If you pay U.S. taxes, you need to be aware that it is possible TODAY to hold bitcoins in your Roth IRA, and there are important tax advantages for doing so!

Most people think that you can only hold stocks and mutual funds in an IRA, and many bitcoin fans are anxiously waiting for approval so they can invest retirement funds in bitcoin through the Winklevoss ETF.  What they do not realize is that there is already a way to hold bitcoins in IRAs today!

It takes some effort and expense, but anyone can set up an "IRA LLC," which allows you to hold MANY different types of alternative investments, including bitcoins.  It's 100% legal.

There are companies that (for around $1500) will help you set up a self-directed IRA (traditional, Roth, etc.), plus an IRA legal liability company (IRA LLC) for managing the investments.  Your IRA is the sole owner of the LLC, and you are the manager.  Your IRA LLC can invest in a wide variety of things, like real estate, gold, silver, and even bitcoins.

It's not a trivial undertaking.  There are a few things you cannot invest in (life insurance, collectibles, etc.), and there are certain kinds of transactions that are prohibited.  But you can buy and sell bitcoins on exchanges, hold them in cold storage, etc.  And the tax advantages make it worth the effort and expense.

In particular, if the price of bitcoin increases substantially, a Roth IRA LLC can completely eliminate capital gains taxes, so if you do become a Bitcoin millionaire, you don't have to pay half of it to the U.S. government.

If you have thousands of dollars worth of bitcoins, you should consider using an IRA LLC to make sure you get to keep the gains!

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Here's a thought experiment.

Satoshi Nakamoto should offer a million bitcoin reward for the first country (or group of countries) to completely abandon its national currency and make Bitcoin the exclusive legal tender for all debts public and private.  The reward could be paid to the government of the country over a 20-year period, just to make sure they don't start down the path, collect the reward, then go back to issuing their own currency.

Imagine a country like Argentina after the next round of hyperinflation.
1.  In anticipation of this move, the government might secretly spend a few million dollars to accumulate a few tens of thousands of bitcoins while they are still cheap.  If they have USD or other currencies in reserve, they could secretly convert those to bitcoins, as well.
2.  When their current peso gets in trouble, instead of replacing it with yet again another new one, they could simply declare Bitcoin to be their national currency.
3.  The price of Bitcoin should jump at least to at least $100,000 at the news, so their first reward installment of 50,000 XBT should be worth at least $5 billion.  This would allow the government to significantly increase its expenditures and/or lower its taxes.
4.  They modify their tax code as necessary, since it's hard to track income and sales, so it makes more sense to tax by user fees, per person, or based on the value of property.

Their economy should absolutely boom because of the advantages of Bitcoin, plus the $100 billion prize, plus the enormous appreciation of any bitcoins they accumulated before the price jump.  The government looks like a hero and probably stays in power, at least until the reward payments stop.

It doesn't have to be Argentina.  It could be any country whose currency gets into trouble, or a bloc of nations wanting the advantages of a common currency, or maybe even the U.S.

The first nation to make the conversion wins a huge reward.  The price of Bitcoin should increase just due to the anticipation and speculation that some country might attempt to win the prize.  And the higher the price goes, the more valuable the reward becomes, so the higher the pressure to be the first to convert.

If Satoshi owns 1.5 million bitcoins, then giving away this reward would make his remaining bitcoins a thousand times more valuable, so this would not be a purely altruistic action.

I'm sure Satoshi wants Bitcoin to succeed.  This would be a way to increase the chance.  Perhaps we need better infrastructure first, like good, cheap hardware wallets?

Has anyone noticed that the mainstream media has suddenly turned pro-Bitcoin?  I read the major mainstream articles about Bitcoin every day, and the shift was sudden and dramatic.  My theory is that the rich are planning to create a third major Bitcoin bubble, and the run up is starting now.

If I were super rich, ruthless, and in control of the mainstream media, here's how I would execute such a plan:

Phase I.  Accumulate a large position while keeping the price low.  A major component of my strategy would be to use negative press and occasional artificial flash crashes to discourage other investors from buying.  That phase may be ending now.

