Bitcoin miners accuse Arkansas of discriminating against Chinese operators

As the US increasingly squares off against China, one group is fighting to leave open the door to more business from the Asian nation — Arkansas Bitcoin miners.

On March 13, the Arkansas Cryptomining Association, which represents Bitcoin miners in the Natural State, accused Arkansas, its attorney general, and the head of its Oil and Gas Commission, of unlawfully discriminating against Chinese people and their US partners.

The federal lawsuit is a response to a law Arkansas passed last year when legislators, concerned about Bitcoin mining’s cybersecurity risk, noise pollution, and excessive use of water and electricity, declared a state of emergency.

The state legislature banned ownership and partial ownership of mining outfits by anyone on the US State Department’s roster of “countries of particular concern” — a list that includes China.

Expelling foreign firms

Chinese citizens or residents — or anyone acting on their behalf — have until May to divest from any Bitcoin mining operations based in Arkansas, according to the law.

The case underscores a push from Washington to expel foreign-owned crypto mining facilities from the US.

Last year, the US Department of the Treasury, in coordination with the Department of Defense, expanded an existing rule to prevent foreign-owned crypto mining facilities from establishing operations near sensitive military sites.

In May, then-President Joseph Biden invoked this rule and directed the MineOne, a Chinese-backed crypto mining firm to divest its property near a US Air Force base in Wyoming.

For his part, President Donald Trump has cast Bitcoin mining as an important strategic industry and vowed to make the US the “crypto capital of the world.”

“We want all the remaining Bitcoin to be made in the USA!!!” he wrote on social media last year.

‘I mean, to me it’s almost like, on this foreign ownership, ten months after Pearl Harbour.'

—  Arkansas State Senator Bryan King

The reality on the ground in Arkansas complicates the picture.

The Arkansas Cryptomining Association represents Bitcoin miners in the Natural State, at least two of which — Jones Eagle and NewRays One — are owned by Chinese-Americans.

Lawyers for the Association did not immediately respond to DL News’ questions about the Association’s membership.

As Bitcoin mines proliferate in the US, those with ties to China have set off alarm in the national security community, according to a report from The New York Times.

Some of those mines have ties to the Chinese government or have byzantine ownership structures.

Three Chinese miners

As of October 2023, Chinese investors operated at least three Bitcoin mines in Arkansas, according to the Times report. One had ties to a Shanghai-based real estate business half-owned by the Chinese government.

While several states have laws restricting Chinese ownership of land in the US, it is unclear how many specifically target foreign ownership of Bitcoin mines.

The Arkansas law and a related regulation issued by the state’s Oil and Gas Commission are “unconstitutional on their face” and “discriminate based on race, alienage, and national origin,” the Arkansas Cryptomining Association alleged in its suit.

The association is asking a federal court in Little Rock to nullify the law.

“We received a copy of the lawsuit late last week and are currently reviewing it,” a spokesperson for Arkansas Oil and Gas Commission director Lawrence Bengal said in response to DL News’ request for comment.

Mobilised opposition

In the meantime, municipalities are increasingly opposing Bitcoin mining operations no matter who owns them, even in states and communities that supported Trump and the Republican Party in last year’s election.

In Texas, for example, residents have mobilized against Bitcoin mining facilities due to the energy and water they consume and the noise they produce.

Because Bitcoin mining operations are largely automated, they do not produce the jobs or economic growth that usually make industrial plants tolerable, opponents say.

Those issues appear to have galvanised Arkansas residents as well.

The law says that “the continuous noise emitted by digital asset mining businesses threatens the public peace, health, and safety.” The measure also says that miners pose “potential issues with cybersecurity.”

The law does not reference China by name, and refers only to the countries “of particular concern” and those subject to other State Department regulations touching on national security.

‘Foreign adversaries’

But the law’s target was made clear when lawmakers debated the bill last year, according to the lawsuit.

State Senator Josh Bryant said the purpose of the bill was to ensure “foreign adversaries like China do not operate in our state.”

According to the Arkansas Democrat-Gazette, a spokesman for Arkansas Governor Sarah Huckabee Sanders said she was “the first governor in the country to kick a Communist Chinese-owned company out of her state and strongly supports outlawing foreign adversaries from owning crypto mines in Arkansas while protecting rural communities and empowering them to crack down on bad actors.”

Another state senator likened Bitcoin mining operations in Arkansas to the Japanese surprise attack on the US in 1941, according to the lawsuit.

“I mean, to me it’s almost like, on this foreign ownership, ten months after Pearl Harbour,” Arkansas State Senator Bryan King said on the floor of the Legislature, according to the lawsuit.

Jones Eagle and NewRays One will be affected by the law, according to a declaration from Association Director Connor Kempton.

Jones Eagle is owned by naturalised American citizen Qimin “Jimmy” Chen. The lawsuit did not state whether he is also a citizen of China.

NewRays is owned by Yunpeng “Steven” Li, a “citizen” of California, according to a lawsuit the company filed against Faulkner County, Arkansas, last year. That lawsuit did not state whether Li is also a Chinese citizen.

Racist comments

In that lawsuit, NewRays asked a federal judge to void a county ordinance imposing “substantive requirements” on data centres, including limits on noise pollution.

County officials passed the ordinance after receiving “anti-Chinese newsletters” from a group called Secure Arkansas, according to the lawsuit.

One official received racist comments from NewRays’ local opponents, including “Where [is] the klan when you need them” and “go back to china,” according to the lawsuit.

A federal judge rejected NewRays’ request for a temporary restraining order.

Jones Eagle had more success — the company filed a lawsuit in the same federal court last year, winning a temporary restraining order against Arkansas officials.

That should have prevented the state from enforcing the laws against Jones Eagle or its owner.

It didn’t.

The Oil and Gas Commission moved ahead with regulations impacting Chinese-owned Bitcoin mines in Arkansas, including Jones Eagle, the Arkansas Cryptomining Association lawsuit alleges.

State officials have yet to respond to the lawsuit.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can contact him at aleks@dlnews.com.