Peak bad news?
Having navigated Elon Musk, I had thought there was nobody more prominent that could have an opinion on Bitcoin. I was wrong.
This tweet from the Pope was taken as a dig at the protocol and its power consumption. Reading it, it could equally be about aircraft, space travel or formula one cars but let’s assume it is about Bitcoin, for the sake of argument. The tweet seemed to coincide with criticism across the media, including this piece by the Financial Times.
Delving into the article a little, the content belies the headline. The FT tells us that fully 76% of bitcoin miners have renewables in their mix. There wouldn’t be a major industry in the world that could claim anything even close. It is absolutely brilliant, because in order for this to be true it validates that most miners are situated near renewable sources of energy, which frequently produce cheap surplus. Miners have to do that, because they can only pay the absolute minimum price for electicity to be survive. Bitcoin is the consumer of last resort.
Next up ‘non-renewables dominate mining’
True (today) but that means 39% of all energy used is renewable (more than enough to securely power the network by the way). Another remarkable achievement that no major country in the world is even close to matching. Indeed, central banks around the world who are looking to ‘green’ their systems ought to talk to bitcoin miners. How are you doing this? It is absolutely amazing. Since China has banned bitcoin mining with coal this number will likely rise, a lot.
Perhaps the headline should have said “Bitcoin users criticise nation states for lack of renewable energy in their mix”
Not even Germany is close. I expected to see Finland (25%) and Iceland (85%) but they were not part of the study below undertaken in 2020.
The energy argument is now being commonly used against Bitcoin. I think that is because the scarcity argument has been won, increasingly people are concerned about their inflating currencies, so the angle of attack needs to change.
The fact is the Bitcoin network is on the very forefront of renewable technology. In its mix it has a higher percentage of renewable energy than almost any industry on the planet. 75% of its mining participants use it, a number that will only rise.
Bitcoin mining is being used throughout the Canadian and US oil and gas industry to convert methane, at source, to power which is then used to mine bitcoin. This is a massive environmental contribution, since methane is about 40x more polluting than carbon dioxide.
The holy grail for bitcoin miners is renewable energy, because they can concentrate on the second vector in the mining puzzle which is fast processing chips, overwhelmingly though they have to have cheap energy.
The ‘dirty currency’ is a bridge we have to cross but it is a totally false narrative and it will fail, because it isn’t true.
Finally, consider where you live or where you work. Are you at 39% renewable today? I’m betting not. Bitcoin is and it’s rising.
China miners
Staying with the theme of renewable energy, it is no surprise to see the crackdown on bitcoin mining in China. The Chinese are eager to polish their green credentials and so those mining bitcoin with non-renewables are likely to be hardest hit here. Generally, there are a few weeks lead time from new headline to policy announcement, so the “bad news” should be announced sometime in June if history is a guide.
That said, all “China bans” are to be treated with suspicion. The number of times we have had headlines proclaiming the end of Bitcoin in China is beyond counting. The Chinese are extremely interested in the technology behind the Bitcoin network, I have no doubt they consider some position in that a strategic necessity and consequently they will continue to mine bitcoin all over China. In this case though, an easy and probably sensible target for emissions reduction are bitcoin miners using coal fired energy.
Frankly, this is long overdue and will be hugely beneficial in the long term.
- It reduces the reliance on Chinese miners
- It increases the profit margins of miners elsewhere who do not benefit from the looser environmental controls that China has employed until now
- It significantly reduces the carbon footprint of Bitcoin, likely pushing renewable content over 50%
No bailouts
The commentary continues in the traditional finance industry about why cryptocurrency is uninvestable, too much volatility and so on.
This is a thoughtful thread from Raoul Pal of Global Macro Investor on what has happened in the past few weeks. I couldn’t agree more, the fact that this would not be allowed to happen in traditional markets is exactly why they have a problem.
There is nowhere to hide in this sector. 24/7 trade, 365 days a year. When it’s falling like a stone on a Friday morning, there are no weekends to pray for, and no Fed to step in.
As with all ideas, they need testing. Sometimes the tests are severe and uncomfortable. The trick is, to pass them.
Stimulus
This is a rather alarming chart about US government transfer payments. In the post war years 20 cents in every dollar spent by the US government was a transfer payment, essentially social benefits like unemployment etc. The growing trend has continued for 50 years, reaching 45% just before coronavirus. It is now touching 60%.
It will undoubtedly fall back as the economy recovers but the trend is unlikely to reverse. The only problem here is that the other expenditures of the government have not fallen either.
Even in periods when the US was booming like the 60s and the 80s, the distributions barely fall at all. That’s simply because it is very hard to take money away once it has been given and recipients have restructured their lives around it.
There is no reason that this cannot continue, it likely will, but the impact is that it curtails economic growth significantly. The half of the economy that the government represents will materially underperform the private sector and drag the overall growth rate down. As you can see, each expansionary period grows more slowly than the last.
No simple solution here. The thing that would really propel growth is major shifts in productivity but they will be technology driven and the extraordinary gains will be concentrated in the hands of firstly, a few people that develop the tech, and then those with the skill to leverage it. Again, that will require more transfer payments.
The best approach might simply be to be open to the changes that are coming. It is the defense of the indefensible that costs the real money. New things come along, embrace them, because if you fight you will likely lose.
Euro-Trash
Well.
Hillary Clinton, no.
Ursula Von Der Leyen (EU President and incumbent imbecile), no.
Mette Frederiksen (Danish Prime Minster), yes.
Christine Lagarde. Inspire trust? You must be joking.
It’s slightly unfortunate that this utterance has come from one of the least trusted female leaders in the world. There are no doubt some really good ones, and in Europe they are about to lose the best of them. When she leaves later this year it will become obvious because sentiment towards the subsidised Southern countries will change without her.
For a long time, she has held Europe together, at great cost financially to the country she runs and at great personal cost on occasion to her own reputation but she persevered and protected the EU and the Euro with all she had, rightly or wrongly. No complaint, no hubris, no scandals, no theft from the public purse.
For 15 years now there has been one show in town, one person that really called the shots. She will step down on the 26th of September this year and it is with great sadness that I announce; that person is not Christine Lagarde.
