In late April, more than a hundred people gathered near the Texas Capitol to protest.
Peaceful protests in the United States are not uncommon, but what made this one unique was that its participants came together to defend the right to own and use cryptocurrency.
The location is also perplexing, as the Lone Star State has been portrayed as a potential hub for the US crypto industry, with differing state and federal laws creating an uneven regulatory landscape.
— Cointelegraph (@Cointelegraph) April 25, 2023
And so, cryptocurrency enthusiasts gathered in Austin to protest Senate Bill 1751, which will strip cryptocurrency mining operators of some existing tax incentives. The bill has already passed the State Senate and has moved on to the Texas House of Representatives.
Texas does not fit the binary narrative of creeping into a “crypto-hostile” mode. While its lawmakers want to strip cryptocurrency miners of tax incentives, they almost simultaneously vote to have the right of individuals to own cryptocurrency included in the state’s Bill of Rights.
How have these peculiar legislative movements come about and what do they mean for the sector?
The path of the pioneer towards regulation
Almost 10 years ago, Texas became the first state in addressing the regulation of Bitcoin (BTC) when the Texas Banking Commissioner issued a memo proclaiming that the original cryptocurrency “is best viewed as a speculative investment,” not money.
This was good news for the pioneers, as they got rid of the interest of regulators. From then on, Texas began to attract local and global crypto companies.
In 2021, the Texas Department of Banking declared that local banks are allowed to store cryptocurrency on behalf of their customers. A month later, the state legislature amended the local Uniform Commercial Code to recognize cryptocurrencies in business law. Another bill established a blockchain task force in the state.
However, when Texas entered Cointelegraph’s list of the five best states for cryptocurrencieswas due more to its unique conditions for mining digital assets than its regulatory efforts.
Power prices for industrial customers were some of the lowest in the country – or, according to the then CEO of mining company Layer1 Technologies, Alex Liegl – in the world.
Following China’s repressive measures against cryptocurrency mining in 2021, the US state enjoyed the interest of large mining companies around the world. Governor Greg Abbot expressed his excitement for Texas becoming the next “Cryptocurrency Leader,” with local communities welcome new companiesreopen industrial spaces and hire people in small towns.
The trend continued in 2022, with mining giants like Riot Blockchain moving their teams to Texas. Not even record-breaking summer heat waves and deadly winter storms discouraged mining operatorswho accepted some periods of unforeseen stops.
The Texas Comptroller’s office even attempted to clarify that cryptocurrency mining facilities “do not place large electrical demands on the grid.” The same words have been echoed by Senator Ted Cruz, who expressed his hope of turning Texas into an “oasis for Bitcoin.”
Busy season for legislative initiatives
Yet despite friendly overtures to the cryptocurrency industry, Texas authorities have never shied away from enforcement measures.
The state’s main financial regulator, the Texas State Securities Board (TSSB), has a long history of interacting with the market.
He accused Bitconnect of illegal securities trading, along with 31 other companies that would follow, and expelled Arise Bank – a self-described “first decentralized banking platform” – from the state for using the word “bank”.
In 2022, the TSSB was active in cracking down on the crashed cryptocurrency exchange FTX, filing charges against co-founder Sam Bankman-Fried, vetting “finfluencers” advertising the platform, and opposing the potential sale of Voyager Digital to FTX even before the bankruptcy of the crypto derivatives exchange.
Texas has also had its fair share of controversy in attempts to regulate cryptocurrencies. In 2019, local legislators introduced a bill that required users to identify themselves when using digital currencies. However, the bill never got past the First reading.
But it wasn’t until 2023 that a real, even anomalous, appetite for regulation emerged among Texan legislators.
House Bill 1666, introduced in January by a group of lawmakers led by Rep. Giovanni Capriglione, proposed to amend Section 160 of the Texas Financial Code, restricting large digital asset providers – with more than 500 clients and at least USD 10 million in funds – the possibility of mixing client funds with any other type of operating capital. The bill passed the Senate in three and a half months and was sent to the Governor’s office in May.
In early March, Rep. Cody Harris introduced a resolution urging his fellow legislators to “voice their support for protecting people who code or develop on the Bitcoin network.”
Although the resolution does not have concrete effects or legal power, it gives an idea of the feelings of certain legislators.
Texas lawmakers have also introduced a bill to create a gold-backed state digital currency, with the idea that once a person purchases a certain amount of the digital currency, the receiver will use the money received to purchase an equivalent amount. of gold.
The mining bill
Senate Bill 1751 began its legislative journey in early March. In descending order, it passed the Senate and will now be considered by the House Committee on State Affairs before going to the first vote in the lower house.
Dramatically presented by some in the crypto community as an “anti-Bitcoin bill” or a “hammer” in the hands of lawmakers, the initiative in fact only repeals some artificial incentives, which mining companies have been enjoying along with some of the lowest energy prices in the country.
According to the bill, from September 2023, the share of crypto mining facilities in total energy demand will have to be capped at 10%. However, it will only be applied under a state program that compensates load reductions in extreme situations, such as heat waves or winter storms.
In practice, this means that mining companies, which currently sell power to the grid at a premium when they need it, will not be able to do so in the face of growing industry demand for power.
In addition, some mining companies would no longer receive a state tax reduction for participating in this program. One of the sponsors of the bill, Senator Lois Kolkhorst, was quite clear about the reasons for the initiative:
“We’re trying to produce all this new energy. We’re going to have a lot of this new energy taken up by mining virtual currency. And then we’re going to pay them to go off the grid at different times, which I think is part of their business model.
And now that?
Ecosapiens project co-founder Nihar Neelakanti isn’t so sure the “seemingly anti-Bitcoin” mining bill is “that damaging” for most miners in the state “given they’d probably be below the threshold.” of energy established in the bill,” he told Cointelegraph.
However, Neelakanti’s observation could be outdated relatively soon. According to an anonymous source from the Electric Reliability Council of Texas quoted In an article from The Verge, cryptocurrency mining will add 27 gigawatts of demand to the grid by 2026.
Currently, the Texas power grid can supply 92 gigawatts at most. If it doesn’t ramp up in the next three years, cryptocurrency mining could take the lion’s share of Texan power generation, in which case the 10% cap would exclude miners from the incentive program.
Speaking to Cointelegraph, Fred Thiel, CEO of cryptocurrency mining company Marathon Digital Holdings, said that gas plant owners strongly supported Senate Bill 1751. They need electricity during peak demand and view Bitcoin miners who sell the power to the grid as competition. However, he is quite optimistic about the bill not becoming law:
“It would have been detrimental to our industry, but it seems clear that this bill is likely not to pass in the state house.”
Thiel also noted that pressure at the federal level makes it difficult for states to adopt Bitcoin-friendly policies.
Zachary Townsend, CEO of Bitcoin-friendly insurance provider Meanwhile, seemed to agree, telling Cointelegraph that federal authorities are taking a hardline approach towards the industry regionally. However, he highlighted that there is still progress at the state level:
“There’s Wyoming and Tennessee, as well as blue-leaning states like Colorado. It could be something similar to how the marijuana debate has played out at the state level: Basically, states have made their own rules and regulations that, at times, were inconsistent with federal rules and regulations.
Halfway through, the reciprocal process of federal pressure and local autonomy could bring both poles together in some sort of middle ground. Until then, the disputes are likely to escalate at the state level. And Texas, in Townsend’s view, appears to be ground zero for this debate.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.