CoinDesk
Apr 9, 2025
2 0

Tax-Loss Harvesting Enhances Returns for Multi-Asset Crypto Portfolios

The digital asset market is complex and operates continuously, making systematic investment strategies beneficial. A key advantage of systematic investing in multi-asset crypto portfolios is automated tax-loss harvesting (TLH).

Tax-Loss Harvesting (TLH)

  • TLH allows investors to sell depreciated assets to realize losses.
  • Realized losses can offset gains or ordinary income, reducing tax liabilities.
  • Investors can reinvest proceeds into similar assets, maintaining portfolio exposure.
  • This strategy defers tax obligations and supports long-term growth.

Advantages of Automation

  • Software and algorithms efficiently track cost basis and purchase dates.
  • Automation scales TLH across diverse portfolios with numerous digital assets.

Optimal Conditions for TLH

  • Works best with large, diversified portfolios allowing easy asset replacement.
  • Crypto portfolios benefit from higher volatility, enhancing TLH opportunities.

Limitations of TLH

  • Single-asset investments or ETFs limit TLH applicability due to lack of flexibility.
  • The wash rule does not currently apply to crypto, enabling some benefits even with few assets.

Getting Started with TLH

  • Investors can use separately managed accounts (SMAs) for access to liquid multi-asset portfolios.
  • SMA managers offer automatic rebalancing and TLH services.