Bitcoin is on everyones mind again, rising over fourfold in the last year by the time it reached its peak of $40,000. Its primary use has been a popular topic of discussion since it burst onto the scene. As the most well know cryptocurrency, bitcoin is often viewed as a medium of exchange, however, there is a strong argument that it is primarily a store of value. At the moment, investors are using it in the same way as they do with gold, namely, to hedge against inflation. This is likely to remain as it is fundamentally ill-equipped to function as a medium of exchange. Despite this, the speed and flexibility of transactions has driven a lot of innovation in the payments space. Read more about the underlying technology behind bitcoin in GlobalDatas upcoming Blockchain report.

Bitcoin was designed to mimic the natural scarcity of gold. The number of bitcoins generated per one block halves every 210,000 blocks or roughly every four years. By 2140, when we will hit 21 million bitcoins, the supply will be exhausted. More than 16 million bitcoins have been mined to date, meaning we have more than 75% of the entire supply of bitcoin already.

For bitcoin to succeed and to have the necessary network effects to become a viable alternative to fiat currencies, demand will have to increase significantly. It is likely that, provided bitcoin remains popular, its demand will consistently outgrow its supply. This is a massive hinderance as it means that bitcoin will be deflationary by nature. Demand would have to grow at a slow pace to match the growth of supply, and this slow uptake may destroy the very network effects that are necessary to foster a fiat currency.

The value of a fiat currency decreases over time as more is printed and it becomes less rare. A deflationary currency is inviable. It will mean that a bitcoin spent today would actually be worth more tomorrow. Therefore, users will be reluctant to spend bitcoin and would rather use a fiat currency to transact and keep bitcoin as a store of value. If the price never stopped rising, no one would ever want to get rid of their bitcoin unless they were pushed for liquidity. In this sense it shares similarities with gold, as Nakatomo intended, however gold is not a currency and rarely a medium of exchange. Also, a key difference is that gold retains some underlying physical value.

With no central bank to minimize systematic risk and to stabilise the exchange rate, it is unlikely that bitcoin will ever reach the volatility levels of fiat currencies. However, many of the key exchange-related advantages of bitcoins such as secured and instant payments, at low cost, are being adopted by other services. Bitcoin has helped to drive the surge in P2P transfer services, such as Venmo and Remitly, that offer lower fees and more convenience than older services such as WesternUnion.

Bitcoins deflationary nature means that its future will be as a store of value rather than as an alternative to fiat currencies. Despite this, it has inspired innovation in blockchain, the payments space, and even spurred countries to look into creating their own digital currencies such as Swedens E-Krona or Chinas Digital Yuan.

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Bitcoin: a cryptocurrency that isn't - Verdict

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Ether is closing in on an all-time high. The cryptocurrency, one of many alternatives to bitcoin, rallied as much as 17% on Tuesday to an intraday high of $1,439, according to data from industry site CoinDesk.

That's just shy of the $1,448 record ether hit in early 2018, when major cryptocurrencies led by bitcoin climbed to new heights before slumping sharply later in the year. Ether, the world's second-biggest cryptocurrency by market value, has almost doubled year to date.

Bitcoin has been in the spotlight for several months now, thanks to a blistering rally that saw it notch fresh highs. The cryptocurrency shot up close to $42,000 a couple weeks ago, but has declined since and was last trading at $36,980.

It's still up almost 30% so far this year, and has surged more than 800% from its 2020 low in March. Bitcoin bulls say its rise has been helped by increased institutional buying and the perception that it is an uncorrelated safe haven asset akin to gold.

On the other hand, skeptics in the traditional financial world like economist Nouriel Roubini and strategist David Rosenberg view it as a speculative bubble.

Bitcoin was the original cryptocurrency, created in 2009 as a peer-to-peer payment system that doesn't require a central authority to maintain. Alternative digital coins that were created after bitcoin, like ether and XRP, are known as "altcoins."

Ethereum, the network that underpins ether, is touted by its proponents as potential infrastructure for a decentralized internet. That's because developers can build applications on Ethereum, known as "decentralized apps."

The Ethereum blockchain a digital ledger of transactions in the cryptocurrency began a major upgrade late last year called Ethereum 2.0. Ether investors say it will make the network faster and more secure.

