Cryptocurrency Mainstream Adoption Rises

Bitcoin and other popular cryptocurrencies seem to be rallying after a frightful start to the 2022 trading season, but not before we stood in horror watching the digital assets market sink to its lowest levels since last summer earlier this month.  The world’s most popular and heavily capitalised cryptocurrency, Bitcoin, sank well below the “psychological” $40,000 floor last week, to an anaemic value of $32,982.  Bitcoin recovered some of its footing this week, reaching a price of $36,000, as aggressive investors began to dip their toes back in the digital waters – that’s progress, but certainly well off the bellwether’s high of $69,000 last November.

2021 was arguably one of the most astonishing years for cryptocurrencies as the market finally broke through a ceiling of sorts and achieved a state of “mainstream adoption”.  Interest in digital assets soared as the first ever Bitcoin exchange-traded fund (ETF) was introduced on the New York Stock Exchange last fall (under the ticker “BITO”), El-Salvador formally adopted Bitcoin as legal tender, and interest in Non-Fungible Tokens (NFTs) reached a fever pitch after the artist known as Beeple, sold his NFT artwork, called “Everydays: The First 5000 Days,” last Spring for a mind-numbing $69 million.

All this interest and hoopla over cryptocurrencies sent the value of the digital assets market past the $2 trillion mark.

We get it.  After all the euphoria we experienced during cryptocurrency’s 2021 trading season, and the subsequent market crash that has erased the last 6 months of progress, the thought of having to report the profits from those crypto-purchases last year to a governmental authority probably sounds terribly unappealing.  Take heed.  If you’ve experienced any thoughts or are considering concealing profits that you’ve made from any cryptocurrency trades from the tax man, it wouldn’t be a prudent course-of-action. 

Am I being paranoid?  Hardly.  The IRS in America has been perfectly clear in the fact that they are watching cryptocurrency as closely as they ever have.  This will become all too evident when you look at page one of your tax returns this year.  On it, there is likely to be a yes or no option at the top of the first page asking about your ownership of any “virtual currency.”

After the year cryptocurrencies had in 2021, and the 5000% gains experienced by some assets, trust us, the tax professionals are hardly the least informed on what’s happening in the digital assets market.  So, don’t try feigning ignorance.  Claiming that “you didn’t know” isn’t an option for 2021, or beyond.

Being willfully dishonest on a government document can subject you to penalties that include perjury.  That’s a bad way to start 2022.  In the last analysis, any selling and buying of any type of digital assets that took place in 2021 is expected to be reported.  If the extent of your trading was buying and simply holding, you likely won’t owe a thing…yet.

The time to ask questions of your tax professional is before you file, not after.