Crypto-to-Crypto Swaps: Yes, Every Single One Is Taxable #
Every crypto-to-crypto swap triggers a taxable event in the United States. Every single one. You swap Bitcoin for Ethereum, that’s a taxable event. You trade Ethereum for Solana, taxable event. You convert anything to a stablecoin, taxable event. The IRS doesn’t care that you never touched dollars. They treat each swap as selling one asset to buy another, which means you’re recognizing capital gains or losses on every transaction.
This catches people off guard because it feels like you’re just moving between different cryptocurrencies, not actually selling anything. That’s not how the tax code works. When you swap BTC for ETH, the IRS sees it as two transactions: you sold your Bitcoin (triggering gain or loss based on your cost basis), then you used those proceeds to buy Ethereum. The fact that it happened in one atomic swap on a decentralized exchange doesn’t change the tax treatment.
People rack up tax bills they didn’t know existed this way. You bought Bitcoin at $30,000, it goes to $60,000, you swap it for Ethereum. You just triggered a $30,000 capital gain even though no money hit your bank account. If you do this repeatedly throughout the year, you’re stacking up taxable events with every trade. Come tax season, you owe money on gains you might not have liquid cash to pay because everything’s still in crypto.
The math gets ugly fast. Say you made 50 swaps last year trading between different coins. That’s 50 taxable events you need to track. What was your cost basis in each coin you sold? What was the fair market value at the time of each swap? What was your holding period for each asset? Short-term gains get taxed as ordinary income, long-term gains get preferential rates. You need records for all of it.
This is where most people’s recordkeeping falls apart. Exchange records might show the trades but they don’t always calculate your cost basis correctly, especially if you’ve moved assets between wallets and exchanges. If you bought Bitcoin on Coinbase, moved it to a hardware wallet, then swapped it on a decentralized exchange for another coin, you need to track that entire chain of custody and the cost basis through each step.
An LLC helps with this because you’re tracking everything through one entity with clean books. All your trading activity flows through the LLC’s records. You’re not trying to reconstruct what happened across multiple personal wallets, different exchanges, and DeFi protocols when tax time comes. The LLC structure forces cleaner recordkeeping from the start.
Custody matters here because you need reliable records of every transaction. D’Cent provides custody that maintains transaction history and documentation. When you’re dealing with frequent swaps and the tax liability that comes with them, you can’t afford gaps in your transaction records. Missing cost basis information means the IRS can assume zero basis, which means they tax the entire proceeds as gain.
Some people try to avoid this by holding everything and never swapping. That works until you actually want to rebalance your portfolio or take advantage of opportunities in different coins. You’re essentially locked into your original positions unless you’re willing to trigger taxable events.
Others try to claim like-kind exchange treatment, arguing that swapping one cryptocurrency for another is like trading one piece of real estate for another. The IRS shut that down. After 2017, like-kind exchanges only apply to real property. Crypto doesn’t qualify. Every swap is taxable.
The registered investment advisor space is still catching up to crypto tax complexity. Most traditional advisors don’t handle digital assets at all. The ones who do often outsource the tax reporting to software that may or may not capture every transaction correctly. You need someone who understands both the investment strategy side and the tax reporting requirements specific to digital assets.
When you’re making frequent swaps and your portfolio is large enough to matter, this moves into family office territory. Digital Ascension Group coordinates the tax strategy, entity structuring, and investment management for clients whose digital asset activity creates complex tax situations that need professional oversight.
The bottom line: plan for taxes before you make the swap, not after. Every trade has tax consequences. Track everything. Keep clean records. Don’t assume you can figure it out later because the IRS won’t accept “I forgot to track my basis” as an excuse.
Contact Digital Ascension Group to learn how our family office services can coordinate your complete financial picture, including digital asset tax planning and custody solutions.
