China shuts down mining and starts censoring crypto exchange terms while U.S. senators and CFTC commissioners attack crypto.

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In a week so filled with the optimism coming out of El Salvador, of course there had to be another side of the story.

On today’s episode, NLW looks at three examples of the existing power structure fighting back against the rise of crypto:

  • China shutting down mining in two provinces and apparent censorship of exchange-related terms on Baidu and Weibo
  • A CFTC commissioner’s extremely negative comments on decentralized finance
  • Sen. Elizabeth Warren’s full-throated assault on bitcoin from yesterday’s Senate Banking Committee hearing

Is bitcoin devolving to just another partisan issue?

See also: Elizabeth Warren, US Lawmakers Put Bitcoin on Trial in Senate CBDC Hearing

Image credit: Tom Williams-Pool/Getty Images/Getty Images News

Transcript

What’s going on guys? It is Thursday, June 10. And man, this has been a week of thrilling excitement. El Salvador has moved more quickly than anyone thought possible to make Bitcoin legal tender. What’s more, when President Nayib Bukele jumped on Nick Carter’s Twitter space on Tuesday, someone asked him about Bitcoin mining–I think it was actually Alex Gladstein–that prompted President Bukele to speculate about the potential for bitcoin mining powered by geothermal energy from volcanoes. Well, by the next morning, he had initiated a project around exactly that, and the CEO of the largest North American miner was up in his comments asking about getting involved. 

The net of all of this was that the possibility of a new mainstream narrative of bitcoin’s capacity for Economic Empowerment has captured the imagination of bitcoiners the world over. But of course, this wouldn’t be bitcoin without some controversy and strife to go with it. Last night, I jokingly said that today’s episode is going to have to be called “The Empire Strikes Back.” And this wasn’t in reference specifically to the “global powers that be” getting up in El Salvador’s craw about Bitcoin, although there is a meeting with the IMF today that could provide some insight into their initial reaction to the move. 

In fact, as I was prepping the show, preemptive comments from the IMF came out. Jerry Rice, an IMF spokesperson, said, “adoption of Bitcoin as legal tender raises a number of macroeconomic, financial, and legal issues that require very careful analysis,” which, I mean, isn’t surprising. Of course they were going to say this and I’m not overly concerned yet. Instead, the “Empire Strikes Back” comment was about a string of established powers ratcheting up their rhetorical and real attacks on Bitcoin and crypto at large. 

Let’s head first to China as this is a story that’s already started and that has seen some significant developments this week. There was action by two provinces against mining. In Xinjiang, the local government issued a notice to shut down crypto mining activities. The shutdown was immediately taking place yesterday on June 9, and the specific focus was on the Zhundong Economic Technology Development Park. This is a 15,500 square kilometer area that houses a number of different coal powered industries. 

From Wolfie at The Block, “the notice cited the measures for the energy conservation examination of fixed asset investment projects passed by China’s national reform and Development Commission as the relevant ordinance for government officials to carry out the order.” In Shanghai the same type of decree was issued. In Sichuan, which is a mining hub powered primarily by hydro electric, they held a meeting last week to discuss how shutting down mining would impact the local economy. No immediate action was announced after that meeting. 

As I’ve discussed before, while “China bans bitcoin mining” sounds like a scary thing from the outside, many bitcoiners think that the medium and long term net effect could be actually significantly positive, in that it would one, further decentralized hash power; two, reduce the total carbon footprint of bitcoin mining by shifting hash power away from coal; and three, reduce the plausibility which most already find implausible of a Chinese attempt to attack the network via domestic miners. 

In the short term, some have expressed concern about declining hash rate. Many of the world’s biggest mining pools that work with Chinese clients have seen the hash rate quickly drop after the shutdowns. Antpool, F2Pool, Poolin, and BTC.com have seen hash rate drops between 11 and 30%. Bitcoin mining pools run by Huobi and Binance have also seen over 10% declines. 

At the same time, non-Chinese pools including Slush Pool and Foundry USA have remained steady. But is this actually a cause for concern? Not really, according to experts who remind us that hash power remains multiples higher than in previous years, when the network was still considered secure. 

However, this wasn’t the only Chinese intrigue with bitcoin. Two of the largest internet companies in China, Baidu and Weibo, seem to be taking on a coordinated censorship effort around keywords related to Huobi, Binance, and OKX, the three major crypto exchanges that cater to Chinese investors. Searching for those companies on Baidu, a.k.a. Chinese Google, now brings up zero results. Same with Twitter-esc Weibo. 

In addition, Weibo suspended the accounts of about 25 major crypto influencers who combined had millions of followers. Interestingly, this hasn’t really registered in markets the same way other China action has. This suggests that to some extent, we’ve priced in China’s slowly unwinding itself from bitcoin. And that fact means that we’re also likely to see more discussions of the positives of that disentanglement which could be net bullish moving forward.

With that, let’s head back to the old US-of-A. First, I want to talk about comments from a CFTC Commissioner about DeFi. In the US, the CFTC has tended to historically be the most pro-crypto body of all the regulators. But that didn’t stop Commissioner Dan Berkovitz from going off in a speech to the Asset Management Derivatives forum. He pointed out, obviously, that DeFi platforms are not registered as designated contract markets or swap execution facilities. He articulated that he didn’t like the presence of an entire side-long unregulated derivatives infrastructure. And of course, ultimately, the big concern came down to investor protections. 

