00:01 Hey everyone. Someone asked me a
00:03 fantastic question, which is if I am
00:04 constantly buying and uh buying Bitcoin
00:07 every week or on a regular basis, but
00:09 I’m also spending Bitcoin with the
00:11 Coinbased debit card, which is I what I
00:13 do for 100% of my expenses. Then isn’t
00:16 it true that sometimes in a spike of
00:19 high market prices, I’m buying Bitcoin
00:22 and then in close proximity, I am
00:24 spending Bitcoin that is uh at a price
00:28 that is lower than that. So, for
00:30 example, let’s say it spikes up to
00:32 $103,000 per coin right now. Hold on. My
00:35 dog really wants to be petted here. Um
00:38 the uh it spikes up to 103,000 per coin,
00:41 then next week it’s like say 97,000 per
00:44 coin and I’m spending, you know, if I
00:46 buy Bitcoin this week for 103, but then
00:48 I’m spending it next week for 97, then
00:50 how am I not spending $103,000 Bitcoin
00:53 at 97? The answer is for tax purposes
00:57 that is how Coinbase is going to account
01:00 for it. But in the long run, it all
01:03 comes out in the wash and it doesn’t
01:04 matter. So let me give you an example.
01:07 So let’s say you start by buying $10,000
01:10 of Bitcoin. You wait until the price
01:13 until your Bitcoin is valued at $15,000
01:16 uh which is 50% more. And then you start
01:18 buying Bitcoin with uh every week and
01:22 also spending Bitcoin. um that’s you
01:25 know some of that Bitcoin that you
01:26 bought that’s up 50%. So what’s going to
01:29 happen is uh over time there’s
01:32 essentially a um a lag period because
01:35 you’re buying the Bitcoin first and
01:36 you’re spending it later. Now that later
01:38 may be days, it may be weeks or it may
01:40 be with the initial Bitcoin you bought
01:42 months or even years. Um, but it all
01:45 comes out in the wash because uh, as an
01:48 asset, Bitcoin is going more up than
01:51 it’s going down. Which means, yes, from
01:53 a tax perspective, if I buy Bitcoin this
01:56 week on a recurring purchase for 103,000
01:59 and then it dips and I’m spending it at
02:02 97,000,
02:03 um, for tax purposes, Coinbase is going
02:05 to, uh, harvest that tax loss or any
02:08 crypto or Coinb uh, Bitcoin platform is
02:11 going to harvest that tax loss. meaning
02:12 it’s always going to um for tax purposes
02:16 uh account for spending the most
02:18 expensive bitcoin you have ever bought
02:20 up to that point. Um but a better way to
02:23 look at it is to assume you’re uh so for
02:27 tax purposes it’s always what’s called
02:29 ho highest in first out but the the best
02:31 way to think about it from a sort of
02:34 what’s really happening is first in
02:36 first out which is to always assume
02:39 you’re spending the oldest bitcoin that
02:42 you bought. Um, so because if if you
02:45 think about it again, if Bitcoin’s up
02:47 up, you know, let’s call it it’s up 50%
02:50 of the time, down 50% of the time versus
02:51 a week ago or two weeks ago. Now, when
02:53 it’s up, it’s up more than when it’s
02:55 down, which is why Bitcoin is so
02:57 radically higher now than in the past
02:59 because if it’s up about half the time
03:01 and down about half the time, you would
03:02 think, well, then overall it’s flat. But
03:04 that’s not the way it works. When it’s
03:06 up, it’s up 5%. When it’s down, it’s
03:08 down 3%. Something like that. I’m just
03:10 making up those numbers, but the short
03:11 take is it’s more up than down. So even
03:14 though on from week to week, the
03:16 probability that it’ll be up versus down
03:18 is probably 50/50. Um when you’re in an
03:22 up week, you’re in a more of an up week
03:24 than when you’re in a down week, you’re
03:26 in a down week. Um so over time um even
03:29 if you started this process and over
03:31 time you know you waited for that very
03:34 first uh purchase to be up 20% or 25% or
03:37 enough that you know it’s going to stay
03:40 up and you don’t have to monitor it on a
03:41 daily basis then on a rolling basis
03:44 what’s going to happen is you can think
03:45 about it as I’m always spending the
03:47 oldest Bitcoin and so I’m I’m always
03:50 adding to the top of the stack and I’m
03:52 always spending from the bottom of the
03:54 stack. Um, which again I know because of
03:57 tax purposes because it’s going to do
03:58 highest in first out uh accounting uh it
04:02 feels like yeah but wait that means I’m
04:05 spending my most expensive Bitcoin. But
04:07 again if you’re always buying and always
04:08 selling and your total Bitcoin stack is
04:11 getting larger over time either because
04:13 you’re buying Bitcoin faster than you’re
04:16 spending Bitcoin or because your Bitcoin
04:18 is appreciating faster than you’re
04:20 spending it then you end up way ahead.
