After tweeting repeatedly for some time about bitcoin and the originally satirical degecoin, both of which have gone up massively in the past year, on Feb. 8 Elon Musk put his money where his mouth had been and had his Tesla EV company buy about $1.5 billion in bitcoin. The immediate aftermath of this was a substantial surge of the crypto from somewhat over $40,000 to somewhat over $50,000. This seems to have inspired several other major established corporations and entities to also announce they would be holding bitcoin as part of the asset portfolios, along with renewed discussions of more official cryptocurrencies possibly being issued by various central banks (commercial banks have for some years used XRP for transactions amongst themselves, but somehow it has not increased nearly as much as bitcoin or some of the other top cryptocurrencies for reasons I do not understand).
Anyway, it may be that instead of being a brilliant move that establishes the legitimacy and long term value of bitcoin once and for all, despite the massive amounts of electricity used in the mining of it, way more than for other leading cryptocurrencies, it is not out of the question that this may prove to have been its peak. Bitcoin has been noticeably sliding in recent days, although it is still just above $50,000, which might prove to be a new floor, given all the corporate backers it seems to have picked up.
However, even if bitcoin does not collapse, Musk appears to have damaged his portfolio in the near term rather badly with this move. After Tesla stock rose 700% last year, putting Musk ahead of Jeff Bezos as the world's wealthiest individual bordering on $200 billion, Tesla stock has fallen 22% since Musk made his bitcoin move. This has cost him about $30 billion, more than wiping out the $ 1 billion or so he reportedly made directly from his bitcoin deal. Maybe bitcoin is not a bubble about to crash, but it does seem that Tesla's stock got way overdone, and now people are tying the value of its stock to the volatile movements of bitcoin. Musk may yet come out of all this a way big winner, but as of now, he is taking a pretty big hit.
Barkley Rosser
28 comments:
My suspicion is that Musk's bitcoin buy has more to do with getting around restrictions on moving Tesla's assets in China than anything else. I might be wrong here, but China keeps a close watch on transactions, but we're just exploring the kinds of accounting jiggery-pokery that bitcoin enables.
My suspicion is that Musk's bitcoin buy has more to do with getting around restrictions on moving Tesla's assets in China than anything else....
[ Chinese officials are completely adept at monitoring and regulating capital movements, and financial regulators have been conducting experiments in digital currency movements for some time in order to properly understand them. The central bank is even now conducting a 3 country experiment in digital currency movements.
The Chinese market is especially important for Tesla, and Tesla will carefully abide by Chinese regulations. ]
https://news.cgtn.com/news/2021-02-24/PBOC-joins-digital-currency-project-for-cross-border-payments-Y8XxMLwtZm/index.html
February 24, 2021
PBOC joins digital currency project for cross-border foreign currency payments
The Digital Currency Institute of the People's Bank of China (PBOC), as well as the Central Bank of the United Arab Emirates (CBUAE), joined the Multiple CBDC (m-CBDC) Bridge, a central bank digital currency project for cross-border foreign currency payments, initiated by the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT)....
https://news.cgtn.com/news/2020-12-12/Why-is-China-moving-to-digital-RMB--W3n61i8Wvm/index.html
December 12, 2020
Why is China moving to digital RMB?
China's idea of introducing a digital renminbi (RMB) took the world by surprise. Pilot programs have so far been launched in four cities and at 2022 Winter Olympics venues in the country. This is one of the building blocks of China's move towards "world market" status and greater involvement in setting the framework of the global economy.
What is the digital RMB? ...
I am not opposed to cryptocurrencies or digital currencies in principle. What has me bothered about bitcoin in particular are the very high energy costs associated with using it, with the latest report claiming that electricity used for it exceeding that used for all of Argentina. Hopefully if the Chinese go this route they will have theirs managed more efficiently.
There is no legal bitcoin mining in China, and little likelihood of illegal mining. Bitcoin is not legally accepted for commerce in China. The Chinese exchange rate has been stable, Chinese foreign currency reserves are high and stable. Reserves are about $3.1 trillion, with another $1 trillion in the sovereign wealth fund.
