The PENGU Spot ETF is the first NFT-based crypto ETF application, as Canary Capital aims to merge NFTs and DeFi—will the SEC approve this groundbreaking move

January 2024 marked a pivotal point in the crypto industry: the US Securities and Exchange Commission (SEC) approved a bunch of 

 (ETFs) after a decade of resisting it. Later that year, several Ethereum (ETH) Spot ETFs were also approved. These early successes encouraged investment funds focused on digital assets to seek approvals for other 

 (AVAX) and other high-cap cryptos have ended up on the SEC's desk in recent months.

Until Mar 20, 2025, one thing had never occurred: an 

-based crypto ETF application. Such a move was thought to border on impossibility, given how stringently and at length the SEC evaluated ETF applications even for established fungible cryptos. And yet, the Canary Capital investment manager submitted an application to the SEC for approval of the first NFT-focused crypto ETF product, the PENGU Spot ETF, triggering a mini-revolution in the emerging space at the junction of crypto and traditional finance.

If approved, this ETF will be the first of its kind in the industry, based on a mix of 

. Many observers expect Canary Capital to struggle mightily for SEC endorsement of its revolutionary product. Nevertheless, the SEC now has a track record of approving crypto ETFs — which raises hopes for both the altcoin ETFs mentioned above and the PENGU Spot ETF application.

The PENGU Spot ETF is a proposed exchange-traded fund (ETF) product introduced by the Canary Capital investment management firm, and is currently awaiting approval by the SEC. 

 on Mar 20, 2025, making this the first crypto ETF product with an NFT component that’s vying for the approval of America's primary financial regulator. The ETF has been registered in the US state of Delaware.

The Pengu Spot ETF's portfolio is envisioned as consisting primarily of PENGU tokens that will make up anywhere between 80% and 95% of total assets held, with the rest allocated to Pudgy Penguins NFTs. Small portions of Solana's SOL coins and Ethereum's ETH tokens will also be included in order to facilitate transactions and liquidity support, as PENGU tokens are mainly issued on the Solana blockchain, and Pudgy Penguins NFTs are an Ethereum-based collection. 

Since Canary Capital will hold these assets and periodically rebalance the portfolio, gas fee payments on Solana and Ethereum will apply, with fees paid in SOL and ETH, respectively.

Launched in 2021 on Solana, the Pudgy Penguins NFT collection consists of 8,888 items, each depicting a cute penguin with a distinct combination of five different traits. In December 2024, the project introduced a related fungible cryptocurrency, the Ethereum-based PENGU token. As of Apr 2, 2025, PENGU is a smaller-cap asset, ranked 191st in the crypto market, with a total 

 of $319 million. In contrast, Pudgy Penguins are among the leading projects in the NFT space, ranked second among all NFT collections, with a market cap of $155 million.

Canary Capital's application to the SEC is unique in two ways: it’s the first ETF with an NFT component, and it marks the first time ETF approval has been sought for a relatively smaller-cap cryptocurrency, PENGU, which isn’t even among the top 100 crypto assets by market cap. All of the other crypto ETF applications approved by the SEC (or currently vying for approval) are based on high-cap, leading assets that are typically ranked within the top 30.

As of Apr 2, 2025, the SEC has had the application for the PENGU Spot ETF application for just two weeks. The regulator has up to 240 days to review such applications, although historically, the SEC has pondered over crypto ETF applications for years. Now, however, the string of Bitcoin and Ethereum Spot ETF approvals in 2024 raises hopes that newer submissions may be subject to an already established evaluation framework — and thus greenlighted much faster.

At the moment, the SEC is also considering spot ETF applications for several high-cap cryptocurrencies, including Dogecoin, Solana, Polkadot, 

 (XRP). If the regulator decides to approve the applications in batch mode — all or several at once — Canary Capital will have reason to hope that its ETF is included.

However, there's been skepticism regarding the PENGU Spot ETF application, with some analysts believing that its chances might differ from those of the larger, more established altcoin ETFs. This isn't surprising, as a PENGU Spot ETF would be a distinct product, being the first NFT-focused ETF. In addition, NFTs have more limited liquidity than fungible cryptocurrencies. 

NFTs may also be harder to valuate objectively. The prices of fungible cryptos are easily sourced from the crypto market, where supply and demand establish their value. In contrast, the limited liquidity and uniqueness of NFTs makes it much harder to price them efficiently.

