Author Archives: Unassuming Banker

What is Bitcoin actually worth?

Lately it’s hard to go a day without someone asking me a question about Bitcoin. What is it? Why is it so valuable? Should I buy some? How do I buy some? The guy down on the corner in the pawn/gold exchange shop said he can buy me one (yes, this is actually happening!).

It seems Bitcoin and the crypto-currency craze has truly reached the mainstream and the implication of that are as of yet unknown. What we do know is that it’s attracting every shady crook and scam artist in the world. And why not? There really is tons of money to be made. I hope the following sheds some light on what Bitcoin is and isn’t.


Let’s start our discussion with the technology which made Bitcoin possible called “blockchain”. In very simple terms the blockchain technology is a record of all transactions ever done in Bitcoin. Imagine a gigantic piece of paper that lists every transaction ever completed. Then imagine that there are thousands of copies of this paper, and all of them are automatically updated when any two people agree to exchange Bitcoins. Every time a transaction takes place all these copies are checked for consistency to make sure you actually have the Bitcoins you claim to have. If everything checks out the new transaction is added to all the pieces of paper at once.

This is the heart of the truly genius idea that is blockchain, and it is what it makes it possible to have certainty over a Bitcoin balance someone owns, without needing any central party (like a bank) to verify it. If all the pieces of paper agree then the balance is correct, and trying to doctor or fake all the pieces of paper at once is impossible. The best (and worst) thing about this technology is that it has been made available for absolutely FREE to anyone who wants to use it.

Bitcoin is simply the oldest known use of the blockchain technology. Someone, a long time ago (in technology terms), decided to create a coin called a “Bitcoin” using blockchain and started trading it with other people. This was quickly picked up by all types of criminal and illegal activity providers as a way to exchange money without having to go through a bank. Fast forward a few years and everyone and their mother wants to own one because they saw it on  TV.

Crypto-currencies or e-coins

The best (and worst) thing about blockchain technology is that its FREE, which means anyone can create a coin out of thin air, name it whatever they like, and start using it to trade with other people. It quite literally takes less than 24hrs to do so for someone with mediocre tech skills. The only difficult part is convincing suckers, err sorry, I mean lovely people, that the coin you created is worth something. This simple fact has led thousands of scam artists throughout the world to create their own coins and sell them to unsuspecting retirees and “I wanna get rich quick” targets.

You may have heard there is a limit to the number of Bitcoins that can be created and therefore the supply is limited, which is in turn is used as a justification for its price. For a number of technical reasons this is true, however, there is absolutely no limit to the number of crypto-currencies that can be created. Have you heard of Bitcoin Cash? How about Bitcoin Gold? Bitcoin Silver? Ethereum? Litecoin? There is an even a Dogecoin, as in Doge-coin. Yes I am NOT kidding, Google it. It was created as a joke and it now has a 700 million dollar market cap. Yup, they all exist, 1,365 different coins as of last count, and thousands more will be created as long as people are willing to throw real money at them. So much for the “you can’t make more of it!” argument.

Intrinsic Value vs. Market Value

How is it possible that something so easily created and with nothing to it other than a name and a story can be worth so much money? It all comes down to the difference between intrinsic and market value.

Market value is simply determined by the difference between supply and demand. If the demand exceeds supply at any point in time then the price will go up and vice versa. You can easily observe this in the “wild” each Christmas. A few years ago it was the PlayStation 4 that was bought up by “investors” and re-sold at ridiculous premiums to desperate guilt-riddled parents wanting to make up for not being around all that much. The PS4’s sticker price was $500 but on eBay they were selling for well over $2,000. The demand for PS4’s far exceeded supply during that Christmas season time period.

Fast forward to 2017 and PS4’s are on sale for $299.

Has the PS4 changed since that $2,000 Christmas? Does it provide 10 times less value to its owners now than it did back then? Is it no longer able to play games or access Netflix? Does it have fewer games and less accessories? The answer is of course a big fat NO. So why is it so much cheaper? It’s because fewer people are competing to buy a far larger supply of PS4’s on the market. The PS4’s market value has changed drastically but it’s intrinsic value has moved very little.

