Tax Strategy · September 27, 2026 · 12 min read · By CryptoTaxCalc Team

FTX, Celsius, BlockFi: Crypto Exchange Bankruptcy Tax in 7 Countries

The one crypto loss where you don't control the timing of the tax event. Theft loss vs bad debt vs worthless asset, how FTX's ~30% distribution gets taxed, and what actually happens when you sell your claim for 30 cents on the dollar.

Image: Illustrative purposes. Tax rules cited from IRC §165, §166, Revenue Ruling 2023-14, HMRC CRYPTO22200, BMF §23 EStG, CRA Folio S3-F9-C1, ATO PSLA 2021/2, NTA crypto guidance, Indian Income Tax Act §115BBH.

The email landed on a Tuesday morning in November 2022. "FTX has paused all withdrawals. Assets are frozen." A reader I'll call Sam had 3 BTC on the exchange, bought across 2020 and 2021 at an average cost basis of about $18,000 per coin. At the time of the freeze, those 3 BTC were worth roughly $51,000. Three years later, in late 2025, he got the first distribution from the FTX bankruptcy estate: about 30% of his allowed claim, paid partly in cash and partly in cryptocurrency. The distribution was around $15,300.

Sam had three questions I hear constantly from FTX, Celsius, and BlockFi claimants. Should he have claimed a loss in 2022 when the exchange froze? In 2023 when bankruptcy was confirmed? Or should he wait until the final distribution in 2026? And what about the $15,300 he just received — is that taxable income, or a return of his original money?

Here's the thing about exchange bankruptcy that makes it different from every other kind of crypto loss: you don't control the timing of the tax event. When you sell crypto at a loss, you pick the date. When you lose keys, you pick the date you give up. But when an exchange goes bankrupt, the timing of your loss deduction is dictated by a Delaware bankruptcy judge, a creditors' committee, and a plan of reorganization that takes years to confirm. That mismatch — between when you feel the loss and when the tax law lets you claim it — is what makes this area so messy.

This guide covers how the US, UK, Germany, Canada, Australia, Japan, and India actually treat crypto stuck on a bankrupt exchange. I'll walk through the three legal buckets you can argue, what each country allows, and what happens when the bankruptcy estate finally cuts you a check. If your situation is a hack rather than an insolvency, our lost or stolen crypto tax guide is the better starting point — the legal treatment is different.

Three legal buckets — theft, bad debt, worthless asset

Before we get to countries, you need to understand the three legal theories tax advisers use to claim a loss when an exchange goes under. They sound similar but produce wildly different outcomes, and most countries only accept one of them.

Theft or casualty loss. The argument: the exchange's failure was effectively a theft — your assets were taken, and you're not getting them back. In the US this used to be a popular route, but as I'll explain, it's mostly closed for 2018–2025 filers. Exchange insolvency is legally different from a hack. If an exchange is hacked and the coins are stolen, the perpetrator is a third party. In a bankruptcy, the coins haven't been stolen; they're tied up in an estate that's working out how much each creditor gets. You're a creditor, not a theft victim.

Bad debt. The argument: the exchange owes you money (the crypto you deposited), and that debt has become worthless. In the US, a non-business bad debt is treated as a short-term capital loss under IRC §166(d). The problem: crypto on an exchange is generally a general unsecured claim, not a documented loan with a repayment schedule. Whether it qualifies as "bona fide debt" is genuinely uncertain, and the IRS has not issued clear guidance.

Worthless asset. The argument: your claim against the bankruptcy estate has become wholly worthless — you're not getting anything back — so you can claim a loss equal to your basis. This is the most common route for exchange bankruptcy losses in most countries, but it has its own problem: proving "wholly worthless" versus merely "illiquid" or "delayed." If the estate has confirmed a plan that will pay you 30 cents on the dollar, your claim is not worthless — it's worth 30 cents. So you can't claim a full loss in the year of the freeze.

