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How Governments Mining BTC 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

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.

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.

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