The Breakdown - The New/Old Bitcoin FUD Cycle

Starting point is 00:00:04 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, April 2nd. And that means it's time for the weekly recap. And on this weekly recap, we are talking about the new old Bitcoin fud cycle. Before that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.le. That's LY slash breakdown pod. Also a disclosure, as always, in addition to them being a sponsor of the show, I also work with FTX.

Starting point is 00:00:57 Finally, one last thing before we dig in. If you haven't bought your tickets yet, I highly suggest you check out CoinDesk's Consensus 2020, which this year is happening in Austin, Texas, between June 9th and June 12th. The event has voices and topics representing a huge cross-section of the crypto space. You've got your CZs and SBFs, but also Punk 6-529 and Kathy Wood. It should be a really, really good time. If you're interested, you can use code breakdown for 15% off your ticket. Check out coindesk.com slash consensus 2020. All right. So on to the weekly recap now. And you could be forgiven for having some weird deja vu this week when it came to the types of critiques and targeting and attacks that were coming at the crypto industry. I described this in the title of the show as the new old Bitcoin

Starting point is 00:01:55 fud cycle. And it was just inescapable that two of the oldest and most stalwart, crypto fuds came back to the four this week. The first was the notion that crypto is just for criminals. And the context for this, of course, was the European Parliament's vote around new AML rules. Now, I went in depth on this on Thursday, but in short, the Parliament was voting around new rules around unhosted wallets. Unhosted wallets, of course, are what we in the crypto industry called self-hosted wallets. They are the digital wallets where you keep your keys and your coins. They are integral to many of us in this industry as a part of what it means to hold crypto. Unhosted or self-hosted digital wallets are just digital wallets that you keep

Starting point is 00:02:44 yourself. They are your gateway to self-sovereign digital money. The rules that the European Parliament was voting around would make it so that crypto asset service providers would need to both collect and verify identity data on any wallets transacting with their platforms, whether it was crypto going to them or crypto coming from them. Now, this is an extremely high regulatory burden. This means that if someone sent your European crypto exchange address $10 in Bitcoin, that exchange would need to collect the information and actually verify the information of the beneficial owner of the address where that $10 worth of Bitcoin came from. Many of the detractors are pointing out that in addition to everything I just said about crypto being a self-sovereign money,

Starting point is 00:03:30 this burden is completely out of step with other types of money in the real world. Indeed, many who were opposed to these measures thought that they would effectively force European-based crypto platforms to stop servicing that market because compliance would be so difficult and would be so expensive. On the other hand, though, was the argument that this is about fighting terrorism. It is about fighting money laundering. It is about fighting human trafficking, things which society rightly finds abhorrent. And so, as one parliamentarian dismissively said, basically crypto bros need to get on board.

Starting point is 00:04:06 Now, importantly, like another recent push in the European Parliament, this was a super sped-up last-minute voting process that didn't really create space for a lot of discussion. That previous push had been in the context of the markets and crypto assets directive, or Mika, when a committee of parliament was asked to vote around what would effectively have been a proof-of-work ban. Not a mining ban, but a ban on actually listing and allowing European citizens to trade proof-of-work cryptos like Bitcoin and Ether. Now, with the proof-of-work vote, we ended up ahead, but that was not the case this time around. It was close, but ultimately the new AML rules were advanced.

Starting point is 00:04:46 So what happens from here? Well, the next step is the so-called trilogues, where the entire law that these amendments were a part of can be discussed and changed, although that's really the last chance. When it comes to how optimistic or pessimistic to be, I will fully admit that I don't really know the specifics of who's against and who's for this and how much wiggle room there is, but it seems at least from the outside like a bit of an uphill battle. At least now, however, there is more attention on it than there was. And like I said, if this is the new old Fudd episode, the old FUD here is that crypto is for crime, but it should be said that really the stakes here are a lot

Starting point is 00:05:24 bigger than crypto. This comes down to a societal discussion about the sliding scale of risk. If the cost of zero financial crime is 100% financial surveillance, is society willing to abide this? Reasonable people can disagree about where to slide that scale. Seems to me, however, to be a pretty steep price to pay. It also has pretty severe implications that head straightened the direction of cash, which is, of course, the most private of all monies. Looking for ways to step up your crypto game? Then go with Nexo. For starters, you get free crypto for each purchase or swap.

