Self-directed crypto without taxable events

gold-colored Bitcoin

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 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.

The IRA/401k

Last month I wrote up about the difference between the Checkbook+ IRA from AltoIRA and how it differs from most “crypto” IRAs. Basically, most crypto accounts are custodied, and have high annual and trade fees. We’re talking somewhere between one and two percent, which for some might not be that big of a deal, but for me and others who are comfortable handling their own private keys on six or seven-figures worth of crypto it’s can be a lot. Checkbook IRAs are much cheaper, with Alto we’re talking $250 a year plus a one time $500 to set up the LLC. In addition to crypto, one can also purchase real estate, or invest in other businesses or venture opportunities through AngelList or a number of Alto’s investment partners. There are a few restrictions about how the funds can be used: no double-dipping, so you can’t purchase a rental property and use it for your vacation. Basically you can’t spend funds that give you or your immediate family any material benefit. Also, in case it wasn’t obvious, this is a retirement account, so breaking these rules subjects you to an early withdrawal penalty, and on top of that, the entire balance of the IRA immediately becomes taxable income, which for me would be considerable. That is, for me, part of the exit plan, to aggressively grow my fund tax-free until the sum of the account reaches “FU money” levels, at which point I won’t care if I have to give half of it to Uncle Sam.

The way it works is like this: Alto sets up the IRA, and you deposit cash contributions or rollover funds through them. No crypto here, just straight fiat. If you’re doing a traditional or Roth IRA you’re limited to $6000 for 2020/2021, limits are much higher if you use a SEP IRA or a 401k. I’ve actually considered changing my full-time employment status to contractor to take advantage of these higher limits, you may want to do the same if you’ve got significant gains this year.


Alto also creates an LLC through the state of Arizona. You won’t get to pick the name, it will be generated automatically using your initials and the date of creation. (You can always register a fake name later if it matters to you.) It will take about two weeks, and Alto will provide you with a taxpayer ID (EIN), operating agreement, and a few other documents. One thing you will need to do yourself is get a copy of your articles of incorporation from the Arizona Corporation Commission. You’ll need to lookup your LLC, then go to document history and look for the downloadable link. Save these docs with the operating agreement, as you’ll need them to open bank and exchange accounts.

Now the legal structure of the LLC is this: your IRA is the sole member of the LLC. The IRA is the “owner”, and all funds into the LLC have to flow through it. Technically, the name of the IRA is “AltoIRA FBO (for benefit of) Your Name”. You are named as the manager of the LLC, and have complete control over how those funds are used.

The Bank

Once you have your documents you can move forward opening your bank and exchange accounts. I suggest you do both at the same time unless you like waiting. Getting a bank account was the hardest part of the process, (save for getting money out of my brokerage account, which I’ll talk about later). I have lost track of how many online account applications I went through, but I must have spent a week. First off, most of the crypto-friendly banks that are out there don’t do business accounts, and the ones that do that I could find summarily rejected my application with a “we don’t serve your kind but can’t tell you why” response. At one point I got through to a rep at Bank of America over the phone and was told that they simply don’t do open LLC checking accounts over the phone and that I would need to come into a branch to open one. I wasn’t happy about the prospect of doing business with BOA, but then this came up in my Twitter feed:

Source: Coindesk Feb 10, 2021

Now I’m not in Charlottesville, but I gave them a call, told them what I was trying to do and was put in touch with a branch office. A day later I had my account created, all over the phone. There were several documents that I needed to sign and scan, but I was able to do everything using my iPhone’s note taking app and email. The staff have assured me that they can open account for anyone in the US over the phone as well, so if there’s not a local bank that you’d rather deal with, give Blue Ridge a call. They’ve been very helpful, and they have $25 wire fees and integrate with Plaid for ACH transfers to crypto exchanges.

The onramp

Unfortunately, there is probably not a worse time to open a new exchange account right now. With the madness of r/WallStreetBets ongoing, and in the midst off a bitcoin bull-run, retail investors rushing to the fiat onramps and exchanges are being overwhelmed. Friends in my Signal group chat were waiting almost two weeks to get signed up with new accounts on Voyager earlier this month, and there are reports of other exchanges being swamped as well. Not wanting to repeat the frustration that I went through opening a bank account, I went ahead and filled out applications for both Kraken and Gemini. Kraken was the first to respond, although it took me several days going back and forth with their support staff to clear the KYC process. Gemini responded after a week that they were running behind, but haven’t gotten back to me beyond that.

