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Will Bitcoin Miners Move Out of the USA Over Proposed Tax Law?
The Joe Biden administration is proposing to impose a 30% levy on crypto mining in the US. The proposal was initially introduced in March when the Treasury Department unveiled it as a provision within the proposed budget for the fiscal year 2024.
Unsurprisingly, the crypto industry has pushed back on the proposal, criticizing it as a government overreach and decrying its potential adverse impact on the space.
Both the community and the White House acknowledge that the measure could push out crypto mining from the country.
The difference is crypto proponents fear it would spell doom for innovation in the country. On the other hand, the US, widely regarded as a bastion of innovation, unironically sees itself in good company as part of a group of countries that have banned crypto mining, including China.
This piece deconstructs the proposed tax, whether it will see the light of day, and the potential implications if it does.
What's The 30% Proposed Tax?
Per the Treasury Department, crypto miners in the US will be subject to a 30% excise tax on the costs of power used to operate crypto mining facilities.
Any firm using “computing resources” to mine crypto would be liable to pay the tax, whether the resources are theirs, leased, or sourced independently, such as from a power plant.
Such firms would also have to disclose the power they consume and its source. The tax would be gradually introduced, increasing by 10% each year until it reaches 30% by the end of the third year.
In the paper, the Treasury Department makes it clear that with the proposal, it wants to “reduce mining activity” for what it deems as “environmental impact and other harms” of the practice.
The surge in energy usage from crypto mining has “negative environmental impacts and can have environmental justice implications as well as increased energy prices for those that share an electricity grid with digital asset miners,” it says, adding that crypto mining “also creates uncertainty and risks to local utilities and communities.”
This levy would be known as the Digital Asset Mining Energy (DAME) tax and was conceptualized by the President’s Council of Economic Advisers (CEA).
In a blog post, the council characterized digital asset mining as an “emerging risk” responsible for “local environmental pollution, higher energy prices, and impact of increased greenhouse gas emissions on the climate.” The DAME tax, they argue, will encourage crypto miners “to start taking better account of the harms they impose on society.”
The proposal is meant to kill two birds with one stone: generate revenue (the White House foresees at least $3.5 billion in over ten years) and cripple the crypto mining sector.
Will The Proposal Pass Congressional Approval?
Whether or not the proposal would come to fruition is a different matter. Before it can be implemented, the House of Representatives and the Senate would have to approve the budget.
And like with many things in Washington, the issue of crypto regulation is split along partisan lines. As it is, the Republican-controlled house is unlikely to pass the budget with those provisions. Republican lawmakers have aligned themselves with the crypto industry, at least for now.
However, the proposal reveals where the Biden admin’s head is on cryptocurrencies and its implications on the space if the Democrats were to gain control of the house under his potential second term.
Will Miners Pack?
If the proposal were to be implemented, it would, without a doubt, deal a huge blow to miners. Everything would become harder: from upgrading mining rigs to covering maintenance costs. In the end, the profits may not make sense.
It is worth mentioning that when the Biden White House speaks of ‘crypto mining,’ they mean Bitcoin mining, as it’s the only major cryptocurrency that employs mining. As such, Bitcoin miners would bear the brunt of the levy.
In the unlikely event, it came into force, Bitcoin miners would likely pack up and move to more friendly jurisdictions.
We’ve seen this before in China. In the face of the country’s ban on crypto mining, miners retreated and pitched camp in more favorable destinations such as the US, the UK, and Canada. Still, underground operations have since sprung up, making China the second-biggest destination for Bitcoin miners.
But make no mistake: if the proposal were to pass, it wouldn’t be just about the 30% levy. Most miners would likely interpret the move as a passive-aggressive way of saying they are not wanted in the country. As a result, miners would actively avoid the United States altogether.
Competitiveness in the Global Financial Market
Though the US would probably succeed in stifling crypto mining, it must consider whether it’s worth it or justified.
Bitcoin receives flak for consuming a lot of energy. Yet, the traditional finance system, the gold mining market, and streaming behemoths Netflix and YouTube consume more power than Bitcoin and aren’t put under the same microscope.
In addition, it helps to consider that the portion of sustainable energy used by Bitcoin miners rose to 63.8% last year, per the Bitcoin Mining Council. In comparison, renewable energy sources currently account for only 20% of the electricity generated in the United States.
In addition, targeting an industry that’s no longer fringe but one that millions of retail investors and top institutional investors are betting on is rather self-defeating.
In many ways, crypto and blockchain-powered financial services are the future. Countries that embrace crypto will be better positioned to play more competitively in the global financial market.
Final Thoughts
The Biden administration thinks that targeting crypto mining affects just one aspect of the crypto ecosystem. In truth, the move could be interpreted as general hostility to the sector, potentially pushing businesses out of the country.
The crypto industry has always been open to sensible regulation. The executive government should go back to the drawing board and develop more constructive policies for all parties.