"The Ethereum technology has undergone a tremendous amount of development since reaching it's 2017 high," Nicholas Pelecanos, head of trading at crypto firm NEM, told CNBC. "At that time, the new capital investment in the space was largely speculative and for functionalities that were still in development."

"Now, a lot of these functionalities exist and more cutting edge functionalities are to be released, yet the speculative interest in Ethereum is still quite low. This raises the question that now Ethereum is crossing its all time high, what price will it reach in this current bull cycle? I believe that number is a lot higher than the current price."

Detractors have complained of sky-high transaction fees on Ethereum. The average transaction cost for ether surged to a record high of $16.53 on Jan. 11, according to data from BitInfoCharts, triple the peak average transaction fee in 2018.

By comparison, bitcoin transaction fees are rising but are nowhere near a late-2017 peak. They climbed as high as $17.09 on Jan. 12, which is still down 69% from an all-time high of $55.16 on Dec. 22, 2017.

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Ether, the world's second-biggest cryptocurrency, is closing in on an all-time high - CNBC

The price of ether (ETH), the native cryptocurrency of the Ethereum blockchain network, soared to record levels earlier on Tuesday.

Prices hit $1,439.33 around 12:00 UTC thats a little over the previous all-time high of $1,432.88 registered on CoinDesks price index on Jan. 13, 2018. The digital asset rallied nearly 12% Tuesday to reach the new peak.

Ether first hinted at a coming rally to previously unseen levels earlier this month, but fell victim to a brief market correction triggered by bitcoins pullback from $40,000 to $30,000 last week.

The cryptocurrency has topped its previous bull market peak nearly two months after bitcoin surpassed its December 2017 record price to hit a new high above $41,900 earlier this month.

While ether has trailed bitcoin in its journey to new lifetime highs, it has outpaced the top cryptocurrency on a year-to-date basis with a 92% gain. Bitcoin has risen 27% so far this year.

Ether is also up well over 1000% since the initial public sale of ETH in 2015, according to Messari.

Ethereum is a blockchain for decentralized applications (dapps) such as prediction markets or trading venues. Dapps operate similarly to regular applications, but inherit features of blockchain-based technologies such as censorship resistance.

The Ethereum blockchain was co-founded and originally described by Russian-Canadian developer Vitalik Buterin, who remains the projects most well-known personality.

Decentralized finance (DeFi) is widely regarded as the best Ethereum use case to date. DeFi markets enable permissionless and automated lending, trading and borrowing to anyone with an internet connection. The market recently surpassed some $22 billion in total value locked (TVL) a metric similar to assets under management (AUM).

DeFi applications typically have their own tokens as well, generally based on Ethereum. That market has enjoyed a second bull run of its own following surging popularity this past summer.

In the long run, Ethereum proponents are positioning the blockchain project to be a censorship-resistant base layer operating in the background of tomorrows internet. This concept is generally referred to as Web 3.0, and will knit todays social networks with integral money systems.

Ethereum took a significant step towards this goal on Dec. 1 with the release of a new blockchain, the Beacon Chain, which brought in staking pledging funds to support the network, rather than mining. That upgrade is part one of three in a series of transitions to upgrade the current Ethereum network towards a blockchain capable of handling an entire financial system.

EDIT (15:30 UTC, Jan. 19 2021): Corrected the figure for CoinDesks previous all-time high for ether and removed some other price references in the second paragraph.

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Ethereum's Ether Cryptocurrency Sets New All-Time Price High Near $1,440 - CoinDesk - CoinDesk

Fintech experts discuss the future of cryptocurrency in the Biden Administration. Panelists include ... [+] Rep. Patrick McHenry, SEC Commissioner Hester Peirce, Prof. J.W. Verret, author David DesRosiers, and Roslyn Layton, PhD.

With a new President, Congress, and SEC Chair, the US can reset its approach and win the cryptocurrency race against China. Here are five resolutions to achieve those goals.

1.The Senate should confirm an SEC Chair who is open or at least neutral to cryptocurrency and financial innovation.

