David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including fraud investigation and fraud deterrence programs in Philadelphia and the Delaware Valley.
In my previous blogs on cryptocurrency, I discussed the risks involved with Bitcoin and other cryptocurrencies as well as the increased risks of hacking attacks against digital wallets, private keys, and exchanges.
In the past few years, cryptocurrencies have become more popular than ever. In fact, as of today, cryptocurrency transactions are considered legal in most countries in the world. Additionally, the financial community has gotten on board with cryptocurrencies. Cryptocurrencies can even be used for retirement investments including IRAs, Roth IRAs, and certain 401-Ks.
Currently, the American Red Cross, UNICEF, the Rainforest Foundation, and the UN World Food Program accept donations in cryptocurrency. Other charities also are exploring accepting cryptocurrency donations.
Notwithstanding the above, risks still abound with cryptocurrencies. On November 11, 2022, FTX, a prominent cryptocurrency exchange, filed for bankruptcy. This, in turn, has led BlockFi, a lender of cryptocurrency-backed loans, to also file for bankruptcy. These filings have devastated the cryptocurrency markets. Additionally, these filings have led to increased scrutiny of cryptocurrencies by Congress and US regulatory agencies. This scrutiny is likely to lead to further regulations.
Other risks include:
- Cryptocurrencies are still subject to extreme price swings, making them risky investments. For example, this year, Bitcoin’s price has fallen from $46,310 on January 1, 2022, to $16,928 as of December 1, 2022 (a loss of 63.4 percent in value). Ethereum, another popular cryptocurrency has fallen from $3,689 on January 1, 2022, to $1,276 as of December 1, 2022 (a loss of 65.4 percent).
- Digital wallets, private keys, and exchanges are still subject to hacking attacks. Binance, another cryptocurrency exchange, just announced it is freezing withdrawals of certain cryptocurrencies because of suspected hacking.
- Commissions and fees for investing in and cashing out from cryptocurrencies are still significant. Additionally, there may be withdrawal limits for cashing out.
Gains and losses from cryptocurrency transactions must be reported on your Federal and other income tax returns. Additionally, the Infrastructure Investment and Jobs Act, passed in November 2021, added certain reporting requirements. Beginning in 2023, cryptocurrency exchanges and other transaction facilitators will have to track and report on their customer’s cryptocurrency transactions (similar to what your mutual funds and brokers/investment advisers currently do for securities transactions).
Also, starting in 2024, anyone receiving more than $10,000 in cryptocurrency for a product or service will have to report identifying details about the customer (including social security number) just as they currently are required to do for cash transactions over $10,000. A check box has also been added to Federal income tax returns requiring the taxpayer to declare whether they’ve transacted or had a financial interest in a virtual currency.
Finally, Congress and the Biden administration have been examining the possibility of closing the “wash sale” loophole for cryptocurrencies which currently allows a taxpayer to take a write-off of a loss even if they buy another cryptocurrency within 30 days of a sale.
I will continue to monitor cryptocurrencies and keep you updated.
If you require any services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at email@example.com.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting, and outsourced CFO services.
Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner, and a Certified Valuation Analyst. Anderson also has served as a divorce accountant or marital dissolution accountant in Philadelphia and the Delaware Valley.