A SLOW WEEK WITH NEW OPPORTUNITY
The crypto market cooled down a bit this week. Bitcoin led the downturn by coming off the $14K USD high to retrace about 43% (down to $10K USD) over five days. With bitcoin’s impressive performance skyrocketing to a 170% increase over 58 days at its peak last week, don’t be fooled into thinking the markets have turned into bear territory. The bull trend is still alive and kicking. Bitcoin has been respecting the 200 day moving average (MA) on the 4 hourly charts of $9,300 and this indicator has been a strong level of support throughout bitcoin’s history. It’s true that nothing ever goes straight up.
Further confirmation of the positive market sentiment could be gleaned from an interview with Crypto Tips this week, where Fundstrat’s Tom Lee outlined his views on the current market moves and really highlighted how early we are in this bull run and crypto in general.
Lee says, “(theoretically) … if bitcoin was to become as prevalent as Visa and Mastercard, bitcoin’s per unit value would be in the hundreds of millions of dollars per bitcoin…”
Let that sink in for a moment. Millions of dollars per bitcoin. And he’s not wrong.
Lee added “If you look at FANG (Facebook, Amazon, Netflix and Google), these are probably the four most important stocks in the S&P500, a huge source of wealth creation, I think it accounted for 25% of the price gains of the S&P…” over the last 20 years, “…they were all beneficiaries of an internet adoption cycle.”
Now, take this perspective and apply it to the crypto markets, remembering that there will only ever be 21 million bitcoin in circulation. Ever. Assume crypto growth follows a similar trajectory, with general adoption of bitcoin as rampant as it was for FANG. That would make $1M+ bitcoin not such a far out thought.
Coming back to earth for a moment, let’s work through the fundamentals at play looking at the comparison of the crypto boom with the internet/tech boom. The more companies, governments and countries building upon this infrastructure, the more pick-up there’ll be over the coming years. This broad adoption will fuel regulation and the massive players, like Facebook’s Libra coin, coming into this space will help to validate bitcoin, and the technology behind it. This will help to ensure bitcoin is maintained as a meaningful store of value much in the same way gold has been perceived over the last several centuries. But the big difference is that bitcoin and cryptocurrencies have use cases, many use cases in fact, and the industry is only in its infancy.
Plenty of estimates have been made around the current global percentage of active bitcoin users. While you’ll always find contrary opinions, the majority of estimates are below around 1% of the world’s population, and some even sitting below half a percent! To put that into perspective we can take a look at how internet user growth expanded, and link it back to Tom Lee’s comments from earlier.
Global number of internet users since 1990 to present: Source here
The first seven years of the internet growth cycle compared with crypto growth.
@cryptomaniacs also puts this into perspective.
For those of you who are pretty new to the space, always remember that crypto is made up of Satoshis (SATs) in the same way that dollars are made up of cents. So for example, if you have $1,150 dollars to invest and the value of one bitcoin is $11,500 then you can buy 100,000 SATs of bitcoin.
To dig a little deeper:
- 1000 SATs = 11.5 cents.
- 100,000 SATs = $11.50
- 10,000,000 SATs = $1,150
- 100,000,000 SATs = 1 bitcoin = $11,500
Image source: Cryptocrushr
It’s a good time to get educated on crypto. While the industry is still relatively new in the scheme of things, the space is undeniably developing at a rapid pace and any head start you can get is a good head start. Already by reading this, you are one of the few and not the many. Price movements like the ones we’ve seen over the last few weeks are normal in a growing industry so don’t panic! Stay smart and stay informed.
FEAR & GREED
Each week we’ll take a look at the Crypto Fear & Greed index, a widely recognised indicator of how the markets are acting. A value of 0 indicates “Extreme Fear” and a value of 100 indicates “Extreme Greed”.
If you are interested in buying or selling crypto you can use this indicator to help with your decision. Generally, if the space is becoming overbought (greedy) it’s a good time to think about selling and if it’s oversold (fearful) then it could be a good entrance point. Of course, that is a general guide only and your decisions should always be accompanied by fundamental analysis and thorough research. Miningstore offer some great courses for all trading levels, drop by sometime.
