The value of many cryptoassets has fallen considerably as a result of the collapse of the FTX cryptocurrency exchange.
The failure of such a big platform and the potential loss of billions of pounds worth of cryptocurrency value has rocked the confidence of the market. 
This has caused both well-known digital currencies such as Bitcoin, and alternative coins and tokens such as Litecoin, to experience large drops in value.
Although some recovery is now underway, the collapse of such a big player within the market has sent shockwaves throughout this emerging industry and is now forcing regulators, like the Securities and Exchange Commission (SEC), to begin examining the regulation of these markets.
The particulars of FTX’s collapse are complex, but they centre on allegations that its founder Sam Bankman-Fried allowed a double-digit ‘black hole’ to build in the exchange’s accounts by creating a considerable gap between its assets and liabilities.
This gap is believed to be the result of Bankman-Fried feeding funds into a separate hedge fund he owned called Alameda Research, which is rumoured to have used customers’ deposits to fund speculation.
The full details are yet to emerge but are likely to form the basis of an investigation by the SEC, which will look into why the funds weren’t kept separate.
Much of what is now known follows a due-diligence process by FTX’s rival Binance, which was looking at a buyout of the beleaguered platform. This deal has now fallen through as a result of what was uncovered about FTX’s financial health.
How is this likely to impact investors and their tax position?
The sudden fall in the value of many cryptocurrencies and the collapse of the FTX exchange has forced many investors, both experienced and novice, to either pull their capital out of the market – converting cryptocurrencies back into fiat currencies – or transfer their money into new private wallets.
Transfers
In the UK, transfers between wallets and exchanges are not typically considered a taxable event as there is no definable gain to the person during the transfer. However, if an asset is redeemed from a crypto-linked financial product to transfer it, depending on the product and whether a gain is made, this could trigger tax liabilities.
Gains
While some investors will have transferred their money into other wallets or exchanges, others may have taken this latest volatility as a sign to leave the market.
Those who have been invested for some time could see considerable gains on their assets, even though the market as a whole has fallen.
For example, Bitcoin is currently trading at around £14,100, but if you bought you bought this cryptocurrency in March 2020, when the coin hit £4,209, you would still see a considerable gain today of nearly £10,000 per coin.
This is just one extreme example across a plethora of digital coins and tokens, many of which have seen periods of considerable volatility.
Any gains that are crystalised from trading will be subject to Capital Gains Tax, which could be considerable if you are disposing of multiple cryptoassets.
Losses
Unfortunately, while some investors will have made gains, others may have made considerable losses as a result of the recent upheaval in the market.
Any capital losses on cryptoassets can be used to offset gains made on other assets in a tax year and carried forward as well.
To do this they must be claimed within four years of the end of the tax year in which the loss arises.
Need advice?
If you require tax advice on cryptoasset holdings or any gains that may have made from cryptocurrencies, NFTs or other digital tokens, visit www.milstedlangdon.co.uk
Milsted Langdon, which has offices in Bristol, Bath, London, Taunton and Yeovil, offers a large range of business solutions, from routine compliance matters to specialist tax advice and planning, corporate finance, business intelligence, insolvency, forensic accounting and mediation services.
