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Bitcoin’s China Dip

Gravity still exists in the Crypto markets. The latest news out of China, coupled with Elon Musk’s tweet informing us that Tesla will no longer accept Bitcoin for payment, has been railing Bitcoin and cryptocurrencies.

The reason Tesla is no longer accepting payment is also traceable back to China as Musk points toward the energy inefficiency used to mine Bitcoin:

As it stands, most of Bitcoin’s electronic mining takes place in China, because this is where Bitcoin can be mined with the least cost. The reason for the cheap energy is dirty coal. Since Tesla touts itself as a champion for the environment, Musk flipped on his plan in accepting Bitcoin until it is mined through a cleaner source of energy. Who knows? Maybe this is his way of shilling Tesla’s solar panels to aid in Bitcoin mining.  However, if China eventually prohibits Bitcoin altogether, the dirty coal mining will be reduced through such actions.

The latest statements banning cryptocurrency by China are contradictory. While publicly denouncing crypto, they are in the process of developing a Central Bank Digital Currency (CBDC)—a  digital yuan. This will give them complete authoritarian control over people’s money.

What does this mean for Bitcoin HODLers?

For Bitcoin believers, volatility is of no surprise. Those who have been around have seen Bitcoin drop by 80% in 2018, only to watch it roar back to the recent peaks of the market. As the proverbial saying states, “With great power, comes great responsibility;” in Crypto it’s more like, “With great wealth, comes great volatility.”

Many in Bitcoin and cryptocurrency are in it for the principles. We believe currency should be stateless, so that no central actor like China can come along, create their own digital yuan and have even greater surveillance and dictatorship of its people through the currency. We believe that seigniorage has become a mainstay for governments to manipulate their currencies, at the price of its people. Seigniorage, in modern times, is the government’s issuance of currency through fiscal bailouts to corporations, stimulus checks, central bank money printing tactics and quantitative easing. Historically, seigniorage was the Crown’s right to a percentage of the bullion that was delivered to their mint for coining. In both cases, currency manipulation is at play, and in both cases seigniorage is shilled to the public under the guise: “for the greater good of the people.”

Will People Buy the Dip?

Even though cryptocurrency has been around for over a decade, this does not mean the jury is out on which Crypto will rule them all. To date, Bitcoin has been the king of all crypto. And personally, I am still a believer. But having lived through the dotcom bubble, I do recognize that companies like AOL and Netscape, who were the darlings of their time, have now been reduced to a footnote in the history of the internet. This is not to say that Bitcoin will lose its seat of power in this Crypto game of thrones, but believers in this space must remain vigilant, and always be on the lookout for trends. This is a battle of the protocols, and may the most decentralized, private protocol win.

Bitcoin is much better than a centralized banking system and CBDC’s like a digital yuan; however, there are some things to think about. Proof-of-work has in ways become proof-of-wealth. Since no single individual can mine Bitcoin on their own, they must take part in a mining pool. The downside to this is that the wealthy mining pool operators, with a majority vote, will have the power to determine the future Bitcoin Improvement Protocols (BIPs). In this regard the future of Bitcoin may be in the hands of wealthy miners. Though Bitcoin will not necessarily be controlled by any single state actor or corporation, which is much better than our current fiat banking system—it does make one wonder if there are protocols better suited toward economic equality.

In regards to the environment, the current banking system uses much more energy than Bitcoin, and it is not peer-to-peer. So, when we measure the cost of electronic mining against our current fiat system—because of the productivity enhancements by eliminating the third party, the middleman… Bitcoin is comparably much friendlier to the environment.

These considerations are important. Overall, the opportunities in crypto are beyond comprehension. The world is flooded daily with innovations happening in crypto. Markets are a voting machine, and this can also be looked at in the context of our beliefs—by transferring our fiat dollars into crypto we are in essence voting for the new decentralized economy. Many of us see Bitcoin as the number option right now, but also have an eye toward other opportunities. Earth’s gravity, currently dominated by centralization, may currently be pulling Bitcoin down—but Bitcoin may ultimately be beholden to the decentralized gravity of the moon.

Disclosure: Long Bitcoin

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