Turn off the lights, strike a candle, and prepare to hear the scariest true story in all of crypto.
The victim of our story is Albert Little, a graphic designer in Memphis, Tennessee. Albert got into Bitcoin early through his sister, back when it was a couple hundred dollars a coin. He was a model investor. He carefully secured his coins, so he didn’t lose them (like his sister did); he thought long-term, so he didn’t sell too early (like his friends did); and he invested just enough where a big run-up would make a significant impact on his life. All told, Albert had set himself up for success, and it paid off handsomely!
During the 2017 boom, Albert’s portfolio went into six-figures. His few thousand dollars in Bitcoin grew to over $200,000! Like any responsible investor, Albert began to think about ways to diversify his portfolio. Other, smaller cryptocurrencies were taking off, so in December of 2017, he exchanged a third of his Bitcoin for Ethereum and a third of his Bitcoin for Chainlink.
Up until then, Albert had dodged bullet-after-bullet through his careful planning, but this one entirely reasonable move would ruin his fortunes.
In 2018 the crypto market crashed. Like others, Albert’s portfolio fell by 90%. It made him sick, but he had conviction. He knew that if he held firm, his portfolio would one day make a comeback.
And then one night in April, unseasonably dark and stormy, Albert got a phone call. It was a chilling, ghoulish voice, his accountant.
“Albert, how big is your cryptocurrency portfolio now?”
“Uh…about $30,000, why?”
“Sell it. All of it. That’s how much you owe the IRS.”
“What? That doesn’t make sense! I’m down so much, how can they take everything?”
“Because, Albert, when you traded your Bitcoin, you created a taxable event.”
“That can’t be. You made a mistake, the Ethereum and Chainlink I bought lost so much value! That must cancel things out!”
“They lost value THIS year, but your trade was LAST year, Albert.”
“Last year? It was only December! That’s not fair!”
“I know. I’m sorry.”
“But I can’t sell now, I’m getting pennies on the dollar! I did everything right! They can’t do this to me!! I'll have even less than my sister!”
“I’m sorry. Albert...I’m so very sorry.”
Through tears, Albert sold his entire portfolio. All his hard work gone, in the blink of an eye.
So seized was he with despair that Albert left crypto investing for good. Legend has it that he still checks the crypto charts every day, calculating what his net worth might have been had he been just a little more careful.
The moral of the story, so that you don't end up like Albert, is to make sure you can afford the tax hit when swapping one crypto for another, especially if the transaction is happening near the end of the year.
Enjoyed this article? Please share it, follow us on Twitter, and subscribe to our free Friday newsletter! It helps us out and keeps your investing mind sharp. Win-win!