The Breakdown - A Massive $879.6M Bitcoin Mining Machine Buy Kicks Off the Year of US Bitcoin Mining

Starting point is 00:00:00 All of this suggests that 2022 is going to be an absolute banner year for U.S.-based and North American Bitcoin mining. These companies are going big. They've got big pools of capital to draw from in order to go even bigger. And it's very clear that this is going to be a key story in Bitcoin in the year to come. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. The breakdown is sponsored by nexo.i.o, Abra, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, January 4th, and the last couple of shows have been some big, think, ponderous pieces to begin the year. And so today what I wanted to do is actually catch up on some of the news from a couple different areas from both the last few days, as well as from over the holiday break.

Starting point is 00:00:56 So we're going to be talking a little bit about Bitcoin mining today, as well as a lot of global. global regulatory and CBDC news. But before we get into that, sponsors. This show is sponsored by nexo.io, the all-in-one crypto platform for storing and earning interest on your crypto, Abra, a simple and secure app for trading crypto and getting crypto collateralized loans, and of course, FTCS, the safe, regulated way to buy digital assets with up to 85% lower fees than competitors. As always, disclosure, I help run marketing at FTX, as well as doing this show. Now, how you can support the show. First, subscribe, give a five-star rating, or write a review, all super, super helpful ways to grow this community. Or second, join the community, join the breakers discord.

Starting point is 00:01:40 The link is in the description, or you can go to bit.lee, that's bit.l.L.Y slash breakdown pod. Okay, that out of the way. Let's dive into the show. It was Bitcoin's birthday yesterday, so let's get to some of the biggest news from Bitcoin from over the break. NASDAQ listed Marathon ordered new mining rigs to the tune of $879.79.6 million. That's nearly $900 million of new mining rigs. In total, that's 78,000 of Bitmain's Antminer S19 XP that will be delivered in six batches of 13,000 units between July and December of 2022. According to Marathon, this is the largest order that Bitmain has ever received. in terms of total hash rate. When all of these machines are up and running, it will expand

Starting point is 00:02:31 Marathon's operations to 199,000 total machines and their hash rate to 23.3 XA hashes per second. This is by early 2023. That is more than a 600% increase from their current hash rate. Now, for a little bit of background, Marathon is one of the largest public mining companies in the U.S. It was estimated to produce over 3,000 Bitcoin in 2021, and part of the story here is the shift in hash power to the U.S. If you listen to the end-of-year extravaganza episodes, you heard a lot of people say that the great hash rate migration out of China and to the rest of the world, but definitely to the U.S. as well, was one of the most significant stories in Bitcoin last year.

Starting point is 00:03:15 The U.S. currently has over 35% of hash rate, and that leads the world. And that was never the case before. The U.S. always had a reasonable amount of hash rate, but relative to China and some other it wasn't leading the pack. Now it is. And what's more, the U.S. is expected to further increase that leadership as companies here have ordered over 970,000 machines that are scheduled for delivery this year. Speaking of North American Bitcoin mining, BitFarms also secured a $100 million credit facility from Galaxy, of which it's already drawn down $60 million. Chief Financial Officer Jeffrey Lucas said, our new $100 million Bitcoin credit facility adds another component to our

Starting point is 00:03:57 diversified financing strategy and contribute significant non-delutive capital to fund our global growth initiatives, which include four farms with 298 megawatts mining capacity under construction. BitFarms mined 339 Bitcoin in November, which was down from 343 in October given the difficulty adjustment, and currently has more than 3,300 Bitcoin in its treasury. Which gets me to another phenomenon worth noting. In the past, miners often had to sell almost immediately to cover their operational expenditures, but increasingly, they're just holding the Bitcoin they mine. That means that minor selling isn't putting the same downward pressure on the markets as it had in the past. Marathon is in that same boat, reporting total Bitcoin holdings of 8,133 BTC.

