The Market Crash
News has broken on Bitcoin’s value drop to around £16,500, leading to the crash of the entire crypto market. Last November Bitcoin reached an all-time high, but the value has dropped by a staggering 70% since then. Some experts are even advising investors to watch out for a ‘final washout’ with the potential to push Bitcoin’s price to as low as £11,000.
This news has caused quite a lot of panic for some investors as some people have made significant financial commitments to cryptocurrencies. As a result, when the crypto market collapsed, it may have felt as though the entire world has collapsed along with it for these investors.
Many people are now seeking advice on how to proceed with their Bitcoin holdings in this current volatile market, and we’re here to help guide you on what the best course of action is for your situation.
The Impact of The Market Crash
Before the crash, investors were trying to understand the tax repercussions of their cryptocurrency investments, particularly in relation to how their gains would be taxed. Now the market has crashed, investors should turn their attention to understanding the tax implications of generated losses.
In the UK, you are able to report losses to HMRC to reduce your total taxable gains in the same tax year. You can also deduct your unused losses from previous tax years if your current tax gain is still above the tax-free allowance. So to put it simple, if you have reduced your capital gains to the tax-free allowance, then you can carry forward your remaining losses to the next tax year.
What Are Your Options After The Market Crash?
Are you holding cryptocurrency in this current loss position? Don’t panic, there are actions you can take to help minimise the damages to your own personal investments. So the question is, what should you do next? Here are your options:
1. Continue To Hold
Many speculate that the value of Bitcoin may eventually rise again in time, so it may be recommended to not make any significant changes at this current time. Tax is only applied once the sale is recognised, so for the taxpayer, it will not cost anything to sit back and wait for the possibility of Bitcoin to increase in value.
2. Sell Low
Yes… you read that right. Whilst experts may argue there is a huge risk in selling low if investors were to unload their cryptocurrency, they should do this with their inherent tax benefits in mind (which is especially true when the drop in value is expected to continue to decrease). By biting the bullet and selling your cryptocurrency at a loss now rather than later, you will allow for your tax benefits to be generated before further loss incurs.
Secondly, crypto is not yet overlooked by the ‘wash sale rule’; the rule is only currently applied to stocks and securities. One tax-efficient strategy is to explore selling your crypto at a loss, so you can harvest capital losses, with the potential to buy the exact same asset back. This creates the opportunity to offset current or future capital gains taxation.
How We Can Help:
Are you still weighing up your options for what to do next? Here at taxefficientcrypto.com, we can get you in touch with specialist crypto tax advisors so you can plan out your own tax-efficient strategy in response to the recent market crash.
Every investor is different, so it’s important that you get the right expert advice on identifying what opportunities you have in the most efficient way possible.
If you’re still undecided on what to do, you can get in touch with our team today.
