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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“The Death Of China’s Bitcoin Mining Industry,” 7 Takeaways From The Article

Did China make the mistake of a lifetime by banning Bitcoin mining or do they have a secret plan? That’s the question the whole Bitcoin ecosystem is struggling to answer. And today, we got another piece of the puzzle. In the article titled “It’s Over, It’s All Over” – The Death Of China’s Bitcoin Mining Industry,” a pseudonymous manager by the name of Ye Lang tells his story. And in that story, a bigger story is reflected.

Related Reading | Bitcoin Hash Rate Goes On Death Spiral Post China’s Crackdown On Miners

On May 21st, in a “meeting of the State Council’s Financial Stability and Development Committee, a top-level economic and financial policymaking body chaired by Vice Premier Liu He,” China decided to ban Bitcoin mining. Less than a month later, on June 19th, the Sichuan government ordered “the closure of Ye’s facility, along with 25 other cryptocurrency mining projects in the province.

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That story started like this:

Ye decided to jump on the Bitcoin mining bandwagon in 2018 when he closed down the majority of his internet café business, mortgaged his apartment in Anqing, Anhui province, borrowed money from relatives and left his wife and daughters to move to Sichuan

What can we learn from Ye’s first-hand experience?

1.- It Only Takes 80 Employees To Operate An 80,000 Bitcoin Miners Operation

At the peak of the facility’s Bitcoin mining operations, Ye was in charge of 80 employees and a total of 80,000 mining machines, with the entire project estimated to be earning more than 90 million yuan ($14 million) during the peak six months when Sichuan’s rivers are glutted and electricity is especially cheap

The numbers are staggering. Evidently, supersizing mining operations offers a huge advantage. Especially in regions with cheap electricity.

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2.- Clean An Renewable Energy Didn’t Save Sichuan

The fact that the electricity for crypto mining in Sichuan came from clean hydropower meant that many thought the province would be a safe haven for Bitcoin miners. As pressure on local governments to cut carbon emissions mounts, projects were successfully shuttered in some other provincial-level regions — such as Xinjiang and Inner Mongolia — where the mining was chiefly fueled by coal. 

The only thing we can know for sure about the Chinese government’s plan is this: the environment is not on their radar. They’re closing these mining operations for other reasons altogether. 

3.- Bitcoin’s Energy Use Is Not The Issue

The fact that the Sichuan crackdown was about to hit, confirms what everyone has known: the “justification” for cracking down bitcoin miners, the cold shoulder on bitcoin by social luminaries (such as Elon Musk) and the use of the ESG bullshit excuse that crypto is “dirty” have always been merely a socially-acceptable smoke screen for a regulatory crackdown on cryptos when they become too big.

Enough said. ZeroHedge nailed it on the head. 

It’s also worth noting that Nic Carter also nailed it on the head regarding China’s energy mix when it came to Bitcoin mining.

4.- Individuals Can Still Mine Bitcoin In China

Despite the government’s hardline approach, Ye is determined to carry on: “This industry is extremely volatile. High emotions and stress are involved, but that’s also its appeal. Companies are banned from mining Bitcoin, but individuals aren’t,” Ye said, adding that he plans to turn around his operation by purchasing old equipment and downsizing.

The Chinese government was only worried about industrial-sized private mining operations. The question is why. What are they planning? Nobody seems to have figured that out.

5.- One Owner Mined Between 70 and 80 Bitcoins Day

Another character enters the scene, the owner of the mine. We’ll call him Liu Weimin, also a pseudonym. 

Liu owned more than 10 Bitcoin mining farms, which industry insiders estimated accounted for one-eighth of the total electricity consumed by all Bitcoin mines in the province.

During peak seasons, Liu said his farms could mine 70 to 80 Bitcoins every day. About 900 Bitcoins are issued each day globally, according to an industry information platform.

Almost 10% of the total daily issuance seems like too much for a single individual. The Bitcoin world scored a huge win with the Chinese ban on Bitcoin mining. 

BTCUSD price chart for 08/03/2021 - TradingView

BTCUSD price chart for 08/03/2021 - TradingView

BTC price chart on Bitstamp | Source: BTC/USD on

6.- A Industrial-Sized Mine Can Break Even In A Year

“Mining farms are somewhat like conventional crop farms. No matter how the Bitcoin market changes, the mining process remains. Opening such facilities is a relatively stable investment, and I can generally break even in a year,” Liu told Caixin.

There’s no other business in the world that can give you that ROI. At least not among the legal ones. Food for thought for the young entrepreneurs out there.

Related Reading | How China Bitcoin FUD Is Lowering The Cost To Produce BTC

7.- Bitcoin Mining Used To Be A Respected Business In China

Thanks to the Sichuan government’s mining-friendly policies back then, Liu’s business continued to flourish for the past three years. He quickly made a name for himself, and was a frequent guest at government events and meetings, where he was recognized as one of many model energy consumers who had helped lift locals out of poverty.

From a respected businessman to a social pariah. It would be easy to feel sorry for Liu if he wasn’t on his way to restore his business.

Following the government’s May 21 crackdown announcement, he arranged teams of employees to scout for new venues in North America and Kazakhstan. In mid-June, his company bought an oilfield in Canada that could potentially provide fuel for his Bitcoin mining business.

So, why did China banned Bitcoin mining? We have no idea. We know, however, that their hold over the industry was already waning and that entrepreneurs are selling small hydropower stations. And we have both Ye and Liu’s stories. Is the picture clearer? Are we closer to the real deal?

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