Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on policy and regulation.
On Sunday, the clickety-clack of thousands of keyboards typing “control-F” could be heard across the country as crypto proponents searched through the new 99-page House bill designed to avert a U.S. default.
Earlier in May, President Joe Biden had proposed a 30% tax on Bitcoin miners, threatening to tack it on to debt ceiling negotiations. To the immense relief of the industry, the excise was omitted from the draft, with crypto booster Rep. Warren Davidson (R-Ohio) tweeting that one of Republicans’ victories had been blocking the measure.
Bitcoin mining remains a lightning rod of controversy in crypto—a physical manifestation of the otherwise digital sector that guzzles energy at the magnitude of medium-sized countries in order to, as detractors love to say, solve a glorified Sudoku puzzle. No matter how much Bitcoiners talk about grid optimization and renewable development, mining will always be an easy target for politicians seeking to highlight the dangers of the industry. Biden’s tax is far from dead.
I spoke with Fred Thiel, the CEO of Marathon Digital Holdings, at Bitcoin Miami, where mining companies are still treated as sacred defenders of the blockchain. He expressed skepticism that Biden’s proposal would hold much constitutional water, as it would be a novel way of applying a kind of vice tax to different kinds of energy consumption. “The minute you, as the government, start putting a value judgment on how people use energy, it’s a problem,” he told me.
Even so, as the head of a publicly traded company, Thiel has to plan for all possibilities. He said that Marathon has a resiliency model built on not having a concentration in any geolocation, which means not having its operations limited to any single state or country. Thiel said that Marathon is exploring generating its own energy rather than relying on the grid, which he thought would exempt it from any future tax. And a week after the Biden administration released its proposal, Marathon announced a partnership to create a mining facility in Abu Dhabi. (The company is also facing a Securities and Exchange Commission subpoena related to stock issuance for its Montana facility, though Thiel shrugged it off as an information request.)
A few days ago, I met with Gregory Beard, the CEO of Stronghold Digital Mining, in the company’s Midtown Manhattan office. The firm has taken a markedly different approach, operating two facilities in Pennsylvania powered by coal refuse, a waste material that the state pays companies to "reclaim." Beard said that Stronghold’s unique model, where the company doesn’t rely on the grid and instead functions as a power plant, would exempt it from Biden’s tax proposal, although the language is far from clear.
In Beard’s view, Biden’s proposal was just a move to divert attention from the administration’s own energy policies on renewables, which he said haven't made a dent in power prices. “So, who do you blame?” Beard asked. “Let’s blame the energy-hungry crypto kings.”
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
