Why China’s crypto crackdown is ‘hugely positive for the bitcoin ecosystem’: Blockchain.com CEO

China is cracking down on Bitcoin. Blockchain.com Co-Founder & CEO Peter Smith joins Yahoo Finance Live to discuss.

Video Transcript

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AKIKO FUJITA: We are seeing Bitcoin rebound from its lows for the year, climbing back above that $30,000 handle. The cryptocurrency turned negative on the year yesterday on the back of some new headlines out of China with the PPOC summoning banks and payment services to close any loopholes on crypto trading. We also had the government over in the Sichuan province shutting down mining there.

Our next guest says the crackdown in China is good news for the US. Let’s bring in Peter Smith, Blockchain.com’s co-founder and CEO. Peter, you’ve highlighted, or we’ve been talking about a lot about how the crackdown has been ongoing in China. But with the mining aspect now really front and center, to what extent do you think that that’s going to propel more and more miners to come to the US? We’ve already seen the movement start. How much of that comes over here?

PETER SMITH: Yeah. I think it’s actually fantastic news for the Bitcoin ecosystem. You’re going to see a diversification of mining operations around the world. We’ve been seeing that trend over the last two years, as large mines are built in Europe, the US, and a variety of other geographic locations. But that trend is going to accelerate hard now.

And I think one of the things that concerned me the most about the crypto market was the concentration of Bitcoin mining in mainland China. And so I think this is going to be painful in the short term, as Chinese mining firms sell down a lot of their inventory of Bitcoin and move their operations overseas. But I think from a net perspective over the next three or four years, this is actually hugely positive for the Bitcoin ecosystem.

ZACK GUZMAN: Yeah. And the other thing too, Peter, I mean, I guess it also, maybe to a lesser extent, addresses some of the sustainability concerns too out of China. There was that crackdown earlier in inner Mongolia that was mostly coal-powered miners. Sichuan was more hydropower, so it was maybe to a lesser extent. Really helps on the sustainability front.

But when it comes to that being an issue among institutional clients– I know you guys are also an investor in Amber Group, who we had on yesterday. It does still seem like institutions, in terms of what he was telling us, are interested in hopping in at these levels. I mean, have you seen any material difference in the excitement among institutions?

PETER SMITH: No, I haven’t actually. I think you’ll see– it’d be a struggle for some of the large asset managers like BlackRock to allocate until the ESG issue is figured out. But I also think that’s going to happen. You’re going to see mining companies start to disclose where they’re getting their energy. And for the most part, Bitcoin mines are powered in places where there’s really low energy cost. And that only really comes where the energy is mostly hydro, to be honest or new, novel things like Flair operations in the US.

So I actually think that a lot of this is just a lack of data. We’re one of the largest financers of Bitcoin mines out of our institutional credit business. And the vast, vast majority of Bitcoin mining operations being built today are being built on top of clean power.

AKIKO FUJITA: How are we likely to get those disclosures? Are you thinking sort of a regulation that can potentially call for forced disclosures of the way in which these mining companies operate? Is it more of something that’s voluntary that you think will be enough to correct some of the prices or declines that we’ve seen on the back of these ESG concerns?

PETER SMITH: I don’t think the price declines are on the back of the ESG concerns. I think they’re on a leverage washout on the momentum reversal as well as the broader crackdown in China on the cryptocurrency market.

The ESG problem though, is one that you need to solve over the next five years as you start to bring bigger and bigger funds into the space, like your BlackRocks and Blackstones of the world. So I don’t think it was institutions selling because they suddenly realized that there’s ESG concerns. I think it just kind of caps what institutions can come into this space until that’s solved.

And it is, like I said, a data transparency issue, not an underlying kind of facts of the case issue. And as an industry, we’ve got to work together and figure out how to make that data transparent to the rest of the participants in the ecosystem.

ZACK GUZMAN: Outside of Bitcoin though, you guys have also been working on some interesting things, including the integration of BitClout. For those that don’t know, a social media kind of styled application that’s decentralized and offers their own token there to kind of power the network. One of the critiques though, is that there wasn’t a lot of places to trade Clout. Now you guys added them exclusively as kind of the first starting point. Talk to me about how that came together and what the expectations are around that particular project.

PETER SMITH: One of the things that we believe in at Blockchain.com is working to empower humans and increase human freedom around the world. And today, way too much of our public discourse is controlled by private companies, by Twitter, by Facebook, and their competitors all around the world.

BitClout’s a really novel attempt to build a decentralized social network that’s censorship-resistant. And that’s really beautiful for humans around the world because it means that your government can’t tell you that you have to stop talking. And in a lot of countries, that’s a nice to have. Like in the US, we have pretty good rules about this. There’s a lot of countries around the world where governments use this power in a really negative way.

And I think it’s super-important for the world that there’s a public space and a public forum for people to express their views freely online. And so our decision to list BitClout and provide a marketplace for people to trade Clout was really in support of that vision and of the ecosystem over the next five to 10 years as it really grows and develops.

ZACK GUZMAN: Were there more unique security concerns around Clout? I mean, people have pointed out the project’s similar to Twitter. It’s obviously something that’s a real project that you’d kind of be supporting by putting it on Blockchain.com and allowing people to trade. But we’ve talked before about kind of walking through those different concerns each time any one of these entities adds an asset to the platform. I mean, what did that maybe look like specifically when it came to this one versus other things that were added in the past?

PETER SMITH: Yeah. It’s a really complicated and nuanced legal analysis each time that you have a novel asset. Clout is the governance token of a decentralized social network. It’s not part of a revenue stream. And so our legal team and outside counsel were able to get pretty comfortable with it.

But at the end of the day, I’m pretty far from those exact details. I’m really focused on the product, less on the legal side, as you can probably guess.

AKIKO FUJITA: Blockchain.com co-founder and CEO Peter Smith, good to talk to you. Appreciate you joining us today.

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