# How is a crypto OTC trade taxed in the United States?
In the US, a crypto OTC sale is taxed like any other disposal: gain or loss is net proceeds minus cost basis. Trading OTC only changes who keeps the records.
---
In the United States, selling or exchanging a digital asset over the counter is a taxable disposal like any other sale: your gain or loss is what you received, net of selling costs, minus your cost basis in the units you gave up. Trading OTC rather than on an exchange does not change that rule; it changes who keeps the records, because in many OTC trades nobody hands you a year-end statement.
This article covers the federal income tax rules that apply in the United States, as the Internal Revenue Service (IRS) describes them, with every amount in US dollars. It is general information, not legal or tax advice.
The rules below are written for a holder who treats the asset as an investment: a fund, a treasury, a family office or a private holder selling in size. They come from the IRS's own publications: its digital assets pages and its published questions and answers on virtual currency, Notice 2014-21, the instructions for Form 8949 for 2025, and Revenue Procedure 2024-28.
$4,449,900gain on the worked example when the units sold are taken first-in, first-out
$2,197,650gain on the same sale when the highest-cost units are specifically identified
$2,252,250of gain moved to later sales by that choice, not removed
Worked example detailed further down: 150 units sold OTC at $60,000 out of three lots of 100 units. Illustrative figures.
## What makes a crypto OTC trade taxable in the United States?
A crypto OTC trade is taxable in the United States because the IRS treats digital assets as property, so giving one up for cash, for a stablecoin or for another asset is a disposal that produces a gain or a loss. The venue plays no part in that reasoning: a trade agreed by phone with a desk and settled wallet to wallet is the same event, for tax purposes, as a sale on an exchange order book.
The starting point is Notice 2014-21, in which the IRS stated that virtual currency is treated as property for federal tax purposes and that the general principles for property transactions apply. The IRS's current digital assets page repeats it in plain words: digital assets are considered property, not currency. That page defines a digital asset as any digital representation of value recorded on a cryptographically secured distributed ledger, and gives convertible virtual currencies, stablecoins and non-fungible tokens as examples.
The same page lists the events that count: selling, exchanging or otherwise disposing of a digital asset for another digital asset, for US dollars or another currency, or for goods or services, and paying a transfer fee with a digital asset. It also says that moving an asset between two wallets that you own is generally not reportable, unless you paid the transaction fee in digital assets. In OTC work, where a position is often moved from cold storage to a settlement wallet before the trade, the move is not the disposal. The trade is.
One formula then governs the result: gain or loss equals the amount you realized minus your adjusted basis in the units you disposed of. Every other question in this article is a question about one of those two numbers, or about the date attached to each of them.
## What counts as proceeds in an OTC trade?
The proceeds of an OTC crypto trade are the US dollar value of whatever you received for the units you gave up: the cash itself, or the fair market value of the stablecoin or other asset at the time of the trade. The figure is always expressed in dollars, whatever the trade was denominated in.
The IRS's questions and answers on virtual currency transactions put it in two steps. When you sell for real currency, the gain or loss is the difference between your adjusted basis and the amount you received. When you exchange for other property, including another virtual currency, it is the difference between the fair market value of the property you received and your adjusted basis. Notice 2014-21 adds that, for an asset with a market exchange rate, fair market value is found by converting to US dollars at that rate in a reasonable manner that is consistently applied.
| What you receive | Proceeds for US federal tax | What to keep as evidence |
| --- | --- | --- |
| US dollars by wire | The dollar amount received | Trade confirmation and bank advice |
| Another fiat currency | Its US dollar value at the trade | Confirmation, bank advice, the exchange rate used |
| A stablecoin | Its fair market value in US dollars when received | Confirmation and the onchain transaction record |
| Another digital asset | Its fair market value in US dollars when received | Confirmation, transaction record, the price source used |
For a trade that does not pass through an exchange, the same questions and answers say the fair market value is determined as of the date and time the transaction is recorded on the distributed ledger, and that the IRS will accept as evidence the value determined by a cryptocurrency or blockchain explorer. The IRS notes that this set of questions and answers generally applies to transactions completed before January 1, 2025; the principle that proceeds are measured in dollars at the time of the transaction is restated on its current digital assets page.
## How is a crypto-for-crypto OTC trade taxed?
A crypto-for-crypto OTC trade is taxed in the United States as a disposal of the asset you hand over, even though no dollar changes hands. The IRS's questions and answers state that exchanging virtual currency held as a capital asset for another virtual currency produces a capital gain or loss, measured against the fair market value of what you received.
