The trade spat between the U.S. and China has spilled over into cryptocurrences and could have lasting effects, according to the founder of a prominent digital currency fund.
Until now, the technology that is synonymous with its antigovernment, libertarian-leaning community has dodged any financial implications from the standoff between President Donald Trump and Chinese leader Xi Jinping, but a small alteration to how mining equipment is classified has changed this.
The amendment came in June when the United States Trade Representative reclassified mining equipment as “electrical machinery apparatus.”
“When this reclassification occurred, the first round of sanctions were implemented and all Chinese manufactured mining rigs became subject to a 2.6% tariff,” wrote Anthony Pompliano, the Morgan Creek Digital founder and partner, in a Thursday note. “American miners were not excited at the time but the amount was negligible so most people did not pay attention. That all changed within 90 days though.”
That change was the second round of tariffs that President Donald Trump slapped on China, which included the reclassified mining equipment, and according to the South China Morning Post, it has hiked mining equipment prices by 27.6%.
Pompliano said the ramifications for the crypto industry are far-reaching. “Companies like Bitmain and Canaan are likely to see a noticeable decline in mining rig purchases from the U.S.,” he said.
According to public documents released by Bitmain—one of the world’s largest makers of ASIC (application-specific integrated circuit) mining hardware—51.8% of its 2017 revenue came from overseas, 51% in 2016 and 65.3% in 2015. Moreover, this could spell trouble as the mining giant prepares for a possible initial public offering.
Bitmain revenue by location
Read: Bitcoin mining giant Bitmain says it booked $700 million first-half profit as it files for IPO
With mining margins already squeezed, largely on the back of the 50% decline in the price of bitcoin BTCUSD, -0.97% this year, an increase in hardware costs may force miners’ hands. “The cost of mining hardware is one of the two largest input costs in the mining business, so a 27.6% tariff will have a significant impact on the economics of each miner’s business,” wrote Pompliano, adding that miners packing up shop and leaving the U.S. wouldn’t surprise him.
Read: Here’s how much it costs to mine a single bitcoin in your country
But the biggest impact trade wars could have on the crypto industry is the global arms race in the technology sector, says Pompliano. And should blockchain technology pan out to be as widespread as the crypto crusaders tout, then the U.S. may find itself behind the eight ball.
“This scenario would give other countries, specifically China, more importance and power in the decentralized world.”
Read: Tight job market suggests crypto is here to stay—in one chart
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