a connection through the SetProtocol Discord, and it turns out this person actually lives less than thirty miles from me. We may have actually been in the same room at some point during a blockchain meetup. They’ve got some ideas around doing their own version of a TokenSet, using paid signals from a popular paid recommendation service for HNW individuals. I ran the numbers to get an idea of how things would run, and I’m tempted to go ahead and pull the trigger on a new Homebrew $RUM fund. This one would be more of a speculative, high risk fund, but I’m still trying to figure out exactly how it would be managed. What would the minimum viable capital needed to start it? What would the capital allocation process look like?
Someone Twitter has been follow pointed me to another NFT Index TokenSet, $NFTI. I stumbled across them after I had already launched $MUG, but had missed the website that was linked at the bottom of the page. They actually started their fund in early February, with about $80k of liquidity on Uniswap, and have done about $300% since then. Not bad at all. The token inclusion policy seems like it may have been ripped straight from the IndexCoop page for DPI, but it’s well done and professional. Very nice.
Linked at the bottom of that page is a link to CryptoArt, an Estonian cryptoasset management fund. This is very attractive to me, and is giving me much inspiration for Harvest. Implementing this type of business as a DAO is likely going to be the focus of the next several months of my life. They have a $5k/6 month minimum investment lockup, plus a two and thirty percent management/commission structure. It seems a bit high to me, but if TokenSets implemented a commission module it could go toward funding a DAO treasury. Governance tokens could be streamed via those willing to lock up their tokens in a smart contract. It’s given me a lot to think about.
As far as capital goes, I liquidated a good number of equity positions yesterday, pretty much everything that wasn’t crypto-related or was at a loss or the lower end of the performance curve. It’s going to get distributed to my SDIRA as quickly as I can. It’s taking me a lot longer to do than I’d like, but it’s the best I can do. I’ve got to be careful about how I manage those funds and keeping it separate from my traditional IRA, lest I trigger some sort of taxable income event. But I will be making some big moves, very shortly.
But for now, family. I am taking the girls on a bike ride to the park, to enjoy this beautiful, warm winter day.
My dad came by today. He had a hospital appointment to deal with a chronic heart condition, and I had to drop him off and pick him back up after. He dropped by a couple hours early, so I tried to fill him in on our investment partnership. He bought some BTC in 2017 and put down half the capital for the mining rig that I’ve operating for the last three years. I tried to explain to him how I doubled his money in the past six weeks on BadgerDAO: “So I know this next sentence won’t make sense, but here goes anyways; BADGER is a governance token for the Badger decentralized organization, and Digg is an elastic rebasing token that tries to follow the USD price of Bitcoin by dynamically expanding or contracting it’s monetary supply.” He just laughed.
The girls came with me to pick him up, and we stopped by Cold Stone for a treat before heading back to the house. I’ve been giving them a lot of leash lately, trying to reduce my own stress level. My dad seemed overbearing when I was younger, and I seemed to be emulating his authoritarian parenting style. I’ve been working on Elder’s application for GalileoXP, and the more thought I’ve been giving to unschooling them, the more I’m letting go. I used to limit their screen time to an hour a day and try to control their schedules, but I’m just letting go. As long as they keep up with their chores, then I’m fine with them watching TV all day. We’re still fighting, but I think things are improving.
If I really wanted them to stop watching TV, then I’d cancel the Netflix and Disney+ subscriptions. The point is that I shouldn’t have to. I need to find alternatives that they enjoy more. I’m hoping I can get her enrolled in Galileo and she’ll latch onto something that she enjoys more than watching sitcoms. I figure it’ll take a few weeks for them to adjust to this new way of doing things. I’m still prompting them for outside time and for Elder to sign onto school when it’s time, but they’re starting to understand that as long as they do what’s expected of them, they’re mostly free to do what they want. Which was the main lesson my dad tried to teach me growing up.
I was telling Dad about my plans for early retirement and Elder’s unschooling, and he just laughed. Missus walked into the room and rolled her eyes at me and they both had a laugh at my expense, which is fine. I’m the dreamer in the family. Luckily for them.
I’ve promised to talk about how I’m teaching the girls about money, but that’s going to have to wait for another post of it’s own. Elder is thinking like an entrepreneur already, which is great. Today she actually cooked lunch for her and Younger without prompting, which blew Missus’s mind. It was just baked beans, green beans and a marshmallow for dessert, but you know, baby steps.
