Does the US have a crypto ‘tax loophole’ problem?

The crypto sector appears to have dodged another bullet. At the time of publication, the United States has reached a political agreement to raise its debt ceiling, avoiding a calamitous default on its obligations, and this resolution probably won’t include any new taxes on cryptocurrencies. 

But that doesn’t mean the question of U.S. crypto taxation is settled. The debate is likely to continue and may be transformed into something more partisan than previously assumed.

To recap: On May 21, at the Group of Seven (G7) Summit in Hiroshima, Japan, U.S. President Joseph Biden spoke out against a debt-ceiling deal with Republican lawmakers that would protect crypto traders. The protection the president referenced was tax-loss harvesting, a tax minimization strategy legal in the U.S., but viewed by many as a loophole.

However, it was the phrasing of the president’s remarks as much as their content that drew attention. Biden said:

“And I’m not going to agree to a deal that protects wealthy tax cheats and crypto traders while putting food assistance at risk for nearly a hundred — excuse me — nearly 1 million Americans.”

It’s not every day that a U.S. president speaks out about cryptocurrencies — let alone from a high-level international conclave — so Biden’s choice of words may be worth examining. He seemed to equate “crypto traders” with “wealthy tax cheats.” If so, it might suggest that crypto support may now be breaking more along Democrat/Republican lines than was earlier presumed.

This also raises some questions: Is tax-loss harvesting with cryptocurrencies a loophole in the U.S. tax system that should be closed? Would investors or traders even miss it if it were eliminated?

On a more political level, was it surprising to hear a U.S. president grouping “crypto traders” with “wealthy tax cheats” in a single phrase? One has heard many claims recently that crypto and blockchain have no party affiliation in the U.S., with lawmakers on both sides of the aisle favoring crypto reform legislation. 

Is tax loss harvesting widely used by U.S. crypto investors?

“Tax-loss harvesting is an important tool for cryptocurrency investors for two key reasons,” Nathan Goldman, associate professor at North Carolina State University’s Poole College of Management, told Cointelegraph.

First, cryptocurrencies’ prices are more volatile than traditional securities, like equities. For example, General Electric’s stock traded at $74 at the…