Live cryptocurrency market values are displayed on computer screen, in Brisbane, Australia, in February. Ohio became the first state in America to accept bitcoin as payment for business taxes, lending validity to the volatile cryptocurrency. File Photo by Dave Hunt/EPA-EFE
Nov. 26 (UPI) -- Ohio on Monday became the first state to accept bitcoin as a tax payment option for businesses.
The state treasurer, Josh Mandel, has said the move is meant to encourage businesses that use cryptocurrency -- and the blockchain technology that supports it.
"The treasurer's office is also working to help make Ohio a national leader in blockchain technology," according to its website. Mandel could not be reached for comment Monday.
Supporters of cryptocurrencies applauded the decision, saying it lends legitimacy and may help stabilize the often volatile electronic currency. But others warn that because the value of cryptocurrencies is so unstable -- and some argue it can be manipulated through trading schemes -- it is risky for governments to consider it money.
"To the extent that bitcoin is gamed, legitimizing it as a source of currency for the state is a bad idea," said John Griffin, a professor of finance at the University of Texas McCombs School of Business. "What if Ohio would have accepted bitcoin for taxes two weeks ago? They would have likely lost a huge amount of tax revenue."
The price for bitcoin dropped by more than 40 percent in the last two weeks, from $6,327.87 on Nov. 12 to $3,655 on Monday. Such fluctuations are common. Bitcoin was trading between $13,000 and $17,000 at the start of the year.
That volatility means using cryptocurrencies can be a gamble -- it is hard to set a price for goods or services when the value of the currency changes drastically from day to day. For that reason, governments have debated whether to treat cryptocurrencies, like bitcoin, as a legitimate currency, or as a commodity that can be traded for money.
"Part of the reason cryptocurrency is so volatile is because nobody knows what will happen to it in the future," said David Veksler, director of technology at the Foundation for Economic Education, which promotes free market economics. "It could fail entirely, it could play a small role in our currencies, or it could have a major role -- as big as the dollar."
Ohio's decision to accept bitcoin as money could help stabilize its value, especially if other states follow Ohio's lead, Veksler said.
"It's an extremely positive sign to have a state government treating bitcoin as money," said Veksler, who is also a managing partner as a hedge fund that specializes in crypto assets.
Veksler said he suspects the move will encourage business that use cryptocurrencies to relocate to Ohio.