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2022 Tax Predictions & Cryptocurrency | Finance | IRS

Blow-Off Top Or A Bursting Bubble? — 2022 IRS Predictions For The Global Crypto Market

Bitcoin didn't hit six figures, but it still had an impressive 2021. Not only did Bitcoin, hit new all-time highs last year, but the entire crypto market reached $2 trillion. Chances are, you know someone who's been getting into digital assets in the past few months. 

There's no doubt investors, companies, and nations are feeling serious FOMO. However, it's tricky to predict how 2021's bull market will affect prices in 2022. There are, however, a few noteworthy trends and events on the horizon. 

Note: If you're going to jump into crypto investing, be prepared to pay taxes. Just because this industry is new doesn't mean it's unregulated. 

If you're concerned about filing taxes on your digital assets, please feel free to speak with a tax attorney at Travis Watkins Tax

Crypto Themes That Could Influence 2022

Bitcoin ETF & ETH 2.0 - Will They make The "Big Two" Invulnerable?

Arguably, two of the most anticipated events in 2022 include proposed Bitcoin spot ETFs and the Ethereum 2.0 upgrade. 

Indeed, Bitcoin rallied in November of 2021 primarily due to the SEC's approval of America's first Bitcoin ETF. However, this first ETF only tracks Bitcoin futures contracts. That means ETF providers don't have to hold physical BTC if you buy shares on the stock market. 

Some crypto analysts believe this could change in a big way in 2022. Currently, the SEC is still considering spot Bitcoin ETF proposals from companies such as Grayscale. If one of these proposals gains approval, it will make it easier for investors to get Bitcoin exposure. 

Some crypto pundits believe this could change in a big way in 2022. Currently, the SEC is still considering spot Bitcoin ETF proposals from companies such as Grayscale. If one of these proposals gains approval, it will make it easier for investors to get Bitcoin exposure. 

Some crypto pundits believe this event could represent a peak for the Bitcoin bull market similar to 2018. As some may recall, the 2018 bull market ended shortly after Canada announced the world's first Bitcoin ETF. 

As for the second-largest cryptocurrency, Ethereum should transition to its 2.0 version in the summer of 2022. One of the key goals with this upgrade is to reduce gas fees on the Ethereum network. 

Many people who use Ethereum complain that the protocol's transaction fees are too step. If Ethereum cannot address its gas fee structure, competitors like Solana, Cardano, and Avalancho may eat away at Ethereum's market share. However, if the Ethereum 2.0 upgrade is a success, these "ETH killers" may have difficulty keeping pace with the dominant smart contract platform. 

It's unclear how both of these events will play out, but they should have significant implications for all of crypto in 2022. 

The Rise Of CBDCs - A New Fiat Standard? 

Stablecoins always seem to be in the crosshairs of federal regulators. Although stablecoin issue Tehter reached an agreement with New York's Attorney General, many countries are developing "Central Bank Digital Currencies" (CBDCs) to compete with privately-issued stablecoins. 

In fact, Nigeria made history in 2021 when it released Africa's first CBDC called the "eNaira." Many Caribbean nations like the Bahamas have also introduced CBDCs in 2021. 

Currently, dozens of countries are developing CBDC technology, including Mexico, Switzerland, and South Korea. Most notably, China seems to be gearing up for its "digital yuan" during or after the 2022 Winter Olympics. Considering China is the world's second-largest economy, its CBDC could pose a significant threat to many crypto projects. 

If more central banks create CBDCs, it could put increased pressure on centralized stablecoin issuers like Circle, Tether, and Paxos. CBDCs may even threaten algorithmic stablecoins like Terra's UST or MakerDAO's Dai. 

Unfortunately, it's unclear how CBDCs will integrate with (or disrupt?) the existing crypto ecosystem. What's clear is that more countries are getting serious about this new form of fiat. Anyone who uses stablecoins should closely monitor the latest developments on CBDC technology and stablecoin regulation in 2022.

Also, if you're earning interest with stablecoins, you need to disclose your earnings to the IRS. Be sure to speak with a crypto tax professional if stablecoins form a part of your investment strategy. 

Metaverse and Monkey NFTs - "Hyper" Growth Crypto Niches

Moving away from big-cap cryptos, two niches that have gained a lot of hype in 2021 include non-fungible tokens (NFTs) and metaverse platforms. not only are retail investors "aping" into these industries, institutions and companies are interested in these emerging technologies. 

As many already know, Facebook changed its name to "Meta" in reference to its commitment to metaverse technology. Recent reports suggest Meta will invest at least $10 billion into developing metaverse tech, and it may be eyeing crypto projects like Decenterland or The Sandbox. 

Interestingly, NFT technology will play a pivotal role in advancing metaverse games and social media sites. Since NFTs are unique on their respective blockchains, they make it easy to verify a user's ownership over various digital assets. 

There are even talks of merging metaverse and NFT technology in "real world" scenarios. For instance, Barbados is already experimenting with a "metaverse embassy" where users could deal with paperwork on the blockchain. Firms are also spending millions of dollars for "virtual land" in metaverse projects. 

While it's unclear whether hot NFT projects like "Bored Apes" could retain their sky-high values, it's likely NFTs and metaverse technology will be dominant theme in 2022.

FYI: Buying and selling NFT art isn't tax-free. Anyone curious about investing in NFTs on sites like OpenSea should speak with a crypto tax attorney near you beforehand. If the IRS finds out you sold an NFT for a profit, you probably owe them money. Check out your master tax file with the IRS from a tax attorney here and see what they have on you! -> You may not have long to pay the back taxes owed. 

Confused With Your Crypto Taxes? Speak With Tax Attorney Travis Watkins Tax vs. CPA!

Although cryptocurrency has a "Wild West" feel, that doesn't mean it's beyond the US government's jurisdiction. Whether you're trading NFTs, staking for passive income, or swapping a few tokens, the IRS wants to know what's in your crypto portfolio and you may not have long to pay the back taxes. Find out here->

Honestly, the best way to preserve your crypto gains is to comply with the latest federal and state guidelines. Unfortunately for investors, the language surrounding crypto taxes can be pretty difficult to interpret. If you know the IRS is attempting to collect a tax debt on you, please contact a tax professional near you.

The best way to remain compliant with your crypto is to speak with a tax lawyer at Travis Watkins Tax. Our tax lawyers and tax professionals keep track of the latest crypto laws to ensure clients pay what's required of them. For more information on our crypto tax services, please contact us at (866) 817-0090 or fill out the contact form below! 

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