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Starting point is 00:07:12 competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCs, you pay no. No gas fees. Download the FTCX app today and use referral code breakdown to support the show. What about the other new old FUD that was on display this week? And you know, of course, we're talking about energy. And we had a real treat on that front. Greenpeace of all organizations launched a campaign with another environmental organization called Change the Code at CleanupBitcoin.com. Greenpeace USA tweeted on March 29th, breaking. Bitcoin uses more energy than

Starting point is 00:08:00 some countries, it's resurrecting closed fossil fuel plants, and driving climate devastation. Now we're joining with EWG to reduce Bitcoin's energy use by 99.9%. They had a bunch of social media graphics and also a launch video. And in that launch video, they claimed things like Bitcoin uses more energy than Sweden in most mid-sized nations. They claim that Bitcoin energy use at the point of ubiquitous adoption would be enough to push climate warning over two degrees. They claim that Bitcoin mining operations are becoming a major source of climate change in global pollution. That proof of work is complex and outdated. And they are lobbying for a change to the actual Bitcoin code. They say that there are just a few dozen

Starting point is 00:08:40 decision makers running and backing Bitcoin's operations that can be persuaded to change Bitcoin's code. They then lumped together Jack Dorsey, Elon Musk, and a bunch of Wall Street banks. And finally, their tagline is, let's change the code, not the climate. Of course, the community jumped on this with vigor. Nick Carter responded to that in initial tweet, you guys are relying on completely junk science with that two-degree claim, by the way. Did you even read the paper it's based on? Editor's note, this refers to a 2018 nature article. The journal itself published three rebuttals and debunkings. Its academic malpractice to cite it. Your campaign might be more effective if you weren't relying on

Starting point is 00:09:19 debunked, flawed models of Bitcoin mining. The Mora-At-all study model bears no resemblance to reality. Certain variables are wrong by three orders of magnitude. Now, others pointed out the sad irony that Greenpeace wasn't engaging with the potential positive impacts that Bitcoin mining is having and could have even more. Mags, the VP of BizDev at Coin Kite, writes, Bitcoin is all about minimizing waste via economic incentives. Using waste flare gas and oil and gas, recycling waste heat for residential district industrial uses, utilizing landfill tires for energy and value-added products, using farm waste for biogas, all have positive environmental impacts.

Starting point is 00:09:56 Alex Gladseen from the Human Rights Foundation pointed out another sad irony. Quote, The irony of Greenpeace sponsoring a PR attack on Bitcoin is quite painful. Environmental activists face a high threat of frozen bank accounts and deplatforming. Greenpeace has literally been targeted this way before and will need censorship-resistant fundraising tech again. But if this wasn't all enough, there was something more. Turns out that this is a $5 million campaign with a very specific source, and that source is Chris Larson, the executive chairman of Ripple.

Starting point is 00:10:26 Ripple is, of course, in an ongoing SEC lawsuit for selling an unregistered security, making this seem, well, suspect. Nick Carter again writes, we're all in this together, except Ripple. Sorry, 500 strikes and you're out. Good luck with the SEC. And if you think it's just the Bitcoin Twitter folks who are not having this, you would be wrong. Bitcoin's congressional and Senate allies were also not buying it. Warren Davidson from the House writes, in other words, please ban Bitcoin. No. Cynthia Lummis in the Senate writes,

Starting point is 00:10:56 this is a disingenuous play for federal regulatory capture. Don't fall for it. Let him compete. Now, in all of this, Chris Larson has repeatedly said that he's not representing Ripple at this time, but basically no one is buying that. And if you're wondering why I haven't given his specific arguments much airtime in this show, when usually the breakdown is such a neutral ground, it's that I reserve airtime and that neutrality and that space for contradicting positions for good faith actors and initiatives.

Starting point is 00:11:22 This does not pass the good faith sniff test. With all the power and wealth and influence Larson has amassed from the crypto industry, if he wanted to have good faith engagement around Bitcoin's environmental footprint, he would be engaging with the community, particularly the community that is large and growing that is already involved in how Bitcoin can be a force for positive environmental impact, rather than donation bribing nonprofits to be the attack dogs using science that was debunked years ago. Anyone who has been around this space for any amount of time has an appreciation for the near constant battle that it faces with the media. This is the type of campaign that could set the industry back years.

