Bitcoin's Worst Month Since 2022: Sell at a Loss or Hold? A Tax Decision Framework for the February Crash

Bitcoin is down 24% in February 2026. That makes this the worst month for the world's largest cryptocurrency since the TerraUSD collapse in June 2022, according to Bloomberg. From its all-time high of $126,198 on October 6, 2025, Bitcoin has now fallen roughly 47.5% to approximately $66,000, per VanEck research.

Every crypto investor is asking the same question right now: Should I sell at a loss, or hold?

This is not a market prediction guide. Nobody can tell you where Bitcoin goes next. What this guide does is give you a tax decision framework — a systematic way to evaluate whether selling at a loss makes financial sense for your specific situation, based on IRS rules, capital loss mechanics, the wash sale loophole, and real dollar examples.

Because in a crash this severe, the IRS code itself becomes a tool. Used correctly, it can turn a painful loss into a tangible tax benefit worth thousands of dollars. Used incorrectly — or not at all — you leave money on the table.

Jump to the Tax Decision Framework ↓

Quick Facts: The February 2026 Crash

BTC February Performance	-24% — worst month since June 2022 (Yahoo Finance)
BTC All-Time High	$126,198 (Oct 6, 2025)
BTC Current Price (Feb 27)	~$66,000
Peak-to-Trough Drawdown	-47.5% (VanEck)
Feb 5 Crash Severity	-6.05σ — more severe than FTX collapse (-4.07σ)
Futures Deleveraging	$61B → $49B open interest (-20% in days)
ETH Drawdown from Peak	-60.7%
SOL Drawdown from Peak	-69.5%
Wash Sale Rule for Crypto?	Does NOT apply — sell + re-buy same day is legal
Capital Loss Cap	$3,000/year against ordinary income, unlimited carryforward

Related: Your 1099-DA April 15 Action Plan →

What Caused Bitcoin's Worst Month Since 2022?

The February 2026 selloff was not caused by a single event. Six major triggers converged over an eight-week period, creating a cascading deleveraging event that wiped over $1 trillion from the total crypto market cap.

January 5 — Trump announces 100% tariff on Chinese goods. Bitcoin dropped to approximately $63,300, marking its lowest point since October 2024. The announcement triggered a broad risk-off move across all asset classes, per multiple reports.

Late January — AI trade unwinds. Weakness in the AI sector spilled into crypto, particularly impacting Bitcoin miners pursuing high-performance computing strategies. As financing conditions tightened, miners faced pressure to sell BTC to support balance sheets, adding incremental spot supply at a fragile moment, per VanEck.

February 5 — The -6.05σ day. Bitcoin registered a -6.05σ rate-of-change Z-score on February 5, placing it among the fastest single-day crashes in crypto history. For context, the COVID crash was -9.15σ and the FTX collapse was -4.07σ. BTC touched $60,062, its weakest since October 2024. Futures open interest collapsed from $61 billion to $49 billion in a matter of days — a 20% reduction in notional leverage.

February 20 — Supreme Court strikes down Trump tariffs. The U.S. Supreme Court ruled 6-3 that Trump's emergency tariff authority exceeded constitutional limits. Bitcoin briefly spiked above $68,000 on the news, per Bitcoin Magazine.

February 21 — Trump signs 15% global tariff + Bybit hack anniversary. Within hours of the Court ruling, Trump invoked a 1974 statute to impose a new 15% worldwide tariff for up to 150 days. Bitcoin reversed sharply, falling 5% below $65,000, per CNBC. The same day marked the one-year anniversary of the $1.5 billion Bybit hack.

February 24-27 — Sideways grind at lower levels. Bitcoin has been oscillating between $63,000 and $68,000, with each rally quickly sold into. Bloomberg confirmed this is the worst monthly performance since June 2022. VanEck's analysis describes the current state as "statistical stress, not structural failure" — Bitcoin is trading -2.88σ below its 200-day moving average, a level not observed in the past 10 years.

Related: Bybit Hack 1-Year — Deduct Stolen Crypto →

The Tax Decision Framework: Sell at a Loss or Hold?

