for some reason, when an entity has invisibility, you can still see the entity. I was playing on 21w05b, but it says "no matches" when I try to select the affected version, so I selected 21w08a so it would work.
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Firstly, reports for snapshots other than the most recent one (21w08a) are not generally accepted.
Second, have you been doing things with scoreboards and teams? If so, this is an intended feature where invisible entities on the same team can see each other as 'ghosts'. You can disable this with the command /team modify <team name> seeFriendlyInvisibles false.
Hope that helps 🙂
Are you and the wolf on the same team?