11/02/2023 0 Comments

1. What Is the DAME Tax and How Would It Work?

How Would the DAME Tax Work?

Biden’s proposed tax on crypto mining would affect Bitcoin (BTC) more than the rest of the crypto market, as it is the largest blockchain network using proof-of-work (PoW) consensus. Ethereum, the world’s second-largest crypto network by market capitalization, switched from a PoW consensus to proof-of-stake (PoS) in its September 2022 Merge upgrade. That upgrade led to Ethereum’s energy usage dropping by more than 99%, according to the network.

At the time of the proposal, the U.S. Council of Economic Advisers (CEA) said the DAME tax was an example of the president’s broader efforts to ensure the responsible development of digital assets and to modernize crypto taxation.

What It Meant for Crypto Miners

The DAME tax would have significantly affected crypto miners and changed the industry landscape. As Bitcoin continues to be the dominant cryptocurrency, the industry has remained focused on it. Miners pay a lot to acquire high-tech mining rigs and build and maintain their mining farms, so they incur more than high electricity bills during operations.

The problem with taxing the industry’s electricity use is Bitcoin mining profitability. Raising operating expenses by taxing electricity might permanently damage the industry because energy is its primary resource, and no other cryptocurrencies fetch the same market value as BTC.

DAME Effect Example

The crypto bear market during 2022 put pressure on the mining industry, with firms struggling with debt and lower income due to the falling price of cryptocurrencies. Between December 2022 and February 2023, three miners went bankrupt or organized debt restructurings due to the stress on their finances. The mining industry also has to ride crypto’s market swings, and many took advantage of Bitcoin’s rally in early 2023 to cash out some of their holdings and repair their balance sheets.

In an April 2023 production update, Riot Platforms Inc. (RIOT), one of the world’s largest miners by market cap, produced 639 BTC during the month. The coins were created at its massive Rockdale Facility, which runs a fleet of more than 95,000 miners. In its first-quarter 2023 earnings report, Riot posted a net loss of $55 million on revenue of $73 million, highlighting the margin pressures in the industry.

Riot was also forced to reduce its power consumption during extreme heat conditions in September 2023, foregoing revenue so that the grid it operates on did not fail to provide power to consumers.

What the Tax Might Mean for Everyone Else

Because there is an enormous amount of money to be made mining Bitcoin, the practice isn’t going to disappear until the profits do. A tax on energy use might only prompt miners to pack up and move their operations abroad to more tax-friendly countries. This wouldn’t help reduce energy consumption globally or reduce carbon output for the sake of profits. It might only place the burdens of high energy use and unnecessary pollution on another country.

If miners didn’t move operations, they would be forced to reduce their energy consumption or pay large sums of money in taxes. Mining farms use vast amounts of energy—for example, if one miner consumes 3,250 watts, it would use 78,000 watt hours per day (3,250 watts x 24 hours). A farm of 94,000 of these miners would consume 7.32 billion watt hours (GWh) per day (7.32 million kWh). At a rate of $.10 per kWh, this would equal about $2,200 per day in taxes—decent revenues for a government that needs funding.

What Are the Taxes on Crypto in 2023?

If you earn income through crypto mining, the earnings are taxed as ordinary income. But if you buy and hold a crypto for more than one year before cashing it in, it is taxed as a capital gain (or loss).10 So, if you mine a Bitcoin, you pay income taxes on it that year. If you hold that Bitcoin for more than one year and cash it in for dollars at a gain from its market value when you mined it, you’ll need to pay capital gains taxes.

2. Bernstein anticipates $150k Bitcoin by 2025

According to commentators, Bernstein’s report highlighted the cyclical nature of Bitcoin price cycles, which typically follow four-year patterns coinciding with Bitcoin halving events.

With the next Bitcoin halving expected in April 2024, the report suggests that investing in a winning Bitcoin miner could also offer a way to gain exposure to the cryptocurrency market.

According to the report, the next halving is expected to push Bitcoin to reach a cycle high of $150,000 by mid-2025. The prediction has sparked considerable interest in the cryptocurrency market and led to a closer examination of Bitcoin mining stocks, particularly in North America.

The report said that Bitcoin miners are undergoing a transformation into industrial-scale enterprises, and North America is steadily gaining market share in this evolving landscape — overtaking China.

This shift is attributed to strong operational efficiency, low production costs due to cheap electricity, high liquidity, and robust balance sheets among these miners.

Bernstein also expressed a preference for Riot Platforms (RIOT) and CleanSpark (CLSK). The broker gave both companies an “outperform” rating.

Analysts Gautam Chhugani and Mahika Sapra at Bernstein noted that Riot and CleanSpark are market share consolidators with a robust operational edge, primarily driven by their self-mining models.

These companies benefit from low power costs and do not carry heavy debt loads, contributing to their competitive advantage in the market.

Meanwhile, the report was less enthusiastic about Marathon Digital (MARA), assigning it a “market-perform” rating with an $8.30 price target.

Despite being the largest miner in the industry, Marathon Digital has subpar production costs, placing it in the middle of the cost curve. Additionally, the company lacks an operational edge and is dependent on hosting partners, according to Bernstein.

The report added that Riot and CleanSpark stand out due to their counter-cyclical investment strategy in Bitcoin self-mining capacity. While some miners have shifted their capacity towards AI and high-performance computing, both of these companies continue to invest in Bitcoin mining.

Bernstein anticipates that this counter-cyclical approach will pay off as the Bitcoin price cycle turns in their favor.

3. Crypto-miner looks to heat greenhouse with excess heat

“We have partnered with a greenhouse developer in Sweden, and they plan to construct an 80,000-square-foot greenhouse. Our 30 megawatt GPU facility in Boden, near the Arctic Pole, will provide heat energy used to grow these vegetables.” Speaking is Aydin Kilic, CEO of HIVE Digital Technologies Ltd., a Vancouver-based digital infrastructure firm.

HIVE got its start in 2017 as HIVE Blockchain Technologies—the world’s first publicly traded cryptocurrency mining company, with listings on the Toronto Stock Exchange, Frankfurt Stock Exchange, and Nasdaq.

Now, they’re looking to expand progress in recycling its excess heat. In Quebec, HIVE’s 30-megawatt facility provides “waste” heat to a neighboring swimming pool manufacturer, a 200,000-square-foot factory. Using a custom heat exchange and transfer system, the warm air from the Bitcoin mining servers is transferred to heat the swimming pool factory.

And the greenhouse is a new tool to do so. Last year, a partnership with Swedish company Agtira was announced. “When complete in 2024, the greenhouse will be able to produce more than 1,000 tons of fresh vegetables annually, all using excess heat from our facilities”, Aydin concluded.

Their 2023 annual numbers show more information on the plants: a 4.000m2 greenhouse as a first phase, and an additional 4000m2 to be added, and include aquaponics as well.

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Harvey CHEN

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