The Breakdown - States Are Proposing Mining Incentives as Big Oil Taps Bitcoin Mining for Environmental Gains

Starting point is 00:00:00 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 nexus.io, Arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, February 19th, and that means it's time for the weekly recap. This weekend, we are talking about some big new investment rounds and funds. We're talking, We're talking about a new FBI division, and we're talking about some interesting new developments on the mining side. Before that, however, if you are enjoying the breakdown, please go subscribe to the show, give it a rating, give it a review, or if you want to get deeper into the conversation,

Starting point is 00:00:48 join the Breakers Discord. You can find that link in the show notes, or you can go to bit. com slash breakdown pod. Finally, as always, in addition to them being a sponsor of the show, I also work with FTX. So this week is a true weekly recap, where we're going to go through a bunch of different areas of the crypto industry, talk about maybe a few things that we've missed, and let's start with institutions. So briefly recapping, some things we've discussed in this area on the show this week. First, of course, Jamie Diamond's JP Morgan entered the Metaverse.

Starting point is 00:01:23 GPM opened the Onyx Lounge in Decentraland, Onyx being the name of their crypto division, and basically it was just there for people to hang out. More than anything, it was clearly a sign of their commitment to the space as they also simultaneously released a research report about the Metaverse that was aimed at helping corporations and brands who are getting more interested in the space figure out what was hype and what was real. Speaking of institutions and brands getting into the Web 3 slash Metaverse space,

Starting point is 00:01:54 the New York Stock Exchange made some headlines for filing a number of NFT-related trademarks, which they said clearly were defensive. They weren't necessarily an indication that the NYSE was going to start an NFT exchange, but if they did, they have the trademarks now. And then there was Disney who followed suit from a number of recent companies and added a head of Metaverse position. Now, a couple more to discuss. Last summer, Circle was getting ready to join the public market via SPAC with a $4.5 billion dollar valuation, but they've renegotiated their deal. Kate Rooney at Bloomberg writes, Crypto Company Circle renegotiates SPAC deal to go public, now at a $9 billion

Starting point is 00:02:35 valuation, double what it was last summer, cites growth and market share of USDC. Circulation of the stable coin has more than doubled since last summer, now $52.5 billion. Jeremy Aller tweeted Circle News, today we announced to revise SPAC deal for Circle, re-SPAC, which values the company at $9 billion, building on the extraordinary growth of USDC and everything we are building around it. In the past year, USDC has grown by more than 45 billion in circulation, and growth in the ecosystem using USC has been astounding. Circle's financial outlook has also improved considerably in the past year, which is reflected in this revised deal and announcement. We're looking forward to executing on our public listing and grateful to our

Starting point is 00:03:16 partners at Concord, who have been working alongside us as we build this great company. We are just getting started. This news was not exactly surprising. USDC is, hot on Tether's heels and in many ways looks to be in a better position than Tether going into debates among U.S. lawmakers about how stable coins will or won't be regulated. Another bit of funding slash fund news is that Sequoia, which is one of Silicon Valley's most storied firms, is getting deeper into crypto tokens with a new half-billion-dollar fund that is focused primarily on token activities. Partner Michelle Balehi writes, we're raising a $500 to $600 million fund focused primarily,

Starting point is 00:03:54 although not exclusively, on liquid token activities. Investing, staking, providing liquidity, participation in governance, and more. We'll continue to invest in crypto at all stages out of our main seed, venture, and growth funds as well. This is how we've been investing in crypto equity and tokens for the past five years. So then why this new fund? Founders and builders we respect have asked us to be more active with our tokens, staking, governance, etc. And this will give us more flexibility to do that. It gives us a crypto-native pocket within all the resources of our broader firm. Main message, we have a full-stack product for crypto founders, whether equity or token, from Seed and Beyond.