04:23 So, for example, as I’ve shared, you
04:25 know, quite a few times, uh, me and
04:27 Rachel have been living for free for the
04:29 last 2 and a half years. So, for 2.5
04:31 years, we’ve been living completely for
04:33 free. Um, so what do I mean by that?
04:35 Well, what I mean by that is back in the
04:37 fall of 2022, Bitcoin was really low,
04:40 down in the between 16,000 and 17,000
04:42 per coin. And I was desperately trying
04:45 to come up with any any possible reason
04:48 to buy more Bitcoin. I mean, any reason
04:51 buy more Bitcoin. And I had the bright
04:53 idea. Uh I talked to Rachel about this
04:55 of, hey, let’s take our debit cards and
04:59 uh rather than just, you know, spend
05:02 money from a bank account that was
05:04 sitting there or, you know, peel off
05:06 money from retirement funds or whatever,
05:08 let’s proactively
05:10 frontload by buying Bitcoin um 18 months
05:14 of living expenses. So we did that. I
05:16 have a coinbased debit card. She has a
05:18 coinbased debit card. Anyway, we
05:19 frontload frontloaded on each of those
05:22 debit cards um you know what was
05:24 effectively 18 months of living expenses
05:27 for that debit card. So in total it was
05:30 the total debit card expenditures by our
05:33 family for 18 months. It just happened
05:35 to be split, you know, half and half
05:36 because she’s got a debit card, I’ve got
05:38 a debit card, and we both uh buy stuff
05:40 for our family. Um, so the the combined
05:43 total of the Bitcoin that ended up on my
05:46 debit card and her debit card for
05:48 Coinbase debit card, the combined total
05:50 of that was about 18 months of living
05:52 expenses. Uh, so from that we waited at
05:56 that point we only had to wait like a
05:58 month or two until it was, you know,
05:60 Bitcoin was like 20,000 a coin and we
06:02 bought it like 16 17. So it was, you
06:04 know, up significantly um by whatever it
06:07 is 20% or 25% or whatever. And so after
06:11 a month or two, we started spending it
06:13 and both started using the Coinbase
06:15 debit cards exclusively as our only
06:17 spending. Uh so essentially 100% of our
06:21 uh of anything we spend money on that
06:23 would go on a debit card or credit card
06:25 goes on uh Coinbase debit cards. Um now
06:29 there’s a few things that don’t. For
06:30 example, expensive international air
06:33 airline tickets do not go on there
06:35 because it has a $2,500 per day limit.
