The IRS released new regulations in December, and their impact on the crypto market should not be underestimated. In simple terms, the policy redefines cryptocurrencies as property, with the key point being that selling cryptocurrencies at a loss allows for unlimited tax deductions on the loss.

This may seem like good news, but it could actually become a new tool for market manipulation.

**Let's first clarify which actions are taxable:**

1. Selling cryptocurrencies for fiat currency (such as USD)
2. Exchanging one cryptocurrency for another
3. Using cryptocurrencies to purchase goods or services
4. Income from mining, staking, airdrops, and other activities (considered ordinary income)

As early as last year and into 2024, there were voices pointing out that the main purpose of passing various US cryptocurrency laws was for taxation—without profit incentives, the government wouldn't activate this system. Now, this prediction has been confirmed. And no one expected that the tax authorities would implement an operation allowing unlimited loss deductions.

**How exactly does loss deduction work?**

Here's a concrete example: you bought Bitcoin for 10,000 and sold it later for 9,000, incurring a loss of 1,000. This loss can be used to offset taxes. If only 400 of that loss is used, the remaining 600 can be carried forward and used next time.

Smart traders will do the following: sell their holdings to lock in losses for tax deduction, then wait for the price to drop even further before buying back. Suppose Bitcoin later rises to 80,000, generating a profit margin that needs to be taxed, but the remaining 600 loss deduction from before is still available, so they continue to offset taxes.

This logic can be amplified: institutions and large investors can carefully time their sell and buy actions to perform tax planning while simultaneously creating downward pressure. From this perspective, why are institutions still selling at over 80,000? The same logic applies as after the ETF approval on January 11, 2024, which led to a sharp decline—the driving force is profit motives.

**An even more extreme scenario:**

If a large investor buys a meme coin that eventually goes to zero, resulting in a total loss, selling it would still allow them to deduct that huge loss for taxes. The question is—will they actually sell the meme coin? Or will they wait for the meme season to come, betting on a sudden surge to recover their losses?

The regulations introduced in December will take time to fully implement and won't cause an immediate crash. However, they open a new space for market participants to plan their taxes and introduce new volatility factors. The market's gameplay has been elevated to a new level.