Are tax-free bitcoin transactions how society goes ‘all-in’ at precisely the wrong time?

Today’s newsletter is all about a court case. This is not something I usually write about. I mean, legal matters hardly scream real estate investment or stock trading, do they?

But this one is different. You may well change your mind after reading the headline below.

Do I have your attention now? Particularly if you’re one of the ever-growing numbers of retail investors who own a crypto currency portfolio.

Tax-free gains from the often-astronomical profits that you can gain from investing in bitcoin makes this case high stakes indeed.

What’s it all about?

Should this court case be successfully resolved, it means this: all Bitcoin-related transactions you have made since 2019 will be treated as tax-free.

Today, we shall cover this in more detail. But there is a larger truth here.

One I feel that’s even more important. Because my research of the history of the 18.6-year Real Estate Cycle has shown me that this truth has never failed to materialize.

Not for over 200 years and counting.

And this case could be the catalyst for it. Yes, it’s that important.

So, regardless of whether you invest in bitcoin or not, the outcome is paramount for you to understand how the current cycle will end.

Now let’s start by examining what’s going on.

First off, let it be known for the record that I have no personal skin in this game. I simply report the facts of it to you via the lens of the real estate cycle. That’s because I feel it is the best way to examine the world we live in.

And when it comes to arguably the most emotional asset on earth – bitcoin – it really is the best method to help block out the noise surrounding it and explore its pros and cons dispassionately.

Now I am going to quote often in this piece from a recent Australian Financial Review article which detailed the court case against a former Australian Federal Police (AFP) officer and his alleged theft of a bitcoin wallet.

A judge says bitcoin is just another form of money, which means it could be exempt from capital gains tax – a decision that upends the Australian Taxation Office’s approach to taxing cryptocurrency and could open the door to millions in refunds.

The judgment – made public for the first time here – was made as part of a criminal case brought against a former Australian Federal Police officer who allegedly stole 81.6 bitcoin in 2019, then valued at approximately $492,000. Today it would be worth just over $13 million.

Straight away, I’m sure you can appreciate the enormity of this apparent ruling. The first one of course being a judge prepared to call bitcoin “another form of money.”

As I’m sure you’re also aware, every time you spend your money, what you don’t do is turn around and pay a capital gains tax to the authorities. Money, in the form of currency such as American or Australian dollars, is a method of performing transactions between a buyer and a seller.

The judge quoted above is Victorian magistrate Michael O’Connell. He stated that bitcoin was property, but akin to Australian dollars rather than foreign currency, shares, or gold. Add those two together and you reach a profound conclusion.

Taxpayers who’ve paid capital gains tax on bitcoin transactions may be eligible for refunds collectively worth as much as $1 billion AUD!

Tax lawyer Adrian Cartland, who acted as co-barrister for the defence, was quoted as follows.

“The reasoning totally upends the ATO’s [Australian Tax Office] view because it was held that bitcoin is Australian money,” he said. “That is, it is not a CGT [Capital Gains Tax] asset. Therefore, acquisitions and disposals of bitcoin have no tax consequences.”

The crux of the matter is this: are transactions recorded on a digital ledger property, or simply information? Because whilst property can indeed be stolen, like the prosecution is accusing this former police officer of, his defense council contend that information in the form of a digital entry on a ledger, is not property and therefore can’t be stolen.

Again, to go deep into the finer details would distract from today’s newsletter.

But is this judge, right? Is bitcoin simply another form of money?

Let’s start then with how the authorities, in this case the ATO, treat bitcoin according to the tax code. According to the ATO, the tax treatment will depend on how you acquire, hold, and dispose of the asset.

Generally, for investors, crypto assets are taxed as CGT assets, and the gain or loss on the disposal of the crypto asset is included in their tax return. Now, you might like to know a fact.

I once worked in the ATO. I do know very well their viewpoint on this.

