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From a $1T Asset to a $100T Network: Everything We Learned About the Bitcoin Mining Council From Michael Saylor's Twitter Spaces

With more than 7,000 listeners, Michael Saylor and many North American miners added color to the initiative.

Listen on:

On this episode

With more than 7,000 listeners, Michael Saylor and many North American miners added color to the initiative.

This episode is sponsored by Nexo.io and Bitstamp.

On today’s episode of “The Breakdown,” NLW first follows up on yesterday’s episode about the FOMC meeting and a potential future shift in Fed policy. As many expected, the Fed kept its short-term policy the same, but revised forward its estimates for when it will begin rate hikes to 2023.

The main discussion focuses on the latest from the Bitcoin Mining Council. Yesterday, MicroStrategy CEO Michael Saylor hosted a 90-minute discussion via Twitter spaces that featured many pointed questions. NLW argues that what’s clear from the session is Saylor is focused on scaling bitcoin from a $1 trillion asset to a $100 trillion network and fighting anything that stands in the way.

Image credit: CoinDesk TV

Transcript

What's going on guys? It is Thursday, June 17., and today we're discussing everything we learned about the Bitcoin Mining Council on Michael Saylor's Twitter Spaces last night. 

First, however, let's do an update on yesterday's FOMC meeting. Effectively, it was exactly as we expected. In the short term, the Federal Reserve is making no changes, rates will remain near zero, bond purchases will be $120 billion monthly. However, the Fed did signal that rate increases were going to come earlier than expected. Jay Powell officially retired his "we're not even talking about talking about raising rates term." In fact, he said, "You can think of this meeting as the talking about talking about meeting if you like." 

Officials now expect to raise rates in 2023, when previously they had expected to keep rates near zero all the way through 2023. What's more, Powell gave some latitude on the transitory inflation concept, saying, quote, "As the reopening continues, shifts in demand can be large and rapid, and bottlenecks, hiring difficulties, and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect." Overall, stocks were down and the dollar was up as one commentator called it a "hawkish surprise." 

It's important to remember when we look at stories like this that U.S. monetary policy doesn't just impact the U.S.. This morning's lead Wall Street Journal headline reads, "Red Hot U.S. Economy Drives Global Inflation, Forcing Foreign Banks to Act. Central banks are raising rates to fend off a rise in inflation as policymakers respond to the booming U.S. economy."

Basically, in the U.S., the Fed is acting ultra-dovish to avoid a taper tantrum like we discussed yesterday, where markets freak out at the prospect of rate increases. L arge central banks in places like Europe and Japan are effectively forced to match Fed policy so their currencies don't get stronger comparatively and hurt economic recovery. The head of macro research for BlackRock said to prevent the Euro strengthening the European Central Bank would need to be similarly dovish as the Federal Reserve, which might be a struggle due to different inflation and growth dynamics. However, in much of the developing world, central banks don't have the luxury of matching the Fed. When debt is denominated in dollars, even a little bit of local inflation can be absolutely disastrous. 

In Brazil, the central bank has made a third-straight interest rate increase in the face of 8% inflation. Russia has also raised rates three times this year to 5.5%, with inflation over 6%, which is the highest it's been in five years, Turkey raised its main rate all the way to 19% in March. All of this is a reminder that we live in a deeply globally interconnected system and inflation and economic performance in the U.S. isn't just about us. 

Speaking of which, one more story worth giving quick mention to: the World Bank has denied a request from El Salvador to help implement bitcoin as legal tender, their reasoning: environmental concerns. Quote, "While the government did approach us for assistance on bitcoin, this is not something that the World Bank can support, given the environmental and transparency shortcomings." This is, of course, total bullshit, and a demonstration that the World Bank is ultimately an institution that does not serve global nations, but the specific interests of the U.S.

But with that, let's shift to our main discussion, and let's give a little bit of background for those who don't have it. In December, Elon Musk and Michael Saylor started tweeting back and forth a bit. Bitcoiners were already in the modality of companies adding bitcoin to their Treasury, and Saylor had already emerged as one of the top new evangelists. So of course, this got tongues wagging. 

At the end of January, Elon changed his profile to read, "bitcoin" and tweeted "in retrospect, it was inevitable." In February, Tesla announced that it purchased $1.5 billion in bitcoin and that it would start to accept bitcoin for payment for vehicles. Bitcoiners cheer and our bags rejoice as we're rocketed up the next leg of the bull run, but it wouldn't be a good story without a dramatic arc. Now, would it? 