Moreover, the PENGU token — which will make up most of the proposed ETF — isn't among the most traded assets in the crypto market. Because PENGU has a modest position in the crypto space (along with its origins as a 

), the SEC could view it with more skepticism than it does the leading altcoins.

Naturally, all these factors are just speculation at this point, and we’ll need to wait on the SEC’s initial comments regarding the first NFT-based ETF under their consideration in order to form a more defined view of the product's prospects for approval.

Current impact of the PENGU Spot ETF application on the crypto market

The news of the PENGU Spot ETF application has so far had no appreciable impact on the price of the PENGU token itself. On the day of the application (Mar 20, 2025), the token was trading at around $0.007. Two weeks later, it's still hovering around the same price. 

On the other hand, there's been a modest increase in the average price of Pudgy Penguins NFTs traded on the market: between March 20 and 28, the average price rose by 16% from around $16,450 to $19,120, though it has since retraced slightly to $17,490 as of Apr 2.

Given the modest price effect, investors are likely still cautious about the chances for the PENGU Spot ETF's approval.

However, if it is approved, the broader impact on the crypto market could be far-reaching, as such a step would signify the SEC's openness to both NFT-based ETFs, and ETFs made up of smaller-cap cryptocurrencies, including meme coins. The number of tokenized asset funds that offer NFT-based products would then be likely to increase significantly, facilitating mainstream NFT adoption within traditional financial markets.

An SEC approval of the PENGU Spot ETF may lead to a flurry of further ETF applications based on NFTs in some form. This could even include the first ETFs composed entirely of NFTs. Other crypto asset types — e.g., 

 (RWAs) — may also become candidates for the SEC’s consideration. Furthermore, in the unlikely event that Canary Capital’s PENGU Spot ETF were to be approved ahead of the altcoin spot ETFs currently in the SEC’s pipeline, it would send a very strong signal that those ETF applications are also a sure bet.

The current PENGU Spot ETF application is a pioneering event that may open up opportunities for NFT ETFs and other crypto ETFs based on partial NFT holdings. Although the SEC approved multiple Bitcoin Spot ETFs in early 2024, few people expected an NFT-based ETF to emerge so soon afterward. Probably even fewer expected a meme coin–based ETF to be taken seriously by the SEC. Unique in so many ways, the PENGU ETF flips the entire concept of traditional ETFs on its head.

Canary Capital's attempt to get approval for an NFT-backed ETF is truly a bold undertaking, though observers said the same thing about 

 just a few years ago. Someone needed to become a trailblazer in this area — and Canary Capital has taken up the noble role without hesitation. Now, all eyes are on the SEC as it prepares to weigh in on a product it has never before encountered.

Intermediate

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PENGU Spot ETF: A bold move for NFT investing — or just hype?

In this article, we break down what to expect from Liberation Day and how it could shape the outlook for equities, the US economy and crypto markets.

 April 2, 2025 as "Liberation Day" — a moment he claims will restore America's trade fairness through sweeping reciprocal tariffs. With few concrete details confirmed, global markets remain on edge. Investors are bracing for the economic fallout of a potential trade war, and crypto traders are watching closely to assess the impact on digital assets. In this article, we break down what to expect from “Liberation Day” and how it could shape the outlook for equities, the US economy and crypto markets.

Since returning to the White House in January 2025, President Trump has prioritized reshaping US trade policy with a renewed focus on tariffs. His administration has already announced 

 on all steel and aluminum imports. Many of these actions take effect this week, coinciding with his so-called Liberation Day.

Trump argues that tariffs are a necessary tool to reduce the US trade deficit and force foreign nations to stop what he calls "economic warfare" against the American worker. Treasury secretary Scott Bessent 

 countries with persistent trade surpluses — dubbed the 

 — as primary targets for reciprocal tariffs. These include China, the EU, Canada and Mexico.

However, critics point to the growing risk of a global trade war, with multiple partners already threatening or initiating retaliatory measures. Goldman Sachs recently 

, citing declining business confidence and mounting economic uncertainty. The tariffs, designed to protect US industries, could instead raise prices and weigh on consumer spending.

