Digital asset classes are very technical. Powered by blockchain technology, the digital asset market, trades globally 24/7, is moving rapidly and flooding with data. A systematic investment approach may be suitable for such a market.
Systematic investments can also unlock the important, particularly the right feature of a multi-asset crypto portfolio: automated tax LOSS harvest.
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Investors buy assets that they expect to appreciate over time, but the market flows in decline, with no assets constantly rising without experiencing some losses along the way. Sometimes investors will hold their assets undermined.
If an investor is losing one or more assets, they can sell depreciable assets, realize losses, and offset the realised losses or normal income using realized losses. At the same time, investors reinvest the revenue from the sale of depreciable assets to purchase similar assets (e.g., selling Home Depot inventory or repurchasing Lowe stock), and generally maintain their original portfolio exposure.
result? Investors still maintain exposure as they pay less taxes at the end of the year. You can postpone your recent tax obligations and continue investing more today for long-term combined growth.
Software and algorithms are suitable for systematically exercising manual human involvement and manual human involvement with tax LOSS harvesting (TLH) opportunities. To effectively harvest losses, investors must track cost bases and purchase dates and carry out the necessary transactions across all their holdings. This is all tasks that are handled more effectively by mechanical processes, especially when expanding this approach in a multi-asset portfolio with a large number of digital assets.
TLH is a systematic technique that allows investors to get more from their holdings. Large and diverse liquid portfolios are suitable for this technique, as investors can easily exchange underlying assets and similar assets (e.g., selling Coca-Cola stocks and replacing them with Pepsi stocks).
The same applies to the crypto market. Portfolios with large numbers of digital assets generally provide greater TLH flexibility compared to single asset holdings or portfolios with only a few digital assets.
In fact, this tax-associated investment technique can work particularly well for crypto assets that exhibit relatively high volatility compared to other asset classes such as stocks and bonds. Crypto’s volatility could block some investors, but TLH offers a silver lining.
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