US Crypto Stocks Rise as Biden Administration Considers Excise Tax on Bitcoin Mining

On the first trading day following the significant Bitcoin halving event last weekend, U.S. crypto mining stocks saw notable increases.

by Faruk Imamovic
US Crypto Stocks Rise as Biden Administration Considers Excise Tax on Bitcoin Mining
© Getty Images/Anthony Kwan

On the first trading day following the significant Bitcoin halving event last weekend, U.S. crypto mining stocks saw notable increases. Despite the mining rewards now being slashed by 50%, these stocks thrived, suggesting investor confidence remains unshaken in the face of reduced immediate returns.

The crypto industry was keenly observing the market's response to the halving, which reduced the reward for mining Bitcoin to 3.125 BTC per block. Historically, such events have been catalysts for price fluctuations and market volatility. On Monday, however, the market reacted positively, aligning with a general upswing across broader U.S. financial markets.

Market Dynamics and Industry Responses

Marathon Digital, CleanSpark, Riot Platforms, Cipher Mining, and Hut 8, five of the largest publicly traded Bitcoin miners in the U.S. by market capitalization, all recorded gains on April 22. These gains continued into after-hours trading, as reported by Google Finance. Notably, Stronghold Digital Mining stood out as the day's biggest gainer, with its stock price jumping 35.3% to $3.64, later extending to nearly $3.80 after-hours.

The crypto surge was not limited to mining companies. The Valkyrie Bitcoin Miners ETF, which includes a mix of mining stocks and chipmakers like Nvidia, also enjoyed an 11% rise during the day, followed by a 3% increase after-hours. This trend highlights the interconnected nature of the tech and crypto sectors, where gains in one often help buoy the other.

David Donabedian, CIBC Private Wealth's chief investment officer, provided insights to Barron's, suggesting that despite the uplift, the market remains cautious. With high inflation rates and speculative thoughts on Federal Reserve’s rate cuts, the market sentiment is mixed. The upcoming earnings reports from several large tech firms are expected to add further layers to the market's dynamics this week.

Meanwhile, the price of Bitcoin itself has risen by 4.5% since the halving event, reaching $66,810, indicating continued investor interest and market resilience in the face of reduced mining rewards.

The Regulatory and Economic Backdrop

Amid these market movements, the political landscape could be seeing shifts that may impact the crypto industry more profoundly. President Biden has reportedly urged Congress to consider regulatory measures that could put additional pressure on the U.S. Bitcoin mining industry. Drawing comparisons with China, the Biden administration is considering a controversial 30% excise tax on electricity used by Bitcoin miners, known as the Digital Asset Mining Energy tax (DAME).

Joe Biden
Joe Biden© Getty Images/Andrew Harnik

This move has sparked significant debate. Critics argue that such a tax could force mining operations to relocate to countries with less stringent regulations and potentially dirtier energy sources. This could not only harm the global environmental goals but also jeopardize the technological leadership and economic benefits that the mining industry brings to the U.S.

Senator Cynthia Lummis, a vocal critic from Wyoming, expressed her concerns on X (formerly Twitter), stating that this punitive tax could decimate the nascent industry's foothold in America. She highlighted that the proposed tax could send a discouraging signal to an industry that has been trying to prove its capability for environmentally friendly practices amid scrutiny over its sustainability.

The administration argues that the tax would help ensure miners contribute their fair share to the costs imposed on local communities and the environment. However, critics worry that the potential revenue gains from this tax are overshadowed by the broader economic detriments, including lost jobs and tax revenue, should the industry migrate offshore.

Investor Sentiment and Future Projections

Despite the halving event's impact on miner rewards, investor sentiment around cryptocurrency, particularly Bitcoin, remains surprisingly buoyant. Market analysts had mixed forecasts about the impact of the halving on Bitcoin's price. Some predicted a bullish scenario bolstered by scarcity logic, while others feared a bearish downturn due to reduced miner incentives. The current price uptick post-halving seems to lean towards the former, suggesting that the market might be pricing in the increased scarcity and potential future value of Bitcoin.

Investors also seem encouraged by broader market trends and technological advancements within the sector. For instance, companies like MicroStrategy and the cryptocurrency exchange Coinbase also saw substantial gains, signaling robust confidence in the infrastructure supporting Bitcoin and other digital assets.

The ripple effects of the stock performances extend beyond individual companies. The broader enthusiasm has bolstered related sectors, including tech firms involved in cryptocurrency operations and blockchain technology. This synergy between traditional finance and emerging tech markets may herald a new era of integrated market dynamics where crypto-assets play a significant role.

Legislative Challenges and Industry Adaptation

The proposed DAME tax is part of a broader discussion about the cryptocurrency industry's regulatory environment. The Biden administration's stance appears to be a double-edged sword. On one side, it aims to align mining operations with broader fiscal policies and environmental standards. On the other, it risks stifling an industry that has shown tremendous growth and potential for innovation.

The contrast with China, which has taken significant steps to curb cryptocurrency mining due to concerns over energy use and financial stability, paints a complicated picture for the U.S. stance on crypto regulation. While the U.S. aims to potentially reduce the environmental impact of crypto mining, the comparison to China’s outright bans and restrictions might not sit well with proponents of a free-market economy and technological advancement.

Senator Lummis's remarks underscore a significant concern among policymakers and business leaders that harsh regulations could push the cryptocurrency industry—currently thriving on American innovation—to less regulated shores. Such a move could deprive the U.S. not only of economic benefits but also of the opportunity to lead global discussions on the sustainable development of blockchain technologies and digital assets.