Bitcoin is a highly volatile asset, whose price can fluctuate from extreme to extreme based on changing sentiment. It is possible for the market to experience overzealous optimism one minute and then quickly shift to dark pessimism the next. In the end, investors must file their taxes regardless of whether prices rise or fall. Bitcoin is subject to capital gains tax, which is good for traders. As prices plummet, this presents a unique opportunity for claiming tax deductions. You are entitled to include the details of your Bitcoin investment loss in order to reduce your overall tax liability. Losses on Bitcoin must be realized in order to be considered 'valid'. As a result, you will need to liquidate your position. When you sell Bitcoin at a lower price than when you bought it, you will suffer a loss. If prices fall, but you do not sell, that is an unrealised loss and does not qualify for a tax deduction.

For instance, if you buy bitcoin at $40, but the price drops to $35,000, and you sell it, you will have lost $5,000. If you file your returns, you can claim a capital loss worth $5,000. In the US, capital losses can be claimed up to a maximum of $3,000. But the good thing is that excess loss can be rolled over to subsequent years indefinitely. So, if in 2020 you suffered a loss of $5,000, you are entitled to tax-deductible of up to $3,000, and you can carry forward the additional loss of $2,000 to 2021.
Bitcoin and other cryptocurrencies are inherently volatile. The good days are cherished, but the bad days need not be stressful. By using this tax-harvesting trick, you will be able to reduce your tax liability when Bitcoin prices decrease.

Bitcoin, characterized by its turbulent price swings, stands as a paradigm of volatility in the financial realm. Its value can soar to unprecedented heights one moment, only to plummet dramatically the next. This rollercoaster ride reflects the speculative nature of the cryptocurrency market, driven by factors ranging from investor sentiment to regulatory changes. The absence of centralized control and its limited supply further amplify its volatility, subjecting it to sudden fluctuations in demand and market sentiment. While this volatility offers potential for substantial gains, it also poses significant risks, leading to rapid and unpredictable losses. Investors navigating the realm of Bitcoin must exercise caution, employing robust risk management strategies to mitigate the inherent uncertainties and harness the potential rewards of this highly volatile asset.