Australian Taxation Office data has captured a dramatic increase in trading since the beginning of 2020, with more than 600,000 taxpayers now dabbling in crypto-assets.

They'll be slugged with penalties and audits if gains are not declared at tax time.

"We are alarmed some taxpayers think the anonymity of cryptocurrencies provides a licence to ignore their tax obligations," Assistant Commissioner Tim Loh said.

"While it appears cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions, and cryptocurrency online exchanges to follow the money back to the taxpayer."

The ATO then matches data to tax returns to make sure investors are paying the right amount of tax.

The tax office will be writing to about 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns.

The ATO also expects to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.

Businesses or sole traders paid cryptocurrency for goods or services will have these payments taxed as income based on the value of the cryptocurrency in Australian dollars.

Australian Associated Press