I often come across social media posts identifying an important tax “loophole”: the wash sale rules of tax code section 1091 generally don’t apply to crypto.

That’s not a loophole; it’s sound tax policy.

LAW. The wash sale rules generally deny losses on a sale of stocks or securities, or options to acquire stocks or securities, if you acquire substantially identical assets within 30 days.

Though "securities" aren't defined under the wash sale rules, they likely include only debt, consistent with tax code section 1236(c). If securities instead meant anything the SEC thinks is a security, Congress wouldn't have had to amend the rules in 1988 to include options.

Thus, even shares in BTC and ETH ETPs are unlikely to be subject to the wash sale rules. ETPs are grantor trusts for US tax purposes, meaning holders are treated as directly owning the underlying crypto, which is neither stock nor debt.

POLICY. The wash sale rules don't apply to foreign currency or other commodities. That makes sense; many ppl use commodities for payments and have nontax reasons to acquire them within 30 days of disposition. The wash sale rules are meant to address only tax-motivated sales.

APPLICATION TO CRYPTO. Unlike stock, and like commodities, crypto often is used as a medium of exchange. Ppl who spend crypto often acquire identical crypto within 30 days for nontax reasons. As a policy matter, those taxpayers should not be subject to the wash sale rules.

Ofc, many taxpayers (eg, ETP investors) hold crypto long-term for speculation and harvest built-in losses at the end of the year. Arguably, the wash sale rules should apply to them. But that would require careful drafting to avoid punishing ppl who actually use crypto.

CONCLUSION. Don't call this a loophole. There are sound policy reasons not to apply the wash sale rules to commodities, including most crypto. Any future changes to the rules to apply to commodities and crypto should be narrowly tailored to capture only passive hodlers.