Bitcoin as a reserve asset... FOR KIDS!

Another day, another ATH for king corn. BTC is sitting at 94k today, and it's hard for me to take my eyes off TradingView when we go through these phases of price discovery. It's like an itch that just needs scratching.

I want to talk a bit today about bitcoin-based accounting, about bitcoin as a reserve currency. It's been a topic of discussion since before the election, and more and more companies are starting to take on bitcoin as a treasury asset, even taking on debt to stack sats. But I really want to talk about it in the context of a family treasury, and how I'm positioning things for my family long-term.

BTC based accounting is when you start pricing things in bitcoin, not in dollars. It's difficult to do, day to day, but it's useful for long term thinking. And when it comes to crypto, I always compare my holdings to BTC. Most of this is a holdover from the days when exchanges like Poloniex used to price everything in BTC. And let's be honest, if it isn't outperforming bitcoin, why do you want it? Ethereum was necessary for interacting with the world computer, back in the IEO days when the first DEXs went up. Still today, it's needed for gas on the EVM L1 and L2s, but ETH's value against BTC has been a long, steady decline since 2022, and whether ETH is sound money now or not, I don't really think there's much hope for it to outperform through this next cycle. I still have my bags, so we'll see.

Of course, I was a Solana developer last cycle, and the gas analogy works here as well. It takes SOL to deploy programs, rent for data storage and all that, but for the last 18 months it's bounced back from the doldrums of the FTX drama, and has been holding steady against BTC since December of last year, that's saying a lot in this market.

Since I'm not working, my current strategy is to sell off these assets. The technical indicator that I use, which is based off the Mayer Multiple, crossed into positive territory on Nov. 5, the first time it has done that since 2023. I use this metric to measure the distance of the current price from the average price. It gives me a clear indicator when prices get vertical and is forming a blow off top. It's nowhere near that point right now yet, my current target puts it somewhere between $146-230k. The closer we move into this range, and the faster we move there, the more I'll be scaling out and taking profits. My plan for next year is to pull enough out to cover a comfortable cost of living while I pursue new opportunities, which I'll be covering here in the coming days.

Right now I assume that BTC's cycle will continue, that we will still see drawdown in prices at some point in the next couple years. When my indicator drops negative, meaning that the price is below the moving average, I'll scale back in as I did before. Timing the market is tricky (I much prefer time in the market), but it'd be stupid to sit on my hands and not replenish the emergency fund, as you will.

Alas, I am getting ahead of myself, but the point is that I have a seriously imbalanced majority of my net worth in bitcoin, and seriously little cash on hand month to month. I've decided that can't last through this, the promised BTC bull run, so I'm acting appropriately. Fortunes are being made, and it's time to act appropriately.

You, dear reader, are probably not in my situation, but hopefully you can learn from it. There's a saying among bitcoiners to the effect that we first buy bitcoin at the price we deserve. Hopefully for you that's not at the FOMO stage of a bull run, holding onto your bags through a bear market, underwater. Would I buy now if I had income? Sure, I'd DCA through ups and down. Just so happens I'm DCA'ing my way out at the moment. That's the payoff from squirreling everything I could away when I was fat and happy. I put in my time.

My friend trades in memecoins, chasing the next launch for a chance to get in on a DEX listing or some other pump and dump. He's glued to the casino side of the market, was shilling me $PNUT the squirrel yesterday, which dumped 14% following a listing on Binance or whatever. Economic nihilism is how one might describe that. He's hit jackpot a few times, or so he says, but the limited tests I've done with that have all failed, a waste of time and money. But sure, you see the trader that turned $1800 into millions with $PNUT or $ELIZA or whatever coin du jour you want. I'm more on the computer side of that equation. Sell me the base token, or the exchange token, or an IEO in whatever harebrained business idea you have. I'll take it, but I don't think I've ever bought $DOGE, and won't ever. They might be good for a short-term bet, but long term, they can't outperform.

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Herein lies the dilemma, how does one outperform bitcoin? Granted, one needs to work and stack sats to get into a position like this in the first place, but bitcoin is troublesome in the sense that it doesn't generate income. Bitcoin is a store of value, a hedge against the decline in the value of the US dollar and all fiat currencies. Michael Saylor and others have compared bitcoin to buying land, and I see the analogy. Real estate of the 21 million.

