Crypto is becoming a big deal at the moment.
Finder.com's latest research shows that 17 per cent of Australians now own crypto, up from 5 per cent just three years ago.
Of course Bitcoin is the most well-known crypto, and some people claim it will become a new world currency. Even august institutions such as Forbes are now forecasting that Bitcoin will reach a value of US $100,000 by the end of 2021. It's anybody's guess, but one thing is certain: there is a major impediment to Bitcoin becoming a new global currency, and that is volatility. At date of writing, a Bitcoin was worth $US47,031 - that's an increase of 330 per cent over the last year, but a fall of 15 per cent over the past six months.
An essential element of any currency is stability. If I receive $4000 in my pay packet today, I would expect what that would buy over the next six months would be fairly stable. I would not expect a 15 per cent fall in my purchasing power.
But Bitcoin is just the tip of the iceberg. My son James, who is based in in Los Angeles, tells me the hottest crypto play right now is non-fungible tokens, or NFTs.
NFTs are goods or assets that aren't interchangeable: it's creating or having something you can't replace with something else. Fungibles are things, like Bitcoin, that you can interchange - one for another. Non-fungible tokens are units of data stored on a blockchain and certified as a unique digital asset and, accordingly, non-interchangeable. You can look at them as a digital equivalent of private collectables - each piece has a different value.
They're hot property in these days of celebrity worship. What could be better than getting a limited edition piece from Kim Kardashian's latest fashion release?
And they have taken off in a range of areas. You can now buy digital artworks, unique sporting memorabilia - even the NBA has launched its own collection of NFT cards. Expect other codes to follow suit; the possibilities are endless.
James tells me the big favourite is NFT horse racing. The National Association for Stock Car Auto Racing (NASCAR) has partnered with Virtually Human Studio (VHS) to create virtual racehorses that compete on a virtual racecourse. Races take place 24 hours a day and anyone can join in by buying a digital horse to breed or race, or to have a bet. You can start with a little as $2, or pay $125,000 or more for an NFT racehorse. The promoters claim each racehorse is unique because it lives in an algorithm.
I just can't get my head around it. Are people really prepared to pay big money for digitally created horses that have been designed by artificial intelligence? Maybe I'm old-fashioned, but it just sounds like gambling to me.
Anybody in the crypto space is only buying Bitcoin or an NFT in the hope that somebody else will buy it for a higher price. It reminds me of the wonderful old story about a box of strawberries that kept changing hands at ever-increasing prices. Finally, a buyer opened the box and exclaimed: "These strawberries are rotten." The seller responded: "But these strawberries were never meant to be eaten - they were meant to be sold."
NOEL ANSWERS YOUR MONEY QUESTIONS
I am 80 and have a few thousand Afterpay shares which are now worth more than $1 million. I do not want to sell them and trigger a Capital Gains tax event, but wish to give them to my daughters who would hold them. I could put the shares into my will, but I would like to see their faces when they receive them. Is there a way of gifting the shares to the girls so that my CGT responsibility passes through to them only if or when they sold them?
If you give the shares to the daughters now it will be a CGT event and you will be liable for capital gains tax. If you leave them the shares in your will your death that will not trigger a CGT event - there will be no capital gains tax payable until they dispose of them. Another complication is that Square have made a takeover offer for Afterpay which is subject to shareholder approval, but if approved will result in your Afterpay shares being compulsorily acquired in exchange for shares in Square. Afterpay shareholders will be able to opt to take shares either Square Inc Class A shares listed on the New York Stock Exchange, or in the form of CHESS Depositary Interests (CDI) that will be listed on the ASX. If history is a guide the acquisition will not trigger a CGT event and the Square shares will inherit your present cost base. Maybe a way to have your cake and eat it too is to liaise with your accountant and gift only sufficient shares yearly so no CGT is payable.
I have nominated my three adult children in a Binding Death Benefit on my super account. I was told tax-wise it would be of greater benefit to my children if I nominated my estate as my beneficiary so they get the money via my will disbursement, because this way it would be tax-free as an inheritance, compared to them having to declare the receipt of the benefit on their tax returns if they received it from my super account. Is this correct?
The taxable component of your superannuation fund will suffer a tax of 17 per cent (15 per cent plus Medicare levy) if it is paid directly to a non-dependent. I assume, as your children are adults, that they would be non-dependents. If they receive the money via your will from the superannuation fund, the 15 per cent tax will be payable, however the 2 per cent Medicare levy will not apply. The only way to eliminate the death tax is to withdraw your superannuation tax-free before you die and deposit it in your bank account. You could then bequeath it to them as part of your estate with no further tax consequences, or even give it to them before you die. My preference would be to give it to them sooner rather than later so you can enjoy it with them.
- Noel Whittaker, author of Retirement Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org