The Silver Lining of a Crypto Market Decline: Tax Savings

Taking a moment to employ the right tax-reduction tactics could wind up saving you thousands on your tax bill.

AccessTimeIconNov 15, 2022 at 2:35 p.m. UTC
Updated Nov 15, 2022 at 3:42 p.m. UTC
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Cryptocurrency and digital-asset markets have seen extreme drawdowns throughout 2022. With bitcoin (BTC) alone down over 50% this year, the portfolios of many investors are in the red this year.

While investors are feeling the pain from the market downturn, it’s important to remember that crypto losses come with a silver lining: the opportunity for tax savings.

David Kemmerer is a software entrepreneur and the co-founder and CEO of cryptocurrency tax software company CoinLedger. This piece is part of CoinDesk's Tax Week.

Cryptocurrencies as an asset class possess unique characteristics that make them especially good candidates for tax-loss harvesting. Let’s break down why it’s a good idea to take advantage of your crypto losses before the end of 2022.

How losses affect taxable income

In the U.S. and many other developed nations, capital losses fully deduct against other capital gains when they occur within the same tax year.

What does that mean?

If you will have capital gains from the sales of any capital asset in 2022 – whether that be stocks, real estate or cryptocurrencies – you can offset those gains by realizing your cryptocurrency losses. That can lead to huge tax savings.

Surprisingly, there is a lot of confusion among everyday investors with regard to this fact. Many investors don’t realize that their capital losses can deduct against an unlimited amount of capital gains.

Consider the following example: Imagine Cory sells Apple (AAPL) stock in 2022 and realizes $50,000 of capital gains in doing so. If Cory is a high earner, he could face a 37% tax on that $50,000 gain, or $18,500 owed to Uncle Sam. Ouch!

Now, let’s say Cory is also holding onto 30 NFTs that he paid a total of $35,000 for in 2022. Today, the value of those non-fungible tokens is only $1,000.

If Cory harvests, or realizes, the capital losses from his NFTs by selling them for $1,000, he would reduce his taxable income by $34,000. As a result, Cory’s NFT losses would fully deduct against his Apple stock gains.

In this scenario, Cory’s taxable gains fall to $16,000 ($50,000 minus $34,000). At a 37% tax bracket, Cory would now owe just $5,920 in taxes for his capital gains.

By strategically leveraging his capital losses, Cory reduced the amount of money he will have to pay the tax man by over $12,000.

If you have offset all of your capital gains for the year and wind up with a net capital loss, that capital loss can offset up to $3,000 of your ordinary income (like the income from your job). Any remainder can carry forward to offset gains in future years.

Tax-loss harvesting in crypto

Tax-loss harvesting is by no means a new strategy. However, cryptocurrency’s unique properties make it well-suited for tax-loss harvesting compared to other assets.

Hyper-volatility: Because cryptocurrency is more volatile than other assets, it’s likely that investors will have multiple opportunities to harvest their losses during the tax year.

The wash sale rule: The wash sale rule states that you cannot claim a capital loss on a security if you buy the same asset within 30 days of a sale. Many tax professionals, however, take the position that because cryptocurrency is considered property by the Internal Revenue Service and not a security, it is not currently subject to the wash-sale rule.

To take full advantage of your tax-savings opportunities, you should analyze your portfolio prior to the end of 2022 to assess which assets present significant loss-harvesting opportunities. Software tools can be used to automate this process for you.

Remember, if you don’t realize or lock in your losses before Dec 31, you will lose the opportunity to reduce your taxable income for 2022.

Significant tax-savings opportunities should be on the table for the majority of crypto investors in 2022. Taking a moment to employ the right tax-reduction tactics could wind up saving you thousands on your tax bill.

You’ll be thanking yourself once the April 15 deadline rolls around.


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CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

David Kemmerer

David Kemmerer is the CEO and Founder of CoinLedger, a crypto tax reporting software company.

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