After Securities and Exchange Commission (SEC) Chair Jay Clayton (who made no secret of his animus for cryptocurrency with barrage of lawsuits, enforcements, and declarations to crush upstarts), the Senate can improve policy for cryptocurrency just by confirming a new Chair who is friendlier to financial innovation. Reports suggest that the incoming Biden Administration has in mind Gary Gensler who, in addition to his prior regulatory experience, runs MITs financial technology laboratory and its Digital Currency Initiative. Gensler has calledcryptocurrency "a catalyst for change in the world of finance and the broader economy." If confirmed, the SEC would gain another crypto ally along with GOP commissioner Hester Peirce, called the crypto mom for advocating policies to ensure US leadership in cryptocurrency. In the process, the Senate Banking Committee should ask Gensler probing questions about whether hell continue Claytons hostile approach, or whether he supports disruptive fintechs that seek to democratize financial services for Americans.

2.Stop the turf wars between financial regulatory agencies.

Regulation is not an unambiguous good. The US has accumulated over a century of financial regulation and spawned almost a dozen federal financial regulators (in addition to state level actors)many in the last decade alonebut no one can claim that the policy for the US financial industry is optimal. Indeed, the layers of regulation and labyrinth of federal offices and departments may have worsened the financial environment for consumers and innovators. As SEC Commissioner Hester Peirce argued in Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, the more important regulation becomes, the more banks serve regulators, not customers. The notion that regulation increases the power of established financial institutions at the expense of small banks and financial innovators is well-documented. Regulators generally prefer to oversee a market a handful of giants than a dynamic market of emergent, innovative players. It stands to reason that the SEC as a securities regulator has no business overseeing all cryptocurrencies in all use cases. Already digital and cryptocurrencies are regulated by the Treasury Departments Office of the Comptroller of the Currency, the Commodity Futures Trading Commission (CFTC), the Internal Revenue Service, and the Department of Justice on anti-money laundering requirements.

3.Congress should work in a bipartisan fashion to adopt a rational, common sense approach to cryptocurrency.

It takes courage and fortitude to resist the urge to solve a problem through regulation, without first examining the larger issues at play. The first step is to determine whether government intervention would create greater harm. At RealClearPolicys event U.S. Crypto Policy in a Biden Administration, Congressman Patrick McHenry explained how for the last 15 years his job has been to stop the adoption of knee-jerk laws which would have killed cryptocurrency in the cradle.

However, having no regulation is not a substitute for thoughtful policy to help cryptocurrency flourish while respecting the measures that protect consumers and deter fraud. Moreover, if Congress doesnt clarify the boundaries, regulators will find new things to regulate to keep themselves relevant. McHenrys approach, which he laid out in a 2020 podcast with Rep. Dan Crenshaw (R-TX), is that blockchain is a new technology that needs a framework of its own.With Senator Sherrod Brown (D-OH) poised to chair the Senate Banking Committee, it is time to take a fresh look.

4.The SEC should withdraw its lawsuit against Ripple.

Just hours before he left the building, former SEC Chair Clayton lobbed a lawsuit against Ripple Labs, operator of the global settlement system using XRP, the worlds 3rd largest cryptocurrency. The suit alleges that Ripple, after 7 years, has been transacting with a security, not a currency, and thus seeks to punish the company for failing to register and to bar its founder and executive from participating in the crypto market. Such a question could have been answered with notice and comment rather than a lawsuit.

In any event, the SECs case has a fatal flaw in relying on the Howey Test from SEC v. H.J. Howey Co in 1946. According to law professor J.W. Verret of George Mason University in the RealClearPolicy discussion, a security is an investment contract where the holder participates in a common enterprise with the seller.But former CFTC Chairman Chris Giancarlo argues XRP is not an investment, and there is no commonality between its holders and Ripple. XRP is a medium of exchange and settlement.However, even if Ripple wins in court, and the company has asserted it will fight vociferously, the SEC will have already done its damage to the open source XRP ledger and every developer using it. The lawsuit has chilled other crypto enterprises, not to mention Ripple itself. Most defendants in regulatory enforcements never go to court because of the cost; instead they settle. Apparently Ripple tried to settle the question for years, but it appears that getting a headline was more important to Clayton. This abuse demonstrates what many legal scholars observe as the fundamental unconstitutionality of an administrative agency like the SEC, combining in one body an administrator, rulemaker, and judge and thus violating the separation of powers clause.

5.Congress should mitigate Chinas growing threat on digital assets.