Bitcoin will not be a capital flow destabilizing or energy consumption problem for China.
Chinese commerce has become overwhelmingly electronic, and that means that capital flows are recorded and records saved and readily monitored. Increasingly financial transactions at all levels are saved to clouds, which will make monitoring that much easier.
A matter I wonder about is the extent to which the use of digital currency transactions internationally is expressly meant to limit the constraints of SWIFT. * SWIFT was used for threats and constraints or for supporting sanctions through these last years. Financial sanctions to limit or stop trade may become increasingly meaningless as international digital currency transactions are mastered.
* https://en.wikipedia.org/wiki/Society_for_Worldwide_Interbank_Financial_Telecommunication
Bitcoin consumes 'more electricity than Argentina'
BBC - February 10
... Bitcoin’s electricity consumption above Argentina (121 TWh), the Netherlands (108.8 TWh) and the United Arab Emirates (113.20 TWh) - and it is gradually creeping up on Norway (122.20 TWh).
The energy it uses could power all kettles used in the UK for 27 years, it said.
However, it also suggests the amount of electricity consumed every year by always-on but inactive home devices in the US alone could power the entire Bitcoin network for a year.
Mining Bitcoin
In order to "mine" Bitcoin, computers - often specialised ones - are connected to the cryptocurrency network.
They have the job of verifying transactions made by people who send or receive Bitcoin. ...
---
(When less than two years ago, it was more than Switzerland!)
Bitcoin consumes more energy than Switzerland
The Verge - July 4, 2019
... Bitcoin accounts for roughly 0.25 percent of the world’s entire electricity consumption. That’s as much energy as all the tea kettles in the UK use over 11 years. It also means that the electricity wasted each year by always-on but inactive electronic devices in the US could power the Bitcoin network four times over. ...
It’s well established that Bitcoin requires a huge amount of electricity, used by miners around the world running the computer hardware necessary to maintain the network and validate payments. But it’s also worth remembering these figures are very much estimates. ...
Mining Bitcoin
In order to "mine" Bitcoin, computers - often specialised ones - are connected to the cryptocurrency network.
They have the job of verifying transactions made by people who send or receive Bitcoin. ...
[ Please explain this when possible. Does this mean that the verifying transactions are as energy intensive as mining or does mining entail verifying forever?
I do not quite understand. ]
https://www.bbc.com/news/technology-56012952
February 10, 2021
"Mining" for the cryptocurrency is power-hungry, involving heavy computer calculations to verify transactions.
Cambridge researchers say it consumes around 121.36 terawatt-hours (TWh) a year - and is unlikely to fall unless the value of the currency slumps.
[ Supposing I understand, mining and verifying are together part of an ongoing operation. The energy cost then last and lasts. ]
There is significant waste heat (lost energy) from
high-performance computing, which in some ironic
way must be tied to the 'effort' used to generate
the wealth associated with bitcoin, in the minds
of some.
File under the heading: are bitcoins 'real money'.
I don't think the BBC's definition is particularly useful,
but it is no doubt part of the truth. Essentially, creating
bitcoins involves doing intense computing that serves no
practical purpose whatsoever.
While taking a fresh look at the matter, I stumbled on this:
Why the Biggest Bitcoin Mines Are in China
IEEE Spectrum - October 4, 2017
... Bitmain, a Chinese firm headquartered in Beijing that is arguably the most important company in the Bitcoin industry. Bitmain sells Bitcoin mining rigs—the specialized computers that keep the cryptocurrency running and that produce, or “mine,” new bitcoins for their owners. It also uses its own rigs to stock facilities that it owns or co-owns and operates. Bitmain owns about 20 percent of this one. ...
Bitmain acquired this mining facility in Inner Mongolia a couple years ago and has turned it into one of the most powerful money factories on the Bitcoin network. It quite literally metabolizes electricity into money. By my own calculations, the hardware on the grounds—some 21,000 computers—accounted for about 4 percent of all the computing power in the Bitcoin network (at that time). ....