Gasoline has intrinsic value because you can burn it to move your car. In turn your car has intrinsic value because it can move you from place to place. Your stock holdings have intrinsic value because they are expected to eventually pay you dividends. Your home has intrinsic value because you can sleep in it and it can keep you warm and dry. Your dollars have intrinsic value because the government guarantees you can pay taxes and buy government services with them.

The intrinsic value of anything is simply the tangible value it provides and may or may not equal the market value at any one time. A good way to think about intrinsic value is as a floor to the value of any object. If the market value falls below that floor, enough people will simply choose to use the object rather than sell it, since they get more value out of keeping it. This in turns reduces supply and increases price back up to intrinsic value.

If there is a sudden interest in a product, market value often goes far above the intrinsic value, and then settles back down once the hype dies down. Thus financial bubbles of all kinds are born.

In some cases calculating intrinsic value is fairly easy (bonds, loans, mortgages, investment real estate) and in other cases it’s much harder (new technologies, your own home, time spent with family).

The good news is that calculating the intrinsic value of Bitcoin is extremely easy!

Let me get my calculator out…. Drum roll please…… It’s exactly….. $0!

It’s essentially the same thing as printing your own fraud-proof monopoly money. Should people stop wanting to buy your monopoly money, the only intrinsic value it will have is a certain bathroom function, which is still more than you can do with an e-coin.

Coins vs tech

Normally investors disagree on the intrinsic value of something and bring up arguments such future potential of a technology to justify various valuation. However, remember, Bitcoin is NOT a technology, it is an electronic piece of paper with transactions listed on it.  Just a bunch of 1’s and 0’s in a bunch of computers backed by absolutely nothing. Block-chain itself is a very valuable technology freely available to anyone, however, you are NOT buying blockchain when you buy Bitcoin, you own none of the tech behind it.

To illustrate imagine that someone had found a cure for cancer and posted the step-by-step instructions on how to make it on-line, freely available for anyone to use. Now imagine that the same person also created a product called Cancer-Pill using their own instructions, trade marked it, and started selling it to the highest bidders. I think we can all agree a cure for cancer is immensely valuable to society (blockchain may or may not be, we still have to see), however, how much is a Cancer-Pill worth?

Initially, with no one else making cancer curing pills, and people hearing about the trade-marked name, it’s very likely the profits would be quite large and the price of the pill ridiculously high. However, as the money flows in, another person would without a doubt create a pill using the same freely available instructions and call it Cancer-Away. Cancer-away may not initially be as recognizable as Cancer-pill, so it might fetch a smaller price, but eventually both prices would converge as they are essentially the same thing. Over time, with more and more cancer curing pills with different names arriving on the market, the price of all of them would converge to something very close to the cost of production (ie. materials + time to make it). I think we can all agree this is a good thing, as it means the maximum number of people will be able to cure their cancer at the lowest possible price.

How does this apply to Bitcoin? Well, Bitcoin is simply the initial Cancer-Pill, but as mentioned above there are now 1,365 different “pills” in production and counting. While creating a cancer pill, even with step-by-step instructions, would require some materials, equipment and incur some costs, the production of a random generic e-coin costs pretty damn close to $0. All you need is a website and some hype.

The bottom line is that while a cancer pill is very valuable, it would not be a good investment to buy up the pills for far above the cost of making them, if the formula for making them is freely available to anyone. Similarly buying Bitcoin, or any other e-coin, is a bad investment even if you truly believe block-chain technology will change the world.

It’s amazing to see all these coins get created and their “inventors” claiming theirs is for some reason a slightly better version of blockchain, and then selling you the damned coin instead of the supposedly superior tech! Next time you see one of these guys on TV notice how deftly they switch between the term “coin” and “blockchain” creating an illusion that it’s all the same thing. Believe me these people know exactly what they are doing.

So is it all just a giant pile of poop?

