Bitcoin and Cryptocurrency

Probably don’t go there

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So if you had bought Bitcoin in 2011 instead of going out for beer and ramen, you’d be a dollar multi-millionaire now. D’oh.

In December I did something stupid that I specifically said I wouldn’t do, and predictably it blew up in my face. I’m sharing the story here to provide entertainment and information: you really shouldn’t follow me down this particular rabbit hole.

I’ve known about Bitcoin for a while. I have friends that were into it years ago. Never interested me. Saw it blow up last year. ‘Bubble‘, I wrote, ‘not interested‘.

I read a lot of articles about blockchain and the uses for the technology, and while it was very interesting, I didn’t really think about wasting money on it.

So of course when it peaked in December last year, drunk on FOMO and greed, I decided to buy some. Ugh.

I opened accounts with bitflyer and coinbase. Both were relatively painless. Bitflyer has a great English-language interface.

It took a few days to get the account set up and confirmed, mainly due to the usual official name vs name on bank accounts vs name I want to use thing.

Once it was set up I sent 100,000 yen over and bought some Bitcoin, Ethereum, and Litecoin.

The next day my holdings went up by 20%. Eeek.

So I sent over another 600,000 yen (this was supposed to go into my NISA account in January). Typical FOMO/greed influenced reaction.

My account then bounced around for a bit (cryptocurrencies are REALLY volatile) and after a week or so I chickened out and pulled 500,000 yen out (basically broke even).

I left the other 200,000 yen in there and added another 10,000 on payday.

I’m planning to add another 10,000 yen to my holdings (split 50/25/25 between BTC/ETH/LTC) each month going forward.
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My holdings on January 9th (with 210,000 yen ‘invested’).

One important lesson is that it’s important to be comfortable with the amount and risk of (investments*) financial exposure. For me, 700,000 yen was enough to make me uncomfortable, particularly (invested*) put into something as risky as cryptocurrency.

I am fine with my current (investment*) holding of 210,000. If it all went up in smoke tomorrow it wouldn’t bother me too much.

A few really important caveats:

  • I haven’t sold anything to buy cryptocurrencies. All our existing investments are still in place, doing what they are supposed to.
  • Going forwards the monthly contribution is only about 1.5% of our new monthly investing. If it goes to the moon great, if we lose it no problem.
  • I fully expect to lose everything. I think there is a small chance (10% or less) that we will make enough money on this to make it worthwhile.

This is definitely a stupid, fun project for me. It’s the equivalent of going into a casino and putting it all on black (or in this case, putting a few dollars on black).

I really don’t recommend others do it unless they are in a similar situation: ie have a stable financial situation with a sensible investing plan in place. Diversification is the key to safety in personal finance, and cryptocurrency should probably be a tiny part of your investments, if you have any at all.

Conversely, if you were prescient/lucky enough to do well with crypto so far, consider taking some profits. Don’t prevent yourself from winning.

Here are some resources on Bitcoin and cryptocurrency:

This post by Mister Money Mustache probably represents the most sensible view.
This post is the most convincing thing I have read in favour of buying cryptocurrency.
Taylor Pearson’s cryptocurrency resource page is a great place to start.
My friend Phil Smy is doing a video series on cryptocurrency.
The RetireJapan forum has a couple of great threads on cryptocurrency in Japan.

*I replaced the word invest in this post as buying cryptocurrencies doesn’t seem to be investing, but rather a form of speculation/gambling.
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How about you? Do you own cryptocurrencies? Any thoughts? 
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20 Responses

  1. > I fully expect to lose everything.
    This makes no sense. This would make no sense if you were talking about any traditional investment, let alone something that basically has no track record other than BUBBLE in flashing neon lights.
    Ask yourself this: would you invest 1.5% of your monthly investment in scratch cars or the lottery? Of course you wouldn’t. Because that’s gambling, not investing, and there’s a difference.
    This is so against everything I know I recommend, and seems to be completely against everything that RetireJapan has seemed to be recommending.
    I honestly don’t understand it.

    1. Well, to be fair, I don’t think anyone can accuse me of recommending this 🙂
      It is very much like buying scratchcards. I find I get bored doing the right thing with my investments, so I focus on getting them 90% okay, then I can play with the other 10% (or whatever).
      Crypto is interesting, I get to learn about it, there’s a tiny chance it will pay off, and it gives me some blog material.
      But I only do it because our situation is otherwise fine. I was talking to my wife yesterday, and basically we could get by relatively happily on 200,000 yen a month if we had to.