I’ve been thinking a lot about the concept of a “family office” and have been giving thought to having a family business, and generational wealth. Twenty one million BTC divided by seven billion people is … several orders of magnitude less than what I have right now. As long as don’t do anything stupid and can hold on to what I have, then our family should be secure for generations. I found a podcast that focuses on multi-generational wealth, and one of them focused on the business of family. Apparently people actually draft up family constitutions to govern how families operate and after looking at a template for one, I thought it was a great idea. I told Missus I wanted to start monthly family meetings next week.
Checkbook control crypto retirement accounts, part 2
Well it took me over a month, but I was finally able to buy some bitcoin through my self-directed IRA. Last night, I was finally able to deposit some fiat into my SDIRA’s new FTX.us account, and purchased a few hundred dollars of BTC, wBTC and ETH. The process has been slow and somewhat infuriating, but there is nothing like having the ability to purchase cryptocurrencies within the context of a tax-advantaged account. That’s right, there are no taxable events on activities made with these funds, and once I am able to withdraw to an on-chain wallet, I’ll be able to yield farm to my heart’s content without worrying about capital gains.
Everything is a mess right now and I can’t keep up.
Obviously the market gains that I’ve made the past month have come to quickly, and I’m over my head. I spent at least nine hours last night on the computer, downloading wallet transactions and going over them in a spreadsheet, trying to figure out what funds came from dad and the girls, and where they went from there and how much of the yields belong to them. The funny thing is that I don’t actually owe them any of it, but I want to keep track of it to be fair. There has got to be a better way to manage a “family office” like this. There’s got to be software out there that I can use, I sure don’t think I want to roll my own from here, but we’ll see. Using a token set in the future might help.
I wrote the above paragraph early this morning. I think I got distracted somehow, cause at some point I had to step away, and that’s when I found out the news that Tesla added $1.5 billion dollars of bitcoin to it’s balance sheet, sending the price mooning from thirty-eight to forty three in a matter of minutes. I think I lost my shit at one point. I remember rushing upstairs to tell Missus, who was utterly unimpressed with something work-related.
I was a complete wreck by the time I tried to get onto my morning conference call with work. Literally shaking, and almost brought to tears while scrolling Twitter. I signed onto the conference call, did my check-in with as much poise as I could and told Bossmang that I needed to talk to him privately afterward. I told him that I was meeting with a lawyer to draft up papers to transition me from full-time employee to contractor status, and before I signed the paperwork I wanted to make sure he was still cool with it. Not really, he said, but what was he going to do about it.
I started off telling him all that’s been going on, how things have been going better than expected, and how I couldn’t afford to keep moving forward with things the way they are. He understood my position, although his reaction was to ask me if I’d heard of the tulip bubble. Boss, I said, I’ve been in this space for years, of course I’ve heard of the tulip bubble. The conversation moved from there to discussion about what I was going to do in “retirement” and about his plans for the company. I’ve jokingly called it Zombie, LLC in posts here over the years, cause I do think the market here where we’re at is fairly oversaturated. He’s in a franchise agreement for almost two more years, and recently took out a PPP loan. Otherwise he would have gone bankrupt last year. I still think that would have been the better choice, honestly. But I told him that he’s been good to me for the last eight years, and that I wasn’t going to abandon him. I’d finish the projects that I started, and stick around long enough to transition to what’s next. What that’s going to look like, I have no idea.
And then, later today, I met with the lawyers. I wasn’t terribly impressed. I’m going to let them handle my independent contractor contract, but I don’t really feel right about using a lawyer for my crypto that doesn’t hold crypto. I knew the associate lawyer as a client in their previous firm, but this was my first call with one of the actual partners. I asked about their background with crypto, and they said that they had helped with some ICOs and with some individuals that were in my position, and needed to reduce their tax liabilities. I’m not sure they’d really kept up since the 2017 cycle.
We talked through some options, like buying depreciable assets, like a car, for example, gifting to charity, setting up a revocable trust for the kids, and so forth. They mentioned a client that has moved to another jurisdiction (Germany) to reduce their taxable income, and I joked about moving there before the end of next month to qualify for the nine-month exemption. There were a couple other options that we ran through, but nothing really stood out to me as something that I really wanted to pursue. I think moving as much money into a 401k is my best option at this point.
