The cryptocurrency has had a very unstable trading history since it was launched in the year 2009. This digital asset has seen a lot of action in its small life. During its beginning, it partially bartered for nothing. And when its valuation went from around $0.0008 to $0.08 for a single bitcoin in the year 2010, its first real price increased.
After that this digital currency has seen some major losses and crashes. In the year 2020, the cryptocurrency’s interest has been surged due to its continuous losses from the past few years. Currently, in the market, more than 18.5 million bitcoins or cryptos exist, but their market capitalization is over $428 billion. If you have brought crypto and its price falls, you still have bitcoin left with you. Just like other things including grocery items, gasoline, gold, stock, etc, if its price decreases, the value in fiat, does not affect the amount at which you own the commodity. That’s why the value remains the same, while the prices may differ.
In this article, you will be going to see what situation can occur, if you buy bitcoins or cryptocurrency and its value or price depreciated. Three situations can arise in this case
- You may suffer from capital loss.
- If the value of bitcoin is depreciated, before selling it, it’s an unrealized capital loss.
- And if the price decreases after selling bitcoin, it’s realized capital loss.
Let’s learn about these terms in a detailed manner
Bitcoin is a legal capital asset. It is defined as a property held by a person, either connected to a profession or business or not connected to it. And when a value of a capital asset increases or appreciates, it is called capital gain and the person is liable to pay capital gain tax. On the other hand, if the value of a capital asset (bitcoin) decreases or depreciates, it’s called capital loss and your burden of paying tax may become less. And if you are selling your bitcoin at the lowest rate after depreciation of Bitcoin price, then you can realize a capital loss. Nonetheless, it’s a legal procedure and not illegal. It can be done by any bitcoin holder no matter whether they are individuals or companies.
This loss is referred to as from holding the depreciated price of cryptos, rather than selling it and realizing the loss occurred. A bitcoin investor can choose to suffer this loss with the hope of getting the loss recovered in the coming future. And for tax purposes, an unrealized loss needs to be released soon, it becomes an offset capital gain. After selling a bitcoin, the amount of money that you have got or lost is known as realization. And until and unless you don’t sell a depreciated amount of bitcoin, the loss which is there is said to be an unrealized loss. This is how you can suffer the unrealized loss of cryptos.
Realised loss of a bitcoin is referred to as when cryptos are sold for a lower price than their purchase price. It is further defined as the loss which occurs when it is sold then its cost or book value. When a bitcoin investor buys a bitcoin at the original value which does not translate to a profit. The investor can only claim a profit or a loss after selling it at a fair market price. A realized loss of bitcoin can be used to pay taxes with its capital gains. And if a realized loss for a bitcoin exceeds the realized gains, then the remaining amount will be deducted from taxpayer taxable income.
Investing in bitcoins can be profitable as well as sometimes you can also make losses. So while investing make sure that you can sell it in a specific period to avoid any type of losses. The circumstances given above can take place if bitcoins or cryptos price gets depreciated. That’s why understanding all the situations can make you incur losses but very low. A detailed summary of this circumstance is also given so that you may get how it works.
What to do if you buy Bitcoins at High Price and Price goes down
If you buy bitcoin at high price and price goes down then don’t do panic sell and wait for price to again reach that point. A lot of people do trading and price movement is the part of trading.
Bitcoin reach 19,000 USD in 2017 and then it goes down to 3300 USD in 2018-19, Many investor have sold their bitcoin in loss because price suddenly falled a lot and if you see Bitcoin price now you will realise they have done a big mistake.
So never sold in loss and wait for bitcoin price to again reach that position.