Coinbase

Back in 2021, interest rates had been so low for so long that that seemed to be the new normal. Yields on stable assets like money market funds were around 0.3% (essentially zero, and well below inflation), as I recall. As a yield addict, I scratched around for a way to earn higher interest, while sticking with an asset where (unlike bonds) the dollar value would stay fairly stable.

It was an era of crypto flourishing, and so I latched onto the notion of decentralized finance (DeFi) lending. I found what seemed to be a reputable, honest company called BlockFi, where I could buy stablecoin (constant dollar value) crypto assets which would sit on their platform. They would lend them out into the crypto world, and pay me something like 9 % interest. That was really, really good money back then, compared to 0.3%.

On this blog, I chronicled some of my steps in this journal. First, in signing up for BlockFi, I had to allow the intermediary company Plaid complete access to my bank account. Seriously, I had to give them my username and password, so they could log in as me, and not only be able to withdraw all my funds, but see all my banking transactions and history. That felt really violating, so I ended up setting up a small auxiliary bank account for Plaid to use and snoop to their heart’s content.

I did get up and running with BlockFi, and put in some funds and enjoyed the income, as I happily proclaimed (12/14/2021) on this blog, “ Earning Steady 9% Interest in My New Crypto Account “.

BlockFi assured me that they only loaned my assets out to “Trusted institutional counterparties” with a generous margin of collateral. What could possibly go wrong?

What went wrong is that BlockFi as a company got into some close relationship with Sam Bankman-Fried’s company, FTX. Back in 2021-2022, twenty-something billionaire Sam Bankman-Fried (“SBF”) was the whiz kid, the visionary genius, the white knight savior of the crypto universe. In several cases, when some crypto enterprise was tottering, he would step in and invest funds to stabilize things. This reminded some of the role that J. P. Morgan had played in staving off the financial panics of 1893 and 1907. SBF was feted and lauded and quoted endlessly.

For reasons I never understood, BlockFi as a company was having a hard time turning a profit, so I think the plan was for FTX to acquire them. That process was partway along, when the great expose’ of SBF as a self-serving fraudster occurred at the end of 2022. He effectively gambled with his customers’ money. This would have made him even richer if his bets had paid off, but they went sour, which brought everything crashing down.

FTX quickly declared bankruptcy, which forced BlockFi to go BK as well. SBF was eventually locked up, but so were the funds I had put into BlockFi. The amount was not enough to threaten my lifestyle, but it was enough to be quite annoying.

Sam’s parents are both law professors at Stanford who are now resisting returning to FTX’s creditors the $32 million (!!!) in assets (cash and real estate) that SBF had given them out of FTX’s operations. Some of that $32 million they are hoarding is mine, since BlockFi needs to recover its claims against FTX in order to make BlockFi clients whole. Sam’s mother has denounced the legal judgment against her son as “as “McCarthyite” and a “relentless pursuit of total destruction,” which is enabled by “a credulous public.” One wonders what little Sammy imbibed in the way of practical ethics in that household of idealistic Stanford law professors – the “effective altruism” that the Bankman-Fried family touts is perhaps a gratifying concept, until it actually costs you something you don’t want to part with. But I digress.

BlockFi Assets Begin to Thaw

I got emails from BlockFi every few months, assuring customers that they would do what they could to return our assets. Their bankruptcy proceedings kept things locked, but now they are starting to return some money. A judge ruled in early 2023 that assets held by users in their BlockFi “wallet” belonged to the users and could be withdrawn. However, assets in the interest-bearing account (which is where my stablecoin was) technically still belong to the bankrupt company’s estate, and were not necessarily available for withdrawal. But now, following another legal agreement, BlockFi is returning funds from the interest accounts. The problem is that you will only get some fraction of what you put in. Some YouTube commenters have complained they only got 10-25% of their assets, and no one seems to know if they will ever get more. Ouch.

