Bitcoin: Why Uncle Sam’s Latest Move Could Mean Trouble for BTC Miners
- Bitcoin faces more headwinds as the US government prepares for another attack.
- The tax reportedly aims to encourage mining companies to pay for the environmental impact of mining
The US government has shown more aggressiveness towards Bitcoin [BTC] and altcoins in recent weeks. It’s now about to kick things up a notch if a newly introduced bill passes, and this time Uncle Sam is going for the underlying technology.
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A recent Whitehouse publication on the US President’s budget for fiscal year 2024 revealed that the government was looking at crypto mining. The budget contains a new proposal called the Digital Asset Mining Energy (DAME) Excise tax.
The latter is reportedly expected to apply a 30% tax on crypto mining companies as an environmental cost for the electricity used in crypto mining operations.
The government is attacking proof of work #bitcoin mining. solves this.
— Richard Heart (@RichardHeartWin) 3 May 2023
The publication suggested that the tax was intended to encourage mining companies to pay for the environmental impact of their mining operations. However, such a high tax could actually be aimed at harming the Bitcoin proof of work mining system, potentially slowing it down.
This is because such a hefty tax could force most US mining companies out of business or push them to other jurisdictions.
Assessing the potential impact on Bitcoin miners and hash rate
The latest Bitcoin mining data in 2023 revealed that the US accounts for approximately 34.5% of Bitcoin’s hash rate. This means that most Bitcoin miners are currently located in the United States, and most of the hash rate is contributed by companies that specifically focus on crypto mining.
The DAME tax will reportedly target institutions engaged in crypto mining. This means that Bitcoin’s hash rate could drop significantly if the new tax pushes such companies into a corner, forcing them to cease operations.
Alternatively, many of them may be forced to move their operations outside the United States. Individuals mining from home are unlikely to be affected.
How much is 1,10,100 BTC worth today
Bitcoin’s hash rate is likely strong enough to withstand a significant hash rate drop. This is because miners in other jurisdictions would pick up the slack. Earnings from miners are not likely to be affected as much, but the high tax is likely to eat away at the profitability of mining.
Source: Glassnode
The effect will also depend on the attractiveness of crypto mining. A recent increase in Bitcoin ordinal inscriptions led to a surge in network activity.
This subsequently led to more miner income and encouraged more miner participation, thus pushing up the hash rate. In other words, Bitcoin’s hash rate will balance itself just like it did when China banned Bitcoin mining.