No, not at all, the technology used in creating Bitcoin is great. However, at this time, I’m not aware of anyone offering a good practical use for it. The problem with the current crop of e-coins and blockchain applications is easy to illustrate.

Imagine for a second a world where only Bitcoin exists and you are going to buy some milk. What would be the price printed on that milk carton?

1 BTC? Or 1.5 BTC Or 2 BTC?

Aside from the fact that, at current prices, this would be some seriously expensive milk, the answer is that no price could be printed. That’s because if a price was printed, a poor grocery employee would have to sit there with an eraser and pencil, and every minute or so change the price. And then by the time you got to the cash register, the price would have changed again.

The point is that a real currencies primary “intrinsic” value is as a medium of exchange or a measuring stick for value. If a centimeter or inch on a measuring tape was constantly changing in physical size, it would not be particularly useful to ask for a 6 inch sub. It might end up being the size of an airplane.

The thing that makes crypto-currencies such a speculative craze right now, their stratospheric increases in value, is also the reason the current crop will likely fail in their intended use as currencies. However, out of the ashes of that, it’s likely that a new use of blockchain will emerge. The decentralized fraud proof ledger might be used to keep track of balances in another exotic currency called the Canadian or US dollar or Euro.

On that note, if you still want to invest in e-coins, I would like to invite you to buy my brand new UB coin for only $1 per coin. I don’t have blockchain up yet, but I’ll keep track of all your purchases in my Excel, and the second I hit 2K I’ll spend the the 2 days to get the blockchain up and running. It’s your opportunity to get in on the ground floor before it’s worth $10,000 per coin!

Ahhh, sometimes I wish I had looser morals….

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Easy guide to never paying a cable bill again – part 1

It is called “cord cutting” and record numbers of Canadians are doing it every year. This year alone 247,000 households are expected to sever all ties with traditional cable packages. The idea of paying for a bundle of channels, most of which you won’t watch, is as outdated as renting a movie from blockbuster.

The savings from cutting a cable bill can be substantial. The cheapest “bundle” rogers offers (internet + TV) is $116.97 per month (regular price, not limited term promotion) pre-tax while a decent set of channels will run you $141.97. In addition, to get any decent movie channels you will have to shell out another $23.95 per month for the cheapest movie theme pack. Total average bill coming out to $187.49 including tax per month or $2,250 per year. That’s some highway robbery right there.

Assuming you don’t want to give up watching TV all together, what are the 100% legal options to avoid this? It turns out there are plenty, but I’ll start with the cheapest one, costing a total of $0 on a monthly basis.

Over-the-air(OTA) TV

Monthly cost: $0

All Canadian and US network TV stations are required by the CRTC to broadcast their signal in the same digital HD format as you get through cable. This requirement has been in place since 2011 and many of the broadcasters have since added digital sub-channels so they can offer additional content.

For example, the regular PBS channel broadcasts on channel 17-1 but a special PBS Kids channel dedicated to children’s programming is available on channel 17-3.

You can review a full list of channels available in the GTA by clicking here and see what’s on these channels here.

The technology used to transmit the signal is essentially the same old “rabbit ears” technology you likely grew up with if you are as old as I am. However, none of the old issues exist, since the signal transmitted is now digital. There is no ghosting, synchronization problems, or quality issues. When the signal is available the picture is crystal clear and extremely smooth, and in some ways superior to the cable signal.

The only device you will need to purchase is a $100 good quality over-the-air antenna (will likely be on sale after Christmas) and mount it on the outside or inside of your house. Mounting it inside is a 2 minute setup, and is ideal for condos or apartment buildings, while mounting outside is a bit more work but does give you more channels if you live in a house. Once you’ve placed the antenna you connect the cable that comes from the antenna into your TVs antenna input. That’s it, you now have 100% free HD TV!

The selection of channels available for free over-the-air surpasses the Rogers started package ($116.97), however, for most people this will likely not be enough. To get more than enough movies, shows and sports for a reasonable price, you will likely need get on-line.

