Trading FAQ
The wash sale rule exists to stop investors from selling a losing position purely to bank a tax loss while immediately buying back into the same market exposure. Under IRS Notice 2014-21, cryptocurrency is classified as property for federal tax purposes, similar to real estate or collectibles, rather than as a "security" the way stocks, bonds, and ETF shares are classified. Because Section 1091's wash sale rule is written to apply specifically to securities, property that falls outside that definition — cryptocurrency included — is not currently subject to it. This has been widely referred to as the "crypto wash sale loophole."
Spot Bitcoin ETFs hold actual Bitcoin, but the ETF shares themselves are securities, issued and traded the same way any other exchange-traded fund is. Selling shares of a spot Bitcoin ETF at a loss and buying back the same or a substantially identical ETF within 30 days before or after the sale can trigger a wash sale and disallow the loss, even though the ETF's underlying holding is a cryptocurrency. This distinction matters for anyone who holds Bitcoin exposure through an ETF wrapper rather than by holding the coin directly on an exchange or in a wallet.
| Direct Crypto (coin-to-coin) | Spot Bitcoin ETF Shares | |
|---|---|---|
| IRS classification | Property | Security |
| Wash sale rule applies? | No (as of 2026) | Yes |
| Can rebuy same day and keep the loss? | Yes | No, inside the 30-day window |
Congress has repeatedly proposed closing this gap. As of this run, the most current proposal is the Digital Asset PARITY Act, which would extend wash sale treatment to digital assets alongside other changes such as allowing mark-to-market elections for digital asset traders and clarifying staking and mining tax treatment. As of the most recent tracking available, this legislation had not passed, meaning crypto remained exempt from the wash sale rule at the time of this article. Tax rules in this area have changed before and can change again, so this is exactly the kind of detail worth reconfirming before relying on year-end tax-loss harvesting.