2nd August 2024 > > The UK again.

tl;dr

Again, a very UK-centric CCC today, so I apologise to our overseas readers who should go and find something better to do instead.

Market Snap

Market Wrap

Bloomberg’s headline today includes the comment “The flight out of global equities is becoming a stampede.” Really? A 2% sell-off in US equities is nothing to write home about. Sure, Japanese equities are having a hard time of it, but the market cap of US stocks is nearly ten times greater. There does seem to be a tendency to dramatise stuff during August.

What is of more interest is the reducing yields across the curve though 2s/10s remains inverted at 19bps, a damning indictment of US fiscal and monetary policy. Three US interest rate cuts in 2024 are now priced in. Will that start today?

Occasional Series – The BBC tax

I haven’t paid the BBC tax for many years now. Which means that I had not seen Huw Edwards do his stint each evening until he resigned for “medical reasons”.

Now that we know he will receive an annual £300,000 pension paid from the BBC tax (even whilst he spends time in jail), I am even more comfortable with my decision to legally opt out of paying it. I urge you to do the same.

Curious Cryptos’ Meme corner

Curious Cryptos’ Commentary – UK tax and staking rewards

As a follow-up to yesterday’s CCC (I admit I completely forgot to include this bit) there is a potential minefield on the topic of staking rewards.

HMRC has put out the following guidance:

Indicators for income returns:

• Return was earned by providing a service to the DeFi platform

• The extent of the return was known at the time of the agreement (e.g. 4% APY)

• Return is paid by the DeFi platform to the liquidity provider

• Return is paid periodically

• The staking period is fixed or short-term

Indicators for capital returns:

• Return is unknown and speculative at the time of the agreement

• Return is realized by disposing of a capital asset

• Return is realized from the growth in value of a capital asset by the liquidity provider

• Return is paid as a one-off payment

• The staking period is indefinite or long-term

When I look at my portfolio of staking coins (ADA, ALGO, AVAX, COSMOS, ETH, INJ, IOTA, MATIC, MINA, SOL, XTZ) it seems very clear to me that all of these coins fall into the capital returns section.

However, HMRC has also publicly stated that it expects most, if not all, staking rewards to be recorded as income.

I suspect squaring that circle with HMRC is going to take many phone calls, and a lot of time.

…

And that’s just the concept.

If you look at the practicalities, this is yet another nonsensical rule from the pen-pushers.

Whether the rewards are income or capital (with one possible exception to the latter), HMRC expects to see the date of the reward, the crypto price as of that date, and therefore the fiat value of that reward. Given that rewards are mostly accrued on a daily basis, you would need an industrial style means of collating all that information. It almost seems deliberately designed to fit into the whole Choke Point 3.0 approach to cryptos.

This rule also raises the possibility of paying tax now (income or capital) on an asset whose future value might be zero.

That is definitely Choke Point 3.0.

My solution has been to boldly state that I will pay CGT when I sell the asset for fiat (if ever) and not before, on that basis of practicality and frankly immateriality in the scheme of things. I guess the incoming dramatic increases in CGT will help my argument as I will be paying a greater amount of tax in the future. Again, I will let you know how I get on.

Curious Cryptos’ Commentary – The UK

Heavens above, the BoE has decided to manipulate the very short end of the gilt market downwards, in yield terms (according to media consensus “cutting interest rates” but that phrase just does not adequately explain what is going on).

Andrew Bailey, an improvement yet still very limited successor to the previous R n R incumbent, remains extremely naïve about life. He claimed that the Bank’s manipulation of bond prices higher was because “inflationary pressures have eased enough.”

Consumer goods inflation – which he is talking about – is determined by global supply chains that can easily be disrupted by global events, and subsequent political decisions (QE, Covid, shutting down the global economy, then supercharging QE, disguised QE in the form of awarding millions of public sector workers pay rises far in excess of inflation, do I need to go on?). Add to that the desire by the US government to surreptitiously increase dollar liquidity globally in the face of an insurmountable on-balance sheet debt burden of $35 TRILLION, then it is clear that a 25bp reduction in the short-end of UK rates is irrelevant in every respect.

Cut rates to just below 1% now and the UK economy would benefit from doing so. An even rosier scenario is to remove the manipulation entirely and let the market determine all points of the yield curve. Once the success of doing so is recognised, all other countries will quickly follow.