This week, IntoTheBlock takes a look at the mining industry and how regulations can play a big role.
Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
How Regulations May Affect the Mining Industry
During this past week BTC prices have recorded a significant positive rise in price, despite the unclear regulatory outcomes in the U.S. Congress. In this article we will explore the potential path ahead for Bitcoin analyzing on-chain data. Moreover, we will assess the coming one trillion U.S. infrastructure deal, its implications on crypto and the direct effects it could have over the U.S. mining industry.
This past week the crypto market has been experiencing a rise in price, BTC surpassed the $43K noted resistance. Generally led by a continued bull run from the past couple weeks, BTC price currently sits around $46K and IntoTheBlock’s In and Out of the Money Around Price (IOMAP) indicator marks the $49K point as the next spot where high volume of transactions were registered on-chain.
The IOMAP reveals that 178.31k addresses had previously bought approximately 433.53k Bitcoin at a price around $43,000. Due to the large buying activity around this area, there is expected to be strong support from new buyers and current holders.
On the other hand, there is strong resistance around $50,000. The high amount of volume that was previously bought there (289.49k BTC) is expected to create selling pressure as many holders tend to look to sell positions at a break-even level.
On Tuesday, the U.S. Senate gave an uncommon bipartisan approval to the $1Trillion infrastructure bill, intended to rebuild the country’s roads, bridges, airports and waterways, one of President Biden’s top priorities in agenda. The bill with great approval of The Senate, having a voting count of 69 to 30, now moves onto the House of Representatives where they will be discussing its implications in order to take a final vote on it.
Senator Portman, originally introduced the provision in the infrastructure bill. This bill gives U.S. crypto entities new regulations. The bill requires that all operating U.S. crypto broker entities report transaction data to the IRS. The problem is that the specific definition for crypto “brokers” was not included in the provision. Without this clear definition, anyone operating a mining operation, staking on a proof of stake protocol or even developers creating cryptocurrencies may fit under these new regulations.
Senator Portman addressed these concerns, stating that language in the bill should not be interpreted this broadly and that work should be done to clarify the exemption of miners and stakers. A group of senators in between them Cynthia Lummis introduced a new amendment last Wednesday night, in which clear clarification was given that only trading desks or entities with a similar function will be in the obligation to follow this reporting regulations. Even though this amendment was introduced last Wednesday the Senate voted in favor of passing the deal without any amendments being done; meaning no changes will be introduced to the provision and now is up to the House of Representatives to decide whether or not to continue with the deal.
At IntoTheBlock we have been monitoring some indicators regarding this new regulation's effects. Particularly, this is likely to have a significant impact on the mining industry, which has been growing within the U.S. following China’s crackdown.
The Hash Rate is the total speed at which mining machines are operating to solve the mathematical puzzle that validates transactions in a block. This indicator shown below is the estimated aggregate computational power (measured in Terahash per second) provided by miners to operate a given network.
Since its May high of 188.04m TH/s the mining industry was seen heavily affected by the China mining ban recording a low of 62.03m TH/s on June 27. Many mining activity immigrated to the U.S, specifically to the state of Texas. This makes the current legislation discussion of prime importance to the mining sector, as miners would fit under the new “brokers” definition and would have to be regulated as such. The hash rate indicator has recorded a slow but steady recovery, and continues to show positive signs regardless of the current discussion surring mining in the U.S. congress.
On the other hand, Miner Reserves point to signs of concern.The miner reserves indicator shows the aggregate balances of addresses belonging to mining pools. Typically having correlation with the hash rate indicator during the May highs and the China ban. The indicator showed a clear divergence last week when the largest yearly drop in miner reserves took place.
Recording a high reserve of 2.12 million BTC on May 20th, after being impacted by the massive sell off the miners reserves now hold 1.97 million BTC, representing a decrease of -7.08%. This suggests that miners could be anticipating headwinds in the coming months as crypto legislation in the infrastructure bill is finalized. Therefore, the decrease in miner reserves could be related to American miners selling, taking precautions against potentially stringent regulation.
The hash rate distribution indicator shows the concentration of hash rate by mining pools. During the China ban, pools created from Chinese entities were seen heavily affected, impacting their presence in the global hash rate distribution.
During the beginning of May before the China ban implementations, the huobi.pool had a 5.03% of the total hash rate distribution and was mining about 10 blocks per day. Currently after most miners were thrown away from China the pool has a 2.63% of the total hash rate distribution, mining about 5 blocks per day. In the same way Chinese pools have decreased their presence in the total hash rate distribution, a now-significant share of unknown miners pools keep growing. Having many miners being relocated in Texas makes again the future of the industry unstable, which could lead to similar outcomes in the U.S. if regulatory clarity is not provided properly.
While it is clear that implementing the infrastructure deal without any new amendments to clarify the cryptocurrency regulations could be a setback, it is important to acknowledge how far the industry has come in just a little over 12 years. During this year the cryptocurrency market cap managed to reach two trillion dollars during the month of April. New legislation is being brought up in Washington in order to clarify and bring clarity into the complex nascent industry.
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