first level title

United StatesUnited States

Since the beginning of this round of bull market, thanks to the relatively stable political and regulatory regulations in North America, as well as the rapidly maturing public and private capital market structures, the focus of cryptocurrency mining (especially Bitcoin mining) has begun to shift to North America. Out of China from May 17-21, 2021"Cracking down on Bitcoin mining and trading"This trend is irresistible. To understand what this specifically means for the U.S. cryptocurrency mining industry, and gain insight into which U.S. states are poised to benefit the most from this event, we should first discuss the regulatory environment at a macro level.

In general, the generally applicable rules regarding cryptocurrency mining in the US are simple: if you are allowed to own cryptocurrency in a state, you can also mine cryptocurrency in that state.At the state and sub-state levels, the details of mining permits vary widely, ranging from highly prohibitive to supportive.Arizona, for example, passed a bill in 2018 restricting miners from mining cryptocurrencies in private homes; while New York is currently considering a three-year moratorium on all cryptocurrency mining operations. Kentucky, on the other hand, recently passed two bills designed to incentivize cryptocurrency mining, offering strong property, electricity, and wage tax exemptions or rebates for the commercialization of cryptocurrency mining.

While several cryptocurrency projects are facing lawsuits due to their securities-like properties (e.g. SEC v. LBRY, SEC v. Ripple), the US government, in general, has taken a positive stance on the legality of cryptocurrencies. In the United States, whether a token of a particular blockchain project should be classified as a security generally depends on the application of the Howey Test, but the existence of legal gray areas is still evident. The U.S. Commodity Futures Trading Commission (CFTC) determined in 2014 to define virtual currencies such as Bitcoin as commodities under the Commodity Exchange Act (CEA). In 2018, the CFTC went a step further, affirming that it has the right to use cryptocurrencies as a CEA regulated currency through the case of CFTC v. My Big Coin Pay, Inc."commodity"To regulate.

In addition to the U.S. Commodity Futures Trading Commission (CFTC), the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has also played a key role in issuing guidelines for cryptocurrencies—especially in combating their illicit use.

Another organization under the U.S. Department of the Treasury, the Office of Foreign Assets Control (OFAC), has spearheaded enforcement of U.S. sanctions laws by continuously updating OFAC’s list of Specially Designated Nationals (SDNs), which includes digital currency wallet addresses of prohibited individuals, companies, and entities. . Recently, Marathon Digital Holdings (NASDAQ: MARA), a large listed company in North America, mined the first"Compliant with OFAC requirements"compliance"compliance"Block’s behavior caters to prudent investors and tries to stay one step ahead of regulators when it comes to compliance. This can be seen as a pre-emptive KYC/AML case applied to the mining sector, and it is the first example of this approach.

Know-your-customer (KYC) and anti-money laundering (AML) requirements have been a staple of the U.S. crypto financial services industry. Any Coinbase or Kraken account registrants are required to provide personally identifiable information (PII, typically including national ID numbers, selfies, and photos of government IDs) to satisfy KYC/AML regulatory requirements. Given the mining industry's role in generating cryptocurrencies, we expect increased regulatory scrutiny of the mining industry as Bitcoin's ability to enable some entities to circumvent U.S. financial controls is boosted, as well as the growing energy demands it generates. Perhaps one day miners and mining pools will be pressured to only mine"green block"(blocks mined by carbon-neutral or fully renewable mines) and/or OFAC compliant blocks (blocks verified not to include any transactions on the SDN list or other sanctions lists). Some even guessed (or hoped) that while keeping the"Clean UTXO" (unused transaction output) and"Unclean UTXOs "The technical feasibility of meaningfully segregating remains to be confirmed, through these"cleaning block"The block reward for Bitcoin entering circulation will one day have a premium.

Taking a step back, Marathon's OFAC compliant blocks and the narrative around clean and compliant blocks more generally are indicative of an increasingly complex regulatory environment in the U.S., while investors, miners, and mining pools in the U.S. are paying more attention to these develop.