06:38 And so, you know, international flights
06:40 for a whole family of six uh cost more
06:43 than $2,500. And so, we end up putting
06:45 those on a credit card and paying it
06:47 back with Bitcoin um with appreciated
06:50 Bitcoin, which works the same way. But
06:51 for the debit cards, I track those debit
06:54 cards um you know, with the original
06:57 balance. Now, the entire time that I’ve
07:00 been spending Bitcoin over the last two
07:02 and a half years, I’ve also been
07:03 converting every single paycheck into
07:05 Bitcoin. literally every paycheck
07:07 immediately it hits the bank account and
07:09 I immediately buy Bitcoin with it. And
07:12 so uh per the you know beginning of this
07:15 bit video uh the question which is
07:17 doesn’t that mean that sometimes my
07:20 paycheck hits Bitcoin’s at
07:23 103,000 it hits and then I’m immediately
07:26 spending with my Coinbase debit card
07:28 even if it drops down. Yes. But again,
07:32 the way I think about it is I’m spending
07:34 the first in, you know, first in first
07:36 out, not highest in first out. Now, if
07:39 you want, this is not good for tax
07:42 purposes. I do not recommend this, but
07:44 if you want, and it just helps you feel
07:47 better about it, you can flip Coinbase
07:49 to first in first out, FIFO. Uh, all you
07:52 have to do is go in the tax interface,
07:53 and it will say, “How do you want to
07:55 account for your Bitcoin?” You can do
07:58 highest in, first out. You can do first
07:60 in, first out, or you can do uh what’s
08:02 called LIFO, last in first out. So the
08:06 question every time you spend is are you
08:08 spending the very oldest Bitcoin, which
08:10 is first in, first out. Are you spending
08:13 the highest price Bitcoin, which is
08:15 highest in first out, or are you
08:18 spending the most recent Bitcoin you
08:20 bought, which you would never want to
08:21 do, which is first in, uh, or last in,
08:24 sorry, L a fo, last in, Lifo, LIFO, last
08:29 in, first out. So, nobody picks last in,
08:33 first out, um, LIFO because that makes
08:35 no sense. uh you would never want to do
08:38 LIFO because why would you always want
08:39 to be spending your most recent
08:42 Bitcoin like I mean I just you know if
08:45 you’re going for a tax optimization
08:47 you’re doing uh highest in first out and
08:50 if you psychologically want to always be
08:52 spending your oldest bitcoin which
08:54 should be your most appreciated bitcoin
08:56 then you can set it for first in first
08:58 out now the right thing to do is to set
09:02 it is to leave the defaults which is by
09:04 default it’s set to highest in first
09:06 out. The best thing to do is just to
09:08 leave it highest in, first out, and then
09:11 but psychologically account for it as,
09:14 you know, first in, first out. Um, so I
09:17 am always buying Bitcoin. Literally
09:18 every two weeks I buy more Bitcoin with
09:21 the money that hit my bank account from
09:22 my paycheck. I buy more Bitcoin. Um, and
09:25 I’m always spending Bitcoin because I
09:26 use the Coinbase debit card for
09:28 basically everything that costs less
09:29 than $2,500, which is the vast majority
09:32 of everything I spend. Um, so as a
09:35 result of that, I am in the exact same
09:37 sort of psychological predicament as the
09:39 person asking this question, which is,
09:42 uh, how do I not feel like I’m spending
09:44 Bitcoin when it’s down? And the answer
09:45 is because over time it all comes out in
09:47 the wash. Over time, Bitcoin when it’s
09:49 up is more up than than it than down
09:52 when it’s down. And so over time, the
09:55 Bitcoin stack, in our case, we started
09:57 with 18 months of living expenses uh,
09:60 uh, combined across two debit cards. And
10:03 now combined across two debit cards, we
10:04 have three years of living expenses. So
10:06 starting with 18 months, 1.5 years, then
