Tax Loss Harvesting Bitcoin ETFs — The IBIT-to-FBTC Swap

The Short Answer

If IBIT is trading below your purchase price, you can sell your shares to realize a capital loss and immediately buy a different Bitcoin ETF — such as FBTC, ARKB, BITB, or BTC — to maintain Bitcoin exposure. Because these are different ETFs from different issuers, this swap does not trigger the wash sale rule. You keep your Bitcoin position and get a tax deduction.

For Bitcoin ETF investors in taxable accounts, this is one of the most powerful — and least understood — year-end tax strategies. In December 2025 alone, Bitcoin ETFs saw approximately $825 million in outflows driven specifically by tax loss harvesting.

For capital gains basics, see our guide on how IBIT is taxed.

How It Works — Step by Step

Step 1: Identify the loss

You bought IBIT at $55 per share. It's now trading at $42. That's a $13 unrealized loss per share.

Step 2: Sell IBIT

You sell your entire IBIT position.

• Shares sold: 1,000
• Loss per share: $13
• Realized capital loss: $13,000

This loss is now locked in for tax purposes.

Step 3: Immediately buy a different Bitcoin ETF

With the proceeds, you buy FBTC (Fidelity Wise Origin Bitcoin Trust). You've effectively stayed invested in Bitcoin — just through a different ETF wrapper.

Step 4: Claim the loss

That $13,000 capital loss can now be used to:

• Offset $13,000 of capital gains elsewhere in your portfolio (stocks, ETFs, real estate sales, etc.)
• If losses exceed gains, deduct up to $3,000 per year against ordinary income
• Carry any remaining losses forward indefinitely to future years

Key point: You never meaningfully exited Bitcoin. You sold one ETF and bought another within minutes — maintaining exposure while creating a real tax deduction.

Why This Doesn't Trigger the Wash Sale Rule

This strategy works because of how the wash sale rule (see IRS wash sale rules) is defined.

The wash sale rule disallows a loss only if you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale.

IBIT and FBTC are not substantially identical:

• Different issuers (BlackRock vs. Fidelity)
• Different trust structures and custodians
• Different expense ratios and BTC-per-share ratios
• Different prospectuses and CUSIPs

In traditional equity markets, this is standard practice. Investors routinely harvest losses by swapping S&P 500 ETFs — selling SPY and buying VOO — without triggering wash sales. Robo-advisors like Betterment and Wealthfront automate this exact strategy. The same logic applies to Bitcoin ETFs.

Important caveat

The IRS has never issued a formal ruling on whether two Bitcoin ETFs are “substantially identical.” However, the overwhelming consensus among tax professionals is that ETFs from different issuers are not substantially identical, and brokers do not flag cross-issuer ETF swaps as wash sales (different CUSIPs). This approach is widely used and accepted — but conservative investors with large positions should confirm with their tax advisor.

Which ETFs Can You Swap Between?

You're not limited to IBIT → FBTC. Any issuer-to-issuer swap works.

The GBTC “double win”: If you're still holding Grayscale's original Bitcoin Trust at its 1.50% expense ratio, harvesting a loss is the perfect exit. You generate a tax deduction and move into a cheaper fund that saves you over 1% per year in fees permanently.

What Changes When You Swap (and What Doesn't)

This strategy preserves exposure — but a few details do change.

BTC-per-share ratio changes. IBIT and FBTC have different ratios (~0.000564 vs ~0.000881). If you sell 1,000 IBIT shares and buy FBTC, you'll get roughly 640 FBTC shares. Your total Bitcoin exposure stays the same — only the share count differs.

Expense ratio may change. IBIT → FBTC keeps fees identical. IBIT → BITB or BTC saves on fees going forward. See our fee drag analysis for how expense ratios erode BTC-per-share over time.

Cost basis resets. Your new FBTC shares have a cost basis equal to your purchase price. This matters for future tax calculations.

Options liquidity. IBIT has the deepest options market. If you swap to a smaller ETF, options liquidity may be thinner. If you actively trade IBIT options, this is worth considering.

Timing and Strategy

• Year-end is common, but not required. October through December is the traditional window, but you can harvest losses any time during the year.
• Bitcoin's volatility is your ally. A year where BTC goes from $60K to $40K to $100K offers harvesting opportunities in the middle — even though the year ends positive. Unlike equity ETFs that drift slowly, Bitcoin can create large harvestable losses in weeks.
• You can swap back after 31 days. The wash sale window only prevents rebuying the same security. After 31 days, you can sell FBTC and return to IBIT if you prefer its liquidity or options market.
• Keep simple records. Note the date, security sold, loss amount, and replacement purchased. Your broker handles the 1099, but personal logs help at tax time.

How Much Can This Save?

All while maintaining your exact Bitcoin exposure.

For high-income investors in the 37% federal bracket plus state tax, the same $20,000 loss can save nearly $10,000 in combined taxes. The only cost is the bid-ask spread on the swap (~0.05% on liquid ETFs) — trivial compared to the tax benefit.

Bottom Line

Tax loss harvesting across Bitcoin ETFs works because:

• Wash sale rules apply to identical securities, not similar ones
• IBIT, FBTC, ARKB, BITB, GBTC, and BTC are distinct products from different issuers
• Bitcoin's volatility creates unusually large harvesting opportunities
• You can reduce taxes without exiting Bitcoin

For taxable-account Bitcoin ETF holders, this is a legitimate, widely used strategy — when executed thoughtfully.

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Weighing IBIT against buying Bitcoin directly? Our comparison guide covers the full tradeoff. Need help deciding which Bitcoin ETF is right for you?

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