The Breakdown - Bitcoin Is the ‘No Heroes’ Asset

Episode Date: May 18, 2021

If you thought last week’s Elon intrigue was over, think again. This weekend saw an absolute showdown at the bitcoin corral, with Musk seriously losing his cool. In this episode, NLW explores the tussle from a number of dimensions: What it says about the efficacy of Bitcoin Maximalism  What is says about Elon Musk specifically What it says about power in a social media-powered world -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

It's hard for me to not see all of this as emblematic of larger questions. Ultimately, though, if there is one thing that is abundantly, painfully clear from all of these shenanigans, it is that Bitcoin is the no hero's asset. This, as much as its distribution of nodes or hash power or end-hoddlers, is a part of its decentralization. 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.io and produced and distributed by CoinDest.

What's going on, guys? It is Monday, May 17th, and boy oh boy, anyone hoping for a reprieve from the madness of last week was set to be surely disappointed over the weekend. My guess is that you have some idea about what went down, but in case you were smartly off on a lake somewhere, being well adjusted and enjoying your family, I'll give you a little recap. To do this, we actually have to go back a few weeks. And let's start by saying that there is no amount of historical revisionism that can deny how excited most Bitcoiners were to have Elon on the team. The $1.5 billion treasury buy from Tesla created the next leg up in the bull market. It validated this corporate treasury approach by showing that it wasn't just going to be fringe companies doing it.

All that said, from the get-go, there was some trouble in paradise. For those who have been listening to the show for the past few months, this will be familiar. First, you have the simple fact that by virtue of being controversial Elon, Musk was always likely to attract more scrutiny to the space. This was particularly true in the context of environmental concerns. Now, one might think that a big famous electric vehicle company getting into Bitcoin would reduce environmental concerns around the asset. However, because of the nature of Elon, it was always just as likely to increase concerns around Tesla, that the folks there didn't really care as much as they said about the environment. As we've seen, that's much closer to what happened.

There was also the fact of the constant dogecoin shilling. This was a real bother to some Bitcoiners. Others found it somewhat separate, emblematic of Elon's passion for memes and internet culture. But whatever the early concerns were, the numbers spoke for themselves. The markets were ecstatic about his and Tesla's involvement. Fast forward now to the end of April. We learned that Tesla has sold 10% of its Bitcoin. At the time, they argued it was to demonstrate

liquidity to Tesla's shareholders and other stakeholders. In other words, they were saying, hey, don't be nervous about Bitcoin because it can be turned back into cash at a moment's notice. If we need to take advantage of important time-sensitive opportunities such as access to more semiconductors or port space, which has been in such short supply over the last few months, we can do it. Indeed, I argued at the time that the liquidity, the ease with which they were able to convert their Bitcoin, actually showed how much better it was as a treasury asset than gold, and in fact likely increased their conviction around Bitcoin. All comments they made at the time seemed to validate this perspective. Which is why it came as a pretty big surprise when, seemingly

out of nowhere, last week, Elon announced that the company was going to stop accepting Bitcoin for purchases of its vehicles. This was weird on so many levels. First of all, how was Tesla just discovering right now that Bitcoin had an energy footprint? This was the most obvious, glaring thing about the timing of the announcement. Bitcoin and energy featured in every single article that followed up about Tesla's initial investment. The notion that somehow, months later, Musk and Co. just realized this is patently absurd. It had to be, many concluded, some sort of external pressure.

On that same day, notably, Reuters broke a story of Tesla's application for an EPA carbon credit program, leading many to think that maybe it had something to do with government pressure, which is both a reasonable but also a reasonably concerning conclusion to come to. Of course, a counterpoint to that is, why if they were so convinced of the need to ditch Bitcoin for the sake of external government pressure, wouldn't they sell their Bitcoin holdings as well? Simply not allowing people to purchase their cars in Bitcoin is a pretty weak response, if there is external pressure. But then again, maybe it was the compromise that had to happen, and the emphasis here being on that word compromise. Give up a largely meaningless program.