Starting point is 00:04:30 Sean McGuire, another partner at Sequoia, said, hey, crypto-Twitter, we're excited to announce another tool in Sequoia's toolkit. We're launching a crypto fund that will primarily focus on liquid tokens. This forces us to level up our infrastructure so that we can move faster and go even deeper. This is only one prong in a multi-pronged approach. We'll continue to make most of our equity investments out of our traditional funds, seed, venture, growth expansion. Fun fact, last year over 20% of our investments were into crypto companies.

Starting point is 00:04:58 We believe that crypto may be one of the biggest megatrends over the next 20 to 30 years. If that's true, as the internet was over the last 30 years, crypto's ripples will extend to every sector, and the lines will blur between crypto and everything else. We're trying to strike a balance between having a pocket inside Sequoia that are natives with the ability to move at the speed of crypto, while also making sure that everybody in the firm is staying close to the metal. As a boomer 36-year-old that grew up as a Web 1 native, the thing that I think is most underappreciated by Blue Pillars is simply how fun the Web3 community is, a throwback to the 90s. But if we're the 90s equivalent of crypto, we all have a lot

Starting point is 00:05:33 of work to do. Let's go. Now, the interesting thing here is that there are clearly shifts going on in how venture capital has to organize itself in order to play in this new space. There are also incentive alignment issues to consider which are part of that disruption. Tokens bring with them much faster liquidity than traditional equity, which can have some not necessarily great outcomes for the industry as a whole. What's clear, however, is that things are changing one way or another. NXO is a trusted and easy-to-use crypto platform, where you can buy cryptocurrencies at the touch of a button and start earning up to 18% annual interest that is paid out daily. They support all of the major assets on market and even allow you to swap one asset for another or borrow cash against your crypto without

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Starting point is 00:07:04 Just crypto security made simple. Buy now at getarculus.com. That's G-E-T-A-R-C-U-L-S dot com. The breakdown is sponsored by F-T-X-U-S. FDX US is the safe, regulated way to buy and sell Bitcoin and other digital assets with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S.

Starting point is 00:07:39 FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCX, you pay no gas fees. Download the FTCX app today and use referral code breakdown to support the show. Moving back to the government side, the FBI has revealed a new group focused on crypto. The National Cryptocurrency Enforcement Team has a new director in Yun Yong Choi. It's right there in the name, but this is definitely focused on the enforcement side of things. Choi said in a statement, the N-Set will play a pivotal role in ensuring that as the technology surrounding digital assets grows and evolves, the department in turn accelerates and expands its

Starting point is 00:08:20 efforts to combat their illicit abuse by criminals of all kinds. There was a ton of Twitter discussion, as you might imagine, around this, especially in light of the Canada Emergency Act. Brian Dean Wright, a former CIA officer said, if you have a hosted crypto wallet, you're going to find out it's not really yours. Speaking of Canada, when I did a show on the Canadian protests earlier this week, I asked folks who were in Canada to send me their opinions. And the reason that I asked is that obviously in the Bitcoins or community, the main thing that you will see is the incredible frustration, antipathy, nervousness, combativeness towards what amounts to the weaponization of the financial system against the protesters. In the scope of time I had to prepare the show that I was working on, I wasn't able to get too far beyond that perspective, but obviously Canada's a big place with lots of different people. And so I asked and many people responded and I got some great nuance. A couple of points here. First, a lot of folks are pretty fundamentally unsympathetic to the protesters.

Starting point is 00:09:26 In fact, almost all the people who messaged me fell into this camp. And by the way, it's not just because of a difference in stances on vaccine mandates, which brings me to point two. How accepting of the government's actions people were seemed to be pretty well correlated to how dangerous they believed the threat of this group is. I saw a couple comparisons to the January 6th Capitol protesters in the U.S., and the folks who I encountered who are the most accepting of the actions of the Trudeau government are arguing that the protesters are effectively seeking a version of martyrdom and having a much more significant appetite for violence than the average peaceful protest might, thus mitigating the critique of not just using regular police work, which I shared on the show