Starting point is 00:12:02 If they actually wanted to build momentum for what they say they wanted to build momentum for, which is a proof-of-stake version of Bitcoin, you wouldn't have this sort of aggressive attack. You try to infiltrate Bitcoin circles and find the voices that are excited about driving Bitcoin towards an even greener mining footprint and work with them towards solutions. It's hard for me to read this as anything other than exactly what Cynthia Lummis called it out as, a disingenuous play for federal regulatory capture. We're almost done for our new old Bitcoin fud cycle, but speaking of crypto combatants, I had to at least reference quickly the Elizabeth Warren conversation

Starting point is 00:12:36 in a TV interview with Chuck Todd on Thursday. Todd asked her about a central bank digital currency, and she said, So a lot of banks do wrong if you think we could improve that in a digital world. The answer is, sure you could. But in that case, let's do a central bank digital currency. Yes, I think it's time for us to move in that direction. So here you have her basically rebuffing the idea that cryptocurrencies could be a sea change relative to the power of banks and financial institutions and instead wants that power that digital currency offers, but from a centralized government source. Which is, again, a fine

Starting point is 00:13:09 debate to have if you're having it in good faith. Now, in a different segment, she responded to Chuck Todd's question on whether she thought Bitcoin would be regulated like a commodity. She responded that, yes, she thought it was going to end up getting regulated, then made a reference to the subprime mortgage crisis that started in 2007 as an example of why that regulation is needed. She did not go on to articulate what form those regulations might take. She was asked whether cryptocurrency was this decade's real estate bubble and said, quote, the whole digital world has worked very much like a bubble works. What is it moved up on? It's moved up on the fact that people all tell each other that it's going to be great, just like it was on that real estate market.

Starting point is 00:13:45 How many times did people say real estate always goes up? It never goes down. They say, said it decades ago before the last real estate bubble. They said it in the 2000s, before the crash in 2008. It is staggering, truly mind-numbing to try to pierce through how little substance that statement has. There is no cogent connection to the real estate bubble that she's articulating. She's just pointing it out as another time the economy went wrong. By the way, the real estate bubble in 2008 that she seems to be referring to as a consumer real estate bubble wasn't a consumer real estate crisis. It was about very specific financialization of the market and what happened when that unwound. It was about institutions, not individuals. It's reasonable for post-great

Starting point is 00:14:32 financial crisis regulators to have overactive alert buttons when it comes to systemic risk in the financial system. I genuinely believe that. The place that some have tried to look for that when it comes to crypto is around growing holdings of crypto assets inside opaque hedge funds and personal offices that don't have the same disclosure requirements as other types of financial institutions. The concern there is that crypto volatility could spill over into margin calls for other assets, bringing other parts of the market down with them if those defaults were at a large enough scale. It's not that that's insane to contemplate and even get way out ahead of. But I don't think it leads to an indictment of crypto market volatility. I think it leads to an

Starting point is 00:15:16 indictment of disclosure rules around private asset holdings in those type of opaque and loosely regulated institutions. If you want to go after root causes, go after the root causes. Don't just take these loose analogies and hope that they somehow stick and sound good for Chuck Todd. And by the way, the line, I think it's going to end up getting regulated. I don't know who needs to hear this, but Bitcoin is already regulated. In fact, if anything, what we're seeing from things like the Biden executive order is that we need an interagency effort to understand exactly in what ways it should be regulated because everyone is regulating it in their own way right now. Anyways, we don't need to get too deep into that because

Starting point is 00:15:57 obviously Elizabeth Warren has become something of a crypto punching bag. I think what is genuinely frustrating, though, is that someone who theoretically feels very strongly about the problems of the types of institutions that many in the crypto industry would like to loosen power from by designing entirely alternative systems can't move past their own priors to try to actually understand how this might be different. But luckily, there are plenty of people who are willing to engage in those good faith efforts. So maybe that's the theme of this week. It's not really the new old Bitcoin fud cycle. It's the good God could we please engage in good faith cycle or something like that. Anyways, guys, I'm going to wrap it there for today.

Starting point is 00:16:39 I want to say thanks again to my sponsors, nexus.io, Arculus and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, breakdown listeners, come join CoinDesk's Consensus 2020, the festival for the decentralized world this June 9th through the 12th in Austin, Texas. This is the only festival showcasing and celebrating all sides of blockchain, crypto ecosystems, Web3, and the Metaverse,

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The Breakdown - The New/Old Bitcoin FUD Cycle

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