There's an article I read a couple days ago: Secrets of wealth that the upper class use and keep from the middle class. Aristocrats have used it as well: you don't sell assets, you use them as collateral, borrow, and invest. It's called leverage. Taking on debt strategically. Here's an example which illustrates the inverse of this.

Ten years ago, let's say 2015, I needed a new car. I had $7500 set aside in my budget, but the car I wanted was slightly out of my budget. Only a thousand dollars. I had been investing for a while by that time, and had a big chunk of Netflix that had blown up and needed rebalancing. I decided to sell off a thousand dollars of NFLX and buy the car of my dreams. Was it, for a while, yes, but cost of ownership on a car is something people don't think about when they buy them, and it's even worse when you're talking about a used BMW. Lesson learned there. My point, beside that there's nothing more expensive than a used car, is that Netflix continued to blow up over the next couple years. At one point I calculated that I'd lost out on a good 10x, meaning that grand had cost me nine in opportunity cost.

Of course, it could have easily gone the other way, but generally speaking, that's the kind of long-term lens that bitcoin has brought to my world view. I'm not sure it catches on with the retail memecoin junkies, but I'm doing my damndest to drill it into my kids. So now, faced with a similar car purchasing situation, I have spent weeks exploring new car options, having worked my way up from the cheapest POS junkyard project car I could find, to scouring Craigslist and FB marketplace, to the point where I've hired a mechanic just to vet my options. My wife mocks the amount of time I've spent on this project, which I'll write up in full after I've sealed the deal, so to say. The main impediment has been time, as I was in no position to start selling off a chunk of BTC back in October, but now we're up 40% following the election (GOD BLESS AMERICA), and there is no reason for me to buy someone else's problem. Time to step up.

Once the car is out of the way, I'll continue converting to cash, making sure that we have a very good Christmas this year, with the ultimate goal of purchasing a home. A lot is still up in the air, politically, with how my wife's job is going to go next year, but I've already told her that she can quit and we'll drift by on the 0% capital gains rate, which is just under $90k for marrieds. I'll be house hunting, or maybe commercial property. We'll see what opportunities come. I fully expect VC investment in the space to come flooding in, so my goal will be to pick a role with a project I can vibe to and geek out to for a couple years. I'm getting ahead of myself though.

Some part of me dreams of converting my activities into a more structured corporation, a DAO based Wyoming LLC or something like that, where I can put our families assets into a vault and start dealing with thing in a way that says legacy.

Here's an example of how that might look in practice. My grandparents used to give me things like stock certificates or savings bonds as a birthday gift when I was young. Some save for college through 529 plans. What about funding an allowance? I have a scheme I setup with my kids that gives them allowance money on a weekly basis, it's tied to their age and I computed the cost from 3-13 at less than $10k total. I also set aside bitcoin for them as well, alternating $25 worth between the two of them. (I wrote a script to do the calculations...) But imagine funding that with smart contracts and making an app out of that. Parents or grandparents (or the family business) could fund that using bitcoin and have the proceeds payout in future years.

Here's how that might work on practice. DYOR here, this is a rough sketch that we'll be following through in detail here:

• IRS rules allow gifts. The gift tax exclusion for 2024 is $18,000 for each recipient, double for married couples. It goes up next year as well. Keep in mind that this is per recipient, which means that my wife and I could gift up to $72k to our two children, more if we wanted to spread the wealth to cousins and nieces and nephews. Ultimately though, there's really no penalties until you get to $13 million, double for couples. I am not quite there yet, but the point is that you can transfer unsold bitcoin as a gift to anyone without triggering capital gains.
• Children generally have a $2500 limit on unearned income, over which they might be subject to the kiddie tax. This is calculated off of gains, not the nominal amount.

See where I'm going here?

Say you bought a bitcoin at $5,000,
gifted it to your child at $10,000,
and they sold it at $12,000.

They could sell $4,285 worth of that stack, which would but their gain right at the $2500 level. Obviously this takes a lot of accounting and tracking to optimize this, but a lazy strategy would be to only allow $2500 of conversion each year. That's a lot for a kid to have, it's more than I ever had, but it seems to be the obvious step for my kids, whom I've been giving a small allowance since they were in school. Right now my eight year old gets eight dollars a week, split in thirds into save, spend, and gift buckets. My twelve year old gets twelve bucks. My plan has always been to set aside the bitcoin until they turn thirteen, then figure out a way to let them utilize it for entrepreneurial efforts. In the meantime, they're learning the value of a dollar.

And boy, do they know how to haggle.