I think bitcoin is an example of an inefficient "first mover." First movers in new techs can sometimes get advantages over later rivals by getting an initial large network that attracts more users and allows them to maintain a lead, even if they are fundamentally more inefficient. This looks to be the case here, with bitcoin's traditional rivals, Etherium, still in second place, and XRP, now down to 7th place, reportedly substantially more energy efficient than bitcoin. But, tough luck.
Funny thing is that both of them have other advantages over bitcoin, possible uses bitcoin does not have. One can do contracting and long run business management with etherium, although I gather it has so far not had a large amount of this going on. But the potential is there, and I understand it has been improved for this. As I noted in my post, XRP has substantial use for interbank transactions, a serious user base, but somehow it is not doing well. While they along with most other cryptocurrencies have risen in this general crpto boom, bitcoin has left both of them in the dust.
Basically while very innovative, it is a terribly poorly designed cryptocurrency, with its massively wasteful energy usage maybe its most glaring flaw from a social perspective. But there it is, in the lead, with all sorts of supposedly respectable entities piling money into it, although as of today it has slid under $50,000, not a crash, but for the moment the boom is off, if not going into a full-scale bubble crash.
BTW, Anonymous, I have also read for some time that China has been for some time a major, possibly the leading, center for bitcoin mining, whatever the government says. This is not a matter I want to get into a debate over as I think this is something where the data is uncertain and "noisy." But I would warn that declaring there is no such mining in PRC because the government says so is not going to help your credibility in the eyes of probably just about everybody reading this thread, given the vastly huge number of reports claiming it is going on, with these reports coming over a long time from many source, not clearly some plot by Falun Gong or some other "enemy" of the PRC to tar its good image. I do not know what is actually going on, but it does seem that there has been at least some such mining, even if the reports are overblown. I have seen zero reports agreeing with PRC govt that there is no bitcoin mining going on there, and I have been tracking this stuff for some time, even have published a paper on it in ROBE recently, the journal I edit.
I note that given the huge heating such mining generates reportedly lots of bitcoin mining has been going on colder locations, with a few years ago the province of Quebec cracking down on it because the bitcoin miners were seriously draining power there. Another nation supposedly heavily involved in bitcoin mining as well as using it to get around international sanctions is North Korea.
... The process of mining bitcoins works like a lottery. Bitcoin miners are competing to produce hashes—alphanumeric strings of a fixed length that are calculated from data of an arbitrary length. They’re producing the hashes from a combination of three pieces of data: new blocks of Bitcoin transactions; the last block on the blockchain; and a random number. These are collectively referred to as the “block header” for the current block. Each time miners perform the hash function on the block header with a new random number, they get a new result. To win the lottery, a miner must find a hash that begins with a certain number of zeroes. Just how many zeroes are required is a shifting parameter determined by how much computing power is attached to the Bitcoin network. Every two weeks, on average, the mining software automatically readjusts the number of leading zeros needed—the difficulty level—by looking at how fast new blocks of Bitcoin transactions were added. The algorithm is aiming for a latency of 10 minutes between blocks. When miners boost the computing power on the network, they temporarily increase the rate of block creation. The network senses the change and then ratchets up the difficulty level. When a miner’s computer finds a winning hash, it broadcasts the block header to its next peers in the Bitcoin network, which check it and then propagate it further.
Then two things happen. New transactions are added to the Bitcoin blockchain ledger, and the winning miner is rewarded with newly minted bitcoins. The miner also collects small fees that users voluntarily tack onto their transactions as a way of pushing them to the head of the line. It’s ultimately an exchange of electricity for coins, mediated by a whole lot of computing power. The probability of an individual miner winning the lottery depends entirely on the speed at which that miner can generate new hashes relative to the speed of all other miners combined. ... (from the IEEE Spectrum article.)
(That's the gist of bitcoin mining.)