This is also different from a worthless token. If a cryptocurrency project goes to zero — the coin is delisted, the developers vanished, the blockchain is abandoned — that's a worthless token loss, which we cover in our worthless token guide. In an exchange bankruptcy, the underlying crypto (BTC, ETH) still has value; what's impaired is your claim to get it back from the estate.

Honestly, in the US none of these three paths is clearly settled for exchange claims. The IRS has been cautious, the case law is thin, and Revenue Ruling 2023-14 addressed theft losses but not specifically exchange bankruptcies. Most advisers lean toward the worthless-asset approach, with timing tied to when the claim's recovery is finally determined.

The US — where every path is uncertain

The US is the country where this is most complicated, because we have three competing theories and the IRS has not blessed any of them cleanly.

Let's start with theft loss, since that's what most FTX claimants intuitively reach for. IRC §165(c)(3) allows a deduction for losses from theft or casualty. But the Tax Cuts and Jobs Act suspended personal casualty and theft losses for tax years 2018 through 2025, except for losses in federally declared disaster areas. A crypto exchange failure is not a federally declared disaster. So for tax years 2022, 2023, 2024, and 2025 — the years most FTX/Celsius/BlockFi claimants would want to claim — the theft-loss deduction is essentially unavailable to individuals.

Revenue Ruling 2023-14, which the IRS issued in December 2023, confirmed that theft losses are deductible only under the rules in effect for the year, which means the TCJA suspension applies. The ruling discussed situations where a taxpayer's cryptocurrency is stolen, but it didn't open a door for exchange bankruptcy claimants. So if you filed a 2022 return claiming an FTX theft loss, you may want to amend — that position is likely not sustainable.

Bad debt is the second theory. Under IRC §166(d), a non-business bad debt is deductible as a short-term capital loss in the year the debt becomes wholly worthless. The attraction: short-term capital losses offset short-term gains first, then long-term gains, then up to $3,000 of ordinary income per year, with carryforward indefinitely. The problem: you need a bona fide debt. Crypto deposited on an exchange creates a creditor-debtor relationship in a general sense — the exchange owes you the crypto — but it's not a promissory note, it doesn't have a maturity date, and it's not necessarily a "debt" in the tax sense. Many advisers believe bad-debt treatment is defensible but risky. The IRS has not confirmed it.

The worthless asset approach is the most common. Under IRC §165(a) and §165(g) principles, you can claim a loss when property becomes wholly worthless. For crypto on a bankrupt exchange, the property is your claim against the estate. The challenge is the word "wholly." If the FTX plan pays 30% of allowed claims, your claim was never wholly worthless — it was always worth roughly 30% of its face value. So you can't claim a full loss in 2022. You might be able to claim a partial loss (the 70% you don't expect to recover) in the year the plan is confirmed and the recovery percentage is fixed, but "partial worthlessness" deductions are not clearly available for non-security assets.

In practice, many US filers have waited until the bankruptcy plan is confirmed (or until distributions are substantially complete) and then claimed a loss for the unrecovered portion. The timing depends on the case: FTX's plan was confirmed in 2024, with distributions beginning in late 2024 and continuing into 2025 and 2026. Celsius's plan was confirmed in 2023. BlockFi's plan was confirmed in 2023 as well.

Now, the distribution itself. When the FTX estate sends you cash or crypto worth $15,300 on your $51,000 claim, that payment is generally treated as a return of capital up to your basis in the claim. If your basis was $54,000 (3 BTC at $18,000), the $15,300 distribution is not taxable income — it reduces your remaining basis to $38,700. If you later receive more distributions, they continue to reduce basis until basis hits zero. Any distributions after that are capital gain. If the case closes and you've recovered only $15,300 against a $54,000 basis, you have a $38,700 capital loss to claim in the year the recovery becomes final.

The honest answer for US filers: talk to a tax professional who has handled FTX or Celsius claims specifically. The law is unsettled, the timing is uncertain, and getting it wrong means either leaving money on the table or triggering an audit. Our IRS crypto audit guide explains what happens if your return raises flags.

