Buying Bitcoin Weekly & Spending w/ Coinbase Debit Card: Am I Spending Last Week’s Cheaper Coins?

00:01 Hey everyone. Someone asked me a 00:03 fantastic question, which is if I am 00:04 constantly buying and uh buying Bitcoin 00:07 every week or on a regular basis, but 00:09 I'm also spending Bitcoin with the 00:11 Coinbased debit card, which is I what I 00:13 do for 100% of my expenses. Then isn't 00:16 it true that sometimes in a spike of 00:19 high market prices, I'm buying Bitcoin 00:22 and then in close proximity, I am 00:24 spending Bitcoin that is uh at a price 00:28 that is lower than that. So, for 00:30 example, let's say it spikes up to 00:32 $103,000 per coin right now. Hold on. My 00:35 dog really wants to be petted here. Um 00:38 the uh it spikes up to 103,000 per coin, 00:41 then next week it's like say 97,000 per 00:44 coin and I'm spending, you know, if I 00:46 buy Bitcoin this week for 103, but then 00:48 I'm spending it next week for 97, then 00:50 how am I not spending $103,000 Bitcoin 00:53 at 97? The answer is for tax purposes 00:57 that is how Coinbase is going to account 01:00 for it. But in the long run, it all 01:03 comes out in the wash and it doesn't 01:04 matter. So let me give you an example. 01:07 So let's say you start by buying $10,000 01:10 of Bitcoin. You wait until the price 01:13 until your Bitcoin is valued at $15,000 01:16 uh which is 50% more. And then you start 01:18 buying Bitcoin with uh every week and 01:22 also spending Bitcoin. um that's you 01:25 know some of that Bitcoin that you 01:26 bought that's up 50%. So what's going to 01:29 happen is uh over time there's 01:32 essentially a um a lag period because 01:35 you're buying the Bitcoin first and 01:36 you're spending it later. Now that later 01:38 may be days, it may be weeks or it may 01:40 be with the initial Bitcoin you bought 01:42 months or even years. Um, but it all 01:45 comes out in the wash because uh, as an 01:48 asset, Bitcoin is going more up than 01:51 it's going down. Which means, yes, from 01:53 a tax perspective, if I buy Bitcoin this 01:56 week on a recurring purchase for 103,000 01:59 and then it dips and I'm spending it at 02:02 97,000, 02:03 um, for tax purposes, Coinbase is going 02:05 to, uh, harvest that tax loss or any 02:08 crypto or Coinb uh, Bitcoin platform is 02:11 going to harvest that tax loss. meaning 02:12 it's always going to um for tax purposes 02:16 uh account for spending the most 02:18 expensive bitcoin you have ever bought 02:20 up to that point. Um but a better way to 02:23 look at it is to assume you're uh so for 02:27 tax purposes it's always what's called 02:29 ho highest in first out but the the best 02:31 way to think about it from a sort of 02:34 what's really happening is first in 02:36 first out which is to always assume 02:39 you're spending the oldest bitcoin that 02:42 you bought. Um, so because if if you 02:45 think about it again, if Bitcoin's up 02:47 up, you know, let's call it it's up 50% 02:50 of the time, down 50% of the time versus 02:51 a week ago or two weeks ago. Now, when 02:53 it's up, it's up more than when it's 02:55 down, which is why Bitcoin is so 02:57 radically higher now than in the past 02:59 because if it's up about half the time 03:01 and down about half the time, you would 03:02 think, well, then overall it's flat. But 03:04 that's not the way it works. When it's 03:06 up, it's up 5%. When it's down, it's 03:08 down 3%. Something like that. I'm just 03:10 making up those numbers, but the short 03:11 take is it's more up than down. So even 03:14 though on from week to week, the 03:16 probability that it'll be up versus down 03:18 is probably 50/50. Um when you're in an 03:22 up week, you're in a more of an up week 03:24 than when you're in a down week, you're 03:26 in a down week. Um so over time um even 03:29 if you started this process and over 03:31 time you know you waited for that very 03:34 first uh purchase to be up 20% or 25% or 03:37 enough that you know it's going to stay 03:40 up and you don't have to monitor it on a 03:41 daily basis then on a rolling basis 03:44 what's going to happen is you can think 03:45 about it as I'm always spending the 03:47 oldest Bitcoin and so I'm I'm always 03:50 adding to the top of the stack and I'm 03:52 always spending from the bottom of the 03:54 stack. Um, which again I know because of 03:57 tax purposes because it's going to do 03:58 highest in first out uh accounting uh it 04:02 feels like yeah but wait that means I'm 04:05 spending my most expensive Bitcoin. But 04:07 again if you're always buying and always 04:08 selling and your total Bitcoin stack is 04:11 getting larger over time either because 04:13 you're buying Bitcoin faster than you're 04:16 spending Bitcoin or because your Bitcoin 04:18 is appreciating faster than you're 04:20 spending it then you end up way ahead. 