The Impact of Tax Scrutiny on Cryptocurrency Investor Behavior: A Qualitative Synthesis of Tax-Loss Harvesting and Wash Trading Strategies
DOI:
https://doi.org/10.70142/kbijmaf.v3i2.430Keywords:
Cryptocurrency Taxation, Tax-Loss Harvesting, Wash Trading, Investor Behavior, Tax ScrutinyAbstract
This qualitative literature review investigates how tax scrutiny influences investor behavior in the cryptocurrency market, with a focus on tax-loss harvesting and wash trading strategies. As governments enhance transparency and enforcement, crypto investors increasingly adapt their behaviors to optimize after-tax outcomes. The review synthesizes recent academic findings that highlight the growing use of legal tax-loss harvesting and the controversial persistence of wash trading, particularly in unregulated exchanges. Evidence suggests that regulatory uncertainty and inconsistent tax treatment across jurisdictions drive strategic investor responses and, in some cases, unintended compliance gaps. This study underscores the need for updated tax frameworks capable of addressing the unique characteristics of digital assets. The analysis contributes to the broader discourse on how taxation shapes market behavior in emerging financial ecosystems
References
References must follow the IEEE style. We recommend preparing references with a bibliography software package like Mendeley,
Aloosh, A., & Li, J. (2022). Direct evidence of bitcoin wash trading. SSRN. https://ssrn.com/abstract=3362153
Alstadsaeter, A., Zucman, G., Planterose, B., & Økland, A. (2022). Who owns offshore real estate? Evidence from Dubai.
Amelia, Y., & Waruwu, K. L. (2022). The Influence of Profitability , Leverage , and Deferred Tax Expenses on Tax Avoidance ( Empirical Study of LQ45 Companies Listed in IDX ). 9(2), 785–794.
Amiram, D., Bozanic, Z., & Rouen, E. (2015). Financial statement errors: Evidence from the distributional properties of financial statement numbers. Review of Accounting Studies, 20(4), 1540–1593.
Amiram, D., Jorgensen, B. N., & Rabetti, D. (2022). Coins for bombs: The predictability of on-chain transfers for terrorist attacks. Journal of Accounting Research, 60(2), 427–466.
Amiram, D., Lyandres, E., & Rabetti, D. (2022). Cooking the order books: Information manipulation and competition among crypto exchanges. SSRN.
https://ssrn.com/abstract=3745617
Anderson, C. M., Fang, V. W., Moon, J., & Shipman, J. E. (2022). Accounting for cryptocurrencies. SSRN. https://ssrn.com/abstract=4294133
Avi-Yonah, R. S. (2022). Beware of crypto wash sales. Tax Notes International, 108, 1379–1380.
Avi-Yonah, R. S., & Salaimi, M. (2022). A new framework for taxing cryptocurrencies. SSRN. https://ssrn.com/abstract=4071391
Axelrod, L. (2022). Keeping recognized stock losses out of the wash. Tax Notes Federal, 176, 925–928.
Balakrishnan, K., Blouin, J. L., & Guay, W. R. (2019). Tax aggressiveness and corporate transparency. The Accounting Review, 94(1), 45–69.
Belnap, A., Hoopes, J., Maydew, E., & Turk, A. (2022). Real effects of tax audits. Review of Accounting Studies. https://doi.org/10.1007/s11142-022-09717-w
Blouin, J., Hail, L., & Yetman, M. (2009). Capital gains taxes, pricing spreads, and arbitrage: Evidence from cross-listed firms in the U.S. The Accounting Review, 84(5), 1321–1361.
Boeije, H. (2002). A purposeful approach to the constant comparative method in the analysis of qualitative interviews. Quality and Quantity, 36(4), 391–409. https://doi.org/10.1023/A:1020909529486
Cao, S., Cong, L. W., & Yang, B. (2019). Financial reporting and blockchains: Audit pricing, misstatements, and regulation. SSRN. https://ssrn.com/abstract=3248002
Capponi, A., & Jia, R. (2022). The adoption of blockchain-based decentralized exchanges. SSRN. https://ssrn.com/abstract=3805095
Cong, L. W., Landsman, W. R., Maydew, E. L., & Rabetti, D. (2023). Tax-loss harvesting with cryptocurrencies. Journal of Accounting and Economics, 76(2–3), 101607. https://doi.org/10.1016/j.jacceco.2023.101607
Cong, L. W., Li, X., Tang, K., & Yang, Y. (2023). Crypto wash trading. arXiv. https://arxiv.org/abs/2108.10984
Cong, L. W., Tang, K., Wang, Y., & Zhao, X. (2022). Inclusion and democratization through Web3 and DeFi? Initial evidence from the Ethereum ecosystem. NBER. https://www.nber.org/papers/w30949
Dai, Z., Maydew, E., Shackelford, D., & Zhang, H. (2008). Capital gains taxes and asset prices: Capitalization or lock-in? Journal of Finance, 63(2), 709–742.