One problem I have with Kraken is their lack of ACH deposits. They only allow wire transfers for fiat, which isn’t ideal since I’m planning on doing a number of smaller transfers over the next weeks and months as I rollover funds from my equities IRA. I’d ruled out Voyager since their institutional offering seemed a bit out of my league, and I wanted to avoid doing business with Coinbase and Binance. I’d been hearing a lot of good things about FTX recently, and decided to go ahead and sign up for an account there. The process was simple, and fast. One or two days after providing my EIN and documents (operating agreement, articles of incorporation, drivers license and proof of residence), my KYC verification was completed.

So last night I linked my Blue Ridge checking account to FTX, got pre-credited on an ACH transfer and made my first purchases. It felt great! Now I’ve just got to wait for the funds to clear, then I can withdraw them off-exchange to Uniswap and into yield farms and vaults. Fun times ahead.

One note about FTX: make sure you wait for the KYC process to complete before trying to initiate an ACH, else the transfer will fail and you’ll have to remove and add your account again. It seems to be a bug in their UI that you can do one before KYC has been completed. The transaction (and the account) will be flagged as rejected.

A word about rollovers and timing

This last section may not be relevant to you if you are just starting out with a fresh account, but if you’re planning on rolling over large sums from an existing IRA you’ll probably want to pay attention. Alto is not a brokerage IRA, meaning that they won’t custody your equities. So for me to liquidate a position from Grayscale’s $GBTC into BTC directly, I have to sell all my GBTC, wait for the funds to settle, initiate a transfer into Alto, settle, transfer funds to my bank, settle, transfer funds to exchange, then buy BTC. Depending on whether you’re doing wires or ACH transfers, this process can take several weeks. And I don’t know about you, but I do not want to be out of a bull market for that long. So my original plan was to liquidate a portion of funds, say $5-25k at a time, and move them over. Unfortunately, my brokerage had other plans.

It seems that the combination of COVID and r/WallStreetBets seems to have not only overburdened the crypto exchanges, but conventional brokerages as well. Doing third party wire requests is not an automatic process, and it actually took me over two weeks to get a disbursement from my brokerage. And that was following two phone calls, the first to find out that my scanned signature page came through garbled, and a second to find out what the hold up was. Each time this involved at least an hour on hold or texting with customer service. So now I’m not sure what to do. I could speed up the process by requesting a direct wire or ACH to my personal bank account, but this would trigger the sixty-day rule, which can only be used once a year. So unless I am willing to liquidate my funds entirely, and risk a huge pump while I’m out of the market, I’ll just have to resign myself to rolling over these funds bit by bit.

For now, I’m unable to determine a better way to move these funds, and am looking at the possibility of doing these smaller transfers indefinitely over the next year or two, unless I can find a way to speed up the process. Transfers initiated via Alto only require me to fill out a signature form, whereas my brokerage requires a letter of instruction to be physically mailed to their office. In each case, a person has to review the request, and they are just so swamped right now that it will take upwards of two weeks to complete these requests. I’m also not excited about selling funds in the middle of (what is hopefully a small) correction, when both GBTC and ETHE are trading with negative premiums. So it goes.

Self custody

On the bright side, this delay will allow me to figure out some of the logistics of actually handling six-figures of crypto. This is a big step, and while I already have a significant sum of crypto stored on hard and cold wallets, having all of my retirement savings as well is a bit more of a risk. I can definitely understand why one might want to pay Coinbase one or two percent a year to custody funds. This is the risk I take for complete and utter freedom. Once I have my debit card from Blue Ridge, I plan on taking a look at some other custody solutions, whether it’s via Casa or Unchained Capital for my bitcoin, or a fancy Lattice1 for my defi funds.

Regardless, it’s exciting and to have made my first purchase, and I can’t wait until I have total control of my crypto funds. Hell, I might even buy some land in Costa Rica while I’m at it!

Forty-seven thousand

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.

