This article from the official government agency Action Fraud caught my eye as highlighting both the risk of fraud in relation to cryptocurrency investments but also the rather opaque nature of the UK's tax treatment in such a situation.

HMRC's recently published guidance essentially designates a cryptocurrency, such as Bitcoin, as an asset which can increase and decrease in value and thus is subject to UK capital gains tax (CGT) upon its disposal (much like selling a property or painting).  Such an analysis may well fly in the face of what a number of people would think would be the case; that a cryptocurrency is simply a type of cash or currency (and thus no CGT disposal would occur when parting with it).

The position gets even muddier when such cryptocurrencies are subject to fraud or perhaps even simply the digital key to access the relevant e-wallet is lost.  If a person has a physical asset (such as a cello) stolen or lost then, depending on various factors including whether there is insurance in place, they can claim the loss of value as a capital loss and reduce their own future capital gains - the best of a bad situation.  

The position is far less clear for cryptocurrencies or cash funds intended to be invested in them. Unfortunately cash lost to such frauds will not be able to be claimed as a capital loss.  However I would argue that there is a more realistic prospect of making such an argument should anyone suffer defrauding of actual Bitcoins or other cryptocurrencies as they, in HMRC's own words, are assets that have been stolen.  However, given HMRC is well within its rights to request evidence for any such claim, inevitably evidential challenges may arise given the international nature of such assets and the exchanges involved; not least it can be challenging to simply obtain up-to-date sterling values of such currencies for any capital loss claim.

In relation to cryptocurrencies where, unfortunately, a digital key to a wallet has been lost HMRC's view is that the underlying asset (the crypto-asset) has not actually been lost.  As such despite the owner facing a near impossible challenge to access the currency, no tax relief is granted as the asset is still regarded as held (in HMRC's eyes, akin to losing the keys to your house).  It is in this context that the recent story of a man offering a reward for the recovery of his hard drive containing such information on around £210 million of Bitcoin comes sharply into focus.

As a note of warning, I would also add that HMRC has been known to change its guidance without notification or forewarning and indeed entirely distance itself from any such previous guidance should it choose to do so in the future.  Given the pace at which the crypto industry is evolving, I suspect the ongoing tax treatment uncertainty will remain for some time and that developments will continue apace.