Crypto Gains Justify Bitcoin Mining Boom in the Wild West

Bitcoin has gained significantly this year as cryptocurrencies remain unbowed by the latest regulatory crackdown.

Bitcoin, the largest crypto by market capitalization, has resumed its pushback towards US$30,000, a level not reached since June. Its price has grown by about 70% this year.

Partly because of recent problems in traditional financial institutions, people are paying more attention to crypto futures and options.

This has caused the prices of digital assets to go up and the volume of derivative trading to go up.

That despite regulators cracking the whip on the crypto industry.

The US Securities and Exchange Commission (SEC) has announced charges against Justin Sun and three of his wholly owned companies, Tron Foundation, BitTorrent Foundation, and Rainberry (formerly BitTorrent).

Chris Newhouse, a derivatives trader at crypto investment firm GSR, said, "a move below US$25,000 or above US$30,000 probably would've seen increased volume in the derivatives markets and more speculative bets start to take place."

That surge has finally justified a mining boom in the Wild West.

According to a leading trade group, the fact that cryptocurrency miners use more electricity has not stopped the growth of the industry in Texas, even though there are worries about how the industry will affect the state's electricity grid.

Lee Bratcher, head of the Texas Blockchain Council, says that bitcoin miners use around 2,100 MW of the state's power supplies.

Bratcher reported a 75% increase in electricity use over the past year or nearly a tripling over the previous 12 months.

Such needs account for around 3.7% of the lowest predicted peak load in the state for this year, according to statistics provided by the Electric Reliability Council of Texas (ERCOT), the grid operator.

Bratcher added that "there have been some challenges with the Bitcoin mining industry," after two major members of his organisation declared bankruptcy and other miners reduced their development plans.

Digital Assets Mining Tax

There are also requests for a regulatory framework from the US Treasury secretary and the commodities regulator, as well as a proposal for a 30% tax on the amount of power used for crypto mining.

Late last year, the state of New York passed a law prohibiting the use of fossil fuels to power bitcoin mining operations.

The trend is likely to spread to other states.

Really the "Wild West"

But, Texas' wind and solar power might meet around 39% of ERCOT's energy demands in 2023 because of tax incentives granted by some counties and the continued attraction of miners.

Matt Prusak, chief commercial officer at crypto miner U.S. Bitcoin Corp said, "bitcoin mining is a very energy-intensive business, which is why we tend to find places like West Texas to be full of Bitcoin miners."

His latest retweet was:

A 280-megawatt (MW) wind farm in Texas is home to Prusak's U.S. Bitcoin Corp.'s mining activities.

In the last month, the firm's McCamey, Texas, facility used 173,000-megawatt hours (MWh) of electricity, with almost 60% coming from the grid and about 40% coming from the adjacent wind farm.

The Energy Information Administration (EIA) estimates that a typical US household consumes 10 MWh annually.

The potential for increased crypto demand has prompted fears in Texas, where over 250 people lost their lives during a winter storm outage that revealed the vulnerability of the state's power system.

Joshua Rhodes, a research scientist at the University of Texas at Austin, said, "There are a lot of Bitcoin mines that are trying to connect to the system."

His latest retweet reads:

Rhodes' latest LinkedIn post:

Sustainable Bitcoin Protocol on LinkedIn: Crypto is here to save the grid. Or crash it.

“#Bitcoin has long been criticised for its energy consumption, but we’re turning that perception on its head. By creating a verifiably climate-positive asset…

LinkedInSustainable Bitcoin Protocol

"If all of them were to connect in the timeline that they are looking to connect, then it probably would present an issue to the grid because that load would be growing way faster than it ever has before," added Rhodes.

Like what you read? Our weekly Business Bulletin wraps up the most important business and economic developments in the industry, along with macroeconomic views and opinions. To avoid FOMO and access member-only features, click here to subscribe. It's free.