The value of most cryptocurrencies has plummeted in recent weeks, wiping out billions of dollars in wealth.
And instead of doing little harm to crypto enthusiasts like the previous crash, the impact was widespread.
Cryptocurrencies have skyrocketed in popularity during the pandemic, gaining the support of countless celebrities and being integrated into more asset portfolios.
Blockchain-based technologies like cryptocurrencies and non-fungible tokens (NFTs) are ubiquitous from late-night talk shows to Matt Damon commercials. Athletes like Odell Beckham Jr. and mayors like Eric Adams (D) in New York have chosen to convert their salaries to cryptocurrencies.
Banks and brokers used to look down on cryptocurrencies, but now more banks and brokers are offering purchase and storage services. The boom has also helped several start-ups, including Robin Hood, get new attention and even urged some blockchain-centric companies to seek a national banking license.
That caused a price cut last week, with both Bitcoin and Ethereum plunging more than 40% from their highs, causing further damage.
As the tax filing season has begun, many investors in the deficit are preparing for huge tax bills on prizes they may no longer have.
“One of the main misconceptions about cryptocurrencies is that people think it’s anonymous. Therefore, regulators have no way of knowing what you’re doing in crypto space, but that’s the reality. “Not,” said Shehan Chandrasekera, Certified Accountant and Head of Tax Strategy at CoinTracker.io, a cryptocurrency tax compliance software company.
Cryptocurrencies are treated under the same tax laws that apply to stocks, bonds and other investment products. Investors who bought cryptocurrencies in dollars last year do not have to pay taxes on their purchases until they sell or trade those coins. According to Chandra Sekera, investors who buy cryptocurrencies at a price higher than their current value can sell those coins now and apply the loss as a tax refund in 2022.
However, taxpayers who sell, mine, or exchange cryptocurrencies in 2021 may be required to pay either capital gains tax or income tax on these transactions. Taxpayers who quickly run out of crypto profits, reinvest, or lose much of their net worth during a recent crash will be billed for them, depending on when those transactions took place and the state tax rate. You may have a hard time paying.
According to Chandra Sekera, reducing the total tax burden on cryptocurrency transactions can also be difficult and sometimes impossible for strangers. He said most crypto exchanges do not provide users with annual tax filing information for transactions, as stockbrokers and other trading platforms provide. The frequency of peer-to-peer cryptocurrency transactions and the trading of one coin to another are also tax issues specific to the cryptocurrency sector.
“It’s virtually impossible to coordinate these transactions, especially if you have multiple wallets,” he said, referring to the virtual storage system used to hold cryptocurrencies.
The proliferation of cryptocurrencies, both due to its volatility and vulnerability to fraud, raises questions about its security as an advancing asset.
Major cryptocurrencies have withstood some sharp price fluctuations before this week’s collapse.
Bitcoin has lost more than half of its value, and its second trading token, Ether, has fallen by more than 25% in the first month of 2018.
There were several external factors in both collapses-foreign crackdowns on potential US regulation and trade-some of the volatility results in the nature of assets.
Unlike traditional currencies like the dollar and euro, cryptocurrencies are not widely accepted in exchange for goods and services.
David Sacco, a professor of finance at the University of New Haven, describes them as “speculative wealth stores” rather than true currencies.
“Cryptography is basically like digital gold,” he told Hill in a telephone interview.
Investors acknowledge that price volatility may continue to be a hallmark of cryptocurrencies until cryptocurrency applications are more widely adopted, such as using blockchain technology to buy and contract NFTs.
“Volatility is there until the specific use cases are fully adopted,” said crypto consultancy Def.Ai Inc. Eloisa Marchesoni, the founder of, said.
Cryptocurrency proponents quickly pointed out that the overall growth trend is generally positive, although that fact is unlikely to provide much comfort to the wave of investors who bought during the recent rise. increase.
Small coins can be even more volatile. Many of the thousands of tokens launched since Bitcoin seem to have soared out of nowhere to bottom out a few days later.
The causes of fluctuations in these types of coins may be even less tied to economic reality than the major ones. One tweet from a celebrity in the crypto community can dramatically increase its value.
Dogecoin spin-off Shiba Inu coin surged 30% last October, following Tesla’s CEO Elon MuskEaron Reeve MaskHill Morning Report-Democrats Feel Opportunity for SCOTUS Vacancy Musk states that “Canada truck drivers dominate” prior to driver protests against the COVID-19 vaccine obligation On the Money — The economy grew after the recession in 2021 more I tweeted a picture of his dog with the caption “Floki Frunk puppy”. A few weeks later, he revealed that he didn’t own the SHIB and reduced the price by 20%.
Some other so-called sitcoins made similar jumps without links to significant changes.The person in charge Brad Sherman
Brad Lee (Brad) James ShamanBuilding our future beyond the climate crisis Overnight Defense and National Security — Parliament Launches Afghanistan Grill The United States says about 1,500 citizens remain in Afghanistan more (D-Calif.) When I jokingly mentioned hamster coins at a hearing in December, within a day after investors dumped their assets, the value of the token doubled and became a crater. ..
Cryptocurrencies have also proven to be a fruitful area for fraudsters and hackers.
According to a January report by blockchain analytics firm Chainalysis, fraudsters won a record $ 14 billion cryptocurrency in 2021. This has led to a number of increases in the growing popularity of decentralized financial platforms.
Cryptocurrency scams are thriving on social media.Federal Trade Commission Described in the release Regarding the record number of online scams reported last year, “Social media is a tool for investment scams, especially scammers with fake cryptocurrency investments, an area where reports are skyrocketing.”
Spaces also indicate that they are vulnerable to hacking. According to the company, there were more than 20 hacks last year and more than $ 10 million in virtual assets stolen. NBC News..
Just last week, more than $ 30 million in assets were stolen from the digital wallet of the Forex market Crypto.com, which recently acquired the naming rights to the Los Angeles Lakers arena.
The company says it has adopted new security measures in the wake of hacking, but has not publicly shared what they look like.
Cryptocurrency proponents say potential buyers should follow basic investment rules before jumping in: do careful research, diversify their holdings and focus on time in the market rather than quick returns Suit you.
JW Bellett, a professor of financial law at George Mason University and a former senior counsel of the House Financial Services Commission, argued that price fluctuations alone had no reason to crack down on the industry.
“In a bull market, it’s probably easier to support the sector, but that doesn’t mean the bear market needs a regulatory solution,” Bellett said.
“If someone buys a token just on the recommendation of a celebrity, it’s a ridiculous decision, but you can’t regulate that ridiculous decision.”
Still, Mr. Bellett said tax law to help policy makers and regulators provide more educational resources to potential investors, establish clear expectations and facilitate the use of cryptocurrencies for transactions. Said that it needs to be adjusted.
“The growing interest in retail, the growing interest in young demographics, and the growing interest in the entire political spectrum are exponential, which will have political implications,” he said.
“We have already seen moderate Democrats interested in crypto. I think it will grow, and I think the anti-crypt voice will be actively drowned out. increase.”
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