What goes up must come down—even if briefly. This is what happened to Bitcoin last week as it fell 30% to about $35,000, and then rebounded strongly to $40,000 within a day. For Bitcoin holders, the value of their holdings falling by a third is painful, but far from catastrophic. They’ve seen worse. 

While the days of Bitcoin being declared dead over every 20 basis-point drop appear to be over (in fact, most mainstream finance figures seem to prefer saying that crypto is ‘here to stay’ now, witness Carl Icahn’s recent analysis), the recent sharp correction did lay one thing bare about Bitcoin: its fortunes are now increasingly intertwined with global geopolitics and corporate concerns. 

To understand why, it’s useful to unpack the causes—or at least the ones that most people believe triggered the correction—behind the market movements. 

First there was talk of a coming crackdown on cryptocurrencies. This was sparked first by statements from three quasi-governmental bodies who underlined existing rules for payments services handling cryptocurrencies. This statement was then posted on the Chinese central bank’s website, leading some to erroneously interpret the notice as new regulations from the People’s Bank of China, according to a note from the Geotechnology practice at the consultancy Eurasia Group.  

Several days later a statement went out from the State Council, the Chinese government’s highest decision-making body. This statement came from the council’s Financial Stability and Development Committee, led by vice premier Liu He, who is the closest economic adviser of Xi Jinping. This statement indeed speaks of a crackdown on barred cryptocurrency trading and mining activities, although it didn’t propose new rules or regulations. 

In recent days, mining hotspots in mainland China like the autonomous region of Inner Mongolia and the hydropower-rich province of Sichuan, appear to be enacting their own, local, rules, around Bitcoin miners’ access to electricity. Miners use Inner Mongolia’s cheap coal-fired electricity in the winter months, and tap into Sichuan’s hydroelectric power supply in the spring and summer, when rivers flow strongly.  

All of this was enough to send the Bitcoin price tumbling, and with it the rest of the market, as it remains tightly correlated with the market value of the oldest cryptocurrency. 

One of the responses from Bitcoin proponents was that a Chinese mining ban is good for Bitcoin. Why? The argument goes that since mining is currently concentrated in China, a ban would disperse the computational power devoted to Bitcoin across more national borders. This in turn decentralises this dimension of Bitcoin further—which is the whole point of the stateless cryptocurrency.

But the focus on China and Bitcoin’s carbon emissions lay bare two pain points for Bitcoin believers. 

First, getting sucked in geopolitics is probably not a great idea for a stateless project. As governments start to focus on the Bitcoin project and its supporters cheer its cross-border movements, it’s not hard to imagine some states welcoming miners to their power plants and others discouraging them. 

This courting of national governments turns Bitcoin mining into a political football, or hot potato, depending on your choice of metaphor, instead of an invisible or politically neutral layer that lies beyond governmental grasp.  

Second, the focus on environmental, social and governance issues, or ESG, tends to infuriate Bitcoin people because of an increased focus on the viability of “green” Bitcoin. The Shark Tank star Kevin O’ Leary is one celebrity who has been promoting the idea. According to O’ Leary, Bitcoin is hampered by its carbon-intensity, preventing more institutions from investing in it. It needs to go green to achieve institutional buy-in.  

But the notion of ‘green’ and fossil fuel-created Bitcoin angers enthusiasts because it messes with a fundamental property of the cryptocurrency: Fungibility. What “green” Bitcoins would do, if implemented, is to distinguish between one set of coins and another. This renders the principle of fungibility—that all Bitcoins are indistinguishable, and therefore just as valuable, as one another—moot. 

So-called chain analysis firms already trace Bitcoin transactions involved in criminal activities. Whether that’s ransomware, darknet markets, or terrorist financing, these firms are able to combine the public blockchain data with their own intelligence to reach conclusions about a coin’s history. Whether that breaks Bitcoin fungibility remains a matter of some semantic debate.

The question of some Bitcoins being more equal than others—at least in the eyes of corporate treasurers with ESG on their minds—could linger, says Paul Triolo, director of global technology policy at Eurasia Group. “Overall, ESG is here to stay for companies, so large publicly announced investments in Bitcoin will probably be less frequent,” he says. 

Even Elon Musk is not exempt. Of course, Musk’s tweets—that Tesla would halt Bitcoin payments—coincided with China’s official announcements, creating a perfect storm of uncertainty for crypto markets. For companies that have staked their public reputations on ESG issues, like Tesla, it’ll be even tougher to justify adding Bitcoin to the balance sheet. “There will have to be other steps taken to do damage control if they do decide to go big on bitcoin or other cryptocurrencies,” Triolo says. 

Musk is moving to mitigate Bitcoin’s carbon footprint. He met with major North American miners on environmental matters in a meeting brokered by fellow corporate Bitcoin bull Michael Saylor. But as more cryptocurrencies transition to new systems that don’t require any energy-intensive mining at all—such as Ethereum’s move to a system called “proof of stake”—coins that rely on mining could be viewed in ever starker relief by an ESG-focused market, Triolo points out. 

Miners moving out of China may be good for Bitcoin in the short term, as its believers say, but the question remains open in the long run.

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