That treatment covers the most common OTC structure of all: a large holder of one asset sells to a desk and is paid in a dollar stablecoin. The stablecoin is a digital asset in its own right, so the seller has disposed of the first asset at the stablecoin's dollar value. The stablecoin then starts its own tax life. Its basis is its cost in US dollars, which the digital assets page describes as the general rule for basis, and spending or converting it later is a second disposal, usually with a gain or loss close to zero but still a line to account for.
Two consequences are easy to miss when a treasury swaps one asset for another through a desk.
- The gain is recognized in the year of the swap, although no cash arrived to pay the tax. A swap of a long-held, low-basis position can create a large liability with no liquidity attached to it.
- The asset received begins a new holding period. Whatever time you had accumulated on the asset given up does not carry over to the one received.
## What goes into the cost basis of the units you sell?
The cost basis of a digital asset is what it cost you to acquire it, in US dollars, including the fees paid to acquire it. The IRS's instructions for Form 8949 state that the basis of a digital asset is the cost to acquire it, including transaction fees, commissions, transfer taxes and other acquisition costs.
For units you bought, the basis is therefore the purchase price plus the buying costs: a desk's commission if one was charged separately, a broker's fee, the network fee paid to receive the units. For units you received as payment for goods or services, Notice 2014-21 sets the basis at the fair market value in US dollars on the date of receipt, the same figure that was reported as income. Units received by gift or inheritance follow separate basis rules that are not covered here.
Basis is tracked per unit, or per lot of units acquired together. A lot is one acquisition: a date and time, a number of units, a total cost. A position built over several years through several purchases is not one number but a list of lots, each with its own cost per unit and its own acquisition date. The digital assets page lists exactly those inputs for a basis calculation: the type of asset, the date and time of acquisition, the number of units, and the fair market value in US dollars at that time.
## Which units did you sell: specific identification or first-in, first-out?
When you sell part of a position, the IRS lets you choose which units you sold if you can specifically identify them and substantiate their basis; if you do not, the units are treated as sold in chronological order, earliest first. That default is known as first-in, first-out. The choice decides which basis and which acquisition date attach to the sale.
The IRS's questions and answers describe both methods. You may choose the units disposed of if you can specifically identify which units are involved and substantiate your basis in them, for instance by documenting each unit's unique digital identifier, such as a private key, a public key and an address. Without that identification, units are deemed disposed of in chronological order beginning with the earliest.
Since January 1, 2025, the method is applied wallet by wallet and account by account. Revenue Procedure 2024-28 explains the change: the final regulations apply to all acquisitions and dispositions of digital assets on or after that date, the identification must be made no later than the date and time of the sale, disposition or transfer, and units that are not identified are taken in order of time from the earliest purchase date of that same asset in that wallet or account. The earlier practice, which many taxpayers read into those questions and answers, of treating all wallets as a single pool is what those rules replaced.
For an OTC seller, the wallet rule has an operational meaning. The units you can identify for a sale are the units held in the wallet or account the sale is made from. Moving units into a dedicated settlement wallet before the trade therefore shapes which lots are available to the trade, and the transfer records become part of the basis file.
## Where is the line between a short-term and a long-term gain?
A gain or loss on a digital asset held as a capital asset is short-term if you held the units for one year or less, and long-term if you held them for more than one year. The IRS's digital assets page states the line in those words, and its questions and answers add that the holding period begins on the day after you acquired the asset and ends on the day you sell or exchange it.
The holding period is counted lot by lot, not position by position. A sale that draws on two lots can be partly long-term and partly short-term, and the instructions for Form 8949 require the two portions to be reported separately even when the units were sold in one block.
The two categories are taxed differently, and the difference depends on the taxpayer and on the tax year. This article quotes no rate: check the figures for your own year and entity type on the IRS's own pages or with your adviser. The classification itself is date-driven: a sale made a few days before a lot passes its one-year mark is classified differently from the same sale made a few days after.
One limit applies to this whole framework. Notice 2014-21 states that the character of the gain depends on whether the asset is a capital asset in the hands of the taxpayer, and that an asset held mainly for sale to customers in a trade or business, like inventory, generally produces ordinary gain or loss. A desk or dealer that trades for its own book as a business is in a different position from an investor selling a holding, and the short-term and long-term distinction described here is the investor's.
