Can You Write Off a Cryptocurrency That Has Become Worthless?
A token that’s dropped to a fraction of a cent, with no trading activity and no project behind it anymore, raises an obvious question at tax time: does holding onto something worth essentially nothing still count as a loss you can claim.
The short answer
Yes, but only under fairly specific conditions. Tax rules generally allow a deduction for worthless property, including cryptocurrency, but the IRS typically requires an identifiable event that fixes the loss, meaning something concrete that establishes the asset’s value dropped to zero and has no reasonable prospect of recovering, rather than simply a token that’s currently trading at a very low price.
Why “very low value” isn’t the same as worthless
A token that still trades, even at a tiny fraction of what it once was, technically retains some market value, and a deduction for a completely worthless asset generally doesn’t apply as long as any market for it still exists. This distinction matters because simply deciding a token isn’t worth tracking anymore doesn’t satisfy the requirement; there needs to be a specific, documentable reason the asset’s value is genuinely gone.
What can count as an identifiable event
- A project shutting down entirely, with the team disbanding and no ongoing development or use case remaining.
- A token being delisted everywhere it previously traded, with no remaining market to sell into, which is a related but distinct situation covered in more detail when looking at delisted tokens specifically.
- A definitive announcement or event demonstrating the underlying asset or protocol has been abandoned or rendered non-functional, rather than just quiet or inactive.
How this differs from selling at a loss
Selling a depressed token for whatever small amount it can fetch is a much more straightforward transaction: it’s a realized capital loss at the moment of sale, calculated as the difference between what was paid and what was received. A worthlessness deduction is different because there’s no sale at all; the position is being written off as a loss based on the asset having lost all value rather than being disposed of through a transaction. This is a different question from whether crypto sent to the wrong wallet address by mistake can be deducted, since that scenario involves an outright loss of the asset through a transfer error rather than the asset itself losing market value, though both raise the same fundamental question of what counts as a legitimate, documentable loss.
Documentation that supports the claim
Because worthlessness deductions require establishing a specific loss event, keeping detailed records matters: the original cost basis, the date and nature of the event that eliminated the value, and any public information supporting that determination, such as an official shutdown announcement or evidence the token no longer trades anywhere. Solid cost basis tracking from the start makes a claim like this far easier to support later than trying to reconstruct records after the fact.
What to weigh
Worthlessness deductions exist for real situations, an asset genuinely losing all value, but they require more than a hunch that a token will never recover. Because these rules involve real judgment calls, change over time, and depend heavily on individual circumstances, this is an area where working through the details with a tax professional, rather than assuming a general rule applies to a specific token, is usually worthwhile before filing.