I've been thinking that a lot of the problems we see in crypto whether it be the ICOs, or regulatory risks, or increased tax complexity, they all seem to stem from day trading crypto tokens. The people who complain that they lost money are all people who buy high and sell low trying to time the market. In essence, trying to time the market is nothing more than gambling with tokens and when you gamble you win sometimes and lose sometimes. Whether you're doing a short, or you're trying to double your Bitcoin holdings, it's gambling.
The main reason people trade is to generate some kind of income from which to buy more of the tokens they want or in some cases people are doing it as a way to make more fiat money. In essence it's just speculating on the daily or weekly price movements. If you're a person who has your expenses paid for the month and you don't need any additional income then what reason exists for you to day trade vs just invest in projects you believe in long term?
Warren Buffet communicated his knowledge on how to choose stocks by security analysis instead of technical analysis. Technical analysis is the techniques day traders use to predict a price movement based on some measurement of patterns and signals. Security analysis is actual analysis of the fundamentals of a company or in the case of our space we would be analyzing the technical specifications and community quality of a token.
There are a few tokens which I really believe have novel technologies and they are worth holding for 1 year, 3 years, 5 years, or in some cases if they are tokens which pay a dividend, hold for life. As I'm able to earn more on Steem the idea of day trading becomes increasingly less attractive.
While day trading is fun when the amounts as small, this all begins to change once the tax burden is considered. A person for example who buys a token and then sells the same token for a higher price a week later is going to have the highest capital gains rate possible. There is nothing fun about paying higher taxes for the privilege of taking on greater risks when it is possible to pay the long term capital gains rate for much less risk. The risk being that crypto will be banned and the entire space collapses is a legitimate risk but as time goes on this risk diminishes which means the long term bet on a token becomes increasingly less risky if the token has strong fundamentals behind it.
We can debate what criteria would make up fundamentals for a token but in my current thinking scalability is a big issue. Ethereum lacks scalability and for this reason it can reach a certain size with regard to usage and ICOs before the network grinds to a halt. The technical design of Ethereum is also slightly flawed because it's Proof of Work trying to transition over to Proof of Stake which will be complicated, and governance isn't set up yet either. What Ethereum has over Bitcoin is evolvability, flexibility, but there are new projects like Tezos which have every technical advantage over Ethereum that Ethereum had over Bitcoin.
When betting long term on a token I typically look for tokens which have at least some of the qualities listed below:
So we can look at evolvability and see Bitcoin lacks this but Ethereum, Tezos, Tauchain, all eventually will have this. Ethereum has evolvability to a lesser extent than Tezos because it doesn't have formal governance baked in, it doesn't have the Nomic capability (self updating/self defining property). Tezos and Tauchain both have the Nomic property of self definition, self updating, and in evolvability they have a clear technical advantage over everything else that exists. Tauchain potentially due to it's TML (Tau-MetaLanguage) and it's planned symbolic AI elements is tentatively set to be the most evolvable technology in the space.
Next we look at scalability, and Iin terms of scalability Ethereum doesn't have much more than Bitcoin, while Tezos may initially have even less than Ethereum, which leaves Tauchain which at this point is an unknown in this area. EOS will have the advantage over all other projects in terms of scalability but lacks the evolvability aspects. EOS is the clear winner right now for most scalable technology.
Quality of stakeholders is one of the most important aspects to look at. If we look at mere quantity of stakeholders then clearly Ethereum is the winner. If we are looking at the quality of the stakeholders then this is a much more difficult measurement but in general what I look for is whether or not the stakeholders care about the ethical use of the technology they are developing and or funding. The idea being that the stakeholders should want to build a better world for everyone and not just build a weapon, and not be narrow minded about the utility of their technology. On this it's very difficult to assess Tezos because they are so new but there are different opinions currently on the ethics of the founders of Tezos. The same can be said with Ethereum where there is some conflict between The DAO which split Ethereum into ETH and ETC over ethics. Tauchain seems to have a high quantity of ethical people involved but there is also a very small population of people involved so there is no clue to know if this can hold. EOS if I assume it's the Bitshares community + Steemit community, can and will likely have ethical people involved, but again it's too soon since the project just launched.
On this criteria, Ethereum is known to have ethical issues and some involved who aren't considering the tough ethical dilemmas that go along with AI and smart contracts. This was indicated by the resistance to the hard fork with The DAO and in some of the ideas "code is law" and "unstoppable code" which completely ignores ethics. EOS if similar to Steemit, does and will have some kind of ethics but Steemit ethics are negotiated not based on a social contract like with Bitshares, and not based on any known principles, but popularity or populism ethics. This is acceptable for a blogging platform but not necessarily something which can scale or deal with smart contracts and AI. EOS being well funded will have to in my opinion put a lot more focus on ethics. Tezos and Tauchain are unknown but I can say in my interaction with Tauchain developers that the few who are currently involved are concerned with ethical dilemmas and if the situation holds then Tauchain will have a conscience.
The tax implications do not favor day trading at all. Long term capital gains taxes are simply more efficient. On top of this, if someone simply holds high quality tokens then if the token market is anything like the stock market then quality tends to rise in price. Identifying quality tokens requires analysis and currently we have too many TAs and not enough SAs or in other words, too many technical analysts and not enough security analysts. More focus on the fundamentals, the technology, the quality of the community of stakeholders, the potential for long term growth and utility, are what we need from blogger analysts.
