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Vancouver’s Mayor Is Really into Bitcoin. What’s Ahead?

At a council meeting, backers praised the cryptocurrency while critics warned of volatility and environmental cost.

Jen St. Denis 16 Dec 2024The Tyee

Jen St. Denis is a reporter with The Tyee.

There was the swimmer who suggested using bitcoin mining to heat Kitsilano Pool. There was the speaker who said he agreed with Mayor Ken Sim that “bitcoin is the greatest invention in human history.”

A middle-aged man in glasses and a blazer was moved to rap about bitcoin, while a coffee shop owner said he pays his baristas’ tips in the cryptocurrency.

Fans of cryptocurrency were in Vancouver council chambers Thursday to support Sim’s motion to make Vancouver a “bitcoin-friendly” city, a proposal that sparked strong reactions from both lovers and haters of bitcoin.

The motion calls for city staff to be tasked with researching whether the city should convert some of its financial reserves to bitcoin and start accepting payments in the cryptocurrency.

The motion passed after council heard from a couple of dozen passionate advocates — many of whom were bitcoin investors, educators or influencers.

Their grand claims about the benefits of bitcoin were backed by the mayor, who said the city’s adoption could be “a way of securing the future for the next 100 years.”

Some speakers spun bitcoin’s negatives as positives. The volatility of the cryptocurrency is actually good, argued one, because fire is also volatile but has benefited human society, including fuelling “interstellar travel.”

Another speaker said the enormous electricity needed to fuel bitcoin mining is an environmental benefit because it will fuel more demand for sustainable power projects.

Cryptocurrency promise and peril

Bitcoin is an alternative currency not issued by a country’s central bank. Transactions in it and other cryptocurrencies take place in a decentralized, encrypted system, and no governments are involved. Blockchain technologies allow the transactions to be tracked.

While proponents say the technology is the way of the future, some cryptocurrencies have been associated with massive scams like the FTX and Quadriga collapses.

Energy economist Werner Antweiler said he’s not opposed to blockchain and thinks there are valuable applications for the technology.

But Antweiler is concerned about Sim’s motion because of its emphasis on bitcoin, the oldest digital currency and the one that uses the most electricity.

Because bitcoin is designed to have a limited and fixed supply, “to gain the next bitcoin, people have to carry out this proof of work, a kind of exercise in computations” using powerful computers, Antweiler explained.

The process is structured to become increasingly complex and more energy intensive as new coins are mined.

Each new coin mined requires a doubling of that computational effort, leading to more electricity being used to power those machines.

So far, around 19 million coins have been created out of a total of 21 million coins possible.

Energy, money laundering worries

While bitcoin proponents argue that renewable energy sources can be developed to satisfy the industry’s enormous energy demands, Antweiler said most jurisdictions, including B.C., are promoting electrification of home heating and vehicles in order to reduce greenhouse gas emissions and prioritizing new electricity projects for those uses.

Technologies like AI are also growing and using increasing amounts of electricity, not to mention the data centres needed for cloud storage and other functions.

Antweiler said that currently there’s no way to guarantee a bitcoin has been mined with renewable energy like B.C.’s hydro power.

“You cannot determine where your transaction is processed, in clean B.C. or in a place like Poland where they use coal virtually exclusively,” Antweiler said.

Speaking about why she opposed Sim’s motion, Green Coun. Adriane Carr said she couldn’t ignore the environmental cost.

While Brian Montague, a councillor with Sim’s ABC party, spoke in support of the motion, Carr reminded Montague that he had previously suggested reversing the city’s ban on natural gas for home heating because he was concerned that BC Hydro has been struggling to make enough hydroelectricity at times.

Green Coun. Pete Fry pointed out that in order to convert some of the city’s financial reserves to bitcoin, the province would have to change laws that require municipalities to choose conservative, stable investments such as bonds.

Fry also said Vancouver’s city council has previously heard concerns from police about bitcoin being used for money laundering by organized crime.