Although there are already a large number of institutions involved in regulating the U.S. cryptocurrency ecosystem, regulatory uncertainty remains high. In his testimony to Congress, SEC Chairman Gary Gensler highlighted his concerns about a lack of regulation leading to a lack of protection for investors around bitcoin trading. In testimony on May 6, he said that, in fact, Congress has a responsibility to provide regulatory clarity, something that neither the SEC nor the CFTC has been able to do adequately, especially when it comes to cryptocurrency exchanges. Some in the bitcoin industry support increased regulation (particularly large financial services firms, who would benefit significantly from greater regulatory certainty), but perhaps influenced by previous scandals such as GameStop/Melvin Capital/Robinhood, others think"investor protection"is the regulator"Price fixing and irresponsibility"euphemism.

first level title

Washington

first level title

New YorkNew York

New York state, home to one of the largest mining operations in the US (Greenidge Generation), recently introduced a bill seeking to suspend all cryptocurrencies amid growing concerns that mining conflicts with the state’s aggressive environmental goals Mining for three years. The bill would force all crypto mining operations to shut down while conducting an environmental impact study, so it has threatened Greenidge’s recently approved plan to increase usage capacity from 19MW to 106MW by 2022. Environmental groups Earth Justice and the Sierra Club are reportedly pushing to lobby for a ban on cryptocurrency mining in the state, arguing that allowing Greenidge's expansion could trigger the 30 or so other similar operations in New York. Power plants follow suit. In response to the proposed legislation, Greenidge Generation announced its plan to purchase carbon offsets to achieve full carbon neutrality by June this year. This is noteworthy for several reasons: First, it demonstrates that mainstream mining businesses are able to react quickly to changing regulatory winds in a way that is unusual in most industries - from the bill's announcement It took just a week to launch its carbon credit program; moreover, it shows that miners are in good financial shape given Bitcoin’s current profitability. The speed at which Greenidge has announced its move to carbon neutrality shows that it is economically feasible to achieve full carbon neutrality.

It remains to be seen what impact Greenidge’s announcement will have on the bill’s passage, but the incident highlights the instability of cryptocurrency regulation in New York and the outsized impact it could have on the mining industry. Some cryptocurrency trade association insiders worry that New York's moratorium is just the first shot. For them, if regulators in New York succeed in shutting down cryptocurrency mining, these opponents will continue to export the rules of the game to other regions, which will become a period of free fire on cryptocurrency mining. This type of legislative and regulatory dissemination is not without precedent. For example, Wyoming’s cryptocurrency regulatory framework has provided a rough blueprint for several other states and cities struggling to explore the benefits of regulating cryptocurrencies as a whole.

It remains to be seen whether this rule of the game will spread, but the moratorium bill is consistent with the prevailing cryptocurrency regulatory environment in New York, which includes the much-maligned"Bitcoin License". Despite its lead author, former New York State Department of Financial Services (NYDFS) head Benjamin Lawsky, who had high hopes for a Bitcoin license, due to its"Overly broad and poorly defined rules"first level title

Texas

The regulatory environment in Texas looks very different from New York. More recently, Texas has become a mecca for bitcoin mining thanks to its business-friendly regulatory and tax environment, as well as its renewable and natural gas energy infrastructure. As natural gas becomes"ESG friendly"first level title

Kentucky

Kentucky is another state that has recently made headlines for its bitcoin-friendly regulatory and tax environment. Governor Andy Beshear recently signed two bills designed to incentivize bitcoin miners to invest in Kentucky businesses. Both Senate Bill 255 and House Bill 230 aim to do just that. The SB255 bill is defined as an investment of more than $1 million and other conditions (defined as"alternative fuel facility"、"Energy Efficient Alternative Fuel Facilities"、"or"or"carbon dioxide transfer pipeline"first level title

Wyoming, Wyoming

Wyoming is emerging as a national leader in innovative cryptocurrency regulation. The state’s crypto-friendly policy environment is thanks in part to politicians like Sen. Cynthia Lummis (R-WY), an outspoken Bitcoin advocate and possibly the first official Twitter avatar in history. Incumbent U.S. Senator pasting Retinazer (a recent trend among North American cryptocurrency enthusiasts). Residents of Wyoming have also played a role in pushing pro-crypto legislation in the state. For example, Caitlin Long, founder and CEO of Avanti Bank and Trust Company, ended her decades-long career on Wall Street to work on the Wyoming Blockchain Task Force, helping lawmakers draft 13 blockchain and Cryptocurrency-related laws provide the state with a business-friendly regulatory framework. This comprehensive set of laws clarifies the property rights of digital assets and creates a financial technology"Sandbox"To incentivize innovation and create a new type of depository institution designed specifically for the cryptocurrency industry. Kraken Bank and Avanti Bank are both new startups"state chartered depository institution", is currently conducting compliance checks with various federal banking regulators.