Starting point is 00:04:43 All of this suggests that 2022 is going to be an absolute banner year for U.S.-based and North American Bitcoin mining. These companies are going big. They've got big pools of capital to draw from in order to go even bigger, and it's very clear that this is going to be a key story in Bitcoin in the year to come. Now, let's shift to a global regulatory and central bank digital currency roundup. Remember how last year the Boston Fed and MIT were supposed to release some theoretical central bank digital currency designs over the summer, but then didn't? Well, it turns out the Federal Reserve Bank of Boston is currently looking for a new director to lead the development of a CBDC. This is from a LinkedIn post as reported by the block. And per that post, the director of

Starting point is 00:05:31 project management will, quote, forward the Federal Reserve System's effort to build, manage, and test software to further its understanding of digital currency. It remains, however, a big question in the U.S. of our appetite for a central bank digital currency, for a Fed coin, versus finding a way to regulate stable coins into the existing system. Moving south just a bit, the Mexican president's office sent out a tweet last month that suggests they plan to have a CBDC in circulation by 2023. Translated, the Spanish-language tweet said, Banksico reports that by 2024 it will have its own digital currency in circulation, considering these new technologies and next-generation payment infrastructure,

Starting point is 00:06:13 are of the utmost importance as options of great value to advance financial inclusion in the country. Now, Mexico has had a bit of an interesting back and forth in terms of its relationship with cryptos and CBDCs. There are many privately wealthy Mexican citizens like billionaire Ricardo Salinas Pliego who are heavily invested in Bitcoin and are loud about it. Last year, he said that his bank was working to accept Bitcoin, to which the central bank responded, reiterating that cryptocurrencies were not legal tender. In October, the president of the country said that they were unlikely to make Bitcoin legal tender like what happened in El Salvador, but the same month, the CEO of Mexican Stock Exchange, BMV, said that it had been in talks with authorities about listing

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Starting point is 00:08:43 Now let's hop over the pond to Europe. Reuters reported last month that, quote, Europe's first cross-border trial of CBDC payments has been described as a success by the central banks of Switzerland and France, though they said it would not immediately lead to issuance of CBDCs. So this is a project called Project Jura, and it's the latest in a series of trials from central banks in Europe, and is the first time a digital euro was fully tested. Now, this test focused on bank-to-bank wholesale lending market, so that's different from a retail CBDC. This would be only interacted with by financial institutions, while a retail CBDC would be for you and me and everyday people. Benoit-Cure, the head of the Innovation Hub at the Bank for

Starting point is 00:09:23 International Settlements said, Project Jura confirms that a well-designed wholesale CBDC can play a critical role as a safe and neutral settlement asset for international financial transactions. Now, one of the more interesting things from the piece is that there's definitely a sense of competition with China. Here are the last couple of paragraphs. Quote, while CBDCs have the potential to make existing wholesale financial systems faster, cheaper, and safer, Europe has so far lagged in the global race for e-currencies. China, meanwhile, is already testing a digital yuan or ECNY in major cities. Silvic Goulard, the deputy governor of the Bank of France, said, quote, we are not by far

Starting point is 00:09:59 at the end of the journey, but it's an important first step, which makes us confident we can remain in this race. Speaking of, quote-unquote, this race and China, a report from the block yesterday suggests that a pilot version of ECNY, the mobile wallet for the digital yuan, has gone live on iOS and Android in select regions in China. Users in one of 11 physical locations, including, by the way, the Winter Olympics, can now download the app to try out, quote, personal wallet opening and management, and quote, ECNY Exchange and Circulation Services.

Starting point is 00:10:31 China had previously pointed to the Winter Olympics as a potential launch date for their digital currency. Jamaica has also completed a CBDC pilot. It's an eight-month pilot that completed at the end of last year. The pilot included minting currency, issuing CBDCs to wallets, and basically was just a small rollout to a handful of customers who conducted various types of transactions. However, now Jamaica is planning to continue the rollout.

Starting point is 00:10:55 And so a reasonable question is, Obviously, it's clear why we need to talk about China's CBDC plans and Europe's CBDC plans. But what about Jamaica? How significant is it really? These smaller countries have a fundamentally different set of constraints, situations, scenarios, than the big players who are fighting to be a global reserve currency or an international trade settlement currency like the U.S. and China. But that doesn't mean they don't have a role to play in the global stage. And that doesn't mean they don't have citizens whose lives will be affected by the monetary policy decisions they make. Part of the power shift that we watch here is what's shifting in terms of the global financial

Starting point is 00:11:31 system, the global monetary system. And part of that is how these smaller nations do or don't align with the bigger nations that have largely dictated the shape of economics around them for the last half century. Understanding how much these types of smaller countries opt for something like a CBDC infrastructure versus the El Salvador route of adopting Bitcoin, a non-sovereign currency, is going to be hugely instructive for our understanding of global patterns in the year. years to come. Speaking of El Salvador, Naïbe Bucle, the country's president, had a super viral tweet on January 1st with his predictions for 2022. Those included that Bitcoin will reach 100K, two more countries will adopt it as legal tender, will become a major electoral issue in