Almost immediately, we saw the downsides of Elon's involvement to go right along with the upside of price. Those downsides included: one, the alignment with an unpredictable Twitter user more likely to shell doge than to do anything that bolstered bitcoin; and two, the scorn and condemnation of the legions out there who dislike Elon. That second category includes many who profess to care about the environment, who basically view Tesla or at least Elon himself as a great greenwasher. 

In retrospect, it's pretty clear that Tesla's involvement did more to ratchet up a focus on bitcoin's environmental footprint than to alleviate concerns about it. By the end of April, a new concern, Tesla had sold 10% of its bitcoin. Elon professed that it was only to demonstrate the liquidity of the asset to stakeholders, but it was still jarring. By a month later things had gone really sour. Elon announced that Tesla was pausing sales of bitcoin due to environmental concerns. "WTF," the collective cry rang out, "did this guy seriously just learn about the environmental footprint of bitcoin?" Of course not. 

What's far more likely and commonly accepted, is that behind the scenes, there were serious pressures pushing Tesla and Elon on the bitcoin question. For example, ESG focused ETFs that list Tesla, but who would delist because of bitcoin. For more on this, go listen to my conversation with Cathy Wood from a couple weeks ago, she talks explicitly about it, how much of a focus this is for people like Larry Fink at BlackRock. 

Whatever the case, the move put energy concerns right there as the chief criticism for Bitcoin to deal with and tanked the price roughly right back down to where it was before Elon got involved in the first place. Bitcoiners and Elon had some public spats and we were all reminded why bitcoin is a no-heroes asset. Fast forward to a couple of weeks ago. Elon pops back up again, this time with Michael Saylor, announcing that they have convened the Bitcoin Mining Council. It's a new industry trade association meant to develop a common standard for sharing energy use data and to advocate for greener practices. The largest North American miners were all attendees at the first meeting, which was announced retrospectively.

The reactions were perhaps not what they would have thought. The most accurate word I would say is, skeptical. This was a closed-door meeting announced only after it had happened. More than one Bitcoiner had flashbacks to the New York agreement that launched the Blocksize Wars. One of the members had, at that time, already supported a type of censorship in the form of OFAC-compliant mining. In other words, mining that censored transactions from OFAC blacklisted addresses, which made many wonder what other parts of the protocol this group would be comfortable tinkering with. That mining outfit marathon by the way has subsequently reversed their position on OFAC-compliant mining. 

The meeting also involved two billionaires at the helm, and while most would agree that Michael Saylor has earned the benefit of the doubt, most would also agree that Elon hasn't. I said in my recap of the initial announcement, it wasn't the issue even necessarily that these folks were trying to put themselves in the position of being leaders who speak for Bitcoin, it's that by forming something like this private-member association, external actors would inherently look to them as leaders now, regardless. Its leader status by default, as dictated by the outside world. 

In the following days, many of the participants of that meeting, notably Amanda Fabiano, who used to lead mining at Fidelity and now does Galaxy, made extremely clear the extremely limited function of the council, which in her articulation, was to figure out better standards for reporting the actual energy mix that miners used. The logic here is that without really good first-party data, articles and studies discussing mining or cherry-picking from different estimates that support whatever their priors are. If there is good data, at least the industry can't be whacked with incorrect information. 

Over the last couple of weeks, perspectives have simmered. For some Bitcoiners, the presence of the council has prompted a push to full-stop reject the entire premise of the ESG debate. Others have gotten comfortable with their sort of limited mandate. Whatever the case is, clearly the council felt that the narrative got off on the wrong foot and they wanted to reintroduce things in a different way. Michael, by the way, man, this is why you call me when you're figuring out how to announce something. You've got my number. 

Anyway, on June 10th, Michael tweeted, "The Bitcoin Mining Council is a voluntary and open forum of bitcoin miners committed to the network and its core principles. We promote transparency, share best practices, and educate the public on the benefits of Bitcoin and bitcoin mining. Join us." That came along with a new website that made some things clear, notably, quote, "Elon Musk has no role at the BMC. The extent of his involvement was joining an educational call with a group of North American companies to discuss bitcoin mining," and, quote, "We don't seek to change the decentralized nature of Bitcoin or its core principles, but rather, are working to raise awareness about Bitcoin and bitcoin mining."

This was followed just yesterday by an open Twitter Spaces. Saylor tweeted, "On Wednesday, you're all invited to meet with members of the Bitcoin Mining Council to discuss the latest on bitcoin mining, the energy debate, network dynamics, China mining policy, North American mining developments, tech trends and industry outlook." The hour and a half long meeting or so took place last night. At various points, there were 7,000 or more listeners and some pointed questions. 

