To understand this better, it is essential to first understand how cryptocurrency taxation works.
The IRS (Internal Revenue Service) treats cryptocurrencies as property for tax purposes, which means that they are subject to capital gains tax.
Capital gains tax is levied on the difference between the purchase price and the selling price of a cryptocurrency.
If an investor sells their cryptocurrency for a higher price than they paid for it, they will owe capital gains tax on the profit.
However, if the investor sells the cryptocurrency for less than they paid for it, they will incur a capital loss.
The good news is that these capital losses can be used to offset other capital gains in the same tax year.
For example, if an investor made a profit on the sale of a stock and incurred a loss on the sale of their cryptocurrency in the same year
they could use the loss to offset the gain and reduce their tax liability.