Lost / Stolen Crypto

With anonymity preferred and self-custodial wallets the norm, the crypto-sphere, particularly DeFi, provides a landscape littered with opportunists and costly mistakes.
A few of the ways Crypto assets can be lost or stolen include:
  • Self-Errors: Sending crypto to an incorrect wallet address, or to the wrong type of wallet, can see crypto instantly disappear.
  • Rug-Pulls: When a developer or project team 'rug' all the liquidity out of their project, leaving investors with nothing.
  • Smart-Contract Exploits: A user exploiting a bug within a smart contract's code to steal funds for themselves.
Furthermore, pushing complete ownership over one's crypto assets through self-custodial wallets is a concept new to most investors. Mistakes made are mistakes owned; within the DeFi sphere, there is no customer service!
Complete anonymity has its costs. Both investors and developers acting anonymously can create a lack of trust within a project.

Losing crypto assets is never fun; however, not all hope is lost. SARS have declared that capital losses can be used to offset future gains, so we must assume that some crypto assets that are lost or stolen can be classified as capital losses.

Daniel was recently storing an entire Bitcoin on his secure ledger wallet; before destroying the hardware wallet when he moved house. Foolishly, Daniel does not have a copy of his backup phrase, and as such, he has now lost those crypto assets forever.
However, provided he can prove ownership over the lost ledger, the value inside and that he can never recover the funds, Daniel could claim a capital loss.
Although it is uncertain whether SARS would allow the loss, they would most likely ask for a few critical pieces of information:
  • Proven ownership over the ledger or wallet. Can you link a transaction, which is verified to your identity, back to your ledger wallet?
  • Value of crypto assets lost
  • Date ledger or wallet was received and date lost
David will not get his crypto back but may still be able to offset up to 1 Bitcoin of future gains if his capital loss is allowed.
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How Are Crypto Assets Lost or Stolen?
Tax Treatment