Why this state can help Bitcoin grow

One of the most interesting developments that has occurred in Bitcoin (BTC 1.77%) economy in recent years has been the growth of Bitcoin mining in the state of Texas. Due to the abundance of low-cost energy and lax regulation, Bitcoin mining companies have flocked to the Lone Star state to increase profitability and avoid the red tape that exists in other states.

Texas is home to two of the largest Bitcoin mining companies in the world, and even the city of Fort Worth has started its own mining operation to get in on the action. As such, the topic of Bitcoin has spread to the highest levels of state government.

In a recent interview, Texas Governor Greg Abbott claimed, “We are seeing the future of what Bitcoin and blockchain mean for the whole world.”

Image source: Getty Images.

The missing link

To understand why Bitcoin is a priority for Governor Abbott, it is necessary to analyze how Bitcoin entered Texas politics. Abbott and the state of Texas are in a unique position when it comes to Bitcoin, due to the structure of the state’s energy grid. Unlike other states, Texas has an open independent power grid, which operates as a free market system. This means that people can buy electricity from the lowest cost supplier.

Although there are advantages and disadvantages to this model, Bitcoin mining proves that it can be flexible, whether the power demand is high or low.

One of the problems in more regulated markets is that there is often no incentive for miners to shut down. In other states, this can overwhelm the grid, as miners continue their operations in search of profits even when demand from other power users is high.

But with a free market like Texas, when demand is high, miners actually have incentives to sell power back to the grid and can do so at a profit. By returning power to the grid when consumption is high, such as during a winter storm, less efficient power plants must be turned on by suppliers, stabilizing the grid more effectively.

On the contrary, the electrical grid can also experience stretches where demand is extremely low. During these periods, Bitcoin miners act as a consistent buyer of power, which also helps stabilize the network and utilize excess energy. It’s a unique, symbiotic relationship, but over the past few years it’s been proven to work.

Front and center on the political stage

As previously mentioned, Texas is the only state with this type of electrical grid. But there are larger implications here regarding the support Bitcoin and its proponents receive from political officials at some of the highest levels of government.

Instead of taking an anti-Bitcoin route like the state of New York, which banned certain forms of Bitcoin mining in 2022, Texas politicians are coming to realize that the world’s first cryptocurrency can stimulate the economy. Industries such as finance, cyber security and technology could all get a boost in a Bitcoin-friendly economy and bring an influx of labour, talent and revenue to the state.

If Texas lawmakers can follow through on Governor Abbott’s hopes of being an economy that fosters innovation and lowers barriers to the development of Bitcoin and its related industries, it could mark the beginning of a new economic model.

Should other states or perhaps even countries follow the Texas model of a Bitcoin economy, the cryptocurrency’s potential price rise is difficult to quantify. As the discussion of Bitcoin-centric legislation continues to flourish and evolve among political officials, demand for the cryptocurrency could reach new heights.