I did do some further research afterward, but I’m still trying to process it. There are too many moving factors right now, and today has been exhausting. I know a lot of people are interested in strategies to save on taxes, and I think the steps I’m taking right now are the best I can do for now. If my wife and I can reduce our income to less than $80k then we can take advantage of the zero percent rate on long-term gains, but that might be the best I can do. Right now my Badger yield farming is making more in a week than I take home in month, although as long as I leave that unclaimed I suppose I could let that accumulate for a year.
The bottom line is that I’m going to need to take a look at several tax services to see how well they can track defi farming. I can probably get away with reducing the income on some of the recent activities that I’ve done since it’s mostly been a wash, but I need to think real hard about what I want to do with my Badger gains. It’s tough.
Over the years, I’ve been setting aside a small amount of cash for my daughters’ savings. A few bucks a week that I can use to teach them about money. My wife has been contributing to their 529 college savings plans, but I feel it’s better to give them the opportunity to learn investing and have funds available for entrepreneur activities, so I’ve been building up accounts for them in the hopes that I can involve them in the money management when they turn thirteen or so, before handing over the funds entirely when they turn eighteen.
When I first started, I decided to open LendingClub accounts for them, since the rates were much better than than standard savings accounts. At some point over the last three years, I decided to stop contributing to those accounts, and started putting the money into bitcoin instead. The LendingClub loans have three year repayment terms, so most of the outstanding notes have yet to be paid back. So once a month, I’ve been withdrawing the cash from LendingClub, into my bank account, and from there into their BlockFi accounts where the USD earns interest along with the BTC that I’ve bought for them.
As I’ve gotten more comfortable with DeFi, I’ve been moving USD and BTC funds from BlockFi accounts over to various yield farms, Yearn, mostly, but for the past week I have a significant amount of BTC wrapped and staked on BadgerDAO. More on that later. The issue that I’m having is that the funds are mixed, and tracking allocations between the various earmarks, as well as gas fees, has become a huge pain. I’ve been trying to keep track within a Notion sheet, but tracking who’s got what quantity of funds deposited and staked in this, that or the other pool is an obstacle.
The main reason for the commingling of funds is that Ethereum gas prices are making contract interactions with these farms cost prohibitive, and the problem is only going to get worse after $ETH breaks price discovery and goes 2x or more. A few months ago, when ETH was trading at three or four hundred dollars, I would have told you that it’s wasn’t worth doing yield farming unless you had a thousand dollars to put in for three months. Now, three months later, with ETH at $1400, I’d say that lower bound is up to five grand, probably really twice that when it comes down to entry and exit fees. Ethereum is quickly becoming a whale’s game.
The best solution that I’ve come across thus far has been Set Protocol. A Set is a basket of ETH and ERC tokens. The Set manager adds tokens and various strategies, and then users can buy into the Set to get access to the basket. Set Protocol is what powers TokenSets, which powers the DeFi Pulse Index ($DPI), a market-cap weighted index fund of DeFi tokens. (I’m very long on DPI). TokenSets has a limited number of funds available, as they go through a vetting process, but anyone can create their own Set using Set Protocol.
It’s a bit complicated right now, and not very user friendly as they have no UI, (yet,) but is seem like it might be an option for me to make a basic index fund. There are some margin opportunities, but unfortunately it doesn’t have any modules that support staking funds in liquidity pools, or participating in yield farms. That may change soon, and I’ll find out more when I talk with one of the co-founders tomorrow. Having my own Set will allow me to track the number of my Set’s ERC20 that belong to each family member, all I have to do is deposit USDC. Then once a quarter or so, I can reallocate the funds within whichever project I choose. And the best part, is that I can allow others to buy into the Set, permissionlessly.
TL;DR: Fund an AltoIRA Checkbook+ LLC, and buy, trade, or sell bitcoin and other cryptoassets within a tax advantaged retirement account. Reduce your taxable income AND eliminate capital gains taxes!
I am so excited I’m almost giddy.
Background: I’ve been investing in equities since the early 2000’s and had employer 401Ks that I rolled over into a IRA brokerage account in 2017, a few years after I started getting involved in crypto. In 2019 I started buying Grayscale Bitcoin Trust ($GBTC) as a way to gain exposure to bitcoin. It currently makes up the majority of my total portfolio, about forty percent, and another forty percent are in crypto mining and exchange positions, and Grayscale’s Ethereum Trust. I’ve been looking for a way to reduce exposure to Grayscale’s products which trade at a premium, and put funds in BTC directly, while retaining my tax advantaged status. One of the benefits of trading within these accounts is that I can enter and exit a position without having to pay taxes on any gains.
