BTC Cracks $50K; Supply Crisis!
“When the facts change, I change my mind. What do you do, sir?”
Before maxis get their panties in a bunch, I am by no means a supporter of Keynesian Economics. However, I do think the quote above from John Maynard Keynes seems totally relevant to this Bitcoin cycle. We’re seeing skeptics who were critical of Bitcoin for years now coming around to it given that the facts have definitely changed in the favour of the crypto industry — except Peter Schiff.
Yesterday we heard from Treasury Secretary Janet Yellen for the first time in her new role. Highly anticipated, and the outcome was… highly predictable. I found her stance on Bitcoin to be quite bullish (only because it wasn’t bearish). In short, she said that Bitcoin is a highly speculative asset that has had its ups and downs but that it has certainly been on a tear as of late. She said that she thinks it’s important to make sure that it’s not used as a vehicle for illicit transactions and that there are investor protections in place. When asked if she thinks it should be regulated she said that she believes regulating institutions that deal in Bitcoin is certainly important. My takeaway is that there’s no pending regulatory sledgehammer on the horizon and that she at least recognizes its superior performance relative to other assets.
Yellen took a defensive stance on the massive $1.9T proposed stimulus bill saying that a “big package” of stimulus is necessary to help the economy stage a full recovery — maybe my Keynesian reference above is all too relevant in more ways than one! In her response to the concerns about the size and subsequent ramifications of the package she said: “The price of doing something too little is much higher than the price of doing something too big.”
What we saw at the desk
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BTC was the clear winner this week with massive inflows as it demonstrated its ability to hold above $50K with ease. While new accounts were rushing to get in before the next leg up, there was a calmness in the air for more experienced investors who seemed to be less surprised and more like they truly expected the price to be here eventually in the first place.
Bitcoin Is an Incredibly Dirty Business.
This was the headline from a Bloomberg piece a few weeks ago slamming Bitcoin for its carbon footprint. I’ve been speaking to many new investors as of late and a common concern is Bitcoin’s potentially devastating impact on the environment.
“Doesn’t Bitcoin use the same amount of energy as Sweden!?”
It is true that Bitcoin has grown into consuming more energy than a small country. Most people compare Bitcoin to gold so let’s start there.
Gold mining uses a ton of energy. In each ounce of gold, a lot of money, energy, and time went into exploration, building the mine, and then processing tons and tons of rocks with heavy machinery to get a few grams of gold per ton. From there, what’s left (the gold) has to be purified and subsequently minted into bars and coins, and transported. The amount of energy that goes into generating a small unit of gold is enormous.
It is this vast amount of energy that gives gold its value in the first place. In turn for all the energy spent to mine gold, the world gets a scarce store of value, and less importantly, jewellery, and other industrial use case.
Similarly, Bitcoin uses a ton of energy (for now). The great amount of energy Bitcoin uses is there to secure its protocol. It’s the reason why Bitcoin hasn’t been hacked in over 13 years and has managed to maintain pure decentralization vs. other cryptocurrencies that consume much less energy but stack up significantly less than Bitcoin in one, or in most (if not all) cases both of these traits. The reason why I said “for now” is because the majority of energy expenditure from miners is used for coin issuance (BTC mining rewards), not from anything to to with verifying transactions. This is very important to note because ~88% of BTC has already been mined. Therefore, because most coins have been issued already, Bitcoin’s future carbon outlay is likely to shrink — in the future miners will be collect network fees for processing transactions (low energy) versus mining (high energy).
In a world where banks can multiply money supply at any time with the press of a button, spending a relatively large amount energy to produce the best store of value for all is a great trade off in the eyes of the market — I agree.
Let’s put the “large amount of energy for a sovereign store of value” aside for a second and think about the fundamentals behind Bitcoin mining — the miners with the cheapest sources of electricity win. Where are cheap sources of electricity found? In places where there is an abundance of energy but little demand. Examples include hydropower in Sichuan, China, or stranded (or, trapped) oil and gas wells in Alberta, Canada.
These cheap stranded sources of energy would be completely wasted otherwise.
So yes, Bitcoin is energy intensive. However, Bitcoin mining is able to convert stranded sources of energy into something that the market has chosen as its newest and best store of value and possibly much more.
In case you missed it…
- Canada’s Purpose Investments Launches Worlds First Bitcoin ETF https://www.globenewswire.com/news-release/2021/02/18/2177751/0/en/Purpose-Investments-Launches-World-s-First-Bitcoin-ETF-Invested-Directly-in-the-Digital-Asset.html
- MicroStrategy raising another $900M in debt to buy more BTC https://finance.yahoo.com/news/microstrategy-prices-900-million-debt-125951656.html
- Long time Bitcoin Skeptic Jeffrey Gundlach Turns Bullish on Bitcoin https://markets.businessinsider.com/currencies/news/jeffrey-gundlach-bitcoin-stimulus-asset-gold-bullish-bond-king-cryptocurrency-2021-2-1030097636
- What Bloomberg gets wrong about Bitcoin’s climate footprint https://www.coindesk.com/what-bloomberg-gets-wrong-about-bitcoins-climate-footprint
- Coinbase gets private market valuation of a whopping $77Bn
https://www.coindesk.com/coinbase-valuation-nasdaq-private-market
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