## How do fees, the spread and an introducer's fee change the numbers?
Costs paid to acquire the asset are added to its basis, costs paid to sell it reduce the proceeds, and the spread is not a separate item at all because it is already inside the price. Each lowers the gain, but enters the calculation at a different place.
**Buying costs.** As set out above, the instructions for Form 8949 include transaction fees, commissions and other acquisition costs in the basis of a digital asset. They raise the basis of the lot they were paid on, and only that lot.
**Selling costs.** The same instructions state that net proceeds equal gross proceeds minus any selling expenses, and that where those costs are not already reflected in the reported proceeds, the taxpayer enters selling expenses and digital asset transaction costs as a negative adjustment on the form. A commission invoiced by a desk on the sale and the network fee paid to deliver the units are the usual examples.
**The spread.** A desk that deals as principal typically earns the difference between the price it quotes you and the price at which it covers the position. You never pay that amount as a fee. If a reference mid-price is $60,200 and the desk's bid is $60,000, your proceeds are $60,000 per unit, and the $200 is not deducted a second time. This is an illustrative quote, not a market statistic.
**An introducer's fee.** An introducer, or finder, is a party paid for bringing the two sides together. If you, the seller, pay the introducer for a sale, the fee is a cost of making that sale, and the general rule in the instructions points to treating it as a selling expense that reduces the net proceeds. A fee tied to one identified trade and supported by an agreement and an invoice is a clearer case than a retainer covering a year of introductions, and your adviser decides on the documents.
That last point is why the fee should leave a trace of its own. Where the buyer's payment for the units is to be divided between the seller and an introducer, Shaka is one way to do it: it is a payment router, which takes one payment and pays every party their share at the same moment, in one transaction, without ever holding the funds. Each share is set as a percentage of the deal and can be signed by its recipient before the buyer pays, and the record of who was paid what stays available onchain. It divides one payment; it does not exchange the two assets of the trade, and it does not change how any share is taxed.
## A worked example: one OTC sale under two identification methods
On the same OTC sale of 150 units, the gain is $4,449,900 under first-in, first-out and $2,197,650 when the highest-cost lots are specifically identified, because the method changes which basis and which holding period attach to the sale. The figures are illustrative and the taxpayer is fictional: a family office holding one digital asset as an investment, in a single wallet.
The office bought three lots of 100 units each, counted from the first purchase as Day 0.
- Lot A, Day 0: 100 units at $20,000, plus $2,000 of buying fees. Basis $2,002,000, or $20,020 per unit.
- Lot B, month 8: 100 units at $50,000, plus $5,000 of fees. Basis $5,005,000, or $50,050 per unit.
- Lot C, month 15: 100 units at $35,000, plus $3,500 of fees. Basis $3,503,500, or $35,035 per unit.
Total basis across the 300 units is $10,510,500. In month 18, the office sells 150 units to a desk at $60,000 per unit, for gross proceeds of $9,000,000. It pays an introducer 0.50% of the gross price, $45,000, and $600 of transfer costs. Selling costs are $45,600, so net proceeds are $8,954,400, or $59,696 per unit sold. At the sale, Lot A has been held 18 months, Lot B 10 months and Lot C 3 months.
| Units treated as sold | Net proceeds | Cost basis | Gain and holding period |
| --- | --- | --- | --- |
| First-in, first-out: Lot A, 100 units | $5,969,600 | $2,002,000 | $3,967,600, long-term |
| First-in, first-out: Lot B, 50 units | $2,984,800 | $2,502,500 | $482,300, short-term |
| **First-in, first-out, total** | **$8,954,400** | **$4,504,500** | **$4,449,900** |
| Specific identification: Lot B, 100 units | $5,969,600 | $5,005,000 | $964,600, short-term |
| Specific identification: Lot C, 50 units | $2,984,800 | $1,751,750 | $1,233,050, short-term |
| **Specific identification, total** | **$8,954,400** | **$6,756,750** | **$2,197,650** |
Three readings come out of the table. First, the proceeds are identical: the buyer, the price and the costs are the same, and only the basis side moves. Second, the lower figure is not a saving. The 150 units left in the wallet carry $6,006,000 of basis after the first-in, first-out sale and $3,753,750 after the specific identification, and that gap of $2,252,250 is exactly the difference between the two gains. The gain not reported on this sale stays attached to the units still held.
The third reading concerns the holding period, which the totals hide.
