Bitcoin Mining in China; Crypto’s Play in Primaries; Meta Still Has Crypto Ambitions

The United States remains the world’s biggest center for bitcoin mining, according to a new report from the Cambridge Center for Alternative Finance (CCAF). The country accounted for 37.84% of global hashrate – the amount of computing power deployed to mine bitcoin – in the period between September 2021 to January 2022. China, which banned bitcoin mining last May, was responsible for 21.11% of the total hashrate. Kazakhstan (13.2%), Canada (6.48%), and Russia (4.66%) rounded out the top five locations to mine bitcoin. In the time period tracked by CCAF, bitcoin’s total hash rate has steadily increased. This means that more firms are mining bitcoin now as compared to earlier. It was 193.64 EH/s (Exahashes) in December 2021 – the same figure as it was before China’s ban on bitcoin mining – and peaked at 248.11 EH/s in February.

The presence of a substantial bitcoin mining industry in China is the most surprising aspect of CCAF’s study. “This strongly suggests that significant underground mining activity has formed in the country, which empirically confirms what industry insiders have long been assuming,” the report’s authors wrote. Off-grid electricity and scattered small scale operations are used by underground miners to circumvent the government’s ban, according to the report. They also use a host of other techniques such as use of virtual private networks (VPNs) or refusing to disclose their pool’s identity in the final block.

The resurgence in bitcoin mining in China may also be related to profits from the activity. In December last year, approximately two million cryptocurrency mining machines were ‘stuck’ in China’s Sichuan province because they could not be relocated to other places. A machine that is not mining cryptocurrency incurs losses. Meanwhile, bitcoin prices were skyrocketing and setting new records just a month earlier. Cheap off-grid electricity, the presence of hydropower, and favorable exchange rates also makes bitcoin mining in China an economical proposition during a downturn in the cryptocurrency’s prices.   

Crypto’s Congressional Showing

The route of cryptocurrency’s journey towards becoming a mainstream asset goes through Washington D.C. And so, cryptocurrency billionaires have ratcheted up their spending on lobbying firms and candidates in successive election cycles. According to CNBC, cryptocurrency billionaires poured $30 million into Congressional primaries this year.  

Some of the results point to a mixed bag, so far.

Billionaire Peter Thiel, who called Warren Buffett a ‘sociopathic grandpa’ at Bitcoin 2022, donated $3.5 million to author, investor, and Bitcoin holder J.D. Vance for the latter’s run in the Republican primaries for the Senate. It turned out to be a good investment as Vance won the right to challenge Democrat Tim Ryan in November’s elections. Thiel also had a hand Rep. Ted Budd’s (R-NC) primary victory in North Carolina; he was the biggest donor to Club for Growth – a super PAC that backed Rep. Budd’s campaign. Rep. Budd was one of the lawmakers behind crypto-friendly legislation last year.           

But the candidate favored by the crypto industry is losing in Oregon’s sixth district, the third-most expensive primary race in the nation. Thirty-five-year-old Carrick Flynn has no political experience but has received a whopping $5.8 million from a PAC linked to FTX founder Sam Bankman-Fried. With 72% of precincts reporting in the Democratic primary, he has garnered only 19% of the total votes, far below that of his rival Andreas Salinas.  

Meanwhile, Bankman-Fried’s colleague and co-CEO, Ryan Salame, has launched American Dream Federal Action that focuses on “leveraging America’s technological edge” and on “the problems of the future.” The group blanketed TV stations in southern Indiana with ads promoting Erin Houchin, a candidate in the Republican primaries there, as a “Trump Tough” conservative who would stop “the socialists in Washington.” She won.

The surge in donations to curry political influence is in line with an increased spend on lobbying firms. According to reports in March, spending by cryptocurrency companies on lobbying has quadrupled to more than $9 million since 2018 and the number of lobbyists working on crypto jumped to 320 from 115 in the same time period.

All of this money is meant to influence legislation as crypto becomes bigger and mainstream. But it might be a while before crypto legislation becomes a serious topic of debate in both Houses. For the most part, the asset class has remained a target of criticism from lawmakers who are baffled and curious about its role in financial infrastructure.

While SEC Chair Gary Gensler has repeatedly called on Congress to provide him with additional authority to police the crypto ecosystem, lawmakers have resisted the urge. [But he has deployed additional staff to monitor cryptocurrencies]. Congressional and Senate hearings on crypto have also not yielded much by way of action items. The end result is a stalemate, at least at the federal level, about how to monitor and regulate crypto. That can be construed as a favorable development for an ecosystem that is still growing.

Meta’s Crypto Ambitions Are Not Dead Yet

It started with Libra, a grand idea for a cryptocurrency spanning the network of Meta, which was formerly known as Facebook. That idea was later pruned down to Diem, a stablecoin backed by fiat currencies. Eventually, the stablecoin’s assets were sold off to a private equity firm. But Meta still hasn’t given up its crypto ambitions.

According to a news report at The Block, an online publication, the Menlo Park-based company has filed five trademark applications relating to a new digital platform called Meta Pay. From the report:

The trademark applications, filed on May 13, described Meta Pay as an “online social networking service for investors allowing financial trades and exchange of digital currency, virtual currency, cryptocurrency, digital and blockchain assets, digital tokens, [and] crypto tokens.”

It is a metaverse play. As the company transitions towards creating virtual worlds, Meta Pay might function as a digital equivalent of currencies that exist within the alternate universe. The key question here is about regulation. Libra and Diem were stymied by opposition from governments and regulatory authorities around the world.

The metaverse is unregulated, as of now. Therefore, Meta’s proposed payment platform there should have an easier time as compared to its cryptocurrency play. But, given the company’s size and the scope of its ambitions, legislative authorities around the world will probably track its development with close interest.

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