Bitcoin hit the $50,000 level for the first time in more than two years as the world’s largest cryptocurrency was buoyed by expectations of interest rate cuts later this year and last month’s regulatory nod for U.S. exchange-traded funds designed to track its price.
The cryptocurrency has risen 16.3% so far this year, on Monday touching its highest since Dec. 27, 2021. At 12:56 p.m. EST (1756 GMT), bitcoin was up 4.96% on the day at $49,899, having oscillated around the $50,000 level.
“$50,000 is a significant milestone for bitcoin after the launch of spot ETFs last month not only failed to elicit a move above this key psychological level but led to a 20% sell-off,” said Antoni Trenchev, co-founder of crypto lending platform Nexo.
Crypto stocks also enjoyed a boost on Monday, with crypto exchange Coinbase (NASDAQ:COIN) up 4.9% and crypto miners Riot Platforms (NASDAQ:RIOT) and Marathon Digital (NASDAQ:MARA) up 10.8% and 11.9%, respectively. Shares of software firm MicroStrategy — a notable buyer of bitcoin — were up 10.2%.
The price of ether, the second-largest cryptocurrency, was up 4.12% at $2,607.57.
Global stock indexes also edged higher on Monday, as traders looked for cues on when the U.S. Federal Reserve might begin cutting interest rates. Analysts and financial market expectations both point to May as a potential start for rate cuts this year.
ETF EXUBERANCE
The primary driver behind bitcoin’s recent price appreciation “can be attributed to the increased inflow into BTC spot ETFs,” said Matteo Greco, a research analyst at fintech investment firm Fineqia International, in a research note.
The U.S. securities regulator on Jan. 10 approved the first U.S. spot bitcoin ETFs, a watershed for the world’s largest cryptocurrency and the broader crypto industry, which had been trying to bring such a product to market for more than a decade.
Greco in particular noted that outflows from Grayscale Investment’s Grayscale Bitcoin Trust — which received approval from the U.S. Securities and Exchange Commission (SEC)in January to convert to an ETF — have begun to slow.
“While GBTC recorded a cumulative outflow of $415 million last week, representing a significant reduction from previous weeks, BTC Spot ETFs saw a total net inflow of about $1.2 billion during the same period, marking the highest weekly inflow since their launch,” he said.
Analysts at Bernstein have estimated that flows into the new ETFs will build up gradually to cross $10 billion in 2024, while Standard Chartered (OTC:SCBFF) analysts have said the products could draw $50 billion to $100 billion this year alone. Other analysts have said inflows could be $55 billion over five years.
The market is also eyeing seven pending applications in front of the U.S. SEC for ETFs tied to the spot price of ether. The SEC is due to deliver a final decision on several of those proposals by May.
Investors are also looking eagerly to the next bitcoin “halving,” expected in April, analysts say. That process is designed to slow the release of bitcoin, whose supply is capped at 21 million tokens – of which 19 million have already been created. Bitcoin rallied on the previous three halvings, the most recent of which was in 2020.
“With (the) fourth bitcoin halving, a first Fed interest rate cut and potential ethereum spot ETF approval, all are significant for what is the smallest, youngest and most retail-dominated asset class,” said Ben Laidler, global markets strategist at eToro.
Clarity For Capital Gains Tax
By Soh Lian Seng- The long-awaited Capital gains tax (CGT) is now in effect in Malaysia beginning 1 January 2024, which is admittedly off to a rough start given the ambiguity and ongoing updates to the legislation.
Last month(on 16 January 2024), the Finance Minister II Datuk Seri Amir Hamzah Azizan announced that exemptions will be given to unit trusts in respect of CGT and income taxes on the remittance of foreign sourced income (FSI). This update drew a resounding cheer as it’s a positive move to encourage individuals to continue investing in unit trust funds and to bridge the inequality in financial inclusion.
However, it should be noted that this is not a blanket exemption because the exemptions are given for specified exemption periods, i.e., 1 January 2024 to 31 December 2028 for CGT and 1 January 2024 to 31 December 2026 for FSI of unit trusts.
Continued scrutiny of the definitions and provisions included in this tax unearthed more questions than answers. To help shine some light on the CGT complexities, let’s cover key aspects of the CGT and its implications to note.
What are some of the challenges and ambiguities found in understanding and implementing CGT?
1. Tax returns for CGT will need to be filed electronically within 60 days from the date of disposal of capital asset and the tax must be paid within 60 days from the date of disposal. The 60-days rule applies to disposal of unlisted shares of a company incorporated in Malaysia and disposal of Section 15C shares.
For disposal of foreign capital assets, we understand that the gains arising from the disposal is only subjected to CGT when remitted into Malaysia. However, we are still awaiting further clarification on the reporting / declaration mechanism and whether the 60-days rule is applicable.
2. The law requires the market value be taken as the disposal and acquisition consideration in certain circumstances where the transactions are not at arm’s length, or between connected persons, or by way of gift, or the consideration cannot be valued.
The market value of transfer prices is an obvious area of scrutiny by Malaysia’s Inland Revenue Board (IRB). We foresee that the valuation of shares in unlisted companies would attract disputes where the IRB may impute its own market value if they believe the prices are distorted.
Also, where it’s an internal restructuring transaction, it’s common for transfer to be effected at Net Tangible Asset. To require valuation for companies would be additional cost to businesses.
3. Although the tax net has been widened to capture gain on disposal of Section 15C shares (i.e., shares of a controlled company incorporated outside Malaysia which owns real property situated in Malaysia or shares of another controlled company, subject to meeting the 75% threshold conditions), there are questions about how IRB intends to capture this tax revenue. This is especially if the transaction takes place entirely outside Malaysia between two foreign parties. A clear and well-thought-out mechanism must be put in place to enable effective tax collection by the IRB in this context.
The Domestic component of CGT will come into effect on March 1 2024. What clarifications need to be addressed prior?
Based on the Budget 2024 announcement, the proposed exemptions in respect of the Malaysian CGT are expected to cover disposals of shares as part of an approved initial public offering and intragroup restructuring exercises.
We expect detailed guidelines to be released by the tax authority soon and not near to March 2024 to address the proposed exemption urgently. As a point of reference, the tax authorities in Singapore and Hong Kong have released their guidelines in respect of the application of their respective CGT provisions and we hope Malaysia’s guidelines will be just as detailed to erase ambiguities.
For companies mainly holding real estate, does the CGT replace real property gain tax?
Based on the current drafting of the Real Property Gains Tax Act 1976 and the CGT provision in the Income Tax Act 1967 (the Acts), I would say yes.
For a company holding real estate, if the disposer is a company, limited liability partnership, trust body or co-operative, it’s now under capital gains tax because regardless of whether the company is a real property company (RPC), disposal of unlisted shares will be covered under CGT.
If the disposer is an individual or if it’s a Labuan company (fulfil substance requirement), then they are still subject to RPGT on disposal of shares in a RPC. The current Acts seems to provide that RPGT cannot be charged on disposal of real property so I hope the authority can review and update the relevant legislation quickly.
Caveat: The above applies on the assumption that the real estate held are not the company’s stock in trade. Because gain on disposal of stock in trade would be assessable as income from business source, and not CGT.
Soh Lian Seng is Partner- Head of tax, KPMG Malaysia