China has laid the groundwork to capture the fruits of U.S. innovation and use its own digital currency to unseat the dollar on top of their de facto control of mining Bitcoin and Ether. As a key part of Chinas concerted efforts, its central bank has already begun distributing digital yuan to be used at thousands of retailers with nearly a fifth of residents in Shenzhen city testing the technology today. China aims to control global value of traded coins and are scaling their enormous domestic marketplace for mass adoption of their fintech applications. Yet again, on a technological breakthrough they had nothing to do with inventing, China is determined to make it their own. It is only a matter of time before Chinas digital currency is offered to billions across the globe, coupled with Chinese payment solutions copied from U.S. innovators.The U.S. wont be able to block the proliferation of digital yuan; it can only win by making a better solution and getting to market first. Moving quickly on a regulatory framework for cryptocurrency is essential to ensure US leadership and counter Chinas aggressive approach.

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Five New Year's Resolutions For Cryptocurrency - Forbes

January 19, 2021Leaders in cryptocurrency and digital assets alike agreed that it is only a matter of time before widespread adoption begins, during a Wednesday panel that aired as part of the Consumer Technology Associations Consumer Electronics Show.

According to Catherine Coley, CEO of BinanceUS, individuals who have yet to adopt cryptocurrency face two main barriers: the high cost to enter the market and the technical learning curve. Coley is hoping to change that as her company lowered entry fees and boosted its support services to all.

Coley believes that Bitcoin and other digital currencies reputation of being risk-fraught investments is invalid, yet has resulted in a slow, but continual, rise in adoption.

Being forced to work with antiquated or even non-existent laws and regulations is a challenge the industry faces. Caitlin Long, founder and CEO of Avanti Bank & Trust, said that Bitcoin has a hard time fitting with current laws since there arent currently any laws to guide it, as there are for traditional financial issues.

Long believes that creating more backward-compatible legal structures will help the two forms of currency coexist better.

Despite a lack of rules for its regulation, the laws that exist can make it difficult for crypto firms to operate in, including dinging their camel score, an international rating system used by regulatory banking authorities, causing a high-risk reputation to remain.

Crypto should be merged with the traditional world of coins and recognized as an equally competent player, said Jeanine Hightower-Sellitto, CEO at Atomyze LLC. Building blockchain-based platforms to improve efficiency, allowing titled ownership in cryptocurrency, and having scalable investors systems is critical, she added.

Matthew Roszak, chairman and co-founder at Bloq, Inc., says that despite being told cryptocurrency was pseudo currency, he still sees 2021 as a year be a massive rush into bitcoin. The infrastructure and narrative for it must improve, though.

Public acceptance and integration of cryptocurrency could get a huge head start if big banks and financial institutions mix crypto offerings with traditional financial products and services. Every central bank and institution has a dedicated blockchain group working on how best to handle cryptocurrency, but few want to be the pioneer at the forefront, panelists said.

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Panelists at CES 2021 Agree Widespread Adoption of Cryptocurrency Is Imminent - BroadbandBreakfast.com

A cryptocurrency expert is warning people if an investment opportunity looks too good to be true, it might be a scam.

File photo. Photo: 123RF

This comes as the Commerce Commission has issued a 'Stop Now' letter to Shelly Cullen, a promoter of Lion's Share - a suspected pyramid scheme.

Lions Share encourages people to pay hundreds of dollars to join the scheme, in the hopes of being rewarded in cryptocurrencies from each new person they sign up.

On receiving the letter, Cullen told the Commission she had stopped promoting the scheme.

Janine Grainger, a bitcoin and cryptocurrency retailer, said that while this type of scheme had always been around, cryptocurrency was providing a new vehicle for them to take place.

"Most of this will spread through word of mouth and network marketing, so it seems to work very strongly within particular communities," she said. "The work Shelley's been doing is a really good example of that, the large number of followers she has on Facebook, people getting their friends and whnau to sign up and join in and it moves by that network effect."

Grainger said Lion Share lacked genuine value creation or sales of a product or service.

"The money that is in the system and the money that you get from being in the system is purely funds put in by new recruits."

She said people should watch out for investment opportunities that land in their lap and seemed too good to be true.

This could include a cold call or email inviting someone to join a scheme, or an article about a celebrity making a lot of money.

"In my experience, most scam investments will come looking for you," she said. "Those sorts of things are scams, whereas a really good investment, you need to go out and do your research to find it."