So, from their point of view, it is on you to declare just how you use bitcoin and any other crypto asset. If you use them for investment or trading purposes, it’s up to you to show this with the required data via your tax return.

If, however, you only used bitcoin and other cryptos as a form of money or exchange, and not as an investment, the onus is on you to declare and then prove that.

And, if the ATO is not happy or satisfied with your version of events, you’ll likely get passed onto their audit teams. And frankly, you really don’t want to be dealing with them every day.

So, can you imagine if the above court case does get successfully appealed, and it gets moved to the High court of Australia. Is it possible they too will agree with this judge’s final ruling?

Incidentally, here is that final ruling quoted from the AFR article.

“In my view, that [being a form of money] is sufficient to enable bitcoin to be characterised as property; that is, to use the words of the statute, as ‘other intangible property’, and I so rule.”

Or will they instead agree with the defense that bitcoin isn’t property?

I guess we shall have to find out.

For me, both sides have completely missed the point here. A fundamental misunderstanding of what bitcoin, and all cryptos, actually are.

Bitcoin is a speculative form of economic rent. Pure and simple. And all taxation is derived from rent. The rent generated by you exchanging hours of your life for a paycheck is taken back by the government via income tax.

How you use an asset derives its value to you and others. If you use cryptos as a medium of exchange, then that is its value to you.

If you invest in them, that also determines its value to you, be it a short term or long-term horizon. Bitcoin’s ability to have both feet in these two camps at the same time has long vexed tax authorities globally.

And this judge’s ruling shows that, even today, what bitcoin ‘actually’ is remains unclear.

If you work or invest in this space, I’d suggest watching this story as it unfolds.

For the rest, it’s time to show you the natural and inevitable endgame that this is all coming to.

Very soon in fact.

It’s now we face an indelible truth. One with over 200 years of hard evidence. As I have written to you, the end of the current real estate cycle is fast approaching. You must narrow your gaze and attention onto a few key events.

With the knowledge that history is unequivocal about the cause and outcome. For us to actually reach the peak, not simply the land market peak, we must witness two key things. One is you and everyone else must be completely all-in. You have no spare money anywhere, as it’s all deployed into the markets.

Secondly, you and everyone else are completely tapped out when it comes to credit. You can’t borrow anymore, your credit cards are maxed out, the bank refuses to endorse your latest 100% finance application for that condo you want.

This is the outcome. Our remaining question is what’s the cause? Could it be this?

In Australia, major players in the sector pushing for clear rules about whether the Australian Securities and Investments Commission consider bitcoin and Ethereum to be financial products. The distinction is important because if they are financial products, crypto exchanges may need to be licensed.

Analysts at VanEck are tipping bitcoin to reach $US180,000 ($290,000) during the first quarter of this year, while crypto exchange Coinstash says it expects the estimated 4.5 million Australians that already hold digital assets to double in number over the next two to five years.

Right or wrong, the tailwind present behind this inevitable mainstream adoption makes it more and more likely this is the space where we see most clearly our all-in moment. Now imagine if transacting in bitcoin becomes tax-free!

The mind boggles.

But what goes up must, eventually, come down. A peak must be followed by an ensuing crash back down to earth. So, what then? What do you do with all your crypto? How much time do you have left now to plan your next move?

Amazing as it sounds, the land market holds the key to that timing. And you can learn it here as our newest Boom Bust Bulletin (BBB) member. Let the BBB guide you on the inherent timing of the economy only knowledge of the land market can give you.

Each month this history and knowledge will be yours via monthly written editions and video postcards that will help explain the real estate cycle like never before.

Whilst it will be oh so easy to be swept up in this mania, the last to leave once the punchbowl is removed will regret it.

Make your motto from now on; profit but protect. By doing the opposite of what the crowd is doing, right when it’s the most noisy and emotional, it is the best way to stay safe.

When bubbles unwind, as they always do, it gets violent. None promise to be more violent than this space.

So, watch yourself. And get educated.

Sign up now.