The Pomp Podcast - #962 Daniel Batten On The ESG Case For Bitcoin

Starting point is 00:00:00 what's up everyone this is anthony pompliano most of you know me as pomp you're listening to the pomp podcast simply the best podcast out there now let's kick this thing off daniel batten is an esg analyst and a clean tech fund manager daniel and i in this conversation talk about the esg argument for bitcoin and it clears up a lot of misconceptions i really enjoyed this conversation with daniel and i hope you guys enjoy it as well before we get into this episode though, I first want to talk about our sponsors. This episode is brought to you by OKCoin. They are my favorite place to buy, trade, and stake crypto. They're the fastest growing US-based exchange serving over 190 countries globally with the easy onboarding and low fees. If you haven't

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Starting point is 00:03:45 opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Daniel, thanks so much for joining us. Hey, thanks very much, Pomp. Good to be here. Absolutely. I'm very excited to talk to you. Maybe let's start with just context in terms of your background, your interest in ESG, a cleantech fund, and kind of help people understand, you know, why are you qualified to have an opinion, if you will, when it comes to ESG and cleantech issues? Yeah, sure. So I've been a technology investor for about 20 years now, and a tech entrepreneur for, well, since 2004.

Starting point is 00:04:30 And about two and a half years ago, we set up a cleantech fund. So we're specifically funding technologies that are making a positive environmental difference in the world. So we invest in things that often are going to reduce carbon emissions, and we have a mandate to invest in things which are good for the environment. So we've been doing this for a long time now. And so when you started to first hear about Bitcoin or see it, where were you? Were you excited about it as like a technologist? Did you think, oh, this is destroying the environment? Where did you kind of enter into maybe the Bitcoin analysis initially? Yeah, well, I'll be quite honest. So I had invested in gold previously, and then I'd seen

Starting point is 00:05:13 a documentary about its environmental effects. And I literally, after I got off the plane from watching the video, I sold my gold the next day I could, because I was so appalled about what it did to the Congo and the Amazon rainforest. And then I got interested in Bitcoin at 2017, early 2017. And I had small exposure there. Then I read some of the media articles about it. And I said to my friend who had orange-pilled me, I said, well, this doesn't look good. What's going on? And luckily, he was able to direct me to a video of Andreas Antonopoulos, who was talking about how it could help to build out the renewable grid. And I said, well, that kind of makes sense. And I looked and I thought, yeah, on balance, it looks like it could, maybe it couldn't. But then

Starting point is 00:05:55 And just this year, I started to analyze it more deeply and come to some different conclusions. So when you started to first look at it, walk me through maybe like, was there a framework you used to analyze it? Or was there some sort of analysis that you were able to kind of put Bitcoin through in order to come to conclusions? Yeah, absolutely. What I noticed was if you're going to make a claim about the environmental case of any technology, you have to look at the net balance. It's just like if you're going to analyze a business, you've got to look at the asset side of the register and the liabilities, right? You can't just look at the expense line of a business and say, oh, this is a terrible business. We should close it down.

Starting point is 00:06:34 And it occurred to me that a lot of people were doing some very incomplete analysis of Bitcoin because they were looking at energy use, but they weren't ever asking the question, well, what might be the environmental good? And we don't do that with solar, right? We don't look at solar and say, oh, we should ban it because it uses coal furnaces to melt silicon. we say, yeah, that's true, but it's acceptable because after a year it pays off its carbon debt and the rest is all pure good for the environment. So it just struck me, we should do the same thing for Bitcoin. So I started to look at the other side of the ledger about how it might be a positive and really went in the neutral, not knowing what to expect. So I looked at things like, could it reduce emissions? Could it reduce CO2 emissions? Could it reduce methane emissions?

Starting point is 00:07:15 Could it help with the build out of the grid? So that was where I started the analysis. That as a framework I used. So when you started this Twitter thread, that's where the first time I came across you. And I was like, wow, this is like great intellectual rigor and really kind of covered a whole bunch of it. And so I just want to maybe call it a couple of the points that you made. Maybe you can kind of elaborate on them. The first is that you call out that you're particularly impressed that Bitcoin has reached 58.4% renewable energy usage. This is not only higher than any other industry sector. It is higher than any other large industrialized country, which I found fascinating. Explain that a little bit more.

