From the Editor’s Desk

Dear Reader,

The only two certainties in life may be death and taxes – at least according to U.S. founding father Benjamin Franklin – but for the digital asset industry in Japan, those two ugly twins morph into one: death by taxes.

The Japan Blockchain Association’s recent request for a rethink of Japan’s high taxation of cryptocurrency activity can thus be seen as a cry for help, of sorts, from an industry lobby that may not have much industry left to lobby for if crypto and other digital asset businesses continue to depart Japan due to those taxes.

Yet a look around the region should also serve as a reminder that favorable tax rates are not everything. Other East Asian jurisdictions seeking to develop as digital asset hubs offer crypto taxes much kinder than Japan’s, but other ingredients of the not-so-secret sauce that can bring digital asset companies to the table aren’t always on the menu.

South Korea’s forthcoming rules framework, which is set to find expression in the country’s Digital Asset Basic Act next year, promises to go a long way toward providing regulatory certainty for digital asset businesses, yet we’re not witnessing a rush on Seoul.

Hong Kong has done much touting of its own supposedly crypto-friendly regulatory arrangements, even though in reality they’re quite restrictive.

And Singapore, true to form, has made it clear that digital assets are welcome if they’re run by TradFi and off limits to the “little people”.

If governments want to mix the sauce right, they need to take a holistic approach to supporting the digital asset ecosystem and not simply hope that lower taxes might do the trick. In short, they need to step up and do just what they would for any other promising new industry.

It seems almost too easy. So what are policymakers waiting for?

Until the next time,

Angie Lau,
Founder and Editor-in-Chief
Forkast.News

Forkast.Insights | What does it mean?

Japan appears so far to have learned the hard way that if it wants to foster a digital asset industry, it needs to create a sufficiently attractive environment in which digital asset businesses can thrive and – even if only when they become growth enterprises – turn a profit.

Offering low taxes, is, of course, a relatively straightforward means of creating such an environment for crypto companies and other businesses in the digital asset space. It’s not the only one, but its importance shouldn’t be underestimated, as the JBA clearly understands.

Indeed, its importance is such that the Japanese government is understood to have been looking at potential revisions to the way in which it taxes crypto for almost a year, seemingly prompted by the departure of a number of crypto companies from its shores.

In this light, the JBA’s proposals are eminently reasonable. After all, crypto investors in Japan face a potential tax burden of more than 50% on capital gains, and some of the taxes imposed on them are controversial — in particular, the taxation of unrealized capital gains, the very constitutionality of which the U.S. Supreme Court is set to rule in its 2023-24 session.

Neighboring South Korea levies a 20% tax on capital gains pocketed by crypto investors. Hong Kong, a city renowned for its low taxes that aspires to be a crypto hub, collects no crypto capital gains tax from individuals or companies, only tax on overall income. And Dubai, arguably the brightest spot on the crypto map, famously collects no taxes at all.

Japan’s current crypto tax arrangements, by contrast, somewhat resemble those in place in India. Japanese policymakers would therefore do well to recall the result of New Delhi’s imposition of a 30% tax on digital asset holdings and transfers last year: an outpouring of digital asset enterprise and talent from the country.

If the Japanese government wants to make good on its oft-repeated desire to be a magnet for crypto and digital asset businesses, and the development of the industry that their presence brings, listening to the industry’s plea for reduced taxes would be a good place to start.

Forkast.Insights | What does it mean?

Many consider Bitcoin’s NFT ecosystem to be a sleeping juggernaut that will one day flip the sales volume of Ethereum NFTs. Whether that’s five years out, or 10, it seems (or seemed) a realistic possibility given the significance of collectibles on the historic blockchain. That outcome seems much less certain, following weak NFT sales that highlight a growing problem with Bitcoin’s blockchain collectibles.

Just a few months ago, Bitcoin Ordinals and BRC-20s transacted millions of dollars worth of NFTs per day, even reaching highs of over US$18 million in daily sales volume in May. Now, Bitcoin collectibles trade under US$500,000 in sales daily, failing to enter the top five blockchains by sales volume and revealing a glaring problem for the blockchain that many knew was always there. 

A lack of utility is causing this drastic fall in the value of NFTs on the grandfather of blockchains. Simply put, while blockchains like Ethereum, Cardano, Polygon and Solana have smart contracts that foster endless innovation and ultimately drive value to their ecosystems’ NFTs, Bitcoin simply has Bitcoin. There’s no real utility, and thus no real opportunity to drive value to an NFT, outside of any intrinsic value the image or data may hold. By all metrics, traders are showing that the intrinsic value of Ordinals and BRC-20s isn’t worth much to them. 

An ever-increasing supply of Ordinals and BRC-20s is another immediate challenge that traders face today. While the massive supply of inscriptions shows that the community still believes strongly in Bitcoin, it is also a signal that prices may fall even further. July 30 was the single highest day of inscriptions minted on Bitcoin, with over 422,000 new inscriptions, bringing the total supply of inscriptions to over 21 million. Ordinals and Inscriptions now have a major issue with supply and demand.

Writing off Bitcoin’s ecosystem now would be a mistake, and developers may be here to offer up some utility sooner than we had thought. Just this week, the Ordinals team launched a non-profit to help fund developers in the Bitcoin ecosystem, clearly seeing the need to bring utility to this Ordinals ecosystem. Ordinals were just born in February, and it took Ethereum’s NFTs years before they ever saw the type of sales that Bitcoin traded this year. Given time to cook, developers may find the recipe for success again on Bitcoin and maybe deliver that Ethereum flipping experience that almost arrived this year. 

Forkast.Insights | What does it mean?

Demand has been rising among investors and miners with the halving of Litecoin rewards. This event, which reduced rewards to 6.25 LTC, has driven a surge in the demand for the digital currency ahead of the once-every-four-year occurrence. 

Data gathered by blockchain aggregator IntoTheBlock revealed a growing number of Litecoin’s long-term holders. The number of wallets that have held Litecoin for more than a year rose from 3.78 million on May 1 to 4.8 million by Aug. 1. Over the same period, wallets holding the cryptocurrency for at least a month grew by 540,000 to 3.67 million. 

However, a word of caution to Litecoin investors came from the network’s creator, Charlie Lee. In a recent podcast interview, Lee said that while Litecoin’s quadrennial cycles have historically ignited price rallies, investors may need to hold onto their assets longer to profit from the new, lower supply inflow. Litecoin, like the majority of other altcoins, has its price action tied close to that of Bitcoin. The next historic price rally may not occur until Bitcoin’s projected halving in April 2024, an event many analysts, including Geoff Kendrick of Standard Chartered Bank, believe will trigger a major price uptick. 

An indication of rising demand among miners is reflected in the network’s increasing hashrate, a measure of total computational power engaged in mining activities. This figure hit a record high of 802.04 terahashes per second on July 31, pointing to an intensifying level of competition in Litecoin mining, IntoTheBlock data show.

Throughout 2023 to date, data from IntoTheBlock revealed a shift in Litecoin miners’ behaviors. To maintain viability, miners have considerably reduced their holdings. Total miner reserves, defined as Litecoin balances held by miners, have dropped from a yearly high of 4.86 million LTC in April to around 2.28 million at the start of August, a decrease of more than 50%. 

For the first few months following the halving, Litecoin miners may continue their rough year due to the drop in revenue. However, the anticipated rise in price may result in long-term economic benefits for miners.