Kroger Drops Visa

Quote from Cointelegraph, a daily cryptocurrency news feed:

“On Friday, Mar. 1, Kroger officially announced that its Smith's Food & Drug stores will not accept Visa cards starting Apr. 3 due to the high fees that company imposes on major retailers. "Visa has been misusing its position and charging retailers excessive fees for a long time," Kroger's chief financial officer Mike Schlotman said, explaining the decision.”

Link to the original online statement:

It stands to reason that a grocery chain such as Kroger’s would find it necessary to restrict the use of VISA cards in their stores.  You would think the small fees merchants are required to pay to accept VISA cards is well worth the attraction to customers. But grocery stores work with extremely small margins.  While a typical suburban store may hold a million dollars in inventory on its shelves and turn over that merchanize several times per year, the markups are so slight that added VISA costs could tip the economics in the wrong direction.  

The equivalent ‘fees’ cryptocurrencies charge are miniscule by comparison.  Mining fees are usually just pennies compared with VISA and MASTERCARD fees which are a small fraction of the total spent.  A $6.00 item might cost the merchant $0.45 in fees. Grocery stores are particularly hard hit by the VISA costs since fees are comprised of a flat fee for every transaction, around $0.15, and a percentage of the gross amount.  Higher percentages are charged for smaller ticket items. An expensive item might have a 1.5% VISA fee, while an item selling for under $2.00 might have a 4% fee. Groceries are usually under $10.00 per item.

A merchant, therefore, must compare VISA fees of $0.45 or more and cryptocurrency fees of just pennies.  What merchant wouldn’t want to save an extra $0.30 per transaction?

To make matters worse, VISA and MASTERCARD formulae include extra premiums on smaller merchants, out-of-the-way sales locations, and sole-proprietorships.  In other words, the smaller, less secure the merchant’s situation, the higher the fees. Some Etsy-type merchants selling from their homes are being charged a 10% processing fee.

Cryptocurrency is going to attract merchants facing these excessive plastic card charges.

Jamie Dimon: “Buy Bitcoin, folks.”

Comment by Jamie Dimon on Paul Krugman’s weekly column on Bitcoin

Jamie Dimon
New York
Technobabble? “The Times They Are a Changin’,” (not the NY “Times”) As intelligent as Krugman is, his intellect may be stuck in the legacy financial system. Buy Bitcoin, folks. But like with any investment, only invest what you are willing to lose. Krugman’s negativity probably stems from a lack of understanding Bitcoin’s technology. Or he is closely associated with the Fed, banks and other financial institutions, all which hope to dissuade as they buy Bitcoin at suppressed prices. Or… he’s just “blocking up the hall.” 

I haven’t posted since May, 2018 because I didn’t have anything to say.  Bitcoin hit bottom (around $6k) three times since then and seems to be ever so gradually beginning to find a new footing.  Paul Krugman, an intellect I admire and trust, has unfortunately been unable to understand Bitcoin.  He almost systematically refuses to comprehend the advantages of a Bitcoin economy.  In his column, Transaction Costs and Tethers: Why I’m a Crypto Skeptic, NY Times, July 31, he continues to expound upon his misunderstandings.  Lo and behold, the first of the column’s comments comes from Jamie Dimon, CEO of J.P. Morgan, whom you might recall vehemently shouted “Bitcoin was a fraud.” less than a year ago.  His very visible “BUY” is important.  It goes along with other evidence that the cryptocurrency world is about to explode.

We’ve been waiting for the banks to build out the infrastructure they need to be able to profit from crypto.  Until the banks figure out how they can profit from crypto, Bitcoin isn’t moving anywhere, soon.  We’re almost there, now.  For banks to profit from the handling, holding and hawking of Bitcoin several utilities must be put in place.

There needs to be a good, strong, secure, easy-to-manage place for banks to keep customer accounts.  The software that does that is now readily available.  There needs to be ways for brokers to buy and sell cryptocurrencies for their customers profitably.  Speculation also requires additional instruments such as options and futures.  These are now in place, too.  There has to be a general consensus that crypto makes a good investment.  Here, the banks may have done such a good job of putting down crypto that it is not easily undone, at least not  quickly.  That’s where Jamie Dimon’s words become so significant.

