CFTC: Stablecoins and Ether are ‘going to be commodities,’ reaffirms CFTC chair

DEX: Coinbase and $20,000,000,000 Hedge Fund Backing New Decentralized Crypto Exchange

DeFi: FTX’s Crash Exposed an Insurance Black Hole That Risks Impeding the Crypto Sector Recovery

ETFs: US court questions SEC's rejection of Grayscale's bitcoin fund proposal

Exchanges: Binance dominates crypto exchange market with 61.8% share despite rampant FUD

Digital asset prices continued to unwind their 2023 rally this week, as the market cap of all cryptocurrencies dipped below the $1 trillion mark for the first time in almost a month, falling to its lowest point since January 13. That was largely due to the announced liquidation of crypto-friendly Silvergate Bank, a new suit by the New York Attorney General’s (NYAG) against Seychelles-based exchange KuCoin, wherein it claims Ethereum is a security, and speculation that more regulator action targeting firms operating in the crypto industry may be inbound. That pushed the unit price of Bitcoin (BTC) in USD terms down to $19,800 on Friday morning – about -12.4% below weekly highs above $22,600. Year to date, BTC remains up more than 19.6%.

The White House also proposed new tax rules targeting cryptocurrency investors and Bitcoin miners. More specifically, the Biden administration wants to end tax loss harvesting for crypto transactions by forbidding wash sales. Tax loss harvesting refers to strategically selling an asset at a net loss to offset some of the taxes they’ll have to pay on the capital gains they’ve made for the year. If the investor uses the proceeds from the sale to immediately repurchase the same asset, or buy a similarly correlated asset to maintain their portfolio balance, it becomes a wash sale. Cryptocurrencies have been able to skirt restrictions on wash sale rules that are already enforced on stocks and bonds, since most aren’t effectively regulated as securities. However, that lack of enforcement may soon be coming to an end for many cryptocurrencies if the White House (and maybe the SEC) has its way.

Perhaps the most restrictive tax policy the White House wants to roll out is “an excise tax equal to 30% of the costs of electricity used in digital asset mining.” The tax would be phased in starting next year at 10%, then gradually rising to a terminal 30% by the third year. Mining firms would also be required to report how much electricity they use and what type of power was tapped. The justification for these rules follow the typical (and usually fallacious) environmental claims regarding Bitcoin mining, citing “negative environmental effects” and “risks to local utilities and communities”. MRP has refuted such claims across several Intelligence Briefings over the years, building on the work of many others, but the facts about Bitcoin mining continue to fall on governments’ deaf ears – particularly in the US and Europe.

First and foremost, Bitcoin mining is actually among the greenest industries on the planet, utilizing an energy mix that was 58.8% renewable in Q4 2022. That’s according to the Bitcoin Mining Council (BMC), a global forum of 53 BTC mining firms representing nearly half of the Bitcoin network’s global hash rate (defined as computational power per second being used for mining). Bitcoin’s energy resources are even more sustainable than the greenest energy economies in the world, including the EU’s, where just 43.5% of electricity comes from renewable sources. Proponents of Bitcoin adoption claim that mining actually promotes the adoption of green energy, since a key component of miners’ profitability is their energy costs. As MRP has previously highlighted, the International Energy Agency (IEA) has  declared solar power the “new king” of global electricity markets in 2020, now the cheapest form of electricity in history, costing between $35 and $55 per MWh in some of the world’s biggest markets — the US, Europe, China, and India. The cost for coal, in comparison, has ranged between about $55 and $150 per MWh.

Bitcoin’s global energy usage is equivalent to just 275 terawatt hours (TWh), roughly half of what the gold mining industry utilizes and less than a tenth of the electricity used by appliances in the US. Moreover, Bitcoin miners prefer to set up shop in regions where energy is cheap; in other words, where there is low demand relative to more abundant supply. Some have tried to refute this claim by mentioning that Texas is among the hottest spots in the US for Bitcoin mining, not realizing that Texas’s problem is not too little power generation, it’s too little peak capacity during short periods of time. Outside of peak hours (which comprise just 5% of the year), Texas has an abundance of electricity that often creates a surplus and, therefore, negatively-priced power. That creates a cost to the utility company. When utilities take on these costs and make less money, they invest less in expanding the grid. The introduction of Bitcoin miners means utilities get buyers of last resort for their electricity and incentivize expansion of the grid, minimizing strain during peak capacity hours.

Bitcoin miners provide a load resource to capitalize on excess or otherwise cheap power, which can be shut down during periods of peak power demand. Bitcoin mining is much more interruptible than household electricity use, which can become more essential to humans during a natural disaster or other black swan event. Meanwhile, Bitcoin miners have little to no need for electricity when the cost of power outweighs the potential profitability of mining.

BTC's hash rate has continued to hit new all-time highs recently, despite the ongoing bear market. That could create headwinds for miners’ profitability if prices don’t turn around soon, but it demonstrates the Bitcoin network’s resilience to political and economic pressures. It has been nearly two years since China banned Bitcoin mining, a significantly negative prospect for BTC at the time since China was home to the majority of the network’s hash rate. A sudden -30% drop in Bitcoin’s hash rate followed, but as Chinese miners either relocated or sold their equipment to companies in other jurisdictions, the hash rate rebounded and has now almost tripled from its 2021 trough. Bitcoin mining is mobile and if the US wants to take a similarly hard-lined stance akin to China’s, meant to drive out the industry, miners have shown they will simply set up shop elsewhere.

February 22, 2023: Ethereum May Face Contagion from SEC Crackdown on Crypto Exchanges’ Staking Services →

February 14, 2023: Staking Services and Stablecoins in SEC Crosshairs as Crypto Industry Preps for Court Battles →

January 24, 2023: Bitcoin Mining is Back to Profitability, Hash Ribbon Shows Peak Capitulation May Have Finally Passed →

October 18, 2022: Fallout From Ethereum “Merge” Bolsters Bitcoin’s Hash Rate as Some Criticisms Still Linger →

October 7, 2022: Ethereum’s Post-Merge Era Conquers Key Goals, Yet Centralization and Regulation Concerns Linger →

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