10:09 we live two and a half years, which
10:11 means we should have run out of money a
10:12 whole year ago, but we didn’t. Instead
10:15 of running out of money a whole year
10:16 ago, obviously we wouldn’t have run out
10:18 because, you know, I keep buying more
10:20 Bitcoin and I have a paycheck. Uh, but
10:23 for those two debit cards, I don’t count
10:24 any of the new purchases as supporting
10:27 our lifestyle. all of that money gets,
10:30 you know, swept into cold storage and,
10:32 you know, all of that. Uh, along with
10:33 most of the balances of those cards
10:35 anyway. Um, so anyway, as a result of
10:37 that, the math I’m sharing with you, uh,
10:40 it assumes we had never bought any more
10:42 Bitcoin from the end of uh, from the
10:45 fourth quarter of 2022. The truth is we
10:47 bought a ton more Bitcoin since the
10:49 fourth quarter of 2022. But for tracking
10:51 of those debit cards, I’m assuming as
10:54 though we did not buy anymore. So even
10:56 if you account for it as though we did
10:58 not buy any more from that 18 months
11:01 from there um we’ve lived for 2 and a
11:04 half years on that 18 months which means
11:05 we got a whole bonus year and now the
11:08 combined balances of that original
11:10 Bitcoin which again is you know some of
11:12 it sits on Coinbase so that the debit
11:14 cards always work and most of it is in
11:16 cold storage hard to get to super secure
11:20 you know that’s the way we keep our
11:21 Bitcoin. Um, you know, it’s even hard
11:24 for us to get to. It’s a it’s a it’s a
11:25 long process. If I want to move large
11:28 amounts of Bitcoin around, it’s a you
11:29 know, I have purposefully set it up to
11:31 be a royal headache even for me. Um, and
11:34 it’s more secure that way. Uh, anyway,
11:36 so um, but now we have three years of
11:37 runway. So that original Bitcoin we
11:39 bought in the fall of 2022, uh, at the
11:43 time was worth 18 months of living
11:45 expenses spread across two debit cards.
11:47 uh two and a half years has now gone by
11:49 and now the Bitcoin uh is worth more
11:52 than three years of runway. Um so you
11:57 know we’re certainly not going to
11:58 liquidate it to US dollar cash but if we
12:00 did then 18 months of living expenses
12:03 would have lasted for 5.5 years. So 18
12:06 months turns into 5.5 years which
12:08 basically means we get an extra bonus uh
12:11 4 years. It’s like four years of living
12:13 for free. Now, the truth is we’re not
12:15 going to liquidate that Bitcoin to US
12:18 dollars because I think these two debit
12:20 cards um will support our family for the
12:24 rest of our lives. I honestly think that
12:26 the Bitcoin that’s on each of these
12:28 debit cards, which again, most of it is
12:30 locked up in very secure ways, but
12:32 there’s a big enough balance that stays
12:34 on Coinbase so that the debit cards
12:36 don’t that you know, we never we never
12:38 swipe the card and then there’s no
12:40 balance there. we keep a enough of a
12:42 balance on Coinbase that the debit cards
12:43 work. Um, but that original Bitcoin, I
12:46 think there’s a good chance that the
12:48 Bitcoin we bought in the fall of 2022,
12:51 that 18 months will support us for the
12:53 rest of our lives. I mean, honestly, I
12:55 think I think at this point we have two
12:57 evergreen debit cards, which is two
12:59 debit cards that will continue to work
13:01 for standard run rate, lifestyle
13:04 expenses, all of the things you would
13:06 normally put on a debit card or a credit
13:08 card that cost less than
13:10 $2,500. And I think this will just last
13:12 for the rest of our lives. Um, but
13:14 anyway, again, psychologically, I think
13:16 about it as I I’m spending the oldest
13:19 Bitcoin. Uh, but for tax purposes, I’m
13:22 constantly buying new Bitcoin. And since
13:25 I’m buying the new Bitcoin on Coinbase,
