Here’s What FTX Users Can Do to Protect Themselves

After Binance said it was no longer buying FTX this week, renewing fears over FTX’s insolvency and liquidity crisis, investors quickly – and in a panic – stormed FTX.com's website, worried about how to access, withdraw, and safeguard their funds on the Bahamas-headquartered crypto exchange.

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The FTX.com website has faced several outages as more than 1 million FTX.com users struggle to regain access to their account, download transaction records, and financially gird themselves for even greater losses.

“FTX is currently unable to process withdrawals,” the FTX.com website warned users. “We strongly advise against depositing. All onboarding of new clients has been suspended until further notice.”

Many users are attempting to export their FTX trade history in advance of a loss of access down the line, particularly for tax purposes. Regardless of whether FTX files for bankruptcy or suspends withdrawals during future court proceedings, the IRS requires users to report crypto transactions. Many investors rely on exchanges to aggregate this data for them and help them calculate what they owe. Now, FTX users risk not being able to report their capital gains, losses and income to the IRS.

“FTX.com users will need to provide their tax office with a statement of their complete trading history in order to report their cryptocurrency earnings and capital gains accurately, and in compliance with income tax rules,” says Izzat-Begum Rajan, Head of Tax at Koinly, a crypto calculator platform that helps with taxes.

It's not just U.S. users who will be impacted; most jurisdictions in the world require reporting crypto transactions to tax authorities. 

“FTX.com users everywhere will need to have complete records of their FTX trading history at tax time, whether they are filing their tax returns in Canada, Australia, the UK or anywhere else where FTX.com is available,” Rajan added.

Here's what FTX users should do:

1. Login to your FTX account.

2. Look for the section on API keys in your profile, and click on "create read-only API key." Save the key in a safe place.

3. Download all statements indicating your crypto transactions, date of purchase, the amount of capital gains or losses you incurred or made.

If FTX faces legal action and users become creditors seeking compensation of their funds, having a paper trail indicating what you bought, when you bought it, and how much money you lost will prove helpful.

Over the past week, Reuters reported that approximately $6 billion has left FTX's crypto exchange. But even if you weren't able to withdraw funds, Matthew Liu, co-founder of Origin Protocol, says there are steps retail investors can take.

"They should take screenshots and download records that will be useful in proving their case if this goes to bankruptcy court," he says. "There will be a long line of creditors, and it's more likely than not that FTX will not be able to plug in the user funding hold. The latest figures suggest FTX is close to $10 billion in the negative, so I am skeptical that they can return 100% of user funds."

"Users that have the best documentation have the best chances of getting some of their money back," Liu said.

Even users without direct exposure have reason to worry, Liu added, pointing out that Alameda, FTX's sister trading firm, would likely be liquidating its balance sheet to cover FTX debt. "Alameda has large holdings in Solana, Serum, and Aptos," he said, indicating that those coins will face large sell pressure in the immediate aftermath.