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'Most scam investments will come looking for you' - cryptocurrency expert - RNZ

We were unable to send the article.

Technology continues to evolve, and the pandemic has shown us more than ever that the reliance on technology is here to stay.

In 2020, we had to give some thought to cash and the role it plays in our life. It is germ-infested, a challenge to trace and the U.S. experienced a shortage. Its certainly safe to say that the future of cash is uncertainthis is where the cryptocurrency conversation begins.

In defining cryptocurrency, NerdWallet.com explains: Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You will need to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.

Recovering from ransomware is one of the many crucial ways cryptocurrency is used. This is what forced novices to become experts on the subject years ago. Having a resource to keep computers protected and safe was no longer going to be sufficient; clients and communities needed a bridge for financial technology and the security it offered.

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SPONSORED: The Cryptocurrency Conversation - Arkansas Business Online

Theres never been a lack of skepticism surrounding cryptocurrency. And its fair to say the jury still wavers at times. But with 2021 just a week old, the worlds most polarizing and misunderstood currency is making a strong case for its staying power.

On Thursday, the price of a single Bitcoin, the oldest virtual currency, topped $40,000 for the first time, according to Business Insider. The 12 percent increase on the day pushed the total value of Bitcoin to over $700 billion and all cryptocurrency to over $1 trillion for the very first time.

The surge continued into Friday, with Bitcoin valued at over $41,000 as of press time. That means that value of Bitcoin has risen by over 400 percent over the last year. Interest in the virtual currency has been especially high over the last month, during which time its value has more than doubled. The interest has reportedly been driven by investors desire for an alternative asset not tied to a central bank, unlike the dollar or euro. Of course, that interest may or may not last. If nothing else, cryptocurrency has proven itself to be quite volatile in recent years. The value of Bitcoin, for example, crashed from $19,000 to $3,200 between 2017 and 2018.

For now, the news is good. With a market cap of over $1 trillion, cryptocurrencies are now worth almost half as much as Apple, the worlds most valuable company, reports Business Insider. It also makes cryptocurrency more valuable than the entire Swiss economy.

While the recent surge in Bitcoin value is great news investors, this is especially true for Satoshi Nakamoto. The creator of the virtual currency is believed to own one million Bitcoin. If true, Ars Technica reports that the investment would put his net worth at more than $40 billion. That would make him one of the 35 richest people in the world, according to the Bloombergs Billionaire Index.

Bitcoin may be the currency that has most benefited from the recent surge in interest, but other virtual currencies have also seen their value rise as well. By the end of trading on Thursday, Ether, which is used by the Ethereum network, was valued at $140 billion Meanwhile, other notable currencies arent doing too shabby either. Tether is now worth $22 billion, Litecoin sits at $11 billion, and Bitcoin Cash checks in at $8 billion.

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Bitcoin Tops $40,000 for the First Time, Pushing the Value of the Worlds Cryptocurrency Over $1 Trillion - Robb Report

GUANGZHOU, China Bitcoin and other digital coins tanked on Monday, wiping some $150 billion off the cryptocurrency market.

The market capitalization or value of the cryptocurrency market was $931 billion around 6:00 p.m. ET, down from $1.08 trillion a day earlier, according to Coinmarketcap.

Bitcoin, the largest cryptocurrency, fell over 10% from a day earlier to $34,200, according to Coin Metrics data. It earlier sank to an intraday low of $30,863. Ether, the second-largest cryptocurrency, was down 15% to $1,060. It briefly tumbled below $1,000, hitting an intraday low of $945.

The sell-off in cryptocurrencies comes after a huge rally and perhaps signals some profit-taking from investors. Bitcoin is still up over 300% in the last 12 months and last week hit an all-time high just below $42,000.

"The correction we saw was expected as we believe the BTC price surge recently from under $20,000 to $40,000 in the past four weeks will induce sell pressure," said Simons Chen, executive director of investment and trading at cryptocurrencyfinancialservices firmBabel Finance.

The $40,000 mark could have been a trigger for profit-taking, Chen said.

Bitcoin's resurgence has been attributed to a number of factors includingmore buying from large institutional investors.