Starting point is 00:07:51 Yes, actually, the Bitcoin Mining Council has done some really good stats on this. And those statistics actually come straight from them. So that's not my own analysis. That's just me leveraging off some good people who have already done that work. Some people argue that, in fact, even those figures like Germany, which is up about 50%, it's actually less than that because they claim offsets, which is something that Bitcoin does not do. What we've seen though, if we look at estimates over time, Q1 last year, Bitcoin was about 36% based on the Bitcoin Mining Council data. It's gone up from there to 58%. So that's a 59% increase in just about a year's time. And there's just no industry anywhere, let alone, there's no country, there's no industry that's

Starting point is 00:08:36 growing at that rate. So that's quite astonishing. And what you kind of need in order to inspire action is you need examples of industry sectors or technologies that are really leaping the curve and that are growing at a very fast rate in renewable adoption. So I think Bitcoin actually has what I call the Roger Bannister effect. It shows people that it's possible to rapidly migrate to renewables and to have a sector which is using more renewables than anyone else. So when you say the Roger Bannister effect, that was a second point that I found just fascinating of almost like by breaking the barrier, it shows people it's possible. And is your expectation that similar to right after Roger Bannister broke the four minute mile, a bunch of more people broke it, that other industries now will drastically accelerate and become much more renewable focused? Well, I'd like to hope so. I think it'll remove some excuses that it's not possible, put it that way. So it's basically just removing the excuses, not necessarily solely driving it. And once the excuses are gone, then it allows people to imagine it.

Starting point is 00:09:38 Yeah, I think it will be twofold. Like the people who are currently reaching for the basket of excuses and trying to point at other industries and say, hey, look at us, they're worse. I think that'll show them that there's another path and they can actually do it. If we look at hydrofluorocarbons, for example, the people who manufactured them and created the aerosols that used them said it was impossible, there was nothing else we could use. And as soon as there was an international mandate that said, hey, they're banned, it was amazing how fast they suddenly found an alternative, which is just as good. So I think sometimes people can be a bit lazy in their thinking, but when those excuses are removed, suddenly we think, okay, well, someone else is doing it. I don't have that excuse. So let's look at what we can do. So I think it can be both a source of inspiration, but also an excuse remover. So probably both. As we think about this, you had a second tweet that said it has achieved the kind of penetration of renewables in just 14 years, obviously, since Bitcoin's inception. Your research revealed renewable growth rate of 59% since Q1 of 2021, and approximately 383% from 2013. This matters because it can be the Roger Bannister to other industries, etc. When you think of those growth rates. Is that just unprecedented in any sort of ESG or renewable energy related kind of growth?

Starting point is 00:10:59 Yeah, we haven't seen it in any other industry sector whatsoever. So to give you an example, so one of the companies we invested in, they're looking to remove carbon from the zinc recycling process. So that's a very carbon intensive process. And it's responsible for, if you look at the zinc industry, up to 1% of global emissions. So it's huge. Now, in the zinc industry, there's a lot of people doing great work and they have a desire to move towards net zero emissions, but their target is 2040 or 2035. So that's a long way off. And, you know, we're talking more than a decade. So the pace is pretty slow industry-wide. So yeah, that figure is quite astonishing as a growth rate. Absolutely. We haven't seen anything similar. If there is, I welcome people saying,

Starting point is 00:11:44 hey, there's something you're forgetting, but we've looked across multiple sectors and haven't found anything growing that fast. Yeah, that's crazy. There's another tweet that says, we also looked for evidence that the ESG case for Bitcoin can grow exponentially. So not only that it exists today,

Starting point is 00:11:57 but actually will improve over time. And it says that you found plenty of evidence. Year ago, there was only one Bitcoin mining company helping remove flared methane gas. Now there are eight, six removing methane and oil and gas and two removing methane from landfills. And so moving from one to eight

Starting point is 00:12:12 may not sound like the biggest deal, but your thought process is that this is like a trend, it seems like. So talk a little bit more about that. Yeah, I think one thing that people don't seem to typically understand really well, and that's exponential growth. Like if we look at the predictions of solar, for example, people 10 years ago would never have known that we would have had so much solar penetration of our grid that solar and wind would have as much renewable use as it was. And it's been on a really steady growth rate. If we look at what's happened with EVs, electrical vehicles over the last few years, it went from 4% of new car sales to 9% in just one year. So if you start to follow these

Starting point is 00:12:53 exponential trends, you can see that very fast, you get a really steady, a really accelerated adoption rate. And that's one of the things we look for. Like as fund managers, we look for things which are starting to show evidence of exponential growth. And so you look at a number of different factors. You look at the drivers for that. You look at the economic incentives. You look at the regulatory incentives. You look at whether it's solving real world problems and you kind of put it all together. And then you look at the maths of it, even though it's early stage and you say, yeah, this feels like you can never know with certainty because you're trying to predict the future, of course, but this looks like it's on an exponential growth curve.