Set Protocol for defi fund management

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.

Checkbook control crypto retirement accounts

man opening his arms wide open on snow covered cliff with view of mountains during daytime

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.

What is Checkbook Control?

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.
Best part of the LLC contract.

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.

The little degen that could

I’ve been thinking a lot about self-directed IRAs and solo 401Ks today, trying to scheme some way for me to take advantage of these instruments to preserve some of my crypto gains. I wrote a bit about IRAs yesterday, but the solo 401K seems like it might be a better option. Basically the advantage is that the solo 401K has a higher annual contribution limit, somewhere northward of $50 thou compared to $6500 for an IRA. Also, it seems that you can take out a loan against it, which you can’t do with an IRA. The interest, which has to be the prime rate plus one percent, gets paid to yourself, which isn’t really a downside to me.

So basically I could take crypto that I already have and deposit it into either of these account and consider it a deduction on my taxable income, then take a loan against that deposit, stake it in BlockFi or elsewhere and earn a higher interest rate than I’m paying on the loan. This strategy would net about four thousand dollars.

It’s not great, and assumes that BlockFi doesn’t go under, but coverage on the deposits could be purchased for about 2.5% of the capital amount. Not great from a risk/reward standpoint, that’s for sure.

Speaking of RR, I’ve already pulled the remainder of my wBTC holdings out of the Yearn vault in anticipation of putting it into the BadgerDAO LP pools, at 400%. It’s going to be a short-term play, very high risk, but 400% APY can’t be ignored. I’m spending a good deal of time in the Discord and looking over the docs to figure out exactly what’s going on. They’re aiming to be nothing less than the one-stop shop for everything related to Bitcoin on Ethereum, and what I’ve seen so far has been very promising. And it seems like the closest thing to going back in time to get involved with Yearn or Sushiswap in the first few weeks. The interest rate is already dropping, and there’s a threat that the token price might collapse when the airdrop for the DIGG product happens, so I’m keeping a close eye on it and will be prepared to exit early if need be. Right now I’m just waiting on gas to drop so I can enter into the pool.

I’ve also become aware of a token called ibETH, or interest bearing Ethereum, from a project called AlphaFinance. I’m not sure how it works yet, but there’s a large amount held by a DeFi whale, and it’s yielding 20% returns. That’s better than what I was getting in my Yearn bUSD vault, which I already exchanged for ETH, so it seems like it might be a good place to park it. As usual, I’ll probably buy some first then figure out how the hell it works after. Alpha has a mind-numbing 43 liquidity pools which seem to range between 40-150% interest.

So I’m going to wait for gas to drop, then stake an insane amount of capital into Badger and pray that I can make it through the next month without a contract failure or rug-pull, and then I have two calls scheduled with people from the IRA and 401K firms. If all goes well, I may have discovered a line of business to be explored by the newly formed Skunkwerks project that is forming. We may have a possible niche, helping people open these accounts so they can take care of these DeFi opportunities. As more people come onboard with Bitcoin — like my neighbor — we’ll stay on the bleeding edge of yield and help guide people through varying levels of risk and leverage in the space.

It might just be the perfect opportunity, if I can earn enough income for my wife to provide a steady income for myself, I may be able to help others along as well. Not that I’ll need it for myself, of course, but because I want to bring as many people along with me as possible.

Let’s build something

Exploring fintech business ideas

So today was a pretty good day. I got woke up very early and managed to get a workout in while I listened to Willy Woo make the case for $100k BTC. It was very convincing, despite the fact that they recorded it friday before the dump from $42K. There was a bit of recovery in the markets which made back about half of what I lost on the Monday dump, but beyond that, I did little work altogether and got to spend some extra time with the girls today. They’ve been really starving for my attention lately and I was glad to be able to fill that cup. I taught them how to play checkers, and I let them tag team wrestle me on the the trampoline. Beating me up seems to be their favorite activity.

I’m keeping an close eye on my new investment in BadgerDAO. It’s netting about fifty dollars a day, and I’ve probably got a few weeks while the insane APY continues, so I’ll continue to monitor and scale in further as I assess the risk/reward. I pulled all my USDC out of the Yearn vault last night and bought ETH, as I figure we’re at the bottom and likely to hit all time highs and price discovery very soon. I had a minor mistake calculating gas costs which almost cost me; by the time all was said and done I paid a hundred dollars for the withdrawal. I only made a hundred dollars interest in the vault over the last two or three months, and by the time you calculate the entry fees, I ended up net negative.