By the way, George Schulz passed away earlier this month. He was former Secretary of State under Reagan, but interestingly he pursued a Ph.D. in industrial economics at the Massachusetts Institute of Technology, receiving his degree in 1949. From then until 1968, he taught economics at MIT and the University of Chicago.
I would warn that declaring there is no such mining in PRC because the government says so is not going to help your credibility in the eyes of probably just about everybody reading this thread...
[ I always try to be polite, and I appreciate all your writing and make that clear all the time. Please then stop treating me with disdain. Please stop.
I may not be well educated and may learn slowly and makes mistakes all the time, but I try. So stop treating me so awfully. ]
https://news.cgtn.com/news/354d544d77677a6333566d54/index.html
January 6, 2018
China wants bitcoin mines to close shop within a week
By April Ma
“Bitcoin mines” in China, clusters of powerful computers that work non-stop in electricity rich regions, may soon meet their demise as a central level Internet finance regulatory group continues to clamp down on cryptocurrencies, which the nation has dubbed risky and shady.
Local finance authorities have been requested to guide bitcoin mining outfits to clear out through a combination of measures, such as elevating electricity prices, restricting land usage, levying higher taxes and barring them from operation through tough environmental policies, read a copy of a document circulating online.
The orders, which appear to have been issued by the special office under the central bank overseeing risks in Internet finance, demand its local counterparts to report progress made in ushering exits in each jurisdiction by the 10th this month.
Citing immense energy consumption and their role in exacerbating speculative investments in the virtual currency, the regulators want bitcoin mines shuttered, the document says.
China is one of the world’s dominant bitcoin miners, primarily due to cheap electricity, often produced by private, illegal power plants such as those in Sichuan, which has abundant hydropower, or Inner Mongolia, with ample wind power resources. Investors and enthusiasts lease powerful computers, called mining machines, from bitcoin mines and hope to cash in on the bitcoin boom as their machines reap rewards in bitcoin for their computational power.
The message that bitcoin and other cryptocurrencies are no longer welcomed as an innovative adjunct to the financial system, but rather a disruptive force, often a tool for illegal fundraising and risky speculation, has been made loud and clear. In September last year, regulators stipulated that initial coin offerings are unauthorized fundraising activity, and bitcoin trading platforms were given an October deadline to terminate their operations.
Machines that mine Bitcoin are made in China and sold internationally, but as far as I can tell mining in China has been limited since early in 2018. There is no evidence in the data of any capital drain from China due to Bitcoin. As for the national electricity supply, that is highly important and being carefully developed so that electricity generated in resource rich areas is increasingly being delivered over long distances on advanced grids and the Chinese energy suppliers are not going to be content with significant power drains for Bitcoin mining. The advances in electricity transmission, at important cost, in China make unapproved power drains less and less likely.
Anonymous,
It may well be that there was bitcoin mining in China but that it has been shut down as the report you cite above indicates. I am not surprised at this. For it to have been going on would have required some serious corruption.
I get it that you are frustrated with me and others giving you a hard time, Anonymous. But you must admit that I have treated much better than others on Econbrowser in particular, but also Angry Bear as well. I have defended your openness to factual discussion and claimed you are intelligent, while many others make no such statements and simply declare you to be repeating lines, with accusations made I have not made.
I have suggested a way to counter those criticisms, and I have even noted that you might have provided a counterexample in a comment you made here that refers to Hong Kong as a "country," which I do not think is the official view of certain parties, although they may in fact use that terminology in discussing exchange rate mechanisms and other things.
I am here assuming that you are indeed the same person who posts on both Econbrowser and Angry Bear in a similar fashion but under different nonuikers. If you are not either of those people, then some of my remarks here are inappropriate.
I have suggested a way to counter those criticisms, and I have even noted that you might have provided a counterexample in a comment you made here that refers to Hong Kong as a "country...."
