Crypto Crash 2022 - Is Cryptocurrency Still Worth the Fight In A High Net Divorce?

By Sean M Cleary

The all-time highs of cryptocurrency in 2021 now seem like a distant memory, as the 2022 crypto crash has seen major digital assets give back the gains made during their historic bull run. So, what is causing the crypto crash?

It is critical to realize that crypto assets are not alone in this new cycle. The stock market has also been in decline as US officials aim to control inflation by tightening the monetary supply and hiking interest rates. However, cryptocurrency has been hammered particularly hard as investors have shifted away from riskier assets. Furthermore, the decrease in cryptocurrency values is putting strain on banks and other significant players in the area who made investments near the market's peak. Digital assets are highly volatile, and such movements have occurred previously. Though the causes of each crypto meltdown are unique, it can be beneficial to remember a few known investing ideas.

Inflation, interest rates, and other macroeconomic conditions can impact how confident people put their money in riskier alternative assets. Some individuals may feel more comfortable keeping their money where they can get predictable returns, and savings accounts tend to become more appealing as interest rates rise. However, dramatic gains and losses are nothing new for people who have been investing in cryptocurrency for some years now. For instance, Bitcoin BTC/USD reached in December 2017 a record high of nearly $20,000 but was trading below $3,500 by December 2018. Previous price decreases have been welcomed by seasoned investors who consider the reduction in Bitcoin's value as an opportunity to buy.

While some analysts predict that crypto markets will recover from the present downturn in the coming months, others feel that investor caution will prevail in the near future. Some predict that it could be finished even by the end of this summer and that Bitcoin may reach an all-time high of $70,000 by the end of December or early January 2023.

The relationship between financial markets and cryptocurrency is becoming stronger. Cryptocurrencies have reacted in lockstep with global financial markets, which have also been impacted by negative global cues.

How Is Crypto Divided in a High Net Worth Divorce, and is It Still Worth the Fight?

Equitable distribution of assets is undoubtedly one of the most challenging aspects of going through a high-net-worth divorce. Because it belongs to a highly liquid asset class, Bitcoin is a good candidate for use in financial investments. Concerns have been raised regarding high-net-worth couples going through divorces in which bitcoin is being used as an asset. This worry is especially valid in situations where only one member of a married couple is actively involved in the cryptocurrency market. On the other hand, the other partner may have little knowledge or understanding of bitcoin investments’ financial and technical aspects.

Before attempting to divide the assets to protect financial interests, it is vital to ascertain whether or not the spouse is, in fact, in possession of cryptocurrency assets. This must be done before any other assets may be divided. After the transaction has been validated, the next step is to identify where the assets are kept, such as in private wallets or on cryptocurrency exchanges, and on whose exchanges, if any, they are stored. It is also required to determine which cryptocurrency assets the spouse possesses, as they may own cryptocurrencies other than Bitcoin, such as Ethereum, Litecoin, or Stellar, amongst others. 

When it comes to distributing one's assets, a bitcoin wallet is not dissimilar to a bank account, retirement fund, or traditional investment account containing stocks and bonds. Naturally, cryptocurrency holdings can be segmented in various ways, just like conventional assets. Bitcoin assets may be liquidated and split equally between the partners, or one spouse could give up cryptocurrency holdings in exchange for a more significant portion of other marital property. Alternatively, bitcoin holdings could be liquidated and split equally between the spouses. 

However, the division of cryptocurrency holdings during a divorce can be complex. Even most widely used cryptocurrencies, like Bitcoin and Ethereum, are subject to significant price swings. Therefore, before finalizing the asset split, both parties' legal and financial experts may need to reach a consensus that the value of the crypto assets should be reassessed. Inequity may arise if there is a sudden reduction or gain in the value of cryptocurrencies before the divorce is finalized.

Naturally, cryptocurrencies can be subject to taxation. The Internal Revenue Service (IRS) is provided with detailed documentation and reports by some cryptocurrency exchanges, but this is not necessarily a common practice. If one spouse does not report revenue to the IRS related to bitcoin, this could lead to additional issues. Before digital exchanges started providing tax forms to their consumers, this was typical. Even if one of the spouses was not involved in the original transactions, it is possible that married couples who filed their taxes jointly will be affected if the IRS decides to investigate a matter many years after the fact.

Overall, despite the current market crash, crypto assets will most likely not be overlooked. The market will continue to grow in this modern age, and experts predict that it will eventually bounce back and possibly to an even higher point. 

About the author
Sean M Cleary is an experienced Miami-based attorney, the founder of The Law Offices of Sean M. Cleary. He specializes in high net worth divorce cases and complex family law disputes, assisting his clients through negotiation, mediation, and trial representation for asset division.