This post will be smaller in scope than our normal monthly summaries because it’s important to cover, at length, a recently proposed infrastructure bill that could impact Bitcoin in a very significant way. It seems to be a trojan horse with greater aspirations of outlawing Bitcoin / crypto mining completely in the United States.
Once again, a month in cryptoland is like 5 years in legacy investing…
Bitcoin and Crypto News – July Summary:
- 7/15 – Bitcoin Hashrate Begins Recovery After China Miner Crackdown
- 7/15 – Square Announces new business (TBD) that will bring Decentralized Finance (DeFi) to Bitcoin.
- 7/21 – The B Word Conference – Elon Musk, Cathie Wood, and Jack Dorsey discuss Bitcoin.
- 7/30 – Bi-Patrisan Infrastructure Bill being discussed with huge Bitcoin and Cryptocurrency Implications.
Bitcoin Hashrate Recovering After China Crackdown
Last month (was that really only a month ago?!) the big news was that China made it illegal to mine cryptocurrency in an effort to balance their energy grid. Cryptocurrencies were not made illegal, but commercial mining was made illegal. This creates some instability in the short term (although, exaggerated), but is ultimately incredibly healthy in the long term for the network as we discuss, here.
Well, hashrate still has a ways to go before getting back to its previous level, but the worst is over and Bitcoin mining hashrate has begun to recover. Many speculated it would take about a year for miner migration out of China into other, miner-friendly locations, but it appears that exodus might be faster than anticipated. The United States and Kazakhstan are the early beneficiaries of this migration.
Square is Bringing Decentralized Finance (DeFi) to Bitcoin
This is huge. Many have said that Bitcoin is “old technology” or the “pet rock” of cryptocurrencies. This can’t be further from the truth. Bitcoin is meant to be scaled in layers with a rock solid base layer (Bitcoin blockchain), fast second layer (Lightning Network), and other layers built on top of those strong foundations. One of those layers will eventually be Decentralized Finance (DeFi).
First, what is DeFi?
DeFi stands for Decentralized Finance and is a platform that utilizes smart contracts to offer traditional financial instruments, on a decentralized blockchain, without the need for trusted exchanges, banks, or other financial intermediaries.
Square Building DeFi for Bitcoin
Square announced that they are going to build out Bitcoin DeFi on 7/15. Which is a HUGE deal for 2 reasons:
- Bitcoin DeFi. Earn yield on your self-custodied Bitcoin. Permissionless. Have we said HUGE enough? Huge. Huge!
- Square (through Cash App) is tripling down on their commitment to Bitcoin after adding it to their Cash App, working on a Bitcoin-only hardware wallet, and building out DeFi for Bitcoin.
Jack Dorsey (one of the most successful entrepreneurs and technologists of our time) is all in on Bitcoin and he seems to be speeding up – not slowing down! I expect big things out of this project and believe it will become a huge part of Square’s future business.
If you’d like to track their progress you can follow them, here.
The B Word – Jack Dorsey and Elon Musk have “The Talk”
Elon Musk brought up some classic Bitcoin FUD (fear, uncertainty, doubt) that has been dissected and rebutted several times regarding Bitcoin’s energy usage. Bitcoin CEO (this is a joke! there is no CEO) Jack Dorsey asked him to discuss these concerns and share his perspective. Baller, shot-caller, and legendary investor Cathie Wood joined in as well.
Elon seems to be coming around on the energy FUD. He faces incredible pressure from regulators, renewable energy expectations (as the CEO of Tesla), and citizens, and I don’t think he realized that putting bitcoin on Tesla’s balance sheet would be met with so much skepticism and anger. This conversation showed that he is learning, open-minded, and optimistic about bitcoin’s future. Another revelation that came from this discussion is that his other company, SpaceX (another monster company with a bright future), holds bitcoin on its balance sheet as well.
There were other discussions and presentations at The B Word and Nic Carter’s talk on Bitcoin’s energy usage was great, timely, and relevant to Elon’s prior concern.
Infrastructure Bill Includes Banning of Bitcoin Miners and Nodes
I wish the header of this paragraph was hyperbole, but it is not. Stuffed in a 2,600 page, $1T infrastructure bill (seriously? an infrastructure bill?!) is legislation that, if passed, would essentially ban Bitcoin mine and node operators in the United States. How? The bill calls for a few things, the most noteworthy:
- All Bitcoin transactions, even re-balancing of accounts by the same owner, would need to be submitted to the IRS for tax purposes…and all of these transactions would be taxable events.
- A new definition of “broker” by the Tax Code would apply to nearly everyone in crypto, including non-custodial participants like miners, forcing them to apply KYC rules to every user for every block they mine. The problem with this is that Bitcoin network participants are pseudonymous, and their names and other KYC information is not possible to collect by anyone – let alone mining rigs.
The first change is super lame, but most exchanges already do this. Re-balancing your cryptocurrency across wallets shouldn’t be a taxable event, but this bill changes that. This is an annoying and stupid provision, but not super damaging.
The second change is debilitating to the American decentralized finance industry – specifically miners. This shows that either the politicians don’t understand that miners can’t KYC their mined blocks, or they are trying to stamp out the cryptocurrency industry completely. I’m not sure which scenario is more likely.
The below Twitter thread by Jake Chervinsky is a great summary of the bill and implications:
Here is an overview with Guy Swann going over the finer points of the bill:
Will this Bill Shut Down American Miners?
In a word, unlikely. Bitcoin has been through worse and there are too many influential entrepreneurs and politicians involved in crypto to have this bill pass with no recourse. Another positive is that the bill wouldn’t go into effect until 2023 at the earliest, giving time to edit, alter, or remove any cryptocurrency provisions.
If the bill does pass with no alterations or repeals then those miners will once again move to another location. Blocks will be mined every 10 minutes and the network will still work. The loser will not be Bitcoin. The loser will be the United States of America.
The hilarious part(s)? The cryptocurrency revenue generated through taxation is expected to be $28B. $28B?! That’s NOTHING compared to the $1T package and even smaller compared to the potential value that will be created by this industry. America was given a gift when China banned commercial mining operations. The United States should grab hold of the wheel and become the worldwide leader in what will be a digital financial revolution. Don’t mess this up US of A!
The other funny part is that Bitcoin has rallied significantly after this news – showing that Bitcoiners and cryptoenthusiasts aren’t terribly afraid of legislators outlawing Bitcoin.
What can YOU do about this “Infrastructure Bill”?
Contact your representatives and tell them this is a bad, shortsighted, and damaging bill to a growing industry and to those who value freedom.
Find your House Rep: https://house.gov/representatives/find-your-representative…
Find your Senator: https://senate.gov/senators/senators-contact.htm…
You can also donate to CoinCenter (who works to educate legislators on cryptocurrencies):
We’re here to help. The 5 links below are where we encourage you to start. Onward!