How Governments Mining Bitcoin Could De-Risk Cryptocurrency

There’s seemingly a constant conversation, particularly with those involved in legacy financial institutions, about how cryptocurrency can be – to a certain degree – “de-risked.” Can government mining, or merely taxation structure, address this?

While many traditional financial players that are not crypto-first, but are crypto-adjacent (take Visa as a prime example) are relying on the use of stablecoins like USDC as their main pillar of transactions, there are other conversations happening about how crypto risk can be managed.

Government bodies are always looking to get a piece of the pie; a large pitch of the state-by-state legalization of marijuana or sports gambling throughout the U.S. was the substantial tax revenue that states wouldn’t be seeing otherwise. In fact, just last month the Wall Street Journal published a piece outlining how governments across the globe are getting more involved in mining royalties and taxation, including a new silver and gold tax for mines in Nevada that went into effect last month. Taxation is the root of the domestic discussion around crypto for U.S. policy as we speak.

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Government Mining: Is It Feasible?

Feasibility is of course, the first question to come to mind. Would governmental bodies have the capacity and know-how to truly execute crypto mining? The red tape is flowing.

However, some argue that in fact, Bitcoin (and broader crypto) mining is becoming more and more adjacent to the likes of utilities and traditional mineral mining. Independent investment writer Natasha Che argued that indeed, crypto mining could be “the easiest way to de-risk Bitcoin.” Che makes some apt comparisons between the industries at that, noting that all of the aforementioned categories:

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

Che goes on to show that Bitcoin mining and gold mining actually have very similar geographical distributions. Furthermore, state involvement actually ends up getting deeper than sheer taxation. Che notes that because governments often own underlying natural resources and land, government bodies can directly control substantial portions of mineral mining resources.

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The same applies for utilities like gas, water, and electric as well. For many regions across the globe, there are more publicly-owned utilities than privately-owned ones, Che shows.

The final point Che presents is that arguably the most intensive resource needed to mine Bitcoin, or any crypto really, is capital. “From both revenue and public-good motives, there are strong reasons for governments to get into the game, by either increasing taxes and royalties on miners, or by owning mining facilities directly,” says Che.

Feasibility aside, the biggest pushback here from long-time crypto advocates has been that this arguably runs against Bitcoin’s very decentralized nature. However, with increased exposure and adoption over time, some degree of the discussion here is inevitable.

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

Bitcoin and crypto taxation has been a focal point in domestic legislative discussions in the United States recently.  | Source: BTC-USD on

Related Reading | Bitcoin Accumulation Pattern Shows Rally Might Only Be In Its Early Stages

Government Shifts: Looking Forward

At the core of the broader mining and geographic discussion is of course, the long-time dependence of miners existing across China. However, the tides seem to be turning given China’s policy shifts towards mining, as our team covered just last week. Before China’s substantial crackdown, however, the share of miners throughout the country was already on the decline.

Shouldn’t governments be looking to take advantage of what is seemingly an open door for a strong geographic distribution of crypto miners? Despite no substantial discussions domestically about crypto mining on a government level, there has been an increase in U.S. miners during the departure of miners from China. Arcane Research found that from September 2020 to April 2021, U.S. Bitcoin hashrate increased roughly four-fold, from 4.1% to 16.8%.

Many would argue that government involvement in mining could allow for better usage of clear energy to mine, better processes and opportunities, and more – at the expense of taxation to government bodies. 

Despite the apparent radio silence from most federal and state legislatures, government controlled funds could be holding an open door to crypto: earlier last month, our team also wrote about the New Jersey Pension Fund investing in two Bitcoin mining behemoths – Riot Blockchain and Marathon Digital Holdings. Furthermore, Wyoming state representatives have been vocal about being as crypto-friendly as possible. State senator Cynthia Lummis has been one of the loudest pro-crypto political figures recently, tweeting last month that “if you are in the #bitcoin mining space, please reach out. We WANT you in Wyoming.”

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

Could state-managed pension funds in the U.S., and broader political advocates, be the first entry for more formal governmental integration with crypto mining? Possibly, but we’ll need to hold our horses until at least more mainstream crypto ETFs find their way to mainstream markets (which are currently in the works).

Even then, we’ll likely still have more miles to cover down this path. Arguably the biggest question mark around it all? How does this impact risk levels compare to past and present days? There’s no hard and fast answers here, though many believe that with increased acceptance, institutional buy-in, and a splash of governmental regulation, mainstream cryptos will likely see more “de-risking” as reliability on them increases.