Alto came to my attention while reading a post about the DeFi Pulse index. Alto was just kinda dropped in there as a side note, and after after a bit of back and forth with the CEO, and I went ahead and scheduled a call with one of his associates, James O’Brien.
I was a bit deflated going into the call, because the fees that I were told given were a bit off-putting, one percent a year as a maintenance fee, plus one point five percent per trade. That might be ok for someone starting out, but there’s no way I would go for that. James explained that the crypto product that Alto offers is basically a vehicle for Coinbase custody, which is geared at institutional investors. The fees are what Coinbase charges, and covers insurance on the funds. Of course, you’re limited to what tokens Coinbase offers, and you can’t move anything off to a private wallet. Fair enough, but it’s not for me.
So what really got me excited was when O’Brien told me about the checkbook LLC which is a self-directed IRA plan. You have checkbook control over your funds.
“Checkbook Control” is the term used when a self-directed IRA owner has complete signing authority over an account that gives access to his/her retirement funds. This strategy is achieved through the establishment of a Self-Directed IRA LLC. Since the LLC established is a business entity, it can establish a checking account. The LLC is funded by using retirement assets like an IRA which then funds the LLC’s checking account. This offers greater investment freedom, allowing you the IRA holder to meet your investing goals and manage your assets with ease.
These type of entities can be used to purchase practically any asset, including real estate or cryptocurrencies. And the cost that Alto charges to do the necessary paperwork is only $750 dollars, that’s five hundred to setup the LLC and necessary documents, plus two fifty a year for what I assume are the required tax documents and so forth. That’s much better. I can use whatever exchange I want, park the tokens in a cold wallet, liquidity pool or lending provider, and sell them without a care in the world. My keys, my coins.
The only real downside is that crypto assets cannot be transferred directly into the IRA. Only cash goes in. So if one has existing crypto holding that one wants to make into a tax-deductible contribution, you’ll have to liquidate to fiat, transfer the funds into the IRA’s cash account, then to your crypto on-ramp to purchase the asset again. This could lead to some slippage if one doesn’t have cash on hand, but that can probably be optimized through some dollar cost averaging process.
There’s another downside to a crypto IRA, and that’s the fact that IRA contribution limits are currently capped at $6000 a year. There are similar vehicles in the 401K space that have much higher limits. I found one company, called Solo401K, that provides this service. I chatted with one of the associates over the web. These plans are available to self-employed individuals, contract employees, but not individuals who are employed by others. The limits are closer to thirty thousand a year, and there’s other advantages, like being able to take a personal loan out against the account. Since I’m not a contract employee or self-employed, the 401K plan isn’t an option for me. Solo401K is by Naber Group, which also has an IRA option, but their setup fee is twice as much as Alto, and they charge an extra hundred a year in fees.
I went ahead and setup my Alto account this morning, the process took about five minutes. The main thing you need to think about is what type of IRA you want to open, whether traditional, Roth, or, if you’re a business owner, a SEP IRA. Other than that, there’s several forms to fill out, and it appears that it will take up to two weeks for the paperwork to come back on the LLC, which is created in Arizona.
Once this is all done, and I’ve opened new bank and exchange accounts, I will begin liquidating my IRA positions in GBTC, rolling over the cash, and buying spot BTC. I’ll probably do the same with my ETHE holdings as well. I’ll also need to liquidate enough of my existing crypto holdings to max my 2020 annual contribution before April 15th, unless I can come up with that kind of cash in the meantime. It might be a wash with capital gains on any crypto sales, but I’ll figure that out.
I’ll also be converting my employment to contractor status. I’ve already had a talk with the bossman, and I should be able to make that happen before the end of the year, and switch my IRA to a SEP or 401k to take advantage of the higher contribution limits. (Alto plans on releasing their 401k product sometime later this year.
Lastly, a warning. There are rules about how you handle funds in these checkbook accounts that you have to be aware of, like no commingling of funds, no double dealing, and nothing that enriches yourself or other family members, like buying real estate or businesses that you or they have a stake in. The IRS also prohibits purchases of collectibles, which may be a problem with NFTs, but other than that, you have complete freedom to buy any token, using lending platforms and leverage, or ape into whatever yield farm you want. As long as all the gains stay within the confines of the LLC, you are golden.
If you’re interested in opening a Checkbook+ IRA, use my referral link to get $75 off the first year’s fees.