The Current Bitcoin Drawdown Is Your Tax-Saving Opportunity: A CPA's Guide to Tax Loss Harvesting

As a financial professional, I'm constantly looking for ways to help clients optimize their tax situation. The current bitcoin market pullback isn't just noise—it's an opportunity sitting right in front of you.

If you bought bitcoin in the past year, there's a good chance you're looking at unrealized losses right now. Here's what most investors miss: those paper losses can be transformed into real, immediate tax savings while you maintain your full bitcoin exposure.

Let me walk you through how this works and why the window of opportunity may not stay open forever.

The Tax Loss Harvesting Strategy

Tax loss harvesting is simple in concept: sell an asset at a loss to realize that loss for tax purposes, use the loss to offset capital gains (or up to $3,000 of ordinary income), then immediately repurchase the asset to maintain your market position.

For traditional stocks and securities, this strategy is hamstrung by the wash sale rule—you must wait 30 days before repurchasing, which exposes you to potential price recovery you'll miss out on. You're forced to choose between tax savings and market exposure.

But here's the critical difference: bitcoin is classified by the IRS as property, not a security.

This means the wash sale rule currently doesn't apply. You can sell your bitcoin at a loss, claim the tax deduction, and repurchase immediately—even within the same hour. You get the tax benefit without giving up your exposure to potential price recovery.

Let's Run the Numbers

Consider this common scenario I'm seeing with clients right now:

You purchased 0.5 BTC at $100,000 in March for a total investment of $50,000. Bitcoin is currently trading around $85,000, putting your position at $42,500. That's a $7,500 unrealized loss.

Let's say you also sold stock earlier this year and realized $10,000 in short-term capital gains (held less than one year).

If you execute a tax loss harvest:

• Sell your 0.5 BTC, realizing the $7,500 short-term loss

• Immediately repurchase 0.5 BTC (or more if you'd like to increase your position)

• Use that $7,500 loss to offset the $10,000 in short-term capital gains from your stock sale

• Your net taxable short-term gain drops to $2,500

• At a 24% federal tax rate, that's $1,800 in tax savings ($7,500 × 24%)

• You maintain identical bitcoin exposure going forward*

*Note: Short-term losses (assets held ≤1 year) first offset short-term gains, then long-term gains. Long-term losses first offset long-term gains, then short-term gains. This matching order matters because short-term gains are taxed at higher ordinary income rates while long-term gains receive preferential tax treatment. In this example, your short-term bitcoin loss offsets short-term stock gains taxed at 24%, maximizing your tax benefit.

Your cost basis resets to the current market price of $85,000, and you've converted a paper loss into tangible tax savings. If bitcoin recovers to $100,000, you're back to even on your position—but you've pocketed $1,800 in real tax savings that you wouldn't have captured by simply holding. Meanwhile, you've reduced your tax bill on those stock gains from $2,400 to just $600.

Why This Matters Right Now

As we approach year-end, time is running out to realize losses that can offset 2025 gains. Any capital gains you've realized this year—whether from stock sales, real estate transactions, or other investments—can be offset with harvested bitcoin losses.

And here's the strategic piece many investors overlook: if your losses exceed your gains, you can use up to $3,000 to reduce ordinary income this year, with any remaining losses carrying forward indefinitely to offset future gains.

The current drawdown creates the perfect setup. You have clear unrealized losses available to harvest, and the regulatory loophole that makes immediate repurchasing possible is still intact.

The Wash Sale Loophole Won't Last Forever

Let me be direct about something: there are active legislative efforts to extend wash sale rules to cryptocurrency. The Infrastructure Investment and Jobs Act originally included provisions to close this loophole, and similar proposals continue to circulate on Capitol Hill.

When (not if) this changes, bitcoin investors will face the same 30-day waiting period that stock investors deal with, eliminating the ability to harvest losses without market exposure risk. The current regulatory environment is a temporary advantage.

As a financial advisor, my guidance is clear: use legitimate tax strategies while they're available. This isn't about gaming the system—it's about operating within the current legal framework to optimize your tax situation.

Executing the Strategy: The Bitcoin Well Infinite Advantage

The mechanics of tax loss harvesting are straightforward, but execution matters. You need to sell your position, realize the loss, and repurchase quickly enough to avoid price movement risk.

For clients executing significant tax loss harvesting strategies, Bitcoin Well Infinite's OTC desk offers a distinct advantage. They understand that tax loss harvesting transactions require speed and certainty, and they've structured their service accordingly.

