Celsius & Voyager Crypto Losses - Are They Tax Write Offs?

Are you worried about losing money due to an exchange shutdown? 

In 2022, exchanges like Celsius, Voyager, CoinFLEX, and Babel paused withdrawals for all customers due to liquidity issues and uncertainty in the crypto markets. 

In this article, we’ll break down how funds may be distributed in the case of a potential exchange bankruptcy, as well as the tax implications of losing access to your cryptocurrency. 

Will I get my cryptocurrency back? 

Some bankrupt exchanges have taken steps to give users a portion of their holdings back. 

In August 2023, Voyager withdrew all assets from user's wallets and gave users about 30% of the value of their cryptocurrency in the same asset or in USD. 

Meanwhile, it’s estimated that Celsius will give back $2 billion to customers in early 2024. 

How do I report my post-bankruptcy Voyager deposit on my taxes? 

How to report your post-bankruptcy deposit is dependent on whether your cryptocurrency was liquidated. 

After the Voyager bankruptcy process, users either received either ~30% of the same cryptocurrency or 30% of the value of their cryptocurrency in USD. Customers may be taxed differently depending on the nature of the deposit. 

Non-taxable: If your cryptocurrency was not liquidated by your exchange and you simply received a smaller amount of the same cryptocurrency, there’s no likely no taxable event. In this case, there is no ‘disposal’ of crypto and no associated tax. 

Taxable: If your funds were liquidated by your exchange, you will likely be subject to capital gains tax (even if you did not receive the majority of the funds from the liquidation). Since there was a ‘disposal’ of cryptocurrency, you’ll incur a capital gain or loss. 

CoinLedger and Voyager have partnered up for tax reporting. If you are a Voyager user, you can generate your tax reports detailing all of your bankruptcy-related transactions within CoinLedger.

In the event that Celsius and other bankrupt exchanges re-distribute funds to customers, it’s likely that transactions will be taxed similarly. 

Can I write off my lost crypto on my taxes in the case of bankruptcy? 

It’s unclear how investors should treat crypto lost due to exchange bankruptcies on their tax returns. At this point, it may be too early to tell since investors currently don’t know whether or not they will receive their investment back - or to what extent. 

Some tax professionals argue that losing access to your crypto because of an exchange bankruptcy can be considered an investment loss. 

Typically, you are required to dispose of your assets in order to claim a capital loss. If you meet the criteria to consider your investment as “worthless”, you can claim the loss. However, by doing so you are relinquishing your rights to claim the assets in the future. 

Investment losses can offset your capital gains during the year and up to $3,000 of income. Any losses above this amount can be rolled forward into future tax years. 

Another option is to treat lost cryptocurrency as a casualty loss — a property loss stemming from a sudden, unexpected, or unusual event. After 2017, these types of losses no longer qualify as tax-deductible through 2025, when they once again become deductible as an itemized deduction on Schedule A. 

For more information, check out our guide on how lost & stolen cryptocurrency is taxed. 

If you are using a service where you loan your crypto to the platform (this relationship may be described in the ‘Terms of Use’ of the exchange) there may be an opportunity to claim the loss as a nonbusiness bad debt if you meet all the criteria required.  

My cryptocurrency got liquidated because I couldn’t post collateral. How is this taxed? 

Some investors found that their margin positions were liquidated because their exchanges did not allow them to post additional collateral. 

Unfortunately, liquidations are considered taxable events. You’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it. 

For more information, check out our guide on how cryptocurrency margin trades are taxed. 
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