VeChain (CCC:VET-USD) is a blockchain platform focused on supply chain issues with corporations around the world. I have written about this in some articles recently. But in the last three months, VeChain had a rough time in terms of appreciation in the market.
For example, after peaking at 18.56 cents on Nov. 9, VET-USD has drifted significantly lower. As of Dec. 20, it was trading below eight cents (i.e., $0.0796). That represents a drop of 10.6 cents or 57% from its peak.
However, since the beginning of 2021, VET-USD was at 1.9 cents. So, even after this recent drop VeChain is still up 319% year-to-date. That is a pretty good return, by any accounts.
Tax Harvest Selling
However, the truth is that any investor who bought the crypto after mid-March 2021 (about Mar. 14) will now have a small to large unrealized loss if they did not sell at the peak.
I suspect that this is a major reason why VET-USD has been dropping. Many of the investors in VeChain could have come in after it started rising in the spring. They may find it easier to take their losses now, so as to offset them against other stocks or cryptos with gains in their portfolio.
On the other hand, those with profits, especially those having bought into VeChain last year may want to preserve what value they have left. That could account for a portion of the selling, but I suspect not as much as the tax-loss harvesting.
The Wash-Sale Rule and VeChain
Part of the heavy selling at the end of this year may be due to the fact that the wash-sale rules do not appear to apply to most cryptocurrencies. At least according to Kiplinger, this is because the wash-sale rules apply only to securities, not property like cryptocurrencies.
Under the wash-sale rule, you have to wait 31 days before you can buy back securities after a loss. If you do buy back loss-making securities, then the old tax basis still applies (i.e, the higher basis).
This means that tax-loss selling can occur right until the end of Dec. 31, and then on Jan. 1, 2022, you can buy back the security with a new lower tax basis.
However, Kiplinger says that new legislation may close that loophole. They were referring to the Biden Build Back Better tax overhaul plan. But that now appears to be dead in the Senate — at least for this year.
The point is that this gives the green light to investors with losses to keep selling their VeChain positions that have losses to offset them against other gains. Come the new year, they can quickly buy them back again.
What To Do With VeChain
This presents a trading problem for would-be investors in VeChain. On the one hand, they know that the prices today are likely to be a temporary situation. And that will especially be the case once the new year starts and there is no longer as much selling pressure.
But, on the other hand, they have to wait to see if the price of the crypto could fall further. This is especially the case for VeChain since it is likely more volatile than other cryptos. Its market capitalization is just $5.2 billion now and it is ranked as the 31st largest crypto.
Investors who want to average down their costs into VET-USD have a problem. They know that those investors in VeChain who also have capital gains in other securities with larger market caps may not be as volatile. That could lead those investors to quickly make the choice to sell their VET-USD holdings.
In other words, it’s not to the advantage of anyone who wants to lower their costs in VET-USD to do anything other than wait until closer to the end of the year. That takes away any buying pressure on behalf of it. So, for the time being, the odds are stacked against VeChain.
On the date of publication, Mark Hake holds a direct long position in VeChain but not any other of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.