This is not about predicting whether Bitcoin recovers. This is about answering a precise question: Does the tax benefit of selling at a loss right now outweigh the cost of doing so? Walk through these five decision points.

Decision Point 1: Do You Have Capital Gains to Offset?

If you realized capital gains in 2025 (filed this year) or expect to realize gains in 2026, harvesting crypto losses right now directly reduces your tax bill. Capital losses offset capital gains dollar-for-dollar with no cap. A $20,000 crypto loss offsets a $20,000 stock gain completely. If you have no gains to offset, the benefit drops to $3,000 per year against ordinary income — still valuable, but less immediate.

SELL signal: You have substantial 2025 or 2026 capital gains from crypto, stocks, real estate, or other assets. Harvesting losses now directly reduces your tax liability.

HOLD signal: You have no capital gains and no income to offset. The $3,000 annual deduction is modest and may not justify the transaction costs and complexity.

Decision Point 2: What Is Your Tax Bracket?

The value of a capital loss depends on what it offsets. Short-term losses offset short-term gains taxed at your ordinary income rate (10-37%, plus 3.8% NIIT above $200K single). For someone in the 37% bracket with NIIT, every dollar of short-term loss offsets income taxed at 40.8%. For someone in the 12% bracket, the same loss saves 12 cents on the dollar.

Tax Bracket	Value of $10,000 Short-Term Loss	Value of $10,000 Long-Term Loss
12% (Single: up to $50,400)	$1,200 saved	$0 saved (0% LTCG rate)
22% (Single: $50,401-$105,700)	$2,200 saved	$1,500 saved (15% LTCG rate)
32% (Single: $201,776-$256,050)	$3,200 saved	$1,500 saved
37% + NIIT ($200K+)	$4,080 saved	$2,380 saved (20% + 3.8%)

SELL signal: You are in the 32% or higher bracket. Every dollar of loss harvested saves you 32-41 cents in federal taxes alone.

HOLD signal: You are in the 10-12% bracket with no gains. Long-term capital gains are taxed at 0% at this income level, meaning a long-term loss has almost no offset value.

Decision Point 3: Do You Want to Maintain BTC Exposure?

This is where the crypto wash sale loophole makes the analysis fundamentally different from stocks. Under IRC §1091, if you sell a stock at a loss and buy it back within 30 days, the loss is disallowed. This rule does not apply to cryptocurrency — crypto is property, not a security, per TurboTax (Jan 2026) and CoinLedger.

In practice, this means you can sell 1 BTC at a $30,000 loss on Monday morning and buy it back Monday afternoon. You lock in the $30,000 tax loss. Your BTC position is unchanged. With stocks, this move would disallow the loss entirely.

SELL signal (overwhelmingly): If you want to keep holding Bitcoin, the wash sale exemption means you can harvest the loss AND maintain your position. There is effectively no downside except transaction costs and the brief market exposure gap between sell and re-buy.

Warning: Forbes and Cadwalader have both warned that legislative proposals exist to extend wash sale rules to crypto as early as 2027. This window may close. Harvesting losses now while the loophole exists is a time-sensitive advantage.

Decision Point 4: Is Your Loss Short-Term or Long-Term?

Short-term losses (asset held ≤ 1 year) first offset short-term gains, which are taxed at the highest rates. Long-term losses (asset held > 1 year) first offset long-term gains, which are taxed at preferential rates. If you have both types of gains, prioritize harvesting short-term losses — the tax savings per dollar are significantly higher.

Important timing consideration: If you bought BTC 10 months ago, you have a short-term loss. If you wait 2 more months, it becomes a long-term loss. In most scenarios, harvesting the short-term loss now is more valuable — unless you expect the loss to shrink significantly (i.e., BTC recovers before the 1-year mark).

Decision Point 5: How Large Is Your Loss?

If your unrealized loss exceeds your total capital gains, the excess can only offset $3,000 of ordinary income per year. However, there is no expiration on the carryforward. A $50,000 net loss in 2026 becomes a $3,000 deduction per year for the next 15+ years — or it wipes out future gains entirely whenever you realize them.