UK — negligible value claim, no theft deduction

The UK does not have a US-style theft-loss deduction for individuals. HMRC's view is that crypto held on an exchange is still beneficially owned by the taxpayer until the bankruptcy estate distributes the assets. So the freeze itself doesn't create a disposal or a loss.

Your main tool is the negligible value claim under section 24 of the Taxation of Chargeable Gains Act 1992. If your claim against the exchange (your right to get your crypto back) has become of negligible value — effectively worthless — you can make a claim that crystallizes a capital loss. The loss is computed as if you disposed of the asset for no consideration, so it's your full allowable cost.

The key word is "negligible." HMRC's guidance (CG13110P and the crypto manual CRYPTO22200) says negligible means "worth next to nothing," not "worth nothing." So if the FTX plan is going to pay 30%, your claim is not negligible — it has real value. You'd either wait until the recovery is final and claim a loss for the shortfall, or make a negligible value claim for a claim that truly is worthless.

Bankruptcy plan distributions from FTX or Celsius are treated as a recovery of basis for CGT purposes. If you've already made a negligible value claim and crystallized a loss, a later distribution could be a chargeable gain (because your basis in the claim was reduced to nil by the negligible value claim). HMRC's rule: the distribution is matched against the allowable cost of the asset. If allowable cost is nil (because you claimed it all as a loss), the distribution is fully taxable as a capital gain.

Capital losses can be offset against capital gains in the same year, and excess losses carry forward indefinitely. But you can't offset capital losses against ordinary income. So if you have no capital gains in the year you crystallize the loss, the loss carries forward.

The practical UK position: wait until the bankruptcy plan is confirmed and you know your recovery percentage. If you're getting 30%, don't claim a full loss. Claim the loss for the 70% you won't recover in the year the plan is confirmed. HMRC generally accepts that the loss is realized when the recovery becomes quantifiable and final.

Germany — §23 EStG, the private-sale loss pot

Germany treats crypto as a private asset under §23 EStG. When your crypto is stuck on a bankrupt exchange, you have a claim against the estate — and that claim is also a private asset.

The German approach: your claim against the exchange is treated as disposed of (a private sale) when it becomes clear you won't recover the full amount. The proceeds of this "sale" are whatever you ultimately recover from the estate — for FTX, roughly 30% of your claim. If your original basis was €50,000 and you recover €15,000, you have a private-sale loss of €35,000.

Here's the catch. Private-sale losses under §23 EStG can only be offset against private-sale gains in the same year. They cannot be carried forward. If you have no other §23 gains in the year the loss crystallizes, the loss is lost forever. This is a harsh rule — many German FTX claimants had no offsetting gains in 2022 or 2023 and lost the deduction entirely.

Distributions from the bankruptcy estate are treated as part of the proceeds calculation. If you receive crypto (not cash) from the estate, you acquire that crypto at its fair market value on the date of distribution. If you later sell it, you compute gain or loss against that FMV basis. If you receive cash, the cash reduces your proceeds for the loss.

The German BMF has not issued specific guidance on exchange bankruptcies, so the treatment follows general §23 EStG principles. The speculative period (the 1-year rule that makes crypto gains tax-free if held over 365 days) doesn't apply to losses in the same favorable way — losses are always deductible against same-year gains regardless of holding period.

German filers should be careful about timing. The loss crystallizes in the year the recovery amount is finally determined (typically when the plan is confirmed). If you have gains from other crypto sales in that year, the loss offsets them. If not, plan to realize gains in the same year to use the loss before it expires.

Canada — capital loss with generous carryback/carryforward

Canada treats your claim against a bankrupt exchange as capital property. When the claim becomes worthless — or when the bankruptcy plan confirms you'll only recover a fraction — you have a capital loss.

The loss is computed as: adjusted cost base (your original crypto basis, converted to CAD) minus the proceeds of disposition (the amount you recover from the estate). If you recover 30%, your capital loss is 70% of your ACB.

