The Breakdown - Why Bitcoiners Are Rooting for This Latest China Mining Ban to Finally, Actually Be Real

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 and produced and distributed by CoinDes. What's going on, guys? It is Friday, May 21st, and I am excited for this conversation today. The show is called Why Bitcoiners are rooting for this latest China mining ban to finally actually be real. And what I want to argue in today's show is that we are in the midst of a major narrative shift on China and crypto. We have been subject to the whims of media reporting on China, Bitcoin, and crypto bans for years, even though it is so often toothless or just repeating previous policy,

Starting point is 00:00:54 it always gets reported like it's a catastrophe. At the same time, China's involvement in crypto, especially Bitcoin, is an increasing political and environmental liability. It's an environmental liability because a big chunk of the quote-unquote dirty, i.e. coal-powered mining, comes from China, such as Inner Mongolia specifically. It's a political liability, both because the environmental concerns are a political liability, but also because questions of state control and state compromisability due to mining. Bitcoiners, frankly, are sick of it, sick of the albatross of this authoritarian state that is getting worse, not better when it comes to control over its citizens. One of the things I try to be most attuned to is shifts in sentiment.

Starting point is 00:01:35 shifts in the narrative. And the reaction to this latest round of Fudd confirms something I've been noticing. Bitcoiners increasingly hoping that China's mining crackdowns actually do stick. To get there, though, let's catch up on this week in China FUD. Let's start with the FUD that helped provide the nudge off the cliff for the Wednesday crash. We saw these big, huffy pieces about how China had banned financial institutions from dealing with crypto. Meanwhile, people in the crypto industry who actually, you know, no thing, said that's not actually right and pointed out that it was a reaffirmation of previous bans. Well, let's look at an updated headline from Reuters last night. Bitcoin and other cryptocurrencies can still be bought in China after Beijing's latest crackdown.

Starting point is 00:02:17 Chinese individuals could still buy Bitcoin and other cryptocurrencies and trade them on overseas exchanges on Thursday. Beijing issued similar bans on crypto-related financial and payment services in 2013 and 2017. Rich that they decided to put this out two days after they had put out their first incendiary and frankly incorrect piece. Reuters goes on to say that they checked and you can still make transactions with overseas crypto exchanges from China and that, quote, players in China's crypto mining industry were also broadly unfazed by the latest crackdown, again citing the difficulties regulators would have in identifying transactions.

Starting point is 00:02:50 The point it seemed is never, never to react to the hype headline before you dig in further. But that's not the end of the story, because on Friday morning a new report started coming in, this one with perhaps more serious implications. Leo He, China's vice-premier, had a meeting with the financial stability, Committee of the State Council. According to the meeting records, this statement came through, quote, we should be more alert and look for potential risks. We should crack down on Bitcoin mining and trading activities and prevent individual risks from being passed to the whole society. CoinDesk said about this, quote, this is one of the most high-profile warnings against

Starting point is 00:03:24 cryptocurrencies in recent years. The state council is the chief administrative authority of China, where heads of cabinet-level executive department make national policies. Dovi-Wan said, the seriousness of news is definitely much more than normal China fud, can be material. One, it's a direct order from the State Department, two, it's emphasized by the VP of the PRC. In China's policy, execution and impact really matters on where the order is from and who announced it to the public. Also, the CCP has a known pattern to push policy updates on Friday night, same for the traditional finance markets. For it to be executed, there needs to be a series of executable docs passed down to the actual agencies, so we'll wait for those in the coming weeks

Starting point is 00:04:02 to gauge levels of seriousness. Dovi also added what to watch for. Quote, In the next few weeks, keep an eye on overall hash rate drops, which will likely happen, expect to drop at least 30%. Keep an eye on law enforcement actions

Starting point is 00:04:15 towards Whoopi and OkX, likely but not sure how serious. 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,

Starting point is 00:04:34 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.com. Thomas Heller, the co-founder of Compass Mining and former F2 Pooler, said, Vice Premier Leo Hu calls for a crackdown on Bitcoin mining and trading activities. Anti-Bitcoin mining news regularly comes up, but this is worth monitoring. Miners in China I've spoken with are unsure of the impact right now. It's interesting to think a bit about why now? The obvious answer is that it has to do with China's digital currency project.