first level title

Florida

As mentioned above, most of Wyoming’s developments have occurred at the state level, while Florida’s biggest news in the crypto space came from the city of Miami. Here, Mayor Francis Suarez is trying to position the city as America's new tech and cryptocurrency hub. On the city level, Mayor Suarez has made several important announcements regarding his plans to use bitcoin as a payment method for municipal transactions, including allowing Miami city employees to pay in bitcoin and Miami residents to pay for their property in bitcoin Taxes and city fees. Specific to mining, Suarez has repeatedly stated that he hopes to make Miami a"green"The center of bitcoin mining. In an interview with Newsweek, Mayor Suarez showed his intent to compete with other crypto-friendly states, saying he proposed the resolution “because we’re looking at states like Wyoming making sure we have the most advanced cryptocurrency.” law".

first level title

Other Notables

This spring, Scott Conger, the mayor of Jackson, Tennessee, was the second US mayor to add Retinazer to his Twitter profile picture at the same time as he announced his intention to pay city employees with bitcoin, which he said might Start mining and holding Bitcoin on Jackson's balance sheet.

Similar to Wyoming's own legislation, North Dakota's Senate Bill 2328, which passed 44-3 last month, would cut the state's extraction tax on wells installed with natural gas flaring mitigation systems. The bill is currently under consideration in the House of Representatives. Also notable is the North Dakota city of Williston, which recently became the third city in the nation to accept cryptocurrencies for utility bill payments. A Crypto Custodian Act and a Study"Virtual currency business activities"The bill is also in North Dakota's legislative pipeline.

Finally, in a symbolic move, the Louisiana House of Representatives recently passed Resolution 33, which"praise"Various well-known features of Bitcoin, including being"An essential tool for citizens around the world to protect themselves from currency debasement". While the resolution has no practical impact, it is worth noting that its language is intended to"first level title"。

Bitcoin from the bottom up

Bottom-up innovation in the regulatory space is driving the adoption of cryptocurrencies in the U.S. federal system, with state and sub-state municipalities developing regulatory frameworks and learning from each other, in stark contrast to the current situation in China.

The competition among US states to attract bitcoin mining operations is heating up, and it will be interesting to watch how each jurisdiction takes advantage of the opportunity to shape the bitcoin mining landscape in North America in the coming years. Regulatory decisions and legislation at the state level have had a substantial impact on private and public capital markets, and industry analysts are now factoring in regulatory risk and giving it more weight in their valuation models. Public mining companies that see their valuations fluctuate wildly depending on the political winds in their states have an increasing incentive to choose and move to more stable and predictable areas. The ongoing flow of miners to Texas and cryptocurrency companies settling in Wyoming is proof that it is already happening.

In the global mining landscape, more and more investors are looking to deploy capital within the United States because of the environmental sustainability, regulatory predictability and friendly tax treatment discussed above. Now, in the mining industry, it is not uncommon to see discussions around investors tired of traditional mining hotspots such as Kazakhstan, Russia and China in favor of the US and Canada. To be sure, access to cheap renewable energy is growing in North America as wind, solar, hydro and flaring natural gas continue to come online, but as we have seen recently in China, legal and regulatory It is also important to consider. Specifically, considerations of legal recourse tend to be prioritized due to the mature contract law in the US, the emerging cryptocurrency-specific regulatory framework, and world-leading property rights in the US. This will have a trickle-down effect across the US federal system. As foreign direct investment interest in the U.S. increases, states with favorable regulatory and tax frameworks in place, coupled with an abundance of cheap and clean electricity infrastructure, will be the first movers in this incredibly capital-intensive sector. greatly benefited.

All in all, the competition among the states for cryptocurrency and mining dominance, and the growing interest in the US from mining operations and investors around the world, is very promising for North America to continue to be the global leader in the cryptocurrency mining industry. Most importantly, we believe these developments are beneficial to the health and continued decentralization of the Bitcoin network and other proof-of-work cryptocurrency networks. Our views may be subjective, but Luxor is bullish on the long-term development of the North American mining industry.