13:27 and the working balance for those debit
13:30 cards is also on Coinbase. It’s mixing
13:32 them together. And for tax purposes,
13:34 it’s always going to do highest in first
13:36 out uh for tax purposes. So, I know
13:39 that’s a super long explanation, but uh
13:41 you sort of have to mentally bifrocate
13:44 how is it handling it for tax purposes
13:46 versus how do you think about it for
13:48 spending purposes and um I don’t have a
13:50 better way of doing it than than saying
13:52 that’s just what you got to do. And if
13:54 you, you know, bought a lump sum of
13:58 Bitcoin and then you bought Bitcoin
13:60 every two weeks with your paycheck and
14:01 spent it with the debit card, you’re
14:03 going to constantly be running into this
14:05 where you feel like, but wait, my
14:07 paycheck hit when it was 103 and now I’m
14:09 spending it when it’s 97. And it’s like,
14:11 yeah, but 2 weeks from now, your
14:14 paycheck’s going to hit when it’s 97,
14:16 and you’re going to be spending it with
14:17 when it’s 109. So it’s like, you know,
14:19 and you can’t time it. It’s not like you
14:21 when your paycheck hits. Um it’s not
14:24 like when your paycheck hits, you can
14:25 say, “Ooh, but if if it’s high when my
14:28 paycheck hits, then I’ll just spend the
14:29 US dollars, but if it’s low when my
14:31 paycheck hits, I’ll buy Bitcoin because
14:32 you don’t know.” Uh so here’s a good
14:34 example. Um you know, Rachel’s uh
14:38 Rachel’s uh in graduate school at
14:41 Georgetown University and there’s
14:43 tuition payments and the next tuition
14:45 payment is due on May 16. Um, so back
14:49 when I first got the notice, which was
14:51 like 30 days before, that the tuition
14:53 payment was due, Bitcoin had climbed
14:56 from 76,000 per coin to 86,000 per coin.
15:00 So, you know, if I was
15:07 thinking, so again, if your mental model
15:10 is I’m not going to buy Bitcoin when it
15:13 feels high, then you would not have
15:15 bought Bitcoin for 86,000. You would
15:18 have liquidated it and paid the tuition
15:20 payment. But I didn’t do that. The
15:22 tuition payment is not due until May 16,
15:24 and I’m not going to pay it till May 15.
15:26 So, so but but I was thinking the
15:29 thought crossed my mind. Wow, we’ve gone
15:31 from 74,000 a coin to 86,000 a coin.
15:34 Should I just go ahead and pay this? And
15:35 I’m like, no, because that’s not the way
15:37 I work. There’s no way. There’s no way I
15:39 know if 86 is high or low. It feels high
15:42 cuz we’re coming off of 74 something,
15:44 but we’re at 86, but I got another month
15:47 to go till this thing is actually due.
15:48 So, I waited and 86 turned into 92. And
15:51 I thought, wow. Now, I don’t want to be
15:54 greedy here. Uh, it’s at 92,000 a coin.
15:57 I considered liquidating the Bitcoin to
15:59 pay this tuition payment at 86. Now it’s
16:01 at 92. You know, it feels high now. It’s
16:04 like really feeling high because it
16:06 hasn’t been 92 for like a month or two.
16:08 And uh, but I thought, you know what?
16:10 Nope. I don’t do that. I don’t time the
16:12 market. I can’t tell what high is. I
16:13 can’t tell what low is. I don’t know.
16:16 You don’t know. I don’t know. Uh, what I
16:18 do know is that it’s always made sense
16:20 to buy as much Bitcoin as I can and hold
16:22 on to it as long as possible. So, here
16:24 we are. Bitcoin is sitting at
16:26 103,103 now. Right now, 103 feels high,
16:30 but I’m not going to liquidate that
16:31 Bitcoin and pay that tuition payment
16:33 until a day or two before it’s actually
16:35 due. Uh just enough time for it to clear
16:37 bank accounts and wire transfer and all
16:39 that sort of stuff. Because again, we
16:41 could be sitting here uh with uh buying
16:44 Bitcoin at um or liquidating it at 103
16:48 and maybe by the time it’s due at the
16:50 end of this coming week uh it’ll be 116.
