How would this affect 2017 taxes though if it happened in 2018?
Losing money in 2018 would not affect 2017 income tax.
Aren't you taxed on money you lost?
Nope. Offsetting losses is therefor a very commonly used loophole. Hence the speculation.
True. He'd just better be very careful to have an explanation when he starts cashing in the 'lost' funds... or titrate them very slowly into his lifestyle. Tax Evasion is often caught not only by transactions, but by inexplicably high lifestyle.
Definitely possible but kinda hard to know for sure.