Public bitcoin mining companies in their current iteration are frustrating, with an exception of a couple, and I'm tired of making excuses for them.
- Their debt strategies suck
- Their BTC treasuries are volatile, have never consistently increased over the longterm, and with the distribution cycle and competition, there's no reason to believe they ever will
- They flirt with insolvency every bear market
- They're oblivious to how far it would go if they paid a simple dividend in BTC even if it's just few inconsequential sats
- They put perpetual sell pressure on BTC
- They love nothing more than diluting the shit out of shareholders, a quarterly experience when debt is cheap, which would be fine if the money was used with wise eyes to the future
- Actually they do love something more: losing money
- They virtue signal the Lightning Network
Their fiat game goes like this: collateralize coin, borrow fiat, buy mining rigs, dilute shareholders, blow-up, repeat in no particular order. Sometimes looking over these company's 10-K reports I feel like I'm seeing what the lion, scarecrow, and tin-man saw.
My initial feeling is that Blackrock et al's foray into institutional ownership of mining stocks is because they want miners to eventually become AP's (Authorized Participants) in the ETF's creation-issuance-redemption cycle. No guarantee this works and I'm just speculating. Also, they perhaps see advantages when the dozen or so publicly listed miners eventually consolidate in a great reorg of the space, because of my grievances listed above, and because they might get themselves specially taxed (from their own stupidity), and because of the actual topic of this post, which is energy storage, something that can encroach on their unique energy market positioning.
Disclosure: I trade some of the miners via derivatives. I don't invest in them. I'm only invested in chemicals and bitcoin, and see no reason to invest in anything else unless it's a business I own or am building. But hey, that's just me.
So in a tl;dr refresher, here's the elephant in the room regarding renewable energy sourced from the wind and sun:
Intermittence—the wind and sun are not consistent. Thusly, even when wind and solar setups produce enough energy to provide an area's gross wattage every 24, there's no way to distribute it as grid circumstances demand, with its peaks and valleys, while maintaining the 60Hz heartbeat. This is why baseload energy expenditure is necessary to balance the grid, and maintain the heartbeat; this means natural gas, coal, nuclear, hydro, commercial geothermal, or a mix. Grids have a simple mandate: reliability and uptime. So what happens to all the excess renewable energy produced off-peak? It gets wasted.
Bitcoin miners can step in and absorb this excess. It makes them unique. They can power on and off their entire facility in just minutes, which makes them well-suited for demand response as well. But guess what else can occupy this space? Energy storage. It's nascent, but there's a great power building behind it. Trying to find the common denominator of both, and distilling them into a single phrase, I thought up this:
Increase the financial and environmental value of energy assets.
I wonder then if this is where energy and bitcoin really start merging. They're complementary, and it opens the door for mining into the subsidy game. Yes, bitcoin mining is about providing network security (I would argue it's more about transaction finality), but we're not talking about mining with your laptop's CPU stealing university dorm Kw's. We're talking about ASIC farms and publicly listed commercial facilities with industrial connections to energy grids that will need to find a way to incentivize renewable energy assets and provide returns. Renewable energy is already the cheapest form of energy per kWh. That's great for the first half of bitcoin mining's current economy of scale:
- cheap electricity
- access to capital
Renewable energy is also the fastest expanding type of energy. But in the fiat world, it's not the most profitable type of energy. That's probably confusing and doesn't make sense, so the best way I can think of explaining that statement of fossil fuels being the most profitable type of energy in the fiat world is the Industrial Revolution:
We went from water power to steam power by way of coal. Water power however, was cheaper than coal. So trusting liberal economists, water should’ve dominated industrial production energy inputs, and coal should’ve been limited to its specialization: transportation (trains, boats, etc).
But that’s not what happened.
