Assume I bought 1 bitcoin at $0 and it's now worth $100k. I am worried that the price will drop soon, so I sell my bitcoin. Bitcoin does indeed drop and comes down to $10k, where I then decide to buy back in. Selling bitcoin (even if I'm buying back in) is a taxable event, which means I would be due capital gains tax on the $100k gain.
Could margin trading be used to defer this gain to when I actually spend my dollars, and instead allow me to reinvest my profits back into bitcoin without paying CGT now?
The logic behind why I think this is the case is as follows...
Rather than selling my bitcoin for $100k, I borrow an additional bitcoin (using my original bitcoin as collateral), and then I sell that bitcoin instead (shorting). I close my short when bitcoin hits $10k, using the profit to buy back into bitcoin at $10k.
Indeed I would have to pay capital gains tax on the profits made from shorting, but presumably I can defer the capital gains tax on the original $100k gain from when I held bitcoin initially?
Also, should bitcoin go up in price I might decide I actually want to get back into bitcoin because I no longer believe it will go down. I could now safely close my short (take a loss), without ever paying capital gains tax on that initial bitcoin investment, and actually I will incur a capital loss which I could use to offset any of my other trading gains.
Is my reasoning correct? Answers for any jurisdiction would be useful. Obviously one would have to pay interest on these loaned assets, but whether that is worth it or not would be a separate question.