THE FACTS ON CRYPTO AND TAX
The most boring time of year. Tax time. As most of us begrudgingly start to think about reaching out to our accountants and desperately try to remember exactly where that “safe place” is we filed our receipts, our mates at the Australian Taxation Office are busy trying to work out how to get in on crypto.
Their website states “…If you acquire cryptocurrency as an investment, you may have to pay tax on capital gain you make on disposal of the cryptocurrency.”
So the first question becomes, “what exactly is considered an investment?”
They go on, “Certain capital gains or losses from disposing of a cryptocurrency that is a personal use asset are disregarded.”
If crypto is an interest/hobby of yours and you are in the space in a limited capacity, for the enjoyment of buying products with cryptocurrency, then you are probably not in it for financial or business gain and taxation wouldn’t apply here.
But if you are trading daily for profits or it’s your main source of income then the below applies.
“You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. Even if the market value of your cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.”
Let’s say you bought bitcoin for $10,000 and sold it for $11,000, making $1,000. That $1,000 would be taxable along with your standard personal income at the rate corresponding to your earnings bracket.
The Capital Gains Tax (CGT) exemptions on cryptocurrencies are similar to other asset classes where if you hold (or HODL in crypto terms) for more than 12 months you are entitled to a reduction in tax (usually 50%) but consult your accountant for this.
Important: if you make a loss on your activities then you are likewise able to claim these as capital losses. Remember though, if you do this in one year it could set a standard for future years that you are in this space for financial gain, so keep that in mind.
- I have held my crypto for years and years – surely I am exempt?
The ATO disagree, saying “The longer a cryptocurrency is held, the less likely it is that it will be a personal use asset – even if you ultimately use it to purchase items for personal use or consumption”. In their eyes, the longer you hold it for, the more it becomes a taxable event because it is unlikely you are holding it as a personal asset for purchasing items etc.
- I was a victim of a hack or theft, do I still have to pay tax?
If you are able to prove that you have irrevocably lost the asset (cryptocurrency) then you will be entitled to claim this as a loss.
- I have a crypto miner but I’m not in it for profit
While each case would be viewed independently, if you were mining cryptocurrencies as a hobby and not as an ongoing business then the assumption could be made that anything mined wouldn’t need to be claimed with your tax. However, if you had a decent sized setup, that could be seen as an ongoing business then you would need to claim the revenue from these miners. Keep in mind you could also claim the electricity costs associated with running these and depreciate the upfront cost of the miners. This is a tricky space though, so take some time to think through your personal situation and if you are a hobbyist.
- Do I have to keep records of my crypto transactions?
Keep a solid track of your trading and cryptocurrency movements throughout the year. Some mining store members recommend SublimeIP as being helpful, affordable and fast to deal with. Basically, SublimeIP takes all your raw data from various exchanges and compiles a record of trades ideal for tax time.
As is the case with all tax, always seek professional advice. The above is opinion-only and shouldn’t be treated as advice for your personal tax position.
ErisX GAINS CFTC APPROVAL FOR PHYSICALLY SETTLED CRYPTO FUTURES
In last week’s rundown we talked about LedgerX gaining CFTC approval for physical bitcoin derivatives. And it seems they’re at it again, granting ErisX a licence and allowing them to operate as a derivatives clearing organisation (DCO). ErisX is backed by U.S. TD Ameritrade which was valued at $27.65B USD as at 3rd July 2019. It’s reassuring that mammoth companies like this are investing in cryptocurrency platforms because it shows a demonstrable and accountable belief in a bright future and growth potential. And with ErisX futures also physically backed, all underlying assets will need to be owned by the company – and that equals more demand for cryptocurrencies.
The approval puts ErisX and LedgerX in a race to be the first to launch in this space. Last week LedgerX claimed to be 6 months ahead of the competition however as at time of writing, neither company has announced a fixed timelines for launch.
Author: Julian Carruthers
Not financial or investment advice, always do your own research.