Press Room

29 Nov 2022

Zoe Wyatt and Laura Knight comment on FTX’s collapse and crypto tax in AAT Comment

Zoe Wyatt and Laura Knight comment on the implications of FTX’s collapse and important crypto tax considerations for accountants, in AAT Comment.

Zoe and Laura’s comments were published in AAT Comment, 28 November 2022.

FTX’s model was not sustainable. Lending and borrowing against volatile assets was always going to lead to disaster.  Even lending against what are considered more secure cryptoassets, Bitcoin or Eth, will end badly when the loans are under-collateralised.  For illustrative purposes:

6 months ago:

  • FTX users deposit BTC with the platform – let’s say a total of $1m
  • FTX has a liability to its users of $1m
  • All user BTC is then pooled
  • 6 months ago FTX held $1m of BTC with a price of $25,000 per token
  • FTX borrowed $800,000 from a third party (3P) with the $1m of BTC as collateral
  • FTX lent $800,000 to another third party (3P2) with 3P2 using Eth has collateral


  • Today the BTC price has dropped by 55%
  • FTX’s BTC is now worth $450,000 and FTX’s liability to the user is revalued at $450,000 In principle, FTX could repay its user
  • But FTX still has a liability of $800,000 to the 3P, which is not revalued as the loan is in USD. The 3P is now calling for FTX to repay the loan in light of the BTC price crash
  • FTX recalls the loan from 3P2, but Eth crashed by 60% and 3P2 is in the same position
  • There is insufficient liquidity to make good on the debts
  • FTX becomes insolvent


This example shows that even this one aspect of the FTX model was not sustainable.

The issue, however, is one of reporting and transparency. It is not for the user to assess the nature of the FTX model. It is for the regulator in the user’s country to ensure they are protected. If the UK regulator had a clear and certain framework, exchanges like FTX would be incentivised to be regulated here.

Exchanges like this are operating like banks. We have a banking regulatory framework, why not apply it to this sector with relevant adjustments to reflect the volatile nature of the assets?

It is not good enough for the UK (and other) regulators to simply wash their hands of the problem, forcing exchanges and other crypto projects offshore to opaque and lax jurisdictions.

The FTX collapse shows that one should not deposit cryptoassets with exchanges that are rehypothecating them. If one deposits cryptoassets with a platform and is being provided a return, one must ask ‘what is this platform doing with my assets to generate the return’ and assume that their assets are at risk.

Users can read the terms & conditions, which usually highlight whether the user retains ownership of their cryptoassets or whether they merely have a right to the asset.

Many use Twitter to decide which tokens to buy and which platforms to use. So-called ‘educators’ in the Crypto-Twittersphere with significant followers need to take responsibility for their part in the FTX fallout. Many of these educators and their followers were affected by the collapse of Celsius and other exchanges that operated a similar model to FTX, yet the educators espoused SBF and FTX as their saviour. There was a complete lack of critical thinking and questioning on their part as to why the FTX model was any different or better. It seems that FTX’s marketing won over common sense.

The latest information shows that 8% of FTX customers were from the UK. Larger proportions were with crypto regulatory havens such as Cayman, BVI, Bahamas etc., which will represent institutions, suggesting that the UK (and China also 8%) are the jurisdictions with the highest retail pain. Most other European jurisdictions are around 1%. The UK government and FCA have a lot to answer for.

Many users did not understand that the deposit of cryptoassets with an exchange in this way may be a disposal for tax purposes. Users have significant gains in the 2021/22 tax year and now have no assets or assets with low value. For those affected by FTX, they may be able to, for example, make a negligible value claim which would create a loss in the 2022/23 tax year. However, whether such a claim is possible depends on numerous factors. Unfortunately, the loss cannot be carried back and doesn’t help with the earlier gain. It can be carried forward and, with the capital gains annual exemption allowance reducing, will be valuable.

For those that do not have the funds to pay their 2021/22 CGT liability, they should seek to enter into payment plans with HMRC. We would advocate for a debt write off in some cases or, where the user has other cryptoassets elsewhere that are at a low value, seek to negotiate to pay the tax over two years and continue to hold these assets where there is a strong likelihood of their increase in value in that period.

Cryptoassets are just another class of assets and accountants will need to get to grips with the basic taxing principles given that 10% of adults in the UK have either held or traded them according to HMRC’s commissioned research published in February 2022. We have numerous new clients who have been advised that rather than calculate the crypto to crypto trades using s104 pooling, to instead report the value cashed out into fiat and take a zero cost basis, but this is incorrect and can lead to clients either overpaying or underpaying tax with interest and penalties. Where accountants do not have relevant crypto sector expertise in-house, they absolutely must buy this in. There are so many nuances and complexities to each client case and without specialist support opportunities will be missed and more issues arise.

Zoe Wyatt

Zoe is a Partner at Andersen Tax in the United Kingdom. Specialising in international tax, she develops the blue-print solution to her clients’ cross-border needs.

Email: Zoe Wyatt

Laura Knight

Laura is International & Crypto Tax Director and has over 20 years’ tax adviser experience with nearly 10 years in a top tier UK/US firm gaining extensive experience over a broad range of UK private client advisory and compliance requirements with an international angle.

Email: Laura Knight