I think in late 2021 there was a huge debate amongst the governments and authorities on taxing crypto based on unrealized gains. This is outrageuse because in my opinion, the government will always look fo opportunities to make sure they milk you from every where possible. In investments, two things are bound to happen, you either make profits or make losses. That’s what you get for investing, you make profit when your asset increases in the value you bought. You make losses when your asset reduces in the value you bought it.  But then, we have factors called unrealized and realized profit or losses. 


![30693647-6E80-4D4F-AD29-7E16507D7C4F.png](https://images.hive.blog/DQmeX9EoWqXFi1JUNdvTE2V5FneHbRiUnEqTETntL3RvJiz/30693647-6E80-4D4F-AD29-7E16507D7C4F.png)

You know when you have an asset, and the value goes up, let’s say you bought it for $100 and it went up by 50%, your current value is $150 now. This means that you have a $50 unrealized gain, it’s unrealized because you haven’t sold it yet. So this means you have it but at the same time you don’t have it. You have it because if you decide to sell your asset at that moment, you have it, then you can be taxed, but as long as you haven’t sold it, it’s just there.  Same thing with loss, you only make loss when you sell the asset, if you bought the asset when it’s $100 and it losses 50% of its value, then you sell it, you have a realized loss of $50 but if you don’t sell it you have an unrealized loss of $50.

Basically, you can’t pay tax for gains you haven’t realized yet, because that is absurd, it’s like paying tax for an imaginary profit. It’s imaginary because, it’s not liquid, but the irony of it is that, in the stock market you can use it to get a loan. That’s how ridiculous the stock market can be. Just like what Elon Musk did, Elon Musk used some of his Tesla stock as collateral to collect loan to buy Tesla. This is something I still can’t wrap my head around, how can the IRS not be able to tax unrealized gains on a stock but can be used to take loans. 

But in crypto, the authorities felt that, since they don’t like crypto, and have been looking for ways to crack it down, why not tax unrealized gains. At least, that is what it looks like in my own opinion, because why would the authorities think that they can’t tax unrealized gains on stock and shares, which can be used to take loans, but they can tax unrealized gains on crypto. So imagine you get taxed 10% of your crypto every time it gains profit. For instance, you buy an asset for $100, after a month it gives you a 10% gain, this means that you have made $10 unrealized gain off your $100. If the authorities decide to tax you 10% off the gain, you will have to pay $1. This means that every time your asset goes up in 10% value, you have to pay $1. You don’t have to withdraw or sell the asset, as long as you have the asset, you have to pay it. It doesn’t concern the authorities if you don’t have it liquid, or you are at loss few months ago, but now you are in profit, you just have to pay up. 


You see how absurd it is? Now imagine paying tax on unrealized gains for a year and you didn’t sell any of your crypto holdings, let’s say you have been paying tax for holding bitcoin when bitcoin was on a Bull run pumping to $68k, you probably bought it at $30k. Bitcoin pumped to $68k you made $38k extra, making it 126% profit and you have to pay 10% tax on unrealized gains for that. That’s $3,800 tax paid for a coin you haven’t sold, you are paying for holding and it went high. You eventually paid this off from money outside your bitcoin holding, remember you didn’t sell your bitcoin that’s why it’s an unrealized gain. Now the crypto market is dipping, the value of your asset has dipped from $68k to $27k even way below your entry price. Right now you are not only $3k at loss but also $3,800+ extra for the unrealized capital gain tax you paid. 

This will make long term holders and investors to always be in debt and lose money because it feels like giving the authorities free money for no reason. 

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