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With more than 151 Twh of annualised electricity consumption, Bitcoin would, as of 14 May 2021, be the 25th most energy-intensive “country” in the world, ahead of Egypt and Malaysia, and behind Poland. This is according to data updated in real time by the Cambridge Centre for Alternative Finance. The source is not chosen by chance: it is the same one that Elon Musk used in his tweet justifying his resounding retreat on Bitcoin, no longer accepted as a form of payment to buy Teslas. This lasted for about a month and a half, and it has not been disclosed how many units were sold in Bitcoin.
Issues related to Bitcoin mining are steadily increasing: this is due to the growing computational power required to solve the cryptographic problems associated with the functioning of the blockchain, which is solved in exchange for a ‘premium’ in newly ‘mined’ Bitcoins. This is not exactly breaking news. But it is clear that Tesla’s green storytelling would not have been reconciled with the strong environmental impact of a currency that, moreover, few use as a form of payment.
For the record, on 24 February last, when the possibility of buying Teslas in Bitcoin was launched, the annualised consumption of the Btc network was 127 TWh, while on 12 May last, the date on which Musk withdrew this opportunity, consumption had risen to 149 TWh. Yet, already in February Bitcoin consumed more electricity than the whole of Argentina, a country with about 45 million inhabitants.
The situation is compounded by the fact, also known for some time, that much of the mining activity takes place in China, precisely because of the low cost of electricity – which is made possible by the inconvenient contribution of coal-fired power stations. According to the Cambridge Centre for Alternative Finance, 65% of mining activity takes place in China. And according to the latest data compiled by the International Energy Agency, as of 2018 China was drawing over 60% of its energy from coal and another 20% or so from oil.
On 6 May, the new chairman of the SEC, Gary Gensler, a former professor of Blockchain at MIT, stressed the need for new rules in relation to two episodes of market turbulence: the frenzy surrounding GameStop and the recent implosion of the hedge Archegos Capital Management, which caused the stocks of all the banking giants to plummet.
Two very different episodes, but which the regulator has decided to equate because of the underlying dynamics they share.
During 2020, according to research by Bloomberg Intelligence, around 20% of the shares traded on the US market (double the value of 10 years earlier) passed through trading by individual independent investors, mostly on private or OTC platforms.
Since January 2020, the investor base in bitcoin has practically doubled thanks to a series of events: institutional players taking a position on crypto, the halving of May 2020 and the proliferation of increasingly secure and easy-to-use wallets for buying and storing the currency.
Pandemic and isolation, together with a new, or increased, ability to save for a large segment of the population have in fact contributed to the creation of a fertile ground for the birth of two phenomena: the entry into the world of trading of profiles that until now had not had the opportunity to invest, and the birth of an “independentist” current thanks to the greater amount of time available to study, investigate and devote to the markets and its dynamics.
What has happened and is continuing to happen has reminded us that innovation – including financial innovation – is something that happens by itself, does not ask for permission and almost always starts from the grassroots.
Institutions usually first demonise it, then observe it, and finally catch the phenomenon when it has exploded and is walking on its own legs.
And when they intervene to regulate it, they risk distorting it by trying to harness initiatives that were born to stay outside the system.
When bitcoin was born on 31 October 2008, Satoshi Nakamoto’s intent was clear: to create a P2P payment system that would replace the third-party trust element (central banks and financial institutions) with cryptography, aiming to go beyond the system and institutions.
Bitcoin’s founding purpose was to democratise the creation and distribution of wealth, returning the power to issue money to the people, allowing access to an asset with disruptive potential to anyone with a PC.
To leave a clear notation of the intent behind what he had just created, Satoshi incorporated into Bitcoin’s genesis block, the text, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
In this sense, bitcoin as an investment tool was born democratic as it allows anyone to take part in the network: by producing, receiving and sending Bitcoins. The proliferation of services and wallets in recent years has also broken down the initial technical hurdles by allowing an ever larger and more heterogeneous audience to operate with a simple mobile phone and be able to buy even a few hundred euros.
The democratic nature of the currency is also evident in the absence of an issuer, ownership and any third party institution acting as guarantor: its monetary policy is defined by its algorithm, which has set the maximum number of pieces that can be produced at 21 million and the quantities allocated for the resolution of each node.
Today, Bitcoin’s market cap has reached almost 900 billion USD and companies such as JPMorgan, Fidelity, Square, Paypal and Visa have taken positions on the currency in recent months.
In parallel, we are witnessing a rush by regulators to standardise, regulate and pull the strings of a phenomenon that was born and has grown out of the system. The aforementioned Gensler and US Treasury Secretary Janet Yellen look at bitcoin with suspicion, but consider the idea of a ‘digital dollar’ – an emanation of the Fed itself and based on blockchain technology – to be a reality once the system is regulated. How? It is not yet clear.
The European proposal – the Market in Crypto Asset Regulation (MiCA) – seems instead to be more of an acknowledgement of the existence of an additional asset class to be “encased” in the Directive on Financial Intermediaries and Mifid already active in the Union to regulate the exchange of other financial instruments.
The question arises as to whether the desire to protect investors is really the driving force or whether it is also, or rather, a matter of balances and interests that risk being undermined.
Bitcoin has gone from being regarded as a game for anti-system technology enthusiasts to being seen as the first real tool for challenging the status quo: capable of shifting centres of power and giving the general public – which the regulator always sees as the ‘consumer to be saved’ – the chance to take part in the great financial revolution. Perhaps even managing to make a profit.
The Swiss bank has announced that it is offering cryptocurrency investments to wealthy clients. The Swiss bank says it is in the early stages of planning to offer digital currency investments to wealthy clients, joining its US counterparts who are looking to give broader access to investments in response to client demand.
UBS chief executive Ralph Hamers is taking a hard look at cutting costs and digitising operations, including business with wealthier clients. The Swiss bank spends about $3.5 billion a year on technology to maintain and modernise its existing infrastructure and innovate new tools for employees and products for clients.
Ubs’s proposal to offer cryptocurrency investments would affect a very limited portion of an investor’s individual portfolio. Many companies are offering cryptocurrency services, from Goldman Sachs to Morgan Stanley to Bank of New York Mellon Corp. and Citigroup, all of which are considering crypto services.
We are closely monitoring developments in the field of digital assets. Importantly, however, we are more interested in the technology behind cryptocurrencies, distributed ledgers.
So stated Ubs. Bitcoin remains the largest cryptocurrency, but the momentum of other tokens is attracting more interest. Supporters of the crypto world have pointed out that investors are becoming more comfortable with a variety of tokens, while detractors argue that we are facing a new bubble.
Certainly UBS’s openness is due to the fear that it might lose clients if it does not offer this type of investment. It is therefore an unavoidable necessity, because of the growing demand from investors, even the wealthiest ones. The alternative would be to lose clients.