The Biden Administration's proposed 30% tax on electricity use for digital asset mining operations is raising concerns among crypto miners that they could be priced out of operating in the U.S. market communities.
Crypto miners in the United States represent over 29% of the total nodes on the Bitcoin network. But that percentage may fall if costs increase and other locations become more attractive.
One emerging option is the Middle East region, where taxes tend to be lower, energy is often bountiful, and environmental regulation is generally less onerous.
The Oman government has invested more than $800 million in crypto-mining operations. The UAE’s 400 megawatts of Bitcoin mining is about 4% of the global Bitcoin mining hashrate, according to data from the Hashrate Index. Migration to the energy-rich region could favor U.S miners, backers in the region claim.
“Compared to the U.S., the south of Oman has a few geopolitical advantages that are unique. It is very good for connections, as it’s next to submarine cables landing. It has, low [cost] electricity, reduced political risk, and favorable weather conditions for data centers,” said Olivier Ohnheiser, CEO of Green Data City, an Oman crypto-mining firm, told CoinDesk during Bitmain’s World Digital Mining Summit in Oman at the end of March.
Green Data City last year struck a $300 million deal with Phoenix Group – the largest digital asset mining firm in the UAE – to set up a 150-megawatt crypto farm in Salalah, southern Oman. The plant, for Bitcoin, Litecoin, and other POW crypto assets, is set to be completed later this year . Salalah reaches highs of 27 degrees centigrade (81 degrees F) in summer months, but that’s relatively cool compared to the rest of the Middle East), and the region has access to cool ocean water and is underpinned by Green Data City’s operational mining license.
Also in 2023, Digital Marathon (MARA) and the Abu Dhabi sovereign wealth fund-backed Zero Two signed a $406 million joint venture to build the first immersion-cooled Bitcoin mining plant in the Middle East region. While temperatures in the desert are a drawback, particularly in the summer months when highs of 50 degrees centigrade are not unusual, the cooling technology allows the mining equipment to function optimally even in challenging environments.
The United States’ continued regulatory crackdown on crypto business might also boost regional growth for the Middle East.
Kyle Shneps, Director of Public Policy at Foundry, a U.S.-based crypto mining firm, expects a drop in crypto mining in the U.S. if the electricity tax bill is passed.
“A 30% tax on the electricity used by bitcoin miners would assuredly kill the industry in the United States. It would be unprecedented to have such attacks on the electricity used, and I think. It sets a really dangerous precedent,” he said.
In a similar vein, Darin Feinstein, founder of mining firm Core Scientific, believes that the bill could hurt the U.S. economy.
“This is a tax question I believe. I do not believe this has any likelihood of passing, but if it did it would simply weaken the American footprint on the most important asset in our lifetime. Investment and technology would simply leave our shores for more hospitable environments,” he said.
With the looming taxation bump and reduced block rewards due to the recent Bitcoin halving in April, miners are grappling with changed economics. Seyed Mohammad Alizadehfard (Bijan), Co-Founder and Group CEO at the Phoenix Group, cites this as another factor that could influence the choices of U.S.-based miners.
“At any given point of price, when you carve supply in half, the price needs to appreciate or it will be very hard for Bitcoin miners with high electricity prices or older generation machines. If this [U.S.] bill passes, some mining firms could migrate to places like the Middle East where such laws don’t exist yet,” he said.
But Skybridge Capital’s Anthony Scaramucci, a former White House comms director, believes the United States remains a hotbed for digital assets, including mining.
“Despite regulatory uncertainty, the U.S. offers an ecosystem that is ripe for innovation and growth, with many of the leading crypto firms and projects already here,” he told CoinDesk.
If the new electricity tax bill for digital asset mining passes, U.S.-based miners have two options, cling to the U.S. market and make the numbers work, or find a new home.
Edited by Benjamin Schiller.