Name:   MartiniMan - Subject:   Cryptocurrency craziness Date:   12/28/2017 10:50:22 AM

I have watched Bitcoin and other similar cryptocurrencies from afar as I simply do not understand the value proposition.  But here is a real kicker for me.  My 21 year old daughter told me one of her high school friends has over $300,000 in Bitcoin value.  Now this is a kid from a middle class family still in college so I seriously doubt he had a lot to invest.  Seeing no underlying value to Bitcoin and hearing about college kids like my daughter's friend harkens back to the housing bubble where millions of paper gains were made and lost along with their investment when the crash came.  If any of you have read the book The Big Short or seen the movie, when strippers are buying multiple condos and flipping them with no equity-no income loans it is ripe for a dramatic fall as that is a classic bubble. 

And the one areas they never consider is the impact of taxes, especially after the fall.  One of my employees got involved in trading gold futures.  At one point he was flying high with an account value of $1.2M (not sure what he actually invested).  When he bet wrong he not only lost his a$$ but he also got hit with a big tax bill.  There were many sleepless nights in his home and he literally nearly crashed and burned at work due to the stress he put himself through having to borrow money from friends to pay his taxes.  Fortunately we were compassionate and stuck with him but many others were not so lucky.  And some were so despondent that they committed suicide.

My 27 year old son has been trading in Ethereum lately and I have advised him strongly to only invest money he can afford to lose and to move into cash enough to pay his taxes on the short term gains he has made.  I hope he is heeding my advice.  You don't want to be in need of cash to pay your taxes at the same time there is a dip unless you have the cash sitting there.  And even then, how bitter a pill is it to not only see your paper gains evaporate but also have to write a check for a tax bill? 

The real problem with bubbles is the same psychology that always gets gamblers.  They think the winning streak will continue forever and when the end comes the people that get killed are the poor schmucks that thought they could time the market.