07/28/2023 0 Comments

1. Mining Bitcoin Is an Act of Freedom

Bitcoin mining is more than just a method of passively validating blocks and acquiring bitcoins as a reward. It involves what political philosopher Hannah Arendt would call the “vita activa,” or a positive action. It is both an act of freedom, and something that sets people free.

If this sound overly philosophical, Arendt saw things in a practical light. Humans, Arendt said, are at their fullest when they are politically engaged, when they step into the public realm and take part in the community’s decisions. Similarly bitcoin miners are not mere participants but active contributors in a network, and the work they do shapes the ecosystem’s present and future.

In a way, to work or contribute to something larger than yourself is to become free. Although the Bitcoin network is not bound to existentialist concerns, there is a powerful motivation driving some bitcoin miners to contribute. It’s not uncommon to hear something like, “because Bitcoin is a tool for human liberation, one of the greatest things I can do is to support the network.”

To understand the significance of mining in relation to freedom, we must delve into what freedom means. Specifically by looking at Isaiah Berlin’s dual interpretations of negative and positive liberty.

Negative liberty, which is essentially what political scientists mean by liberalism, emphasizes an individual’s freedom from intervention from governments and other people. This kind of freedom allows people to chart their paths without external constraints (physical or otherwise).

On the other hand, positive liberty necessitates action. It’s not just about the potential of doing something, but the act of doing it. It’s the freedom embodied in actively participating and realizing one’s potential (see Berlin’s seminal essay titled “Two Conceptions of Liberty”).

What Berlin missed, however, is a third type of freedom. What is sometimes called republican or neo-Roman liberty in philosophy circles is an understanding of human rights where people should be able to live free from subjection, deference and vulnerability to the arbitrary will of others. It specifically emphasizes the idea of non-domination and learning to co-exist with others, similar to ideas advocated by early feminists like Mary Wollstonecraft and popularized by Cambridge history Quentin Skinner.

What this theory means in practice is that as long as we have a voice in the decisions that affect us, “intervention” does not make us less free. In fact, in many cases, interventions that we consent to and authorize could enhance freedom.

In the context of Bitcoin, mining encapsulates this positive freedom in the sense that miners are not bystanders but instead active validators. They keep the decentralized system in check. They ensure that transactions are genuine and, in the process, validate the integrity of the entire network. Like citizens who actively engage in political processes to hold rulers accountable, miners play a crucial role in maintaining the balance of power within the Bitcoin network.

Further, because Bitcoin mining is permissionless – i.e. has a low entry barrier – anyone with the right tools can join the decentralized network. It’s not reserved for the elite or those with significant capital; it’s a domain where individual contribution matters, and collective participation strengthens the system. In short, Bitcoin is democratic.

Bitcoin mining is sometimes criticized for being overly concentrated. However, it’s important to note that many of the largest miners are public entities. While the ideal situation might be small scale individual miners competing in the free market, and mining bitcoins from their laptops, this is also economically unviable for a decentralized monetary network that has to guard itself against corporate and nation-state attacks. There is much at stake, and if Bitcoin is to survive then serious resources need to be committed to it.

In this case, publicly-traded bitcoin miners or other forms of community-ownership like mining pools are the next-best thing. With such arrangements, single ownership and decision-making get dispersed into boards, distributing power and decision-making. It also helps to emphasize that mining bitcoin is a way a taking responsibility and engaging in a political process.

In essence, bitcoin mining is a profound exercise in positive freedom. It’s not just about the ability to participate but the act of participation itself. Every miner is a political actor, actively shaping and preserving the network’s ethos of decentralization and bitcoin freedom. In other words, it is a vita activa.

2. Binance Pool Unveils Bitcoin Cash (BCH) Mining Service

Binance’s service platform dedicated to improving the income of miners – Binance Pool – announced the launch of the Bitcoin Cash (BCH) mining service.

The new offering leverages the FPPS settlement method. As part of the move, mining rewards will be automatically credited to users’ Funding Wallets by 10:00 (UTC) on a daily basis.

According to the official update, account verification is a prerequisite for users to take part in the Bitcoin Cash (BCH) mining service.

Binance Pool launched a $500 million lending project in October last year to support the Bitcoin mining industry, which was battered as a result of falling prices and multiple collapses of prominent players in the space.

The crypto giant is focused on working with several cloud mining products in recent months. The aim was to provide relief to crypto miners seeking capital support amid crypto winter.

It also released multiple batches of Cloud Mining products for BTC mining.

The development comes as Binance continued to be embroiled in regulatory issues in the US.

The Commodity Futures Trading Commission (CFTC) launched a lawsuit against the exchange and its CEO Changpeng ‘CZ’ Zhao in March this year.

The Securities and Exchange Commission (SEC) followed suit early last month as it slapped Binance with charges of securities law violation and accused it of manipulating trading volume with the help of a CZ-headed company called ‘Sigma Chain.’

Mounting regulatory pressure has led to a significant loss in Binance’s spot market share. The latest data suggest the figure has plunged from 64% to 50% in a span of seven months.

