Cryptocurrency lending companies have become popular due to their promise of a 20% annual return on customer deposits. Leading many investors to try their luck on platforms such as Celsius. However, a problem arose that caused the cryptocurrency to freeze on the platforms.
Celsius, the largest cryptocurrency lending platform, has been facing the problem of holding client funds for nearly a month. While they haven’t announced any steps to fix the issue, Celsius continues to advertise an 18.63% return on its website.
Those familiar with traditional banking may seek protection. But decentralized financing platforms don’t have the same insurance. Leaving many investors in significant losses. Board-certified public accountant Shehan Chandrasekera shared some hopeful insights with CNBC. Telling them that US tax law could provide relief to victims with an obscure deduction.
“If your funds become totally worthless and irrecoverable. You may be eligible to write them off as a nonbusiness bad debt on your taxes,” said Chandrasekera. “It’s not going to cover up your economic loss. But it’s going to give you some type of tax benefit. Because at least you get to write off that initial investment that you put in.”
In addition to being an accountant, Shehan Chandrasekera leads tax strategy at CoinTracker.io – a digital currency tax software company known for helping customers track their crypto through virtual wallet addresses and manage their related tax obligations.
Currently, crypto platforms are calling the freeze a temporary setback while they find a way to secure some liquidity by restructuring or securing additional lines of credit.
Chandrasekera believes that a debt does not fall into the “completely uncollectible” category until all collection attempts have failed.
It’s also declares worthless if the borrower files for bankruptcy and the debt is discharge.
CPA Lewis Taub offered a bright side, saying that even if a platform fails, holders can still get something in bankruptcy court.
“In order to have a nonbusiness bad debt, there needs to be an actual debtor-creditor relationship,” explained Taub, shedding light on crypto coins and stocks qualifying as writeoff despite being considered non-debt instruments. “So to the extent that crypto was loaned to a platform, that criteria is met.”
While Celsius has been transparent with its terms and conditions, other platforms have kept their own vague, leading others to speculate on the decision to avoid a meeting with the Securities and Exchange Commission.
As a result, CPAs often advise investors to contact a financial advisor to clarify whether their investment is suitable.
Read also: DeFi: At The Core of Crypto Revolution