Bitcoin Miner Bit Digital Adds Machines in Iceland Before Possible U.S. Tax Crackdown

  • Biden administration is seeking to impose a big levy on crypto miners

The Wall Street Journal
First Published18 May 2023
Bitcoin miners’ electricity consumption has drawn ire from the Biden administration.
Bitcoin miners’ electricity consumption has drawn ire from the Biden administration.

New York-based Bit Digital is expanding its operations to Iceland in a bid to hedge the bitcoin-mining company’s regulatory risk amid a proposed a crypto-mining tax from the Biden administration.

Samir Tabar, chief executive of Nasdaq-listed Bit Digital, told The Wall Street Journal that the company bought 2,500 new bitcoin-mining machines for $5 million last week and will house them in Iceland, the company’s first time sending new computers outside the U.S. in two years.

The company plans to announce the move at the Bitcoin 2023 conference in Miami on Thursday.

Bitcoin miners’ electricity consumption has drawn ire from the Biden administration. It says the miners raise the cost of electricity on shared grids, and it cites the environmental impact of the increased demand for power. In a March paper, the Treasury Department proposed that firms mining digital assets should pay tax equal to 30% of their costs of electricity.

The tax proposal comes alongside a broader government crackdown on digital-asset companies after the collapse of crypto exchange FTX. The measures have spooked the U.S. crypto industry, prompting some companies to discuss moving operations outside the country, though few have done so.

Leaving the U.S. completely would be a tall order for most U.S. crypto companies, whose operations, staffs, bank accounts and clientele are typically based in the country. Crypto exchange Coinbase Global, for example, generated more than 80% of its 2022 revenue in the U.S.

After the Iceland machines come online for Bit Digital, Iceland and Canada will house a combined one-fifth of the company’s mining machines. The rest are in the U.S.

Such machines are the heart of Bit Digital and other bitcoin-mining companies, which earn money by plugging the high-powered computers into electricity sources so they can work through mathematical problems to unlock new bitcoin. The process, called mining, has gone from something any individual with a personal computer could do a decade ago, to a sizable industry that uses numerous computers and lots of electricity as competition to harvest bitcoin has grown.

Government figures place the amount of energy used to harvest crypto in the U.S. last year near that used to power all of the country’s home computers. Crypto proponents say that the industry has moved to cleaner energy sources in recent years and that machines are often online when grid demand is low.

Bit Digital says that more than two-thirds of its mining operations are carbon-free. The Iceland operation will use hydroelectric and geothermal power sources, Tabar said.

“What we’ve done in the past is the machines come to the United States, but now instead of doing that we have to look at different jurisdictions due to instability,” Tabar said. “We have to take that seriously.”

Bitcoin miners have been particularly worried by the government’s tax plans, said Ethan Vera, chief operating officer at Luxor Technology, which runs a trading desk that brokers sales of bitcoin-mining machines. More companies have looked to add operations in countries such as Paraguay and Laos in recent weeks, he said.

Some U.S. crypto companies have added services in foreign countries that have long been off-limits to local users. This month, Coinbase and rival exchange Gemini opened international derivatives exchanges to allow traders to make leveraged bets on the rise and fall of select cryptocurrencies.

The recalibration comes barely two years after China’s crackdown on bitcoin mining spurred what some called the “great mining migration.” Companies including Bit Digital hustled to pull machines out of the country or accelerate continuing processes—an expensive and stressful endeavor given the computers are highly susceptible to breaking if packaged and handled incorrectly.

After China forced out bitcoin miners, many moved to the U.S., making the country a hub for digital-asset mining. In late 2021, crypto firms said the U.S. felt safer because of a slow and transparent legal system for shaping new laws.

Now firms are experiencing a shift in that landscape. Texas state senators have passed a bill that crypto miners say would hurt the industry, in part by eliminating tax breaks for such firms. Other cities such as Miami, which once courted bitcoin miners to use its nuclear-power plant, have soured on digital assets.

“The truth is there’s nowhere that’s safe,” Vera said.

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