Texas could become a cryptocurrency hub

by | May 27, 2021 | Economy, Policy

There’s a new gold rush in Texas. It’s not for oil or natural gas, but for cryptocurrency. Two new Texas-based Bitcoin mining facilities have been announced in just the past week. One is from Marathon Digital Holdings in partnership with Compute North, while the other is being built by Chinese firm Bit Mining Limited in partnership with Bitdeer.  

You may have been hearing a lot about cryptocurrency lately, especially Bitcoin. Cryptocurrencies or crypto are digital currencies and most of them use a technology called blockchain. With blockchain, the ledger is distributed across an entire peer-to-peer network. To put it simply, everyone is keeping track of what everyone else is doing at all times. This makes blockchain very difficult (but not impossible) to tamper with. You can watch this video if you want to know more about how cryptocurrency works. 

Cryptocurrencies have exploded in recent years, with a total market cap of well over $1 trillion. Bitcoin is currently the leading cryptocurrency, although other coins like Ethereum and Dogecoin have made their mark. The benefit of cryptocurrencies is their decentralized nature; they’re not controlled by a single bank or government. There are no fees or limits and middle men are not necessary. Money can be moved much faster, especially across borders, than with wire transfers. And it’s easier to stay anonymous, meaning cryptocurrency can be used for all sorts of illegal activities from ransomware to drug dealing to tax evasion (it should be noted that cryptocurrency isn’t completely anonymous though). 

While cryptocurrency can be used for everything from smart contracts to buying Dallas Mavericks tickets, a lot of people have treated it as an investment. This speculation has led to cryptocurrencies skyrocketing in value over the past year. For example, Bitcoin has gone from under $10,000 in May of 2020 to a high of more than $63,000 in April of 2021. Even though Bitcoin’s price has crashed over the past few weeks, you would still have a return of nearly 400 percent if you bought it a year ago; if you bought it several years ago the returns would be astronomical. There are stories of people becoming millionaires literally overnight by investing in cryptocurrency, although there are also cautionary tales of people falling prey to scams and losing everything in the frequent price swings. 

Given how much Bitcoin is now worth, as well as the fact that there’s a hard cap to the amount of Bitcoin that will ever be in circulation (which in theory provides a check against inflation), it’s no surprise that firms are paying top dollar to mine it. To give you an idea of how much Bitcoin miners are investing, Bit Mining’s Texas facility will cost $25 million. “Mining” is the process by which new cryptocurrency is created, in other words you get it without having to pay for it with normal money. However, this process requires a lot of computing power and energy; it’s estimated that Bitcoin mining uses more electricity than Argentina.

Previously, most Bitcoin mining was done in China thanks to dirt cheap electricity. However, that’s starting to change for a couple reasons. First, the Chinese government is cracking down on cryptocurrency. Second, there are environmental concerns regarding the energy-intensive nature of cryptocurrency. Most of China’s energy still comes from coal and Elon Musk recently tweeted that Tesla would no longer accept Bitcoin as payment because of its use of fossil fuels. Some estimates say that Bitcoin gets as much as 74 percent of its energy from renewable sources, although most of this is likely from hydropower which comes with a lot of negative effects on the environment. The twin shocks of China’s crackdown and Musk’s tweet is a large part of why the price of Bitcoin and other cryptocurrencies crashed.

Texas appears to be an ideal alternative as Bitcoin miners leave China. The state has cheap and abundant energy, and in spite of Texas’ association with fossil fuels much of its electricity comes from clean, renewable sources. Texas already leads the nation in wind power and is second in solar, perfect for Bitcoin miners seeking to move away from fossil fuels and hydro. Indeed, Marathon Digital claims its Bitcoin mining facility will be 70 percent carbon neutral while Bit Mining says its Texas Mining Center will get 85 percent of its power from “clean and low-carbon energy.”

Furthermore, Texas has a regulatory environment that’s increasingly friendly to cryptocurrency. The Texas House has already passed HB 4474, a bill that recognizes cryptocurrency under the state’s commercial law. Greg Abbott has indicated his support for the bill and expressed a desire for Texas to be a leader in cryptocurrency. Wyoming is currently considered the most crypto-friendly state (it’s already passed a law similar to HB 4474) but should the bill pass then Texas could come closer to catching up. Add in Texas’ abundant renewable energy (electricity in Wyoming is actually slightly cheaper than in Texas but most of it comes from coal) and it’s not hard to imagine the Lone Star State displacing Wyoming as the leading cryptocurrency state. 

It’s difficult to tell where cryptocurrency will go from here. Some have decried Bitcoin and other cryptocurrencies as nothing more than a fad or even a ponzi scheme. Indeed, the recent price plunge seems to lend credence to this argument. Yet cryptocurrency has gone through crashes before, and each time it’s recovered and then some. Maybe it will be different this time but it’s also very possible that cryptocurrency is here to stay. While it is volatile, many investors with “diamond hands” are willing to “HODL” and “buy the dip” in hopes of financial gain. FOMO (fear of missing out) is driving not just normal people but also billionaires and institutional investors to jump into the crypto game. And should Bitcoin and other cryptocurrency reach new highs, then it may be Texas that leads the digital gold rush.     

Full Disclosure: I’ve invested in Bitcoin, Ethereum, and Solana. I already sold my Dogecoin

Washington Correspondent | + posts

William serves as the Washington Correspondent for the Texas Signal, where he primarily writes about Congress and other federal issues that affect Texas. A graduate of Colorado College, William has worked on Democratic campaigns in Texas, Colorado, and North Carolina. He is an internet meme expert.

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