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When crypto prices fall, many of us do the same thing: We stop looking at our portfolio.

That may be how you’ve chosen to deal with the recent plunge in Bitcoin, or the sell-offs in other markets too. But ignoring your portfolio won’t make the financial consequences disappear — especially when taxes are involved. In fact, market downturns can create opportunities for investors who understand the rules, and potentially reduce your tax bill.

When it comes to taxes, crypto is treated more like stocks, real estate, or collectibles — not like currency. And because of that, taxes usually come into play only when you dispose of crypto, meaning you sell it, trade it, or spend it.

That could include:

•   Selling crypto for dollars

•   Swapping one crypto for another

•   Using crypto to buy goods or services

So, when you trade Bitcoin for Ethereum, the IRS sees that as selling the Bitcoin. If its value went up since you bought it, that gain may be taxable. But if you sell crypto for less than you paid, the opposite may be true: that loss can help lower your taxes. Interested in lower taxes? Stay with us.

Crypto taxes generally fall into two buckets: capital gains (or losses) and income. Capital gains or losses apply when you sell or trade crypto. Just like with stocks, what matters is the difference between what you paid and what you sold it for.

How long you hold it also matters. Crypto held for more than a year may qualify for lower long-term capital gains rates. Sell sooner and any profits are usually taxed at your ordinary income rate. (Sometimes crypto is taxed differently. When you earn rewards from staking or get paid in crypto, it’s classified as income the moment you receive it – even if the price falls later.)

If you sell crypto for less than you paid, your losses can:

•   Offset gains from crypto or stock trades

•   Reduce taxable income by up to $3,000 per year

•   Carry forward to future tax years

This strategy is known as tax-loss harvesting. In other markets, investors often wait until the end of the year to think about tax-loss harvesting. But crypto’s volatility means downturns can create opportunities throughout the year. That’s one reason that market declines – including this current one – aren’t always purely financially negative.

So what?

Though crypto may feel like a new financial frontier, when it comes to taxes, the rules will be pretty familiar to traditional investors. And in a downturn, those rules can sometimes turn a loss into a win. Three practical moves can help:

1. Review your positions during market drops: If an investment has fallen significantly, realizing the loss could help offset gains elsewhere in your portfolio.

2. Understand which actions trigger taxes: Buying and holding crypto isn’t taxable. But selling, trading, spending, or earning crypto often is.

3. Keep detailed records: Track purchase prices, dates, and transfers. Exchanges may provide summaries or even transaction logging, but you’re still ultimately responsible for accurate reporting.

One more thing: The IRS is paying closer attention to crypto activity. Tax forms now ask directly whether you had digital asset transactions, and reporting rules now require exchanges to share transaction data with regulators (via form 1099-DA).

Related Reading

•   How Cryptocurrency Is Taxed: A Complete Guide for 2026 (SoFi)

•   IRS Crackdown on Popular Crypto ‘Tax Cheat’ Begins With 2025 Filing Year (CNBC)

•   5 Crypto Tax Mistakes That Could Trigger an IRS Audit (CoinDesk)

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