Bitcoin : The invisible hand
Before investing in a blockchain or crypto project, I look at the team, tech, ecosystem, partnerships, whitepapers, pitchdecks, linkedin profiles, github repositories, NFT market cap, performance of similar projects, max token supply, token price, vesting schedules etc. Data, which helps me to reach for my calculator and come up with a reasonable valuation for what I think it's worth. If undervalued, I then confidently ape-in to the project with my small investment and then wait for the magic to happen only to see the price of my new token hopeful to be carried down and away by an invisible hand: Bitcoin.
Confidence shattered, I begin to pick up the pieces, realizing that instead of feeling bad about what happened, that I have really been saved from a very dangerous perspective in investing that goes “I know exactly what is happening and where the market is going to move.”
I realize that I need to rebuild my “model” of evaluating opportunities so that it is able to take into account the strong correlation between the price of Bitcoin and the price of the other crypto Altcoins that I find myself constantly investigating. So we find ourselves in unfamiliar waters, leaving the flashy, new and comfortable world of Altcoins and returning to the slower moving giant that started it all: Bitcoin.
We know that Bitcoin uses Proof of Work as a consensus model to validate its transactions. A process that is energy intensive for its miners who run specially configured ASIC miner machines in large farms to solve increasingly difficult cryptographic puzzles for the chance to win the next block.
According to sources, large scale Bitcoin miners are earning significant amounts of Bitcoin, reportedly up to $15 billion dollars worth in 2021 alone.
It’s therefore logical to expect that any government policy change that reduces the profitability of mining to “knock on” and affect the decisions of miners. Businessmen and women, who could potentially dump some of their hard-earned bitcoin to finance the move to more friendly countries, sending the crypto markets into a spin.
Moreover, in the last 12 months, there has been no shortage of government policy changes on crypto and Bitcoin, so let's take a closer look into potentially what are some of the conflicts & tensions that global government policy makers are dealing with?
The Financial Sovereignty Argument
Bitcoin and crypto are not good because their success is undermining the value of national currencies and therefore the global financial system.
Countries who have taken this position at one time or another include: China, India, Russia and others including agencies such as the IMF.
The Energy Sustainability Argument
Bitcoin mining whilst profitable, is power hungry and might threaten energy security for countries who have structural vulnerabilities including lack of capacity, energy resources, technology and management expertise.
The Employment Argument
Bitcoin mining is highly profitable and could create jobs in regional areas that have cheap and readily available power. Over time, governments and the private sector could increasingly invest in renewable energy and more efficient power supply technology to make Bitcoin mining sustainable for the long term.
The National Debt and Hyperinflation argument
For developing economies who are burdened with large national debt and weak, hyper-inflative currencies - making Bitcoin legal tender could help combat rampant inflation whilst unshackling their financial system from the West, gradually delivering them to a position of more political and financial independence.
The Fear of Missing Out Argument
Bitcoin, crypto and non-fungible tokens (NFT’s) represent a new asset class and economy for the whole world. If Bitcoin is relatively immune to bans as miners shift to more friendly countries, then is our (insert country) in danger of missing out on getting our share, or better still, in taking the lead in the race for supremacy of the blockchain economy.
In the last week we have seen a stunning about face from Russia who just eight days ago released a report from its Central Bank that advocated a ban on the mining and use of cryptocurrencies. Only to have the Russian President, Vladimir Putin, no more than 5 days later, spectacularly override his Central Bank to declare
“We also have certain competitive advantages here, especially in the so-called mining,” Putin said during a government meeting.
What could be the motivation for such a large change of heart?
China shrinks, helping USA to emerge as a global Bitcoin powerhouse
If we take the big picture view, we can see that over the last 2 years, the global centre for Bitcoin mining has shifted from China to the USA. China, who previously had more than 60% of the global Bitcoin hashrate less than two years ago presently have no hashrate after their bans took effect. Meanwhile, the USA has grown its mining hashrate to become the largest Bitcoin mining player in the world.
One can only wonder if somewhere in the mind of Vladimir Putin, as he witnesses the rise of US dominance in Bitcoin mining, that he feels a gnawing unease that Russia is not excluded from future benefits of what the Bitcoin economy could bring?