Capital losses in Canada can be carried back 3 years and forward indefinitely. They offset taxable capital gains (50% of the gross gain). So if you had gains in 2023, 2024, or 2025, you can carry the 2026 loss back to offset them. If not, the loss carries forward indefinitely.

The CRA's guidance on this (Folio S3-F9-C1 and the crypto tax guidance) follows general capital loss rules. There's no special "theft loss" provision for crypto exchanges, and no bad-debt regime for individuals. It's a straightforward capital loss.

Bankruptcy plan distributions are treated as proceeds of disposition. If you receive cash, that's straightforward. If you receive crypto, you acquire it at FMV on the distribution date, and that FMV is also your proceeds of disposition for the loss calculation. The crypto you receive starts a new holding period.

Canada has superficial loss rules (similar to the US wash-sale rule) that apply if you repurchase the same crypto within 30 days before or after the distribution. So if you receive BTC from the FTX estate and sell it within 30 days, the loss might be denied. Plan accordingly.

Australia — CGT event when the claim is worthless

Australia treats crypto as a CGT asset. Your claim against a bankrupt exchange is also a CGT asset (a right to receive crypto or cash from the estate).

When your claim is disposed of — either by receiving a final distribution from the estate or by the claim becoming worthless — a CGT event occurs. The capital loss is your cost base (original crypto cost) minus the capital proceeds (recoveries from the estate). Capital losses carry forward indefinitely and can only be offset against capital gains.

The ATO's guidance (PSLA 2021/2 and the crypto tax guidance) treats exchange bankruptcy claims as CGT assets. The timing of the CGT event is generally when the claim is resolved — when the plan is confirmed and you know your recovery, or when you receive the final distribution.

If the exchange goes into liquidation and there's no realistic prospect of recovery, you can claim a capital loss for the full cost base in that year. But if a plan exists that pays a percentage, you wait until the final distribution and claim the loss for the shortfall.

Bankruptcy plan distributions are capital proceeds. If you receive crypto, the market value on the day you receive it is your capital proceeds. You then have a new cost base in that crypto (its FMV on receipt) for future CGT calculations.

Australia's loss carryforward is generous, but there's no carryback. So if you don't have gains to offset, the loss sits unused until you do.

Japan — miscellaneous-income loss, no carryforward

Japan is one of the harshest countries for crypto tax generally, and exchange bankruptcy losses are no exception.

Under Japanese tax law, crypto transactions are classified as miscellaneous income (雑所得). Gains and losses from crypto are netted within the same year. If you have a net loss, that loss cannot be carried forward to future years or carried back to past years. It's simply lost.

When your claim against a bankrupt exchange becomes worthless (or you receive a partial distribution), the loss is treated as a miscellaneous-income loss. It can only offset other miscellaneous-income gains in the same tax year. If you have no other crypto gains that year, the loss is gone.

The NTA (National Tax Agency) has not issued specific guidance on exchange bankruptcies, but the general rule is that the loss is recognized when the recovery is determined. For FTX, that's when the plan was confirmed and the recovery percentage was set.

Distributions from the estate are taxable as miscellaneous income to the extent they exceed your basis. If your basis was ¥5,000,000 and you receive ¥1,500,000, the ¥3,500,000 difference is a loss that can offset same-year gains. Any future distributions reduce the loss further, and if total distributions exceed basis, the excess is taxable income.

Japan's no-carryforward rule is brutal for exchange bankruptcy claimants. If you had gains in 2021 (the bull market) and losses in 2023 (when FTX's plan was confirmed), you can't offset them. The gains were taxed at up to 55% (income tax + resident tax), and the losses just disappear.

India — the §115BBH dead end

India is the worst country on this list for crypto tax generally, and exchange bankruptcy losses are essentially useless.

Under section 115BBH of the Income Tax Act, losses from virtual digital assets (VDA) cannot be set off against any other income, and they cannot be carried forward to future years. This means if you lose crypto on an exchange bankruptcy, you get no tax relief at all.