Dimon says, in a Paul Krugman blog comment, “Buy Bitcoin, folks.” Krugman is not known for his crypto enthusiasm; quite the contrary to be sure.  He wasn’t asked or pushed to say anything.  Why bother?  Dimon has to undo years of negativity to launch this new banking endeavor.  I read another investment bankers recommendation telling customers, “You should have seven per cent of your portfolio in cryptocurrency.” Times are a changin’.  These are the signs I’ve been waiting to see.  I’ll be writing more about further developments in crypto in the coming days.

Facebook Coin (FBC) — Company Scrip

Olga Coal Company scrip, West Virginia

Company scrip is a substitute for government-issued legal tender or currency issued by a company to pay its employees. It can only be exchanged in company stores owned by the employers. It was largely made illegal around 1950 in the U.S. .

Mining and logging camps were typically created, owned and operated by a single company.  Camp locations, some quite remote, were often cash poor.  Even in ones that were not, the workers were paid in scrip and had little choice but to purchase goods at the company store using scrip. The exchange into currency, if available, was usually done at an exorbitant exchange fee. With this economic monopoly, the employer could place large markups on goods, making workers dependent on the company, thus enforcing employee “loyalty”.” — paraphrased from Wikipedia.

It wouldn’t surprise me to hear that Facebook decides to issue Facebook branded cryptocurrency.  It would probably be called Facebook Coin, FBC for short.  Imagine at the outset, FBC is issued at a 1:1 equivalency with US dollars with the promise that a maximum of 1,000,000,000 (one billion) coins would be issued.  The coins would be used to purchase all things Facebook.

Everything you purchase from Facebook, and everything you purchase through Facebook would be paid for in FBC currency.  Since Facebook sells several billions in advertising quarterly, there would be an immediate crush on FBC as advertisers purchase enough to have on hand for the coming months.  When FBC goes to $2 per coin it would be seen as a good investment as well as a useful currency.  Facebook services, such as their newly announced exploration into dating, would be purchased with FBC.  Retailers who open Facebook page-based stores could use FBC, as well; another way for customers to differentiate and be differentiated in the marketplace.

Why would Facebook do this? There are many advantages to using a cryptocurrency. First, since advertisers would use FBC to pay for their ads, the demand on FBC would be a good leading indicator for Facebook’s marketing department.  Facebook could know months in advance their advertiser’s coming marketing intentions.  Second, Facebook gets the revenue long before the money is actually used.  In a sense, FBC would be like company stock expect that it would not be tied to any specific underlying commodity or service.  Third, FBC would be similar in use to gift cards in that they would be bought and set aside for the specific use of purchasing all things Facebook.   They might be used as gifts from one person to another, they might be a kind of savings account like a Christmas club account folks used to open at banks, or just strategic long-range planning. IF Facebook Coins are anywhere near as popular as gift cards, we should soon see them appear on a Facebook page near you.

Screen Shot 2018-04-24 at 7.50.25 AM
One month from March 23rd, 2018.

From a low of $6620.41 on April 6, 2018 Bitcoin has been steadily rising. It currently sits at $9300.  Steady is good.  These prices do not reflect impulsive behavior or a “fear of missing out” (FOMO) nor “fear, uncertainty and doubt” (FUD). Bitcoin’s price, as a global phenomenon, is battered between U.S. investor sentiments and those of South Korea and other parts of Asia.  There seems to be agreement in the past few days.  When investors are not busy doing other things and can focus on their personal Bitcoin holdings it is interesting to see what they do.  For that look, at Sunday prices until 3:30pm EST when Asia is awakens Monday morning.  What we see is good. Steady is good and a steadily rising straight line is the best.  We’ve had many such days in the past two weeks.  Yesterday, too, there was a sudden $250 jump midday.  There was no news to account for the rise. That is also a very positive sign.

