Tax-Loss Harvesting

Tax-loss harvesting is the practice of deliberately selling assets that have fallen below their purchase price in order to realize a capital loss, which can then offset capital gains and, in some jurisdictions, a portion of other income. In crypto, it is typically done near the end of a tax year by investors reviewing which holdings sit at a loss relative to their cost basis.

For example, an investor who realized a gain earlier in the year by selling bitcoin at a profit might sell an altcoin position currently worth less than they paid for it; the realized loss reduces the net gain they must report. Some investors then repurchase the asset if they still want exposure, but this is where rules diverge sharply by jurisdiction: many countries apply "wash sale" or similar anti-avoidance rules that disallow the loss if the same or a substantially identical asset is bought back within a set window, and whether such rules cover crypto varies and has been the subject of ongoing legislative attention.

A common misconception is that harvesting eliminates tax; it defers or reduces it, and repurchasing at a lower price also lowers the new cost basis, meaning a larger gain later if the asset recovers. Because the mechanics depend entirely on local law, this is a general description of the strategy, not tax advice.