For investors with very large unrealized losses, the math shifts: harvesting the entire loss creates a tax asset that persists for years. You are effectively banking future tax savings at today's depressed prices.

Full Guide: Crypto Tax-Loss Harvesting →

Sell Scenario: How Tax-Loss Harvesting Works in This Crash

Let's walk through a concrete example using the February 2026 crash.

Scenario: Mid-Career Professional, 32% Bracket

Sarah bought 2 BTC in March 2025 at $85,000 each (total cost basis: $170,000). It is now February 27, 2026. BTC is $66,000. She also sold $25,000 in stock gains in 2025 (short-term). Her holding period for BTC is 11 months — short-term.

Action	Amount
Sale proceeds (2 BTC × $66,000)	$132,000
Cost basis (2 BTC × $85,000)	$170,000
Realized short-term loss	-$38,000
Offset 2025 stock gains	-$25,000 (eliminated)
Remaining loss	-$13,000
Offset ordinary income (2026)	-$3,000
Carryforward to 2027+	-$10,000

Tax Savings Calculation

Offset Type	Amount	Tax Rate	Tax Saved
Short-term stock gains eliminated	$25,000	32% + 3.8% NIIT	$8,950
Ordinary income offset (2026)	$3,000	32%	$960
Carryforward (future years)	$10,000	~32% est.	~$3,200 (future)
Total estimated tax savings			$13,110

Sarah sells her 2 BTC for $132,000 on Monday morning. She immediately re-buys 2 BTC at $66,000 (or within a few dollars). Her BTC position is unchanged. Her new cost basis is $66,000 per coin. She has locked in $13,110 in total tax savings. The wash sale rule does not apply.

Key Insight: By selling and immediately re-buying, Sarah's market position is identical. But her tax basis has been "reset" to $66,000, and she has banked $38,000 in capital losses. If Bitcoin recovers to $126,000, she will owe tax on a $60,000 gain per coin instead of a $41,000 gain — she has effectively deferred $38,000 of the gain. The tax savings are front-loaded; the cost is deferred.

How to Report: IRS Form 8949 Guide →

Hold Scenario: When NOT to Sell at a Loss

Tax-loss harvesting is powerful, but it is not always the right move. Here are five scenarios where holding makes more sense.

You are in the 0% long-term capital gains bracket. For 2026, single filers with taxable income up to $48,475 pay 0% on long-term capital gains. If you fall in this bracket and your BTC is a long-term holding, there is no tax benefit to harvesting — a 0% rate cannot be reduced further.

You have no capital gains to offset. Without gains, the loss can only offset $3,000 of ordinary income per year. For someone in the 12% bracket, that is a $360 annual tax savings. Depending on your exchange fees and the complexity of tracking the basis reset, it may not be worth the effort.

You are approaching the 1-year holding threshold. If you bought BTC 11 months ago, selling now creates a short-term loss. If you wait 1 more month, the same loss becomes long-term. In isolation, short-term losses are more valuable. But if you plan to hold long-term and expect the asset to recover, the holding period reset (back to zero when you re-buy) means future gains will be taxed as short-term. This is the hidden cost of wash-sale-style harvesting.

You already harvested losses this year. If you already sold crypto at a loss in January or earlier in February and re-bought, you have already harvested. Doing it again on the same asset does not create additional loss unless the price has fallen further since your re-buy. Check your current basis before acting.

You believe strongly in near-term recovery and face execution risk. While you can sell and re-buy instantly, there is always brief execution risk — the price could move against you in the seconds between your sell and buy orders, especially during volatile markets. For very large positions, this slippage can be material.

Bottom Line: If you have no gains to offset, are in a low tax bracket, or are about to cross the 1-year threshold, holding may be the better choice. Tax-loss harvesting is a tool, not a rule.

Guide: Per-Wallet Cost Basis Tracking →

The Wash Sale Loophole: Why Crypto Is Different

The wash sale rule under IRC §1091 is the single most important reason why crypto tax-loss harvesting is uniquely powerful compared to stocks. Here is the law in plain terms.