Starting point is 00:13:30 Got it. And then if we look at the other tweet that is kind of related to this, you said that there are no other technologies that take the flared methane and use it for good. So talk a little bit about this idea of like, not only is it already good in what it's doing, but actually that Bitcoin mining may be one of the only technologies that can do something like capture the gas flaring that's occurring. Yeah, it's a really interesting one because as soon as you talk about burning methane, then it doesn't intuitively sound good for the environment, right? Because people go, oh, hang on, that releases CO2 into the atmosphere. That's bad. But you have to remember that we're not talking carbon dioxide emissions. We're talking carbon emissions. And methane is a form of carbon emission. In fact, it's 84 times more warming than carbon dioxide. So when you take methane that's just leaching into the environment through flared or vented gas in the oil industry and you burn it, you're actually having a net reduction of 31x. That's not 31%, that's 31 times. So it's 3,100 times less carbon going into the atmosphere. So it's been known that we could achieve this level of reduction, but the problem has been it's just super expensive to try to use it because these flares these flare stacks exist in oil fields and some people say oh we should be using that energy for hospitals or for evs or for residential heating well well that's all very well

Starting point is 00:14:58 but it's not just going to travel magically through the ether that energy has to be transported it has to be transported even through a gas pipeline which is going to cost around about five million dollars per mile to build out and anything up to four years to get in place or you're going to have to have pylons which carry that electricity which are typically between one and three million dollars per mile plus the build costs and you know to meet our 2030 climate emission targets we haven't got a whole lot of time the cool thing about bitcoin miners is they don't care they can sit in the middle you just put a bitcoin mobile mining unit sits in the in this oil field and will just instantly start converting that methane into co2 which is just

Starting point is 00:15:40 so much better for the environment and gets a 31x reduction in carbon emissions straight away. There's nothing else currently that can do that. So it's unprecedented. It's been a known problem for a long time. And the oil and gas industry has been really scrambling and they've been increasingly regulated in the US. And so this is something that's really exciting to them and to Bitcoin miners at the same time. When you start to think about kind of the ESG narrative in general, What is the best way for many of these statistics, many of these data points to kind of be popularized? If you had to think about not just what is the argument, but kind of how to spread that message. Any thoughts there for the Bitcoin community or any kind of lessons learned maybe over your years of doing this?

Starting point is 00:16:23 Yeah, I think, well, one thing we've got to do and one thing's really clear is that for Bitcoin adoption to continue, we have to have institutional adoption. And for institutional adoption, whether you like ESG or not, it's kind of like KYC or AML. It's like it's here. So we need to accept it. And it's part of one of the rites of passage of Bitcoin is having a good answer to that case. So I think it's really important that people in the community are in the Bitcoin community are engaging actively with these funds, with these hedge funds to help them to get their wholesale investors comfortable with the narrative. of. And I think that's the first thing. The second thing is, as a community, I think we've been pretty defensive to date where there's been a lot of attacks on its energy use and we've defended and say, hey, it's not as bad as you think it is. But I think that's the wrong strategy because yes, whilst it's true and whilst there's a lot of fud out there and it's important to put the true picture, I think the Bitcoin Mining Council is really doing a great job at that.

Starting point is 00:17:22 So I think what's important is that we tell the other side of the story and we just say to people, hey, would you ban solar because it used coal furnaces to melt silicon? No. Why not? Well, because it's obviously good for the environment. And you say, well, shouldn't we also look at the potential positive that Bitcoin can do for the environment? and I think what that does is particularly people who understand accounting principles you look at expenses and you look at revenues it's the same thing you look at what's negatively environment you look at what's positive and then you have a balanced appraisal and that's all we can do I think just calling people idiots or saying they're spreading fud doesn't tend to work too well we've just got to find people who are open to looking at it who are open-minded probably not waste time to people who have already pre-decided it's bad and just have closed ears but find the people who are kind of open-minded enough that they want to listen and just encourage them to

