Don't fight the Pope

Plus China bans Bitcoin (again) and the market for TopShots is drying up.

In this issue:

  • China bans Bitcoin (again)

  • Don't fight the Pope


China bans Bitcoin (again)

The cryptocurrency market continues to plummet - every single currency in the CoinMarketCap Top 100 (except for stablecoins) is down week over week. At time of writing Bitcoin is trading ~$35k/BTC - down ~45% from its recent highs at ~$63k/BTC.1 The price has turned even harder for most altcoins, which is why Bitcoin’s share of the crypto market overall has spiked ~6.5% and is still climbing.

Part of why the market continued to drop is because of leverage - almost ~$6B of open interest has closed or (more likely) been liquidated across Bitcoin exchanges. But another part of the story was this breaking news:

Oh, wait, no sorry that tweet was from the first time China banned Bitcoin back in 2013. Here is today’s news:

China "bans" Bitcoin fairly frequently and it has for years. Mostly this pattern is actually confusion on the part of Western media. The CCP is not especially transparent about what its real policies are or how they evolve, so it is hard to know what is an affirmation or clarification of existing policy and what is actually new. Whenever a mid-level Chinese bureaucrat or agency says something stern but vague about Bitcoin it triggers a wave of coverage about China "banning" Bitcoin.

The original statement comes from the Financial Stability and Development Committee of the State Council and it does seem to indicate some kind of real change in policy. The State Council is the most senior / high profile arm of the Chinese government ever to comment on Bitcoin directly. It promises to "crack down on bitcoin mining and trading activities" and to "prevent individual risks from being passed to the whole society."

This is a pretty natural extension of the banning of Bitcoin mining in Inner Mongolia earlier this year. China heavily subsidizes its power grid and it wants those subsidies to benefit manufacturing, not Bitcoin mining. From the perspective of the CCP Bitcoin miners are like squirrels eating out of their bird feeders. Squirrels with an annoying habit of promoting economic freedom.

Miners themselves appear to be taking the changes seriously. Until recently they were accumulating coins but they seem to have sold heavily into this news. Rumors suggest that Chinese miners anticipating a formal ban are actively looking to sell or re-locate their mining equipment outside the country. In the short run that means miners are hammering the price and the hashrate is falling. In the long run driving Bitcoin mining out of China would be a big win for the network.

For many years some people have worried that the majority of mining happening in China somehow gave China control of the network. Long time readers may remember a few weeks ago when Peter Thiel speculated that Bitcoin was a "Chinese financial weapon against the US."2

If China succeeds in driving the majority of Bitcoin hashrate abroad it may finally put to rest one of the oldest anti-Bitcoin talking points: the idea that it was secretly under Chinese control.3 It would also probably be good news for the environment! Chinese coal is some of the dirtiest power used by the Bitcoin network - migrating hashrate away from China would almost certainly reduce Bitcoin’s carbon footprint.

In short, driving Bitcoin mining out of China is probably good for Bitcoin.


Don't fight the Pope

On Wednesday the official Papal Twitter account (it’s a strange world we live in) tweeted a banal statement about the need to move away from fossil fuels:

This seems like an uncontroversial claim and one that, for the record, I agree with. We should stop burning oil and coal those are terrible energy sources. For some reason the CryptoTwitter was convinced that this was the Pope subtweeting Bitcoin (or cryptocurrencies generally).

I genuinely could not figure out why - I looked but I couldn’t find any direct statement the Pope had made about Bitcoin or cryptocurrencies. I’m not sure what opinions one might expect an 84 year old priest to have about cutting edge financial technology or what the Christian theological take on Bitcoin should be. Jesus was no fan of banks but the Church is very long gold. Regardless of the Pope’s opinion of Satoshi I find it unlikely that this was meant as a veiled critique of cryptocurrencies. The denizens of CryptoTwitter however took offense and handled their pique in a completely normal and reasonable way by attempting to ratio the Pope.

Please do not get in Twitter arguments with the Pope. (This is not spiritual advice.)


Other things happening right now:

  • I was planning on writing a newsletter about how alarmists use bad faith misunderstandings of Bitcoin to predict doomsday scenarios but sadly I couldn’t because Bitcoin already consumed all of the world’s energy mid last-year.

  • In a bull market everyone is a genius and every project is a winner. When the market turns and prices start to fall some projects will collapse - and some of those collapsing projects will exit scam their users on the way out.

  • We’ve talked a few times about NBA TopShots, the largest and arguably most mainstream NFT project. As a TopShots investor this is absolutely not the chart you want to see. On the other hand it is probably even worse for investors in Dapper Labs, the company behind TopShots. They raised $305M in April at a reported valuation of ~$7.5B. 😬

1

One immediate consequence of this crash is that the chances of the SEC approving a Bitcoin ETF have probably just crashed along with the price. A crash like this is both exactly what the SEC was worried about and a convenient excuse to point to as justification.

2

It was a simpler time.

3

"Does China control Bitcoin?" was actually one of our first reader submitted questions.