Bitcoin Bearishness and Bitcoin as Unique Behind-the-Meter Load
Since I recently posted — with enthusiasm — a piece about Bitcoin miners’ opportunities in the California energy sphere (“Sending Prices to Devices”), I thought it might be good to relay a different, more bearish view on Bitcoin.
A short recap of the above video:
Murphy asks Yarvin why he has become more bearish on Bitcoin, especially as we’re starting to see some signals that Bitcoin will not be demonized by the government.
Murphy notes, for instance, that Gary Gensler of the Securities and Exchange Commission has indicated a few times that Bitcoin is clearly a commodity, plus the seemingly pro-crypto Lummis-Gillibrand bill is currently in circulation.
In response, Yarvin indicates that it’s easy to imagine a situation where you could have a Bitcoin wallet, but it would be subject to KYC verification, which might render the anonymizing powers of Bitcoin useless and irrelevant, and possibly devalue the technology (at least in a few scenarios). Additionally, it’s easy to imagine a situation where no overt crackdown on Bitcoin occurs, per se, but a suite of disincentives, in aggregate, could nullify the allure of using Bitcoin.
Yarvin also goes into a discussion of naked shorts and financial mechanisms that is slightly above my head, but a key takeaway is that, contrary to what people might think, the Fed can effectively “print” Bitcoin, or behave in a way that has the net effect of doing so.
“The Fed,” he says, “can create as many Bitcoin futures as it wants, right? Because those futures would be payable in dollars, which the Fed can print. So actually, it's not even correct to say the Fed can't print Bitcoins. The Fed can print Bitcoins.”
It’s a good discussion. The entire thing is available here.
Bitcoin as a Unique Behind-the-Meter Load
Somewhat relatedly, my enthusiastic Bitcoin-California post alluded to above (“Sending Prices to Devices”) mentioned a two-part piece by Braiins. I included an excerpt from Part One1 of the Braiins piece about the potential for Bitcoin mining to be used as “offtake insurance” to de-risk generation development in the energy sector.
Part Two2 of the Brains piece has some good nuggets also, including a segment on how Bitcoin mining, as unique behind-the-meter load, can improve revenue for prospective new generators facing curtailment risk, and also improve revenue for already-curtailed projects.
The piece includes this bullet list of Bitcoin’s BTM uniqueness.
Bitcoin is a special behind-the-meter load because it:
…is fast to stand-up. There are no special permitting regimes to navigate and there are few geographic or civil constraints to consider.
…is transportable with a fungible footprint. What happens when the contract term expires? Some bitcoin miners can pack up and leave without a trace, leaving behind similar electrical infrastructure needed to do on-site storage. Or, if the colocated miner was a permanent host, the datacenter’s rackspace can be RFP’d and filled with other processing customers, or maybe even storage.
…is location agnostic. Unlike other industrial processes that require inputs like water, proximity to offtakers, or pipe infrastructure, bitcoin mining can take place anywhere with a satellite internet connection.
…liquidates the energy immediately on-site. There's no overhead to process, store, transport, or offload product before getting paid for energy.
…is flexible. Are the wholesale electricity market prices high? Bitcoin miners can coordinate with the grid operator and curtail indefinitely to take part in that pricing. Other behind-the-meter loads that have sequential industrial processes (smelting to finish) or offtakers of their own (hydrogen contract to fulfill), have more complicated planning and misaligned incentives during these events.
…is sensitive to electrical cost input. The bitcoin difficulty adjustment mechanism and $0 marginal cost nature of renewables can be strategically leveraged to ensure colocated bitcoin miner profitability. Bitcoin miners are very sensitive to electrical input cost. Surviving bitcoin price bear markets is a primary goal of bitcoin miners, and thus they always try to source the cheapest electricity. Because of the network difficulty adjustment mechanism, miners with the lowest input electricity cost will best survive a bear market, since miners with more expensive input cost will quit mining before another miner with cheaper power does. When those miners with more expensive costs quit, difficulty readjusts downward. Since renewables are used to taking $0 marginal pricing, sometimes for a large share of their production, if they gave bitcoin miners even two months of $0 floor pricing to ensure that they survive bear markets, bitcoin miners could be willing to give good upside for this security. It’s a perfect symbiotic relationship.
…performs a societal good. While this series of explainer articles tries to primarily focus on what is rather than ought to be, the argument around bitcoin versus other types of load normally carries some sort of moral or usefulness judgment (e.g., “We should do hydrogen instead of mining, because at least it’s useful”). But this author wants to be clear: mining bitcoin is an incredible good for society. The network safeguards the savings of millions of individuals and contributes to the first open, free, and immutable ledger in the history of the world. It is a good thing, and power producers should feel empowered to provide this service.
“Bitcoin Mining & The Grid (Part 1): Generators.”
“Bitcoin Mining & The Grid (Part 2): Transmission, Curtailment, and Behind-The-Meter.”