- The tax will be gradually implemented over three years at a rate of 10% annually.
- Crypto miners must estimate the electricity costs generated by any electrical generating plant under this new proposal.
- Crypto miners will also have to report on the amount of electricity they use and the type of power tapped.
US-based crypto miners will now face a 30% excise tax on electricity costs, according to the Department of the Treasury’s supplementary budget explainer paper released on March 9th.
The phase-in over three years comes with an annual rate of 10%, increasing to the maximum tax rate of 30% in the third year. Crypto miners are also expected to report on their electricity usage and the type of power tapped.
Because of taxation, the Treasury stated that a tax imposition could help minimize crypto mining and its associated environmental impacts, energy prices caused by digital asset miners within a shared electricity grid, and potential environmental justice issues.
In addition to taxing crypto miners, President Joe Biden’s 2024 budget plan includes ending a tax-loss harvesting strategy commonly employed by crypto traders. The strategy involves deliberately selling investments with reduced value for tax purposes. Moreover, modifications to cryptocurrency taxation treatment are being proposed to raise nearly $24 billion.
These changes come at a difficult time for crypto miners as they try to survive in the bear market while rising energy costs make their businesses severely unsustainable. Core Scientific Inc, one of the leading publicly traded crypto mining companies in America, filed for Chapter 11 bankruptcy in December 2022.
Crypto Miners’ Sustainability at Stake
The role of crypto miners in a digital asset network cannot be underestimated, as their work verifies and validates the authenticity of transactions. They play a crucial part in maintaining the security of the blockchain and its associated networks. In return for their services, they receive rewards in the form of freshly minted coins or transaction fees.
However, rising electricity costs have put pressure on crypto miners. They may lead them to reconsider moving operations abroad or shut down altogether if these new taxes are imposed without careful consideration for any mitigating factors such as renewable energy use or alternative tax relief measures.
For some, Bitcoin mining can lead to a profit, but several things must be considered. As the maximum supply of Bitcoin approaches, more processing power is required from the algorithm. This has been highlighted in the continuous increase of BTC mining difficulty – a metric that tracks the effort miners put in to obtain a Bitcoin.
In 2021, mining firms bought so much hardware used for mining that the prices of these rigs rose roughly 10 percent per week worldwide as inventory sold out. This illustrates how highly sought-after equipment used in BTC mining has become as people look to capitalize on what could be a profitable venture.
However, rising electricity costs, limited availability of new equipment, and competition among miners can make profitability challenging to maintain. As such, miners must assess various strategies and market conditions before committing too heavily to this business model.