3. Something Brews in Wall Street as Crypto-Related Stocks Skyrocket

BlackRock’s filing of the iShares Bitcoin Trust in June stirred the crypto community’s hopes of a real Bitcoin ETF coming soon. And as Bitcoin regains momentum, there’s been quite a few crypto-adjacent stocks that are already experiencing their own bull runs.

A true spot Bitcoin Exchange Traded Fund (ETF) has long been considered the “dream” for institutional adoption of crypto assets. By making it easy for pension funds, family offices, or even just regular savers to have exposure to Bitcoin, the potential inflows into the ecosystem can be tremendous.

While there are some ETFs based on Bitcoin futures, these carry a “tax” on holders due to the need to roll the futures contracts as they expire. The value of a futures contract at the beginning of its period is often somewhat detached from the true underlying value, and this difference translates to futures ETFs underperforming compared to real BTC ownership.

BlackRock’s entry into the arena of spot ETF contestants is significant. It is, after all, the world’s largest asset manager with a direct line to D.C. Given that regulators have stopped previous spot ETF applications for Bitcoin, it appears likely that the firm may have some aces up its sleeve. Ironically, just five years ago in 2018, CEO Larry Fink was dismissing cryptocurrencies as the money launderer’s heaven.

But while we wait for a decision by the Securities and Exchange Commission (SEC), there may be a few even more encouraging signs to be found in the markets — stocks for a number of publicly traded companies related to Bitcoin have dramatically outperformed it year-to-date.

Riot Platforms (RIOT) and Marathon (MARA) have both increased by over 400% in value this year. Both companies are industrial Bitcoin miners, with their primary business being directly related to the fortunes of the cryptocurrency market.

Though Bitcoin mining can remain profitable even during down markets, investing in these companies is still considered an investment in Bitcoin “by proxy,” analogously to investing in gold mining companies. Andrey Stoychev, Project Manager at crypto lending firm Nexo, has explained that there may be some good reasons for these firms’ outperformance:

“Bitcoin has supported those rallies with its performance – hashing rates recording all-time highs, the numbers of addresses holding at least 1 BTC steadily increasing, while the “shrimp” (i.e. those holding less than 1 BTC) have been accumulating coins at a rate that outpaces newly introduced supply.”

Even MicroStrategy (MSTR), which through its successive Bitcoin purchases accrued billions of dollars worth of it on its balance sheet, has had a better year than the asset it holds, growing over 200% compared to Bitcoin’s approximately 90%. Coinbase (COIN) has similarly had a good performance.

Pent-up tension has to go somewhere?

BlackRock has a fairly significant ownership share in both Riot Platforms and Marathon, with about 7-8% in each.

The fund acquired those shares over a protracted period since the beginning of the 2021 bull run, and did not reduce its stake so far. It is unclear for now if the price gains in these stocks are due to BlackRock increasing its share, or copy cats.

Stoychev, while generally optimistic, cautioned that mining firms might have significant headwinds in the near future. “Firstly, a Bitcoin halving is looming inApril 2024 is approaching and it poses a change to miners’ revenues – the rewards for processed blocks will halve from 6.25 BTC to 3.125 BTC,” he said.

The halving is a scheduled reduction of Bitcoin emissions in each block, happening approximately every four years. While holders see the halvings as inherently bullish, miners have to deal with the sudden shock of revenues falling down by exactly half.

“And second, energy costs have traditionally been subject to volatility and with geopolitical uncertainties galore, an uptick in energy prices will further dent the profitability of miners in the space,” continued Stoychev.

In any case, we are seeing the beginnings of a frenzy for everything crypto-related in Wall Street. The clearest sign is the rapid closure of the discount for GBTC in June, which went from 43% to 26%.

The Grayscale BTC Trust is a long-standing Bitcoin investment vehicle for traditional finance participants. Similarly to an ETF, it gives exposure to an entity holding a certain amount of Bitcoin, which defines its Net Asset Value (NAV). Because of a difficult redemption process, GBTC’s market capitalization has always had either a premium or discount over NAV, making it a highly unstable asset. For this reason, GBTC’s (lack of) parity with its true value has been a useful marker of Wall Street interest in Bitcoin.

Asset managers in Wall Street seem to be renewing their interest in everything crypto-related, which could bode well for other “ancillary” companies with publicly-listed stock.

The Bitcoin ETF, if passed, would provide strong positive pressure for Bitcoin as an asset through the daily arbitrage enabled by the ETF structure. This would ripple through the rest of the crypto space, with both miners and the rest of the ecosystem benefiting. Bitcoin rallies traditionally preceded “alt seasons” where the rest of the market catches up.

“Undoubtedly, what Bitcoin miners might be hoping for is a significant price rise of the cryptocurrency to offset higher production costs and lower revenues per block mined,” explained Stoychev. But factors such as energy prices and the timing of the emission cut will be a major test for the long-term viability of miner companies. “Thus, identifying potential investment opportunities in penny stocks like $MARA and $RIOT could have more to do with the wider macroeconomic frame and energy politics, than simply Bitcoin’s performance,” he concluded.

For the cryptocurrency space a whole, it may take some time to see the effects of miner stock rallies trickle down. Miners rarely participate in blockchain R&D or in building new applications and blockchain use cases, but the overall uptick in interest is bound to benefit the space over time.

author avatar
Harvey CHEN

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