I got an email from BlockFi saying that I have assets to claim, but I need to set up an actual independent crypto wallet to receive them. BlockFi will only transfer the actual coin, not the dollar values. So, I am in the middle of this process. It’s one thing to open a wallet, where you can transfer crypto coins in and out. It is another to exchange or monetize your coin; for that you seem to need an exchange.

I have chosen to go with Coinbase. It is not the cheapest alternative, but it seems to be the most solid U.S. based crypto exchange. I have opened a Coinbase account now. As with BlockFi, I had to go through Plaid (ugh) for the connection to my bank account.

Next thing I need to do is to open a Coinbase wallet, and try to connect with BlockFi, and see what I get back. I will post later on what happens there.

Update: I got scammed in this process, see here . My bad for clicking on a link in an email, instead of going to the official website for the link…

90 plus per cent of people, they spend all their time on the buy decision and then they figure it out as they go along on when to sell and we say that’s crazy. You need to establish sell criteria, even if it’s just rebalance, even if it’s a trailing stop, whatever it may be on all your public market positions, because otherwise it gets emotional and that creates huge problems.
Meb Faber

Last week I explained why I buy individual stocks. This week I’ll share how I think about when to sell individual stocks, as I go through my portfolio and decide what to hold and what to sell. This is the first time I’m doing this exercise, though I should have done it long ago; until now I’ve unfortunately been on the wrong side of the above Meb Faber quote.

I actually think that most people are correct not to put much thought into what to sell, because I still agree with Buffett and most economists that most people should just buy and hold diversified index funds. Thinking about selling too much might lead people to sell everything whenever they get worried, sit in cash, and miss out on years of gains. But the important truth in Faber’s point is that if you are buying stocks or active funds for any reason other than “its a great company/idea that I’d like to hold indefinitely”, it makes sense to put as much thought into when/whether to sell as when/whether to buy.

People buy stocks all the time based on short-term arguments like “this banking crisis is overblown”, or “I think the Fed is about to cut rates”, or “this IPO is going to pop”, or “I think the company will beat earnings expectations this quarter”. These might be good or bad arguments to buy but they are all arguments about why it makes sense to hold a certain stock for weeks or months, not for years or indefinitely.

But people often buy a stock for short-term reasons like these, then hold on to it long term- either out of inertia, or because they grow attached to it, or because it lost money and they want to hold until it “makes it back” (sunk cost fallacy). None of these reasons really make sense; they might work out because buying and holding often does, but at that point you might as well be in index funds. If you’re going to be actively trading based on ideas, it makes sense to sell once you know whether your idea worked or not (e.g., did the company you thought would beat earnings actually do it) to free up capital for the next idea (unless you genuinely have a good new idea about the same stock, or you think it makes sense to hold onto it a full year to hit long-term capital gains tax). Its also always fair to fight status quo bias and ask “would I buy this today if I didn’t already own it?” (especially if its in a non-taxable account).

Maybe this is obvious to you all, and writing it out it sounds obvious to me, but until now I haven’t actually done this. For instance, I bought Coinbase stock at their IPO because I thought it would trade up given the then-ongoing crypto / meme stock mania. I was correct in that the $250 IPO started trading over $300 immediately; but then I just held on for years while it fell, fell, fell to below $100. The key difference I’m trying to get at here is the one between ideas and execution: its not that I thought Coinbase had such good fundamentals that it was a good long term buy at $250 and my idea was wrong; instead I had a correct short-term idea of what would happen after the IPO, but incorrectly executed it as if it were a long-term idea (mostly through inertia, not paying attention, and not putting in an immediate limit sell order at a target price after buying).

So if you buy stocks for short- or medium-term reasons, it makes sense to periodically think about which to sell. I’ll show how I I think about this by going through some examples from my own current portfolio below (after the jump because I think the general point above is much more important that my thinking on any specific stock, which by the way is definitely not investment advice):

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