I mean, seriously, what Bitcoins are giving up their Bitcoin for a car? And in exchange, get some ESG pressure off your back, question mark, question mark, question mark. Whatever the case, Bitcoiners weren't thrilled by this, and in characteristic fashion, took to Twitter to tell Elonso. What really pissed them off was when about a day later he came back to Twitter for two more tweets on the subject. The first would have been fine, if slightly annoying. He tweeted, to be clear, I strongly believe in crypto, but it can't drive a massive increase in fossil fuel use, especially coal. Now, at that point, many Bitcoiners were firing up their machines to talk about the percentage of renewables used in Bitcoin mining, to talk about new

initiatives to capture fuel that would otherwise be lost, but then within minutes, Elon dropped this gem. Quote, working with Doge devs to improve system transaction efficiency. potentially promising. Bitcoin Twitter went off because there were exactly two scenarios here. One, he was deliberately trolling. Doge is, of course, proof of work just like Bitcoin. It has the exact same energy profile of Bitcoin other than simply not being popular and secured the same way because it's been just a joke for so long. Or he had actually decided to turn Doge into something more than a meme. My comment at the time around that second possibility was how fast Doge was turning from one of the truly more decentralized tokens, meme or not, into something with a God Pharaoh

lording over it for his amusement and pleasure. But then it just kept going. A couple nights later, he went full Roger Vair and said, quote, for those bad at math, 100x higher transaction volume with 100x lower fees means total fees earn stay the same. Low fees and high volume are needed to become currency of Earth. Joe Wisenthal at Bloomberg correctly noted that this absolutely ripped open block size war wounds in PTSD. And that, I think, will be an important part to the story, more on that in a little bit. Yet even after all of this, we still could maybe have gotten out of it. If we had all just stopped paying attention, if we had headed back out to whatever we were doing or planning on doing that weekend, maybe it would have been fine. Alas, that was not to be.

On Sunday, Peter McCormick wrote a 24 tweet thread about how to troll properly, about why Doge actually sucked and why Bitcoin ruled. It was ultimately this that got under Elon's skin. A badge of honor, I'm sure, for Peter, would you aware until the day he is done? Musk responded angrily, quote, obnoxious threads like this make me want to go all in on Doge. Chainling God then responded to Elon's tweet, quote, Elon, while the thread is a bit adversarial in tone, it does have its truth in that Dogecoin is orders of magnitude more centralized in both terms of note count and supply distribution than existing cryptos like Bitcoin, people will lose money when these whales dump. Elon bit back even more aggressively. First, he argued that Bitcoin was the one that was highly centralized, pointing to China

mining control. But then he dropped this tweet, and this is really where everything went off. Quote, hey, cryptocurrency experts, ever heard of PayPal? It's possible dot-da-dot, maybe dot-da-dot, that I know more than you realize about how money works. And with that, the facility. The Assad has cracked. I mean, what a petulant, childish response. Of course, if you thought that was going to slow things down, you truly do not know Bitcoiners. They immediately seized on, one, the inherent credentialism of that statement. Two, the fact that Elon was kind of pushed out of PayPal before it got particularly successful. Three, the fact that PayPal's grand ambitions to become a truly global payment network, instead turn them into just a lightweight bank, easily subject to the

exact same political capture that institutions in the existing financial system had, and now a decade or two later showed them to be racing to integrate with the thing that actually had a chance to make the disruption they might have wanted in the first place. But wait, we're not done yet. Looking for the best way to unlock your crypto's liquidity, nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR, earn passive income with yields of up to 12%, and swap between more than 75 market pairs with the instant nexo exchange. Try the NXO wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io.

