Those who have been paying attention know that the American Dollar, which was once the strongest currency on planet earth behind only the British Pound, has continued to depreciate year after year for the last several decades. Growing up in Southeast Michigan, I recall a time when there was a billboard displaying the exchange rate of USD-CAD for the sake of those who wanted to cross the border and gamble at Casino Windsor and the USD was always at least 35 cents stronger until one day when the exchange rate was less than a quarter, then less than 20 cents and then the billboard came down. Today, the exchange rate between the US and Canada is 1 CAD to 81 cents USD; for those keeping track, what was once the near king of the world financial market is only 19 cents stronger than our neighbors to the north.
The top ten currencies from #10 to #1 on the planet as of this writing are the Canadian Dollar, the US Dollar, the Swiss Franc, the Euro, the Cayman Islands Dollar, the British Pound, the Jordanian Dinar, the Omani rial, the Bahraini Dinar, and at the top of the heap, the Kuwait Dinar. Far be it from me to complain that another country has made themselves wealthy, capitalist that I am, but what are they backed by? Kuwait, Bahrain, Oman, and Jordan’s currencies are pegged by the USD and the British Pound due to our dependency on their oil supplies. Supply and Demand has made their money very strong in the market and ours very weak by comparison (as we have oversaturated the market with USD.)
Since the creation of the Federal Reserve under Woodrow Wilson in 1913 and the elimination of the Gold Standard under FDR in 1933, DC has continued to use theoretical money backed by nothing of value, only printing and minting more year after year as the debt climbs and our national currency depreciates. Enter cryptocurrency. In 2009, the first cryptocurrency, Bitcoin, was created for the purpose of decentralizing the banks and allowing the market to determine the value of currency. As blockchain programming technology was employed to mine the currency and people invested “real money” to buy in and create value to the currency. What started as computer theory and was valued at only pennies a coin, today is valued at over $50,000 per coin! After Bitcoin, other cryptocurrencies started to follow suit, Litecoin, Ethereum, even one that started from a meme, Dogecoin (TO THE MOON!!!) and so many more. There are so many opportunities and income levels for investment minded individuals to start getting involved with cryptocurrency and there is a lot of enthusiasm for this. Enter government.
As with the institution of the IRS, as with the elimination of the Gold Standard, where the market starts to find new ways for regular people to generate wealth, the government has to find a way to get their hands in our cookie jars. On top of the near doubling of the capital gains tax to 43.4% proposed by President Joe Biden, it is rumored that Treasury Secretary Janet Yellen has proposed an 80% capital gains tax on cryptocurrencies. In short, this means any withdrawals taken from cryptocurrency investments before 1 year would be subject to 80% taxation by the federal government. No doubt this is due to the near meteoric increases (and decreases) that some cryptocurrencies have experienced in the last several weeks. Bitcoin depreciated by $13,000 before it started to rebound while Dogecoin saw a 10x increase all the way from around 5 cents a coin to 50 cents for a second before dropping back to 20 cents and leveling off at around 27 cents per coin. While the crypto market was seeing massive fluctuation, the USD depreciated by 9%.
So what does this mean for you, the investor? 1. Hold On for Dear Life! (HODL) as Warren Buffet once said, the market is where wealth transfers from the impatient to the patient. Only what you move will be taxed, so set it and forget it, wait to move anything until either you have enough to pay the bill or the taxes are more reasonable. 2. It means that crypto is the future and the future is now. Tesla, Slim Jim, the Dallas Mavericks, the Houston Rockets, Newegg, have all started accepting crypto as payment, and there is a rumor that Amazon is planning to begin accepting it as well. 3. The United States Government knows that the dollar is barely worth the paper it’s printed on and the free market is finding ways to go on without it. Cash is no longer king, assets are.
*I am not a financial advisor, please seek the council of a financial advisor before moving forward with any financial endeavor. The opinions expressed in the above article are simply that, opinions.*