The Breakdown - The Empire Strikes Back: Inflation Hits 5% While Elizabeth Warren Goes After Bitcoin

Starting point is 00:00:00 There are many Bitcoiners who lament that Warren's chosen mechanism of change, which is government policy, blinds her to the reality that the actual end goal at the heart of her political life, economic empowerment and justice, is something that she could find much common cause with in Bitcoin. 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 and produced, and distributed by CoinDesk. What's going on, guys?

Starting point is 00:00:35 It is Thursday, June 10th, and man, this has been a week of thrilling excitement. El Salvador has moved more quickly than anyone thought possible to make Bitcoin legal tender. What's more, when President Naid Buckele jumped on Nick Carter's Twitter space on Tuesday, someone asked him about Bitcoin mining. I think it was actually Alex Gladstein. That prompted President Buckele to speculate about the potential for Bitcoin mining powered by geothermal energy from volcanoes. While by the next morning, he had initiated a project around exactly that, and the CEO of the largest North American miner was up in his comments asking

Starting point is 00:01:11 about getting involved. The net of all of this was that the possibility of a new mainstream narrative of Bitcoin's capacity for economic empowerment has captured the imagination of Bitcoiners the world over. But of course, this wouldn't be Bitcoin without some controversy and strife to go with it. Last night, I jokingly said that today's episode was going to have to be called the Empire Strikes Back. And this wasn't in reference specifically to the global powers that be getting up in El Salvador's craw about Bitcoin, although there is a meeting with the IMF today that could provide some insight into their initial reaction to the move. In fact, as I was prepping this show, preemptive comments from the IMF came out.

Starting point is 00:01:48 Jerry Rice and IMF spokesperson said, quote, adoption of Bitcoin as legal tender raises a number of macroeconomic financial and legal issues that require very careful analysis. Which, I mean, isn't surprising. Of course they were going to say this. I'm not overly concerned yet. Instead, the Empire Strikes Back comment was about a string of established powers ratcheting up their rhetorical and real attacks on Bitcoin and Crypto at large. Let's head first to China, as this is a story that's already started and that has seen some significant developments this week. There was action by two provinces against mining. In Xinjiang, the local government issued a notice to shut down crypto mining activities.

Starting point is 00:02:27 The shutdown was immediate taking place yesterday on June 9th, and the specific focus was on the Zandong Economic Technology Development Park. This is a 15,500 square kilometer area that houses a number of different coal-powered industries. From Wolfie at the Block, quote, The Notice cited the measures for the energy conservation examination of fixed asset investment projects passed by China's National Reform and Development Commission as the relevant ordinance for government officials to carry out the order. In Shinhai, this is a government same type of decree was issued. In Sichuan, which is a mining hub powered primarily by hydroelectric, they held a meeting last week to discuss how shutting down mining would impact the local economy.

Starting point is 00:03:07 No immediate action was announced after that meeting. As I've discussed before, while China bans Bitcoin mining sounds like a scary thing from the outside, many Bitcoiners think that the medium and long-term net effect could be actually significantly positive. In that, it would, one, further decentralized hash power, two, reduce the total carbon footprint of Bitcoin mining by shifting hash power away from coal, and three, reduce the plausibility, which most already find implausible, of a Chinese attempt to attack the network via domestic miners. In the short term, some have expressed concern about declining hash rate. Many of the world's biggest mining pools that work with Chinese clients have seen the hash rate quickly drop after these shutdowns. Antpool, F2Pool, Pulin,

Starting point is 00:03:47 BTC.com have seen hash rate drops between 11 and 30%, and Bitcoin mining pools run by Huobi and finance have also seen over 10% declines. At the same time, non-Chinese pools, including slush pool and Foundry USA, have remained steady. But is this actually a cause for concern? Not really, according to experts, who remind us that hash power remains multiples higher than in previous years when the network was still considered secure. However, this wasn't the only Chinese intrigue with Bitcoin. Two of the largest internet companies in China, Baidu, and Weibo seem to be taking on a coordinated censorship effort around keywords related to Hobe, Binance, and OKX, the three major crypto exchanges that cater to Chinese investors. Searching for those companies on