For stocks and securities: if you sell at a loss and buy the same or a "substantially identical" security within 30 days before or after the sale, the loss is disallowed. You cannot claim it on your taxes. The disallowed loss gets added to the basis of the replacement shares.

For cryptocurrency: this rule does not apply. The IRS classifies crypto as property under Notice 2014-21, not as a security. Property is not subject to IRC §1091. This has been confirmed by TurboTax, CoinLedger, TokenTax, and Kiplinger as of February 2026.

This creates an asymmetric advantage: you can sell BTC at a $30,000 loss at 9:00 AM, re-buy at 9:01 AM, and claim the full $30,000 loss. Your position is unchanged. A stock investor cannot do this.

However, this window is closing. The Cadwalader 2026 Crypto Tax Forecast identifies a Congressional discussion draft that would apply wash sale rules to cryptocurrency. Forbes warned that 2025 may have been the last year without a crypto wash sale rule. If you are going to use this strategy, the time is now.

Full Guide: Tax-Loss Harvesting Strategies →

VanEck Data: "Statistical Stress, Not Structural Failure"

Before making a tax decision, it is worth understanding what institutional analysts are seeing in the data. VanEck's Matthew Sigel published a detailed analysis of the February selloff on February 5, 2026. The key findings provide important context — though they are explicitly not investment advice, and past performance is no guarantee of future results.

Crash Velocity: Extreme but Not Unprecedented

Event	Rate-of-Change Z-Score
COVID Crash (March 2020)	-9.15σ
February 5, 2026	-6.05σ
FTX Collapse (Nov 2022)	-4.07σ

The February 5 crash was faster than the FTX collapse but less severe than COVID. VanEck notes that events of this velocity "tend to exhaust panic selling rather than initiate prolonged cascades, particularly when not accompanied by systemic failure."

Distance from Trend: Unprecedented in 10 Years

Bitcoin is currently trading -2.88σ below its 200-day moving average. Per VanEck: "0.0% of observations have been further below the 200-day moving average" in the past 10 years. This includes COVID and FTX. Ethereum is at -1.50σ (5.8th percentile), Solana at -2.05σ (0.3rd percentile).

Deleveraging, Not Capitulation

Futures open interest fell from $61 billion to $49 billion — a 20% drop. But total liquidations were $3-4 billion, with roughly $2-2.5 billion in Bitcoin futures. VanEck characterizes this as "meaningful but not climactic forced selling." Realized volatility at ~38 is roughly half the 2022 bear market level (70+).

VanEck's conclusion: "Multiple signals are aligning. Even if this is not the bottom, the evidence increasingly supports the formation of a localized bottom." They note that "velocity panic appears exhausted, distance from trend is unsustainable, mean reversion is probable."

Tax Implication: If VanEck's analysis is correct and a mean reversion is forming, this creates urgency for tax-loss harvesting. Losses are largest at the bottom. If BTC rebounds, your unrealized losses shrink. The time to harvest is when the loss is deepest — not after a 20% recovery. This is a tax argument, not a market timing argument.

Read VanEck's Full Analysis →

Crypto Tax Software: Execute the Harvest Correctly

If you decide to sell, you need to report the loss correctly on Form 8949 and Schedule D. Crypto tax software automates this process and ensures your cost basis, holding period, and gain/loss calculations are accurate.

Feature	CoinTracker	Koinly	CoinLedger
Tax-Loss Harvesting Dashboard	Real-time unrealized loss tracker	Manual refresh	Basic
Accounting Methods	FIFO, LIFO, HIFO, ACB	FIFO, LIFO, HIFO, ACB	FIFO, LIFO, HIFO
Form 8949 Generation	Yes	Yes	Yes
Cross-Platform Basis Matching	Automatic	Automatic	Manual
Pricing (up to 1,000 txns)	$59/year	$49/year	$49/year

CoinTracker's real-time harvesting dashboard is the most useful feature for this specific strategy — it shows your unrealized losses across all wallets and exchanges, sorted by potential tax savings, so you can identify the highest-impact lots to sell first.

Full Review: Best Crypto Tax Software →

Frequently Asked Questions

Should I sell my crypto at a loss for tax purposes?

