The high value of some cryptocurrencies, in particular Bitcoin has had the effect of causing a significant increase in the demand for electricity leading to increases of carbon emissions. (See https://www.theguardian.com/technology/2021/apr/07/china-bitcoin-mining-climate-targets-nature-study )

Evidently, at a lower Bitcoin value, Bitcoin mining would become uneconomic for some Bitcoin miners (if the cost of their electricity was unchanged) reducing the environmental damage.

Governments and central banks have treated exchange rates as important policy matters and have made serious efforts to control or manipulate these.

What tools are available, at the national or international level, that could cause a decrease in the price of Bitcoin? Have any of them been attempted? Would they be effective and what are the arguments against employing them?

  • Why would a government want to decrease the price of Bitcoin in the first place? Apr 23 at 17:41
  • This might also be on topic on Bitcoin or economics SE Apr 23 at 17:43
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    @HamishGibson because of their carbon emissions, as was stated in the first paragraph Apr 23 at 17:44
  • Yes but the price of Bitcoin is not a measure of the carbon emissions, this depends on the number of the users in the network who are actively mining, as well as each users hash rate etc. This kind of answer that I am writing makes me think that this question would be better suited on Bitcoin.SE Apr 23 at 17:45
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    Back in early 2018, the introduction of Bitcoin futures trading occurred right at the 2018 peak. A year later, Bitcoin had lost 85% of its value. I do not think that was a coincidence. Apr 24 at 7:18

Insofar as the concern is about carbon impacts related to cryptomining (which is not an unfounded concern), there are several policy interventions which could either help to de-link crypto-supply and carbon emissions and/or reduce demand for cryptocurrency, thereby reducing the price and dis-incentivizing supply:

Very Direct Method: Criminalize cryptocurrency - Even if enforcing such a law would be difficult-to-impossible, there is a natural deterrent effect in adding the risk of criminal prosecution to transactions. The Streisand Effect (making something popular by denouncing it) is curtailed here by the fact that cryptocurrencies are a speculator's product, the people who have the strongest impact on price are also the most likely to be detected and prosecuted. Even widespread black-market use wouldn't be enough to hold cryptocurrencies at high prices.

Crackdowns on sites like Coinbase, etc. are demonstrably easier (at least for US authorities) and would follow the model the UIGEA enabled for a crackdown of online gambling, but especially of online poker sites. This would effectively limit the broad-base public access to cryptocurrency trading, and push it back into a niche fiscal tool, again lowering demand.

Moderately Direct Method: Tax cryptocurrency transactions differentially. This could only be done to businesses, who have to maintain good books and could be audited to ensure compliance. This directly raises the transaction cost of using crypto as a currency, and thus fewer merchants will want to use it, relative prices will be higher for products bought with crypto, and as a result demand for the currency will decline as its utility erodes. It's not yet vogue among large corporations to accept crypto, so this is more a measure to prevent things from getting worse.

Indirect Method: Any effort to decarbonize electricity helps to de-link cryptomining and carbon emissions. Carbon taxes are the most effective means here, as it will ensure that cryptominers select for lower carbon sources of electricity (or produce their own), but renewable energy mandates and other policy tools to push renewable or nuclear power sources will have similar effects.

  • These are certainly possible interventions, but they are not the typical steps that Governments and Central Banks use to control the exchange rates of conventional currencies. Are those techniques relevant?
    – mikado
    Apr 23 at 18:27
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    @mikado Maybe? Crypto is.... unique, and so difficult for central banks and governments to use traditional currency control on because they don't control it and can't negotiate with the 'issuer' of the currency, either. Trade policies and other means of nudging currency prices don't work because crypto is stateless, it has no import/export balance, and so its valuation is more like a commodity (gold, silver, pork bellies, corn) than a currency. Apr 23 at 18:38
  • @mikado: You certainly cannot use monetary policy on crypto, because the whole point of crypto was blocking central banks from exercising such power over it. Fiscal policy would require the government to buy, sell, and/or hold a lot of crypto, and the resulting financial risk might be unacceptable to the public. If you believe in Modern Monetary Theory, then you could also require people to pay taxes in crypto (MMT considers taxes to be deflationary), but that's even more far fetched. (But regardless, MMT probably doesn't apply to crypto as crypto is not fiat.)
    – Kevin
    Apr 23 at 21:50
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    Crypto using renewable energy, driving the market to build / supply more renewable energy, still requires building solar panels or whatever other equipment. That's still somewhat problematic because of limited supplies of raw materials like rare-earth metals for turbine generator magnets. (Human costs of exploiting workers that mine them, moreso than climate effects). Apr 24 at 9:42
  • But limits on green energy production mean that using more for crypto in the short term means less for everything else. A lot of places are already working to build new renewable energy generation that still won't satisfy current demands, and power grids allow renewable generation to run at max capacity full time (right?), so any net total decrease in global energy demand means less fossil fuel being burned somewhere in the world, because renewables aren't meeting worldwide demand and every extra kWh has to come from non-renewables. Apr 24 at 9:44

Break Bitcoin:

As mentioned in your link, nearly 80% of bitcoin mining occurs in China. If the authorities were able to persuade nearly 2 in 3 of those miners to join a pool controlled by these authorities they would then have control over the blockchain, called a 51% attack. This would allow them to for example double spend bitcoins, control who can make transactions and generally break the bond of trust that gives it value. This will reduce what people are willing to pay, potentially to zero.

It is not certain that they could persuade enough miners to use their pool, as this would likely kill the miners primary business model. However, they seem quite good at getting entities within their borders to do what they want, and they could potentially offer an alternative in the form of their own digital yuan (though we do not yet know the details of that).

  • BitCoin is part of an export surplus in the Chinese economy: mining uses local resources (paid in Renminbi), and coins can be sold abroad for dollars that can be used to buy up foreign assets (for the most part, real estate that will generate rent, also in foreign currencies). It is currently in the interest of the Chinese authorities that this continues. Apr 26 at 10:04
  • That is true, but does not change the answer, and could change in the future.
    – Dave
    Apr 26 at 10:05

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