A few hours later, known scammer, Mr. Wail, aka Crypto Whale, aka Randy the Raccoon, tweeted, Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their Bitcoin holdings. With the amount of hate Elon Musk is getting, I wouldn't blame him. Elon responded simply, indeed. And from there, the price started cratering. Almost immediately, Bloomberg was running a headline that Elon implied that he had sold his Bitcoin. And over the course of the next 12 hours, the price dropped as low as the 42,000s. Now, late last night, Elon tweeted, quote, to clarify speculation, Tesla has not sold any Bitcoin, which stopped the downward trend. Bitcoin has recovered some,

but is still pretty bloody around $43,700 at the time of recording. I think it's important to note that many have argued that this price action wasn't solely, at least, about Elon, that he was a convenient patsy and a catalyst for a move that was always going to happen. Some argued that it was actually tether, i.e. surprise at the composition of their reserves. I have more to say on that, but the TLDR of my opinion is that I feel pretty strongly that the tether reveals didn't do anything but confirm people's priors. Instead, I tend much more to the interpretation put forth by Ari David Paul, who wrote, quote, we had three months of sideways Bitcoin price action, with Coinbase equity and micro-strategy weakening, GBT premium falling off a cliff.

This sell-off isn't about Elon, that was just the excuse for BTC to follow the institutional flows. Zooming out, this is consolidation ahead of the next parabolic advance. But that framework allows for a deep retrace, 50% plus from the highs possible, even amidst a bull run. TLDR, Bitcoin had weakening inflows and lost momentum. Elon was just an excuse to break the local range. In my opinion, BTC is substantially higher by end of year. But regardless of the price, there are clearly some things to pull out here. In fact, many of these conversations are much larger than the scope of this single podcast,

and I have some ways that I'll be getting to them over the next week, but I want to at least lay a few out. A first has to do with the question of Bitcoin maximalism. One of the responses I've seen a lot of is to say that this is just net net damaging. In this take, the aggressiveness with which the swarm of, quote, cyber hornets responds to any threat real or perceived with intensity and vitriol is a long-term problem. Real Vision's Raul Paul came out and said this directly, saying, the biggest impediment to Bitcoin adoption or Bitcoin maximalists.

If you understand this, be more open. Don't try to ram your points home. Support people and don't be tribal and never be abusive or insulting if someone doesn't share your Bitcoin-only views. It's a big world out there. I asked Twitter what they thought about this. And of course, the grain of salt is that because I'm a Bitcoiner, many of my followers, are as well.

However, I do think that the people who follow me on Twitter are at least reasonably diverse when it comes to their crypto perspective. I asked, are Bitcoin maxis in their aggressive Twitter styles, one, net good for Bitcoin, two, net bad for Bitcoin, or three, mixed, good and bad. I had about 2,300 votes, and of those, 32% said net good, 24.7% said net bad, and the largest number of people, 43.3% said it was mixed. There are actually about 100 comments, and it's a really good conversation in many places, so I encourage you to go check it out. But from my vantage point, I think it's pretty easy to argue both sides of this, at least decently compellingly. On the good for Bitcoin's side, the Pleb Army has clearly and convincingly shown itself to be an

important bulwark against capture by vested interests. This was, in fact, one of the central lessons of the block size war, that Bitcoin was extremely hostile to the sort of influence exertion by a bunch of big external players colluding. On the bad for Bitcoin side, the scars of these past battles, plus the people that just love spoiling for a fight, can make it extremely hostile for new. newcomers who have any sort of heterodox intellectual starting point. Now, some will point out, rightly I think, that Bitcoiners are often willing to take a huge amount of time and effort to

explain things to those engaging in good faith, and that the real hostility is reserved for those who are engaging in bad faith. Travis Kling even talked about this on the show, how critics of this cycle like Mike Green clearly aren't just sharing some differences of opinion. They're out to make being contra Bitcoin a stamp of their intellectual or professional brand for whatever reason. I also think that when mainstream finance seems to believe it's totally fine for an investor as respected as Charlie Munger to say that the entire industry of Bitcoin is disgusting and contrary to the interest of civilization, then we're in a clearly weird hostile space. I want to maybe add two points to the discussion.