What to expect from Trump's ‘Liberation Day’ announcement

Trump is expected to reveal his tariff plans in a Rose Garden press conference on April 2. White House press secretary Karoline Leavitt 

 that the president would impose tariffs on "any country that has treated the American people unfairly" — though no nation-specific exemptions have been confirmed. Trump has promised these reciprocal tariffs will be 

While final details remain under wraps, proposals have included both country-wide and sector-specific tariffs. These could range from uniform, percentage-based levies to targeted charges on industries like pharmaceuticals, semiconductors and autos. Trump's advisers, including Trump trade adviser Peter Navarro and commerce secretary Howard Lutnick, claim the new tariffs could generate over $600 billion annually — though many economists dispute this figure.

Delayed tariffs on Canadian and Mexican imports, 

 in early March, are also set to take effect this week. These include taxes on agricultural products, energy goods and automotive components. Trump has also 

 a 25% tariff on imports from countries that purchase oil or gas from Venezuela.

Given the administration's conflicting signals in recent weeks, there's a wide range of potential outcomes. Whether “Liberation Day” ushers in immediate enforcement, additional delays or future negotiation rounds remains to be seen. For now, uncertainty reigns.

Potential impact on the US economy and global markets

Economists warn that broad-based tariffs could lead to slower US growth, higher consumer prices and widening inequality. Goldman Sachs now 

 Trump's trade policies to reduce annual GDP growth to 1.5% from 2%, while the odds of a recession are being raised from 20% to 35%.

Global equity markets have already shown signs of stress. European and Asian indices dipped ahead of “Liberation Day,” while the S&P 500 and Nasdaq-100 

 in March (respectively). Auto manufacturers, tech firms and retailers could be especially vulnerable if tariffs disrupt global supply chains.

There's also the question of the Federal Reserve's response. With inflation risks rising, policymakers may hold off on anticipated rate cuts, further complicating the economic outlook heading into Q2.

How will ‘Liberation Day’ affect the crypto industry?

Crypto markets have mirrored broader risk sentiment over the past quarter, with investors reducing exposure amid macroeconomic turbulence. As of April 1, the 

 is down 16.9% year-to-date. Bitcoin has fallen 10.48%, Ethereum 44.2% and Solana 33% — despite reaching new highs in January on hopes for pro-crypto policies from the Trump administration.

Investor optimism has since cooled as recession risks, inflation concerns and policy unpredictability drive a risk-off mood. Bitcoin dipped to $81,656 over the weekend, marking its weakest Q1 since 2018. Traders remain cautious ahead of “Liberation Day,” awaiting clarity before opening new positions.

“Liberation Day” could further weigh on crypto prices if market volatility increases and capital rotates out of risk assets. However, some analysts believe any resulting sell-off may offer an opportunity to 

 — especially if Trump follows through on crypto-friendly regulation later this year. For now, though, many eyes are on April 2.

With details still unknown, the crypto market remains in a "wait-and-see" phase. “Liberation Day” could mark a turning point — for better or worse — depending upon the scope and execution of Trump's tariff agenda.

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Trump's 'Liberation Day': What it means for crypto markets

Grayscale has filed to convert its private Digital Large Cap Fund, which includes Bitcoin, Ethereum, XRP, Solana, and Cardano, into a publicly available exchange-traded fund (ETF). 

Daily top performer — Compound Finance (COMP)

The S&P 500 rose 0.38% as investors awaited new tariffs amid weak factory data and declining job openings. Gold eased to $3,113 after hitting a record high, driven by profit-taking ahead of Trump's tariff announcement, but remains strong due to safe-haven demand and economic uncertainties. The Coindesk Indices, which tracks the broader crypto market, are up by 1.30%, with Bitcoin and Ether are up 3.10% and 5.19%, respectively, in the past 24 hours. Trade these markets and more with up to 500x leverage on Bybit MT5 using this 

Today's top performer is COMP, up 14.3%, following the proposal for the creation of a foundation to ensure consistent leadership and coordination by Compound.

Compound Finance (COMP), launched in September 2018, is a DeFi lending platform that allows users to earn interest on crypto assets. Built on smart contracts, it adjusts interest rates based on supply and demand, connecting lenders and borrowers without intermediaries. In June 2020, Compound decentralized with the launch of COMP and full governance transfer. However, it lacks a core operational pillar. With Compound v4 development and increased community engagement, the need for consistent leadership has grown. To address this, Compound Labs 

 creating a Compound Foundation for structure, clarity, and coordination, similar to other ecosystems like Uniswap.

