Wrapped Bitcoin (WBTC) is an ERC-20 token on the Ethereum blockchain that mirrors the value of Bitcoin, allowing investors to use the value of their Bitcoin to invest on the Ethereum blockchain and interact with DeFi protocols and more - but many of these events may be taxable. Don't worry, Koinly can help you calculate taxes for 400,000+ ERC-20 tokens, including Wrapped Bitcoin. Here's how.
Wrapped Bitcoin tokens are treated the same as any other cryptocurrency and are taxable. The taxes you pay on crypto - including WBTC tokens - depends on where you live, so make sure to read our crypto tax guides for more information, but broadly speaking, two taxes may apply to your WBTC transactions:
As well as this, wrapped tokens specifically may have unique tax implications - and wrapping a token may be a taxable event. Find out more in our wrapped tokens tax guide.
The IRS has shown increasing interest in crypto investments - and Wrapped Bitcoin will be no exception to this rule.
All transactions on the Ethereum blockchain are public. All you need is an address and anyone can search through the transactions made relating to that address - including the IRS. All the IRS then needs to do is link you to a given address.
While crypto is often thought of as anonymous, the reality is is more like pseudonymous. The IRS has dedicated agents trained to collect user data relating to cryptocurrency transactions to ensure tax compliance and also has a variety of methods to collect user data from crypto businesses.
For example, many centralized crypto exchanges collect KYC data and issue 1099 forms - to both users and the IRS. So if you’re trading or otherwise investing in WBTC on centralized exchanges, there’s a chance the IRS is aware of your transactions.
As well as this, the IRS uses John Doe summons to compel crypto exchanges to share customer data, potentially including personal data including wallet addresses that users have transferred assets to.
Learn more about how the IRS tracks crypto, here.
How to prepare your crypto tax documents will depend on where you live, but you’ll generally report any capital gains, losses, or income from WBTC as part of your annual tax return.
To start, you’ll need to calculate all of the above. This means identifying each taxable transaction, so any time you sold, swapped, or spent Wrapped Bitcoin - potentially even including any time you swapped BTC for WBTC, as well as identifying any income from WBTC like staking rewards. You’ll then also need to calculate each subsequent gain or loss from these transactions, as well as the fair market value of any income in your fiat currency on the day you received it.
If you think that sounds time-consuming, you’d be right - which is why most investors use a crypto tax calculator like Koinly. Koinly can calculate your gains, losses, and income for more than 450,000 ERC-20 tokens - including WBTC.
All you need to do is connect your wallet to Koinly and it’ll do the rest. Here’s how.
To import your WBTC transactions into Koinly, you’ll need to connect each Ethereum wallet you use to interact with WBTC to Koinly using your public address.
As well as this, tokens similar to WBTC are available on other blockchains - for example, WBTC.e on AVAX, PoS Wrapped BTC on Polygon, or WBTC on Binance Smart Chain. If you’re using Wrapped Bitcoin on another blockchain, you’ll need to get your public address from these blockchains and add them to Koinly too.
This is really easy to do, you just need your public address. You can find steps on how to connect a variety of popular wallets to Koinly on our integration pages, but here’s an example of how it generally works.
1. Remember, you’ll need to do this for every wallet and blockchain you use to interact with WBTC (and any other tokens!) in order to calculate your crypto taxes correctly.
2. It’s really helpful to name your wallets when you’re adding them to Koinly. This can help you navigate your transactions in Koinly much easier if you need to later on.
3. You may also be able to upload your transaction history to Koinly as a CSV file instead of connecting using your public address if you prefer, but this depends on the wallet you’re using. You can search for your wallet on our integration pages to find out more about how to get a CSV file from your wallet.
If you have any issues setting up Koinly or importing data, there’s plenty of help at hand:
Sign up free today to calculate your WBTC taxes
Wrapped Bitcoin is an ERC-20 token that mirrors the value of Bitcoin, and lets investors effectively use the value of their Bitcoin on the Ethereum blockchain.
You can buy WBTC on centralized exchanges, and swap other tokens for WBTC on decentralized exchanges, including using dedicated protocols to swap BTC for WBTC.
WBTC provides interoperability between the Bitcoin and Ethereum blockchains. While Bitcoin may be the biggest cryptocurrency by market cap, the blockchain is limited in its capability - in particular, it lacks the same DeFi ecosystem Ethereum has. WBTC lets investors use the value of their BTC on the Ethereum network, opening up a variety of investment opportunities.
WBTC allows investors with Bitcoin holdings to invest the value of their holdings on the Ethereum network. However, all cryptocurrencies come with inherent risks. In particular, for WBTC, you need to trust the custodian who holds your underlying BTC asset. You should DYOR before investing in WBTC to ensure you understand the risks involved.
Generally speaking, when we refer to WBTC we refer to the ERC-20 token on the Ethereum blockchain. However, WBTC (or equivalents) now exist on other blockchains including Binance Smart Chain, Tron, Avalanche, and more.
WBTC is generally regarded as a technically sound and safe token. However, you need to ensure you know and trust the custodian who holds your underlying asset whenever you wrap an asset. You should always DYOR and understand the risks involved.
You can stake WBTC on centralized crypto exchanges using products like Binance Earn, or add WBTC to a variety of DeFi protocols in order to earn a yield.
Yes. WBTC is taxed like any other cryptocurrency which means you need to report any gains, losses, or income to the IRS.
There is no specific guidance from the IRS or other tax offices on wrapping tokens. However, as you’re swapping one token for another (BTC for WBTC, and vice versa when you want your BTC back), this could be viewed as a crypto-to-crypto trade, and therefore a disposal and any gain subject to Capital Gains Tax.
The answer to this question depends on your investment strategy. Bitcoin is the market leader and a popular choice for a store of value long-term, while WBTC allows investors to use their tokens in DeFi investments.
Yes! Koinly supports way more than just WBTC. See our full list of the exchanges, wallets, and blockchains we support!
When you wrap Bitcoin, your original asset is deposited into a digital vault with a given custodian, and a newly minted WBTC asset is issued on another network.