04:23 So, for example, as I've shared, you 04:25 know, quite a few times, uh, me and 04:27 Rachel have been living for free for the 04:29 last 2 and a half years. So, for 2.5 04:31 years, we've been living completely for 04:33 free. Um, so what do I mean by that? 04:35 Well, what I mean by that is back in the 04:37 fall of 2022, Bitcoin was really low, 04:40 down in the between 16,000 and 17,000 04:42 per coin. And I was desperately trying 04:45 to come up with any any possible reason 04:48 to buy more Bitcoin. I mean, any reason 04:51 buy more Bitcoin. And I had the bright 04:53 idea. Uh I talked to Rachel about this 04:55 of, hey, let's take our debit cards and 04:59 uh rather than just, you know, spend 05:02 money from a bank account that was 05:04 sitting there or, you know, peel off 05:06 money from retirement funds or whatever, 05:08 let's proactively 05:10 frontload by buying Bitcoin um 18 months 05:14 of living expenses. So we did that. I 05:16 have a coinbased debit card. She has a 05:18 coinbased debit card. Anyway, we 05:19 frontload frontloaded on each of those 05:22 debit cards um you know what was 05:24 effectively 18 months of living expenses 05:27 for that debit card. So in total it was 05:30 the total debit card expenditures by our 05:33 family for 18 months. It just happened 05:35 to be split, you know, half and half 05:36 because she's got a debit card, I've got 05:38 a debit card, and we both uh buy stuff 05:40 for our family. Um, so the the combined 05:43 total of the Bitcoin that ended up on my 05:46 debit card and her debit card for 05:48 Coinbase debit card, the combined total 05:50 of that was about 18 months of living 05:52 expenses. Uh, so from that we waited at 05:56 that point we only had to wait like a 05:58 month or two until it was, you know, 05:60 Bitcoin was like 20,000 a coin and we 06:02 bought it like 16 17. So it was, you 06:04 know, up significantly um by whatever it 06:07 is 20% or 25% or whatever. And so after 06:11 a month or two, we started spending it 06:13 and both started using the Coinbase 06:15 debit cards exclusively as our only 06:17 spending. Uh so essentially 100% of our 06:21 uh of anything we spend money on that 06:23 would go on a debit card or credit card 06:25 goes on uh Coinbase debit cards. Um now 06:29 there's a few things that don't. For 06:30 example, expensive international air 06:33 airline tickets do not go on there 06:35 because it has a $2,500 per day limit. 06:38 And so, you know, international flights 06:40 for a whole family of six uh cost more 06:43 than $2,500. And so, we end up putting 06:45 those on a credit card and paying it 06:47 back with Bitcoin um with appreciated 06:50 Bitcoin, which works the same way. But 06:51 for the debit cards, I track those debit 06:54 cards um you know, with the original 06:57 balance. Now, the entire time that I've 07:00 been spending Bitcoin over the last two 07:02 and a half years, I've also been 07:03 converting every single paycheck into 07:05 Bitcoin. literally every paycheck 07:07 immediately it hits the bank account and 07:09 I immediately buy Bitcoin with it. And 07:12 so uh per the you know beginning of this 07:15 bit video uh the question which is 07:17 doesn't that mean that sometimes my 07:20 paycheck hits Bitcoin's at 07:23 103,000 it hits and then I'm immediately 07:26 spending with my Coinbase debit card 07:28 even if it drops down. Yes. But again, 07:32 the way I think about it is I'm spending 07:34 the first in, you know, first in first 07:36 out, not highest in first out. Now, if 07:39 you want, this is not good for tax 07:42 purposes. I do not recommend this, but 07:44 if you want, and it just helps you feel 07:47 better about it, you can flip Coinbase 07:49 to first in first out, FIFO. Uh, all you 07:52 have to do is go in the tax interface, 07:53 and it will say, "How do you want to 07:55 account for your Bitcoin?" You can do 07:58 highest in, first out. You can do first 07:60 in, first out, or you can do uh what's 08:02 called LIFO, last in first out. So the 08:06 question every time you spend is are you 08:08 spending the very oldest Bitcoin, which 08:10 is first in, first out. Are you spending 08:13 the highest price Bitcoin, which is 08:15 highest in first out, or are you 08:18 spending the most recent Bitcoin you 08:20 bought, which you would never want to 08:21 do, which