The next milestone is the $10,000 level.  This will sound overly simplistic but from that level the price will either rise or fall.  From that level the investing community will be deciding whether or not Bitcoin is on a new uphill climb or exhausting the current one.  If it crosses through $10,000 then you can expect it to go much higher.  At the end of February and the beginning of March Bitcoin was testing $11,000 before it fell to its low of $6620.  It hadn’t seen those lows since a week before Thanksgiving last year.  Bitcoin will be testing the same factors now as it did two months ago. But the market never waits for the obvious.

If the predictions of so many Bitcoin enthusiasts are prices between $25,000 and $50,000 by the end of the year, at some point Bitcoin has to resume its upward momentum. The ‘big one’ may look like last November’s meteoric rise.  However, a slower, steadier climb would foretell a more positive, much calmer future.  At the current rate we would be somewhere around $35,000 by the end of the year.  But that can never happen in a straight line.  After a few weeks of steady growth, investors would pile on and we would have boom and bust days again.  As such, without regulation or governing bodies to tamp down the enthusiasm, Bitcoin exuberance and fear-of-falling may control short-term prices.  We should see a clear direction for the market after May 1, 2018.

Bitcoin: Case for Dollar Cost Averaging

Dollar cost averaging is a strategy in which the same dollar amount of Bitcoin is purchased on a regular basis, $10,000 per month, for example.  Another similar strategy would be to purchase a fixed amount of Bitcoin on a regular basis, say, one Bitcoin per month.

To the bottom and back in the wink of an eye.  Bitcoin hodlers are all saying the same thing. “Bitcoin can still go lower, but when it finally does reach bottom, it will come roaring back so fast that if you blink you’ll miss it.” Most are describing the bottom, not by a monetary amount but rather by an emotional attitude.  “You will know Bitcoin has reached the bottom when you, the longtime bitcoin believer, feel it isn’t happening, and it may never happen.”  When you doubt your own long-held belief that Bitcoin ultimately rules, feeling that your holdings might indeed be worthless or are moving towards a zero value, then the bottom is nearby.

Do you have enough objectivity?  Do you know yourself well enough? Most investors, even seasoned professionals, aren’t objective enough to have those kinds of insights, and for a good reason.  It is counterintuitive to objectify and distance yourself from your feelings to better understand the marketplace.  Professionals prefer to work in quantifiable, predictive ways such as dollar cost averaging.  In that way, they can leave the emotional component out of the equation.   The problem is that it is precisely the ’emotional component’ we seek to understand, to recognize and to react to when it occurs as we expect it will.

Dollar Cost Averaging makes sense.  Let’s say you have been purchasing Bitcoin every time you see it going lower than you thought  possible saying to yourself “This looks like a good buying opportunity.”  You would have purchased at $14,000, $12,000, $10,000, $8,000 and $6,000.  Your average purchase would have been $10,000.  Now, compare that with absolute buying brilliance, buying Bitcoin at the bottom.  For argument sake, let’s say bottom turns out to be $6,000.  You buy an equal amount of Bitcoin, and you pay an average of $6,000.  If Bitcoin ultimately goes to $20,000 than your dollar cost averaging will net you $10,000 per Bitcoin or $50,000 while buying at the bottom will net you $14,000 per Bitcoin or $70,000.  You would have earned an extra 29%.  That’s nothing to sneeze at.  But look what you risk by trying to catch the bottom.  Let’s say Bitcoin reaches $6000 and then quickly bounces back up to $9000.  You then have to decide, was that it?  Was that the big one?  Do you go all in at this moment or was this just a blip and we’re still going back down? If you hesitate and you are wrong, then Bitcoin could suddenly see $11,000 or higher and then you’ve missed out altogether.

