Understanding the Core Points and Professional Advice on Cryptocurrency Tax Treatment in Mainstream Jurisdictions
Written by: Bryan Courchesne, Coindesk
Translated by: Portal Labs
In the world of Web3, compliance discussions often overlook tax issues, which are among the most challenging to handle.
Although cryptocurrency trading is still not open in mainland China and the relevant tax system is in a state of ambiguity, globally, cryptocurrency has gradually been incorporated into mainstream tax regulatory frameworks, particularly in the United States, where reporting requirements are becoming more detailed and mandatory.
From the transparency of on-chain behavior to the tax reporting challenges of CEX and DEX, and the cost basis tracking obligations for personal wallets, the Web3 world is being covered by a more sophisticated and stringent tax framework. More critically, once the compliance pathway opens, tax obligations become the first entry threshold.
For high-net-worth investors with global asset allocation needs, understanding these evolving systems is not a distant proposition but an important reference for judging future compliance trends and optimizing cross-border structural arrangements. Therefore, Portal Labs has compiled and translated this tax observation content to help everyone understand the core points and professional advice on cryptocurrency tax treatment in mainstream jurisdictions.
The following is the main text.
As tax advisors deeply engaged in the cryptocurrency field, we are well aware of the unique tax treatment scenarios for such assets. For example:
Cryptocurrencies are not subject to "wash sale rules," allowing for more efficient tax loss harvesting strategies.
Direct asset exchanges (such as BTC-ETH or ETH-SOL) are supported without needing to first convert to fiat currency.
These characteristics create a stark contrast between cryptocurrency assets and traditional investments.
However, investors must be cautious of the complex data generated by multi-platform operations, which often lead to tracking challenges during tax season.
Cryptocurrency tax management is not a last-minute task at year-end but a year-round endeavor—especially when you are active on multiple centralized exchanges (CEX) and decentralized platforms (DEX). It is important to note that every transaction, exchange, airdrop, staking income, or cross-chain transfer could trigger tax obligations at any time.
Tax Pain Points of Trading on Centralized Exchanges
When investors use centralized exchanges (CEX) like Coinbase, Binance, or Kraken, the year-end tax summaries provided by the platforms often have two major flaws: incomplete cross-platform data and broken cost basis tracking. This sharply contrasts with traditional securities markets—
In traditional stock trading, if you buy Amazon stock through a Fidelity account and then transfer it to a Charles Schwab account:
The original cost basis automatically synchronizes and transfers.
Each transaction updates the holding data in real-time.
Charles Schwab directly generates an accurate 1099 tax report (fully presenting annual gains and losses).
However, in the cryptocurrency world, when you transfer assets from Kraken to Coinbase:
The cost basis resets to zero (original purchase information does not transfer with the asset).
Cross-platform liquidity creates a data black hole (requiring manual entry for each transaction).
Tax season faces a nightmare of data reconstruction (missing records will lead to tax reporting discrepancies).
This structural flaw forces cryptocurrency investors to establish a year-round transaction ledger system, especially when assets flow between multiple CEXs and decentralized platforms (DEXs), where every exchange, airdrop, or even cross-chain transfer could ignite a taxable event.
Trading on Decentralized Exchanges
Using DEXs is even more complex. When connecting wallets like Coinbase Wallet (note: not the Coinbase exchange) or Phantom to decentralized trading platforms like Uniswap or Jupiter, these DEXs neither provide tax reports nor track your cost basis, placing the responsibility for recording and verifying each transaction entirely on you.
If you miss recording a token exchange or forget to document the fair value of withdrawing from a liquidity pool, your tax reporting could be distorted. This could trigger an audit by the IRS and even lead to the loss of deduction eligibility. While some applications can calculate gains and losses for a single wallet address, these tools often fail when assets are transferred between addresses—significantly reducing their practical value for active users.
More challenging is the fact that if you trade frequently on DEXs, you are likely in a loss position. However, even losses must be accurately reported to qualify for deductions. Otherwise, you risk losing your deduction rights and, worse, facing a tax audit.
Unless you are a professional cryptocurrency trader, the time and effort required to track each transaction not only becomes a source of stress but also results in real economic losses.
Q: How to Ensure Tax Compliance?
There are several ways to prepare for cryptocurrency tax obligations:
Start using tax software, but still manually verify transaction logic and timely calibrate data.
Hire a cryptocurrency tax expert or choose a tax advisor familiar with the crypto ecosystem.
Export all transaction logs and have a certified public accountant build the cost basis and calculate actual gains and losses.
As adoption rates increase, tax reporting will inevitably evolve. In the meantime, continuously tracking transaction activities is crucial for preparing for tax season.
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Q: Why are advisors closely monitoring cryptocurrencies?
A: Institutional inflows into cryptocurrency have surged to $35 billion. Although cryptocurrencies are more volatile than traditional assets, since 2012, mainstream cryptocurrencies like Bitcoin have consistently outperformed traditional asset classes.
Q: What are the differences in tax treatment between cryptocurrency assets and stocks/bonds?
A: There are fundamental differences in tax treatment between cryptocurrency assets and stock/bond products.
Cost tracking by wallet. Advisors must independently calculate the cost basis for each wallet (mandatory from January 2025).
Tax reporting vacuum. Exchanges rarely provide traditional 1099-style tax reports, especially with little support for self-custodied assets.
Q: What professional advice do you have for certified public accountants and tax advisors?
A: Compliance has become a statutory requirement. For the 2025 tax year reporting:
Wallet-level cost basis reporting will be mandatory (according to IRS Notice 2024-21).
IRS Form 1099-DA will be implemented for the 2026 tax year (Section 80603 of the Infrastructure Investment and Jobs Act).
There is a general lack of reporting support for exchanges regarding self-held digital assets (SEC 2023 Compliance Guidance III.C.2).
Forward-looking tax institutions are integrating the following three core capabilities into high-end service products:
Cryptocurrency tax reporting
Tax audit response
Decentralized finance (DeFi) accounting treatment
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