Related Reading | A Generational Bitcoin Buy Signal Is Almost Back

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Governments Are Considering Welcoming Bitcoin Investments, NYDIG CEO Reveals

Robert Gutmann, the CEO of cryptocurrency investment firm NYDIG (NEW York digital Investment Group), has revealed that governments are contemplating investing in Bitcoin.

In an interview with Raoul Pal, the founder and CEO of Real Vision, Gutmann disclosed that state-owned investment funds are making inquiries regarding the possibility of purchasing the leading cryptocurrency.

Gutmann said that unnamed sovereign wealth funds (state-owned investment funds) have been approaching NYDIG crypto investment firm with inquiries about making Bitcoin purchases.

Gutmann said what he believes makes investing in Bitcoin appealing to investors: “If you look at the world today on a forward basis, it is reasonable to be asking yourself as an investment committee or as an allocation committee [if] having all of [their] assets denominated in dollars against dollar-denominated liabilities is the right allocation mix.”

In the same conversation during the interview, the former hedge fund manager and founder of Real vision media company, Raoul Pal, revealed that Singapore Exchange (SGX) and state-owned investment firm Temasek Holdings has been purchasing Bitcoin. Pal revealed that Temasek Holdings has been purchasing virgin Bitcoin from miners – virgin Bitcoin tokens that have never been used for any transaction.

Temasek Holdings is a private company, wholly owned by the Singapore government, which was formed as an investment holding concerns to own and manage the State’s equity investments in local firms. Temasek has a portfolio of about $226.6 billion and manages a wide range of investments and financial services including technology, media, telecommunications, life sciences, agribusiness, energy, real estate, consumer, industrials, transportation, and resources.

Blockchain.News learned that late last month, GIC Singapore state-owned sovereign wealth fund investment firm led $80 million funding in US cryptocurrency platform Anchorage so that the crypto firm could expand its crypto bank services to meet the increasing demands especially among corporations and traditional financial institutions. Anchorage officials revealed that several state-owned sovereign wealth funds including GIC are finally warming up to cryptocurrency and are looking at it as an opportunity.

Anchorage officials said that the crypto custody firm is holding talks with many state governments regarding adding Bitcoin to their treasuries.

Additionally, Norway’s oil fund, a sovereign wealth fund owned by the government of Norway, could be the next state-owned investment fund to make a Bitcoin purchase. Norway’s oil fund currently holds Bitcoin indirectly through its 2% stake in MicroStrategy intelligence firm.

Why Publicly Traded Companies Consider Bitcoin

State-owned funds are showing interests in Bitcoin as Wall Street institutions have decided to embrace the crypto world. A new trend of publicly-listed firms has been seen holding Bitcoin on their balance sheet. MicroStrategy adopted Bitcoin as its primary treasury reserve, purchasing 38,250 Bitcoins for $425 million between August and September last year. Similarly, Square payment firm bought $50 million worth of Bitcoin in October 2020. Furthermore, institutional investors and companies like Tudor investment corporation, Mode Global Holding PLC, Stone Ridge asset management firm, Tesla electric vehicle manufacturer, and others also announced holding Bitcoin on their balance sheet.  

Traditionally, public companies have managed cash conservatively, by allocating the majority of capital to low-risk assets (like treasury bulls, money market funds, bank deposits, repurchase agreements, and commercial paper). But with the evolving economic climate, risks caused by the Covid-19 pandemic and historic fiscal and monetary policy expansion are forcing public companies to a balance sheet allocation to Bitcoin.

Bitcoin investment has better returns than the above mentioned low-risk assets and has the potential to address challenges caused by the current difficult economic environment. This explains the reason why a rising number of publicly-listed firms are holding Bitcoin on their balance sheet, and even governments are considering following suit.

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US Government Is Likely to Ban Bitcoin, says Ray Dalio

Ray Dalio, the founder of Bridgewater Associates hedge fund firm, believes that the US government could ban Bitcoin if the leading cryptocurrency becomes too successful.

In an interview with Yahoo Finance, Dalio said that the history of money showed that policymakers would clamp down alternative currencies that could challenge the primacy of the dollar. He stated that: “Very likely under a certain set of circumstances” that Bitcoin would be “outlawed” just the way the government banned citizens from holding gold in the 1930s.

Under the US. Gold Reserve Act of 1934, it became illegal for citizens to own gold because governments did not want gold to compete with money as a store of value, according to Dalio.

Dalio told Yahoo Finance’s journalist Andy Serwer that Bitcoin has demonstrated itself over the last 10 years, building a significant following, and is now like digital cash in nature. The founder of the world’s largest hedge fund firm with $150 billion in assets under management stated that such a success could be a danger to governments.

The billionaire investor said:

“Every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing, because things can get out of control.”