Strategy 1: Dollar Cost Averaging Strategy 2: Buy Bitcoin at bottom
Bitcoin Price Bitcoin Price
Purchase 1 $14,000 $6,000
Purchase 2 $12,000 $6,000
Purchase 3 $10,000 $6,000
Purchase 4 $8,000 $6,000
Purchase 5 $6,000 $6,000
Subtotal $50,000 $30,000
Average $10,000 $6,000
Profit w/Bitcoin at $20,000 $50,000 $70,000
Profit w/Bitcoin at $50,000 $200,000 $220,000

If you expect Bitcoin to ultimately go back up to December values than the difference between strategy 1 and 2 would be 29%, not a negligible sum.  But if you expect Bitcoin to ultimately go up to $50,000 than the difference between strategies 1 and 2 would be $200,000 vs. $220,000.  In other words, it wouldn’t make a whole lot of difference.  Conclusion: Dollar cost averaging is the way to go here.

Bitcoin Investing — All-in vs. Dollar Cost Averaging

Bitcoin Investing Investments
Purchase Dates All-in Earnings calculated from purchase date Dollar Cost Averaging Earnings calculated from purchase date
5/18/2017 $22,644 $83,580 $1,887 $0
6/18/2017 $29,304 $68,068 $2,664 $2,276
7/18/2017 $22,440 $66,080 $2,244 $4,530
8/18/2017 $38,844 $40,824 $4,316 $8,333
9/18/2017 $32,136 $38,680 $4,017 $12,102
10/18/2017 $39,165 $22,799 $5,595 $17,269
11/18/2017 $47,058 $6,054 $7,843 $24,485
12/18/2017 $94,800 -$50,540 $18,960 $41,585
1/18/2018 $44,564 -$9,156 $11,141 $52,148
2/18/2018 $33,276 -$6,720 $11,092 $62,783
3/18/2018 $15,724 $1,980 $7,862 $70,565
4/18/2018 $8,163 $689 $8,163 $78,635
$7,148.67 = AVG
April 22, 2018 $8,852

If you believe, as I do, that Bitcoin is here to stay and will be valued in the tens of thousands of dollars in the not too distant future, then the only problem is considering on how to invest.  There are two investment strategies that seem to be favorites of Bitcoin enthusiasts.  The first we’ll call, All-In, meaning just what it says.  Decide how much money you want to invest in Bitcoin and buy that much Bitcoin.  Period.  End of story.  Don’t hesitate.  Don’t wait for lower lows.  Don’t wait.  The second is called Dollar-Cost Averaging.  Decide on an amount that you can invest in Bitcoin on a regular interval and begin to accumulate. Let’s compare the two.

For comparison sake let’s say you invest with the All-in strategy twelve months worth of Bitcoin a year ago.  Bitcoin was selling for $1887 and you would have had to invest $22,644.  It would have earned you $83,580 today; a nice tidy sum.  Had you waited and gone all-in the following month, you would have had to invest $29,304 and it would have earned you $68068 today.  In fact, the longer you waited, the less you would earn.  By December your investments would be in the negative numbers only beginning to look better as an investment now.  Of course, you would have to wait for Bitcoin to reemerge above the $19500 mark before seeing profits.

If you had purchased a Bitcoin each month in a dollar-cost averaging strategy your earnings would have improved each month.  Looking backward, the earlier you started the better off you’d be today.  The strategy even weathered the precipitous fall from December’s highs.  Dollar cost averaging seems to be the better strategy in this case.

Timing is the most difficult aspect of investing.  To be able to predict when to buy and when to sell is almost impossible.  Dollar cost averaging mitigates the need to get your timing right especially with Bitcoin which is, thus far, a totally unknown phenomenon to the investing community.

Bitcoin ($8,852) Daily Chart Confidence

Bitcoin daily chart for April 22, 2018, confident, optimistic, without fear-of-missing-out.

Bitcoin is $8852 this morning. Investors who read charts often, this would appear to be a rising straight line. The small blimps along the way are never more than $10.  What’s more, this chart is 24 hours from Saturday morning, April 21, 2018, in NYC, or evening in Korea.  This is a period of time not influenced by other markets, or investors at work unable to pay attention to Bitcoin.  No, this chart reflects investors’ wholehearted attention and from the look of it, it’s full-steam ahead.


Bitcoin daily chart for April 22, 2018, confident, optimistic, without fear-of-missing-out.