It depends on your overall tax situation. If you have realized capital gains from 2025 or 2026, selling crypto at a loss can offset those gains dollar-for-dollar. If you have no gains, you can still deduct up to $3,000 of net capital losses against ordinary income per year, with unlimited carryforward. The decision should factor in your tax bracket, whether the loss is short-term or long-term, and whether you plan to re-buy the asset.

Can I sell Bitcoin at a loss and buy it back immediately?

Yes, as of February 2026. The IRS wash sale rule under IRC §1091 applies only to stocks and securities. Cryptocurrency is classified as property, not a security, so the 30-day wash sale restriction does not apply. You can sell Bitcoin at a loss and re-purchase the same asset seconds later, locking in the tax loss while maintaining your market position. Legislative proposals exist to change this, potentially as early as 2027.

How much crypto loss can I write off per year?

Capital losses first offset capital gains with no limit. Any remaining net capital loss can offset up to $3,000 of ordinary income per year ($1,500 if married filing separately). Excess losses carry forward indefinitely to future tax years — there is no expiration on the carryforward.

Is it better to harvest short-term or long-term crypto losses?

Short-term losses are generally more valuable because they first offset short-term gains, which are taxed at ordinary income rates (10-37%, plus 3.8% NIIT for high earners). Long-term losses offset long-term gains taxed at preferential rates (0-20%). If you have both types of gains, prioritize harvesting short-term losses to maximize tax savings.

What caused Bitcoin to crash in February 2026?

Multiple factors converged: Trump's escalating tariff announcements (100% on China, then 15% global), the Supreme Court striking down earlier tariffs followed by new executive orders, the Bybit hack one-year anniversary, the AI trade unwind pressuring Bitcoin miners, and a massive deleveraging event that saw futures open interest drop from $61 billion to $49 billion. VanEck research recorded a -6.05σ rate-of-change move on February 5 — more severe than the FTX collapse.

Do I need to report crypto losses on my tax return?

Yes. All crypto sales — whether at a gain or loss — must be reported on Form 8949 and Schedule D with your Form 1040. With the introduction of Form 1099-DA in 2026, the IRS now receives gross proceeds data directly from exchanges. Failing to report transactions that appear on your 1099-DA can trigger a CP2000 underreporter notice.

Can crypto losses offset my stock gains?

Yes. The IRS treats all capital gains and losses together on Schedule D, regardless of asset class. A $20,000 crypto loss can offset a $20,000 stock gain, reducing your net taxable capital gain to zero. This cross-asset offset is one of the most powerful advantages of tax-loss harvesting during a crypto downturn.

Is this a good time to tax-loss harvest Bitcoin?

From a pure tax perspective, the conditions are highly favorable. Bitcoin is down approximately 47.5% from its October 2025 all-time high and 24% in February alone — its worst month since June 2022. Combined with the fact that the wash sale rule does not apply to crypto (meaning you can immediately re-buy), this crash creates one of the most favorable tax-loss harvesting windows in recent crypto history. However, tax benefits alone should not drive investment decisions — consult a qualified tax professional.

Related Guides

Continue building your crypto tax knowledge with these in-depth resources from Legal Money Talk:

BTC Crashed 49% — April 15 Action Plan → Bybit Hack 1-Year: Deduct Stolen Crypto → Crypto Tax Havens vs Traps: 0% to 55% → 50% of Crypto Holders Fear IRS Penalties → Crypto Tax-Loss Harvesting Guide → Best Crypto Tax Software → IRS Form 8949 Crypto Guide → IRS CP2000 Crypto Notice Guide → Per-Wallet Cost Basis Tracking →

Disclaimer: This article is for informational purposes only and does not constitute tax, legal, financial, or investment advice. Tax laws are complex, change frequently, and vary by jurisdiction. The information presented reflects rules and guidance available as of February 27, 2026. Market data and analyst research cited herein (including VanEck) are provided for context only — past performance is no guarantee of future results. This article does not recommend buying, selling, or holding any digital asset. Consult a qualified CPA, tax attorney, or financial advisor before making any decisions based on this content. Legal Money Talk and its authors are not liable for actions taken based on this article.