The first is that there's no clear separation of Bitcoin defenders and Bitcoin evangelists. And these are really two sort of different functions, right? Defenders see their job to be, as so many put it, an immune response to cleanse the system. They're impatient by definition. Evangelists or apostles, if we're going to extend the religious metaphor that so many want to put on Bitcoin right now, are virtually required to have patience as one of their chief virtues. The job of an evangelist is to assume good faith, rightly or wrongly, and be willing to take the time to answer the same doubts in insecurities over and over again. As richly satisfying as saying it can be, there's perhaps no phrase in the history of the modern

human language, or at least Twitter, less likely to win converts than have fun staying poor. And all of this gets me to another point about the legitimacy of critiques. I've seen a lot of people saying, hey, you know, Elon's critiques are legitimate. Bitcoiners who have been having the same conversation for years say they're not legitimate because they've already been discussed, debated, and litigated. I actually believe that this is one of the reasons there's so much frustration. New actors bring up questions that Bitcoiners feel have been resolved. The problem is what really is resolution? I use that phrase litigated, but there are no actual courts, only the court of public opinion, which means unfortunately that new audiences are going to require rehashing

on a lot of things. I absolutely understand the necessity of this. It's one of the reasons I appreciate so much that Nick Carter keeps writing a slightly different version of the same article on energy consumption in Bitcoin, rather than just haughtily saying, read my old shit. But it is exhausting as well, I think that exhaustion heightens the aggressiveness of these responses. That may not be correct, and it almost certainly is ineffectual, but it's also understandable. Now, one other thing I think about a lot is to what extent Bitcoin simply represents the first and purest, perhaps, live case study of a decentralized enterprise, where the only authority comes from audience and influence. Literally, where else does authority come from other than the court of public opinion,

the battle of public ideas? If that's the case, aren't these battles necessarily likely to be more vicious? If this is the case, it also makes Elon a particularly interesting foil. This is someone who has leveraged social media to have a massively bigger reach for his perspective than business leaders of the past. What's more, there's no minimum quality threshold to how he can engage. There is no PR department looking over his shoulder. And by the way, if there is, pray for them because they're definitely always having a worse day than you and I. But what you've got is, effectively, someone who can use their platform to be either, one, the world's biggest benefactor, spreading his influence on his followers magnanimously, or the world's biggest bully, using those millions and millions of reach

to castigate individuals or entire industries. In either case, it's pharaoh-like power, and it's probably part of the problem itself. So as you can see, while I think there's a lot more to explore here, it's hard for me to not see all of this as emblematic of larger questions. Ultimately, though, if there is one thing that is abundantly, painfully clear from all of these shenanigans, it is that Bitcoin is the no-heroes asset. This, as much as its distribution of nodes or hash power or end-hoddlers, is a part of its decentralization. Bitcoiners will learn again and again, not to put too much faith in the whims of anyone champion, but instead to trust in themselves and the voices of those they find most compelling, whether it be a billionaire or some tiny anonymous

account. Bitcoin is an unceasing, marching machine that will simply continue to keep moving forward. No matter how big and vitriolic and insane these social media skirmishes seem, they are ultimately dust and noise. Anyways, guys, I hope that you were able to have a good weekend. I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history. Join thousands of newsmakers and and influencers talking the future of money at Consensus by CoinDesk, a live virtual experience of leaders, change makers, virtual reality meetups, keynotes from Ray Dalio, Gary Vaynerchuk, and much more.

Get an up-close look at the boom in crypto, the surge in institutional investment in Bitcoin, the NFT mania, the breakneck innovation and decentralized finance, and the coming disruption from central bank digital currencies. The breakdown listeners can visit events.coindex.com and use the promo code breakdown to save $25 today. Join us May 24th through May 27 for Consensus by CoinDesk and register today at events.coindex.com. Thanks for listening and we'll see you there.