At the risk of repeating myself, with DeFi it seems like it’s better to ape in first and figure it out later. A few months ago, I told my friends that Yield Farming wasn’t worth the trouble unless you were operating with more than a thousand dollars. That’s when ETH was trading at three hundred dollars. Now that we’re at a grand, that number has increased as well. I think my original estimation was off by a lot, and I’m wondering if the current figure isn’t closer to ten thou. It seems apparent that if ETH continues to climb to all time highs, that small players (minnows) are going to be priced out of participating. Transferring Eth or ERC tokens will be expensive in real dollar terms.

This may be mitigated somewhat by scaling advancements as ETH2 gets rolled out, but it seems we’re going to be dealing with some very high network congestion on ETH during the next few months, and it remains to be seen whether Cosmos, Polkadot, or Avalanche will be able to fill the need in time.

Some of you may know that the majority of my active investments and assets are in my IRA. I have a significant portion in Grayscale products and crypto-adjacent equities as opposed to BTC directly. It would be nice to have access to actual cryptoassets in my IRA, but I’ve yet to find a decent offering that didn’t have what seems to be outrageous fees.

One percent on trades on top of a one percent annual management fee seems outrageous on it’s face. To his credit, the CEO, Eric Satz, did respond to address the concerns, and I have a meeting scheduled with one of the associates later this week to discuss some of the options. Apparently the end goal is to have unrestricted access to DeFi through IRA dollars, but they currently have insurance and custody expenses that they have to deal with. More to come.

Something else I ran across to day was this post from a Bombay entrepreneur about a new crypto-bank that they’re spinning up. I had a chat and signed up to take a look. I really like the way they present it when you go to the app.

Letting people choose their risk level in this way is really striking. And as if the universe wasn’t trying to send me a signal already…

So to synthesize the problem a bit more explicitly: the DeFi industry is just at the early stages of really taking off. This success is going to price most smaller participants out of the markets, leaving most of the gains to those who are already starting with large capital investments. I’m thinking there needs to be a way to pool assets and distribute the costs in such a way that it’s more efficient for small lenders. Personally, I’ve been having problems keeping track of my own DeFi holdings, an issue which is complicated by the fact that I’m using funds earmarked for several family members. There has to be a better way, in fact, Andre Cronje, the lead developer of Yearn Finance, created the vault system for this very reason.

So can we build a ‘self-driving bank’ or DAO that makes easy to pool resources from lots of small players, and takes steps to minimize gas costs even further? Or one that can bring in large IRA funds from the less crypto-savvy investors and use those to bring in these 20%+ yields. I think it is possible, but recognize there are going to be numerous regulatory hurdles. That’s not my forte, but when one considers the opportunity in non-profit and municipal treasuries, it’s clear that there is a very large opportunity in this space.

It’s clear to me that I’ve found an issue that is near and dear to me, and I’m going to be spending some time brainstorming with others and figuring out how I can make this transition into a role in fintech this year. Whether that means becoming involved with an existing project or bringing one together from the ground up remains to be seen.

Boom time

Today was absolutely insane. There was some good news about another COVID vaccine which set the equities markets up today, and $ETH hit $600, which set the crypto markets roaring. It was amazing. I finished the day up eight percent, for my first five digit day, (and then some.)

The news behind $DPW was that they announced some partnerships with restaurants to provide electric vehicle charging stations. I’ve had a standing trigger since September to set a trailing stop next time it pumped past five dollars, and it triggered at 5.39, which cut me out of a couple hundred dollars to the close.

Overall, I’m glad to be out of this one. I had picked it after I misinterpreted some news about their involvement with bitcoin, and got caught up in that first big pump gap a week after I opened the position. By the time I hit my value averaging targets in the grey box, I was down, so I set the trigger, hoping that it would have another big spike that I could capitalize on. Turns out it worked, so yay me. I feel a lot better about the other, pure-crypto plays in my portfolio, and would rather put my focus there than worry about these guys in the future.

