According to a Bloomberg report, the pullback in Bitcoin prices at the end of 2025 has provided cryptocurrency investors with a rare and highly attractive opportunity for Tax-Loss Harvesting.

Because current US law classifies cryptocurrency as "property" rather than "securities," these assets are not yet subject to the "Wash-Sale Rule." This allows investors to sell positions at a loss and immediately buy them back. This operation can effectively offset annual capital gains and even deduct against a portion of ordinary income.

The Core Mechanism and Legal Basis of Tax-Loss Harvesting

"Tax-Loss Harvesting" is a common strategy in financial management. Investors sell assets that are currently showing a loss on their books to realize those losses, thereby offsetting taxable amounts from other investment gains (such as stocks or real estate).

In the United States, if capital losses exceed capital gains, investors can offset up to $3,000 of ordinary income (such as wages) per year. The rationale behind this strategy is to lower the overall tax burden and convert "stuck" losses into tangible tax assets, optimizing the after-tax yield of the investment portfolio.

The Unique "Wash-Sale Rule" Exemption for Crypto

The most significant difference between crypto and stock trading lies in the "Wash-Sale Rule."

For Stocks: If an investor buys a "substantially identical" security within 30 days before or after selling a stock at a loss, that loss cannot be claimed for tax deductions.

For Crypto: Under current IRS classifications, Bitcoin and similar assets are Property, meaning the 30-day restriction does not apply.

This means an investor can sell Bitcoin on December 31st and repurchase it within minutes. This legal "window" allows cryptocurrency investors to realize tax losses without altering their long-term holding positions.

MicroStrategy executed its only Bitcoin sale to date in late 2022 specifically for tax purposes, repurchasing 2,500 BTC just two days later. The company stated at the time that the loss from selling Bitcoin could be deducted from previous capital gains, allowing them to receive a tax benefit if federal tax law permitted such deductions.

The Critical Deadline: December 31st

The US tax year follows the calendar year, making December 31, 2025, the deadline for tax planning. Any transaction intended to count toward the current year's tax deductions must be executed by this date. Since the cryptocurrency market operates 24/7, this gives investors immense flexibility to make adjustments right up until the final moments of the year.

Strategic Move: Stocks Up, Bitcoin Down

With gold and the stock market generally rising this year while Bitcoin has trended downward, a divergence has emerged. This creates a clear tax incentive for investors holding multiple asset classes:

The Strategy: Sell losing cryptocurrency positions before December 31st to offset gains from the stock market.

Target Audience: This is particularly relevant for investors who bought near the cryptocurrency price peaks in October.

Will Cong, a Professor of Finance at Cornell University, notes that the timing of Bitcoin's price drop this year is crucial. Investors who bought near the highs can now exit to harvest losses, a significantly amplified opportunity given this year's market volatility.

Whether Bitcoin will rebound in January 2026 remains unknown. Cong’s research indicates that the typical "January Effect" in cryptocurrency only appeared after the IRS strengthened supervision in 2018.

Regulatory pressure is set to increase further:

Starting in 2026, exchanges and brokers will be required for the first time to report gross proceeds from cryptocurrency sales to the IRS using the new Form 1099-DA.

Disclaimer: None of the information contained here constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy.