On The Brink with Castle Island - Weekly Roundup 05/21/21(Taproot edges closer to activation, IRS demands reports for $10k txns, OCC reversal on Bitcoin?) (EP.215)

Episode Date: May 21, 2021

Matt and Nic are back for another volatile week. In this episode:  Nic's 72h fast Nic explains the Moscow time joke on Bloomberg Coinbase sells off Our explanations for the selloff Tax selling or Fed discussion of tapering? Taproot edges towards activation Eth monetary hardening - improving or impairing its monetary credibility? IRS demands cash transaction reports for transactions over $10k FinCEN doesn't inflation-index their reporting thresholds OCC reviews Brian Brooks' rules Will the new OCC be hostile to Bitcoin? Tom Emmer asks accounting regulators to revisit their accounting treatment of digital assets Elon suggests miners disclose their energy mix Should miners buy carbon offsets?  Content mentioned in this episode:  Nic's appearance on Bloomberg NyMag, Jack Dorsey Says Bitcoin Can Make the World Greener This episode supported by:  Sovryn, DeFi on Bitcoin Eventus, global leader in trade surveillance, market risk and transaction monitoring solutions

Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. And before we kick it off, just a little word from our sponsors. Do you know what Coinbase, Gemini, Erasex, all have in common? They all use the sponsor of this podcast, Aventus, who is the global leader in trade surveillance, market risk, and transaction monitoring services. Many of the largest crypto exchanges, broker dealers, and trading firms in the world are now using Aventis to improve the efficiencies of their regulatory operations and to mitigate the risks that they get fined in incur reputational data. If you want to operate an institutional grade exchange or a trading platform, you need to be running Aventus too. Head over to on the brink.link.link forward slash Aventus. That's EVEen TUS today and find out why 80% of the firms who take a custom demo become clients. Shine the light on your trading today with Aventus. This episode is also brought you by Sovereign. That's sovereign with a Y as in Yankee.

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ailing economy with a new round of constituted easing. You print a couple trillion dollars, and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Bitcoin. Tough week. This feels like it's been a six-month journey in five days. Yeah, it's a hell of a week. Bitcoin, where is it? Just over 40,000 as of the time of recording. Could be worse. It's down like 19% this week, but it had been down like 40. I mean, we topped 30, right? Did we go below 30 briefly? Yeah, there was a print at 29 something, I think.

you know I was fasting during that downturn. I know you were fasting. I think a lot of people in the Castle Island orbit never want to see you fast again. I'd say your temperament while fasting is a little suspect. Yeah, maybe I might have been a little grumpier than usual. But that was actually, I was on day through the fast when things really started to get bad in terms of the price action.

So I was so physically out of sorts that I actually didn't really care about the price action. that much. So that's kind of my suggestion. If you want to insulate yourself against, you know, the price action, just like don't eat and then focus on that instead. So are you just going to become one of these like fasting guys now? I don't think so. It wasn't pleasant. Like a three-day fast was really not at all fun in any way, shape, or form. And I didn't achieve enlightenment or anything. So yeah, I want to, I can't recommend it. I don't think you need to like lose any weight. We're just doing it to see how it worked? Yeah, I listened to this MMA fighter, George St. Pierre, on the Lex Friedman podcast, and he said that he does 72-hour fasts once a quarter.

I'm like, well, I can do that. And so I just tried to do it, but it would turn into this whole ordeal. Remind me never to give you any of Tim Ferriss's books, because if you're the type of guy that listens to a podcast and just says, let me try that, that would be a dangerous book for you. apparently Lex was doing one too i mean i think he was influenced by by st pierre so we were brothers and arms there with our fasting well the block clock um you know part that you referenced earlier my block clock just stopped working in the middle of this meltdown so everything was going off i just i thought there's something wrong with my wifi but it turns out the connectivity was just down everything was breaking i think it was trying to salvage your feelings by stopping you from

at the price of Bitcoin. That's probably what it was. The volumes on some of these platforms was insane. You actually had a block clock joke in your Bloomberg appearance this week. Yeah, so block clock now has the honor of having been discussed on primetime financial TV. So I hope Rodolfo Novak is happy about that. But yeah, we discussed it at length on Bloomberg. I think Rodolfo must be doing really well on those block clocks.

I was talking to someone yesterday that said they were trying to get one. and it's just radically backordered. I mean, the Jack Dorsey testifying in Congress with the block clock is just, what a moment. I mean, what piece of merch gets that kind of exposure? That's crazy. It's like the fud dice. The only other comparable thing would be the fud dice. Jack owns a pair of fud dice, by the way.

He's posted a tweet with the fud dice in the picture in the past. Fud dice are popular items, despite the fact that they're not. orange. They're selling the off color fud dice are selling like absolute hot cakes. So we expect that they will sell out soon. If you miss your chance to buy the fud dice, I will probably have some on me in Miami, but you can't count on it. I'm not going to, you know, carry a satchel around with fud dice. I've only got so many pockets. Yeah. So head over to on the brink.compe to get that. You will not be carrying Bitcoin in Miami. So I think that we need to just call. out that this is going to be a kind of a honey pot of crypto people.

Oh, yeah. I'd like to request that I do not get abducted. That would be great if you do not. I'm not bringing any Bitcoin, okay? Just only fud dice. On the brink. Dot shop, the number one merch store in, you know, in Boston crypto podcasts, for sure. Well, let's get into some deals and then maybe we can talk.

about the market turmoil this week. The first one up is figure. So this is a company started by SOFi founder Mike Cagney. They're building lending products on blockchain infrastructure. They raised $200 million in a Series D round from 10T holdings in Morgan Creek Capital, among others. Next up we have Zapper, which is a decentralized finance dashboard. They raised 15 million from Framework Ventures, Sound Ventures, and Mark Cuban. Mark Cuban's going hard on DFI. I don't know if you saw that Twitter thread. Someone has his address and they're monitoring what he's doing. He was like going hard on defy stuff late on a Friday night. Isn't it great that you can just monitor people's like financial positions in real time? I don't know great is the right word actually.

It's kind of maybe the opposite of great. I think you put like a half million dollars into Alchemics on Friday night, just yolo. Yeah. And you know, the other day when Vitalik was like destroying the dog coins, I mean, his entire portfolio, all of his moves through just being tracked in real time. It was bizarre. I mean, imagine being able to see a trader's book, like a conventional trader's book in real time. It's odd. It is odd.

Yeah, it's a brave new world. I mean, there's a lot of black edge that you'd have to do in traditional markets to get access to some of that information. Yeah, exactly. And yet here you just have to find someone. You have to correlate someone's address with their identity once. I mean, virtually every crypto fund is sort of like dock. from an on-chain perspective, people's strategies involve, you know, following what PolyChain is doing, stuff like that.

Yeah. Next one up is we have it in the deal section. I think it's a big deal. So Coinbase announced that they will raise, and I believe as of the time of this recording, have raised $1.25 billion in capital via convertible node offering. So in my mind, this is a pretty big deal in the sense that it's going to just give them a lot more capital to go out and grow quickly. So they don't need the money, but this, you know, they could go do M&A with this. They can double down on certain lines of business. They can get

into new lines of business. I think this is a huge deal. Yeah. What do you make of Coinbase raising debt so quickly after doing direct listing? I think it makes a ton of sense. So they didn't sell, obviously they, you know, the view here is that they'd rather raise debt than to issue more equity and dilute themselves. And so I think the public markets from a debt perspective are just wide open for a business like this. It's a really, really attractive business if you just break it down. Now, granted, it's highly indexed to transaction-based fees, but how do you address that? How do you address the diversification of the revenue stream? You know, you go out and you raise over a billion dollars and you gas up the tank to go enter some other markets and maybe you get

into some other lines of business. So I think it's pretty. savvy move. Part of me wishes that Coinbase went the traditional IPO path, though, because a lot of, someone else had said this. So forgive the lack of attribution, but there's a lot of byside analysts that just haven't been primed on this business because they haven't had to be primed on it. If there's a primary equity offering in the form of an IPO, a lot more of these byside analysts would have had to understand the business. And so I think you're starting to see that reflected in the share price where maybe the story's not well understood. And, you know, not investment advice or anything, obviously.

But it's traded a little bit sideways, maybe due to some of that lack of understanding. Yeah, I mean, I think Coinbase is a tremendous business. And I think it's being undervalued by the markets right now, 100%. Totally. So next up, we have Common Protocol, Governance Focus Project. They raised $3.2 million from Dragonfly and Parify. Next one up is Flux Protocol. So this is a D5 project.

It's built on the near blockchain. They raised $10.3 million from distributed global, Coinbase, coin fund, uncorrelated ventures, and figment capital. Then we have RDrive, which is a decentralized storage company. They raise $1.6 million from Digital Renaissance Foundation, D1 and 7X. Next one is Vertalo. This is a company focused on tokenizing securities. They raised $4 million from the Tezos Foundation, Coinbase, and Wedbush. And then we have cryptocurrencies.AI trading platform.

They raised $8 million from in a round led by Alameda research. Cryptocurrencies merged with AI. That's a big idea. And then lastly, we have White Star Capital. They raised $50 million for their new Crypto Venture Fund. So congrats to them. Congrats to White Star. So before we get into the news, what do you make of all this volatility?

So May 19th, we'll go down in history as one of the most crazy days from a, from a vol perspective for this asset class. So why did the number go down and then up? Well, they asked me this on TV as well. And I mean, I don't know if I have a straightforward answer. I mean, sometimes you don't even need catalysts to have sell-offs. You know, people always assume there has to be a trigger. But this is a market that rallied, you know, by hundreds of percent in the last year.

Sometimes you just have profit-taking, you know, at a certain threshold, which triggers these things. I think that could well be part of it. You know, maybe the China narrative contributed, but it's not like we learned anything new about China's stance. I mean, the Elon stuff, you know, perhaps that had an effect.

But yeah, it's kind of hard to pinpoint a certain thing. I mean, do you have any ideas? No, I don't know. But I think there were a bunch of things happening at once. And I don't know. know if any of them were, you know, were really the answer. But, uh, so the Elon thing I thought was crazy. I still don't understand really what he's doing. I saw Kathy Wood come out and say that she thinks that part of the reason he went negative on Bitcoin was because of Black Rock's influence

from an ESG perspective and that he was catching a lot of flack. And so I did think that part of this, uh, as we came out of the last weekend, there's a view that Elon might be dumping the Bitcoin, which would be a couple billion dollars worth of, you know, US dollars. right so that would have had an impact of course there was tax day on monday and so there was some tax selling that could have been part of it the china thing i feel like we see the same story every six months so i'm not sure what actually is news there but you know maybe that was part of it um we'll get into this occ thing there was some negative news coming out of the occ around around reviewing some of the um actions that former head brian brooks took so you know maybe that

was a little bit negative and then there was all sorts of talk just around a kind of microstructure issue in the derivatives market and there being some folks with excess leverage there that were getting washed out and kind of forced liquidation. So out of all that, who knows? Yeah, the other thing that's worth mentioning is it was just a risk off day because, you know, partly because the Fed said they would eventually think about tapering their asset purchases. And of course, crypto seems to be a risk on asset class for better, for worse. And so to the extent that, you know, that the Fed would stop being so accommodative, you know, that might have had an effect, although people weren't really talking about that as a catalyst.

It definitely came ripping back, and it looks like a ton of, a ton of this analysis is pointing to just massive buying flow coming from Coinbase. And so that could be retail. That could also be institutions buying on their balance sheet. Coinbase has a really fast-growing intermediary business there. So I'm interested to see if we find out, you know, some big trade. Treasury positions were added buying the dip yesterday. And nothing fundamentally changed with Bitcoin, at least.

So the story is intact. Also, Taproot actually looks like it's going to be locked in. That happened yesterday that it sort of passed that 90% threshold, I believe, from minor signaling. So the first upgrade to Bitcoin in four years was finally effectively confirmed. I mean, not 100% confirmed, but pretty much there, during that day of carnage. And that is a fundamental change for Bitcoin. What's the sort of breadth of changes that you expect to see from a multi-sig perspective with TapRut?

Do you think that this is going to be something that people start to interface once it goes live officially? Will this be something that wallets start to support immediately? Some will. I expect it will be similar to Segwit. where it's a multi-year sort of onboarding and familiarization process because taproot, I believe, introduces new transaction types, if I'm not mistaken. So, you know, Shrnore Taproot will make multisig more private. It will make it more efficient so that larger multi-sig transactions just effectively end up, you know, requiring fewer bytes.

to be added to the final blockchain. And then TAPRIT itself makes some of these more complex transactions, just more efficient from a gas, or not gas, from a, you know, a transactional data perspective. So, I mean, you know, not like a huge change, but yes, like the problem is that there is always an extended period of time required to implement and learn these new standards. And, you know, I expect that it will take some exchanges and custodians a number of years before

they implement them. I mean, Segwit is not fully implemented. And that has been around for four years, right? About four years this summer. You know, we're still hearing about businesses implementing Segwit. So, you know, nothing changes overnight with this stuff, especially. as it pertains of, you know, the most critical operations of these firms. So it's interesting.

There's also major protocol upgraded happening in the Ethereum network pretty soon here with EIP 1559 and really a push towards more of a deflationary currency. Do you see this getting more attention from the quote-unquote institutional set and more of a kind of a reevaluation of the money thesis to incorporate? Ethereum as a potentially investable asset in certain pockets? It has been getting that attention. I've seen notes written by the sell side mentioning this as a potential catalyst. I believe a big part of the ETH rally is due to anticipating this news.

You know, that wouldn't surprise me at all. So, you know, does it change anything fundamental with the ETH? I don't think so. At the end of the day, I think the ETH leadership had always kind of signaled that they would try and effectively suppress issuance. You know, we'd heard the phrase minimum viable issuance for years now. You know, the ETH philosophy is more that they will issue what they believe is sufficient to support the security of the network and no more.

And this is just, you know, codifying that effectively. So, you know, the negative for me is that it kind of resets the Lindy clock in terms of the monetary policy because it's another change, it's another intervention. So you can see it both ways. You can find it extremely positive in terms of being deflationary, or you can say, well, it actually reduces the monetary credibility, which is, in my view, very fair critique. But yeah, I have seen Wall Street talking positively about this. Yeah, I think you're going to see more of this with institutions taking a, you know,

to hold position. if they already have one in Bitcoin in ETH as well. So it's going to be an interesting summer. A lot of exciting things happening on protocol upgrade front across a bunch of different protocols. One thing that is maybe not as exciting is tax policy. So the Biden administration is proposing to increase tax compliance in the crypto ecosystem by introducing a requirement that transfers of over $10,000 be reported to the IRS. So what do you make of this?

Yeah, and to be clear, this doesn't pertain to on-chain transfers. This pertains to exchanges and custodians and VASPs. And this basically brings crypto into parity with cash where you already have to do those cash transaction reports, CTRs. So it's not surprising. I kind of already figured something like this would be the case. You know, some people found it to be negative, but I mean, these are centralized.

firms, they are money transmitters, they're already accountable to FinCEN. So, you know, it doesn't surprise me in the least that a new rule like this is being added. My issue with the $10,000 threshold, that was first installed in the 70s for CTRs and it was not inflation indexed. So, of course, in real terms, it's like the equivalent of a kind of $65,000 threshold today. And so, give that they've doggedly stuck to this 10K threshold, that means that the reporting burden increases with inflation, right? And so it just captures more and more transactions and it's drag net. So it's very arbitrary that they pick 10K and, you know, it kind of looks consistent with the standard that cash has, but that cash standard should have also evolved every time

with inflation. FinCEN indexes their fines to inflation. So they know about it. inflation, right? But yeah, this is another way that there's this constant creep of surveillance that always increases, I mean, especially since the 70s. Yeah, so those are the kind of two key points that I took away from this too. Number one is, as a crypto industry, we should be pushing for regulation that is no worse than cash or no worse than kind of analog systems. And I think Coinbase has been great, or Coin Center, rather, has been great in kind of

pushing back against this. This differs widely from the Manukin attempt, which I believe was something like a $3,000 threshold for a suspicious activity report towards the end of the last administration. So that's a great point. And yeah, it's crazy to think about this from the perspective of the inflation angle. So when this was first introduced, to your point, it was like $64,000 was in real world equivalent. That was more than kind of the average household income back then, I believe. So a lot of money. It is for big transactions.

And a 10K transaction today is like not that much. So this captures a lot. And you know what happens with all the SARs and CTRs is, you know, compliance officers file them because they, you know, know they have to and they're obviously terrified of getting stung with violation. But nobody reads them, you know, because the volume is so completely enormous, like financial system volume. have risen and the reporting thresholds have decreased in real terms, thus creating an inordinate

volume of filings, which don't get read. And then the signal of those filings decreases because it's just buried in endless amounts of noise. And sure, after the fact, after bad stuff happens, you know, these institutions can say, yeah, we filed a CTR. We filed an SAR. But no one in the government read it because there's so freaking many. Yeah, it's absolutely right. I mean, so the default approach is to just one endowed file. And so, you know, not to mention the fact that these things are just massive honeypots of personally identifiable information. And so you're you're just increasing the surface area of attack for people to be doxed and for private information to be compromised. Do you think the government's going to safely control this data? No, of course not.

weren't all social security numbers hacked a few years ago. Yeah. Out of government databases. So I think with AML, you know, you really, if you were to do today a genuine cost benefit analysis of the costs of AML, which are absolutely material, I mean, this stuff is the number one cost item for many financial institutions versus the quote unquote benefits of AML in terms of, you know, volume of fines recovered, amount of crime prevented, et cetera, the amount of the share of money laundering that's actually intercepted and so on.

To me, it's very obvious that the costs outweigh the actual benefits. But of course, we're just stuck in this regime of financial surveillance. And, you know, there's no political will to change anything. Yeah. And the costs go beyond that, too. So if you think about the cost, the innovation costs, so these big financial institutions that some of them actually have leaders that want to push the envelope and introduce new lines of business and they're just getting stuck in the mud because of their legal risk and compliance departments.

And that's a real cost to innovation as well. I mean, you know, there's a reason why no banks and broker dealers were able to start to compete directly with Coinbase as Coinbase was ascending to become a $50 billion publicly traded business. I mean, you can't make innovation happen on the inside of a big bank or broker dealer unless you have a tremendously powerful executive that wants to push this forward and just tells people to get out of the way. But even then it's really hard. So there's kind of a cost to innovation here where you have these kind of bureaucrats from the, you know, legal regulatory and compliance world that are, you know, on the government side. But they're also on the big corporation side, just slowing things down.

Yeah. And frankly, this is why I, you know, think that the defy approach whereby you just spurn all of this, you know, regulation which is built into the system is maybe the only way you can innovate. here. Of course, it's outside the scope of regulation. And so there's a huge amount of risk there, but you couldn't accomplish what's being done on defy if you went to FinCent and said, I'm going to try and do this. It's such a great point. So I remember being at Fidelity in 2015 and the concept of decentralized exchanges was being discussed. And this was before they were actually operational. And we were purely thinking about this in the context of taking securities and moving them peer to peer without intermediaries.

And the list of things, the list of reasons why that was not possible was, you know, more than I could describe in a half-hour podcast. And so the kind of conclusion was, well, that doesn't really sound technically feasible. And then you start to see all these private blockchain initiatives pop up and say, well, we could address them, you know, we'll become an ATS venue, we'll close off, we'll wall off. But at the same time, there were people that just said, F, that. that, I mean, we don't need real world securities on these things. Let's just do them with kind of tokenized representations and IOUs and spurious tokens in some regard. But the innovation actually

got built and it wasn't, it didn't get built to support like traditional real world equities and derivatives. It got, you know, it was like spank chain and dog coins that ended up getting traded here. But the thing actually works. And now you're starting to see, you know, more credible efforts and kind of, you know, assets that actually do make sense. But yeah, there was. is a giant FU to the system. Yeah, it's really interesting to see, you know, you didn't need to port over equities in a D5. They just traded, you know, pseudo equity and, you know, various tokens. And that was enough.

That was, you know, there's enough assets on there for, you know, vibrant marketplace. I mean, some of them are obviously, you know, pretty meritless, but it has critical mass now. So the other regulatory news that happened this week, I thought this was kind of alarming. We should keep an eye on it. So Michael Sue, who's the acting head of the OCC, what's it take to be the real head of the OCC, by the way? How come we're just got a bunch of acting heads? Well, it's just not a priority to fill these agencies,

and sometimes they remain unfilled for years after administration change. It just seems like you should have a real title here. So Michael Sue has initiated a review of basically all of the actions that Brian Brooks, who's the former acting head of the OCC, at the end of the Trump administration. And so you'll remember that some of the big positive things in my estimation that Brooks did was give clarity around the custody of Bitcoin for banks. So said that they can custody Bitcoin, said that they can custody stable coins.

He also approved a bunch of licenses for crypto banks, so to speak, under the OCC framework, the FinTech kind of framework. So TBD on where this review goes, but typically when someone initiates a review of the work that you've done, it's not to say, here's our review and you did a great job. Like, that's usually not the outcome here. Yeah, and the OCC gets pretty esoteric as far as policy discussions are concerned. That's probably, you know, the fifth most common regulatory agency that crypto people pay attention to. But to me, this is the worst news of the week, actually, that all the positive work the OCC had done in terms of broadening what it means to have a bank charter. And,

bridging the gap between Bitcoin, for instance, and the actual banks that are regulated by the OCC could be undone. And this has pretty significant implications. I mean, you know, they, you know, had that guidance saying banks can carry reserves for stable coins and banks can custody crypto assets. undoing that would be really significant. On the OCC front, it does look, if I'd to guess, I would say, it seems likely that this professor, Mercer Baradaran, will end up becoming the comptroller. Actually, someone DM me and told me that it's pronounced controller,

not comptroller. Oh, well, they should spell it correctly then. Well, yeah, there's a P in there. I'm trying to say the P. So yeah, apparently it's just pronounced controller, not comp controller. But anyway, so Mercer is expected to get it, or at least she's the favorite, ahead of Michael Barr, who was formerly the frontrunner. And if she does, you know, she's very focused on, you know, advancing progressive causes through bank regulation. and she's very not focused on advancing the crypto industry.

In fact, she's historically very hostile to crypto causes. So keep an eye on that, actually. If you're looking for regulatory catalysts, her ascension to the OCC throne would actually be, you know, pretty bad for the industry. Yeah, I mean, I would say that I'm not suggesting this would happen, but the thing that he did that I think was the most important was just to clarify that banks can hold, you know, Bitcoin on the balance sheet. And so if for some reason that was impacted, I think that would be tremendously, you know, negative for the industry. So, you know, there's some specific company things that obviously would want to see these companies would be allowed to flourish and be regulated by the OCC.

But that's the big ticket item. That's right. That's the one that hopefully they don't reverse. in other very interesting and somewhat wonkish regulatory news, Tom Emmer, who's a big supporter, he's a representative from Minnesota, big pro-crypto guy, part of the Congressional Blockchain Caucus, sent a letter to the Financial Accounting Standards Board,

asking for them to revisit their accounting standards for digital assets and arguing that they should be accounted for as cash and cash equivalents. Of course, right now, things like Bitcoin, I believe are regulated as intangibles, which causes all manner of problems, including the fact that apparently,

when you hold them on your balance sheet, you can't mark them to market under FASB standards, thus meaning that you can't actually recognize a gap gain in the value of, you know, Bitcoin that's held, thus meaning that you have to go to non-Gap accounting. So it basically is like very complicated and annoying in conclusion, the current accounting standard. Yeah, the current accounting standard is just a total mess. And I don't fully understand it.

But, you know, you've seen these stories around how when a company, a publicly traded company has Bitcoin on the balance sheet, the cost falls down. So you have to mark it down. Then you can't mark it back up is basically the issue, right? you can only ever recognize an impairment, right? It's so odd. And so it's in the same category as intangible stuff like Goodwill, for instance. But, you know, so Bitcoin, you can't touch it, but it's real and it has a market price. In fact, it has a market price more so more frequently than other assets, right, at 24-7 global price.

You can't save the same for stocks, right? No, and like it's even worse than that because, you know, I could understand this maybe in 2013 or, you know, 12 or whatever, and there's one big central limit order book and it's Mount Gox and it's unregulated. But now you actually have IOSCO compliant like reference rates from regulated institutions. So you actually do know what the price is down to the second any given day. And you have asset managers and banks that are, you know, have products in market that reference those rates. And so why wouldn't you be able to use those? rates. It's much better than, as you point out, you know, you can't have the the price of Apple down to the second on the weekend, but you could do that on crypto. So, yeah, we joke that crypto is the most liquid, illiquid market in the world. But yeah, I mean, you have a market price any time. I know Michael Saylor has also been making this one of his causes in terms of pushing for a new accounting treatment of Bitcoin. Because as a corporate, Obviously, any analyst covering a company knows what the Bitcoin on your balance sheet is worth.

But you do have to break into non-gap accounting in order to actually recognize the market value of that asset that you're holding. And that just means, like, opening a can of worms into, like, you know, the sketchy, you know, sketchy world of non-gap accounting. So it's really odd. that it's, you know, accounted for this way, basically. Yeah, it's super weird. There's other weird things like when Square reports Bitcoin-related revenue, they count just the price all in,

including purchasing the Bitcoin itself, whereas they should just represent the spread that they took as revenue. So it's a bunch of stuff like that that just doesn't make a ton of sense to me. Yeah, I don't think accounting regulators are really on the cutting edge here. My grandfather used to always tell me I should become an accountant. And I just say, I don't really think that that's that exciting.

Well, if you think about blockchains are accounting 3.0, right? It's triple entry accounting. Triple entry accounting for the first time. This is a glorified accounting. That's what we do. So Elon's been top of mind. A lot of Elon fans out there, a lot of people that went against Elon. It's just been a, I don't really understand this.

I don't understand what he's trying to do. But it seems like now he's as, of an hour or two ago is chiming in on certain recommendations that minors should be doing from a disclosure perspective that I actually do agree with. So let's talk about that. Well, now whenever someone texts me, Elon is tweeting again, I just feel the dread in the pit of my stomach. And he's tweeting again.

Never meet your heroes, man. We as an industry need to stop putting people up on a pedestal. Well, he wasn't my hero in the first place. I was actually more, I don't know if I'll be excoriated for saying this. I was more sympathetic to the Tesla Q camp in terms of thinking that Tesla, you know, was premised on a lot of hot air and, you know, over-optimistic claims. I have since I have stopped short-selling Tesla, having lost a lot of money doing that. So I will never financially bet against Elon Musk again. I will, however, point out that his claims about the block size are not that well-founded.

I just don't understand what his angle is here. He's really done a lot of damage to his balance sheet, I think. So the fact that they didn't sell their Bitcoin position and he trashed Bitcoin effectively and most likely contributed to the downturn is really confusing, because why would you disparage an asset that you own and an asset where, more importantly, Tesla shareholders own that asset and you're fiducially obliged to them

to maximize shareholder value, which you are patently not doing by questioning, really aggressively questioning the asset that you hold? Yeah. I mean, I could speculate, but I have absolutely no idea. Yeah. So here's an interesting exchange between Brett Winton of Arkinvest and Elon. So Brett, you know, actually did a room, a Twitter space with them, talk about this. They are talking about their

white paper about a triumvirate of solar batteries and Bitcoin that, in theory, would give you stable and renewable energy source with Bitcoin monetizing it when it's not going to the grid. And it's a really interesting proposition. We'll see if it works in practice. And then Elon responds to this thread. He says this can be done over time. But recent extreme energy usage growth could not possibly have been done so fast with renewables. And then he says this interesting thing.

