Dogecoin Could Be Captive To Tax Trading Plans Until Year End

Dogecoin (CCC:DOGE-USD) has had a rough time this past month. It is down 21% from 26.79 cents on Nov. 1 to 21.16 cents as of mid-day Dec. 2. Dogecoin is also down significantly in the past two months, almost 29% from 29.6 cents on Sept. 1. Unfortunately, Dogecoin could be facing more of this turbulence, especially as we get closer to the end of the year.

One reason for this is profit-taking by people who have made a large gain. They might not want to take further degradation in their unrealized profits. So they sell before the end of the year in order to prevent having to potentially higher taxes on the gains next year.

New Version Could Lower Fees

However, there is some good news on the horizon.

According to Cryptoslate magazine, a new core version of the Dogecoin blockchain was released recently.

One of the advantages of this new core version will be to lower transaction fees. The update will enable third-party wallets to support cheaper transaction fees, improve security for wallets, and upgrade the blockchain’s performance.

The new version was released on Nov. 9 to immediate fanfare. The update 1.14.5 is “a new minor version release” according to a GitHub note. According to a recent note in Ambcrypto, 98% of the Dogecoin nodes had already adopted this upgrade as of Nov. 9.

The only problem is that as of this point in time, Dogecoin’s price already discounts all the benefits of this minor upgrade. In other words, Dogecoin’s price has already reaped the benefits from this upgrade. So, it likely isn’t going to go up again much this year.

Where This Leaves Dogecoin

Therefore, this leaves us more concerned about investors taking profits before year-end. After all, Dogecoin is now 37 times the price where it ended on Dec. 31, 2020, at $0.005685 (i.e., at over one-half of one cent).

However, in the last six months, when Dogecoin was at 42.34 cents, it had some value to entice investors to buy it, but now it is down slightly over 50%. That could easily be motivation for many people to take losses to offset against their other short-term gains. After all, many other cryptos have also had huge gains for the year.

The point I am making is that anyone who bought Dogecoin after mid-April and held on until now likely has a short-term loss. This is because after mid-April Dogecoin basically rose for a while and then went on an extended tumble up until now.

This loss can be offset against any other short-term gains if both securities are sold before the end of the year. I suspect that this fact will drive a lot of the performance of Dogecoin between now and the end of the year.

What To Do With Dogecoin Now

As a result, Dogecoin could be vulnerable to tax-loss selling through most of December. The reason is that come January, an investor who took short-term losses can buy back again after 31 days and avoid the wash sale loss rules.

This especially matters at the end of the year when most people file their calendar year tax returns. (Keep in mind here that I am not a financial planner and this is not investment advice for any person).

Therefore, most potential investors in Dogecoin will likely want to wait until most of this tax-loss selling is out of the way. That might mean waiting until closer to the end of the month before buying Dogecoin again.

This is often what happens with stocks that have shot up early in the year and then wane for most of the rest of the year. The end-of-year tax harvesting becomes a huge force that is hard for the crypto or asset trading to overcome without any major news.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com runs the Total Yield Value Guide which you can review here.