Starting point is 00:12:13 U.S. elections this year, Bitcoin City will commence construction, volcano bonds will be oversubscribed, and huge surprise at the Bitcoin Conference. Now, obviously, one of the more notable here is two more countries adopting it as legal tender. One of the countries that some had expected to follow in El Salvador's footsteps was Paraguay. However, it became clear last year that they would be regulating it rather than adopting it. In mid-December, a bill proposing the regulation of crypto mining and trading was passed by the Senate there, giving regulatory clarity and a framework for registration. This is relevant because Paraguay has a lot of excess hydropower in some of the cheapest electricity in the region, so regulatory clarity could be a pretty big boon to that country's economy.

Starting point is 00:12:52 Finally, speaking of a place where there has been endless back and forth on whether crypto is going to be regulated or banned or something else entirely, let's shift over and close with India. At the end of last month, the Reserve Bank of India published a report called Trends and Progress of Banking in India 2020-2020 to 2021. There was something of a shift in tone here, not on cryptocurrencies, but certainly on CBDCs. From the report, in its basic form, a central bank digital currency provides a safe, robust and convincing. convenient alternative to physical cash. In comparison with existing forms of money, it can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement. Now, I say there's a shift in tone because you have to remember that the RBI was effectively responsible for banks in the country not being able to interact with

Starting point is 00:13:41 crypto companies for two years between 2018 and 2020. So then, this shift in tone is something of an affirmation of the idea that for many governments, CBDCs might be an attempt to do an and run around private crypto. This to me is more validated by the fact that they've gone deep on this. The RBI is identifying specific issues and concerns they have around the design of a CBDC, whether it's a retail CBDC or a wholesale CBDC, etc. It's not just sort of some flippant mention. Meanwhile, though, back in the other part of the India debacle,

Starting point is 00:14:13 about whether it was going to ban crypto or whether it was going to regulate crypto, This is something that I previously said has had so many rumors that I just was no longer interested in actually sharing them and just wanted to wait to see what the actual legislation said. Over the break, we didn't get more rumors, but we did get a better sense of the timeline. Sources are telling CoinDesk that it's unlikely that any Indian crypto legislation is going to come until after next April. While there had been a bill listed in the winter session of Parliament that ended on the 22nd of last month, it was dropped in the final days of the session. The government apparently wants to hold wider consultations. It's also apparently looking for international consultation. The finance ministry has reached out to the

Starting point is 00:14:56 Bank for International Settlements and the International Monetary Fund, and while that may not sound great to some of you, the IMF's chief economist Gita Gopinoth did recently call for crypto-regulation rather than an outright ban while she was in India in December. Whatever the case, the domestic and international consultations that the government wants to have, are unlikely to be completed before the next session of parliament, which begins at the end of this month and which is known as the budget session. Here's coin desk write-up of why it's unlikely that crypto is going to get much consideration during this session. Quote, the next session of parliament, which is likely to begin at the end of January, is known as the budget session. The finance minister presents the budget, and that is the primary priority.

Starting point is 00:15:35 The finance ministry tasked with drafting the cryptocurrency bill also has the fiscal responsibility of making the budget. The budget, likely to be presented February 1st, is expected to dominate the resources of the ministry, leaving little or no time for other priorities. Said Vivins-Sheran, a technology and policy expert who had worked with the government in the past, during the budget session the finance ministry gives every single senior officer a sectoral responsibility, and as a result, nobody is performing their normal functions. Now, that budget session is likely to last until the end of April, so that's really the earliest we can expect more information on what's going to happen

Starting point is 00:16:10 with Indian crypto regulation. So hopefully, guys, that gives you a little catch-up on what's been going on around the world. I remarked that one of the things that I got wrong about 2021 was that I thought there was going to be a lot more discourse about CBDCs. Instead, I think a lot of that energy was taking up by stablecoin discussions, but it seems just based on these stories alone that this year is poised for a little bit more discussion. And that's especially true if China actually brings the ECNY, the digital yuan, online, in a major way. I want to say thanks again to my sponsors, nexo.io, Abra, and FTX. And a reminder for

Starting point is 00:16:47 anyone who wants to join the discussion, do come check out the Breakers Discord. Until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - A Massive $879.6M Bitcoin Mining Machine Buy Kicks Off the Year of US Bitcoin Mining

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