Phase II.  Get others to buy and drive up the price.  The dialogue in the MSM has recently switched to venture capitalists and hedge funds investing in Bitcoin, Bitcoin going mainstream, and Bitcoin being an innovative technology worthy of notice.  If this keeps up, we might start seeing a huge price increase from here, perhaps to $2000 or more.

Phase III.  Cash out.  Probably fast, causing a huge crash, accompanied by a lot of press about the final collapse of the Bitcoin bubble.  Perhaps they buy back in at the bottom and sell again when it semi-recovers.

It probably leaves Bitcoin's reputation bruised and bleeding in a ditch, which is exactly what they want.

Questions.  Has anyone else noticed the shift?  Are there better explanations for it?  Can we stop it?  How can we profit from it if we don't know where the top will be?  Is there any way to protect Bitcoin's reputation from the effects of the crash?

I believe a small group of people with millions of dollars in resources is manipulating the Bitcoin market, artificially injecting extreme volatility and reaping huge profits.

They start rallies by gradually, relentlessly buying when the price is low.  These rallies become self-sustaining as more and more investors pile in, not wanting to miss the runaway Bitcoin train.  Then they create flash crashes by selling huge blocks of bitcoins at the top, accompanied by DDoS attacks to further increase the panic selling and completely trash the price.  Then they start the cycle over again.

They don't give a damn about the success of Bitcoin and scoff at the idealistic dreams of the true believers.  The long-term effects of their actions are extremely damaging to Bitcoin, as article after article points out that Bitcoin is useless as a currency because of the extreme volatility.

It’s impossible to call all the tops and bottoms without being privy to their plans, but I believe we can reduce their profits, add stability to Bitcoin, and yield some profit for ourselves at the same time.

The secret is for the true believers to start acting like “market makers.”   A market maker is “a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn.”  Market makers add liquidity and price stability to markets.

We cannot succeed simply by buying and holding.  We must actively fight against the forces that are working to undermine Bitcoin.

This is my proposal for a Volatility Reduction Group (Market Makers):

1.  We do not need to act in a coordinated way.  We are better off with a distributed defense, where each individual acts independently.  Specifically, we should not all pile onto the same buy and sell points, as that leaves us vulnerable.  However, we can use this thread to share our successes, failures, and ideas with each other.

2.  No one needs to sacrifice profits to participate.  The goal of a market maker is to buy low and sell high, profiting from most trades.  As long as the market shows significant volatility, we can expect to do better than those who just buy and hold.

3.  The actions of the manipulators are carefully crafted to psych people into panic buying when the price is high and headed for the moon, and into panic selling when the price falls into an endless black hole.  The market maker must resist these panic errors.

4.  Market makers buy when the price is lower than usual.  The lower it goes, the more we buy.  We know that crashes are often accompanied by DDoS attacks, so we use long-standing limit buy orders to make sure they happen.  We know that most crashes are relatively small (10-40%), so we gradually buy all the way down and don't try to time the bottom.  At the bottom of every major crash, we stay “all in” and patiently wait for the next cycle.

5.  Market makers sell when the price is higher than usual.  We use long-standing limit orders to make sure the sells execute at the appropriate time.  The higher the price goes, the more we sell, waiting patiently for the inevitable correction.  Just when you're certain it will never crash again, that’s when the bottom drops out.  (However, as true believers, we know that Bitcoin will eventually be worth $1 million each, so we never sell our last few coins.)

6.  We expect the average price to increase over time, so after each crash, we wait until an even higher price before selling into the next overheated rally.

7.  This is a thinking man’s game, played gradually over weeks and months.  The enemy’s tools are patience, cynicism, and panic.  Our tools are patience, discipline, comradery, and optimism for a better future!

Here’s how to join us.  First, figure out what you think Bitcoin’s price should be, if all the manipulators went away.  As of this writing, I'm estimating that that the unmanipulated price would be around $125.  At that target price, you should be half in fiat and half in Bitcoin.

The higher the actual price is above the target, the the greater percentage you should hold in fiat.  The lower the actual price compared to the target, the more should should hold in Bitcoin.  Buy or sell as necessary to adjust your percentage holdings.

