The Breakdown - This Earth Day, Let's Reclaim the Bitcoin Energy Debate

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 and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, April 22nd, and today is Earth Day. So for Earth Day, let's reclaim the Bitcoin energy debate, shall we? Before we do that, let's do the brief. First up on the brief today, crypto M&A is in full swing. I've said a bunch of times that this is going to be one of the key trends to watch this year, and there are a number of reasons for that. First, you have flush balance sheets. Companies in the crypto space have cash, and they want to leverage that cash to accelerate and advance their position in the market.

Starting point is 00:00:54 Second, you have bigger competition, more companies going after bigger pies, which means inevitably some amount of joining forces trying to find edges through acquisitions. And as a part of that, you also have new entrance into the market, i.e. traditional finance companies who are now able to offer crypto services. The byproduct of that is likely to be many crypto companies being folded into traditional service providers. A couple stories on the M&A front. The first is a reported acquisition that isn't a done deal yet. Apparently Galaxy Digital Mike Novograt shop is in the hunt for BitGo, which just announced a multi-hundred million dollar insurance fund yesterday. Now, there have been numerous rumors of BitGo acquisitions. PayPal, it seemed last year, was looking into acquiring BitGo, but that never ended up happening. One that was confirmed, however, is that

Starting point is 00:01:44 NIDIG has acquired Arctos Capital. Arctos is a commercial lender that focuses on financing for Bitcoin miners and other crypto firms, which is relevant with our main discussion today. This is actually the second announced acquisition for Nidig this year, having previously scooped digital assets data. Next on the brief, there is growing chatter around Ethereum. Heath heads on Twitter will make sure that you know that ETH is at a new all-time high, currently above 2,600 at the time of this recording. The more interesting thing to me, however, is some amount of shifting narrative around it. A coin desk headline today reads, ether price hits new record high as analysts anticipate supply drop. Basically, after the upcoming

Starting point is 00:02:25 ETH 1559 upgrade, the net annual issuance is set to drop. Someone even said that Ethereum will become a deflationary asset. While Paul has the Bitcoin crowd on Twitter huffing with this tweet, quote, when you price anything up in defy, NFT, community tokens, or even Metaverse worlds, everything is basically priced in ETH, including designers' time, etc. Heath is rapidly becoming the currency of the digital world and BTC is the pristine, collateral, and base layer. So my question is, is this going to be a narrative that catches on I will obviously be watching closely to see if and how it translates to the macro crowd. Last up today is Kathy Wood, the Michael Saylor of Coinbase stock?

Starting point is 00:03:05 Someone thinks that coin is too cheap right now. Kathy Wood scooped up another 244,717 shares of coin yesterday worth an estimated $76.3 million. This was split between ARC's flagship innovation ETF and their next generation internet ETF. Three Arc funds yesterday also sold Nvidia. The total amount of coin shares that Arc has bought is now at 1,571,456. Now, I sort of think it's always worth asking what Kathy knows that we don't, or at least how she sees the world differently. But with that, let's shift to our main discussion. Today is Earth Day, a holiday that's been celebrated since 1970. And I thought for Earth Day, it would be great to actually bring ourselves up to speed on the latest in the Bitcoin Energy debate, outside of some

Starting point is 00:04:00 mainstream press article and beleaguered Nick Carter's inevitable response. Yesterday, Square Crypto's Miles Souter tweeted out, today is the day we turn the table on the Bitcoin Energy debate. He was referring to a new memo, a collaboration between Square and Arc, see, there's that tie-in, titled Bitcoin is key to an abundant clean energy future. This memo was published as part of the Bitcoin Clean Energy Initiative that Jack Dorsey announced in December. Here's how they set it up. Quote, in this memo, we aim to explain how the Bitcoin network functions as a unique energy buyer that could enable society to deploy substantially more solar and wind generation capacity. This deployment, along with energy storage, aims to facilitate the transition to a cleaner

Starting point is 00:04:44 and more resilient electricity grid. We believe that the energy asset owners of today can become the essential Bitcoin miners of tomorrow. So here's the argument in a nutshell. They argue that, one, Bitcoin mining is an opportunity to accelerate a transition to renewable energy. Two, that solar and wind are today the least expensive energy, but have deployment bottlenecks due to intermittent power supply and grid congestion. Three, that Bitcoin miners represent a flexible load option that could solve those intermittency and congestion problems, which would in turn allow grids to actually deploy much more renewable energy. Finally, part four of their argument, being deployed more fully, these green energy sources will continue to be pushed even farther down their cost curves,

Starting point is 00:05:25 ultimately bringing them closer to zero marginal cost energy production. 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 Nexo wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. Let's dig into a little bit more on each of these themes.

