Tax Loss Harvesting Strategy

A discussion about how investors use tax loss harvesting at year-end, particularly in crypto markets, and how this affects market movements.

Tax Loss Harvesting Strategy

• People conduct end-of-year sell-offs in December for tax loss harvesting
• In crypto, there are no wash sale rules
  • Can sell to book loss for tax purposes
  • Can buy back in 1 minute later if desired
• This creates artificial market movements
  • Causes downward pressure in December
  • Creates upward momentum in January when people buy back in

Market Impact

• Current crypto rally (23% up) likely driven by:
  • People reentering positions after tax loss harvesting
  • Momentum chasers following the upward trend
  • Not necessarily driven by fundamental factors like inflation

Real World Example

• Milk Road newsletter tested this concept:
  • Created new growth channel
  • Initial metrics looked good (cheap signups, good open rates)
  • Validation test showed poor engagement
    • Sent personal email to thousands of subscribers
    • Only 2 people replied
    • Concluded the traffic source was low quality

Innovation in the Space

• New services emerging to facilitate tax loss harvesting
  • "Unsellable NFTs" platform mentioned
  • Provides instant liquidity for NFT losses
  • Allows users to book losses while maintaining exposure
  • Described as "useful simple tool" for tax purposes