The logic: the Indian government treats crypto as speculative. You pay 30% on gains with no deduction for costs (other than the cost of acquisition), and losses are trapped. There's no capital loss regime for VDA, no theft loss, no bad debt — nothing.

When an exchange goes bankrupt, your VDA loss (the difference between your cost and what you recover) cannot be offset against any income, including other VDA gains. And it can't be carried forward. So for Indian filers, the FTX distribution of 30% means you lose 70% with no tax benefit whatsoever.

If the bankruptcy estate distributes crypto to you (rather than cash), that distribution is not a taxable event at the time of receipt. But when you eventually sell or convert that crypto, you'll pay 30% on the gain from the distribution value. There's no step-up or relief.

India's position is clear: if you hold crypto, you take the downside with no tax offset. Plan accordingly, and don't expect the tax system to soften the blow of an exchange failure.

The seven-country comparison

Let me put all seven countries side by side. The columns are how you claim the loss, what it can offset, and how bankruptcy plan distributions are taxed.

A few patterns jump out from the table.

The US is the most uncertain. Three competing theories, no clean IRS blessing, and a theft-loss suspension that doesn't expire until 2026. If you're a US filer, don't guess — get professional help. The difference between a defensible worthless-asset claim and a rejected theft-loss claim could be tens of thousands of dollars.

Canada and Australia are the cleanest. Straightforward capital loss treatment, indefinite carryforward, and clear rules for how distributions reduce basis. Canada even allows a 3-year carryback, which is genuinely useful for people who had gains in the 2021 bull market.

Germany and Japan punish you for timing. No carryforward means the loss must be used in the year it crystallizes or it's gone. If you're in either country and you expect a bankruptcy loss, plan to realize gains in the same year. Otherwise you're donating the deduction to the tax authority.

India gives you nothing. No set-off, no carryforward, no deduction. The 30% VDA tax on gains is accompanied by zero relief on losses. For Indian holders, exchange bankruptcy is a total loss with no tax softening.

Claims trading — selling your claim for 30 cents on the dollar

Many FTX and Celsius claimants didn't wait for the bankruptcy process to play out. Instead, they sold their bankruptcy claims on secondary markets like XClaims, Claims Market, or through specialty brokers. At the depth of the FTX crisis, claims traded at 20–30 cents on the dollar. As the plan progressed and recovery expectations improved, prices rose to 30–40 cents.

Selling your claim is a taxable event. You're disposing of an asset (your claim against the estate) for cash. The gain or loss is: sale price minus your basis in the claim. Your basis is your original cost basis in the crypto you deposited.

Let's walk through the math. Suppose you deposited 3 BTC with a total cost basis of $54,000 on FTX. You sell your claim for 30 cents on the dollar — but "on the dollar" here means on the allowed claim amount, which is based on the value of the crypto at the time of the freeze. If 3 BTC were worth $51,000 at the freeze date, your claim is valued at $51,000. You sell it for 30%, or $15,300.

Your tax loss on the sale is: $15,300 (proceeds) minus $54,000 (basis) = $38,700 loss. The character of that loss depends on your country's rules. In the US, it's likely a capital loss (assuming bad-debt or worthless-asset characterization). In the UK, it's a capital loss. In Germany, it's a §23 private-sale loss. In Japan, it's a miscellaneous-income loss. In India, it's a trapped VDA loss.

The benefit of selling your claim: you get cash immediately, you lock in your tax loss in a known year, and you avoid years of uncertainty. The downside: you're selling at a steep discount, and you give up any upside if the recovery turns out higher than expected.

For tax planning, selling your claim can be smart if you have gains to offset in the same year. If you realized $40,000 of crypto gains in 2023 and sold your FTX claim for a $38,700 loss that same year, you net only $1,300 of taxable gains. That's a significant tax savings. But if you have no gains to offset, the loss carries forward (or, in Germany and Japan, disappears). You can model the gain side of your portfolio with the free calculator on this site to see whether a claim sale makes sense for your situation.

