Puerto Rico is a great place to live, especially if you make your living from investments. I was pleasantly surprised to see this NY Times article over the weekend. It’s a great read. I moved to Puerto Rico because I’m a tech entrepreneur and I have this fantasy of creating one more startup with a meaningful exit, and if I do that as a Puerto Rico Act 22 decree holder, then I will pay $0, yes zero dollars in capital gains tax on that exit. It seems the nouveau crypto riche have also figured this out!
Towards the end of last summer I started meeting cryptoricans, crypto investors/entrepreneurs who were moving to Puerto Rico for the tax advantages. After Hurricane Maria I thought that the influx of Act 22 folks would slow down, but to the contrary it seems to be speeding up. The biggest faction seems to be the cryptoricans. We now have a WhatsApp group and there is an upcoming conference called Puerto Crypto. I love it!
Party like 1999?
I joined a dotcom company (Inktomi) back in 1996. I distinctly remember attending a conference where I met an investor who was skeptical that the dotcom stocks could continue to grow, he was convinced there must be a crash coming. I was just an engineer but his comments made an impact. I remember thinking that our revenue was growing like crazy so it made sense that our stock price matched that growth. In the end it wasn’t sustainable. Is the same thing happening with the crypto currencies? When my non-techie friends contact me and are frantic to buy Bitcoin, it makes my spidey sense go crazy. In 1999 we had irrational exuberance and I fear that we are getting there again. Yes, I think crypto currencies are cool. I think they will be around for a long time. But what value do they really bring to the table? Mr. Money Moustache thinks they are stupid because they don’t create real value.
Not having government oversight has it’s plusses and minuses. If you’re living in a country like China or Vietnam where the government strictly controls the movement of currency, having access to a crypto currency could be very useful. It might be interesting to do an analysis of the blockchain to see if you could deduce where most assets are held. You could look at the IP addresses in the blockchain and see where most of them are located. This would be an interesting research project. Most sophisticated users will have masked their IP addresses by using Tor or a VPN, but in the VPN case it might still be possible to make the IP to a specific country. Say a particular VPN company is popular with Chinese users, then the IP addresses of that VPN company could be assumed to be mostly Chinese users.
Why Puerto Rico?
The NY Times article mentioned that Puerto Rico has the advantages of the tax incentives but that there could also be some government support for things like a bank. Having an actual bank that also supports cryptocurrencies would be a big deal. However, the anonymous nature of cryptocurrencies goes against a lot of banking regulations. However, companies like Coinbase now require users to register with their social security numbers, so if there was a similar requirement to use a crypto bank, then that could be an interesting compromise.
Personally I’m interested in datamining the Bitcoin blockchain to get a feel for whats in there exactly. I’m also interested in tools that help crypto investors keep track of their holdings. If you keep everything at Coinbase, then your life is simple in terms of reporting and just tracking your investments. However, if you move things around, which I’m assuming most users will do, actually keeping track of your portfolio (and capital gains/losses for the IRS) will be complex. I think there are some interesting projects in this space that I might start exploring.