A recent phenomenon in the North American market is worth noting—retail investors are clearing their positions, and many analysts and industry insiders attribute this wave of selling to tax considerations. Tom Lee and several other analysts have pointed out this trend.

According to the latest news, starting in 2025, centralized exchanges in the US will be required to directly report users' crypto sale and trading records to the IRS. By the 2026 tax season, the IRS will send out forms to users. Sounds formal, right?

But there's a problem—this form typically only shows how much the user sold for, and may not include the original purchase cost. If investors are unclear about their cost basis for reporting, the IRS might automatically assume a zero cost basis and send a tax deficiency notice. Whoever is caught in this situation will be unlucky.

Even more complicated is that, starting in 2025, the IRS requires that costs be calculated separately for each wallet and exchange account. In simple terms: the assets sold on a particular exchange or wallet can only be matched to the cost basis within that specific account or wallet, and cannot be mixed across platforms or wallets.

For investors who operate across multiple exchanges, frequently withdraw funds, engage in DeFi, or use self-custodied wallets, this undoubtedly increases the complexity to a nightmare level. Reconciling transaction records across all accounts and wallets is daunting just to think about.

Most importantly, the IRS system is highly automated. If the data reported by exchanges does not match what taxpayers declare, the system may trigger alerts or even automatically issue tax deficiency notices. No manual review needed—it's like issuing fines directly.

This explains why many are liquidating their holdings recently. Instead of facing the headache of new regulations and the risk of automatic tax adjustments in the future, it's better to simplify the books now, take profits or cut losses early, and streamline the position structure. This approach can reduce future tax compliance difficulties and allow timely locking in gains or losses.