    2. I used to play online poker too. That didn’t work out too well (although I tend to win playing in casinos).

    3. However, if we ever end up with a cryptocurrency page on the site, or I start trying to sell the RetireJapan Guide to Bitcoin, feel free to come up and slap some sense into me 😉

  2. I did like you (except the part to put 600k), and yes it works. Did some movements (buy and sell) and used another app, called coincheck (https://coincheck.com/?c=cTJLegwUJak). It’s super easy to use and has the great advantage to have wider range of coins (13 at the moments). Yes keeping in mind that if it doesnt work what will you loose will be not a problem is the best approach

  4. It all started a stupid meme joke, but the longer I have been in crypto the longer it seems like the best leveled headed advice. HODL.
    It all started as a simple spelling mistake on a crytpo forum I think from bad in 2011. But the advice has held steady since then, hold your crypto. It has become so invasive in the community there are HODL t-shirts being sold.
    FOMO and FUD are your biggest enemies in crypto currency I think largely due to the insane volatility involved and anyone even remotely familiar with other investment will see movement in the crypto market unlike anything else in financial history.
    It took me months to become comfortable with the nature of the market. For weeks I was checking my balance 5 to 10 times a day. Now that I am pretty much done putting money in and I have fully adopted the HODL mentaly, I hardly check it once a day. Oh no! its down 30% today, yeah…. but still higher than it was 7 days ago.
    I have moved onto mining now and that is a whole different beast of issues.

  5. I also forgot to add one more thing. Tax on crypto in Japan. Realized gains are taxed as income, so losses can’t be carried over to the next year like capital gains loses. But it also means that most of us in Japan will be paying 30 to 33% tax on crpyto gains. (20 to 23% tax bracket plus 10% municipality tax). This is quite different from the USA which treats crypto as a capital gains. Aus is 40% I belive. I am not sure about other countries. Its very a very gray area about buying crypto in one country and cashing out in another. Technically they don’t want you doing that but ultimately there is zero way to enfore or for any tax body to even know you are doing it. Japan knows I have bought crypto, but after that they have no idea where it goes. Its on the decentralized block chain and untraceable until I cash it out for fiat.
    As for crypto to crypto trades I have no found Japan’s stance on that. In the USA you have to report it. If I buy bitcoin at 100$ and then when its worth 1000$ and I trade it Litecoin then I have to declare and pay taxes on that 900$ profit even though its not in fiat. Its like trading stocks for a house in the eyes of the IRS. In Japan I don’t know.
    Anyway, here is the most update info I can in English on Japan and crypto tax. https://www.tytoncapital.com/investment-advice-japan/japan-and-tax-on-cryptocurrency-bitcoin/
    I actually talked on the phone with a CPA from this firm on Friday for about 30 minutes last week. They advice foreign clients living in Japan. Learned lots of interesting stuff, but at the same time said investing in a ROTH IRA in the USA is 100% okay with no US earned income and they advice their clients to do so… this is scary because I know for a fact he is 100% wrong and have paid the IRS fees for 2015 for violating this EXACT thing. So a bit worrying when a CPA is giving bad advice. I talked to another smaller English Speaking CPA last week as week. He said “what is cryptocurrency?” That was a short conversion.
    Navigating the tax waters here is headache to say the least.

    1. Bob,
      Thanks for commenting. These are both things I’m trying to figure out as well (I use bitFlyer to buy ETH), but don’t think I’ll realize any gains for a while.
      But I’m very interested in what you wrote about the IRA issue… I’ve heard both sides of this–some say you CAN contribute even if taking Foreign Earned Income Exemption/Foreign Tax Credit and most others saying you CAN NOT.
      Happy to hear you have a definitive example on the case (although I wish we COULD contribute). Is there more info on this topic on the forums here? I haven’t dug around yet.

  6. Full disclosure: I bought bitcoin a few years ago purely to understand it – what was involved, the process for buying bitcoin, mining, and so on. I sold earlier this year.
    Now – for those of you buying bitcoin, answer me this:
    How much do you think bitcoin should be worth? What is its intrinsic value? How much cash flow does it generate? How do you value it? How are others valuing it? Why do you think it is undervalued now (obviously you think so because you’re buying it) and what is your valuation approach for knowing when to sell?
    If you can’t answer those very basic questions, you’re not investing.
    And yes, you can respond with ‘what about gold’, to which I say, you can respond with that when crypto also has an unbroken 3,000 year history of being a reliable store of value.
    By all means, gamble/speculate if you wish. Just don’t call it ‘investing’. Buying something you don’t know the value of while hoping someone else will be the bigger fool isn’t investing.

    1. Excellent points, and I just realised I used the word ‘invest’ in the post without really thinking about it. Of course, I am not investing in this case 🙂

  7. Thanks Ben for being open about your cryto purchases. You have made it fully clear that this is not part of your main investing but I am glad you posted about it as it is information for us and it keeps up with you posting all the details about your accounts etc which I find extremely useful rather than just general advice. Seeing what you actually do helps me make decisions myself.
    I’m looking forward to any future crypto posts!

    1. Thanks, Jon
      I imagine there will be yearly updates, unless something catastrophically entertaining happens 😉

  8. Nice post! I was glad to hear that you didn’t sell everything you own to jump aboard the crypto wagon. It’s been very tempting, but I’ve decided to sit this one out. The volatility is not for me and I haven’t read anything to convince me that it’s not a speculative bubble. Still, it could be worth a punt though… Good luck!

    1. Ha, ha, no. I am actually fairly conservative in terms of my investing style and targets. Would only do something like this with very small amounts 🙂

    1. That is a sad (and all too common) tale. That guy made all the mistakes in the book though. And Bitconnect just screamed Ponzi scheme…
      To avoid making similar Youtube videos, follow the sacred investing rules:
      1. only invest money you can afford to lose
      2. understand what you are investing in
      3. diversify
      4. think in terms of range of outcomes