Although the cryptocurrency sector suffered horrendous pain this year, investors can still mitigate the damage via cryptos to sell for tax-loss harvesting. What exactly is tax-loss harvesting? It’s the practice of selling losing investments to offset capital gains (in some of the winners sold). This way, investors can keep more of their money while streamlining their portfolios.
Of course, as the CFA Institute points out, every situation is different. Therefore, if you have specific questions about what to do, please consult a tax professional. Do not reach out to me because I am not a tax professional nor should this be construed as tax advice. Rather, this article serves as ideas that other investors implemented to reduce their liabilities.
Moreover, the point of cryptos to sell for tax-loss harvesting centers on making the most out of a bad situation. For investors that want to stay involved in the blockchain ecosystem, it probably makes sense to stick with the top two benchmark cryptos. Almost everything else probably exposes you to unnecessary risks. With that out of the way, below are seven cryptos to sell for tax-loss harvesting in 2022.
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I don’t mean to pick on Solana (SOL-USD) given the terrible circumstances that fell on the underlying blockchain community. Unfortunately, the project’s connection to the FTX bankruptcy imposes many distractions. As a Coindesk report mentioned, the FTX fallout wiped out $700 million from Solana’s decentralized finance (DeFi) network.
To be fair, the folks involved with Solana are picking up the pieces and moving forward. Nevertheless, the concern for market observers centers on lasting damage to sector confidence. With so many people losing money on the FTX platform, it’s invariable that at least some will lose faith in the DeFi concept. It’s a shame but those are the consequences of operating a “Wild West” ecosystem.
However, with so much negativity baked into SOL right now, it makes for an ideal candidate among cryptos to sell for tax-loss harvesting. For instance, if investors absorbed heavy losses in SOL, they could potentially use the red ink to offset capital gains.
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According to the website supporting the ApeCoin (APE-USD) initiative, APE is a “token made to support the evolution of art, gaming, entertainment, digital and physical events, storytelling, and everything else web3 dreams up.” Unfortunately, ApeCoin may suffer from the FTX fallout in a similar manner to Solana.
No, APE isn’t directly connected to the FTX bankruptcy per se. However, all blockchain ecosystems may be suspect following the platform implosion. For one thing, a psychological barrier now exists. It’s hard to imagine that people who lost money in the FTX failure – some who lost big chunks of their life savings – would be so eager to jump back onto another blockchain platform.
Second, the FTX lesson is that while finance may be decentralized, so too are morals. In other words, without laws and regulations, people who are able to cheat others will do so. However, with regulation, cryptos might not be so exciting. Still, APE represents one of the cryptos to sell for tax-loss harvesting. With prospects likely dim (for now), you might as well use the red ink for some good.
Bitcoin Cash (BCH)
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A hard fork or offshoot virtual currency of the original Bitcoin (BTC-USD) asset, Bitcoin Cash (BCH-USD) used to generate much excitement during the bull run that ended in late 2017/early 2018. However, in the latest bullish cycle, BCH hardly made a noise relative to its prior rally. At its peak, the average price trended less than $1,500. However, in late 2017, Bitcoin Cash marched toward $3,000.
In hindsight, I should have exited my position since then. However, I (foolishly) held on because I lacked financial urgency in the matter. I received BCH as part of the aforementioned hard fork so the pressure of losing money was simply nonexistent. However, that might not be the case for everyone. For those that did lose on BCH, you might consider adding it to cryptos to sell for tax-loss harvesting.
Frankly, with the Federal Reserve determined to tighten liquidity in the system to combat inflation, deflationary risks run high. While BCH might rise again, it probably won’t happen in the next few months. That’s why it makes more sense as part of cryptos to sell for tax-loss harvesting in 2022.
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You’re going to notice in the disclosures below that I own some of the cryptos to sell for tax-loss harvesting. Unfortunately, Cronos (CRO-USD) is one of them. With the news swirling about the FTX bankruptcy, CRO may represent another name to take the plunge. While the two are not connected as far as I can tell, CNBC flagged Cronos as a risk.
Specifically, the business news agency stated that before founding Crypto.com (which symbolized Cronos’ original brand name), “Kris Marszalek was involved in multiple ventures that ended in collapse, including one where suppliers claimed they were unable to access their earnings.”
Like FTX, Crypto.com featured prominently in several famous institutions, particularly professional sports. Frankly, Cronos presents a rough lesson: you win some, you lose some. However, it may be best for investors to consider making the best out of a rotten situation rather than exacerbating the circumstance with unwarranted hope. Thus, CRO may be one of the cryptos to sell for tax-loss harvesting.
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At one point, Decentraland (MANA-USD) ceased to operate as the penny stock equivalent of virtual currencies and popped up to a respectable valuation. However, this newfound status did not last long. Eventually, MANA fell back down to literal penny stock status. At the time of writing, traders can acquire MANA units for just under 40 cents.
As The New York Times demonstrated, Decentraland and its ilk boomed because of the metaverse. Loosely described as the next generation of internet connectivity, the metaverse enables people to “upload” their personalities into digital ecosystems. Decentraland represented one such ecosystem, with plots of “land” selling for top dollar.
Unfortunately, the virtual currency fallout materialized late last year and circumstances now look inauspicious. While MANA might eventually find its mojo again, I don’t see it happening for a long time. The metaverse thing has just been a stinker so far. In the meantime, then, MANA offers a cynically excellent idea for cryptos to sell for tax-loss harvesting.
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Earlier in the crypto journey – when there weren’t over 20,000 of these things – Dash (DASH-USD) provided an intriguing alternative. An open-source blockchain and virtual currency, the Dash network concentrated on fast, cheap global payments. However, this narrative eventually soured as other, more advanced competitors arrived on the scene.
I think the problem is that there will always be other competitors in the broader tech space. And because the blockchain concept itself is open source, what made Dash so appealing ends up becoming its downfall. Users want the latest and greatest thing, sending DASH further down the rankings. Fundamentally, if you’re not seen in this space, you’re going nowhere.
In addition, the number of Dash holders (based on unique addresses) appeared to dip conspicuously around mid-November this year. Therefore, a recovery might materialize but probably not soon. This dynamic makes DASH worth consideration for cryptos to sell for tax-loss harvesting.
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Confession time: Tether (USDT-USD) doesn’t really make sense if you’re purely looking for cryptos to sell for tax-loss harvesting. If you’re new to the blockchain, that’s because Tether is a stablecoin or digital asset pegged one-to-one with fiat currency; in this case, the underlying currency would be the U.S. dollar. Therefore, selling Tethers is akin to converting a digital dollar into a real one.
However, a possibility exists that Tether may not have the resources to back up the USDT coins. In other words, Tether might claim a 1:1 relationship with each issued USDT coin but is it really so? We don’t have a comprehensive audit and analysis so it’s difficult to say. To be fair, Tether passed prior tests with flying colors. Then again, past results do not guarantee future performance.
For me, too much risk stands in holding excessive exposure to USDT or any other stablecoin. Go ahead and own a nominal amount: I do exactly that. However, I believe owning an extensive amount of wealth in stablecoins is utterly foolish at this time.
On the date of publication, Josh Enomoto held a LONG position in BTC, BCH, CRO, MANA, and USDT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.