How Governments That Miner Bitcoin Could Reduce Cryptocurrency Risks

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There is apparently a constant conversation, especially with those involved in mainstream financial institutions, about how cryptocurrency can be – to some extent – derisked. Can government mining, or just the tax structure, solve this problem?

While many traditional financial players who are not crypto first, but adjacent to crypto (take Visa as a prime example) rely on the use of stablecoins like USDC as the primary backbone of transactions, there are other conversations going on about how crypto risk can be managed.

Government agencies are always looking for a piece of the pie; much of the state-by-state legalization of marijuana or sports gambling across the United States was substantial tax revenue that states would not otherwise see. In fact, last month the Wall Street Journal ran an article describing how governments around the world are getting more involved in mining royalties and taxation, including a new silver and gold tax for mines. of Nevada which came into effect last month. Taxation is driving the national discussion around crypto for U.S. politics as we speak.

Government mining: is it feasible?

Feasibility is of course the first question that comes to mind. Would government agencies have the capacity and know-how to actually perform cryptocurrency mining? The paperwork is flowing.

However, some argue that in fact Bitcoin mining (and crypto more broadly) is becoming increasingly adjacent to utilities and traditional mining. Freelance investment writer Natasha Che argued that indeed, crypto mining could be “the easiest way to reduce Bitcoin’s risk.” Che makes some appropriate comparisons between industries, noting that all of the aforementioned categories:

need heavy investments have large economies of scale and are of strategic geographic importance

Che goes on to show that Bitcoin mining and gold mining actually have very similar geographic distributions. In addition, the involvement of the State ends up going beyond simple taxation. Che notes that because governments often own natural resources and underlying land, government agencies can directly control substantial portions of mineral resources.

The same goes for utilities like gas, water and electricity. In many parts of the world, there are more public than private services, Che shows.

The final point made by Che is that the most intensive resource needed to mine Bitcoin, or any crypto for that matter, is capital. “For reasons of both revenue and public interest, governments have good reasons to get into the game, either by increasing taxes and royalties on miners or by directly owning mining facilities,” he said. said Che.

Feasibility aside, the biggest setback here from longtime crypto advocates has been that it arguably goes against the highly decentralized nature of Bitcoin. However, with increased exposure and adoption over time, some degree of discussion here is inevitable.

As the old saying goes, “life, death and taxes”.

The taxation of bitcoin and crypto has recently been at the center of national legislative discussions in the United States. | Source: BTC-USD on TradingView.com

Related reading | Bitcoin’s accumulation model shows rally may be just beginning

Government changes: looking to the future

At the heart of the larger mining and geographic discussion is of course the long-standing dependence on miners existing across China. However, the tide seems to be turning given China’s changes in mining policy, as our team covered last week. Before China’s significant crackdown, however, the share of minors across the country was already declining.

Shouldn’t governments be looking to take advantage of what appears to be an open door for a strong geographic distribution of crypto miners? Despite the lack of substantial domestic discussions on government-level crypto mining, there has been an increase in the number of American miners as the miners leave China. Arcane Research found that between September 2020 and April 2021, the hashrate of US Bitcoin had increased by approximately fourfold from 4.1% to 16.8%.

Many would argue that government involvement in mining could allow for better use of clear energy to be extracted, better processes and opportunities, and more, at the expense of taxing government agencies.

Despite the apparent radio silence of most federal and state legislatures, government-controlled funds could open the door to crypto: Earlier last month, our team also wrote about the New Jersey Pension Fund investing in two mining behemoths. Bitcoin – Riot Blockchain and Marathon Digital Holdings. Additionally, Wyoming state officials have spoken out to be as crypto-friendly as possible. State Senator Cynthia Lummis was recently one of the loudest pro-crypto politicians, tweeting last month that “If you’re in the #bitcoin mining space, please contact us. We want you in Wyoming.

Of course, we can’t forget the tech and crypto hub that’s constantly in the conversation – Miami, FL.

Could state-run pension funds in the United States, and broader political advocates, be the first entry for more formal government integration with crypto mining? It’s possible, but we’ll have to keep our horses until at least more traditional crypto ETFs find their way into mainstream markets (which are currently in the works).

Even then, we will probably still have more miles to go on this route. Arguably the biggest question mark around all of this? How does this impact risk levels compared to days past and present? There are no hard and fast answers here, although many believe that with increased acceptance, institutional buy-in, and a touch of government regulation, mainstream cryptos are likely to see more “risk reduction” as they grow. their reliability increases.

Related reading | Generational bitcoin buy signal is almost back

Featured Image from Pixabay, Charts from TradingView.com

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