Speak with our OTC team

Here's what sets them apart for tax harvesting:

First, Bitcoin Well Infinite is accommodating clients executing tax loss harvesting strategies by considerably lowering their trading fees. When you're realizing losses specifically for tax purposes, the last thing you need is unnecessary friction eating into your tax savings. Lower fees mean more of your tax benefit flows directly to your bottom line.

Second, as a non-custodial platform, Bitcoin Well never holds your bitcoin. You're selling from your own wallet and receiving bitcoin directly back to your wallet. There's no custody risk, no platform exposure, no third-party control during the critical execution window.

Third, their OTC desk handles larger transactions with personalized service. You're not dealing with an algorithm or a thin order book—you're working with professionals who understand the urgency of year-end tax planning and can execute efficiently.

The combination of reduced fees, non-custodial security, and professional execution makes Bitcoin Well Infinite particularly well-suited for investors implementing tax loss harvesting as part of their year-end strategy.

Implementation Checklist

From a planning perspective, here's how to approach this systematically:

Step 1: Identify Your Lots Review your bitcoin purchases and identify positions currently trading below your cost basis. Use specific identification method rather than FIFO to target your highest-cost lots first—this typically maximizes your realized losses.

Step 2: Calculate Tax Impact Determine how much capital gains you've realized this year from all sources. Your harvested losses will offset these gains dollar-for-dollar. Know your tax rate and calculate the actual cash benefit.

Step 3: Execute the Harvest Sell your selected lots through Bitcoin Well Infinite or your preferred platform. Save all transaction confirmations, fees, and timestamps. If maintaining your position, immediately repurchase the same amount of bitcoin (or more if you're looking to increase exposure during the drawdown).

Step 4: Document Everything Maintain detailed records of dates, amounts, fair market value at sale, purchase prices, and all fees. You'll report each sale on Form 8949, which flows to Schedule D of your tax return. If you're using specific identification, your documentation must be airtight.

Step 5: Coordinate with Your Overall Tax Picture This isn't a standalone strategy. Coordinate your bitcoin loss harvesting with your total investment picture, other capital transactions, and your comprehensive tax plan. Consider whether you have other loss positions worth harvesting, anticipated gains in future years, and your overall asset allocation strategy.

Important Considerations

A few technical points that matter:

State Taxes: While federal wash sale rules don't currently apply to bitcoin, some states have their own provisions. Check your state's treatment of cryptocurrency for tax purposes.

Multiple Exchanges: If you hold bitcoin across multiple platforms or wallets, treat each acquisition separately. Your cost basis and holding period track to each specific lot.

Short-Term vs Long-Term: Harvested losses offset gains of the same character first. If you're offsetting short-term capital gains (taxed at ordinary income rates), the tax benefit is larger than offsetting long-term gains.

Audit Trail: The IRS is increasingly focused on cryptocurrency compliance. Maintain comprehensive documentation—transaction records, wallet addresses, platform statements, and cost basis calculations. Crypto tax software can help, but verify the accuracy.

Don't Leave Money on the Table

After years of working with high-net-worth individuals and business owners on tax optimization, I can tell you this: the biggest regrets I see are missed opportunities, not aggressive strategies that backfired.

Tax loss harvesting isn't aggressive—it's basic tax efficiency. You're operating entirely within IRS regulations, using a legitimate strategy that's available to every bitcoin investor. The current drawdown creates the conditions where this strategy delivers maximum benefit.

The December 31st deadline isn't flexible. Losses realized in January don't help your 2025 tax bill. If you're sitting on unrealized bitcoin losses and you've realized gains elsewhere this year, you have a planning opportunity sitting in front of you right now.

Moving Forward

Bitcoin's volatility creates regular opportunities for tax loss harvesting. Smart investors build this into their annual tax planning routine, systematically harvesting losses during drawdowns while maintaining their long-term conviction in bitcoin as an asset.

The current regulatory environment—specifically the absence of wash sale rules for bitcoin—makes this strategy particularly powerful right now. Use it while it's available.

If you're looking to execute a tax loss harvesting strategy before year-end, reach out to the Bitcoin Well Infinite OTC desk to discuss their reduced fee structure for tax harvesting transactions. Their non-custodial approach and personalized service can help you execute efficiently while keeping full control of your bitcoin.

The drawdown is temporary. The tax savings are real. The regulatory loophole won't last forever.

Make your move before December 31st.

Speak with our OTC team

Disclaimer: This article is for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and vary by individual circumstances. Always consult with a qualified CPA, enrolled agent, or tax attorney before making tax decisions. Bitcoin Well is not responsible for any tax liabilities, penalties, or interest charges resulting from your use of this information.