Dalio mentioned that the current debates among policymakers in India about plans to ban Bitcoin could herald a rising trend. He said: “I would suspect it would be very hard to hold up against that kind of action.”

So far, there has been no indication from the US regulators that they are intending to completely ban Bitcoin. However, some influential figures, including the US Treasury secretary Janet Yellen, have said that regulations should be tightened because of concerns that crypto assets are used to finance terrorism and the drugs trade.

Why Governments Fear Bitcoin

Bitcoin cryptocurrency claims itself to be the first decentralized peer-to-peer payment network that is powered by its users with no middlemen or central authority. That lack of central authority is the main reason governments are afraid of the cryptocurrency. Over the previous decade, Bitcoin has gained attention not only for ordinary individuals but also for governments across the globe. Some governments fear that Bitcoin could undermine or destabilize the authority or control of central banks and also could be risky to investors, can be used to circumvent capital, and can be used for illegal purposes or money laundering.

Governments control fiat currencies. They use central banks to exercise monetary policy to exert economic influence. They also dictate how fiat currencies can be transferred, collect taxes on them, enabling them to track currency movement, dictate who profit from such movements, and trace criminal activities. All of such control is lost when non-government bodies develop their own currencies.

So far, the US has taken a generally positive stance towards the cryptocurrency, though several government agencies work to reduce or prevent Bitcoin use for illegal transactions. Similar to the US, countries including Canada, Australia, the European Union, Finland, among others have maintained a generally Bitcoin-friendly stance while also ensuring that the crypto is not used for money laundering.

Meanwhile, some countries like India, China, Nigeria, and Russia have suggested an outright ban on the digital currency due to concerns associated with its decentralized nature, volatility, links to illicit activities, and perceived threat to current monetary systems.

However, most nations have not clearly determined the legality of Bitcoin, thus prefer instead to take a wait-and-see approach.

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Governments Are Exploring Whether To Buy Bitcoin, Says CEO of Crypto Giant NYDIG

The CEO of crypto-focused investment firm New York Digital Investment Group (NYDIG) says governments are now contemplating investing in Bitcoin (BTC).

Robert Gutmann confirms in an interview with Real Vision founder Raoul Pal that government-owned funds are inquiring about the possibility of buying the flagship cryptocurrency.


In response, Pal reveals that Temasek Holdings, an investment firm owned by the Singapore government which manages a net portfolio worth $306 billion, has long been buying virgin Bitcoin tokens that have never been used for any transaction.

Gutmann explains what he believes makes the king coin appealing to investors.

“If you look at the world today on a forward basis, it is reasonable to be asking yourself as an investment committee or as an allocation committee [if] having all of [their] assets denominated in dollars against dollar-denominated liabilities is the right allocation mix.”

State-owned funds are showing interest in Bitcoin as Wall Street institutions jump into the crypto space. Goldman Sachs’ recent SEC filing reveals that the banking titan wishes to offer an investment product linked to the top crypto.

BNY Mellon, America’s oldest bank, is also working on a secure platform for transferring, holding, and issuing digital assets.

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Governments Will Start to Hodl Bitcoin in 2021

Reflecting on 2020, I struggle to think of another year in recent decades with both so many all-time highs and all-time lows.

From the COVID-19 pandemic raging across the global population to record-setting wildfires in the western United States to numerous other calamities, the world this year has often appeared figuratively and literally in flames.

This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Garrick Hileman is head of research at and a visiting fellow at the London School of Economics. Current research interests include governance, digital entrepreneurship, financial repression and measuring crypto-asset adoption. 

Starkly juxtaposed with this death and destruction have been uplifting scenes of pandemic-stricken communities pulling together and celebrating front-line workers, innovations such as astonishingly fast vaccine development and the first privately funded, human-flown space launch of a reusable rocket and the red-hot markets and crypto-asset space, the focus of this article.

Years from now, I believe we will look back on 2020 as a critical inflection point in the wider adoption of crypto-assets and blockchain technology. 

From the long-heralded and -awaited arrival of institutional crypto adoption, to the acceleration of digital currency and payments spurred on by the pandemic, to greater regulatory clarity in key jurisdictions like the U.S., 2020 has proven, in my view, to be crypto’s best year yet.

As we head into 2021, what can we expect for crypto? 

Two macro forces that have powered the ascent this year of crypto assets like bitcoin to yet another new all-time high show little signs of slowing down.

1. Outsized government spending and money printing

Arguably the single biggest factor driving increased crypto asset valuations and adoption is concern over government spending and monetary stimulus. Indeed, debt levels were already worrisome prior to the pandemic, with many (myself included) sounding the alarm over world-war levels of public indebtedness, sans world war.

