How the BlockFi Bankruptcy and FTX Crash Could Affect Cryptocurrency Taxes

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Crypto firm BlockFi filed for Chapter 11 bankruptcy on Monday, two weeks after the collapse of cryptocurrency exchange FTX, further complicating taxes for investors in a difficult year.

BlockFi, which offers exchange and interest-based custody services for cryptocurrencies, has suspended customer withdrawals pending filing for bankruptcy, acknowledging that the firm had “significant influence” over FTX.

However, “all of these fees are still taxable,” even though investors currently cannot access their earnings, said Andrew Gordon, tax lawyer, chartered public accountant and president of Gordon Law Group.

BlockFi officials did not immediately respond to CNBC’s request for comment.

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Why crypto investors may have a tax bill

Despite recent losses, “earnings from earlier this year are still there,” Gordon said.

Generally, crypto trading is more active when the market is rising, and that is when you are more likely to make a profit, he said.

However, it is also possible to make a profit even when the market is falling, depending on when you bought and sold assets.

IRS defines cryptocurrency like property for tax purposes and you must pay fees on the difference between the purchase price and the sale price.

While buying digital currency is not a taxable event, you can pay fees by converting assets into cash, exchanging it for another coin, using it to pay for goods and services, getting paid for work, and more.

How to cut cryptocurrency tax

How the collapse of FTX and the bankruptcy of BlockFi could affect your taxes

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