Here’s a quote. “In a pure peer-to-peer DeFi system, none of these benefits or protections exist, there is no intermediary to monitor markets for fraud and manipulation, Prevent money laundering, safeguard deposited funds, ensure Counterparty performance, or make customers whole when processes fail. The system without intermediaries is a Hobbesian marketplace with each person looking out for themselves. Caveat emptor, ‘let the buyer beware.'” I think the concern if you’re in DeFi is that his critiques are extremely foundational and structural. His critique, in other words, is with the very nature of the design of the DeFi system. 

Indeed, in many ways, the speech was a full-throated defense of intermediaries. This is different than some fud that can be shifted or educated away. This is an attack on the structure of the system. Now, importantly, this is just one person and it’s not clear either A., how much time he’s actually spent with DeFi; or B., how reflective of the rest of the commission his views are. But still, I think it’s worth keeping an eye on. 

To my mind, one of the most real short-term regulatory threats is the well-intentioned paternalism that says the people can’t be trusted to not lose all their money and so the government should limit their choices. It seems a seductive logic for many in power and is diametrically opposed to the radical freedom that crypto networks represent. 

But finally, in our “Empire Strikes Back,” episode there is Elizabeth Warren. Yesterday was a Senate Banking Committee hearing ostensibly focused on central bank digital currencies. However, led by Senator Elizabeth Warren, much of the focus ended up being on bitcoin. Nick Carter absolutely savaged her take, saying “things Liz Warren is deliberately lying about: bitcoin transactions consume x energy, bitcoin is unproductive and has no utility, bitcoin energy use is a disaster for our planet, bitcoin disproportionately used for illicit purposes.”

These are areas of fud that we have discussed endlessly on the show, so I don’t need to re-litigate them. But Nick also made clear what he thinks the increase in vitriol is caused by. In his estimation, it’s not an accident that this attack came during a hearing theoretically about CBDCs. He writes, “virtually everything she says about Bitcoin is a flagrant liar misrepresentation, her despotic sino CBDC won’t substitute for or improve on bitcoin. It will subject you to a permissioned yeast life where every financial decision you make must be approved by her goons. Most policymaker interest in bitcoin extends only to employing it as a rhetorical device against which they show their sino CBDCs. It’s unreal to them, simply an antithesis. When their takes on bitcoin are completely unglued from reality and bear no resemblance to fact, remember that them attacking bitcoin is a sales tactic for their favorite population control social credit systems.”

In this rhetorical paradigm CBDCs negate the need for non-state cryptos, because they replaced all the quote-unquote good things that lawmakers are happy to acknowledge, i.e. speed, convenient settlement with a version that doesn’t risk criminal concerns and doesn’t undermine monetary policy. The reason that you hear such ire in Nick’s tweets is that CBDCs don’t just minimize criminal concerns and support monetary policy, they also radically increase the scope of the government to surveil financial transactions of private citizens, while creating a significant expansion in monetary tools. 

There are many bitcoiners who feel the same as Nick, and who would have expected nothing less from Elizabeth Warren who has a significantly higher belief in the government’s capacity to deliver positive economic results then, well, most given that she has consistently presented her pitch to America and been rebuffed. 

At the same time, there are many bitcoiners who lament that Warren’s chosen mechanism of change, which is government policy, blinds her to the reality that the actual end goal at the heart of her political life, economic empowerment injustice, is something that she could find much common cause with in bitcoin, Andrew Bailey, who was on the show a couple months ago, discussing Bitcoin politics and philosophy wrote, “I feel more sadness than scorn. I don’t agree with her on most things, but I do respect Warren, It’d be a shame to see her become incredibly beset with bitcoin derangement syndrome, when her commitment to financial inclusion could make her a powerful ally to bitcoin.”

When they say financial inclusion, nine out of 10 politicians are fronting they don’t give a shit. Warren does, I feel, this is the golden thread that runs through her career. There’s probably a one week window here to get her to budge on bitcoin, but then it will be too late. 

Unfortunately, at the risk of falling into cynicism, I think that by the time politicians make a big show, like Warren did, even getting herself booked on Bloomberg to follow up the appearance, the ability to shift their perspectives has largely passed. That said, I do think it would be a net bad for bitcoin and crypto to become exclusively a partisan issue in the US. And it would be much too easy for it to do that. 

For example, the same day that Senator Warren made these comments, Sean Hannity slapped on some laser eyes and invited Michael Saylor on his show. There is an inherent “individuals over institutions” bent to bitcoin. But to reduce it exclusively to a right leaning thing, is to fail to understand how integral the idea of individual self organizing to wrest power back from the entrenched pillars of control is at the center of a left leaning perspective as well. 

We’ll see, there are still plenty of pro crypto pro Bitcoin, or at least pro open to these things, folks in positions of power in the Biden administration. How it all plays out, will be interesting to see. Then again, it’s not inconceivable that opposition to bitcoin becomes bipartisan as well. The two biggest politicians attacking Bitcoin This week were Elizabeth Warren and Donald Trump after all, niraj from coin center tweeted today. 

What’s different about this time is that there actually are people who hate cryptocurrency, who are engaged in political advocacy against it, that’s new. Yet in the background of all of this is the larger macro economic environment.

Inflation hit 5% in the latest official CPI numbers higher than expected. And of course, there are still many arguments that it is a combination of base effects: in other words, it’s a year-over-year measure, and no one was spending money last year at this time; as well as transitory forces, as we shift back into the economy coming online. 

But still, that number is bolstered by the sentiment out there that things are getting more expensive. A silly, but telling, example comes from a Bloomberg headline today. “Shake Shack Sees Chicken Inflation in Second Half of this Year.” I continue to believe that we’re in a radical “in between” moment. In between on macro, in between on policy, in between on where bitcoin and crypto are going to fit into those larger battles. Get your popcorn, it’s gonna be wild. Until tomorrow guys, be safe and take care of each other. Peace!