Crypto Trading Portfolio Management and Tax Reporting 3

Question 1

What is the purpose of maintaining a 'crypto emergency fund' separate from trading capital?

Accepted Answer

To cover living expenses and avoid forced selling during market downturns

Answer

To avoid paying taxes on trading profits

Answer

To qualify for lower margin rates on exchanges

Answer

To satisfy IRS reporting requirements

Question 2

What is the FBAR (FinCEN Form 114) filing requirement relevant to some US crypto holders?

Accepted Answer

Required if foreign financial accounts holding crypto exceed $10,000 at any point during the year

Answer

Required for any crypto trader with more than $1,000 in profits

Answer

Required only for crypto exchanges registered outside the US

Answer

Required for all NFT transactions above $600

Question 3

What does 'correlation' mean in the context of crypto portfolio diversification?

Accepted Answer

How much two assets move in the same direction — low correlation reduces overall portfolio risk

Answer

The total value of assets in a portfolio

Answer

The leverage ratio applied to a position

Answer

The percentage of gains attributed to Bitcoin dominance

Question 4

Which IRS question appears at the top of Form 1040 (US individual tax return) related to cryptocurrency?

Accepted Answer

At any time during the tax year, did you receive, sell, exchange, or otherwise dispose of any digital assets?

Answer

Did you earn more than $600 from crypto staking?

Answer

Do you hold cryptocurrency on a foreign exchange?

Answer

Did you mine any cryptocurrency valued above $1,000?

Question 5

What is the 'Sharpe Ratio' used to measure in a crypto portfolio?

Accepted Answer

Risk-adjusted return — how much excess return is earned per unit of risk taken

Answer

The total percentage return of a portfolio over a year

Answer

The ratio of winning trades to losing trades

Answer

The maximum drawdown experienced during a bear market

Question 6

For US tax purposes, gifting cryptocurrency to another person triggers which tax consequence for the giver?

Accepted Answer

No capital gain is triggered at the time of the gift; the recipient inherits the giver's cost basis

Answer

The giver immediately owes capital gains tax on the full appreciation

Answer

The giver can deduct the full market value as a charitable donation

Answer

The gift is fully tax-free with no reporting requirements regardless of value

Question 7

What is 'maximum drawdown' (MDD) and why is it important in crypto portfolio management?

Accepted Answer

The largest peak-to-trough decline in portfolio value, indicating downside risk tolerance needed

Answer

The maximum daily trading volume allowed on an exchange

Answer

The maximum amount of leverage available on a position

Answer

The highest tax rate applied to short-term crypto gains