Cryptocurrency Miners Vote with Their Feet

Nicholas Anthony and Gabriella Beaumont-Smith

To say the last few months have been tumultuous for the cryptocurrency industry may be an understatement. But it’s interesting to consider how the cryptocurrency mining industry has proven resilient—at least in the face of legal and regulatory pressure. For instance, in June 2021, the Chinese government banned cryptocurrency mining, citing concerns over its effects on the environment. In response, entire companies simply closed up shop and moved to the United States and several other countries. Since then, the United States has attracted billions of dollars in foreign direct investment to build out cryptocurrency businesses—potentially providing new economic opportunities around the country.

Still, it appears that the White House wants the U.S. government to follow in the Chinese government’s footsteps. In a September 2022 report, the White House Office of Science and Technology Policy (OSTP) recommended that the administration should:

[Explore] executive actions, and Congress might consider legislation, to limit or eliminate the use of high energy intensity consensus mechanisms for crypto‐​asset mining. (Emphasis added.)

It’s not just the White House. The European Commission is also considering blocking cryptocurrency mining and Senator Elizabeth Warren (D‑MA) sent a similar message to the industry by initiating an investigation into cryptocurrency businesses operating in Texas. While these calls to ban cryptocurrency mining are often in the name of climate change, it is unclear whether banning the industry would help reach climate goals—especially given the ease at which miners can move. Advocates also argue that mining is becoming more energy efficient and the industry is looking to employ more renewable energy resources.

Despite the White House’s hostile approach and Senator Warren’s stated disapproval, other politicians have taken a different perspective of the industry. Both Texas Governor Greg Abbott and Senator Ted Cruz (R‑TX) have continued to welcome cryptocurrency mining investment in the state. But even without their support, Texas’s deregulated power grid has made the state a hotspot for miners. Similarly to Texas’s Governor Abbott and Senator Cruz, Senator Cynthia Lummis (R‑WY) has been vocal in her support for the cryptocurrency industry in both legislation and the media, but also the state’s favorable laws and regulations make it an attractive place to invest.

These two states illustrate the importance of jurisdictional competition—favorable tax and regulatory environments encourage investment in those states over others. This idea extends to the global level, as evidenced by China’s ban on cryptocurrency transactions and mining as the industry simply moved to places it could survive and grow. If the United States and European Union followed suit, it would quickly send the nascent cryptocurrency industry (and its investment in the economy) across borders once again. While some operations remain in China illegally operating underground, the vast majority chose not to risk it and moved. As Senator Sherrod Brown (D‑OH) acknowledged shortly after the fall of FTX, “Banning [cryptocurrency] is very difficult because it will go offshore and who knows how that will work.”

To get a better understanding of the resiliency of this industry, one can look to the global Bitcoin mining activity (measured by the hash rate) in the wake of the cryptocurrency crackdown in China. Due to the sheer volume of miners located within China at the time, it was no surprise to see global mining activity plummet in the wake of the bans on both cryptocurrency mining and trading in the summer of 2021 (Figure 1). But more importantly for the present discussion, it was also no surprise to see activity fully recover by the start of 2022.

More than anything, this resiliency speaks to the unique abilities of cryptocurrency miners. Few industries are able to “vote with their feet” to the same extent as miners. Moving a home mining setup is about as easy as taking a personal computer to a new location. Moving an industrial mining setup is just a matter of loading hundreds, or maybe thousands, of computers into a shipping container. In fact, in the initial wake of the Chinese government’s crackdown, one mining company posted a video of a passenger plane filled with mining computers.

That level of mobility is precisely why so many mining companies not only resumed normal operations but did so in new countries (Figure 2). Chief among the new homes for miners was the United States.

To be clear, the takeaway for policymakers is not to bend to the industry’s every whim. But just as government handouts should not be the driving force behind an industry’s success, neither should unnecessary government crackdowns be the driving force behind an industry’s demise. Banning cryptocurrency mining in any particular country would have little impact on climate change goals because miners will move to another location. Therefore, given that cryptocurrency mining is so resilient in the face of legal and regulatory uncertainty or even pressure, banning cryptocurrency mining only serves to push out investment and opportunity. As 2023 gets off the ground, policymakers would be wise to keep this reality in mind.