This question is easily resolved if the top 10 hashing orgs just post audit. audited numbers of renewable energy versus not. That's actually very true. Yeah. So to address the first part of his tweet, I mean, there's nothing about renewable energy, which says it can't, you know, you can't add, you know, 50 terawatt hours on an annualized basis. But, yeah, I mean, Bitcoin's, you know, what we know about Bitcoin is it's probably

around 40% renewable. This contrasts with the U.S. grid that's around the, 20% renewable, by the way. And so, you know, Bitcoin absorbs the global energy mix with probably a slightly more renewable slant. So, yes, Bitcoin's hash power growth will include both renewable and non-renewable sources. Now, the second part, I'm pretty much in favor of that. I think miners should disclose their energy mix, their carbon intensity.

and whether they're purchasing offsets, you know, to remediate whatever carbon footprint they have. So I think it's a great idea. The thing is, miners, it's kind of meant to be pseudonymous, so they're not, you know, typically that keen to docs themselves. Also, if miners were all known, and then, you know, if they were known, then they would be easier to target. and potentially, you know, censor transactions and change the protocol and alter the trust guarantees. So there is definitely a feature of mining, which it makes me think that there should always be miners that aren't sort of doxing themselves. Yeah, that's a great point. I mean,

there's no real decentralized zero knowledge way of doing this, right? Right. But be that as it may, There's a lot of publicly traded miners now in the U.S. And there's just a lot of miners that are publicly known to exist. So I think those that already have a public presence probably should think about disclosure. I saw one from Khorasai. Korsi said 56% renewable and they said they bought offsets for the remainder. You know, it wasn't like a very detailed disclosure. But I'm starting to see stuff like that.

I've heard of other miners buying carbon offsets. Some people don't believe in offsets, but that's one way to go. So, yeah, I really do think miners, if they are already public, should think about disclosure here. Because generally speaking, the Bitcoin mining picture is greener than people think. So let's just get the truth out there. Yeah, yeah. I think there's a topic we're going to be talking a lot more about in the coming months. because I do think some of these miners will start to do this.

I want to give a shout out to this great article in New York Mag by Jen Witsner called Jack Dorsey says Bitcoin can make the world greener. Could he be right? It doesn't really take a stance on the energy debate, but it basically avoids all the mistakes that I've seen in the mainstream press from discussions of the energy question. the author talks about flared gas mining, talks about the challenges and getting data regarding the energy mix, talks about the difference between energy usage and carbon outlay. I mean, it's an incredibly well done piece that really appreciates the nuances of the debate. So just want to shout out a good MSM article on Bitcoin energy consumption. It's like a unicorn.

Well, maybe she knew that if she wrote a bad one, you'd just be all over. You'd be writing like a 27-minute medium post rebuttal over the weekend. See, this is how you get them, you know. I mean, I did actually talk to the journalist for the article, so. Well, then she's smart. She knew she's like, look, I need to get the number one critic of these mainstream articles. I need to get him in my camp.

Yeah, exactly. And so instead, we love bombed her with impressions. Once this came out, Jack Dorsey retweeted it. So, you know, that's, you know, say good things about Bitcoin and we'll reward you with social media dopamine hits. What I say is. That's our bribe. All right. So I think that's it for the week.

Hopefully we don't have another weekend like last weekend with just a bunch of Elon tweets. I just need a weekend off. Yeah, I was kind of hoping he would have sold his Bitcoin by now. But he's resolutely hanged on to it. He tweeted diamond hands. So I guess we're stuck with him forever. well i guess so all right everyone have a safe weekend and we will see you on monday