Ethereum was obviously the driver in today’s rally, and again, the fact that the mining companies are up even more shows me where I need to be focusing my cash. $RIOT and $MARA and the rest are doing really good.

Strangely, BTC has been pretty flat despite a big dip over the weekend, I think the fact that it’s basically back where it was Friday has proven really bullish for the market. In fact, $BTC was down from Friday’s levels, but $GBTC was up five percent.

I have actually been anticipating a BTC dip when we get near ATH levels, and I had calculated a GBTC price of 22.40 for a sell order. Today’s close set us at 22.15, so I’m thinking I may want to reconsider that order. If the premium keeps running up like today, we may hit it without any price movement by BTC, and I may get stuck holding the cash. I’m going to sleep on it and see what happens overnight.

In spite of today’s mind-blowing rally, I still managed to get pulled into four different fires at work. And it gave me a bit of solace while dealing with the bullshit, knowing that none of it mattered and that ultimately I didn’t have to put up with any of it if I didn’t want to. I got so much done today, I even managed to take the girls to the playground for an hour this afternoon, cooked lunch and dinner and did grocery shopping.

All in all, today kicked ass in more ways that one.

Changing strategies

Another day, another 2020 ATH. $BTC broke $18K before I went to bed last night, and despite a $1000 drop that was quickly eaten up, we’re back at $18,200, ready to continue our journey.

I’ve been seeing something interesting play out with the Bitcoin related equities like $RIOT, $MARA, and $BTBT; they’ve been running faster than BTC and $GBTC. I’m not sure why this is, I guess investors think that they’re undervalued. The main question right now is whether I’m over-allocated in GBTC right now.

It’s 43%, so yea. I figured it was the best play on a BTC run, but with the others outperforming, I may need to reallocate. But I’m almost out of cash, so I’ll need to sell some to reallocate. My last GBTC purchase was on July 15, at 13.60. Current price is over $20, so I should probably sell enough to cover a week’s worth of my value averaging protocols for the big gainers. My two percent targets have increased, so I’ll have to update my value averaging script and make sure I have enough capital allocated to allow it to run.

Done. Now to see how it plays out.

Progress continues on the Ether Auction. I figured out some problems with the Hardhat/Waffle/Chai tests that were failing, and added some functionality to allow claiming the proceeds. Writing the tests out really forces one to clarify all the possibilities. I also found a big bug with the time lock parts of the contracts that were making them end seven seconds after they started, not seven days.

I’ve got some additional tests cases that I need to write to finish the auction contract itself, then I need to figure out how to deploy it to a test network and starting working on the UI. I’ve started going through the React course on FreeCodeCamp, and will deploy a create-eth-app once I have the contract deployed.

I want the website up and running before I deploy the first contract. I’m debating whether I need the autodeployer setup, or whether I just want to manage the first one manually as a test.

There’s also some interesting things with the Open Zeppelin upgradable contracts that I may want to add in before all is said and done. I’ve implemented a self destruct function that can be called three days after the auction ends, but using one of the proxy contracts to hold state might allow me to reset the auctions for the subsequent rounds.

We’ll see how things develop.

DeFi notes

This weekend was a bit rough.

The kids were on my nerves the whole time and my temper kept flaring up. The girls seem to think they can just do whatever they want and ignore what I ask them to do. It’s infuriating. Missus is stressed out from work, and has been sleeping a lot. I’m stressed out cause she’s sleeping a lot and it feels like I’m doing most of the work around here.

We did manage to have some fun around here. I had promised Younger an ice cream party if she learned her letters. She did that several weeks ago and has been waiting patiently through Halloween and her friend’s birthdays, and Saturday I took her to Cold Stone and let her pick out three different flavors. She was really distraught when I told her that her friends wouldn’t be able to come over till Sunday, and on Sunday she must have asked five or six times if it was time.

So they came over yesterday afternoon and had their ice cream in the backyard. And these kids are exhausting, man, I tell you.

