Despite FTX Collapse, Texas Considers Incentives for Cryptocurrencies

(TNS) – FTX’s high-profile crash may have tainted cryptocurrency trading platforms, but it’s not slowing backers’ plans to make Texas a leader in the ever-growing industry.

The Texas Work Group on Blockchain Matters recently released a master plan to establish the state as a leader in the industry that is valued at approximately $5 billion globally.

The Lone Star State now ranks as the fourth-best state for crypto enthusiasts, according to a 2022 Smart Asset study that looked at a number of factors, including legislation favoring cryptocurrencies. Texas follows Nevada, Florida and California.

“Where Texas can differentiate itself is by continuing to be a leader in cryptocurrency legislation in order to attract businesses deterred by regulatory uncertainty,” the report said.

The blockchain working group, created by the Texas Legislature in 2021, has 16 members with representatives from state agencies, universities, and private industry. The group met monthly this year to produce its 84-page report containing 21 recommendations.

The group addressed four areas related to blockchain technology: economic growth opportunities, current state of the industry in Texas, workforce and academic needs, and legislative recommendations. Blockchain technology is the backbone of the digital world, creating a record of cryptocurrency transactions that are kept between connected computers.

One of the group members, Christopher Calicott, managing partner at Austin-based Trammell Venture Partners, said that when cryptocurrencies go mainstream, Texas must be prepared to take advantage. The global blockchain technology market size is expected to exceed $1.6 trillion by 2030, according to a projection by Precedence Research.

“Crypto has never had a huge consumer adoption momentum like what happened with Starbucks customers using QR codes in the drive-through, but we think it is imminent,” he said.

The master plan to expand the blockchain industry in Texas includes sections on education, energy, finance, and government.

Recommendations include creating incentives to attract companies that don’t make money from data monetization, which goes back to the industry’s emphasis on privacy. The state should “embrace its tradition of individual liberty” by “making explicit that US constitutional protections against unreasonable search and seizure extend to Internet activity,” the report said.

The group also suggested that miners who agree to voluntarily reduce their energy usage when the state’s power grid is overwhelmed shouldn’t be required to pay taxes on their electric bills.

“This is a small cost to taxpayers that will lead to significant benefits for grid reliability,” the report said.

The report said these miners help stabilize the grid by “absorbing stranded energy.” The more miners need to connect to the grid, the more Texas will be willing to invest in electricity generation businesses that benefit the entire state.

During the week of July 11, as temperatures in North Texas surpassed 100 degrees, 15 bitcoin miners reduced their electricity usage, leading to 1,000 megawatts of power off for several hours. This equated to about 1.5% of the network load at peak demand.

The group’s recommendations are a starting point. From here, state lawmakers will screen ideas for those that want to advance to the vote.

Do Crypto Players Need More Incentives?

Not all Texans think cryptocurrency companies need better treatment.

Jackie Sawicky, a self-described environmentalist, has led a protest against Castle Rock, Colo.-based Riot Blockchain, which is building North America’s largest Bitcoin mining facility in Rockdale. Cryptocurrency mining is “specially designed to waste as much energy as possible,” something the state doesn’t need when it has to ask residents to reduce usage, he said.

“Most people don’t use cryptocurrencies in any way, yet businesses get very special treatment as we are pushed to the brink,” he said.

Electric rates for Texans went up more than 70% this summer. Cryptocurrency miners use about 3,000 megawatts of energy per day, or about 4% of peak demand during the hottest days, said Lee Bratcher, chairman of the Texas Blockchain Council. There are at least 27 mining operations in the state, but there’s no way to know the total number for sure, according to the board.

Sawicky pointed out that Riot Blockchain is already being paid to shut down operations when the state’s power grid is overloaded. Riot said it earned about $9.5 million in credits in one month this summer for shutting down during peak demand periods. Under a voluntary energy reduction program, cryptocurrency miners can shut down their facilities and sell the energy they don’t use back to the grid at a premium rate.

Riot has also received a stimulus package from local development officials. The company was offered a 45% discount on local taxes for the next decade. Tax breaks and sales tax credits have allowed Riot Blockchain to hire a great team, said Chad Harris, chief commercial officer at Riot Blockchain.

Rockdale City Manager Barbara Holly told the Texas Work Group on Blockchain Matters that Rockdale was on track to surpass $1 million in tax revenue for the first time in its history following Riot’s arrival in the city.

But Sawicky says the negatives far outweigh the positives.

“It’s all a pyramid. It’s a decentralized scam, a complete bubble. And a lot of them don’t have plans for rainy days, so when the economy is crashing and people want their money back, they’re like, ‘Oops, we spent the money,’” she said. “There is no future in Bitcoin.”

Sawicky was alluding to FTX’s recent bankruptcy due to an $8 billion deficit.

Bratcher said the group is working on a bill in response to the fallout from FTX that will help prevent a similar collapse by a company in Texas. The bill would require exchanges to submit proof of their reserves to the Texas Department of Banking, as well as disclosures to an auditor. This is to avoid the mixing of client funds with company funds, which is done by FTX.

“We think we can lead the country on this,” Bratcher said.

Industry failures come from companies with inferior business models, Calicott said. They take customer resources on the platform and use them for the company’s business goals, she said.

There are many cryptocurrency companies offering better consumer protection, he said.

“What FTX does is a fantastic contrast to how some Texas companies are actually approaching Bitcoin by taking a much more tax-conservative approach,” he said. “We believe the regulatory backlash would be detrimental to Texas companies that are doing things right.”

© 2022 Dallas Morning News. Distributed by Tribune Content Agency, LLC.

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