Wednesday, May 19, 2021

Crypto is a zero, Crypto tech is not

Bitcoin as an asset is likely going to zero. Bitcoin technology, blockchain, and the innovation going on in the space is likely to be useful in certain applications. Bitcoin was born in the ashes of the 2008 Great Recession. It was a poke in the eye of "the man" that bailed out banks and let the little guy twist in the wind. It was a time of turmoil and the beef Bitcoin aimed to solve was a real one. The idea that people could bypass the banking system, and taxation, had broad appeal.

But think about the end game. Which nation state would willingly cede control of its currency and financial system to a group of anonymous programmers and foreign crypto mining operations? I can't think of one. In fact, China has banned use of cryptocurrencies for all financial transactions. Does that mean crypto is not traded inside China? I'm sure it is, but can it be used for large or legitimate purchases? No. And it seems inevitable that most nation states will come to the same conclusion and legal lockouts.

After the 2001 terror attacks on the World Trade Center, the US became very much interested in who was moving money around the banking system. Know Your Customer laws became strict, and those collide with the ideas behind cryptos. Beyond that, the market is mostly unregulated, uninsurable, and filled with cons, pumps and dumps, stolen tokens, hacked exchanges, owners of exchanges running off with coins in their custody. It's an unsafe and unreliable market. It doesn't help that many criminal gangs require Bitcoin as ransom for cryptolocker attacks.

Then there is the environmental issue. The impact of mining crypto is a real problem. So much so that Tesla reversed course and will no longer accept it as payment.

As I learned more about all the different implementations, it was obvious the Bitcoin version was crude. There were many other cryptos that solved a lot of problems without Proof of Work and the speed issues with Bitcoin. The issues caused fractures in the programming community that maintains Bitcoin and it forked into a couple dozen versions. So which one is the real Bitcoin?

I like blockchain and wrote glowingly about it ten years ago. I still like it and a lot of the ideas that are popping up in the bubbling stew of the crypto world. Steem had a good idea about changing incentives for social media. BAT had a good idea about changing incentives for ad tracking in a web browser. There are more good ideas in the space, but as investment assets or legal tender, I suspect 99% of all cryptos will go to zero.

Tuesday, May 18, 2021

Sold AT&T (T) on dividend cut news

AT&T (T) was the first stock I bought last year that was part of my new dividend stock strategy to replace income from low yielding bonds. The first rule of Dividend Club is you don't cut the dividend. I was wondering why the stock was down so much today, when I checked the news and read about the future cut. I locked in solid short term capital gains even after the sell off and had collected over $1,000 in dividends so it was still a winner. Note I did not sell because the price was dropping, but because it violated the no cut rule. It was unemotional rule following. I like that aspect of it, but it certainly requires paying more attention to the news, unlike the bond ladder which is pretty much set and forget.

Friday, May 14, 2021

Dividend stock 13% draw down stress test

Still being new to dividend stock investing, I had my first test this month when one of my stocks (CAH) dropped 13% after a disappointing earnings report. Coming from a hold-to-maturity bond ladder viewpoint, I never cared about price movements. I wondered how my emotions would fare when one of my dividend stocks took a 20% or 40% hit. Well, that test hasn't arrived yet, but the 13% draw down did not phase me. It helped that the other stocks I own held or even went up. The jury is still out on how I will deal with a larger draw down, and the ultimate test is when all of the stocks drop significantly at the same time. Only then will know if I have the fortitude for long term dividend stock investing. For now, I am counting down the days to the next dividend payday, which is tomorrow.