Starting point is 00:18:18 look at the other side of the ledger. That's what I've found has worked pretty well. That was an approach we used with one of our wholesale investors when he had about four different things that were objections to using, well, Bitcoin mining. And I just kind of listened to him and I heard each one. And each one of them actually had a very fact-based counter and they were all based on misconceptions. I'll just give you one example. And that was sometimes people say things such as, oh, that's all very well that can help the renewable build out of the grid, or it's all very well that it can help load balancing. But that's just a theoretical argument. There's actually been no evidence of that occurring in reality. But that's actually not

Starting point is 00:18:57 true. There has been evidence. If you look at the Texas power blackouts in 2021, and then you look at 2022, February, same time of month when they didn't have blackouts. And this was covered on the network news where the reason, one of the reasons they didn't have blackouts was that they had an agreement between the grid operators and the Bitcoin miners. And they basically said to them, hey, we're about to reach capacity. We're at risk of rolling blackouts. Can you power down? And they said, yep, we can power down right away. And they did. And they were the only customer of that wholesale electricity who is in a position to do this. The only one. You can't do that with data centers. You can't do that with hospitals. You lose lives. You can't do that with

Starting point is 00:19:40 industrial processes. You lose millions of dollars, but you can do it with Bitcoin miners. So it's a very unique type of customer that can help stabilize the grid. So we've just got to walk people through some of these arguments and share the evidence more and more, get less defensive and just stay patient. It's going to take some time. If you had to say out of all of the ESG critics, what is their strongest argument that you're like, you know what, they're right about this. Or if I was a critic, this is the thing I would hammer on because it has the most truth to it. Yeah, I think the thing that has the truth to it is its current energy usage. And you can say, okay, it's 58% renewable, but that still means the other 42% is non-renewable. And that is

Starting point is 00:20:23 still something that we should avoid. And you know what? They're absolutely right. And I don't think we should try and argue or defend that. I think we should acknowledge that. And the other thing that ESG critics will say is they'll say, yeah, look, it's a small percentage, but sometimes Bitcoiners will say, well, you should be looking at this other industry. They're worse than us. And I think that's a really bad argument. I think we're all in this together. And just every single industry in the world uses energy. And every single energy in the world has a responsibility to make sure that as much of that as possible is renewable. So rather than just kind of resting on our laurels

Starting point is 00:20:56 and saying, hey, we're better than other people because we use more renewable, we should say, yeah, well, we don't want to stand still. We want to be like a professional athlete. We never want to stop improving. And you're right, we can get better and we have to get better. And there was a case when a Bitcoin miners operation

Starting point is 00:21:14 basically found it wasn't a coal plant, it was a gas plant and fired it up again. I think we've got to basically as a community, every time that occurs, it makes the narrative harder for every other Bitcoin miner who's doing the right thing, who is using renewable resources. So I think we just got to get better at stopping doing that. And because there are so many better sources of energy, there's so much wasted energy, either renewable or from methane emissions. That's an area that we can just get better. And then if you had to say to yourself, moving forward, is there one milestone that you're looking for to kind of check the box and say Bitcoin has become more ESG friendly or more kind of a stronger argument against the ESG critics, maybe is a better way to put it? Yeah, there'll be a couple of things. So the first thing is the continuation of that exponential trend when it comes to tidying up those methane emissions and reducing them. When we start to look at not only flared oil and gas, but we start to see more people moving into the landfill space because actually landfill methane, the methane emissions there are at least four times worse than in the oil and gas industry. So that'll be a key milestone.

Starting point is 00:22:23 I think when BlockShare and Block and Tesla, they're doing a trial right now using solar energy to power Bitcoin mining. And when we start to see some of their open source data coming through that says, yes, you can do it, you can make it profitable off grid, that'll be a key milestone as well. because what that'll do is it'll show every single renewable operator in the world that you can be profitable even if you're off grid using Bitcoin mining. And that's really key because what that'll do is it's kind of like you get your, I'll use an analogy. So in our industry, you're really looking for getting your first customer. And if you want to get investment, you're much more likely to get investment if you've got a customer. And if you've shown that you can do it and you already have a working operation. And so if Bitcoin miners can provide that first customer and make it

Starting point is 00:23:18 profitable, even without connection to the grid, I think you're going to see a whole lot of variable renewable operators go, well, why would we not use Bitcoin mining? It's going to help us get onto the grid faster. It's going to help us be profitable sooner. That'll be a key milestone as well. If I had to ask you to kind of predict moving forward, is Bitcoin mining becoming pervasive oil and gas companies, every single energy producer in the world? Where do we end up here? Oh, there's so many opportunities. I mean, you've got piles of pith from the palm oil industry in Indonesia that are just rotting, spewing methane into the environment right now. You've got farmers with these manure problems and that bio waste is just totally, people aren't