We also watched Biden’s victory speech Saturday night, although I had a hard time getting Elder to pay attention to it. I told her it was important to watch cause she’s so young that she probably doesn’t remember anything about the Obama presidency, and I want her to remember this moment. Younger probably won’t remember it. Missus was more interested in Harris’s speech and making Elder watch it. She didn’t see any point in making her pay attention to another old, white dude. Still I think moving on from the Trump presidency as soon as possible is very important.

Most of my time this weekend was spent reconciling my DeFi transactions, trying to figure out how to reconcile the ycrvBUSD that I have. I owed the girls some, so I got those numbers recorded in my Notion database and moved a bunch more fiat into them. I was tempted to buy more BTC, but decided to stick with my stablecoin strategy for the time being.

I also spend some time on the Yearn Discord and reading over the smart contracts to try and figure out just what the heck is going on. I pulled my ETH out of the vault since it was inactive, and considered doing so with LINK save for the fact that I don’t know what else to do with it. I talked to someone about using it as collateral on Aave for something else, but I don’t want to risk it.

Also, it seems that there is a new test USDC vault, which there seems to be some excitement around. I was tempted to move some funds there but I’m playing with savings here. I’m already nervous enough after hearing of some US-based crypto lending firm filed for bankruptcy this week. I don’t know enough about their business model to know whether BlockFi is at risk as well, but much of CT seemed to think so.

After I deal with day job stuff I need to take a look at my altcoin lending portfolio. Several positions should have stopped out during the pre-election run up, but I’m not entirely sure I had my stops set properly. Cosmos, PolkaDot, and Serum are all well below my stops, only ChainLink has managed to hold its position. I need to calculate my losses and figured out if I’m allowed to make any November trades. I found a new degen yield farming site and am tempted to try and take a position on one or two. If I was smart I would just wrap my BTC and put it in a vault. Alternatively, I don’t have any CRV or YFI tokens, and as much as I’m relying on the vaults I should probably allocate some funds there.

But the best strategy might just be to hold my BTC for now. It seems on the verge of a breakout this morning, and I have no idea what equities will do this morning now that Biden has won. We’ll see.

Evening update

BTC was mainly quiet today, resting while alts seem to be pumping. Bitcoin has held steady mostly today while the election results come it. Several outlets are calling it for Biden, but several states are going to recounts. It seems that Dems may be able to squeeze out a Senate majority as well, pending results in Alaska (!) and two runoff elections in Georgia early next year.

I spent some time this morning thinking about how to design the Evil Ether Auction app, and exactly how I want to make it work. Nothing solid yet, but I’m trying to figure out how I want the mechanics to work. I’m thinking that it’ll will have a series of rounds, starting at one ETH, and that the proceeds from the first auction will be used as a starting amount for round two, and so forth. I’m thinking the last round would be for 32 Eth, enough to fund a masternode. I’ll either keep the proceeds of the last round, or possibly put a bid tax at some nominal amount as a developer fee. We’ll see how that goes.

My most recent fiat funds cleared ACH on my onramp, so spent more time today thinking about strategy. The GUSD Curve pool is basically garbage, so I’m probably going to stake the bUSD pool. There are a couple degen opportunities out there, Harvest seems to be going strong, recent hack withstanding, and someone pointed me to SnowSwap, but I’m not playing around with these funds. I trust BlockFi and Yearn, but I’m not willing to take chances on any other platforms with significant sums.

I also spent a lot of time thinking about tax ramifications of lending platforms and all this DeFi activity. It’s going to be absolute nightmare. I don’t think CoinTracking has done much work in this area, so I’m probably going to have to take a look at TokenTax when the time comes. Considering that it integrates with Turbotax, I probably should.

The rest of the afternoon was spent going over CSV exports of my Ethereum transactions, trying to line up all my activities over the past few weeks, trying to match fiat to various pools. I haven’t been doing a good job with my earmarked funds, and I’ve got some cleanup to do before I make any more conversions. Trying to keep track of funds earmarked for my family members in one wallet is proving tedious, but keeping them in a separate wallet is out of the question, given gas fees for vault deposits and withdrawals.

I have to be very disciplined if I’m going to keep things straight, and I’m still not sure the best way to keep track of it. Hopefully I can keep things straight in a spreadsheet or Notion table and not have to go as far as putting together a custom database or ledger. I’m going to go back to it here shortly and shore up my calculations and see what I come up with.