is first in, uh, or last in, 08:24 sorry, L a fo, last in, Lifo, LIFO, last 08:29 in, first out. So, nobody picks last in, 08:33 first out, um, LIFO because that makes 08:35 no sense. uh you would never want to do 08:38 LIFO because why would you always want 08:39 to be spending your most recent 08:42 Bitcoin like I mean I just you know if 08:45 you're going for a tax optimization 08:47 you're doing uh highest in first out and 08:50 if you psychologically want to always be 08:52 spending your oldest bitcoin which 08:54 should be your most appreciated bitcoin 08:56 then you can set it for first in first 08:58 out now the right thing to do is to set 09:02 it is to leave the defaults which is by 09:04 default it's set to highest in first 09:06 out. The best thing to do is just to 09:08 leave it highest in, first out, and then 09:11 but psychologically account for it as, 09:14 you know, first in, first out. Um, so I 09:17 am always buying Bitcoin. Literally 09:18 every two weeks I buy more Bitcoin with 09:21 the money that hit my bank account from 09:22 my paycheck. I buy more Bitcoin. Um, and 09:25 I'm always spending Bitcoin because I 09:26 use the Coinbase debit card for 09:28 basically everything that costs less 09:29 than $2,500, which is the vast majority 09:32 of everything I spend. Um, so as a 09:35 result of that, I am in the exact same 09:37 sort of psychological predicament as the 09:39 person asking this question, which is, 09:42 uh, how do I not feel like I'm spending 09:44 Bitcoin when it's down? And the answer 09:45 is because over time it all comes out in 09:47 the wash. Over time, Bitcoin when it's 09:49 up is more up than than it than down 09:52 when it's down. And so over time, the 09:55 Bitcoin stack, in our case, we started 09:57 with 18 months of living expenses uh, 09:60 uh, combined across two debit cards. And 10:03 now combined across two debit cards, we 10:04 have three years of living expenses. So 10:06 starting with 18 months, 1.5 years, then 10:09 we live two and a half years, which 10:11 means we should have run out of money a 10:12 whole year ago, but we didn't. Instead 10:15 of running out of money a whole year 10:16 ago, obviously we wouldn't have run out 10:18 because, you know, I keep buying more 10:20 Bitcoin and I have a paycheck. Uh, but 10:23 for those two debit cards, I don't count 10:24 any of the new purchases as supporting 10:27 our lifestyle. all of that money gets, 10:30 you know, swept into cold storage and, 10:32 you know, all of that. Uh, along with 10:33 most of the balances of those cards 10:35 anyway. Um, so anyway, as a result of 10:37 that, the math I'm sharing with you, uh, 10:40 it assumes we had never bought any more 10:42 Bitcoin from the end of uh, from the 10:45 fourth quarter of 2022. The truth is we 10:47 bought a ton more Bitcoin since the 10:49 fourth quarter of 2022. But for tracking 10:51 of those debit cards, I'm assuming as 10:54 though we did not buy anymore. So even 10:56 if you account for it as though we did 10:58 not buy any more from that 18 months 11:01 from there um we've lived for 2 and a 11:04 half years on that 18 months which means 11:05 we got a whole bonus year and now the 11:08 combined balances of that original 11:10 Bitcoin which again is you know some of 11:12 it sits on Coinbase so that the debit 11:14 cards always work and most of it is in 11:16 cold storage hard to get to super secure 11:20 you know that's the way we keep our 11:21 Bitcoin. Um, you know, it's even hard 11:24 for us to get to. It's a it's a it's a 11:25 long process. If I want to move large 11:28 amounts of Bitcoin around, it's a you 11:29 know, I have purposefully set it up to 11:31 be a royal headache even for me. Um, and 11:34 it's more secure that way. Uh, anyway, 11:36 so um, but now we have three years of 11:37 runway. So that original Bitcoin we 11:39 bought in the fall of 2022, uh, at the 11:43 time was worth 18 months of living 11:45 expenses spread across two debit cards. 