Starting point is 00:04:28 Baidu, aka Chinese Google, now brings up zero results. Same with the Twitter-esque Weibo. In addition, Weibo suspended the accounts of about 25 major crypto influencers who combined had millions of followers. Interestingly, this hasn't really registered in markets the same way other China action has. This suggests that to some extent we've priced in China slowly unwinding itself from Bitcoin. And that fact means that we're also likely to see more discussions of the positives of that disentanglement, which could be net bullish moving forward. 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 6.9% APR, earn passive income with yields of up to 12%, and swap between more than 100 market pairs with the instant nexo exchange. Try the NXO wallet app to get the whole 360 degrees of crypto banking.

Starting point is 00:05:25 Get started at NexO.io. That's NXO.com.com to get started today. With that, let's head back to the old U.S. of A. First, I want to talk about comments from a CFTC commissioner about defy. In the U.S., the CFTC has tended to historically be the most pro-crypto body of all the regulators. But that didn't stop Commissioner Dan Berkovitz from going off in a speech to the Asset Management Derivatives Forum. He pointed out, obviously, that DeFi platforms are not ready. as designated contract markets or swap execution facilities. He articulated that he didn't like the presence of an entire sidelong unregulated derivatives infrastructure. And of course, ultimately,

Starting point is 00:06:08 the big concern came down to investor protections. Here's a quote, in a pure, peer-to-peer defy system, none of these benefits or protections exist. There is no intermediary to monitor markets for fraud and manipulation, prevent money laundering, safeguard deposited funds, ensure counterparty performance, or make customers whole when processes fail. A system without intermediaries, is a Hobbesian marketplace with each person looking out for themselves. Kaveat MTOR, let the buyer beware. I think the concern if you're in Defi is that his critiques are extremely foundational and structural. His critique, in other words, is with the very nature of the design of the DeFi system.

Starting point is 00:06:43 Indeed, in many ways, the speech was a full-throated defense of intermediaries. This is different than some fud that can be shifted or educated away. This is an attack on the structure of the system. Now, importantly, this is just one person, and it's not clear either A, A, how much time he's actually spent with Defi, or B, how reflective of the rest of the commission his views are. But still, I think it's worth keeping an eye on. To my mind, one of the most real short-term regulatory threats is the well-intentioned paternalism that says that people can't be trusted to not lose all their money, and so the government should limit their choices. It seems a seductive

Starting point is 00:07:18 logic for many in power and is diametrically opposed to the radical freedom that crypto networks represent. But finally, in our Empire Strikes Back episode, there is Elizabeth Warren. Yesterday was a Senate Banking Committee hearing ostensibly focused on central bank digital currencies. However, led by Senator Elizabeth Warren, much of the focus ended up being on Bitcoin. Nick Carter absolutely savaged her take, saying, things Liz Warren is deliberately lying about. Bitcoin transactions consume X energy. Bitcoin is unproductive and has no utility. Bitcoin energy uses a disaster for our planet. Bitcoin disproportionately. used for illicit purposes.

Starting point is 00:07:55 These are areas of FUD that we have discussed endlessly on this show, so I don't need to relitigate them. But Nick also made clear what he thinks the increase in vitriol is caused by. In his estimation, it's not an accident that this attack came during a hearing theoretically about CBDCs. He writes, virtually everything she says about Bitcoin is a flagrant liar misrepresentation. Her despotic Sino-CbTC won't substitute for or improve on Bitcoin.

