The possibility of loss from failures or exploits in the contracts and related mechanisms used to move value between blockchains.
A bridge exploit that leaves your bridged tokens unbacked is an investment loss, generally capital, recognized when the tokens are disposed of or shown to be worthless. Until then the loss is unrealized, however obvious it looks.
Usually a capital loss. Theft loss treatment requires proving a theft under state law and a profit motive, and the IRS has allowed it only in limited scam fact patterns.
Source: IRC 165; IRS Chief Counsel Advice 202511015
Last reviewed September 18, 2026. Tax rules change; confirm current law before acting.
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