Starting point is 00:10:07 the other day. A third observation is that there is a broad sense, even with those who don't support the protesters' cause, that this action by the Canadian government does represent overreach and that there might have been other solutions. But number four, even within that sense of overreach, there is a lot of tenuous giving Canada's government the benefit of the doubt, even if they disagree. Basically, a lot of folks who I interacted with argued that the overreach came from a place not of malintent, but of genuine concern. Investor Adam Cochran went farther. He wrote, seeing a lot of horrible takes on recent actions in Canada. Canada has very different laws than the U.S. when it comes to freedoms, money transmission, and criminal association, all of which

Starting point is 00:10:47 have extensively been played out into courts for decades. The people getting angry at Canada for enacting policies and powers mostly seem to be Americans complaining that our laws don't match yours, or even don't match what you want your laws to be. In a society, you give up some core freedoms in order for the protection of self and property, and it is up to each nation to decide where their social contract falls upon that spectrum. So before you go retweeting politicized talking points, note that Canada has long chosen to have different limits under the law, and it's part of why we've always been a proactive and peaceful nation. At least learn the laws before you call something illegal. As for me, I still am really uncomfortable with this sort of weaponization of the financial

Starting point is 00:11:26 system. I'm pretty much in the Jake Trevinsky camp when he tweets, if the politicians you like can freeze the accounts of protesters you hate, then the politicians you hate can freeze the accounts of protesters you like. I'm not even in the universe of being a friend of the January 6thers, but this is still a sort of financial approach to engaging with U.S. citizens, even those ones that I wouldn't support. That said, there is no denying that the Bikwinner perspective and the politically right Canadian perspective on this is loud, loud, loud in the Twitter sphere. And so if you're trying to wrap your head around the full breadth of people's perspectives on it, it's good to have more of those other takes as well. Finally, let's wrap with a couple of topics focused on mining.

Starting point is 00:12:08 Oil giant Canoco Phillips made news this week when they announced that the company is going to sell excess gas to a Bitcoin miner as part of their goal to reduce methane emissions and reach their zero-flairing goal by 2025. Now, initial people saw this as Konoko-Philips actually doing Bitcoin mining themselves, which they're not, but the distinction actually isn't that important. What matters is that a major oil company is looking to Bitcoin mining as a way to load balance the grid. Lin-Aldin writes, Canoco-Philips is now converting some of its stranded gas into Bitcoin mining rather than flaring it. Small energy companies have been doing this for a while, but it's interesting to see a major producer announce it now. This process cuts down on CO2 emissions

Starting point is 00:12:48 and allows that otherwise wasted energy to be monetized and put to use. Over time, Bitcoin mining is filling in the various nooks and crannies of stranded energy, because the cheapest electricity sources make the most economic sense. Nick Carter writes, finally, one of the oil majors admits that they're mining Bitcoin. Now that one has broken the seal, I expect the others will realize the PR around Bitcoin isn't that bad, and they will fess up too. Speaking of mining, state lawmakers in Georgia and Illinois have proposed tax incentives for Bitcoin miners. In Georgia, it's tax exemptions for the sale or use of electricity in crypto mining, and in Illinois, they're looking to extend tax incentives that currently apply to data

Starting point is 00:13:25 centers to crypto mining as well. Texas and Kentucky already offer similar breaks, and that pretty well makes this a trend in my book. The bill in Georgia is from Republicans, while the bill in Illinois is bipartisan. We're in a very strange time as it relates to the Bitcoin mining conversation, where there are forces pushing it in two very different directions at once. I continue to believe that the more that we discuss it, the more that politicians and lawmakers as well dig into the actual details, the better the industry will look and the more room for productive conversations there will be. But for now, I'm going to say thank you once again to my sponsors, nexo.io, Arculus and FTX. And thanks to you guys for listening.

Starting point is 00:14:05 Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - States Are Proposing Mining Incentives as Big Oil Taps Bitcoin Mining for Environmental Gains

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