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When Jeremy Frank discovered that his home state of Colorado was accepting cryptocurrency for tax payments in 2022, he was overjoyed.

"As a Colorado resident, I was initially excited to pay my taxes with crypto, just to say I had,” Frank said.

However, Frank, Chief Technology Officer at Autonomys Network, was quickly alarmed by two developments. First, the state government had partnered with PayPal to convert the funds into U.S. dollars, forcing him to transfer his crypto from a secure private wallet to a centralized platform. Second, he was asked to pay a 2% fee.

“I wasn't going to jump through hoops and pay extra just for the novelty,” Frank told TheStreet Crypto.

Launched in 2022, Colorado's crypto tax initiative aimed to capitalize on the growing interest in digital assets and blockchain technology. Yet, the program saw muted results, with Colorado collecting just $17,544 in digital assets in 2024 — down from $23,241 in 2023 and amounting to only 0.0005% of total tax payments last year, according to the Colorado Newsline .

The Colorado Department of Revenue also did not directly accept digital assets but instead received the funds in U.S. dollars after conversion by PayPal’s Cryptocurrencies Hub.

Colorado is not the only locality offering taxpayers the option to pay with digital assets. Detroit is rolling out its own program in 2025, but unless it includes direct wallet integration or lower fees, Frank said, crypto payments would likely remain unused.

Some in the digital asset community are unsurprised by the limited uptake of Colorado’s program. "Paying taxes in crypto was never going to be mainstream — it’s a symbolic gesture, not a real use case,” Douro Labs CEO Mike Cahill told TheStreet Crypto. “Most holders see crypto as a long-term asset, not a checking account. Until policy catches up with how people actually use digital assets, programs like this will stay performative."

"Tax collection in crypto is still a novelty — government systems aren’t built for it,” echoed Maple Finance CEO Sid Powell. “Until infrastructure and incentives catch up, adoption will stay low on both sides.”

Others fault regulatory inertia and antiquated systems. “You can’t just bolt crypto onto outdated government payment rails and expect adoption,” said Crocodile Labs CEO Doug Colkitt. “Until regulators create clear, purpose-built frameworks for digital assets, initiatives like these will remain symbolic rather than systemic."

Even for those who see a potential place for crypto payments for taxes, some say the program overlooks the main draw of Bitcoin adoption in 2025: the potential for price appreciation. “Crypto tax initiatives like Colorado's are underperforming because Americans currently view Bitcoin as investment vehicles rather than spending currencies,” BitcoinIRA co-founder Chris Kline told TheStreet Crypto. “Taxpayers are reluctant to part with assets they believe will appreciate.”

“For now, the prudent strategy is to pay taxes in dollars — a currency that loses purchasing power annually anyway — while keeping a 'fiat out, hard assets in' approach to wealth preservation,” Kline said.

However, for those considering the tax implications of cryptocurrency, applying digital assets to tax payments remains complex: “Crypto is best left held on to for an extended period of time, so as to not create an onerous tax situation. Using crypto for transactions, including paying taxes, can burden taxpayers with increased tax bills,” Komodo Platform's Chief Technology Officer Kadan Stadelmann told TheStreet Crypto.

“When one holds crypto, they do not need to pay capital gains until they sell for cash," Stadelmann said. "This alone is enough to dissuade people from using crypto.”