Coal was better for exploiting human labor, so it was more profitable than water. Water was geography dependent, so you had to bring the people to the water. If those people strike or organize, you won’t find replacements. Fossil fuels could be brought into population centers, where impoverished people and immigrants, cut-off from any community managed farms where they might have skills, were easily exploitable. And as long as you keep shoveling coal, you can work people 24/7. Then you might even pay them in company scrip which is spendable at store networks they own. The limitation is only the amount of people and amount of coal you have. Water is hard to collect and privatize. Coal was not, and although more expensive, coal was an excellent source of surplus value. Fast forward to today, and that's microcosmic of the fiat world bitcoiners sometimes rail against even if they don't know it, with its literal hardened connection to fossil fuels via the petrodollar. You see renewable energy is difficult to monopolize and control. It’s too decentralized and cheap. The sun and wind are everywhere. It’s in bitcoin mining’s wheelhouse, and as an aside, it's another reason I don’t like proof-of-stake, because:
- Energy: distributed
- Capital: concentrated
A bitcoin world introduces a disinflationary base layer, different incentives, fixed monetary principles, fixed liberties, and is a referendum on unfettered growth, imagining it more as unfettered development.
Replacing this system is daunting, and I posit that breaking fossil fuel dependence is necessary for a true bitcoin standard. That said, fossil fuels will be needed for quite awhile, and we shouldn't upend an entire energy economy for technologies that are not yet mature. That would be silly. And on the other side, we shouldn't conflate the whole of renewable energy based on its visibly failed actors, like confused bitcoin critics do calling it crypto and referencing LUNA, FTX, and Celsius.
Renewable deployments are surging out from under the pandemic-related delays and supply-chain woes. The prices are collapsing too, so much so that they're actually hurting.
Back to energy storage. It's coming commercially, even if innovation is taking longer than you have patience. It'll be a mix, and the design pattern of storing/exploiting excess off-peak renewable energy is somewhat established:
- chemical batteries
- gravity batteries
- green hydrogen via electrolysis
The expenditure of resources (from human IQ to government subsidies) in these domains is enormous, and beginning to yield awesome results. Solid-state lithium was sci-fi just 4 years ago. Now we're inching closer to commercial versions. Every month there's headlines of a new major lithium mine discovery. And too, we're seeing a rapid buildout of commercial lithium recycling facilities all over the world which were heretofore a missing piece of the puzzle. AES Corp has broken ground in Texas on their $4B green hydrogen production facility which will be the largest in America. Saudi Arabia is building the largest green hydrogen facility in the world as part of the NOEM project. Ethiopia's GERD hydro dam will provide 80% of the country's electricity and lift half the population out of poverty. Energy Vault is just weeks from completing their 100MW gravity battery storage in China, and their modular 35MW gravity battery facility in Texas. I'm watching the latter very closely, because if it meets its endpoints, especially getting over 80% efficiency, it could proffer another tool for commercial energy storage that's cheaper and more durable than lithium without any of the messy environmental backend (which admittedly is getting incrementally better). It's just good to see we're finally at the point of put up, or shut up with these. Here's a short video on how the Texas battery works.
There are many different kinds of gravity batteries. The simplicity is attractive in an Occam's razor way, and the tech is nothing new, but besides pumped-hydro and clocks, they've never served a purpose until now thanks to the renewable conundrum. You see this dusting-off happen with old computer science solutions sometimes, which is another reason research and building is important, even if it doesn't yield an IPO or get strangers to sleep with you. Fiat minded Lambo shit.
Maybe there's arguments that subsidies are part of the fiat game regarding green energy. Subsidies built the fiat energy system. Eventually fiat had to rug the gold commodity to form a connection with the energy commodities. The petrodollar system went suddenly after a short period of volatility during the transition. It worked for over 50 years with no significant loss in Treasury demand. Unfettered growth. Any expansion in energy was necessarily an expansion of the USD. It was able to control the negative effects of its monetary expansion quite well this way. But no debt cycle is infinite. Time to subsidize a different commodity and build a new system. This is a very unique commodity. Oil gets rugged first. Then the rest. Embrace just a little bit of Dark Maximalism.
Anyway, post over. Not sure I agree with everything I said, and it was a mess, but I like using Stacker to help clarify my own thoughts. Sats for criticism. Lot's of sats for high-rez criticism. You know the rules.