Check out the latest prices, charts, and data of 

 to convert its private Digital Large Cap Fund, which includes Bitcoin, Ethereum, XRP, Solana, and Cardano, into a publicly available exchange-traded fund (ETF). The fund, which currently holds 79.4% Bitcoin and 10.69% Ethereum, has grown by 478.83% since its launch in 2018. The conversion would allow everyday investors to access the crypto market, covering about 75% of the digital asset market cap. If successful, it would eliminate the current barrier that restricts access to accredited investors. The filing is still in progress, with management fees and other details pending.

Yesterday, BTC spot ETF had a total outflow of $157.8 million, with GBTC seeing a loss of $10.1 million and non-GBTC products losing $147.7 million.

 that its airdrop might be approaching, with a claim page now live. Registration for the airdrop runs from April 2 to April 17, and claims are expected to open on April 22. However, nothing has been officially confirmed yet. Stay tuned for updates.

Beginner

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Grayscale files to convert digital large cap fund into publicly accessible crypto ETF

In this guide, we'll dive into how to trade crypto with the Bybit app, a convenient and feature-rich platform. Explore spot and derivatives trading for beginners on the Bybit app.

Welcome to our step-by-step guide on trading using the Bybit app. In this article, we’ll walk you through everything you need to know — from downloading the app and setting up your account to executing spot, margin and derivatives trades. Bybit is a leading cryptocurrency exchange that offers a fully localized and user-friendly mobile experience, making it easy for both beginning and seasoned traders to manage their investments seamlessly.

First, download the Bybit app from the App Store (iOS) or Google Play (Android). Once you’ve installed the app, open it and select your preferred language.

 and register using your email address or phone number. Complete the verification process by submitting your mainland Chinese ID or passport as required. This step is crucial to ensure your account is secure, and to unlock higher withdrawal limits.

After verifying your identity, head over to the 

 tab to fund your account. You can directly deposit cryptocurrencies like BTC or USDT. Our 

 (UTA) streamlines fund management, allowing you to trade seamlessly across different markets without the hassle of multiple wallets.

Spot trading with Bybit lets you buy or sell cryptocurrencies at current market prices with immediate settlement.

To begin, log in to the app and tap on the 

Choose your desired trading pair, such as BTC/USDC or ETH/USDT, from the list.

 lets you specify a price at which you want to buy or sell. 

Enter the amount you wish to trade, review the details and confirm your order.

Once your order is executed, monitor its status in the 

Bybit has an intuitive interface that displays real-time updates, so you can track your trades anytime with ease. 

How to execute a spot margin trade with the Bybit app

For traders looking to leverage their positions, Bybit offers a spot margin trading feature that allows you to borrow funds to increase your buying power. Start by logging into your account and tapping on 

Choose a trading pair, such as ETH/USDC, which supports margin trading with leverage options of up to 10x. 

Once your trading pair is selected, you’ll need to select the margin amount (e.g., 

 at which you want your limit order to execute.

You’ll also see several other important metrics, such as 

Enter the amount you wish to trade, and then carefully review all of the details.

After confirming your order, your margin trade will be executed. You can track your position in the 

 tab, where you can also set up stop-loss or take-profit orders to manage risk. 

How to trade derivatives with the Bybit app

Bybit also offers derivatives trading, which allows you to speculate on the price movements of cryptocurrencies without actually owning the underlying assets. Derivatives include Futures and Perpetual contracts, which can be traded with leverage, sometimes up to 100x.

To start, log in to your account and tap on 

Set your desired leverage (e.g., 50x) and choose between 

 margin modes, based on your risk preference.

 (if using limit or conditional orders) and 

Once you’re satisfied with your parameters, confirm your order and your position will appear in the 

Trading with the Bybit app offers numerous advantages that make managing digital assets both efficient and secure. The platform’s user-friendly design, high-speed execution and comprehensive risk management tools cater to traders of all levels. Our Unified Trading Account (UTA) streamlines fund management by consolidating assets for spot, margin and derivatives trading under one account, which reduces operational complexity and enhances overall efficiency. This streamlined approach lets you focus on strategy rather than logistics.