11:47 uh two and a half years has now gone by 11:49 and now the Bitcoin uh is worth more 11:52 than three years of runway. Um so you 11:57 know we're certainly not going to 11:58 liquidate it to US dollar cash but if we 12:00 did then 18 months of living expenses 12:03 would have lasted for 5.5 years. So 18 12:06 months turns into 5.5 years which 12:08 basically means we get an extra bonus uh 12:11 4 years. It's like four years of living 12:13 for free. Now, the truth is we're not 12:15 going to liquidate that Bitcoin to US 12:18 dollars because I think these two debit 12:20 cards um will support our family for the 12:24 rest of our lives. I honestly think that 12:26 the Bitcoin that's on each of these 12:28 debit cards, which again, most of it is 12:30 locked up in very secure ways, but 12:32 there's a big enough balance that stays 12:34 on Coinbase so that the debit cards 12:36 don't that you know, we never we never 12:38 swipe the card and then there's no 12:40 balance there. we keep a enough of a 12:42 balance on Coinbase that the debit cards 12:43 work. Um, but that original Bitcoin, I 12:46 think there's a good chance that the 12:48 Bitcoin we bought in the fall of 2022, 12:51 that 18 months will support us for the 12:53 rest of our lives. I mean, honestly, I 12:55 think I think at this point we have two 12:57 evergreen debit cards, which is two 12:59 debit cards that will continue to work 13:01 for standard run rate, lifestyle 13:04 expenses, all of the things you would 13:06 normally put on a debit card or a credit 13:08 card that cost less than 13:10 $2,500. And I think this will just last 13:12 for the rest of our lives. Um, but 13:14 anyway, again, psychologically, I think 13:16 about it as I I'm spending the oldest 13:19 Bitcoin. Uh, but for tax purposes, I'm 13:22 constantly buying new Bitcoin. And since 13:25 I'm buying the new Bitcoin on Coinbase, 13:27 and the working balance for those debit 13:30 cards is also on Coinbase. It's mixing 13:32 them together. And for tax purposes, 13:34 it's always going to do highest in first 13:36 out uh for tax purposes. So, I know 13:39 that's a super long explanation, but uh 13:41 you sort of have to mentally bifrocate 13:44 how is it handling it for tax purposes 13:46 versus how do you think about it for 13:48 spending purposes and um I don't have a 13:50 better way of doing it than than saying 13:52 that's just what you got to do. And if 13:54 you, you know, bought a lump sum of 13:58 Bitcoin and then you bought Bitcoin 13:60 every two weeks with your paycheck and 14:01 spent it with the debit card, you're 14:03 going to constantly be running into this 14:05 where you feel like, but wait, my 14:07 paycheck hit when it was 103 and now I'm 14:09 spending it when it's 97. And it's like, 14:11 yeah, but 2 weeks from now, your 14:14 paycheck's going to hit when it's 97, 14:16 and you're going to be spending it with 14:17 when it's 109. So it's like, you know, 14:19 and you can't time it. It's not like you 14:21 when your paycheck hits. Um it's not 14:24 like when your paycheck hits, you can 14:25 say, "Ooh, but if if it's high when my 14:28 paycheck hits, then I'll just spend the 14:29 US dollars, but if it's low when my 14:31 paycheck hits, I'll buy Bitcoin because 14:32 you don't know." Uh so here's a good 14:34 example. Um you know, Rachel's uh 14:38 Rachel's uh in graduate school at 14:41 Georgetown University and there's 14:43 tuition payments and the next tuition 14:45 payment is due on May 16. Um, so back 14:49 when I first got the notice, which was 14:51 like 30 days before, that the tuition 14:53 payment was due, Bitcoin had climbed 14:56 from 76,000 per coin to 86,000 per coin. 15:00 So, you know, if I was 15:07 thinking, so again, if your mental model 15:10 is I'm not going to buy Bitcoin when it 15:13 feels high, then you would not have 15:15 bought Bitcoin for 86,000. You would 15:18 have liquidated it and paid the tuition 15:20 payment. But I didn't do that. The 15:22 tuition payment is not due until May 16, 15:24 and I'm not going to pay it till May 15. 15:26 So, so but but I was thinking the 15:29 thought crossed my mind. Wow, we've gone 15:31 from 74,000 a coin to 86,000 a coin. 15:34 Should I just go ahead and pay this? And 15:35 I'm like, no, because that's not the way 15:37 I work. There's no way. There's no way I 15:39 know if 86 is high or low. It feels high 15:42 cuz we're coming off of 74 something, 15:44 but we're at 86, but I got another month 15:47 to go till this thing is actually due. 15:48 So, I waited and 86 turned into 92. And 15:51 I thought, wow. Now, I don't want to be 15:54 greedy here. Uh, it's at 92,000 a coin. 15:57 I considered liquidating the Bitcoin to 15:59 pay this tuition payment at 86. Now it's 16:01 at 92. You know, it feels high now. It's 16:04 like really feeling high because it 16:06 hasn't been 92 for like a month or two. 16:08 And uh, but I thought, you know what? 16:10 Nope. I don't do that. I don't time the 16:12 market. I can't tell what high is. I 16:13 can't tell what low is. I don't know. 16:16 You don't know. I don't know. Uh, what I 16:18 do know is that it's always made sense 16:20 to buy as much Bitcoin as I can and hold 16:22 on to it as long as possible. So, here 16:24 we are. Bitcoin is sitting at 16:26 103,103 now. Right now, 103 feels high, 16:30 but I'm not going to liquidate that 16:31 Bitcoin and pay that tuition payment 16:33 until a day or two before it's actually 16:35 due. Uh just enough time for it to clear 16:37 bank accounts and wire transfer and all 16:39 that sort of stuff. Because again, we 16:41 could be sitting here uh with uh buying 16:44 Bitcoin at um or liquidating it at 103 16:48 and maybe by the time it's due at the 16:50 end of this coming week uh it'll be 116. 