And it has also been likened to "digital gold," a potential safe-haven asset and a hedge against inflation. In a recent research note,JPMorgan said bitcoin could hit $146,000in the long term as it competes with gold as an "alternative" currency.The investment bank's strategists noted, however, that bitcoin would have to become substantially less volatile to reach this price. Bitcoin is known for wild price swings.

But some bitcoin critics such as David Rosenberg, economist and strategist at Rosenberg Research have called bitcoin a bubble.

Long-term bullishness around bitcoin remains however.

Jehan Chu, founder of cryptocurrency-focused venture capital and trading firm Kenetic Capital, said the pullback in bitcoin could be a buying opportunity for new investors.

"This short term correction is both natural and needed, and is a great entry point for long-term investors as we quickly reach $50k this quarter and $100k by year's end," Chu told CNBC.

Last week, Social Capital's Chamath Palihapitiya said bitcoin could go above six digits.

"It's probably going to $100,000, then $150,000, then $200,000," Palihapitiya told CNBC's "Halftime Report." "In what period? I don't know. [Maybe] five or 10 years, but it's going there."

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$150 billion wiped off cryptocurrency market in 24 hours as bitcoin pulls back - CNBC

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Holders of cryptocurrency have more than price volatility to worry about this year. The taxman wants to know about your trading activity.

Bitcoin hit fresh highs during the weekend, creeping toward $42,000 on Jan. 8. However, its value tanked on Monday amid a sell-off in cryptocurrencies, and bitcoin's value is now hovering around $33,000.

Regardless of whether you interpret the decline in price as a buying opportunity or an alarm to get out, you'll need to share the information with the IRS.

More from Smart Tax Planning:Why small businesses face a nightmare tax situationSome newlyweds face marriage tax penalty for 2020 vowsRemote workers could face surprise state taxes for 2020

Transactions you partake in this year will be reportable when you submit your 2021 tax returns next spring.

This tax season, the taxman asks a "yes or no" question on the front page of the 2020 federal income tax return: "At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

"If you're particularly active using bitcoin, not only is every transaction potentially income or a deduction, but when you use it to pay for goods, you could have reportable gain on that bitcoin," said E. Martin Davidoff, partner-in-charge in the national tax controversy practice of Prager Metis.

Buying and selling cryptocurrency aren't the only actions that create a reporting obligation.

You'd also have to check the "yes" box on your tax return if you happened to pocket any crypto for free or if you received your holdings in exchange for goods or services.

Swapping your bitcoin for other property is also a reportable transaction.

That's where things can get messy, since users may be using multiple exchanges or platforms for their crypto trading activity.

Some exchanges will only provide you with a Form 1099-K for tax time. It contains the details of your activity if you've had gross payments exceeding $20,000 or you've made more than 200 transactions.

That means the onus for accurate recordkeeping, reporting and tax payment is really on the investor.

"You have to keep track of every transaction you did, every sale," Davidoff said.

Mykola Tys/ | LightRocket | Getty Images

In general, the IRS regards virtual currency as property. That means if you sell your holding, you've either racked up a capital gain or a loss.

Meanwhile, wages that are paid to you in cryptocurrency will be reported to you on a Form W-2, which your employer must send you by the end of this month. Federal income tax and FICA taxes would apply to the payment as they do for wages paid in dollars.

Cryptocurrency that you mine must also be included in your taxable income. In this case, you would include the fair market value as of the day you received it.

Failure to report the income can lead to penalties and interest and in the most extreme cases, prison and fines up to $250,000.

Indeed, back in 2019, the IRS sent letters to thousands of taxpayers with virtual currency transactions, notifying them to pay back taxes and submit amended returns.

Aside from tracking your transactions, tax professionals recommend keeping detailed records of your basis or your original investment in the asset.

How long you've held the asset before you transact with it also matters.

If the holding period exceeds one year, you're subject to favorable long-term capital gains treatment when you sell your virtual currency. In that case, the tax on appreciation can be 0%, 15% or 20%.

However, if you sell your virtual currency less than a year after acquiring it, ordinary income tax rates kick in. Those rates can be as high as 37%.

You do have to track your basis even if you use your bitcoin to buy things at a merchant, so be mindful of how you transact.

"If you're having to choose between using your U.S. currency versus crypto, at least with cash you don't have to track the basis," Davidoff said. "It's a huge headache."

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Cryptocurrency's value plummets. Here's what it means for your taxes - CNBC