Why tax season may be adding to the rout in Bitcoin, cryptocurrencies

Why tax season may be adding to the rout in Bitcoin, cryptocurrencies

I had assumed that wash sales were contributing to the downturn. I know that I’ve been doing what I can before the rules change. I figured that others were doing the same thing.

Last week of the year could get ugly looking as folks scramble to find those last few wash sales. But all other things being equal (i.e. barring exogenous events), crypto should start to pick up again once January hits.

The annoying thing is that wash sales don’t apply to real estate so it is very inconsistent across platforms.

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True. But real estate is a different animal. It’s not a liquid market, it’s local, transaction costs are high and it takes time to settle a transaction. Real estate also isn’t a security. With securities or crypto (which might or not be a security depending on the latest regulatory body whim and whether you’re talking to the SEC or OCC), you can do a wash sale very quickly at fairly minimal cost.

A wash sale essentially is a tax deferral mechanism, which can be very beneficial. You create a somewhat artificial tax loss now (used to offset other gains) but it lowers your basis in the instrument. At some point in the future when you sell, and assuming the value in $ terms has increased, the amount that is taxable could have increased materially. But perhaps at that point, you’d be in a lower tax bracket or the government could have lowered tax rates.