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Bitcoin Vs. Stocks: What is the most efficient investment in tax matters?

Bitcoin Vs. Stocks: What is the most efficient investment in tax matters?

Technology has redefined investment. Gone are the days when investors turned to chalk, paper, and blackboards while tracking trades and making calculations during trading. Today, as everywhere, transactions are carried out and updated in real-time. This means that profits and losses are also updated instantly, which reduces the margin of error when trading. After all, the information is there. But to take full advantage of these opportunities, you must first understand the most popular investment options: UITF, stocks, and everyone's favorite cryptocurrency, Bitcoin.


The group's most popular stock exchange is like a real market, but instead of commodities, traders buy and sell shares of the company. And, like any other transaction, equity transactions (buying and selling) are taxed. To start trading, you will need a reliable broker's services to connect you to the market.

Stock trading is the perfect combination for investors who have knowledge or experience in previous investments. This does not mean that you should not try it out if you are a beginner. It just means that the learning curve is much steeper.


The Bitcoin era has arrived. Bitcoin is new and fresh and can be good or bad for investing. Like cryptocurrency par excellence, Bitcoin is a digital, albeit volatile, market fueled by the "exploitation" and trading of several code lines. Although we can talk in detail about Bitcoin's benefits, we will save it for another day. What you need to know is that Bitcoin is a digital currency; that is, it is not represented by coins or banknotes. All balances are kept in a common public book called blockchain, a ledger that contains all Bitcoin transactions.

To exchange Bitcoins, you will need a public and private key. A public key is like your bank account number that other people can see to make transactions with you. The private key is used as a PIN code to authenticate transactions.

This type of investment is recommended for experienced traders, and being knowledgeable in technology helps a lot! Due to its volatile nature, forecasting knowledge and experience is crucial. If you only have a superficial understanding of the cryptocurrency market (or if you don't trust your instinct to trade on the go), you need to be careful. Remember, unlike other markets that have opening and closing hours, bitcoin is traded 24/7, 365 days a year.

When it comes to different types of investments, keep in mind that one market behaves differently from another. These are the main differences:

There is no difference in capital gains.

In terms of capital gains, there is no tax difference between bitcoin gains and capital gains. Cryptocurrencies such as bitcoins are treated as "property" per IRS Notice 2014-21. If you have Bitcoin as an investment, they are subject to the same capital gains tax on stocks and securities.

Capital losses: Bitcoin offers a more frequent collection of tax losses.

Bitcoin offers a significant advantage in terms of harvesting losses, since it is treated as "property" and is not subject to the sale rule of recycling, like stocks and securities.

Any investment portfolio, whether made up of bitcoins, stocks, or anything else, goes through ups and downs. When your securities are in the red (i.e., when the market value is less than you have invested), you can take advantage of the sale of the investment to collect tax losses. Tax losses can reduce the overall bill, so these savings can be reinvested to increase the portfolio value. Therefore, the more tax losses you can get without facing any restrictions, the more you can generate and reinvest in your portfolio.

Bitcoin allows you to collect tax losses more often than stocks, which leads to more theoretical savings. Because bitcoins are treated as property (relative to inventory), they are not subject to the wash sale rule. The wash sale rule prohibits claiming losses on shares or securities sold at a loss and repurchasing a "substantially identical" share or value within 30 days before or after the initial sale. However, since bitcoin is treated as property, you don't have to wait 30 days to collect the losses.


Let's say John buys $ 10,000 in Amazon stocks (10 stocks for $ 1,000 each) on January 1, 2020. On January 20, 2020, Amazon stocks were traded at a price well below $600 per share. If you sell your position and buy ten more shares for $ 600 per share, you will not be able to claim a capital loss of $ 4,000 ($ 1,000 - $ 600) x 10) due to the money laundering rule. Therefore, the washing sale rule does not allow you to lose $ 4,000. 

If John replaces Amazon's stock with bitcoin, he can claim this loss without being subject to the wash sale rule. You can recover these losses whenever your portfolio turns red. Some cryptographic tax programs allow you to do this automatically.


One thing to note is that the continued collection of tax losses before the 30-day window is not explicitly allowed or denied according to current cryptographic guidelines. Given that § 1091 refers only to "stocks and securities" (not property), it could be argued that cryptocurrencies are exempt from money laundering rules. That said, the abusive practices can be subjected to the substance in question to compensate for the loss.

Although it may seem contradictory, segregating losses is positive for your portfolio, inevitably going through ups and downs. Therefore, in the Bitcoin vs. Stocks battle, Bitcoin wins in tax treatment.

Dennis Jao
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