Despite bitcoin's stratospheric plunge, Ohio has become the first state to accept the cryptocurrency for tax payments. But with the freefall, will anyone realistically pay their taxes in bitcoin? Currency trading experts said Ohio's move is likely a “headline grabbing” use case but probably not something that will become a reality.
Bitcoin has lost 22 percent of its market value over the past week and 40 percent over the last month, largely driven by panicked investors wanting to cut their losses, according to analysts. Trading at around $20,000 this time last year, the digital currency is currently valued at $3,664.
With so much volatility in the market, Ohio said it would protect itself by using BitPay, which sets a fixed exchange rate in a 15-minute window. As part of the agreement, BitPay will accept any wild swings that happen during that time, ensuring its customer, the state of Ohio, receives its fair share of taxes.
“People are concerned that the bitcoin dream is over,” Raoul Pal, co-founder and CEO of Real Vision, told NBC News. “The reality is people don’t want to have losses. There were a lot of people who bought in and are starting to lose money.”
The cryptocurrency market is now worth about $130 billion, after an $800 billion high in January, according to CoinMarketCap. Bitcoin, still the largest of the cryptocurrencies, accounts for nearly $67 billion in the digital currency market.
“This is very similar to the first wave of the internet boom," said Pal. "Anything that had dot-com on it, whether it was pets or flowers, people bought it hoping it was going to be big in the future."
While panic is fueling the sell-off, analysts also said the price is being driven lower due to a recent split in a digital currency called Bitcoin Cash. Investors may be selling their bitcoin, which is separate, to cover any potential risks around the recent split, which follows two different schools of thought.
“These are people who have had a lot of bitcoin and for a long time,” said Ran Neu-Ner, founder of the blockchain investment firm OnChain Capital. “What they are doing now is selling to fund this war and try to win the war of cash. It’s kind of like an ego war of people wasting money and time.”
Additionally, a U.S. Department of Justice investigation into whether some bitcoin traders used another cryptocurrency called Tether as a way to drive up the price of bitcoin isn’t helping investor sentiment, according to analysts.
“The overarching thing is we are toward the end of a bear market. In a bear market, good news doesn’t count and bad news is tenfold,” said Neu-Ner.
Bitcoin enthusiasts who no longer want to hold on to their cryptocurrency as an investment can now use it at an increasing number of places, ranging from online sites like Expedia and Overstock, to local attorneys, flea markets and wine shops, among others, that are set up to accept the cryptocurrency.
While the discussion about bitcoin has centered heavily on its price, analysts say the currency is just one part of something greater, the blockchain technology that underpins the currency and allows transactions to be recorded in a public ledger, bypassing a middleman.
“Is bitcoin the future? We really can’t tell because the actual usage is still extremely low,” said Pal. “But what we know is the blockchain movement is really big and will develop a lot in the next five years.”