More on that in Part 2 of this series

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rrsp retirement saving money

How to legally avoid taxes by making optimal RRSP contributions

It is that time of the year again. As many of you already know I’m a big advocate of RRSP accounts and believe them to be the best wealth building vehicle available to salaried Canadians. However, the benefits of contributing, and the optimal amount of the contribution, vary greatly from person to person. Below I will try to help you make the optimal choice for your situation.

How much you should optimally contribute depends mostly on your marginal tax bracket.

Marginal Tax Brackets

(Note: to see the exact income ranges and marginal tax rates I suggest you head to

The key observation to take away from the above chart is that marginal tax rates do not go up in an even step like pattern. They’re flat for the first 40K of your income, then jump very quickly from 42 to 46K (blue box above), go flat again from 46 to 74K, then again jump really quickly from 74 to 91K (red box) just to level out and go up very slowly afterwards.

The way to think about an RRSP contribution is as a reduction of your taxable income. Think about the red line as the per-$ value of your contribution. The higher the line the bigger the value of the contribution. In fact the per-$ value of the contribution is equal to the marginal tax bracket, so 43.41% simply means you get back 43.41 cents in tax reduction for every dollar contributed. To determine your own optimal contribution amount you can follow these steps:

  • Find where your 2016 income fits on the graph
  • Move left until you find a large drop in the graph
  • Calculate the amount of RRSP contribution you need to make to reduce your income from your starting point (your actual income) to the large drop in the graph (where you want your taxable income to be)

This approach gives you the best bang for your buck in terms of RRSP contributions because it ensures you max out your contribution room with the largest per-$ benefit in terms of a tax refund. You will still get a benefit if you choose to contribute more, but that benefit will get smaller very quickly on a per-$ contributed basis.

Example #1 – Sarah

Sarah made 95K last year so she is just right of the steep drop at 91K

Each dollar Sarah contributes to her RRSP moves her taxable income down or left on our chart above. The per-$-benefit or value of this contribution is equal to the marginal tax rate she happens to be in.

Since she starts on the 43.41% marginal tax rate line for every dollar she contributes she gets back 43 cents tax free but only for the first 4K contributed (green arrow above). This is because contributing 4K drops her taxable income down to 91K at which point any further contributions are at a lower marginal tax rate.

The next 4K of contributions will earn her only 38 cents per dollar contributed (blue arrow)

The next 3K of contributions will earn her only 34 cents per dollar contributed (yellow arrow)

The next 10K of contributions will earn her only 32 cents per dollar contributed (purple arrow)

I hope you can see how quickly the value of her contributions deteriorates after that initial 4K, which means Sarahs optimal contribution would be 4K and would net her approx. a $1,700 tax refund.

Career Stage

Simple right? Well, ok, there is a bit more to it. If you truly want to maximize the benefit you get from your RRSP contributions, over your entire working career, you need to consider what stage of your career you’re at. In the Sarah example above we implicitly assume she is in the middle of her career and is likely to increase her salary at a slow and steady pace until she retires.

Example #2- John

John is in his 20’s and has an entry level job in his field paying him 55K, but is hopeful to progress quickly up the ladder. The average salary for an intermediate level employee in his field is 95K.

Since John is currently making 55K, based on the marginal tax analysis alone, it would seem he should contribute 9K to bring his taxable income down to 46K  (green arrow). This would ensure he receives a tax refund of 30 cents per dollar contributed, or $2,700 for the entire 9K contribution.

However, since John is in his 20’s, in an entry level job in a lucrative field, it may actually make sense for him to forego his contribution entirely this particular year. This is because RRSP contribution room is cumulative and rolls over to the next year if you don’t use it.

Let’s say John salary goes up to 100K next year, his contribution maximum would be based on his previous tax assessment of 18% of 55K income, which would be around 9K. Therefore, if he contributed in the prior year, he could bring his taxable income down to 91K with this 9K contribution for a total refund of $3,900 (blue arrow).

If John contributes in both years he will receive a total net tax refund of $2,700 (year one) + $3,700 (year two) = $6,400.

