Donald Trump and the Bitcoin crowd have teamed up, and both expect significant rewards from their alliance.
Trump is slated to deliver the keynote speech at the Bitcoin 2024 Conference on July 27 in Nashville, where he will also host a lavish fundraiser. Top-tier tickets are going for $844,600.
But it’s important to remember that Trump was against cryptocurrency before he was for it. In 2019, he said he was “not a fan” and in 2021 said, “Bitcoin, it just seems like a scam.” However, similar to how he abruptly overcame his disdain for electric vehicles, he changed his mind on bitcoin once the cryptocurrency industry began donating millions to his campaign.
But there’s more to Trump’s reversal than campaign money. Trump has bought into the theory that the cryptocurrency industry’s enormous energy demand will help him realize his gauzy vision of an economy juiced by unchecked fossil fuel expansion. It’s magical thinking that could impede the crucial transition to renewable energy.
After a fundraiser with cryptocurrency executives in San Francisco in June, Trump said on social media that “Biden’s hatred of bitcoin only helps China, Russia and the Radical Communist Left. We want all the remaining bitcoin to be MADE IN THE USA!!! It will help us be ENERGY DOMINANT!!”
The reference to “Biden’s hatred of bitcoin” stems from a policy proposal floated by the White House in May 2023 for a Digital Asset Mining Energy (DAME) excise tax. This tax would have generated revenue to offset the downsides of the hugely energy-intensive computations needed to generate bitcoin, a process known as “mining.” Mining firms deploy vast arrays of custom-built servers, continuously vying to crack the cryptographic code that unlocks new bitcoins. The White House pegged the levy at 30% of the cost of electricity that mining computations require.
The Biden administration wants the industry to be accountable for the social cost of cryptomining. Although the proposed tax was never adopted, the administration has maintained that the cryptocurrency industry strains electrical grids, increases the cost of electricity for consumers and has an outsized carbon footprint.
Astoundingly, more than 2% of the nation’s electricity is used to mine bitcoin. That’s as much energy as the entire state of Utah uses.
Cryptocurrency industry leaders want even more. They’re hoping for favorable treatment from the federal government that will enable them to grow faster and capture a bigger share of global bitcoin production. Their clear favorite in the presidential race is Trump. The headline of a recent editorial in Bitcoin Magazine proclaims, “Trump is the Best Choice for Bitcoin.”
What Trump and bitcoin miners have in common is a desire for cheap electricity. For the miners, low electricity prices mean higher profits. Trump’s campaign website loudly promises that the U.S. will have the “#1 Lowest Cost Energy and Electricity on Earth” under his second administration. And he sees expanded fossil fuel development as the key to lowering electricity rates.
Trump’s “drill, baby, drill” mantra speaks to his fever dream of new oil and gas wells everywhere, from the Alaskan Arctic to the Atlantic Coast. He promised oil executives he would undo environmental restrictions on drilling if they agreed to donate $1 billion to his campaign. And he frequently describes domestic oil and gas deposits as “liquid gold that is right under our feet.”
Trump refers to this upswell of fossil fuel production as “energy dominance,” a phrase employed during his first administration. Energy dominance champions the U.S. as the global leader in energy extraction and exports. It is based on the premise that cheap and abundant energy is an elixir for the domestic economy. And it is heavily biased in favor of fossil fuels.
Where does bitcoin mining fit in this picture? The cryptocurrency execs have sold Trump on the idea that bitcoin will help us be energy dominant. The theory is that an increase in energy demand from mining will stimulate a corresponding increase in energy supply enabled by new fossil fuel infrastructure.
In other words, more cryptocurrency means more power plants, which means more fossil fuel infrastructure, production and exports. And that’s energy dominance.
The miners contend that new plants and pipelines will strengthen the economy. Importantly, they claim, the additional power sources would benefit the entire grid because miners can dial back their power usage in periods of peak demand, freeing up electricity for regular consumers.
The cryptominers say this ability to adapt to grid conditions is a crucial advantage, but it’s a stretch. There are various other ways to absorb excess power. Battery storage and hydrogen production are just two of several new technologies seeing rapid adoption. Grid stabilization is a well-studied problem; it doesn’t require cryptomines to solve it.
As for the argument that cryptocurrencies drive the development of new energy infrastructure, there’s already no shortage of reasons to increase generation capacity. Electric vehicles, heat pumps, increased manufacturing and AI data centers are just a few of the additional loads on the grid that will incentivize new transmission lines and power plants of all kinds.
Moreover, the proposition that bitcoin’s ravenous appetite for power would lower electricity prices contradicts the fundamental laws of supply and demand. So it’s no surprise that a 2023 study by researchers at University of California, Berkeley and the University of Chicago found that bitcoin mining markedly increased electricity prices in Upstate New York. A recent report from Public Citizen found that mining is also raising consumer electric rates in Texas.
It’s somewhat baffling that Trump supports an industry that empirically works against one of the key planks in his energy platform.
Furthermore, it’s far from clear that domestic fossil fuel production can grow much at all or that increased production would significantly lower prices. Oil production is currently at a record level, and the International Energy Association predicts global demand will peak by the decade’s end. And producers won’t drill when prices fall.
… [T]he proposition that bitcoin’s ravenous appetite for power would lower electricity prices contradicts the fundamental laws of supply and demand.
Finally, it must be noted that bitcoin doesn’t need to be an energy glutton. Ethereum, the second-largest cryptocurrency platform, changed its consensus algorithm in 2022 and reduced its energy consumption by an estimated 99%. According to an article in MIT Technology Review, “There is no technical obstacle to switching bitcoin” to use the algorithms that Ethereum adopted. It’s simply that the investors make millions on mining operations and have no incentive to convert. The aforementioned tax proposed in 2023 might have helped to force the issue had it been implemented.
This demonstrates why government policy matters. An industry like bitcoin mining that places an onerous burden on the nation’s energy grid — disproportionate to the paltry social benefits it generates — should be reined in. Senator Elizabeth Warren has been actively pursuing banking rules to gain more government oversight.
Beyond the campaign dollars and the questionable alignment with his energy policies, Trump’s recent embrace of cryptocurrency might be best understood through the lens of his checkered business career. He sees a lot of people making big money fast with little regard for the social consequences — not unlike a casino. Like legalized gambling, the cryptocurrency game has grown to a size where government must deal with it seriously.