Place buy orders totalling all your fiat scattered below the current price, and place sell orders totalling most of your bitcoins scattered above the current price.

When the price goes up and some of your sell orders execute, place buy orders to reinvest those funds at a lower price.  When the price goes down and some of your buy orders execute, place sell orders to switch those coins back into fiat at a higher price.  You profit on every pair of trades.

Never sell all of your coins.  If enough people join this strategy, the new stability will be good for long-term strength.  Eventually we hope to leave the 3-digit and 4-digit numbers for good.

Prepare yourself mentally for the fact that you'll be mostly in fiat, missing out on some amazing rallies, and mostly in Bitcoin when the future seems most bleak.  Be ready for the fact that some of your limit orders might just sit there for months.  It will not be easy, but stick with the plan, and it should be profitable!

I can't get my Android to pair with my blockchain MyWallet.  I created the new wallet on my PC today.

I can get the PC app to create a QR code.  I can get the blockchain on the Android to read the QR code, but it immediately goes back to the screen where I must choose to Pair Device or New Account.  I choose Pair Device again, and Scan QR Code again, and it reads it again, and pops me back to the same screen again.  It doesn't give me any error message at all.

My password consists only of a long combination of upper and lower case alpha characters and digits, with no special characters.

What am I doing wrong?

Premise #1: New investors help drive up the price of Bitcoin.

Premise #2: Capital is fearful.  It runs away at the slightest hint of risk.

Conclusion #1: A volatile Bitcoin market, subject to flash crashes, tends to scare away potential investors.

Conclusion #2: It is in the long-term interest of those who are long Bitcoin to work to prevent any significant dips.

Proposed new investment strategy:

1.  When we start to see new all time highs, everyone interested in the long-term success of Bitcoin should temporarily convert 20% of their BTC holdings into USD (or the fiat of your choice) at Mt.Gox (or the exchange of your choice).

2.  Place a limit buy order backed by that fiat at 10% below the current price.

3.  As the price goes up, keep adjusting your buy order upwards.

4.  Next time a flash crash starts, the buy orders will execute, hopefully arresting the downward trend.

5.  Repeat.

I say it's better to be 80% invested in a long, sustained rally than 100% invested in a choppy market that scares away new investors.  We'll all make more in the long run.

If we had been following this strategy for the past few weeks, today's flash crash would never have gone from 95 to 75, as all our automatic buy orders would have triggered in the 85 range.  If the flash crashes are caused by big-money market manipulators, their purpose must be to get us to panic sell when the price starts going down.  If we consistently do the opposite of what they want, and buy instead, maybe they will stop disrupting our markets!

Who is with me?

At some point the entire world may look to Bitcoin for answers to a massive currency crisis, and if it happened today, I believe the world would dismiss us quickly and just keep looking.  The Bitcoin protocol needs the ability to quickly scale and instantly become the world's currency when the right moment arrives.  At this point we are simply not ready.

The existing protocol cannot support the required volume of transactions.  The protocol restricts us to an average of one new block every 10 minutes, and blocks are limited to 256K for now.  An average transaction takes 500 bytes, so we're currently limited to about 1 transaction per second (tps).  By comparison, the credit card networks can handle peak loads up to 10,000 tps!  We need to be ready to beat that!

The limits we face are self-imposed and arbitrary.  They can be lifted, but not quickly enough for us to rapidly scale to handle a sudden increase in popularity.

There is a valid argument that if we allow much larger blocks, someone could bring down the system by generating a huge number of bogus transactions, like constantly moving a lot of minuscule amounts among millions of accounts.  However, there are ways of preventing that without forcing Bitcoin to stay trivial forever.  You just add a rule that the larger the block, the higher the minimum transaction fees in the block.  A 256k block could include free transactions, but maybe a 1M blck would be limited to transactions with at least 0.01 BTC fees, and a 10M block would require even more.  The harder you attack the system, the more expensive it would get. 

Today we're like a fire department that has test-driven a bunch of different trucks, tried on a bunch of gear, but we're not ready to put out the any fires.

Remember when Joey Tribbiani says, "This is the break I've been waiting for all my life.  Why haven't I been preparing for it!"

Lets get ready to rumble!