Billions in bitcoin trapped on lending platforms like Celsius may turn into a tax writeoff for investors

Crypto lending platforms like Celsius, Anchor, and Voyager Digital rose to prominence for offering almost unbelievable returns of up to 20% annually on customer deposits. Now, much of that crypto cash is trapped, as plunging token prices force platforms to temporarily suspend or limit withdrawals.

In the wake of its own solvency crisis, Celsius — which is still advertising up to 18.63% annual yield on its website — has had customer funds on ice for more than three weeks and has yet to announce tangible guidance on next steps. So who is going to be left holding the bag if these platforms go belly up?

Unlike the traditional banking system, which typically insures customer deposits, there aren’t formal consumer protections in place to safeguard user funds when things go wrong on decentralized finance platforms. ‘High risk, high reward’ is the general motto of the DeFi ecosystem. For those who lost their life savings to these crypto lending platforms, there is little recourse for recouping their losses.