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US Bitcoin business: boom or bane?

"China's bitcoin mining ban was basically an unintentional gift to the US," he said. "Thanks to their ban an entire sector migrated to North America -- along with innovation, labor and machines."

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The long sheds at North America’s largest bitcoin mine look endless in the Texas sun, packed with the type of machines that have helped the United States to become the new global hub for digital currency.

The operation in the quiet town of Rockdale was part of an already bustling US business — now boosted by Beijing’s intensified crypto crackdown that has pushed the industry west.

Experts say rule of law and cheap electricity in the United States are a draw for bitcoin miners, whose energy-gulping computers race to unlock units of the currency.

“There’s a lot of competitors coming into Texas because they are seeing the same thing (as) when we came here,” said Chad Everett Harris, CEO of miner Whinstone, which operates the Rockdale site owned by US company Riot Blockchain.

Read more: A Bitcoin resurgence: Value exceeds $50,000 for the first time in 3 months

China was the undisputed heartland of crypto mining with about two-thirds of global capacity in September 2019, but last month Beijing declared illegal all transactions involving crypto money as it seeks to launch one of its own.

Figures released Wednesday by the University of Cambridge showed that activity in the United States more than doubled in the four months to the end of August, increasing the market share held by the world’s biggest economy to 35.4 percent.

Samir Tabar, chief strategy officer at miner Bit Digital, said the company started to pull out of China in 2020 and accelerated that process as the crackdown intensified. They have operations in the United States and Canada.

“China’s bitcoin mining ban was basically an unintentional gift to the US,” he said. “Thanks to their ban an entire sector migrated to North America — along with innovation, labor and machines.”

Some of the key pulls toward the United States are simply a democratic government, a court system and the power to protect property rights.

“If you’re going to make long-term investments and accumulate wealth in a country, you want to have some confidence that it’s not going to be taken away by the government,” said David Yermack, a crypto expert at New York University.

Poetic return to America

He expected the shift to the United States to be temporary, saying places like Nordic countries have cheap and abundant renewable energy, as well as plenty of cold weather to cool the hot-running mining machines.

The steady increase in US-based mining operations has fanned the ongoing environmental criticisms of the industry’s massive annual electricity consumption — more than what the Philippines uses in a year, according to Cambridge University data.

An ongoing backlash has been fueled by concerns the industry relies on carbon-emitting power sources that contribute to climate change.

Read more: US launches major crackdown on bitcoin

“To think that we’re causing harm or pollution or all those things here… the majority of our power comes out of the ERCOT grid and that profile is extremely friendly to the environment,” Harris said, referring to the Texas power network operator.

According to ERCOT’s data for 2020, about 46 percent of its power came from natural gas while wind and solar combined for 25 percent with coal at 18 percent.

The price miners pay for electricity is key, and a place like Texas is desirable because the market is de-regulated so companies can have more flexible terms, said Viktoriya Zotova, a business school professor at Georgetown University.

“In principle, they can buy the electricity when it’s cheaper and not buy it when it’s more expensive,” she said.

While there are obvious reasons for the crypto world’s migration, some also see a bit of poetry in mining operations coming to the United States from China.

Read more: Bitcoin plunges to a shocking 20% after Chinese crackdown

Tabar, from miner Bit Digital, said his company has a site in Buffalo, New York, which used to be one of the country’s main manufacturing hubs but lost jobs and prosperity as production work shifted to places like China.

“There is a bit of a poetic thing going on,” he noted. “It dawned on me how this is going full circle.”

US crackdown against Bitcoin

Regulators globally are cracking down on cryptocurrencies, alarmed at a rapidly expanding market that exceeded a record $2 trillion in April. China on Friday said it was banning all crypto trading and mining, sending digital coins tumbling.

Global regulators worry the rise in privately operated currencies could undermine their control of the financial and monetary systems, increase systemic risks, promote financial crime and hurt investors.

In the United States, President Joe Biden’s regulators have launched several efforts to rein in cryptocurrencies. Here’s the breakdown:

THE PRESIDENT’S WORKING GROUP ON STABLECOINS

The President’s Working Group on Financial Markets, comprising top financial regulators, is focusing on stablecoins, a type of digital coin pegged to traditional currencies.

The group traditionally includes the Treasury Department, Federal Reserve, Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), but the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) are also involved.

During a July meeting, the group discussed the rapid growth of stablecoins, their potential uses as a means of payment, and their potential risks to users, the financial system and national security. Afterward, Treasury Secretary Janet Yellen said the government must move quickly to establish a regulatory framework for stablecoins. read more

In meetings with industry executives this month, the Treasury also asked whether some stablecoins would merit direct oversight if they became extremely popular, Reuters reported.

The group is expected to publish a report detailing the risks and opportunities of stablecoins in coming months.

U.S. SECURITIES AND EXCHANGE COMMISSION

The main action is coming out of the SEC. In testimony before the Senate this week, SEC Chair Gary Gensler said the agency was examining cryptocurrencies in a number of areas: the offer and sale of crypto tokens; crypto trading and lending platforms; stable value coins; investment vehicles providing exposure to crypto assets or crypto derivatives, and the custody of crypto assets.

Gensler’s SEC also appears to be taking a more aggressive legal interpretation of when crypto assets fall within its purview than the agency did under former President Donald Trump. Gensler has said, for example, that so-called “DeFi platforms” – peer-to-peer crypto platforms that bypass the traditional gatekeepers of finance such as banks and exchanges – fall within the SEC’s purview.

The agency brought its first DeFi-related enforcement action last month.

THE FED’S CENTRAL BANK DIGITAL CURRENCY PROJECT

The U.S. Federal Reserve is due shortly to issue a hotly anticipated report exploring the potential adoption of a digital dollar, while the Boston regional Fed is also working with the Massachusetts Institute of Technology to explore the technical aspects of a digital dollar.

While the Fed is on the fence about creating its own digital coin, many policymakers in Washington see it as a critical step in combating the rise of privately operated digital coins.

BANKING REGULATORS’ ‘SPRINT’ TEAM

In parallel, a small group of senior staff at the Fed, OCC and FDIC have been collaborating on a “crypto policy sprint” focused on cryptocurrencies in relation to the banking sector.

Acting OCC head Michael Hsu has said the goal of the group is to “agree on definitions, use cases, risks, and gaps, and to discuss policy options related to digital assets.”

As part of that effort, the OCC is also reviewing a decision by the head of the agency under Trump that allowed national banks to provide custody of cryptocurrency.

AFP with additional input by GVS News Desk

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