Claims trading is a legitimate strategy, but you need to understand the tax implications before you sell. Document everything: the claim amount, the sale price, the date, and your original basis.

Timing — when do you actually claim the loss?

This is the hardest question and the one that causes the most mistakes. The timing of your loss deduction depends on your country's rules and the specifics of the bankruptcy case.

The general principle across all countries: you claim the loss in the year the loss is finally determined. That's usually when the bankruptcy plan is confirmed and you know your recovery percentage. For FTX, the plan was confirmed in 2024. For Celsius, it was 2023. For BlockFi, it was 2023.

But there's a tension. If you claim too early — say, in 2022 when FTX froze — you might claim a full loss when you later recover 30%. That means you'd need to amend your 2022 return and either reduce the loss or treat the 2024 distribution as income. Amending returns is doable but a hassle, and it can draw IRS attention.

If you claim too late, you might miss the window to offset gains in earlier years (for countries with carryback, like Canada) or you might realize the loss in a year with no offsetting gains (for Germany and Japan, where carryforward doesn't exist).

Here's my practical advice. In the year the exchange freezes (e.g., 2022 for FTX), don't claim a loss yet. The outcome is too uncertain. File your return normally and wait. In the year the plan is confirmed (e.g., 2024 for FTX), you know your recovery percentage. This is when most countries allow you to claim the loss for the unrecovered portion. If the case is still ongoing and no plan is confirmed, you generally can't claim a loss — the claim is not "wholly worthless" if there's a realistic prospect of recovery. If you sell your claim on the secondary market, the loss is claimed in the year of the sale.

The risk of amending: if you claimed a theft loss in 2022 and the IRS later rejects it (which they likely will for 2018–2025), you'll need to amend. Better to file correctly the first time. If you're worried about getting it wrong, our what happens if you don't report crypto guide covers the penalties for underreporting. A correct return filed late is always better than an incorrect return filed on time.

For US filers specifically: Revenue Ruling 2023-14 and the TCJA theft-loss suspension make 2022 theft-loss claims risky. Most advisers now recommend either claiming the loss as a worthless asset in the year the plan is confirmed, or claiming it as a non-business bad debt (with the caveat that this is uncertain).

Bottom line

Exchange bankruptcy is the most frustrating kind of crypto loss because you don't control the timing. The tax law forces you to wait for a Delaware judge to confirm a plan, while your basis records sit in limbo and your offset opportunities slip away.

The US is the most complex: theft loss is suspended until 2026, bad debt is uncertain, and worthless-asset treatment requires proving the claim is wholly worthless (which it isn't if you're getting 30%). Most US filers will claim a capital loss for the unrecovered portion in the year the plan is confirmed.

The UK and Canada are cleaner: negligible value claims and capital losses with generous carryforward/carryback. Germany and Japan punish you with no carryforward — use the loss in the year it crystallizes or lose it. Australia is straightforward CGT with indefinite carryforward. India gives you nothing.

If you're considering selling your claim on the secondary market, weigh the immediate cash and tax certainty against the discounted recovery. For many people, 30 cents now with a known tax outcome beats 35 cents in two years with ongoing uncertainty.

Keep meticulous records. Your original basis, the freeze date value, the allowed claim amount, any distributions received, and the dates of each event. These records are what let you claim the loss correctly and defend it if audited.

And if you haven't already, move your crypto off exchanges. The whole point of crypto is self-custody. Not your keys, not your coins — and apparently, not your tax timing either.

General information, not tax advice. Exchange bankruptcy tax treatment is unsettled in several jurisdictions — the US treatment of bad-debt vs worthless-asset claims, HMRC's negligible value thresholds, and Germany's §23 loss netting all depend on case specifics. For significant amounts, talk to a tax professional who has handled FTX or Celsius claims in your country.

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