If you want to deduct this, you should consult a tax professional in your area.
The issue is, is this an investment loss or a theft loss. If it's an investment loss, you report the loss by "selling" the investment for zero dollars, and reporting whatever taxable basis you had (the money you originally invested). If it's a theft loss, it's not deductible due to the tax reform law which otherwise increased the standard deduction and lowered the tax rates to offset the lost deductions.
Generally, the difference between a theft and a loss is that in a theft, there must be a thief. There is a tax court case of a forged painting. When the taxpayer discovered the forgery, they wanted to take a theft loss for the lost value, because that deduction was better for them in their situation. But the facts were that the forgery was at least 80 years old, so neither the gallery owner who sold it or the previous owner who consigned it could be said to be a "thief". Since no thief could be identified, the court ruled it was an investment loss, and that they couldn't even deduct the investment loss until they realized the loss by selling the painting for less than they paid.
Turning that around, a cryptocurrency that fails due to bad coding or market forces might be a loss, but if there is a thief, then it's theft.
If you deduct it as an investment loss and are audited, you would have to prove it was not theft and there was no thief, and it was just a badly run business.
