In most jurisdictions including the US, UK, and Australia, cryptocurrency is taxed as property, not currency. Every disposal of crypto (sale, swap, payment, or gift above a threshold) is a taxable event that realizes a capital gain or loss equal to the difference between your cost basis and the disposal price. Receiving crypto as income (staking rewards, mining, DeFi yield, airdrop in some cases) is taxed as ordinary income at the fair market value on the date received. Holding crypto does not trigger tax; only disposals and income-type receipts do.
What triggers a taxable event
Selling crypto for fiat is the most obvious taxable event. Less obvious events that also trigger tax: swapping one crypto for another (selling ETH to buy WBTC is a disposal of ETH at its current price), spending crypto on goods or services (each payment disposes of crypto at the current price), receiving staking rewards (income at fair market value when received), and in some jurisdictions, wrapping or bridging tokens. Simply moving crypto between wallets you own is not taxable.
The cost basis method determines which units you sold and at what price. The IRS allows specific identification (choose exactly which lot you sold), FIFO (first in first out), HIFO (highest in first out, minimizes gains), and in some cases average cost. HIFO tends to minimize taxable gains in a rising market; FIFO can result in larger gains if your oldest holdings have the lowest cost basis. UK uses a pooled cost basis model (share pooling) that prevents cherry-picking specific lots.
What this means for traders
Short-term capital gains (assets held under 12 months in the US) are taxed at ordinary income rates (10% to 37% depending on income bracket). Long-term capital gains (held over 12 months) are taxed at 0%, 15%, or 20% in the US. The difference between a short-term and long-term gain on the same position can be 15 to 20 percentage points. For positions where you have already realized the gain in year-end analysis, holding for the 12-month threshold before selling has a direct tax impact.
DeFi creates additional complexity. Providing liquidity to an AMM may or may not be a taxable disposal depending on jurisdiction (the IRS has not issued specific guidance on LP token receipt). Staking rewards are generally treated as income in the US; the Jarrett case challenged this in 2022 (arguing created property should not be income until sold), but the IRS rejected the precedent. Tax-loss harvesting, selling losing positions before year-end to offset gains, works in crypto without the 30-day wash sale rule that applies to US stocks, though the IRS may close this in future legislation.
A concrete example
You buy 1 BTC at $30,000 in January 2024. BTC rises to $90,000 by December 2024. You swap 0.5 BTC for ETH. This swap is a taxable disposal of 0.5 BTC. Gain: $30,000 (0.5 BTC worth $45,000 at disposal minus $15,000 cost basis). Held under 12 months: short-term gain, taxed at your income rate. If you had waited until February 2025 (13 months after purchase) to make the same swap, the gain would qualify for long-term rates. At a 37% income rate versus 20% long-term rate, the tax difference on $30,000 is $5,100. The timing of the swap changed your tax bill by $5,100 with no change to your market position.
Frequently asked questions
Do you owe tax on unrealized crypto gains?
In the US, UK, and most other jurisdictions, unrealized gains are not taxed. You owe tax only when you dispose of the asset. Some proposed legislation (US wealth tax proposals, EU discussions) has considered taxing unrealized gains, but as of 2026, no major jurisdiction taxes unrealized crypto gains. The exception is mark-to-market accounting elections available to some professional traders in the US, which would require reporting unrealized gains annually.
How is DeFi lending taxed?
Borrowing against crypto collateral is generally not a taxable event in the US: you receive cash but have not disposed of your crypto. Interest paid on the loan may be deductible depending on how the loan proceeds are used. If your collateral is liquidated, that liquidation is a taxable disposal at the liquidation price. The gain or loss is calculated against your cost basis in the liquidated collateral.
What records do you need for crypto tax?
Every taxable transaction requires: date, amount and type of crypto received, amount and type of crypto disposed of, fair market value in your local currency at the time of transaction, and cost basis of the disposed asset. Exchange transaction history, on-chain records, and CSV exports from tax software (Koinly, CoinTracker, Coinpanda) are the primary tools. Transactions on DEXes require on-chain data exports since exchanges do not generate 1099s for peer-to-peer transactions.
