In early March, the US Treasury announced plans to levy a 30 percent tax on crypto mining in the US. In addition, the US Treasury has announced that all crypto mining companies will be required to submit detailed reports on their electricity consumption. As expected, this is widely known as bad news for Bitcoin (BTC 2.66% ) miners.
But how will the new crypto mining tax affect the value of Bitcoin in the future? After all, the US is now the leading Bitcoin mining country in the world, so any negative impact on US-based miners will have a huge impact on the Bitcoin ecosystem as a whole. Here's a detailed look at three different scenarios and how they might play out.
Scenario 1: The best.
The good news, if you want to call it that, is that taxes on Bitcoin mining operations won't go into effect anytime soon. This is standardized over three years with 10% annual growth. This theoretically gives crypto miners the ability to adapt to new realities. You have two main choices: move overseas to a new crypto-friendly jurisdiction or use clean energy sources that use the least amount of electricity.
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This situation has happened before and had no lasting effect on the price of Bitcoin. For example, China's ban on crypto mining, which originally took effect in 2019, was intended to devalue Bitcoin, but it didn't. At the time, China accounted for more than half of global crypto mining activity. Bitcoin miners are simply taking their jobs and moving to countries with more energy resources, including Canada, Kazakhstan, and the United States. In addition, many of the large Bitcoin mining operations today are considered relatively environmentally friendly in terms of energy consumption. Instead of relying on fossil fuels, they use solar, wind and geothermal heat.
So, in this case, there won't be much problem with the price of Bitcoin. Bitcoin's long bullish history remains intact, and the world's most popular crypto will remain relatively unfettered on its long journey to all-time highs.
Scenario 2: The worst.
The bad news is that the new crypto tax is an "excise tax," which is usually a type of tax on products that the government doesn't want you to consume, such as alcohol or cigarettes. As the US government stated in September 2022, it is concerned about the negative effects of crypto mining on the environment.
As a result, miners are not driven by their profitability, but by how much energy they use. There is no escaping this tax, and the inevitable result could be a disturbing example of high-profile bitcoin mining failures. Bitcoin miners are already having a hard time and this new 30% tax could be a death sentence for all but the biggest and most profitable miners.
If the Bitcoin mining industry becomes more centralized and only a few major players remain, Bitcoin could have a real impact on global usage. Finally, Bitcoin miners are used to validate new transactions and add new blocks to the Bitcoin blockchain. Without real competition, this process can take longer or be more expensive for many transactions.
In this scenario, the price of Bitcoin may face some resistance. Maybe investors will move away from cryptocurrencies like Bitcoin that require mining. Instead, they accept fully proven stocks like Ethereum that require no mining. In fact, this could become the catalyst for the legendary "leap" at the moment when Ethereum's market cap exceeded Bitcoin's market cap.
Scenario 3: The ugly.
This latter scenario is too painful for many Bitcoin bulls to accept. Let's say Bitcoin mining concentration becomes too high and eventually one Bitcoin miner finds a way to control 51% of all Bitcoin mining activity. In this situation, Bitcoin may be facing an existential crisis. As crypto textbooks point out, this can lead to the "dreaded 51% attack," which is one of the worst things that can happen to a blockchain. In this case, the Bitcoin blockchain could stop working, which would have dire consequences for the price of Bitcoin.
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Right now it seems like the only crypto mining stocks worth buying are the greenest, cleanest, and most eco-friendly. Let's say you're thinking about buying crypto mining stocks. If so, it's time to stop focusing only on profitability and income and consider energy consumption, as only an environmentally friendly bitcoin miner will do. So the history of the bitcoin miner is pretty short and dry.
More complicated is the outlook for Bitcoin, which has come a long way in its 14-year history. With each new level of knowledge, it finds ways to innovate thanks to its highly decentralized network and passionate user community. While there is no doubt that the Bitcoin mining industry is only going from strength to strength, the "bad" and "ugly" scenarios described above will likely take years, if not decades.
So I'm still bullish on Bitcoin's long-term future. But I'm hedging my bets by taking a closer look at clean, energy-efficient, and viable cryptocurrencies that could eventually replace Bitcoin as the preferred crypto payment option worldwide.