Given B.C.’s past issues with casinos being widely used in money laundering, Fry said he was surprised not to see any acknowledgment of those concerns in the mayor’s motion.

Critics of the motion also picked apart the jurisdictions Sim named as bitcoin-friendly. Zug, Switzerland, which has become known as “Crypto Valley,” is also known for its high concentration of Russian oligarchs, tax evasion and shell companies.

Government experiments

El Salvador’s current president, Nayib Bukele, has won praise from Tesla CEO Elon Musk and U.S. president-elect Donald Trump for his government’s bet on bitcoin, an investment that has grown to $600 million.

But Antweiler said that while Bukele aspired to make bitcoin a commonly used currency in the country, most ordinary people have not embraced it. El Salvador continues to use mostly the U.S. dollar for everyday transactions — an economic trend that happens when a country’s own currency becomes too unstable.

“Most people in El Salvador are staying away from [bitcoin] because it's risky,” Antweiler said.

Sim’s motion also holds up Pennsylvania as an example. In that state, lawmakers voted to protect the right to hold cryptocurrency assets, which Antweiler said was not problematic.

But a Republican state representative has also introduced a bill that proposes to earmark 10 per cent of state funds to be held in bitcoin as a way to hedge against inflation and diversify its investments.

Antweiler said he doesn’t expect that bill to pass because of the amount of risk it would introduce for taxpayer-funded investments.

“What we do know about bitcoin and some of these other types of cyber-assets is that they're particularly volatile,” Antweiler said. “Their volatility is in the range of some of the most prominent high-tech stocks like Nvidia and Tesla and others. So basically, we're looking at a volatility that is at the high end of the spectrum.”

While that could lead to high returns, Antweiler said, the risk for losses is also increased.

Bitcoin has been rising in value lately, in part because Trump has championed cryptocurrency. He’s promised to create a national bitcoin reserve and is expected to relax regulations that have limited banks’ involvement in the industry.

Trump is also personally invested in the cryptocurrency industry: his business empire now includes a crypto firm.

Sim’s financial disclosure statement for 2023 shows he holds investments in Coinbase Global, a cryptocurrency firm; MGT Capital Investments, a bitcoin miner; and Coin Citadel, a blockchain infrastructure company. The investments were first reported by the Breaker.

According to the mayor’s office, Sim consulted with a lawyer before introducing the motion and confirmed “there is no conflict of interest related to his motion.” City staff said they could not release details about why his investments aren’t a conflict of interest because “the matter is active legal advice.” Staff also said Sim has since sold his investments in MGT Capital Investments.

Because the province would need to change the law to allow Vancouver to put some of its financial reserves into bitcoin, Antweiler said he views the mayor’s motion more as political “virtue signalling” to a certain group of voters than as a serious proposal.

‘It’s a feeling of nihilism’

Several of the people who spoke in favour of the motion were young men who said getting into bitcoin and making money on their investments had helped them overcome the hopelessness of living in a city with punishingly high real estate costs.

“Bitcoin isn't just about economics; it's about hope,” Julian Figueroa told council. Figueroa said he now runs a YouTube channel focused on bitcoin called Get Based.

“Everyone who spends more than two hours in Vancouver will inevitably hear somebody on the SkyTrain talking about the lack of affordable housing,” he said. “It's a feeling of nihilism that absolutely consumes younger people in my generation here, yet my peers who have adopted bitcoin don't share this nihilism.”

But Antweiler warned that there are no guarantees for people who have put their faith in bitcoin. Unlike gold, there is no intrinsic value in cryptocurrencies, and unlike the currency of a country, crypto is not backed by a government’s central bank — a crucial element in establishing trust in the value of currency.

“What has been driving up the price of bitcoins is that people are buying it but they're not redeeming it — they're holding it and hoarding it,” he said. “And so that means money is flowing in — and then where does the money end up? Well, in the hands of the people who bought it early — they sold a few to make money. A lot of people now holding bitcoins, if all of them tried to redeem them, there wouldn't be any money to actually redeem it.”  [Tyee]

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