May government mining, or just taxation structure, address this? There seems to be a constant talk, particularly among those connected in legacy financial institutions, about how cryptocurrencies can be – to some degree – “de-risked.”
While many traditional financial players that are not crypto-first but crypto-adjacent (such as Visa) rely on stablecoins like USDC as their main pillar of transactions, there are other discussions taking place regarding how crypto risk might be managed.
Government entities are constantly vying for a piece of the action; one of the main selling points for state-by-state legalization of marijuana or sports betting across the United States was the enormous tax money that would otherwise be lost. How Bitcoin mining by governments can help de-risk cryptocurrency.
Indeed, the Wall Street Journal published an article just last month describing how governments around the world are becoming more involved in mining royalties and taxation, including a new silver and gold tax for miners in Nevada that took effect last month. Taxation is at the heart of the current domestic debate in the United States about crypto policy.
Is Government Mining a Possibility?
The first question that comes to mind is, of course, feasibility. Would governments have the capability and know-how to carry out crypto mining effectively? The paperwork is piling up.
Some claim, however, that Bitcoin mining is becoming increasingly intertwined with utilities and traditional mineral mining. Crypto mining, according to independent investing writer Natasha Che, could be “the simplest method to de-risk Bitcoin.” Che draws some useful parallels between the industries, noting that all of the aforementioned categories are “risky.”
require significant capital expenditures
have high economies of scale
and are strategically located
Che goes on to illustrate that the geographical distributions of Bitcoin mining and gold mining are remarkably similar. Furthermore, the state’s participation extends much beyond just taxation. Government agencies can directly control considerable amounts of mineral mining resources, Che points out because governments frequently possess underlying natural resources and land.
The same is true for utilities such as gas, water, and electricity. Che demonstrates that there are more publicly owned utilities than privately owned utilities in several locations throughout the world.
The third point made by Che is that capital is perhaps the most demanding resource required to mine Bitcoin or any cryptocurrency for that matter. “There are compelling motivations for governments to enter the mining business, whether through increased taxes and royalties on miners or direct ownership of mining facilities,” adds Che.
Aside from the question of feasibility, the major objection from long-time crypto supporters is that this appears to contradict Bitcoin’s highly decentralized nature. However, as exposure and adoption expand over time, some level of controversy is unavoidable.
“Life, death, and taxes,” as the old proverb goes.
Government Shifts: Looking Forward
The long-term reliance of miners across China is, of course, at the heart of the broader mining and geography question. However, given China’s policy reforms toward mining, which our team highlighted only last week, the tides appear to be turning. However, before China’s massive crackdown, the number of miners in the country was already declining.
Shouldn’t governments be aiming to capitalize on what appears to be an open door for a strong geographic dispersion of cryptocurrency miners? Despite the fact that there have been no significant conversations concerning crypto mining on a government level in the United States, there has been an increase in U.S. miners after the exodus of miners from China.
Many claims that government engagement in mining might result in greater use of clean energy, improved processes and opportunities, and more – all at the expense of government taxation.
Despite the apparent silence of most federal and state legislatures, government-controlled funds may be holding an open door to crypto: our team previously reported on the New Jersey Pension Fund’s investment in two Bitcoin mining behemoths – Riot Blockchain and Marathon Digital Holdings – earlier this month.
Furthermore, Wyoming legislators have made it clear that they want to be as crypto-friendly as possible. Senator Cynthia Lummis has been one of the most outspoken pro-crypto politicians in recent months, tweeting last month, “If you are in the #bitcoin mining space, please reach out.” We WANT you to come to Wyoming.”
Of course, we can’t forget about Miami, FL, the tech and crypto hotspot that is continuously in the news.
Could state-managed pension funds in the United States, as well as larger political activists, be the first to push for more formal government involvement in crypto mining? Perhaps, but we’ll have to wait till at least a few more mainstream crypto ETFs make their way to mainstream markets (which are currently in the works).
Even so, we’ll almost certainly have more miles to cover on this journey. Isn’t that the biggest question mark of all? What is the influence of this on danger levels in the past and present? There are no hard and fast rules here, but many believe that as adoption grows, institutional buy-in grows, and governmental regulation grows, mainstream cryptos will see more “de-risking” as their trustworthiness grows.