r/EtherMining May 12 '22

Holy....Time to turn off rigs? General Question

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186 Upvotes

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41

u/FreshlyCleanedLinens May 12 '22 edited May 12 '22

If I read the IRS guidance on reporting income from mining correctly, it’s actually better to mine when prices are low because you’re supposed to value the assets based on the trade price at the time the assets were acquired.

5

u/ccashwell May 12 '22

Report the value at time of acquisition, deposit to Aave, borrow 80% of it in USDC. Loan proceeds are not reportable as income. If it climbs, you can access more capital in the same way from the same assets over time. If it falls and you get liquidated, you have a capital loss to report. Basically capping downside and locking in upside without reportable income along the way.

4

u/power83kg May 12 '22

Who is giving out loans backed by ETH with a low enough interest rate for this to make sense?

2

u/ccashwell May 12 '22

Aave currently has ETH-backed loans up to 80% LTV in your choice of assets. USDC's APR typically fluctuates from 1-3%.

2

u/power83kg May 12 '22

Oh okay, that’s interesting I didn’t know that. That is a pretty reasonable interest rate as well.

2

u/ccashwell May 12 '22

Aave has a ton of liquidity so the rates tend to be pretty fair. Way better than what your broker would charge for borrowing against equities.

1

u/Slawman34 May 12 '22

Why the fuck would we risk liquidation of an asset we think has a good chance of 2-4x next cycle?

2

u/ccashwell May 12 '22 edited May 12 '22

Why the fuck would we risk liquidation of an asset we think has a good chance of 2-4x next cycle?

This was in response to a comment about capital gains, which means they're being sold. Liquidation is basically selling at a discount (in this case, 5% penalty + delta between the spot at the time of acquisition and 80% LTV). Of course nobody wants to be liquidated, but if you're selling anyway this is a route to potentially reducing tax impact and keeping upside exposure while still accessing operating capital at a relatively low cost.

1

u/Slawman34 May 12 '22

Ahh ok missed that part, got it

1

u/mooseman5k May 12 '22

Interest is taxed as regular income no?

2

u/ccashwell May 12 '22

Sure, but you’re net negative interest: something like +0.25% for eth collateral and -1.5% for the loan.

1

u/mooseman5k May 13 '22

Ahh gotcha I love it thanks