Additionally, Bybit’s state-of-the-art security measures — such as multi-factor authentication, regular independent audits and cold storage of assets — ensure that your transactions are conducted safely and transparently. With an interface designed to minimize distractions and provide real-time data, you can quickly monitor market movements and adjust positions. 

Our commitment to a secure and reliable trading experience is evident in our continuous improvements and proactive customer support. These features empower you to make informed trading decisions, fostering confidence in your ability to navigate the dynamic crypto market.

Bybit delivers a secure, robust and intuitive mobile platform that simplifies cryptocurrency trading for everyone. In this guide, we’ve explored how to set up an account, fund it and execute various types of trades — spot, margin and derivatives — using a fully localized and user-friendly interface. Our Unified Trading Account and comprehensive risk management tools ensure a smooth trading experience so you can focus on growing your investments.

Looking ahead, Bybit remains dedicated to innovation and excellence in the crypto industry. We continually refine our platform, based on user feedback and market trends, ensuring that you have access to the latest tools and features. Our commitment to transparency and security underpins everything we do as we build trust and empower traders. 

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How to trade with the Bybit app

Trading

Profit and losses are inevitable. But to know what's a realized and unrealized gains is essential. So here are all the must know.

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At the end of the day, profit and loss are what investors are looking into when trading any financial assets. An investment may be profitable on paper, but the profits aren’t real if you never actually sell your investment. That’s precisely why you must familiarize yourself with the concept of realized and unrealized gains and losses.

When a cryptocurrency that you own appreciates in value, the last thing you want is to sell when there’s a potential gain. On the flip side, there’s a saying in Wallet Street — “

, and pigs get slaughtered.” In other words, never be greedy! This is good advice, but it’s easier said than done.

In this guide, you’ll learn how to differentiate gains and losses that are realized or unrealized to plan your next move based on investment results. 

How Are Realized Profits Different From Unrealized Profits?

When a crypto investor sells his asset, he will gain a loss/profit, known as realized loss/profit. Likewise, any running profit or loss on the crypto asset is considered an unrealized profit/gain. 

Typically, investors hold their unrealized gain or loss for future price appreciation. When the anticipated profit is achieved, they can easily cash out the investment. At that time, the unrealized profit will then be converted to a realized profit. 

In short, you don’t gain anything from your investment until you sell your assets. Realized profit becomes a matter of consideration as soon as you sell your asset. Therefore, it is vital to understand the total amount of profit and loss if you want to be a successful cryptocurrency investor.

When comparing crypto-to-fiat and crypto-to-crypto trading, the transactions work the same when it comes to how profits and losses are made. However, the hardest part about crypto trading is knowing when to cash out.

The following section will further explore the details of realized and unrealized gains and losses and their importance for traders.

Realized gains and losses are profit/loss achieved when you sell any financial instrument. When investors buy a share or commodity, they pay fiat currencies for buying that particular instrument. Later on, they usually convert the instrument to fiat currency again with a profit/loss when they sell it. 

The most important aspect of realized profit is that it can be subject to 

, depending on the jurisdiction. When you sell any financial instrument for a profit, you have to pay taxes for it. Conversely, if you take a loss on selling any assets, you can deduct the capital gains tax from your tax obligation.

For example, if you buy a house that is valued at $100,000 and sell it for $120,000 after a certain period, you will make $20,000 of realized gain. This realized gain is subject to capital gains tax.

On the other hand, if you sell the same house for $80,000, you will take a $20,000 loss. In that case, you have a chance to 

If you buy any crypto asset in financial trading, you will inevitably have profit/loss based on its price fluctuation. This price fluctuation is not taxable until you sell the cryptocurrency and achieve realized gains or losses.

Closed P&L refers to the realized P&L of a position upon exit. It’s a total sum of the profit/loss from price difference and also transaction and funding fees. Closed P&L is the actual number credited to or deducted from wallet balance.

Closed P&L = Position P&L – Fee to open – Fee to close – Total funding fees paid/received

For example, Ann’s 100,000 BTCUSD long position was entered at $9,266.50. BTC price rises by almost $200 and she decides to take profit. She places a market order and closes the position at $9,417.5.

