You only have to pay taxes if you realize a gain for the year. Or you traded the same asset over and over within a 30 day period, called a wash sale. In a wash sale, you can't deduct the losses.<p>So unless they were really reckless they will only pay on the gains they made. No, I won't shed a tear because they have to pay taxes on gains.<p>Now to the techies that ended up with a large tax bill after the dot com collapse, they got the bill because they exercise their options to buy shares in their respective companies. Those were gains because they got to buy the stock at a highly discounted price. But later the shares lost all their value, but they still had the recorded gains to deal with. In many cases, they really got shafted because they got the stock but at no time were they able to sell any of the stock that they got and was recorded as a gain. So the gains were all paper gains. I suspect that the IRS had to make some concessions in that situation. But that's only a guess on my part.<p>Another part of their pain was that many borrowed money to buy the stock. When the share price collapsed, they had the taxes plus the cost of the loan and worthless stock they could not use to cover either. Ouch!
Yes, if you realise a capital gain you owe taxes ... That's the way taxes work, the can probably write their losses off in subsequent years provided they last the year without bankruptcy an have some future gain to write it off against.<p>This is not a new thing here on HN lots of people screwed themselves almost the exact same way during the 90s dotcom boom when they bought their shares (and realised a gain) then just when the IRS came knocking the sitcom bust happened and their shares were worthless .....
tl;dr - profits from crypto investments seem to be taxed like other types of capital gains and inexperienced investors get burned because they don't know how taxes on investments/capital gains work (or were secretly hoping things would be different with crypto).