The IRS made a lot of progress in 2021 and not all cryptocurrency is treated the same. There is personal use crypto, going to Starbucks, paying your Dish bill, etc and any loss on personal use property is not allowed, just like when you sell your personal car at a loss. Only when crypto is held and used like a stock or investment is the loss allowed. See what the IRS expects here.
In addition, If you have a foreign digital wallet, you must now check to see if you need to file the FBAR. FINCEN is not yet required. Here is a comparison of the FATCA (Form 8938) and FBAR requirements. The FBAR is not part of the tax return. It is filed separately. If necessary, file FBAR through the Financial Crimes Enforcement Network.
Report all income on your return. If audited, you can show you paid taxes on all income. The location in the return is only important in making sure you paid enough in taxes. For example: capital gain with a lower rate vs interest at the normal tax rate.
@lorikrant
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