@zz181
The interest can be eligible for the investment, interest deduction, but now you have to worry about what are called the tracing rules. Put simply, you have to be able to trace the dollars of interest from the cryptocurrency investment back to the prior loan, and be able to prove that the dollars of interest that you want to deduct as an investment expense are actually traceable to the investment.
The loan can really come from anywhere as long as you can trace it. For example, a home equity loan, or even a credit card loan. Suppose you borrowed a large cash advance from a credit card and use it to buy an investment. Then you put the credit card in a drawer, and never use it for anything else. It is very easy to allocate or trace the interest directly to the investment. But, suppose that after taking the cash advance on the credit card, you continue to use the credit card for clothing and pizza and food and gasoline and everything else. Then it becomes very difficult to allocate the interest to the investment compared to the other purchases.
In short, if you borrow using investment A as collateral and use the money to purchase investment B, the interest can be deductible interest against investment B as long as you can trace or allocate the interest paid on investment A back to the purchase of investment B, and that you can prove this if audited.