16:53 I don’t know. But yeah, so sometimes um
16:56 the the saying goes in the stock market
16:59 uh the broader stock market, the saying
17:01 goes that the stock market takes the
17:03 escalator on the way up and the elevator
17:06 on the way down. Escalator meaning the
17:08 stock market tends to climb slowly and
17:10 then crash quickly. Uh Bitcoin tends to
17:13 do the reverse. If it’s grinding lower,
17:15 it tends to grind lower slowly, but then
17:18 it tends to ratchet when it when it
17:20 grows. it tends to grow very quickly uh
17:23 you know very quickly very fast and so
17:26 um if you have bought a lump sum of
17:28 Bitcoin and you know sure you may go a
17:32 week or two or three where you’re like I
17:34 keep feeling like I buy Bitcoin and then
17:36 I’m spending it when it’s down and again
17:38 I wouldn’t start that way I would start
17:40 by buying a lump sum waiting for it to
17:42 be up at least 20 or 25% before I
17:44 started spending any of it which is what
17:46 we did um but anyway if it feels like
17:48 it’s grinding down you know when it
17:50 feels Oh, you can always, you know, go
17:52 back and buy all the, you know, buy
17:53 extra Bitcoin. So maybe it grinds down.
17:55 You’re like, “Wow, two or three weeks in
17:57 a row I’ve bought Bitcoin and it seems
17:59 like by the time I’m spending it, it’s
18:00 lower.” Well, great. At some point, buy
18:02 another lump sum to sort of buy back
18:05 those lows. Um, and then, you know, at
18:09 some point your paycheck will hit and
18:11 we’ll go through a rise like we have the
18:13 last week or two. Uh, where suddenly
18:15 Bitcoin goes from, you know, the 80,000s
18:18 to above 100. And it’s like great, it
18:21 all comes out in the wash and that that
18:23 those gains are going to far far far
18:26 offset uh the losses. But again,
18:28 regardless how you’re doing it, you got
18:30 to start if you want to spend Bitcoin
18:32 with the Coinbased debit card, you got
18:33 to start with a lump sum and wait long
18:35 enough that that lump sum is up or that
18:38 your total Bitcoin holdings is up, you
18:40 know, 20 25% minimum before you start
18:44 spending it. Um and then after that,
18:46 like in my case, my you know, Bitcoin is
18:48 up. I have enough Bitcoin that it’s up
18:50 enough that I totally don’t mind just
18:52 buying it every time I have money and
18:54 spending it every time I have a need
18:56 because I know it all comes out in the
18:57 wash and I know on net I’m ending up
18:60 ahead. So, and over time I’m ending up
19:03 like radically insanely super far
19:06 ridiculously ahead which is living for
19:09 literal free for two and a half years. I
19:11 mean for free. There’s no other I
19:13 there’s no other strategy I could have
19:15 effectuated in the fall of 2022 that
19:19 would result in us taking 18 months of
19:21 living expenses, living for free for 2
19:24 and 1/2 years, and still having more
19:26 than 3 years of those living expenses
19:28 left over. Nothing else could have done
19:30 that. I’m not aware of any other
19:32 strategy that would have resulted in
19:34 living for free for two and a half years
19:35 and still having three years more to go.
19:38 It’s actually more than three years. I
19:40 just haven’t calculated it, but it’s
19:41 it’s more than three years. And all
19:44 starting with just 18 months of living
19:46 expenses. And again, you could do the
19:47 same with $10. It’s just you’re going to
19:49 buy yourself a free cup of coffee, you
19:51 know, once a quarter. And obviously,
19:53 it’s a lot more compelling to live a lot
19:56 more of your life for free than just one
19:58 cup of coffee once a quarter. So anyway,
20:01 hope all that helps. I know I know the
20:03 difference between highest in first out
20:04 accounting versus first in first out
20:07 psychological accounting is complicated.
20:10 It’s nuanced. Uh but that’s just sort of
20:13 how I think about it. It served me well.
20:16 Hopefully that makes sense. Hit me with
20:17 any more questions, anyone who’s got
20:19 them. Thanks everyone.
