How to Practice Safe Crypto

  • Imagine if hackers took 25% of your bitcoin
  • Three steps you must take to protect your crypto holdings
  • And four things to remember when dealing with an exchange
  • Are stocks expensive? They’ll be less expensive with the tax bill
  • Another huge step forward for gene therapy
  • From Washington, two tales of crony capitalism
  • Tax reform: Readers sound off (and question The 5’s math)

It’s the sort of story that scares the bejeezus out of any crypto newbie.

“A cryptocurrency exchange in South Korea is shutting down after it was hacked for the second time in less than eight months,” reports the BBC. “Youbit, which lets people buy and sell bitcoins and other virtual currencies, has filed for bankruptcy after losing 17% of its assets in the cyberattack.”

Exactly how much its assets totaled, Youbit isn’t saying. It does say investors will get back about 75 cents on the dollar.

“Whenever there is an opportunity,” says Agora Financial’s crypto millionaire James Altucher, “there are criminals who will try to hurt the people who are doing well with that opportunity.”

For all the opportunity that exists in cryptocurrency — and it’s immense — “it’s equally important to understand how the Madoffs of the bitcoin world are trying to hurt people with scams.”

Today, The 5 furnishes some words to the wise…

In the first place, it pays to practice some basic crypto “hygiene.”

Our colleague Chris Campbell — former fill-in editor at The 5, current editor of Laissez Faire Today and an early bitcoin evangelist — has three basic tips. Burn these into your brain before you venture into the crypto world…

  1. “Hard wallets, like Trezor and Ledger, are always a good choice.
  1. “And two-factor authentication is absolutely non-negotiable when holding anything on exchanges. (Use Google Authy, not your phone number.)
  1. “If you can, move everything off of exchanges ASAP.”

Remember, it’s still early days in the crypto world. In the early days of the stock market, you wouldn’t dream of buying shares without taking delivery of your stock certificates. They were your proof of ownership. Nowadays the system is sophisticated enough that few of us bother.

But the crypto market is nowhere near that developed yet. Keep your holdings off the exchange and in your wallet.

Of course, you can’t avoid doing business with the exchanges if you want to buy and sell without a lot of hassle.

James Altucher urges you to bear in mind that “customer support for exchanges like Coinbase or Kraken is very young. A stable and responsive support system is still being built.”

Meanwhile, others like Basecoin don’t even have a customer service phone number.

Key point: “If you search online for Basecoin support, any number you find will likely be fraudulent,” says James. “Do not call them.”

Here’s a list of James’ dos and don’ts when dealing with any cryptocurrency exchange…

  • Do not rely on a Google search to receive contact information for an exchange. Scam artists cheat the system and send their false numbers and contacts to the top of the list
  • “If you get a message like these below at whatever exchange you are using: Ignore it

‘Given recent outages, please help us verify your identity. Click on this link where you can enter in your username and password’

‘You have reached platinum status. Please sign in at ABC to receive an extra bitcoin.’

  • “Never give your password or other account information to a site using a link given to you in an email
  • “Always go to the website directly rather than using any link provided to you in an email.”

James’ last word: “Please heed our advice, commit it to memory and take these security efforts very seriously. You can, and will, generate great wealth from cryptocurrencies in a safe manner by playing it smart.”

[Crypto update: After a few days of relative stability, bitcoin took a $3,500 spill overnight before quickly recovering. At last check, one bitcoin is fetching $16,598. For James’ latest thoughts on the state of the market, give this a look.]

The major U.S. stock indexes are inching back toward record territory after a slip yesterday. The Dow is up 25 points as we write at 24,780.

Treasuries sold off hard after we went to virtual press yesterday, pushing yields higher; the yield on a 10-year note is up to 2.48%. Gold is hanging tough at $1,265.

For the third day in a row, the data gods delivered a rockin’ housing number: Existing home sales jumped 5.6% last month, reaching an 11-year high. But supply is tight — only 3.4 months of inventory now. That’s bound to put a crimp on the December number.

