This is not necessarily so, and it is not always the case that losses can be aggregated with profits.
We have seen many situations where there are large early gains with hefty tax bills attached to them, followed by heavy losses and no means to pay the tax due, and this has become a familiar story.
For example, if a person invested $10,000 (£7,900) in BTC in May 2020, they may have bought roughly 1.25 coins, if they hodled (hodl is the crypto term for holding the investment) that until late 2021 (2021-22 tax year) when the value of their BTC was around $75,000 and then switched to ETH (approximately 16 ETH at that point), they might have crystallised a gain of around $65,000 without cashing in. UK tax would be payable on roughly $50,000 at 20 per cent, being $10,000.
However, they did not exit at that point and ended up cashing in their ETH in June 2022 (2022-23 tax year) when the coin was at around one quarter of its previous high. They have around $18,750 and have made a financial gain from start to finish of $8,750, but sadly have a tax bill to fund of $10,500 from the previous switch. In real terms, they have lost money.
Similarly, someone who is self-employed and paid in crypto, who receives a level of income one year, does not cash out and has a tax bill attributable to that level of income; but when it comes to pay their self-assessment the value has dropped and they no longer have that amount of value with which to pay their tax.
Or indeed, where an owner is receiving rewards for their crypto at a high value, say in a bull run, and the value then falls and the holder has not converted profits to fiat, this too leads to problems with liquidity and the ability to pay tax.
Record keeping
Crypto traders often operate across various exchanges and wallets, making it difficult to consolidate transaction data for tax reporting purposes.
Manually tracking every trade, purchase or transfer can be a time-consuming and error-prone process. The lack of standardised reporting tools across different platforms exacerbates this issue, leaving crypto asset owners struggling to maintain accurate records.
There are software products into which a crypto asset owner can plug in the wallets, but no single software caters entirely for the vast array of activities that take place.
We often find that even those who do have an awareness of their tax obligations do not immediately recall all their digital wallets (or have lost access to some), and it is only on detailed review of transactions that the missing data is identified and then must be located.
There can be issues with matching costs in NFT minting, where there is a gap in the transaction coin being deposited, the NFTs being minted, and the two things can be on different exchanges so do not match up automatically. This creates a manual challenge that needs to be addressed when looking at the taxable gain on disposal of the NFT.
