Okay, so Bitcoin miners are apparently quiet. Transaction volume is way down. Everyone’s patting themselves on the back thinking this is a bullish trend because people are allegedly just accumulating their BTC. "Less selling pressure!" they cry. But I'm not so sure. This feels a little too… serene. Similar to the dark, electronic, twilight zone feeling that creates before a digital hurricane. Let's not be naive sheep, alright? Let's dig beyond the headlines.

Centralization: The Silent Takeover?

That miners’ volume share is at its lowest level since November 2022 should set off alarm bells, not party horns. I am not saying that fewer miner transactions is bullish, but if they are bullish… Or, more likely, it would simply result in a smaller number of miners having greater share of the network.

Think about it. According to the Cambridge report, three-quarters of all reported Bitcoin mining activity is currently located in the US. That's a seismic shift! It's kind of like the Borg from Star Trek, just kind of slowly assimilating everything. Resistance is futile, right? Only instead of, in this instance, the Borg being an alien species, they’re just a group of gaudily advanced aliens… mining conglomerates… and “assimilation” involves corporate takeover.

This isn't about some theoretical doomsday scenario. If a few big players control the majority of the mining power, they can:

  • Censor transactions you don't like.
  • Manipulate the network for profit.
  • Potentially even launch a 51% attack.

Bitcoin's strength lies in its decentralization. When mining gets too concentrated, that strength disappears faster than water in the Sahara.

US Dominance: Geopolitical Chess Move

Charles Edwards of Hashrate Index is crowing that Bitcoin is now “Made in America.” Great. Fantastic. Except... is it really?

Let's be real. Geopolitics are a brutal game. The US having the lion’s share of Bitcoin mining is in no way a feel-good story of American ingenuity. It's a strategic advantage. And strategic advantages are always exploited.

Now imagine the future, where the US balances its position in foreign policy disputes by leveraging its dominance of Bitcoin mining. Imagine sanctions on countries that fail to adopt similar standards, or bonus points for our most important allies. Doesn’t that all sound like a dystopian tale out of a terrible science fiction novel? History is replete with nations that have taken advantage of their technological superiority and used it to attack adversaries.

This isn't about being anti-American. It’s less about the specific commitments than it is about understanding that power, no matter where it resides, corrupts. No matter which country it is, concentrating so much mining power in one country is a dangerous precedent to set. Even worse, this creates a single point of failure, a single point of control, and a single point of exploitation. That should make you nervous.

Network Stability: A House of Cards?

Okay, miners are holding. They're consolidating. The US is dominating. What's the big deal, right? The price is stable-ish. Except... what happens when that stability cracks?

Miners are businesses. They have costs to cover. Of equal concern, the report reiterates that electricity constitutes 80% of their operating costs. At $45/MWh, that's a significant burden. If the price of Bitcoin drops enough, or energy prices increase, these miners need to be able to sell.

A massive amount of BTC coming onto the market creates a downward spiral, aka cascade effect. Smaller miners, who can’t compete at that level, get squeezed out. The big players get even bigger. The centralization problem gets worse.

Then the current low activity would actually be a sign of economic strength. Or, it might just be the digital equivalent of a rubber band stretched too far, wound tight and about to break. Are we really prepared for that snap?

We have made the assumption that they are holding because they are bullish on Bitcoin. What if they’re only unable to sell because of regulatory burdens, restrictions or other fiscal limitations?

As impact investors, we must be more skeptical, take a harder look, ask more questions, and dig deeper than the hype. This “quiet period” for miners could actually indicate something much more nefarious percolating under the surface. Don't be a lamb to the slaughter. Do your research. Be careful out there.