However, if John foregoes his contribution in year 1, he would now have 18K worth of contribution room in year 2. If he contributes the entire 18K in year 2 he would lower his taxable income to 82K (purple arrow). This would net him a total tax refund of 9K * 41.43% + 4K * 37.92% + 3K * 33.89K + 2K * 31.48% = $6,900, which is an extra $500 in his pocket.

To summarize:

Year 1 contribution Year 2 contribution Chart Arrow Colors Total Refund over 2 years
$9,000 $9,000 Blue + Green $6,400
$0 $18,000 Purple $6,900

Example #3- Brad

Brad is in his early 40’s and an experienced veteran in his field.  The average salary for someone with his qualifications is 65K and he is making exactly this average. Since his salary did not change very much since last year his contribution limit is 12K.

Since Brad does not expect to move into an appreciably higher tax bracket, he should probably try to max out his contribution every year. Even if Brad ends up getting a raise to 74K he would still be in the same tax bracket, so the extra contribution room would not help him next year any more than it does today. In fact he would have to get a raise in his salary above 85K before he would start to see any noticeable difference in his marginal tax rate (and his per-$ contribution value).

Putting it all together

Most people follow an upside down U curve through their life when it comes to Marginal Tax Rates. They start out at a low marginal tax rate early in their careers, go up the curve to a maximum sometime before retiring, and then go back down to a low tax rate in their retirement. Understanding this is key to good RRSP contribution planning.

The general rule is to contribute as much as possible during high earning years, and contribute less, nothing at all, or even withdraw during low earning years. This makes the RRSP an excellent rainy day fund in addition to being a great retirement vehicle. The times you are taxed the least on your withdrawals are also the times when you need money the most. It also makes it a pretty good vehicle for saving for an extended time away from work. This could be a maternity/paternity leave, change of careers, return to school or a round-the-world trip of a lifetime. The withdrawals in “lean” years will be taxed at far lower tax rates than the same amount of income would have been taxed at in the high earning years.

I hope this helps you find an optimal contribution amount for your situation, and as always, I invite you to to subscribe to the blog by entering your email on the right side of the page, or use one of the buttons below to follow me on social media.

Note: Do not confuse RRSP withdrawal ‘penalties’ with tax rates. The ‘penalty’ is only a temporary withholding tax, and in a low earning year, you will get most of that money back when you file your taxes.

Note #2: An interesting observation is how slowly tax rates inch up for incomes over 91K. This basically ensures that contributing down to 91K or the maximum allowed (whichever is less) is the optimal strategy for any income over 91K.

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Investing your politics is guaranteed to lose you money

Investing your politics is one of the biggest mistakes individual investors make. If you listened to republican media over the past 8 years you would think the economy was always on the verge of falling apart and Obama was killing American businesses. It was time to get out of the stock market and put all your money under a mattress.

Instead this happened to the US stock market:


The bottom line is that if you are a republican (or Canadian supporter of them) who invested their politics (stayed out of the market) over the past 8 years you missed out on more than doubling your money.

We now have a new president in the US and he is just as hated by democrats as Obama was hated by republicans. Even before his election there were warnings that the stock market would immediately crash 10%-20% if he was elected and that the world economy will collapse. No such thing happened nor is likely to happen.

Like everyone else I have my own views on Trump as a man and as a political force. However, this blog is not a political blog, it is a blog on personal finance and investing for retirement. Therefore on here I am only concerned with the effect of likely Trump policies on the economy as a whole, and what that means to your investments. The reality is there are good and bad proposals/policies from both sides of the political divide, and many market friendly policies may not be ones you agree with ideologically. You can’t change these policies, they will happen whether you like them or not, so the only thing you can do as an investor is take advantage of them.

Therefore, if you are a democrat, be careful about assuming that everything Trump proposes will be an economic/market disaster. On the other hand, if you are a republican, be careful not to confuse the recent market rally with support for Trump policies. The market always rallies after a presidential election because some uncertainty is lifted. Namely we know who the president will be for at least 4 years and we can start to plan for that.

My next blog post will try to make some predictions as to which Trump policies are likely to pass senate and congress and what effect they will have on various stock markets.

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