Bitcoin tax loophole about to close, but stablecoins become the biggest winners

Recently, a new bill has come out of the U.S. Congress again called the Digital Asset PARITY Act. The name sounds fair—it aims to provide equal treatment for assets—but on closer inspection, this isn’t equality at all. It’s clearly a knife in the back for Bitcoin investors, while giving stablecoins a sweet deal.

First, let’s break down what the bill is actually trying to do.

In simple terms, it’s about bringing the wash sale rules from the stock market into cryptocurrency. What are wash sale rules? They mean that if you sell a stock at a loss and want to record that loss on your books to offset taxes, but if you buy it back within a 30-day window before or after the sale, then sorry—the loss can’t be deducted in that year. You have to carry it forward to later years.

These rules have been used in the stock market for decades, but cryptocurrency has long been a kind of legal gray area. Why? Because the U.S. Internal Revenue Service (IRS) defines Bitcoin as property, and the statutory language covering wash sale rules only mentions stocks or securities—it doesn’t mention digital assets. This creates a legal gap, allowing investors to exploit it openly.

How do you exploit it? Here’s an example so you can see it clearly.

Suppose at the beginning of the year you buy 100,000 dollars’ worth of 1 Bitcoin. By mid-year it drops to 60,000 dollars, and you sell it, realizing a loss of 40,000. Then, after 5 minutes, you buy it back again, and your position is still 1 Bitcoin—the risk exposure hasn’t changed at all. But when you file your taxes at year-end, that 40,000 dollars in losses can be used to offset other investment gains or even ordinary income.

What is that called? It’s called Tax-Loss Harvesting, and it’s a routine move that many U.S. crypto investors use every year. But in the stock market, this kind of operation is prohibited—the losses can’t be deducted in the same year.

What Congress wants to do now is plug this loophole. The bill explicitly expands the scope of the wash sale rules to digital assets in active trading, including Bitcoin, Ethereum, and their derivatives. Going forward, if you try to sell at a loss and buy back to harvest those losses, sorry—that path won’t work anymore.

That’s one boot. The other shoe drops on stablecoins.

The bill creates a specific carve-out for regulated payment stablecoins: as long as the stablecoins you trade meet the criteria—when the trading price is between $0.99 and $1.01—you don’t have to recognize gains or losses, and you don’t have to calculate capital gains tax. In other words, it treats the stablecoin like cash, so you don’t have to pay taxes for each transaction.

This carve-out is carefully designed. To qualify for this treatment, the stablecoin must meet several conditions: it must fit the definition of payment stablecoins under the GENIUS framework, issued by an approved issuer, be pegged to the U.S. dollar, have at least 95% of trading days in the past year with price movement around $1, and the price at which you buy it must also be around $1.

For stablecoins that meet these conditions, they’re basically regulated ones like USDC and PYUSD. Whether USDT can be included depends on whether it can clear the regulatory hurdle.

So you see, the logic of this bill is very clear: it uses tax measures to split crypto assets into two categories. One is the speculative trading type—for example, Bitcoin. Going forward, it would be subject to the wash sale rules, so don’t expect to dodge taxes through loss harvesting. The other is the payment tool type—regulated stablecoins—which get tax advantages and are meant to encourage real-world usage.

Behind this is the regulators’ consistent approach: crack down on speculation and support payments. In its 2025 digital asset report, the U.S. Department of the Treasury explicitly recommended that the wash sale rules be expanded to digital assets, but it also emphasized that they should not apply to payment stablecoins. This time, Congress has put that recommendation into the text on paper.

The stablecoin market is already quite large—about $316 billion, and last year’s trading volume exceeded $34 trillion. But interestingly, according to analyses by the Wharton School and the World Economic Forum, roughly 99% of stablecoin activity is still tied to digital asset trading, while actual payment use makes up a very small share. Congress giving stablecoins a tax green light is intended to shift this situation, so stablecoins can truly move into everyday payments.

So the question is: how much impact does this bill have on Bitcoin investors?

In the short term, the people most hurt are those who like to do short-term trading and harvest year-end losses. Previously, you could sell your loss positions at year-end to realize an accounting loss for tax purposes, then buy them back after the new year. After this, that maneuver will fail: the losses can’t be deducted in the current year—they must be deferred to later years.

Long-term holders are affected less. If you buy Bitcoin and don’t move it, then the wash sale rules have nothing to do with you. Only if you frequently buy and sell, or you want to do year-end tax planning, will you run into that red line.

But that doesn’t mean long-term holders are completely unaffected. If market liquidity drops because short-term trading declines, everyone involved will feel the chill. And strategies that previously relied on loss harvesting to offset losses from short-term trading won’t be nearly as effective going forward.

Stablecoins, on the other hand, get a real and tangible boost. Previously, when you used stablecoins to buy something or transfer funds, each transaction theoretically required calculating gains and losses. Even though most people wouldn’t actually do the math, strictly speaking from a tax perspective, the cost basis of buying a stablecoin and the selling price—even if the difference is just a few cents—would count as a capital gain or capital loss. Now the bill makes it explicit: as long as your trading price is around $1, you don’t recognize gains or losses, and you treat it as $1 straight away. This clears a major obstacle for everyday use.

However, note that the effective date for the stablecoin tax benefit is the tax year beginning after January 1, 2026, while the wash sale rule changes take effect after the bill is passed. That means the action to plug the loophole may happen faster than the implementation of the convenience measure. The bill’s explanatory materials also acknowledge that the stablecoin provisions are still under technical review—for example, whether to set a $200 per-transaction threshold or an annual total cap, and those details haven’t been finalized yet.

From an investor’s perspective, the signal from this bill is very clear: regulators are using tax tools to shape the industry’s structure. If you want to play speculation, your tax costs will keep rising. If you want to take the payment route, compliant stablecoins will receive increasing policy incentives.

This isn’t the first time the U.S. has touched tax treatment for crypto. In 2025, the IRS already introduced Form 1099-DA, requiring brokers to report digital asset transactions starting January 1, 2025, and to provide copies to taxpayers starting February 17, 2026. Most of the transaction cost basis in 2025 still needs to be calculated by taxpayers themselves, but the era of standardized reporting is already here. Now, this bill builds on the reporting framework to further refine the tax treatment of trading activities.

From a more macro perspective, the U.S. has been following a single path in crypto regulation: distinguish assets from money. Bitcoin is treated as a commodity and regulated by the CFTC; stablecoins are treated as payment tools and regulated by the OCC. Now tax policy is starting to follow that same divide as well.

Whether the bill ultimately passes depends on the bargaining between the two parties. Right now, both sides have people pushing it forward, but there are disputes over the specific provisions. Banks and crypto companies are still fighting over stablecoins’ economic interests, and it will take time to land the regulatory framework. But the direction is already pretty clear: the wash sale rules portion is not very controversial and will likely pass. The stablecoin portion needs polishing on the details, but the direction has already been set.

For ordinary investors, there are a few things you need to do now: (1) track the bill’s progress, especially when the wash sale rules take effect; (2) reassess your trading strategy to see whether year-end loss harvesting can still be used; (3) keep good records of the cost basis for every transaction, because tax compliance requirements will keep getting stricter.

The core logic of this bill is very simple: use tax advantages to steer capital flows toward the direction regulators want to support. As for Bitcoin, it will be treated like stocks going forward—don’t expect to dodge taxes by selling at a loss and buying back.

It’s called parity and fairness, but in reality it’s a transfer. It shifts Bitcoin’s tax advantages onto stablecoins. Crack down on one and support the other. That is the true intent of the Digital Asset PARITY Act.