The realized profit from price change is 0.173 BTC = 100,000 x (1/9,266.5 – 1/9,417.5). The position is entered and closed by market order, and thus she pays 0.075% transaction fees, which is 0.008 BTC and 0.0079 BTC respectively. She receives 0.0018 BTC funding payment while holding the position.

The closed profit of this position is 0.1589 BTC = 0.173 BTC – 0.008 BTC – 0.0079 BTC + 0.0018 BTC. 

Unrealized gains or losses are floating profit/loss achieved before selling any financial instrument. As soon as an investor buys a financial instrument, there will be a profit/loss due to the price fluctuation. Profit/loss from this price fluctuation is unrealized profit/loss until the financial instrument is sold.

The unrealized gain/loss is the potential profit/loss that an investor would gain from selling any investment. In other words, if an asset’s value is projected to make a profit/loss, but there is no cash inflow/outflow from it, it is an unrealized gain/loss.

The method for calculating unrealized gain/loss is straightforward. Investors compare the current market value with the 

 to calculate the unrealized gain/loss. If the current value is higher, it is an unrealized gain, and if lower, it is a loss.

Investment in Bitcoin gives us a perfect example of unrealized gain/loss. For example, if you 

 for $20,000 and hold your investment until the BTC price reaches $60,000, you’ve made a $40,000 profit. This profit is unrealized because you haven’t yet sold your investment. Once you do sell and receive the money invested, it becomes a realized gain/loss with a profit.

We can simplify the formula for calculating unrealized gain/loss as follows:

Current Market Value − Historical Value = Unrealized Gain/(Unrealized loss)

If the value obtained by this calculation is positive, it is an unrealized gain. If the resulting number is negative, it is an unrealized loss.

Like the Closed P&L example above, Ann enters a 100,000 long position at $9,266.5 by market order. On the position tab, she can review her unrealized P&L real time.

Unrealized P&L refers to the estimated profit and loss of an open position, also known as floating P&L. The unrealized P&L displayed in the position tab is calculated based on the last traded price.

Ann’s long position was entered at $9,266.5 and the LTP is $9,433.

Unrealized P&L (LTP) = 100,000 x [ (1/9,266.5) – (1/9,433) ]* = 0.1904 BTC

*Unrealized P&L = Contract Qty x [(1/Avg Entry Price) – (1/Last Traded Price)]

This unrealized P&L is calculated as if the position can be closed at LTP. However, even if Ann closes her position immediately, the execution price may deviate from LTP.

If Ann hovers the mouse cursor over unrealized P&L, a different figure will be displayed, which is unrealized P&L based on mark price.

Ann’s long position was entered at $9,266.5 and mark price is now $9,428.57.

 Unrealized P&L = Contract Qty x [(1/Avg Entry Price) – (1/Mark Price)]

The Mark Price is not a traded price, but rather a reference price for liquidation trigger. Therefore, the unrealized P&L based on mark price also serves as a reference to manage liquidation expectation.

 to find out more about unrealized P&L for short positions.

Please also note that the unrealized P&L does not include any transaction or funding fees while holding the position.

How to Calculate Unrealized Crypto Gains and Losses

Unlike traditional investments, cryptocurrencies are complicated as there are two methods of buying. The first one is 

, and the second is buying crypto with crypto. 

In the traditional investment model, share transactions are straightforward as there is no peer-to-peer trading. Investors generally conduct a stock brokerage and buy different stocks based on future potential. The whole process is relatively simple. You pay cash to the broker and buy stocks, for example, shares of Facebook. Once the stock’s value is higher, you have an unrealized gain, and once you sell the stock at a higher value, you will make realized gains.

A similar scenario applies to the cryptocurrency market when you buy cryptocurrencies with fiat currencies. For example, let’s say you have bought Ether at $100. You hold the investment until the value reaches the $3,000 level and decide to cash your profit. Once you sell Ether in exchange for fiat currency, you take a realized gain of $3,000 − $100, or $2,900.

But what if you have Bitcoin in your wallet and you’ve bought another cryptocurrency with it?

The exchange of one cryptocurrency to another is also a subject of taxable gain. For example, let’s say you have bought $50,000 worth of Bitcoin and exchanged the BTC for Ether. Later on, the value of the Ether rose and reached $90,000. In that case, the realized gain would be $90,000 − $50,000, or $40,000.