Gain on the same OTC sale, by identification method and holding periodUS dollars, 150 units sold at $60,000 in month 18, selling costs of $45,600
Short-term gainLong-term gain
Illustrative worked example. Gains before any tax; no tax rate is applied.
Under first-in, first-out, most of the gain is long-term, because the oldest lot has passed the one-year line. Under the specific identification, the reported gain is about half as large, but every dollar of it is short-term. Which outcome leaves the office with more after tax cannot be read from the gain alone: it depends on the rates that apply to that taxpayer in that year, on its other gains and losses, and on when it expects to sell the rest. That is the judgment an adviser makes, and it has to be made before the trade, since the identification cannot be made afterwards.
The introducer's fee shows up in every row. Without the $45,600 of selling costs, each total gain would be $45,600 higher, so $4,495,500 under first-in, first-out.
## What records must an OTC trader keep when no exchange statement exists?
An OTC trader must keep, for every lot and every trade, the records that establish the date, the number of units, the dollar value and the basis, because the IRS requires taxpayers to maintain records sufficient to establish the positions taken on their returns. In a bilateral trade, the file is whatever the two parties wrote down.
The IRS's questions and answers name the records expected: receipts, sales, exchanges and other dispositions of virtual currency, and the fair market value of the virtual currency. For a specific identification, they add that the records must show the basis and the fair market value of each unit at the time it was acquired. The instructions for Form 8949 add that you must keep accurate records that show the basis of your property, including the purchase price and commissions.
The file behind one OTC saleWhat to assemble, in the order the trade produces it
The lot registerFor every acquisition: date and time, units, price, fees, total basis in US dollars, the wallet or account that received the units, and the transaction identifier or the bank advice that proves it.
The wallet mapWhich lots sit in which wallet or account, and every transfer between your own wallets with its identifier and any fee paid in digital assets, so the units in the selling wallet can be traced to their lots.
The identification noteWritten and dated before settlement: the lots to be treated as sold, their units, and the wallet they are sold from. Without it, the earliest units in that wallet are the ones sold.
The trade confirmationCounterparty, date and time, units, price, consideration, and who pays which cost. A recorded chat or call is a weaker substitute for a signed or emailed confirmation.
The proof of both legsThe onchain transaction record for the units delivered and the bank advice or transaction record for what was received, with the price source used for any consideration not paid in US dollars.
The cost documentsThe desk's invoice if a commission was charged, the introducer agreement and invoice, and the network fees, each tied to the trade it belongs to.
Who else holds a record depends on how the trade was done. The IRS's digital assets page explains that Form 1099-DA is issued by brokers that take possession of their customers' digital assets, such as custodial trading platforms and certain hosted wallet providers, that those brokers must report gross proceeds for transactions effected on or after January 1, 2025 and basis on certain transactions effected on or after January 1, 2026, and that non-custodial brokers are excluded. An OTC sale made through such a custodial broker may therefore come with a form. A trade settled directly between two parties' own wallets generally comes with none, and the absence of a form changes nothing about the duty to report.
## Which forms report a crypto OTC trade?
A US taxpayer who holds digital assets as capital assets reports each OTC disposal on Form 8949, Sales and Other Dispositions of Capital Assets, and carries the totals to Schedule D, Capital Gains and Losses. The instructions for Form 8949 for 2025 provide dedicated boxes for digital asset transactions, including one for short-term and one for long-term transactions for which no Form 1099-DA or Form 1099-B was received, which is where a bilateral OTC trade without a broker form belongs.
Federal income tax returns also carry a yes-or-no question on digital assets, and the IRS's digital assets page says to answer yes if you sold, exchanged or otherwise disposed of a digital asset during the year. How to prepare the reporting of a large sale, line by line, is a subject of its own and is not developed here.
## How do other countries tax a crypto OTC trade?
Other countries tax a crypto OTC trade under their own rules, which differ from the US federal rules on almost every point this article covers. Nothing above should be carried over to another jurisdiction.
The points that most often differ are these: whether an exchange of one digital asset for another is a taxable event at all; whether the units sold are chosen by the taxpayer, taken in order, or averaged across the whole holding; whether a holding period changes the treatment, and where its line sits; and whether the result is taxed as a capital gain or as income.
The same caution applies inside the United States, where a state may tax the same gain under its own rules. A worked example shows how the mechanism behaves, not what your own trade will cost: the decision on identification, timing and structure belongs to you and your tax adviser, made on your own records before the trade is agreed.