Starting point is 00:06:04 The first is the cost of solar. The paper uses a measurement of energy cost called the levelized cost of energy or LCOE. This is the total lifetime cost of building and operating a power plant divided by the total amount of energy. of energy it produces. The levelized cost of energy for solar and wind has fallen 90% and 71% respectively over the last decade. The unsubsidized cost of solar is now 3 to 4 cents per kilowatt hour and 2 to 5 cents per kilowatt hour for wind. Natural gas, meanwhile, is 4 to 7 cents, geothermal is 5 to 10 cents, and coal is 6 to 7 cents. Now they do point out that hydro and geothermal can both be less expensive in specific individual sites, but on the whole, wind and solar have now

Starting point is 00:06:46 reached parity. They also argue that especially solar is likely to continue to decline. The price has consistently declined 20 to 40% per doubling of cumulative capacity deployed. In other words, the more solar that comes online, the less expensive it is. All sounds great, right? Well, there are issues and the biggest issue is a supply demand mismatch. Sun doesn't always shine, the wind doesn't always blow. The paper describes the outcome of this as, quote, significantly more power than society typically needs for a few hours per day and not nearly enough when demand spikes. This is exacerbated by grid congestion. Grid congestion can often happen because these sources are built in rural areas where there aren't the end users or the transmission capacity. And while they say that increased transmission

Starting point is 00:07:29 capacity and storage in the form of lithium ion batteries is going to be important, it won't necessarily be sufficient. Bitcoin mining, on the other hand, they call, quote, an ideal complement for generation and storage. Indeed, they call Bitcoin miners an energy buyer of last resort, pointing out that they have a highly flexible and interruptible load, that they pay out in a globally liquid currency, that they are totally location agnostic, and that they can be turned off or on at a moment's notice. Combining miners with renewables and storage projects, this paper argues that it could, quote, improve the returns for project investors and developers, moving more solar and wind projects into profitable territory. Two, allow for the construction

Starting point is 00:08:10 of solar and wind projects even before lengthy grid interconnection studies are completed. as Bitcoin miners can offtake the energy until selling to the grid becomes possible. And three, provide the grid with readily available excess energy for increasingly common black swan events, like excessive hot or cold days when demand spikes. Now, what about the societal impacts? This is Earth Day after all, right? The paper notes two long-term implications. The first is that the amount of solar and wind on the grid could increase dramatically. Basically, when society starts deploying more of these sources, it brings the LCOE down farther on the cost curve, which makes the next set of solar

Starting point is 00:08:46 and wind even more profitable. Also, the cheaper it is, the more it unlocks other beneficial and highly lucrative uses of energy like desalination, CO2 removal from the atmosphere, and more. Now, the second impact they discuss is a greening of the Bitcoin industry itself. They note that while many of these projects in practice would be built behind the meter, aka at the energy source, they would still also likely mine with grid electricity for low periods or when it was profitable to do so. So it wouldn't be purely green from day one. Still, they argue that the ultimate trend would be a moving toward, quote, a renewable dominated hash rate. As I mentioned, this was a collaboration with ARC and what ARC contributed was a model that showed how Bitcoin

Starting point is 00:09:27 mining could encourage investments in solar grids and batteries, enabling renewables to generate a higher percentage of grid power with potentially no change in the cost of electricity. So the key thing here is that the discussion isn't just about greening Bitcoin. It's about how Bitcoin creates an economic model that improves how much these sources of renewable energy can power everything else. Here's the last paragraph from ARC in the report. Our model demonstrates that integrated Bitcoin mining could transfigure intermittent power resources into baseload-capable generation stations. It suggests the addition of Bitcoin mining into power developers' toolboxes should increase the overall addressable market for renewable

Starting point is 00:10:07 and intermittent power sources. All else equal, with Bitcoin mining, renewable energy could provision a large percentage of any localities power economically. As a follow-on effect, cost declines associated with scaling renewables should most likely accelerate, leaving them even more economically competitive at equilibrium. I think this is the part that gets me most excited is not just the greening of Bitcoin, but again, the greening of everything that is enabled by Bitcoin. So what does it take to get there? Well, the paper lists three things. The first is energy management software and services, basically tools and software to help companies decide automatically in real time the best use for each new unit of electricity created. Use it, store it, or mine it.

Starting point is 00:10:49 Second, they note the need for energy miner marketplaces, basically an easier way to connect the players here, including project developers, miners, and financiers. They identify creditworthiness threshold requirements for existing miners as a key issue to be addressed. Finally, they discussed ASIC manufacturing. Basically, we need a lot more chips and we need foundries to do that. They note that Samsung and TSM have both announced North American plants, but it's going to take a lot more. Now, I love the way that Miles introduced this report on Twitter. Today is the day we turn the tables on the Bitcoin energy debate.

Starting point is 00:11:22 I am so sick, as I'm sure you are, of fighting the same fights, relitigating the same tired disproved points. What I'm more interested in is shifting the narrative to tell this story and to allow markets to follow, with capital and ideas and people and talent and energy to actually pour into enabling this promise of how Bitcoin mining can positively impact the green energy grid and turn it into reality. I'm certainly going to be keeping my eye on exactly this. I hope you will as well. But for now, guys, I appreciate you listening and happy Earth Day. Until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history. thousands of newsmakers and influencers talking the future of money at Consensus by CoinDesk,

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The Breakdown - This Earth Day, Let's Reclaim the Bitcoin Energy Debate

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