However justified the generally bipartisan pandemic stimulus may be, the simple mathematical reality is that when governments and central banks suppress interest rates and increase the money supply, then the value of relatively scarce assets will often increase.

Simply put, more fiat currency and debt chasing a finite number of things (e.g., bitcoin) equals a higher price for those things.

Within the crypto space the biggest winner from this trend is bitcoin, which appears to have achieved broader product market fit this year on Wall Street and elsewhere around its “digital gold” investment thesis. 

Indeed, there are some recent indications that, alongside growing inflation fears, some investors are rotating part of their gold portfolio allocation into bitcoin. A continuation of this trend would provide strong support for further bitcoin price appreciation.

See also: Worsening US Dollar, Inflation Metrics Bode Well for Bitcoin’s Continued Rally

With the development of several promising vaccines, the COVID-19 pandemic and accompanying damaging economic restrictions should begin winding down sometime in 2021. However, an unprecedented global debt overhang will remain, creating debt sustainability concerns for the foreseeable future and a bullish tailwind for algorithmically supply-constrained crypto assets.

2. U.S.-China economic and geopolitical tension

Even with the upcoming change in U.S. presidential administrations, geopolitical and strategic competition between the world’s two superpowers – China and the U.S. – is unlikely to abate.

What this evolving clash of superpowers fully means for crypto is something we are still just beginning to understand, but some likely outcomes include:

All of these developments are broadly positive for relatively decentralized crypto assets like bitcoin and ether. 

While central bank digital currencies may pose challenges for some more centralized crypto asset networks (e.g., stablecoins) in the form of increased competition and regulatory scrutiny, the further digitization of fiat currency and payments is more complementary than competitive for decentralized crypto assets like bitcoin, which will have less design overlap. For example, central bank digital currencies will not feature a finite supply like bitcoin’s 21 million-coin hard cap, and it is also extremely unlikely they will have the same degree of censorship resistance and trust minimization as bitcoin.

Bitcoin is a powerful tool in promoting freedom and open society values.

A divided global governance picture means we are unlikely to see the type of widespread and coordinated regulatory crackdown that hedge fund manager Ray Dalio and others have suggested will occur if crypto ever gets “too big.” And a multi-polar global financial system, carved up into U.S. and Chinese spheres of influence, arguably creates space and motivation for more neutral blockchain-based assets and financial infrastructure. 

Money historian Niall Ferguson (my PhD supervisor) also argued recently that part of the reason the U.S. should embrace bitcoin and crypto assets is to support a more privacy conscious and open financial system versus the more centralized one being actively promoted by China via its central bank digital currency, the DCEP.  

There’s also the question of who controls or influences the largest public blockchains, like Bitcoin and Ethereum. Acting U.S. Comptroller of the Currency Brian Brooks recently fretted over China’s outsized influence over cryptocurrencies like bitcoin through their dominant share of the computational mining power securing blockchain networks. This concern over Chinese influence over Bitcoin and Ethereum was also recently echoed by Ripple in its response to the recently filed Securities and Exchange Commission lawsuit.

The growing support for crypto among those concerned with democratic values and the global balance of power could mean we also soon see one of the most positive developments for crypto assets: governments taking a direct role in supporting and even owning crypto assets. 

While admittedly speculative, it is possible to imagine the U.S. and China both gaining from more fully embracing crypto assets like bitcoin. 

As I have previously argued, an ascendant financial superpower like China could potentially leapfrog up the reserve asset league tables on the cheap by actively acquiring bitcoin. FOMO is not something restricted to private-sector market participants, and first mover nation states will gain the most in any race to acquire a new reserve asset. As an American my hope is the U.S. will think twice before rushing to auction off its latest law enforcement seizure of nearly 70,000 bitcoins connected to the shuttered Silk Road marketplace.

See also: Mable Jiang – Bridging Cultural Gaps in 2021: Crypto in China and the US

At the same time, the U.S. and other democractic countries may increasingly come to see permissionless and relatively decentralized blockchain networks as similar to the open internet: a powerful tool in promoting freedom and open society values.

Post-pandemic acceleration

While the pandemic and its punishing economic and social restrictions will, I hope, end next year, there is little reason to believe the accelerating crypto adoption we are currently witnessing will end along with it. 

This year has cemented the notion that crypto assets are not only not going away but will be integral to our financial lives going forward. As we close out a very trying and historic 2020, the future has never looked brighter for bitcoin and crypto asset ownership and use.

year in review



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Users vs. governments: The ‘infinity war’ for blockchain privacy may be over

The unique power of blockchain and cryptocurrency can also be considered their weakness. Crypto users gain unparalleled privacy for financial transactions through a decentralized transactional system. Governments, however, demand transparency in financial transactions for legal concerns. This creates a paradox. People are less inclined to use financial instruments if, in doing so, they expose their money to the world. Conversely, there are a number of regulations requiring financial institutions to counteract terrorism and money laundering — serious concerns for many governments.