The Unrealized P&L% is essentially the Return on Investment (ROI) of the position.

Unrealized P&L% = [ Position’s unrealized P&L / Position Margin*** ] x 100%

***Position Margin=Initial Margin+Margin Replenishment +Fee to close

In Ann’s case, here is a summary of the unrealized P&L and unrealized P&L% under different leverage settings.

Under different leverages, the absolute values of the unrealized P&L remain constant. However, the unrealized P&L% increases with the leverage. The increase of unrealized P&L% is a result of reduction of initial margin as leverage increases.

The realized and unrealized gain in cryptocurrency differs from the traditional financial market, particularly for Bitcoin.

Bitcoin is the most traded cryptocurrency in the world. It has achieved the status of a safe-haven investment opportunity. Moreover, the recent 

 of Bitcoin has reached $1 trillion, which is a significant milestone for the cryptocurrency market.

The massive retail and institutional involvement in Bitcoin happens through both long-term and short-term capital gains. Moreover, investors buy other cryptocurrencies, 

 with Bitcoin or Ethereum. Therefore, both crypto-to-crypto and crypto-to-fiat transactions occur. So the realized or unrealized gain for Bitcoin is different from traditional assets.

There are usually two investment models in Bitcoin: Buying a cryptocurrency and holding it for a long time is known as HODL, and speculating on the short-term price volatility is known as active trading. 

Let’s look at these two methods in detail.

HODL is often referred to in the cryptocurrency market as “hold on for dear life,” having originated from a misspelling of “hold.” This term is used particularly in a bear market when prices fall, but investors decide not to sell their assets and instead hold onto them with the hope of future price appreciation.

When the price of a cryptocurrency comes down, investors are subject to unrealized loss. However, if HODLers sell cryptocurrencies for a profit, they will earn realized profit.

HODL in Bitcoin involves both realized and unrealized gain/loss. Investors should pay capital gains tax for every realized gain they achieve when they HODL. Any failure to calculate the realized gain accurately will affect your tax calculation.

The cryptocurrency market doesn’t move straight up or down. Rather, it moves with a zig-zag formation.

Therefore, the short-term volatility of price creates a trading opportunity when traders stay active and focused on the price fluctuation.

For example, if you buy Bitcoin at $10,000 with the hope of future price appreciation, it will not reach your target straight off. For example, it might come down first, with some swing lows and highs before moving to your target. Active trading, like swing trading, is a process to catch those swings, rather than holding the trade as HODLers do.

In active trading, traders take multiple trades from swing levels where every sell is subject to realized gain or loss. Unlike HODL, calculating the realized gain/loss from active trading is complex as the number of trades increases.

Numerous portfolio trackers and cryptocurrency software programs can help investors manage their realized and unrealized profit/loss. Moreover, these tools often help optimize your tax position. However, you should be aware of the differences between each specific jurisdiction’s capital gains tax rate.

Case Examples of Realized and Unrealized Gains

This section will look at some practical examples of realized and unrealized gain in the cryptocurrency market.

Adam is an investor who adopts a long-term buying strategy (or HODL) for Bitcoin. He buys 1 Bitcoin in 2018 for $10,000. In early 2021, Adam finds that Bitcoin has reached $60,000, and he decides to sell it. Here, Adam will gain an unrealized profit of $50,000 as soon as the price reaches the $60,000 level.

Later on, Adam sells his Bitcoin. Due to the price fluctuation, the sale takes place when the price has moved to $58,000. Therefore, Adam makes $48,000 (that is, $58,000 − $10,000) as a realized gain. Now this realized gain is subject to capital gains tax. 

When Adam calculates his income tax, he should pay taxes for his realized gain. On the other hand, before selling his Bitcoin, there was unrealized gain and no income tax charge.

, Anna is a Bitcoin speculator who catches short-term price fluctuation only. She invests $5,000 in Bitcoin through USDT. On the next day, Anna finds that Ethereum has a higher potential for price appreciation than Bitcoin.

Therefore, she converts the $5,000 worth of Bitcoin to Ethereum. However, the situation worsens when Ethereum’s price crashes, and the value of Anna’s investment drops to $3,000. So Anna exchanges her Ethereum for Bitcoin, with a loss of $2,000.

What Are Realized and Unrealized Gains and Losses?

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