De Simone, L., Lester, R., & Markle, K. (2020). Transparency and tax evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA). Journal of Accounting Research, 58(1), 105–153.
Grinblatt, M., & Keloharju, M. (2004). Tax-loss trading and wash sales. Journal of Financial Economics, 71, 51–76.
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2), 127–178.
Hanlon, M., Maydew, E., & Thornock, J. (2015). Taking the long way home: U.S. tax evasion and offshore investments in U.S. equity and debt markets. The Journal of Finance, 70(1), 257–287.
Hoopes, J. L., Menzer, T., & Wilde, J. H. (2022). Who sells cryptocurrency? SSRN. https://ssrn.com/abstract=4261066
IRS. (2023). Frequently Asked Questions on Virtual Currency Transactions. https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions
Jemiolo, S., & Redpath, I. (2022). Issues in the taxation of cryptocurrency. Tax Notes Federal, 175(5), 1377–1382.
Kollmann, J., Qichao, L., & Fangbei, W. (2021). Income taxation of cryptocurrency: A country comparison. Tax Notes Federal, 173(1), 935–945.
Eri Kusnanto, Farah Qalbia, & Yessica Amelia. (2024). Dampak Penghindaran Pajak terhadap Struktur Jatuh Tempo Utang pada UMKM. Jurnal Visi Manajemen, 10(1), 16–27. https://doi.org/10.56910/jvm.v10i1.521
Luo, M., & Yu, S. (2022). Financial reporting for cryptocurrency. Review of Accounting Studies. https://doi.org/10.1007/s11142-022-09741-w
OECD. (2022). Crypto-asset reporting framework and amendments to the common reporting standard. https://www.oecd.org/tax/exchange-of-tax-information/public-consultation-document-crypto-asset-reporting-framework.pdf
OECD. (2022). Public consultation document: Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard.
Poterba, J., & Weisbenner, S. (2001). Capital gains tax rules, tax loss trading, and turn-of-the-year returns. Journal of Finance, 56(1), 353–387.
Rizal, M. & Gulo, F. (2022). Analisis Pengaruh Insentif Pajak PPh 21, Tingkat Pendapatan Dan Sanksi Pajak Terhadap Kepatuhan Wajib Pajak Orang Pribadi. Jurnal Ekonomika, 6(2), 424–439. http://journal.lldikti9.id/Ekonomika
Sandmo, A. (2005). The theory of tax evasion: A retrospective view. National Tax Journal, 58(4), 643–663.
Sheppard, L. (2022). When can holders recognize FTX losses? Tax Notes Federal, 1323.
Slemrod, J. (2007). Cheating ourselves: The economics of tax evasion. Journal of Economic Perspectives, 21(1), 25–48.
Snyder, H. (2019). Literature review as a research methodology: An overview and guidelines. Journal of Business Research, 104, 333–339.
https://doi.org/10.1016/j.jbusres.2019.07.039
The Law Library of Congress. (2021). Regulation of Cryptocurrency Around the World: November 2021 Update. https://www.loc.gov/item/2021687415/
Torraco, R. J. (2005). Writing integrative literature reviews: Guidelines and examples. Human Resource Development Review, 4(3), 356–367.
https://doi.org/10.1177/1534484305278283
Tranfield, D., Denyer, D., & Smart, P. (2003). Towards a methodology for developing evidence‐informed management knowledge by means of systematic review. British Journal of Management, 14(3), 207–222. https://doi.org/10.1111/1467-8551.00375
Willens, R. (2022). Cryptocurrency cannot be the subject of a wash sale. Tax Notes Federal, 177, 1707–1708.
Yost, B. P., & Shu, S. (2022). Does tax enforcement deter managers' self-dealing? Journal of Accounting and Economics. https://doi.org/10.1016/j.jacceco.2022.101512
