When it comes to Bitcoin Mining, U.S. is now the New China

14 Oct, 2021
When it comes to Bitcoin Mining, U.S. is now the New China

What a difference a year makes, especially for Bitcoin mining operations in the U.S.

China’s crackdown on mining operations, announced in May, has become a boon for States.

Consider this: In September 2020, just 9.6 percent of the hashrate or computational power for the world’s largest cryptocurrency was coming from the U.S., according to the Cambridge Centre for Alternative Finance, which tracks the hashrate for Bitcoin mining. That number skyrocketed to 42.7% in August, a 428% increase representing one third of all Bitcoin mining globally, Cambridge reports. Kazakhstan was second with a hashrate of about 22%.

Alternatively, China’s hashrate was almost 80% in March and plummeted to 10% in July after the government banned mining operations. The report does not indicate any mining operations in China for August.

For those who follow crypto and mining in particular, this flip comes as no surprise.  The U.S. mining operations have been gearing up for the past few years.  The China ban accelerated “The Great Migration” of mining to the U.S.  and a global shift in the business of mining coins.

Where are they going?  To states noted for their abundant – and sometimes – renewable energy sources, including New York, Kentucky, Georgia, and Texas respectively, according to a Foundry USA report. “It doesn’t matter if lawmakers aren’t too keen on crypto miners, just so long as you have cheap energy you can buy at scale, people want to be there,” said Mackenzie Sigalos, CNBC Technology Reporter.

Texas Opens its Doors to Miners

While Texas ranked fourth in the Foundry study, some analysts think the state is leading the way in building mining operations.  With plenty of natural gas and a crypto-friendly governor, the state offers cheap power and incentives for companies to relocate there.

In fact, one of the largest crypto mining operations is based in Rockdale, Texas, which sits about 160 miles from Dallas. The facility, which was built by Whinstone, is now owned by RIOT Blockchain (RIOT), one of the largest Bitcoin mining operations in the states. The company reported In September 2021, it produced 406 BTC, an increase of approximately 346% over its September 2020 production of 91 BTC.

The 100-acre Whinstone complex is the equivalent of three football fields, according to a CBS News report from Dallas, and construction on more buildings is underway.

“Our job is to build the infrastructure for the backbone of Bitcoin in North America, and we are doing it every day,” said Whinstone CEO Chad Harris,” said in the report.

While the operations may bring jobs and revenue to the state, some worry about the amount of energy mining operations consume, as “when in full operation, the Whinstone facility uses the same amount of electricity as 150,000 homes,” the CBS report noted. After this winter’s storm in Texas, which stressed the power grid and left at one time more than 4.5 million homes without power resulting in more than 50 deaths, mining operations are cause for concern. But the ability for these massive facilities to shut down when necessary or sell back electricity to the power grid is also feasible.

New York offers cheap hydro power

While the abundance of natural gas is attracting mining operations to Texas, New York has its own powerhouse – hydropower.  From Niagara Falls to the St. Lawrence River Seaway, the state is known for this source of renewable energy.

Hydropower is what attracted mining company Coinmint to build what it calls the “largest digital currency data center in the world” in a former Aluminum smelting plant in Massena, New York.  The small town, with nearly 17,000 residents, boasts its own municipal power company which provides some of the lowest electric rates in the nation.

“Given the abundance of hydroelectric and wind generation in the area, the experience of its management team in wholesale electricity markets, and the historically large scale in terms of capacity, Coinmint has a material electrical economic advantage,” the company’s website states.

“This appetite for electricity also explains why Plattsburgh and other North Country communities are so attractive to miners of Bitcoin and other forms of cryptocurrency,” The Albany Times-Union reports. “These towns have long-standing agreements with the New York Power Authority to get cheap hydroelectric power from the dams along the St. Lawrence River.”

Kentucky Offers Bitcoin Mining Incentives

Known for its abundance of coal, Kentucky is working to attract mining operations by providing financial incentives.  Effective July 1, the new law “provides sales and use tax exemptions on the tangible personal property directly used and the electricity used in commercial mining of cryptocurrency.”

“As bitcoin becomes increasingly derisked through institutional and retail adoption, more states will likely realize that they can benefit from attracting the industry,” Nasdaq.com reported. “Kentucky sees its access to cheap power as a competitive advantage in this realm.”

While mining companies rush to expand their operations in the U.S., there are still hurdles for the crypto industry to overcome.  Eyes are still on the U.S. Infrastructure Bill, which includes a cryptocurrency provision that could impact how miners are defined in terms of tax laws. And a team of regulators is expected to soon release its report on crypto with potential recommendations on a regulatory framework. As the Federal Reserve chairman stated earlier this month, the U.S. has no plans to shut down crypto in the U.S.  And that may be the biggest incentive of all for mining companies to set their fortunes on the states.

Joyce Pavia Hanson