The crux of the issue is that most public blockchains require a consensus of all participants to validate transactions. How can both sides — individual users and governments — achieve their conflicting objectives when they’re diametrically opposed?

A potential solution to this problem involves balancing the privacy concerns of users with the centralized oversight necessary for governments to ensure that regulations like Anti-Money Laundering, Know Your Customer and Combating the Financing of Terrorism are observed. Implementing measures for confidential transactions alongside those for governmental surveillance strikes a delicate balance in which cryptocurrency assets remain discreet yet subject to the laws governing finance around the world.

Related: Comparing money laundering with cryptocurrencies and fiat

Countering terrorism and money laundering

The government’s need to monitor cryptocurrency transactions for counterterrorism and AML purposes is critical for public safety, especially since these two areas are interrelated. Money laundering can be used to fund terrorist activities, which — like everything else — require funding, even if it doesn’t involve money laundering. Surveying the money flow between parties on popular cryptocurrencies like Bitcoin (BTC), Ether (ETH) and others can provide invaluable information for preventing these crimes. Regulatory bodies need insight into which parties are paying whom and why, at the very least.

However, cryptocurrency’s very nature makes it easy to mask these and other transactions. Bitcoin may be traceable with modern tools, but some transactions are completely untraceable with other cryptocurrencies. These legitimate concerns partly explain the formation of organizations like the Financial Action Task Force, which exists to counteract money laundering and terrorist financing, and whose efforts would greatly benefit from improved visibility into cryptocurrency transactions.

Related: A minister’s look at what regulators expect from the industry

Privacy matters

The general public’s privacy issues about using cryptocurrencies are, in many ways, opposed to the visibility the government requires for AML and terrorism efforts. People simply want to keep their business as discreet with cryptocurrencies as it is with conventional currency transactions. However, the transaction validation features of public blockchains can potentially expose this information, invading users’ financial privacy.

Related: Blockchain can provide the right to privacy that everyone deserves

The first element of a solution providing consumer privacy in tandem with governmental oversight is to redress this issue. There are confidential transaction features — some of which are used by cryptocurrencies Monero (XMR) or Zcash (ZEC) — that obfuscate the amount and participants of a transaction while still validating it for a blockchain. These cryptocurrencies provide measures to prevent people from knowing the origin, the destination and the amount of a specific transaction. These approaches assuage many of the privacy concerns of cryptocurrency holders.

Related: Dash claims ‘inaccurate categorization’ as ShapeShift delists privacy coins

Cryptocurrency surveillance

By pairing these privacy methods with the following ideas for cryptocurrency surveillance, governments can monitor activity for counter-terrorism and AML purposes. Say, for example, there is a cryptocurrency backed by an organization consisting of a finite number of banks. The first thing users would have to do is onboard with those institutions — much as they would with any other — which provides an initial layer of insight into cryptocurrency behavior while supporting mandates like KYC. Then, after users issue transactions to others enrolled in this organization, they would be obligated to disclose the details to one of the banking members for proof. This obligation can be enforced on the transactor by the use of cryptography so that the validators can ascertain that the disclosure has been correctly made.

Related: The data economy is a dystopian nightmare

Such an approach would enable the government to collectively ask each bank the particulars of a transaction so it can monitor the money flow. The government would therefore have central oversight courtesy of the individual financial institutions’ input. With this paradigm, the banks validate transactions, the government collects all the data for central analysis and surveillance, and consumer privacy is upheld among financial organizations and cryptocurrency users. There are additional cryptographic approaches that, when coupled with blockchain’s cryptographic underpinnings, can support this model for both privacy and regulatory adherence.

Related: You should care about decentralized identity in the wake of COVID-19

Cryptocurrency usage is rapidly evolving. It’s unacceptable for financial institutions to tell national or international regulators that they don’t know whether transactions are legitimate. It’s equally unacceptable to expose the financial prowess of legitimate users to everyone on a blockchain. 

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Debasish Ray Chawdhuri is the senior principal engineer at Talentica. Debasish is an IIT Delhi alumnus and a researcher who has worked closely with founders of high-growth startups and enabled the adoption of emerging technologies like Blockchain. He has published several research papers on privacy, cryptocurrency, smart contracts and cryptography on prominent platforms like IEEE and Springer. He also authored a renowned book on data structure and algorithms.