One of bitcoin’s original goals as a decentralised currency, was that it obviated the need for central banking. One of its achievements is that it has obviated the need for roller coasters as well. Bitcoin began the year at $29,000. Now, five months into 2021, holders are looking at gains of around 40%.
So far so good. What that story doesn’t tell you, of course, is that it also went as high as $64,000, then in the space of barely a month, crashed by over 50%. And it’s at least partly because the world’s most celebrated (and attention-seeking) billionaire, Elon Musk, has embraced bitcoin, then spurned bitcoin, and now seems intent on controlling bitcoin.
Veteran bitcoiners are crying, “whoah, wait a minute”, while in front of their noses, all of a sudden, there is a Bitcoin Mining Council, to “standardise energy reporting, pursue industry ESG goals, & educate+grow the marketplace” in the words of leading bitcoin evangelist, Michael Saylor.
The last time key stakeholders got together and attempted to speak on behalf of the entire industry was 2017. The result was an almighty civil war; new “forked” versions of bitcoin; the creation of “bitcoin cash”; then “bitcoin SV”; the excommunication of previous bitcoin cheerleaders; and a divide that made Brexit look harmonious. Then another billionaire, Peter Thiel, chipped in to say that “nobody’s trying to centralise or control anything. It’s really about sharing best practices.”
That said, while I fully support the ethos of bitcoin’s decentralisation, and I subscribe to Adam Smith’s view that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”, I also recognise the importance to bitcoin of making and winning the environmental argument now. And this council may be part of that effort.
The anti-fossil fuel narrative is extraordinarily powerful (never mind the extraordinary improvements fossil fuels have brought to living standards). Bitcoin may be accelerating the adoption of renewable alternatives in a quite natural, market-driven way – but the overriding narrative is that bitcoin is bad for the environment and must be banned. Why does nobody tot up all the energy used to do Google searches worldwide and then try and have Google searches banned because they consume too much energy?
I expect that bitcoin will survive this in the long term. Truth usually wins in the end. But you just need to see what one tweet from Musk airing concerns about bitcoin’s fossil fuel consumption did to the price to know that this narrative is a problem for bitcoin in terms of short-term and intermediate-term price action. The public and the authorities must be persuaded that bitcoin is accelerating renewable energy adoption and is thus a net positive for the evolution of man’s energy consumption.
To this extent, getting Musk on board is important. Bitcoin is bigger than Musk – though he may not think so – but it is better off not having him as an enemy. So maybe, at least in the short term, this council may have a role to play.
For now it’s a battle of narratives. Bitcoin has been brilliant at telling its story. The battleground of the next six months will be to make the environmental argument and win it. Saylor’s council has a role in that. Purists will say bitcoin doesn’t want this council and they may be right. Nevertheless, it is an important argument to win. Otherwise, bitcoin has problems – and risks falling much further.
(For more on Dominic’s take on bitcoin’s energy consumption, have a read of this piece here).