[ This was an error in a referenced text that was quoted. I of course did not make the error, but failed to correct the quoted text. The digital currency experiment involves 3 countries and 4 central bank currencies. Hong Kong is part of China, but uses the Hong Kong dollar rather than the Yuan as the central bank currency.
I understand that I am a fool, however, for failing to correct the quoted text.
I am always a fool and thank you for making that so clear. ]
Here is the referenced, quoted text that was since corrected by the writer, I foolishly thought the immediate article was important even before the correction:
https://technode.com/2021/02/24/china-test-digital-currency-transactions-with-thailand-uae/
February 24, 2021
China, Hong Kong, Thailand, and the United Arab Emirates announced they will be testing central bank digital currencies in cross-border payments.
Why it matters: The collaboration between the four economies is a milestone in the digital yuan’s development. Nailing down cross-border payments is a key step in achieving a long-term strategic goal of using the digital RMB to internationalize China’s currency.
All four governments are exploring digital currencies. The digital yuan is the closest of the four to launch, making it likely to take center stage in the trials....
I have defended your openness to factual discussion and claimed you are intelligent...
[ Forgive me, but I am obviously a fool. I am not intelligent and as a result not open to factual discussion though I always set down references. I really appreciate the defense, however. ]
My suspicion is that Musk's bitcoin buy has more to do with getting around restrictions on moving Tesla's assets in China than anything else....
[ I wonder if Tesla would risk a severe penalty in China by breaking regulations on capital movements. Production in China is proving highly important for Tesla. Chinese financial regulators have been fooled at times, but for a successful company to try fool the regulators would seem very, very risky. ]
Here is the corrected text, with "countries" changed to economies by the author. I am deeply sorry not to have made the correction immediately:
https://technode.com/2021/02/24/china-test-digital-currency-transactions-with-thailand-uae/
February 24, 2021
China to test digital currency transactions with Thailand, UAE
By Eliza Gkritsi
China, Hong Kong, Thailand, and the United Arab Emirates announced they will be testing central bank digital currencies in cross-border payments.
Why it matters: The collaboration between the four economies is a milestone in the digital yuan’s development. Nailing down cross-border payments is a key step in achieving a long-term strategic goal of using the digital RMB to internationalize China’s currency....
Anonymous,
OK, thank you for at least minimally recognizing that I have defended ltr at least a bit. And, no, you are not a fool and are intelligent and open to factual discussion. I also note that both ltr and you have avoided direct personal attacks on people.
I shall also note that it looks like ltr is now avoiding repetitious posting on Econbrowser as I and some others recommended. I hope you will communicate to ltr my pleasure at this apparent change. It may be that MDC is getting at least some favorable responses to some of his requests. It even looks like at least one other person specifically criticized by several over there might be behaving better while not bragging about doing so, although I think he is afraid of being completely banned if he does not clean it up some.
An irony here is that while you have now corrected the error that somebody may have called Hong Kong a "country," I had suggested this might be a way for ltr to claim a degree of independence that many on EB are claiming ltr does not have, making accusations I have not supported and will not repeat here, with some even calling for ltr to be outright banned due to this lack of apparent independence. I had suggested that this statement here by you might have shown such an independence, but now you have "corrected" it, meaning that now there is once again not even a hint of any difference with the official line. If that is the way you want it, well, that is the way it is. I shall not report on this further to those over at EB who might now be thinking ltr has shown a shred of independence. I shall leave it to ltr to hammer that point home, if you wish to commmunicate about this to ltr and ltr wants to make sure that nobody has any misconception about where ltr stands on such matters.
As it is, I shall continue to defend ltr against what I consider to be unreasonable attacks, whether or not those are appreciated fully. I think that you know that I know far more about China and its history and culture and civilization as well as economic conditions than most over there making comments, including people who claim to have spent time there.
All of this talk of bitcoin has made me hungry, and I heard that ramen noodles has become a currency in prisons.
See: https://www.npr.org/sections/thesalt/2016/08/26/491236253/ramen-noodles-are-now-the-prison-currency-of-choice
Post a Comment