Starting point is 00:24:03 using it at all. And so it's both a missed revenue opportunity, but it's also a massive environmental pollutant. I mean, apart from the climate change issues, methanes are responsible for countless cases of asthma and premature death every single year. And so these people are actually looking for solutions. So you're going to see a whole lot of things. I think a lot of stuff in terms of reducing methane, there's a massive IPCC mandate at the moment to lower methane emissions. They're basically saying that if you can cut emissions of methane by 45%, then that can reduce global warming by 0.3 degrees. That's massive.

Starting point is 00:24:41 And Bitcoin mining can actually potentially play quite a big part in that 45%. It's not going to do it by itself. There's a whole lot of other things we need to do, but it can definitely be a significant part of that story. And if you had to say to yourself, one thing that Bitcoin miners could do moving forward, is it just build as much hash rate as possible? Is it go approach certain oil and gas?

Starting point is 00:25:03 it like what would you say hey go do this thing yeah i think it's uh it's going to be a combination so it's basically keep on looking for wasted energy uh keep on looking for methane sources that you can turn into basically get rid of the methane component um keep on finding partnerships with people who want to get onto the grid who are doing wind or doing solar and you know one of the problems that they can help them solve is that there's no shortage of people who want to do solar or wind operation you want to build plants that's not our bottleneck the bottleneck is that the grid operators are having a really hard time saying yes to them because of one or two things either they're too far away from population centers which means they've got to build out all

Starting point is 00:25:45 their pylons at a big expense and there's also the risk of congestion or they're just concerned that they're generating industry at the wrong time of day and it's it's going to be too hard to load balance their entire grid. Now, Bitcoin miners should be approaching every single variable renewable energy producer that wants to get onto the grid who's there and saying, hey, we can help you get a better narrative so that when you apply to ERCOT

Starting point is 00:26:12 or to whoever you're trying to get onto the grid with, you've got a better story because you can help to counter some of those concerns they have. You're also going to be more likely to get funded because we give you the first customer. And so then when you apply for financing, you're more likely to get a yes.

Starting point is 00:26:27 And because you get yes to financing, you're more likely to get a yes from the grid operator. So I think that's really important that we start to reach out and to people who are looking to get onto the grid and saying, hey, we can help you get on and develop those partnerships. I love it.

Starting point is 00:26:41 I absolutely love it. Where can people find you on the internet or learn more about kind of the work you guys are doing? Yeah, so the best way is on Twitter. So at DS Batten on Twitter would be the best way to get hold of me. And when you think about kind of your stance moving forward or kind of your strategy, how much of your work is Bitcoin versus other things? Yeah, if you had asked me that about three months ago, I would have said about 10% Bitcoin, about 90% everything else.

Starting point is 00:27:12 It's kind of about 50-50 at the moment. It's rapidly pivoting towards more. one of our wholesale investors he was the one who was actually against bitcoin mining at the end of a conversation he was like maybe fund three should be a bitcoin mining only fund so we're possibly going to be bringing those two worlds together so the answer is i don't know it seems like it's only increasing pomp and and i'm kind of tossing up whether to do a bitcoin mining fund right now or whether we spend a whole lot of time trying to educate the hedge funds of the world and help them get their wholesale investors comfortable with the ESG narrative of Bitcoin.

Starting point is 00:27:48 So not quite sure whether we just consult to grid operators to help them get more Bitcoin miners with variable renewable energy sources onto the grid. So not quite sure where it's going to go, to be honest. I love this. I commit to you publicly, however I can help. I think that you are going to rapidly become a very important voice in the Bitcoin community. So please keep up the great work. I think a lot of the research you guys have done, but also just the experience that you have, the years and years and years of focus on this issue specifically is pretty important. So I appreciate your time today. I learned a lot. I hope other people did as well. And I look forward to, we'll have to bring you back to kind of get updates as you guys continue pressing

Starting point is 00:28:31 forward. Fantastic. It's been fun. All right. Sounds good, Daniel. All right. Bye-bye. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to palmscryptocourse.com to learn more, and I'll meet you guys for the next episode. Thank you.

The Pomp Podcast - #962 Daniel Batten On The ESG Case For Bitcoin

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