Taxation Of Crypto Margin Trading

This year has been a banner year for cryptocurrencies, with the prices of Bitcoin and Ethereum reaching all-time highs in November. Undoubtably, margin trading - the borrowing of capital from a broker or a margin lender to execute crypto trades - has played an important role in fueling the rise in crypto prices. But even as margin trading has become an increasingly popular strategy to boost returns, crypto traders may have fundamental questions on the tax implications of using margin. For example, how much gain should taxpayers recognize if part of their position is borrowed? Is the gain capital or ordinary income? What happens if the taxpayer exchanges a cryptocurrency, a portion of which was bought with margin, for another cryptocurrency instead of liquidating their positions?