Earlier this year, Hailey Welch skyrocketed to internet fame with her catchy phrase “Hawk Tuah and Spit On That Thang,” capturing the attention of many. She leveraged this newfound popularity to launch a merchandise line and her own podcast titled “Talk Tuah,” which quickly gained traction, becoming the third most popular podcast, trailing only behind Tucker Carlson and Joe Rogan. Her rise in the podcasting world exemplifies how viral moments can lead to substantial business ventures.
Recently, Welch made headlines again by introducing her new cryptocurrency, $HAWK. Unfortunately, shortly after its launch, the coin’s value plummeted to less than 5% of its initial worth. Many individuals took to the internet to share their distress, claiming they lost their life savings and even funds set aside for their children’s education. This rapid decline raises serious questions about the safety and volatility of investing in cryptocurrencies.
The $HAWK coin has been labeled a memecoin due to its origins linked to Welch’s popular catchphrase. Historically, most memecoins struggle to maintain value and often become worthless over time, with DOGE coin being one notable exception that has managed to carve out a niche. Investors should exercise caution, as the allure of quick profits can often lead to significant financial losses.
Welch and her associates face accusations of engaging in a “rug pull,” a deceptive practice where promoters artificially inflate the value of a cryptocurrency, only to sell their holdings at a profit, leaving remaining investors with a nearly worthless asset. This practice preys on the trust of investors, leading them to believe in the potential of the coin while insiders profit from their naivety.
An investigation revealed that a staggering 96% of the $HAWK coin was concentrated in just 10 addresses, indicating a lack of genuine distribution and raising red flags about the legitimacy of the project. Furthermore, there was a notable selloff of coins shortly after the initial hype, leading many to believe that the insiders had indeed profited at the expense of unsuspecting investors.
Despite the mounting evidence, Welch asserts that neither she nor any member of her team sold off their $HAWK coins, suggesting they did not capitalize on the situation. They attribute the sudden drop in value to “snipers” — automated bots that exploit price differences in cryptocurrencies. However, skeptics have raised concerns regarding the high transaction fees and who ultimately benefited from them.
Welch has publicly stated that she did not set out to defraud anyone, positioning herself as a victim of circumstance. However, her background does not suggest a deep understanding of the complexities of cryptocurrencies, despite her attendance at multiple crypto conferences, which she claims was to better engage with her fanbase.
Regardless of her personal knowledge, Welch is supported by a team of individuals who appear to be experts in the cryptocurrency field. After gaining fame, she sought legal counsel, although it remains unclear if she consistently adhered to her attorney’s recommendations. This raises questions about the due diligence performed in the launch of her cryptocurrency.
For investors seeking to mitigate their losses, the question remains: what actionable steps can they take? Aggrieved investors have the option to file a formal complaint with relevant government agencies. Given the high-profile nature of this case, it is likely that an investigation will ensue, potentially leading to government intervention aimed at recouping losses and preventing similar occurrences in the future. Investors may wish to report their concerns to the Securities and Exchange Commission, the Commodities Future Trading Commission, and the FBI’s Internet Crime Complaint Center if they suspect any illegal activities.
Additionally, private law firms may offer assistance to affected investors. One such firm, Burwick Law, has reached out via social media, encouraging $HAWK investors to contact them to understand their legal rights and options for recourse.
Investors may wonder if they can write off their losses on their tax returns. According to the IRS, losses related to cryptocurrency are treated similarly to capital losses. While capital losses can offset capital gains, they are limited to offsetting only $3,000 of ordinary income annually, with any excess carried forward. This longstanding regulation has not adjusted for inflation, resulting in minimal tax benefits for taxpayers.
For individuals engaged in cryptocurrency trading as a primary business, losses may be classified as ordinary losses, potentially offering more advantageous tax treatment. This distinction is crucial for frequent traders who face substantial losses in volatile markets.
In 2023, the IRS clarified its stance on the deductibility of worthless and abandoned cryptocurrency in an Office of Chief Counsel Memorandum. Taxpayers cannot claim a deduction for worthlessness if their cryptocurrency remains tradeable on the open market, regardless of its decreased value. To qualify for a worthlessness deduction, taxpayers must relinquish control over the cryptocurrency and take definitive measures to abandon it during the tax year. However, the memorandum does not provide specific guidance on how to abandon cryptocurrency effectively.
The memorandum emphasizes that even if a cryptocurrency becomes worthless or is abandoned, taxpayers still cannot claim the loss since it falls under miscellaneous itemized deductions. The Tax Cuts and Jobs Act (TJCA) has prohibited miscellaneous itemized deductions from 2018 until 2025, leaving uncertainty about the potential extension of these provisions beyond 2026.
Taxpayers may have the opportunity to claim a theft loss as long as the transaction was made with a profit expectation, positioning it as a legitimate investment. This type of nonpersonal theft loss is distinct from miscellaneous itemized deductions and could provide potential relief to impacted investors.
To qualify for a nonpersonal theft loss claim, several criteria must be satisfied. Firstly, the theft must be linked to a trade or business or part of a profit-driven transaction. Secondly, the theft must be illegal in the jurisdiction where the victim resides, although a conviction for theft is not mandatory. Thirdly, the stolen funds must go directly to the perpetrator and not to an unrelated third party. Lastly, there should be no reasonable prospect of recovering the lost funds.
Based on my experience with similar cases, it’s likely that the IRS will disallow claims for theft loss. They may argue that since taxpayers still possess their $HAWK coins, no actual theft occurred. Furthermore, as long as parties like Welch and her associates remain involved, there may be a reasonable prospect for recovery through potential refunds or legal judgments, which complicates the claim for theft loss.
Welch’s meteoric rise to fame may dissipate just as rapidly as it began. This situation serves as a cautionary tale for individuals considering investments in questionable cryptocurrencies, highlighting the risks and complexities involved in this highly speculative market.
Steven Chung is a tax attorney based in Los Angeles, California. He specializes in basic tax planning and resolving tax disputes, and he is particularly sympathetic to individuals grappling with substantial student loan debt. He can be reached via email at stevenchungatl@gmail.com. Alternatively, you can connect with him on Twitter (@stevenchung) and find him on LinkedIn.
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