How high can it go?
Back in Sept I blogged about buying some cryptocurrencies, and posted my Ethereum purchase transaction. At that time ETH was trading at $230 US. Today the price is over $700 US. Sweet mother of mammaries! 🙂 And just last month when Bitcoin was trading at $7,300 US I tweeted that the price would climb to $10,000 US, which would be a 37% increase.
Bitcoin is on its way to $10,000 😉
— Liquid Independence (@Liquid_f35) November 3, 2017
Within a month Bitcoin had hit $10,000 US, lol. 😀 Unlike NASA, Bitcoin may not return back to earth once it reaches the moon. 😎 As I’ve written in the past I started to buy Bitcoin, Ethereum, and Litecoin earlier this fall and have been regularly accumulating them. My biggest winner appears to be Litecoin. For example I purchased some when it was $80 CAD. And now each Litecoin is worth over $400 CAD.
However, after the dramatic rise of the cryptocurrency market capitalization during the last 30 days I believe this asset class may be overvalued now. So I have decided to lower my financial risk by moving some money from cryptocurrencies to the stock market.
Why I’m Taking Some Profits
Since we are nearing the start of a new year, I want to collect some cash to fund my retirement account. When January comes I will have additional contribution room in both my RRSP and TFSA. This is why I have decided to divest my cryptocurrency investment. Earlier this week I took some profits by selling roughly a third of my digital currency holdings. Doing this has freed up a few thousand dollars of capital. I can use this new cash (minus capital gains tax) to begin funding my registered investment accounts in the new year. 🙂 As far as I know there is no way to hold cryptocurrencies inside an RRSP.
I’ve used this effective investment method before with my marijuana stock, Canopy Growth Corp (WEED), where I bought 300 shares at $2.55 and sold at $12.10. But instead of selling all my WEED stocks I kept 200 shares and continue to hold them today. A partial sell of a position like this accomplishes 2 things:
- First, it reduces the risk of my initial investment. I’ve already recouped all my money back, plus a tidy gain. Thus, it is now impossible to lose money on this investment as a whole, even if the future value of the stock drops to $0.
- And second, if the pot stock continues to climb in price then I stand to make additional money due to my continued long exposure to it. 😉
In other words, there are no bad outcomes here. That’s why I have used the same strategy with my cryptocurrency holdings.
Another reason why I think digital currencies might be in a bubble is because they have become too mainstream. Every news organization is talking about Bitcoin. And some people who don’t necessarily understand blockchain technology are risking almost everything they have to speculate in this space. Even regulators are raising their concerns. See the recent headline I found below on CNBC.
Yikes! Those homeowners who are mortgaging their homes to bet on Bitcoin are a lot braver than me. Maybe brave isn’t the correct term to use here. Anyway, the last reason to reduce my cryptocurrency exposure is because of regulatory uncertainty. Authorities don’t like Bitcoins. I guess you can say governments hate the idea of a “Proof Of Work.” 😛 The IRS is already going after people’s Bitcoins. A federal judge in San Francisco ordered the popular Bitcoin exchange, Coinbase, to provide the IRS with information on over 14,000 account holders including their name, date of birth, address, tax ID number, transaction statements and account logs. Luckily I don’t use Coinbase and I’m not in the U.S. so I don’t have to deal with that. But if the CRA decides to go after Canadians then that could become an inconvenience for me.
Random Useless Fact