Starting point is 00:05:13 As I've said before, the first phase of the digital currency project in China has been to reign in the power of fintech firms like AliPay, who are commanding an increasing percentage of bank-type activities in China. We've been following that story here for the past six months, as those firms have been largely brought to heal and are now being regulated in effectively the same way as Chinese state-owned banks. The next phase, it might seem, is cryptocurrencies, which, while significantly smaller in usage than those networks, still represent a financial infrastructure that's outside PRC control. In that light, it's not at all surprising to see this sort of increased focus, outside of Chinese state control. In that light, it's not really that

Starting point is 00:05:50 surprising to see this sort of increased focus. What's most interesting to me is the response of Bitcoiners and crypto industry people. They're fed up with China. They're fed up with Chinese coal-based mining dragging the environmental profile of Bitcoin down. They're fed up with hash power in China lending itself to a narrative of Chinese control. They're fed up with having the new anti-authoritarian asset that they've invested in be wrapped up in perhaps the world's most powerful authoritarian government. They're fed up with every piece of China crypto news having disproportionate sway on price. Their fed up is the point. Here's Niraj Agarwal from Coin Center this morning. I'm rooting for the mining ban. Dovi followed up and said,

Starting point is 00:06:28 this time is extremely bullish for hash rate redistribution for a much more decentralized mining industry. Later in Chinese, she wrote, and this is just a loose Google translate, after this time, the decinification of computing power, the deconification of pricing power, and even the deconification of liquidity will all be accelerated. I tweeted the name of this show and got huge engagement. Now, one important qualification from Alex Gladstein from the Human Rights Foundation that I agree wholeheartedly with is this. quote, I think it's very important to distinguish a ban on mining in China, which would be good for several reasons, from a ban on use or investment, which, while perhaps inevitable or partly

Starting point is 00:07:04 happening, is, of course, terrible for our friends in China. Like I said, I absolutely agree with this. What I'm talking about is more than anything, the mining ban potential, and it is worth noting that there is a mention of trading in the comments that we read before. Adding an interesting complication to this whole story are the rumors flying around whale channels on telegram. Here's one that's forwarded from the Asian Wales VIP channel. Quote, according to our sources in China, the ban on mining is only restricted to mining operations

Starting point is 00:07:32 run by coal-fired thermoelectric power plants. A limited ban is not a complete ban, and this has always been the case, not news. Mining operations based on hydroelectric power plants are not banned. There's a good chance this is just another fud. Could this mean that China is also looking to rid itself of ESG concerns around mining without compromising the industry as a whole?

Starting point is 00:07:52 Certainly possible. Whatever the case, it does feel distinctly like there is a shift in attitudes on China and Bitcoin. And importantly, this has been ongoing. On April 17th, Nick Carter tweeted, quote, What people don't understand is that people who care about Bitcoin and the planet want China to ban Bitcoin mining. It eliminates outside risk factor, decarbonizes Bitcoin, decentralizes hash rate, and adds to margins for clean U.S.-based miners.

Starting point is 00:08:18 I am praying for another ban like Inner Mongolia. Nick went on today to say, quote, China is subsidizing and improving the margins of cleaner U.S.-based miners by forcing hash rate out of China. That's a fact. I don't know the precise details of what's happening, but it seems likely to me that they're following the Inner Mongolia precedent of banning coal-based mining in Xinjiang, while leaving hydro mining in Sichuan and Yunnan intact, decarbonizing Bitcoin mining.

Starting point is 00:08:44 Kevin O'Leary from Shark Tank has also been on TV screaming for the last month about not wanting Bitcoin mined in China. Now, I've done a show previously on why this isn't particularly feasible and also compromises some core things about Bitcoin fungibility, but it's nevertheless an interesting part of this narrative shift. And that is the real point for me, at least right now. Plus, this new potential narrative has some really easy implications for different types of entities. It's easy narrative fodder for all domestic mining operators in the U.S., especially those who are going green. It's also prime territory for a political leader to step up and champion Bitcoin green mining.

Starting point is 00:09:20 who knows how it will all play out. What I know for now is that there is something seismic happening and it's not just another China fud exactly. There is something more significant about how power is distributed in Bitcoin and what the geopolitics of Bitcoin actually look like that we're going to have to pay attention to over the months to come. For now, guys, I hope you are headed into an awesome weekend. Enjoy the early summer. I appreciate you listening as always and And until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history.

Starting point is 00:10:00 Join thousands of newsmakers 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 27th for Consensus by CoinDesk, and register today at events.coindex.com.

Starting point is 00:10:37 Thanks for listening, and we'll see you there.

The Breakdown - Why Bitcoiners Are Rooting for This Latest China Mining Ban to Finally, Actually Be Real

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.