If you own stablecoins and use them in your trading strategy, you’ll sometimes see significant gains and losses associated with your stablecoin disposals. This is totally normal. In this article, we’ll go into detail about this and how TaxBit assigns cost basis to trade disposals.
In this article:
- Addressing a common misconception
- Assigning cost basis to trade disposals
- Summary: stablecoin gains/losses are totally normal
Addressing a common misconception
There are many different stablecoins in the cryptoverse, but all of the ones that we've seen so far have one thing in common: their value in USD isn’t always stable. To help illustrate this concept, here’s the one year price chart for USDT measured in USD.
As you can see, it’s not a straight line. However, if you look at the scale of the chart, you’ll also see that the deviations away from $1 are relatively small.
As a result of these relatively small deviations, you can see gains or losses assigned to stablecoin disposals such as a stablecoin expense or sale transaction. This is especially true with larger stablecoin disposals.
Example: On May 5, 2017, I bought 100,001 USDT for 100,000 USD due to the small price variation of USDT on the platform I was using. Each week thereafter, I used 15,000 USDT to cover my expenses. Because of the fluctuations, there are gains and losses connected to those disposals, all dependent on the date and time I made those disposals.
Assigning cost basis to trade disposals
Another instance where you may see gains or losses assigned to disposals is the disposal of a stablecoin in a crypto > crypto trade, for example 2000 USDT > 1 ETH. If the price of the 1 ETH being traded on the exchange you're using is lower or higher than the market average, as it often will be, at least a portion of the gains you see will be coming from that ETH price differential.
TaxBit uses third-party pricing providers to come up with a market average of an asset during a specific date and time. For more information on where we get our pricing, take a look at our article HERE.
If the platform you're using is trading 1 ETH below the market average, that stablecoin disposal will have additional gains assigned to it. Similarly, if the 1 ETH you're disposing for your USDT is trading above the market average, that stablecoin disposal will have additional losses assigned to it.
Example: On June 1, 2017, I bought 100,001 USDT for 100,000 USD due to the small price variation of USDT on the platform I was using, then I paid 5 USD in fees. Each day thereafter, I used 5,000 USDT to trade for a roughly equivalent amount of ETH.
Based on the losses I recorded, the platform I used was trading ETH above the market average on the first, second, and third days. On the fourth day however, I was able to get my daily ETH trade at a relative discount.
Summary: stablecoin gains/losses are totally normal
The gains and losses you'll see with trades for stablecoin to other crypto assets are the result of a combination of price fluctuations in both assets involved in the trade. The gains and losses you'll see for other kinds of crypto disposals, such as sale or expense transactions, will be determined only by the price fluctuation of the stablecoin that’s being disposed of.
This is completely normal; the way you see these gains and losses recorded on TaxBit is all a part of how we’re keeping your tax reporting as accurate as possible.
Still have questions? Send us an email at firstname.lastname@example.org or chat with us using our live chat feature, and we'd be happy to help!