Bitcoin Slips Below $88K, Crypto Stocks Plunge Up to 16% on Year-End Tax-Loss Selling

Why is Bitcoin falling while gold and silver are hitting record highs? A wave of year-end tax-loss harvesting is hammering the crypto market, as investors dump losing positions to slash their tax bills. According to CoinDesk, Bitcoin (BTC) slipped by about 1% on Tuesday to just below $88,000, but crypto-related stocks suffered far steeper, double-digit declines.

A Wave of Tax-Driven Selling

While Bitcoin's drop was modest, the pain was acute in the equity markets. MicroStrategy (MSTR) fell 4.2%, while ETHZilla (ETHZ) plummeted a staggering 16%. Other major decliners included XXI (XXI) (-7.8%), Gemini (GEMI), Circle (CRCL), and Bullish (BLSH), all down around 6%.

Analysts at digital asset hedge fund QCP Capital pointed to tax-loss harvesting as a key driver in thin, year-end liquidity conditions. Paul Howard, senior director at trading firm Wincent, explained that portfolio managers are often trimming risk into the holidays. He said this is not just for vacation but also for "creating taxable events and year-end balance sheets that in some cases do not want to show cryptocurrency holdings."

Thinner Markets Mean Higher Volatility

The market's vulnerability is growing. QCP Capital noted that open interest in BTC and ETH perpetual futures has fallen by around $3 billion and $2 billion, respectively. This reduction in leverage leaves the market more exposed to large price swings, a risk heightened by this Friday's record-breaking Boxing Day options expiry.

Adding to the macroeconomic uncertainty, former U.S. President Donald Trump took to Truth Social to reiterate his demand that the next Federal Reserve chairman lower interest rates, even if the economy is performing well. His comments came as new data showed the U.S. economy grew at a robust 4.3% annualized pace in the third quarter.