The decision to sell your Bitcoin depends on multiple factors, including your current financial situation and the market’s conditions. In this guide, we will discuss key considerations for investors contemplating whether or not to sell their Bitcoin.
Section I: The Current State of Bitcoin
The Volatility of Bitcoin
Bitcoin, like other cryptocurrencies, is known for its price volatility. Bitcoin’s price can fluctuate significantly in short periods, leading to potential substantial gains or losses. For example, Bitcoin’s price hovered around the $30,000 mark for several weeks, and following some mildly bearish news, it dropped to $26,000, only to rebound briefly past $28,000 again.
The Arguing Points for Bitcoin Sellers
Bitcoin bears argue that the digital currency’s rally at the beginning of 2023 lost momentum and the bull run could be over. Also, they indicate that Bitcoin lacks substantial value according to investing gurus like Warren Buffet. Furthermore, they highlight the absence of breakthroughs in regulations and legal codes which could deter institutional investors from putting real money into Bitcoin. Lastly, they question Bitcoin’s substance as it is just a digital construct managed by computer programs and its touted immunity from inflation is just an illusion.
The Arguing Points for Bitcoin Buyers
On the other hand, Bitcoin bulls argue that short-term market fluctuations are insignificant in the long run. They believe that Bitcoin’s long-term value creation and advancements in regulatory front make it a good long-term investment. Bulls also point out that even the investing genius Warren Buffet, who is known for his skepticism towards Bitcoin, has been known to change his stance on investments before.
Section II: Tax Implications
Understanding Capital Gains and Losses
Before selling Bitcoin, it’s important to understand the tax implications. Capital gains or losses are incurred when you sell Bitcoin, depending on the token’s value change since you received them.
Capital Gain/Loss = Selling Price - Purchase Price
If the token’s price has increased, you’ll be required to pay capital gains tax on your profits. If the token’s price has decreased, you can claim a capital loss and offset your capital gains for the tax year.
Short-term Vs Long-term Capital Gains
Capital gains tax rates depend on how long you’ve held the Bitcoin. If you’ve owned Bitcoin for less than 12 months, the short-term capital gains tax rate applies. If you’ve owned it for more than 12 months, the long-term capital gains tax rate applies, which is typically lower.
Tax-loss Harvesting and Wash Sale Rule
Bitcoin has a unique characteristic that makes it a better candidate for tax-loss harvesting than traditional equities. The IRS’s wash sale rule, which disallows claiming capital loss on securities bought 30 days before or after a sale, currently doesn’t apply to Bitcoin as it’s labeled as property, not securities.
Section III: Actionable Steps
Leveraging Cryptocurrency Loans
If you need fiat currency but don’t want to sell your Bitcoin, consider leveraging cryptocurrency loans. You can use your Bitcoin as collateral and receive fiat money as a loan.
If you decide to sell your Bitcoin, you can do so through exchanges like Coinbase, Gemini, and Kraken. Remember that these platforms typically charge transaction fees.
Managing Bitcoin Taxes
To report Bitcoin taxes after a sale, you need your original cost basis for buying the tokens. Thankfully, services like CoinLedger can integrate with all the exchanges and wallets you use to provide a comprehensive record of all your crypto transactions, making tax reporting easier.
Given the long-term value creation and advancements on the regulatory front, betting against Bitcoin now may be a decision you’ll regret in the future. However, each investor’s circumstances are different, and it’s essential to consider all factors, including tax implications, before making a decision.