Insights

The Crypto Market Is Down—Time to Take Advantage of Tax-Loss Harvesting

It's not time to panic; it's time to put tax-loss harvesting strategies to good use.

By: Michelle O'Connor

VP of Marketing

Published on:

Stricter policies are on the way from the Federal Reserve. 

The Fed recently raised interest rates by the largest amount since 1994 to counter high inflation. This news, combined with broader macroeconomic conditions, has hit the crypto market hard.  The total crypto market cap dropped below $1 trillion for the first time since January 2021 after a record high of $3.1 trillion in November 2021. Also, Bitcoin and Ethereum have dropped precipitously to their lowest points since the end of 2020.

Does that mean it’s time for individual crypto investors to panic? Absolutely not. 

Now is the time to take a deep breath and take advantage of crypto tax-loss harvesting strategies. 

What is tax-loss harvesting? 

Tax-loss harvesting is an investment strategy where you sell your assets at a loss to offset your capital gains. Most people use this strategy on an annual basis, but with an asset like crypto—where the price can fluctuate significantly throughout the year—it’s more efficient to take advantage of market dips. 

Tax-loss harvesting could increase your investments over the long-term by decreasing your tax liability and freeing up more money for you to invest. 

For a complete overview of crypto tax-loss harvesting, please read our guide

What is the wash sale rule? 

A wash sale occurs when a taxpayer harvests losses on a stock or security, but purchases the same one, or a substantially identical one, within the 30 days before or after the sale. The IRS doesn’t allow the deduction of these losses.

The wash sale rule was implemented to discourage taxpayers from abusing tax-loss harvesting by selling an asset just for the tax benefits.

Does the wash sale rule apply to crypto? 

No, the wash sale rule doesn’t apply to cryptocurrency or any other type of digital asset. Currently, it only applies to stocks and securities as of June 2022. 

So what does that mean? It means that tax-loss harvesting with a crypto investment is more effective than it is with stocks or securities. You can sell and repurchase the same asset without having to wait a minimum period of time. 

To learn more about the wash sale rule, please read our quick guide.

How TaxBit’s Tax Optimizer can help

TaxBit’s made it easy for you to take advantage of tax-loss harvesting throughout the year, especially during market dips, with our Tax Optimizer.  

The Tax Optimizer lets you know when an asset’s current value is lower than your purchase price, also referred to as the asset’s cost basis. 

Our tool makes it easier for you to: 

  • Identify crypto tax-loss harvesting opportunities 

  • See your unrealized position and losses in real-time

  • View both short- and long-term capital gains

For a full overview of TaxBit’s Tax Optimizer, please read our article

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