I was able to catch a good chunk of it and was following tweets of others who are listening as well. So, what did we learn? Well, a few things. First, it's very clear that the BMC is trying not to be a closed door group. Their website invites any bitcoin miner to join and they reiterated that openness over and over again. Second, along those lines, the miners on the call went to pains to be clear in their belief that miners do not control bitcoin, that the lesson of the Blocksize Wars and UASF was that miners are simply one part of bitcoin and that nothing about the BMC was meant to challenge that fact. Third, we saw that while the BMC may be presenting a united front, to the extent there is a big vision, it seems to be Saylor's, and that big vision is scale, scaling bitcoin. 

Caitlin Long asked a number of pointed questions. One of them was whether the presence of public companies who put bitcoin on their balance sheets was actually good for bitcoin, or whether it created strange incentives and new risks. Saylor responded to that by asking a question, "to get bitcoin from a $1 trillion asset, to a $10 trillion asset, to a $100 trillion monetary network," and those were his words and numbers, by the way, "could we do that without the support of governments, city, states and national governments, and corporations?" 

His answer? No, we can't. And because of that fact, we wanted to recruit those people in positions of power. He pointed to the governor of Texas, basically saying that you don't have to agree with him on everything, or even like many of his positions much at all, to still want him to be pro-bitcoin and to help make his state pro-bitcoin. Indeed, as part of this, it was clear that while the miners had previously said that the main thing they agreed to was voluntary disclosures of energy data, Saylor had in mind a much larger PR war. When asked about the main threats to Bitcoin, he said that it wasn't shareholders advocating on the basis of ESG concerns, instead, it was, and these are my characterization of his words, not words that he actually used, the potential for a woke mob of citizens who get inflamed about Bitcoin’s menergy use and organize against it, aided and abetted by a media who spoil for a fight, and would love to repeat damaging statistics to inflame the crowd against Bitcoin. 

To counter this, Bitcoiners need to organize and coordinate to tell the story of the value of mining. These were two themes that came up over and over and over. The first is the need for Bitcoiners to organize and coordinate . Saylor's logic is simple. If the enemies of Bitcoin are coordinated, so too the advocates of Bitcoin need to be. It's a pretty clear, compelling logic, but it does come into a distinct historical context that is hard for many to gloss over. 

The second recurring theme was telling the story of the value of mining, and really, it's not the story of mining that Saylor wants to tell. It's the story of Bitcoin and where mining fits into it. Listen to this closing quote I jotted down as I was listening. Saylor said, "There was a story here that hasn't been told. And it's the story of how bitcoin mining is creating the infrastructure and integrity to create a new open monetary system.Mining is replacing the traditional banking system and the need for force to preserve the integrity of that monetary system."

That's a pitch about Bitcoin in general. And it situates mining as an enabler of an incredibly important thing, a new open monetary system that doesn't rely on legacy infrastructure, or the threat of violence. This reminds me of something that Joe Weisenthal observed rather pointedly a few months ago, "the bitcoin energy debate mostly comes down to whether or not you think bitcoin is valuable. If you do, the energy is worth it. If you don't, you don't. Arguing about the energy mix in the middle is ultimately a red herring for the real debate. Is bitcoin worth the energy it uses, whatever the energy mix is?"

So, what are the reactions? Well, I surveyed folks who were listening and, as you might expect, there was a pretty wide band of different takes. Some worried that no matter what the intention, the group might still represent a subtle but real centralization threat. Many were blasé about the whole thing, saying it's fine if it gets some good PR, but ultimately, it's irrelevant for the functioning of the protocol. 

Interestingly, though, the most common reaction was a strong agreement with Michael Saylor about the need for more organization. The line that came up and resonated over and over and over, was his argument that we can be decentralized without being disorganized. It seems clear to me that many are recognizing just how loud the chorus of environmental critics is growing. And there seems to be an emerging shared sense that this does, in fact, represent a threat, and is something that should be dealt with head on. 

I think whatever your take, it's great to see this sort of attempt at transparency, this attempted openness, this willingness to spend time answering questions, and I'd love to see more of it. I think ultimately, that questions of organization and centralization come down to how the BMC acts, not what it says. And that'll be true for any organization related to Bitcoin, whether BMC or otherwise. 

Anyways guys, interesting times as we transition to a more significant global role for Bitcoin and I appreciate you hanging out as we see what comes down the pipe. Until tomorrow, be safe and take care of each other. Peace!

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