These 10 states are leading America in creating a crypto economy

Investing in cryptocurrencies is clearly not for the faint of heart. The value of bitcoin has plunged from its high last fall, and others have followed similarly gut-wrenching paths.

But that does not mean that the revolutionary technology behind them, which allows for innovations such as smart contracts and instant peer-to-peer payments, is not here to stay. Because of that, many states are jockeying for leadership in this emerging industry.

With that in mind, CNBC’s America’s Top States for Business study which scores all 50 states on a broad range of competitive features is paying special attention to cryptocurrency under this year’s methodology.

Our crucial Cost of Doing Business category has always included the cost of electricity, a key consideration in this power-hungry industry. This year, our Technology and Innovation category includes a measure of each state’s share of computational power or “hash rate.” And our Business Friendliness category gives special consideration to how states are regulating this increasingly important industry.

Based on those metrics, these ten states are leading the way.

“It’s happening,” Republican Gov. Greg Abbott tweeted last year. “Texas will be the crypto leader.”

He may be right. The Lone Star State is consistently at or near the top for mining capacity, running neck and neck with Georgia. Electricity is affordable even before the special deals available for crypto miners, though the state’s independent power grid has had reliability issues. Texas has begun regulating cryptocurrencies with an eye towards giving them a solid foundation for growth.

Mining capacity: No. 2

Electricity cost: No. 16

Regulation: No. 21 (tie)

Mining runs deep in Kentucky’s heritage, but these days the state is trading coal for crypto. Last year, Democratic Gov. Andy Beshear signed into law a series of tax breaks for cryptocurrency mining, including extending electricity incentives that had been designated for renewable energy use to include the growing industry. The tax breaks are already working to attract miners. The state also began updating its financial regulations to encompass crypto.

Mining capacity: No. 3

Electricity cost: No. 13

Regulation: No. 21 (tie)

Virginia’s Bureau of Financial Institutions has taken a mostly hands-off approach toward regulating cryptocurrency while keeping residents of the commonwealth informed about the risks. In April, Republican Gov. Glenn Youngkin signed a groundbreaking bill clearing the way for banks to hold customers’ crypto assets, provided they have the proper risk management tools in place.

The Gem State offers the lowest electricity costs in the nation, though that has yet to translate to a big influx of mining activity. This year, the state passed the Digital Assets Act, creating a broad framework for cryptocurrency regulation. The new law specifically excludes virtual currencies from regulation under state securities laws.

Low electricity costs are also a plus in the Evergreen State. Combine that with a strong tech ecosystem, and it is proving to be a draw for miners. This year, Democratic Gov. Jay Inslee signed a new law establishing the Washington State Blockchain Work Group aimed at advancing the new technology and establishing partnerships between the state and the industry.

The Beehive State is carefully crafting regulations for blockchain, and in March, Republican Gov. Spencer Cox signed a bill that allows state and local governments to accept payments in the form of digital assets. The state also formed a new blockchain innovation task force.

Low costs and smart regulation are making The Peace Garden State fertile ground for crypto, and the effort may be paying off. Last month, mining company Bitzero announced it will build its North American headquarters in North Dakota. The company, whose investors include Shark Tank’s Kevin O’Leary, is aiming to build an environmentally friendly bitcoin mining operation.

German high-performance computing company Northern Data, which leverages its crypto mining capabilities to create data centers around the world, has chosen Pryor, Oklahoma, east of Tulsa, for its North American headquarters. The Sooner State offers low costs, and its regulations, while still a work in progress, are friendly.

Another state that is better known for other types of mining, The Cowboy State is aiming to be the crypto state. Wyoming has enacted dozens of laws to attract the industry, including a framework to charter crypto banks. The state also offers some of the lowest electricity costs in the nation. Wyoming Senator Cynthia Lummis(R), who owns crypto, has been a major backer of crypto legislation in D.C.

The Cornhusker State is taking the lead in cultivating crypto banking, establishing its own bank charter regime last year. It is also a mining powerhouse on the prairie. Minnesota-based Compute North says it chose Kearney, Nebraska, for its giant, 100-megawatt data center in 2019 because of “its ideal location in America’s heartland and its direct access to a variety of energy sources.”