Options on...Taxes?

Almost without fail, every year as we approach December 31st, the conversation among financial investment professionals and traders shifts to taxes. The world of crypto is no different, and is arguably even more heavily driven by tax considerations given the large price moves that can be experienced in just one calendar year. 

While most crypto folks are talking about funds and long holders liquidating long positions in order to take tax losses before the end of the year, we're seeing another tax trend that, naturally, involves optionality. 

The recent sell-off and low bitcoin price has drawn interest from institutions that have been on the sidelines wanting to buy bitcoin but have been waiting for the right entry point. As these folks start to build positions, the question I always ask myself as a former trader is -- why now? Do they think this is the low? Are they worried that we'll get a rally in January and they don't want to miss out? Are they significantly more bearish on non-crypto assets? 

Perhaps. But there could be one more explanation. 

There's a key difference between building a long position in December and building it in January, which is that the tax year ends on 12/31. This means that anyone who buys bitcoin before 12/31 will have the option to sell it in the 2019 calendar year and not incur short-term capital gains tax. If they wait until 1/1 to buy, any 2019 sales would be within one year of the purchase and they will lose that option. 

I don't know what the crypto space will look like in a year or where bitcoin price will be (if I did, I wouldn't be here). But I like optionality and I do know that options are inherently more valuable when volatility is high. 

Juthica