Bitcoin miners appear to have escaped a bullet, as Congress’ draft debt-ceiling plan excludes the White House’s proposed high Bitcoin tax rate. However, investors should be cautious about future budget conflicts. Such plans tend to rise from the ashes.
Over the weekend, legislators revealed the package that would lift the debt ceiling for two years while imposing spending caps on the federal government. A clause previously proposed by the White House that would have levied an excise tax on crypto miners equivalent to 30% of the cost of power used was not included in the draft.
The White House claimed that the Digital Asset Mining Energy (DAME) tax would balance the economic and environmental consequences of cryptocurrency mining. Bitcoin miners were adamantly opposed.
A tax of this magnitude would have substantially reduced the profitability of miners such as Marathon Digital Holdings (MARA) and Riot Platforms (RIOT), whose stocks have increased 181% and 267%, respectively, this year as a result of the Bitcoin rally.
However, some policy analysts believe it is premature to celebrate total triumph because similar plans tend for the Bitcoin tax rate to resurface whenever Congress is looking for funding to pay for new laws.
“Any suggestion that the industry is safe from future taxation efforts just because the DAME tax was excluded from the debt-ceiling deal is detached from reality,” says BTIG director of policy research Isaac Boltansky. He noted that the tax would have raised about $3.5 billion over ten years.
Support for Bitcoin and the crypto business hasn’t always been divided neatly along party lines. Both Republicans and Democrats have previously indicated support for supporting industry that they believe has the potential to create a significant number of employees. However, after last year’s crypto crisis, more Democrats have targeted the digital asset business, with President Joe Biden this month blasting Republicans for embracing a debt-ceiling stance that he claims “protects wealthy tax cheats and crypto traders.”
Crypto miners, who run massive server farms that consume massive amounts of power, have been one of the most frequent targets of Democrats citing environmental concerns. Legislators in New York enacted a partial ban on cryptocurrency mining. Bitcoin miners have recently been opposing a law in Republican-controlled Texas that would limit their participation in schemes that pay them to shut down during high electrical demand.
“Targeting a specific type of energy use in an attempt to save energy is an invasion of people’s right to choose how they use the energy they pay for,” said Marathon CEO Fred Thiel in a statement. He argued that the proposed tax wouldn’t have benefited the environment or the energy grid.
This time, miners profited from Republicans’ demand that a debt-ceiling measure includes no additional taxes, according to Boltansky, but that won’t always be the case in future conflicts.
“Once an item becomes part of the legislative menu, it tends to stick around the policy conversation,” Boltansky says.