Expect the tax bill to deliver a boost to corporate earnings and ultimately to stock prices, says Alan Knuckman — our man in the Chicago trading pits.

“The story in stocks for the last few years has been about how ‘expensive’ they are getting,” he tells us. “But with interest rates hovering well below historical norms, who can blame investors for buying them up? And ultimately, a corporate tax cut to 20% (from 35%) will boost earnings significantly and lowers the S&P 500’s earnings multiple to 18 — making stocks look cheap again!

“So be choosy about new stock plays, but don’t even think about getting out of the game.”

Alan points out the earnings yield on the S&P 500 is 5% — dwarfing the 2.9% yield on a 30-year Treasury bond. (The “earnings yield” is earnings per share over the last 12 months divided by the current share price.)

That earnings yield “will look even juicier if the tax cuts are passed,” says Alan. “And the latest run on stocks has occurred with GDP at 2%. If we can top growth of 3% like the president hopes, stocks will power much higher from here.”

As we go to virtual press, the House has passed the bill a second time — a vote made necessary by a procedural snag yesterday. It’s on to the president’s desk now.

“Gene therapy is becoming mainstream, and huge profits will follow,” says Ray Blanco on the science-and-wealth beat.

As Ray told us toward the end of last summer, the FDA gave its blessing to the first gene therapy — literally editing a patient’s genes to help fight leukemia.

Yesterday brought FDA approval of another first — a type of gene therapy that literally replaces a patient’s faulty genes. This particular therapy corrects an inherited genetic mutation that leads to a rare form of blindness. The Wall Street Journal thought it worthy of today’s front page. “I can get on and off buses and read a map,” says Katelyn Corey, who got the treatment during clinical trials.

Readers of Ray’s premium services are well familiar with the company that developed the treatment, Spark Therapeutics (ONCE). It’s been a wild ride; earlier this month the company disclosed disappointing results with a gene therapy for hemophilia. But sales of the blindness treatment could make such disappointments a distant memory.

The too-big-to-fail banks just got another pass from the feds.

In April of last year, we told you how the Federal Reserve and the FDIC passed judgment on the “living wills” put out by the biggest financial firms. Under the 2010 Dodd-Frank Act, each of those firms developed a plan to wind down operations during a crisis without any bailout money. Five of the top eight banks’ plans were found “deficient.” They had till Oct. 1, 2016, to get their act together or else face the possibility the feds would break them up. (Yeah, right.)

An entire year and change has come and gone since that deadline… and yesterday, finally, brought word that all eight of the banks now pass the test. (Don’tcha feel better now?)

Bonus points: Both the Fed and the FDIC are still run by Obama appointees. The Trump administration is even more inclined to give the biggest banks the rope with which to hang themselves — or to be more precise, to hang their losses on you and me.

And even when the Trump administration does try to rein in crony-capitalist culture, Congress steps in and mucks it up.

Yesterday the Senate Banking Committee rejected the nomination of former New Jersey Congressman Scott Garrett to run the Export-Import Bank.

The Ex-Im Bank, as it’s known, guarantees loans to foreign companies and governments so they can buy airplanes from Boeing, power equipment from General Electric and so on. You, dear taxpayer, assume the risk if the borrower defaults… while Boeing and GE are assured of their payday.

While he was in Congress, Garrett carried the torch to abolish Ex-Im. Courageous and correct as that stance was, you can imagine he had to do a lot of hemming and hawing during his confirmation hearing.

In the end, two Republicans joined all the Democrats in turning down Garrett’s nomination. Said one of them, Mike Rounds of South Dakota, “That strong desire on his part to see it abolished, as an example of crony capitalism, would not have worked in the operation of a bank.”

Well, he has a point.

Trump campaigned to abolish Ex-Im, but reversed himself once in office — an identical flip-flop to one performed by Barack Obama.