Starting point is 00:08:22 It will subject you to. a permissioned yeast life where every financial decision you make must be approved by her goons. Most policymaker interest in Bitcoin extends only to employing it as a rhetorical device against which they shill their Sino-CBDCs. It's unreal to them, simply an antithesis. When their takes on Bitcoin are completely unglued from reality and bear no resemblance to fact, remember that them attacking Bitcoin is a sales tactic for their favored population control social credit systems. So in this rhetorical paradigm, CBDCs negate the need for non-state cryptos, because they replace all the quote-unquote good things that lawmakers are happy to

Starting point is 00:08:58 acknowledge, i.e. speed, convenient settlement, with a version that doesn't risk criminal concerns and doesn't undermine monetary policy. The reason that you hear such ire in Nick's tweets is that CBDCs don't just minimize criminal concerns and support monetary policy. They also radically increase the scope of the government to surveil financial transactions of private citizens while creating a significant expansion in monetary tools. There are many bitcoiners who feel the same is Nick, and who would have expected nothing less from Elizabeth Warren, who has a significantly higher belief in the government's capacity to deliver positive economic results than, well, most, given that she has consistently presented her pitch to America and been rebuffed.

Starting point is 00:09:36 At the same time, there are many Bitcoiners who lament that Warren's chosen mechanism of change, which is government policy, blinds her to the reality that the actual end goal at the heart of her political life, economic empowerment and justice, is something that she could find much common cause with in Bitcoin. Andrew Bailey, who was on the show a couple months ago discussing Bitcoin politics and philosophy, wrote, I feel more sadness than scorn. I don't agree with her on most things, but I do respect Warren. It'd be a shame to see her become incurably beset with Bitcoin arrangement syndrome when her commitment to financial inclusion could make her a powerful ally to Bitcoin. When they say financial inclusion, nine out of ten politicians are fronting.

Starting point is 00:10:14 They don't give a shit. Warren does, I feel. This is the golden thread that runs through her career. There's probably a one-week window here to get her to budge on Bitcoin, but then it will be too late. Unfortunately, at the risk of falling into cynicism, I think that by the time politicians make a big show like Warren did, even getting herself booked on Bloomberg to follow up the appearance, the ability to shift their perspectives has largely passed. That said, I do think it would be a net bad for Bitcoin and crypto to become exclusively a partisan issue in the U.S., and it would be much too easy for it to do that. For example, the same day that Senator Warren made these comments, Sean Hannity slapped on some

Starting point is 00:10:51 laser eyes and invited Michael Saylor on his show. There is an inherent individual's over institutions bent to Bitcoin, but to reduce it exclusively to a right-leaning thing is to fail to understand how integral the idea of individuals self-organizing to rest power back from the entrenched pillars of control is at the center of a left-leaning perspective as well. We'll see. There are still plenty of pro-crypto, pro-bitcoin, or at least pro-open, to these things folks in positions of power in the Biden administration. How it all plays out

Starting point is 00:11:21 will be interesting to see. Then again, it's not inconceivable that opposition to Bitcoin becomes bipartisan as well. The two biggest politicians attacking Bitcoin this week were Elizabeth Warren and Donald Trump, after all. Niraj from Coin Center tweeted today, What's different about this time is that there actually are people who hate cryptocurrency, who are engaged in political advocacy against it. That's new. Yet in the background of all of this is the larger macroeconomic environment. Inflation hit 5% in the latest official CPI numbers, higher than expected. And of course, there are still many arguments that it is a combination of base effects.

Starting point is 00:11:54 In other words, it's a year-over-year measure and no one was spending money last year at this time, as well as transitory forces as we shift back into the economy coming online. But still, that number is bolstered by the sentiment out there that things are getting more expensive. A silly but telling example comes from a Bloomberg headline today. Shake Shack sees chicken inflation in second half of this year. I continue to believe that we're in a radical in-between moment, in between on macro, in between on policy, in between on where Bitcoin and crypto are going to fit into those larger battles. Get your popcorn, it's going to be wild.

Starting point is 00:12:28 Until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - The Empire Strikes Back: Inflation Hits 5% While Elizabeth Warren Goes After Bitcoin

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