16:53 I don't know. But yeah, so sometimes um 16:56 the the saying goes in the stock market 16:59 uh the broader stock market, the saying 17:01 goes that the stock market takes the 17:03 escalator on the way up and the elevator 17:06 on the way down. Escalator meaning the 17:08 stock market tends to climb slowly and 17:10 then crash quickly. Uh Bitcoin tends to 17:13 do the reverse. If it's grinding lower, 17:15 it tends to grind lower slowly, but then 17:18 it tends to ratchet when it when it 17:20 grows. it tends to grow very quickly uh 17:23 you know very quickly very fast and so 17:26 um if you have bought a lump sum of 17:28 Bitcoin and you know sure you may go a 17:32 week or two or three where you're like I 17:34 keep feeling like I buy Bitcoin and then 17:36 I'm spending it when it's down and again 17:38 I wouldn't start that way I would start 17:40 by buying a lump sum waiting for it to 17:42 be up at least 20 or 25% before I 17:44 started spending any of it which is what 17:46 we did um but anyway if it feels like 17:48 it's grinding down you know when it 17:50 feels Oh, you can always, you know, go 17:52 back and buy all the, you know, buy 17:53 extra Bitcoin. So maybe it grinds down. 17:55 You're like, "Wow, two or three weeks in 17:57 a row I've bought Bitcoin and it seems 17:59 like by the time I'm spending it, it's 18:00 lower." Well, great. At some point, buy 18:02 another lump sum to sort of buy back 18:05 those lows. Um, and then, you know, at 18:09 some point your paycheck will hit and 18:11 we'll go through a rise like we have the 18:13 last week or two. Uh, where suddenly 18:15 Bitcoin goes from, you know, the 80,000s 18:18 to above 100. And it's like great, it 18:21 all comes out in the wash and that that 18:23 those gains are going to far far far 18:26 offset uh the losses. But again, 18:28 regardless how you're doing it, you got 18:30 to start if you want to spend Bitcoin 18:32 with the Coinbased debit card, you got 18:33 to start with a lump sum and wait long 18:35 enough that that lump sum is up or that 18:38 your total Bitcoin holdings is up, you 18:40 know, 20 25% minimum before you start 18:44 spending it. Um and then after that, 18:46 like in my case, my you know, Bitcoin is 18:48 up. I have enough Bitcoin that it's up 18:50 enough that I totally don't mind just 18:52 buying it every time I have money and 18:54 spending it every time I have a need 18:56 because I know it all comes out in the 18:57 wash and I know on net I'm ending up 18:60 ahead. So, and over time I'm ending up 19:03 like radically insanely super far 19:06 ridiculously ahead which is living for 19:09 literal free for two and a half years. I 19:11 mean for free. There's no other I 19:13 there's no other strategy I could have 19:15 effectuated in the fall of 2022 that 19:19 would result in us taking 18 months of 19:21 living expenses, living for free for 2 19:24 and 1/2 years, and still having more 19:26 than 3 years of those living expenses 19:28 left over. Nothing else could have done 19:30 that. I'm not aware of any other 19:32 strategy that would have resulted in 19:34 living for free for two and a half years 19:35 and still having three years more to go. 19:38 It's actually more than three years. I 19:40 just haven't calculated it, but it's 19:41 it's more than three years. And all 19:44 starting with just 18 months of living 19:46 expenses. And again, you could do the 19:47 same with $10. It's just you're going to 19:49 buy yourself a free cup of coffee, you 19:51 know, once a quarter. And obviously, 19:53 it's a lot more compelling to live a lot 19:56 more of your life for free than just one 19:58 cup of coffee once a quarter. So anyway, 20:01 hope all that helps. I know I know the 20:03 difference between highest in first out 20:04 accounting versus first in first out 20:07 psychological accounting is complicated. 20:10 It's nuanced. Uh but that's just sort of 20:13 how I think about it. It served me well. 20:16 Hopefully that makes sense. Hit me with 20:17 any more questions, anyone who's got 20:19 them. Thanks everyone.