A fungible asset is mutually interchangeable with another identical item.
In reality, very little is truly fungible. Whether we are talking about my battered laptop, I’ve made these notes on. The cheese sandwich that I will eat for lunch is non-fungible. The under-used treadmill in the spare room
They are all non-fungible.
For example, I may choose to purchase 100 shares in Tesla. However, I don’t care which ones are purchased. Similarly, if I want to sell 50 of those shares, then I am unlikely to care which ones I sell and which ones I keep.
Of course, it is a valid argument to say that each share is, in reality, identifiable as it has its own share number. As such, treating shares as fungible might be said to be an administrative policy.
This is the same for cryptocurrency. Coins such as Bitcoin, Ethereum and DogeCoin are fungible tokens.
Non-fungible tokens are, on the other hand, unique. They can be identified – usually by a number.
NFTs are strongly lined with art projects. Perhaps most famously, collections such as Bored Ape Yacht Club and Cryptopunks. This type of NFT is referred to as a profile picture (strangely abbreviated to PFP) in the community.
NFTs are often used for other types of art – see Artblocks Curated and Fidenza – which are more akin to fine art projects, music projects – with the Kings of Leon released an album as an NFT - and digital equivalents of collectibles such as good old fashioned trading cards.
The disposal of both fungible and non-fungible tokens is, other than in exceptional cases, likely to lead for a disposal for capital gains tax purposes.
One of the main differences is that the CGT concept of pooling applies to fungible cryptocurrencies such as bitcoin and Ethereum. Broadly, this means that one brings in the average acquisition cost of the total holding of the assets on a disposal.
One also needs to bear in mind that the bed and breakfasting rules also apply to fungible tokens.
Whether you are just getting started or have been investing in cryptocurrency for several years, our tax specialists can provide bespoke advice to support you in achieving your objectives tax-efficiently. Please get in touch.