To the mailbag, where tax reform dominates: “As The 5 has pointed out,” writes a reader, “Jim Rickards disagrees that corporations will spend more on improvements and increase workers’ wages, improving the economy.

“As intelligent as Jim Rickards is (as well as you, Dave), we all know that nobody knows what the real effects of the tax reform bill will be. You guys are constantly warning against taking these forecasts seriously but that sure hasn’t stopped you from prognosticating on what we can expect in 2018 from the tax reform bill. You guys need to heed your own warnings!”

“Dave, I generally love The 5”

[We’ve been at this long enough to anticipate the “but.”]

… but in case 100 other readers didn’t rush to correct your tax math, let’s try this again… The increase from $1,000 to $2,000 for child tax credit absolutely DOES make up for the $9,000 increase in taxable income in your example for all but the very highest incomes.

“For this family of three, the child tax credit gives them $3,000 off their tax bill, which would overcome the increase from their taxable income increase (even before accounting for tax rate reductions) presuming they make less than say $500,000 or so (I haven’t done the precise math, but the total tax rate, not the marginal rate, would have to be higher than 33% before the tax credit is a loser).

“I know you guys like to pooh-pooh all things establishment, and that’s all good. But let’s work on the math some more here.”

But wait: Another reader seems to be saying our math is underestimating the hit some people will take.

“I believe The 5 is confusing a $2,000 tax credit with a $4,050 exemption. A tax credit comes off the bottom line; an exemption comes off the top. One would have to almost be in a 50% tax bracket to have a $4,050 exemption equal a $2,000 tax credit. Of course, there is no 50% bracket, so one comes out far ahead with a $2,000 tax credit in place of a $4,050 exemption.

“Perhaps I am overlooking something. I’ll keep reading The 5, and hopefully you will clarify this.”

The 5: It’s at this point, we throw up our hands. As we’ve long said whenever discussing tax planning, we are not tax professionals. If you need to make personal decisions, consult one.

But for whatever it’s worth, Miami-based CPA Lydia Desnoyers says, “A family of four, they lose all those exemptions. The child tax credit does not make up for it. Definitely, it doesn’t.”

Desnoyers made that remark to the San Antonio Express-News… in an article pointing out that Washington’s rush job is going to make it mighty tough on payroll managers to figure out proper withholding come the new year. If you’re a wage slave, be extra nice to the payroll folks these holidays — they’re not going to have a good time.

One thing we’ve overlooked in our tax coverage these last few weeks is the fact that whatever savings you might experience now, you’ll pay for later — somehow.

There are no spending cuts that come with these tax cuts. So Uncle Sam’s debt hole will only grow bigger. We haven’t said nearly enough about that.

“I’m all for tax reform, but it must grow the economy, not the debt,” said Rep. Walter Jones of North Carolina — one of the few Republicans to buck his party and vote against the bill.

“Unfortunately, the tax bill voted on [yesterday] will be financed not by cutting spending elsewhere in the budget, but by adding $2 trillion to America’s debt. Much of that will be borrowed from potential foreign adversaries like China, and then put on the backs of American taxpayers.”

We’re not altogether certain the added debt is a reason to vote against the bill, but Mr. Jones’ concerns are surely coming from the right place. Props to him for speaking up even though his own party is in charge.

Indeed, Jones has long struck us as one of the few honest people in Congress. Naturally the GOP establishment is dumping beaucoup bucks into a primary challenger next spring…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Asked today whether he owns bitcoins or would buy them, White House chief economic adviser Gary Cohn answered curtly, “No.”

Pressed for more, he told the Axios website, “I believe we will have a digital currency in this country that will be widely accepted” — a currency with “less transaction costs, and people will have a much broader, deeper understanding of what it is and how it works.”

Whatever. We hasten to point out that just because a former president of Goldman Sachs is dissing bitcoin, that’s not a reason to pile into it — tempting as it might be, heh.

Besides, James Altucher says there are plenty of reasons to give bitcoin a look before its next leg up. You can hear them for yourself at this link.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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