Abstract : If physically backed ETFs are approved in the US, they will pave the way for endowments, pensions, and public companies to invest in Bitcoin without the need for extensive charters or special board approvals.
By May Pang
I first met Lisa at the Bitcoin meetup in Houston. The event primarily attracted participants from the energy sector and ardent Bitcoin enthusiasts, there were only a handful of women present. Lisa stood amidst the predominantly male crowd, exuding elegance, confidence, and beauty. Her demeanor was so kind and humble that it shattered my preconceived impression of commodity traders being filled with ego. Upon watching her interview of “Life, Liberty and Property with Lisa Hough.” I was instantly captivated by her statement: “Before I knew about Bitcoin, I always feared ending up living under a bridge.” I was so curious why she said so considering she was a very successful business woman featured in Forbes. I couldn’t resist reaching out to her for a talk to delve deeper into her experience and gain insights into the future of bitcoin.
Here are some highlights of our conversation:
I know you are talking with many people in the traditional industries such as the energy industries. What are the business opportunities you propose to them as a value proposition?
Lisa: “Yes, I am lucky to live in the energy capital of the world and have many in my network who work in energy, most unfortunately don’t see Bitcoin mining as an efficiency tool. Several months back, I had a conversation with a publicly traded oil production company in the Permian Basin.
The Permian Basin, which is one of the most prolific oil and natural gas regions in the United States, drilling activities primarily target oil and natural gas reservoirs found in the subsurface rock formations. Flaring natural gas is a common practice in oil-producing regions, including the Permian Basin, where there might be limited infrastructure to capture and transport the natural gas associated with oil extraction.
Flaring is done for safety reasons and to prevent the release of unburned methane, a potent greenhouse gas, into the atmosphere. The World Bank estimates that the gas flared annually could power the entire sub-Saharan Africa region.
One way to tackle the issue is by combining Bitcoin mining with drilling operations. This not only cuts down methane emissions but also lets oil companies make money from the gas they would otherwise waste. This smart approach turns a wasteful practice into a useful tool. Companies don't have to rely on Bitcoin becoming a global currency; they can focus on the immediate gains of boosting their investments and reducing emissions.
A few years back I met with a team at one of America's top three electricity generators. They occasionally produce surplus electrons beyond the grid's demands. Instead of shutting down, they pay grid operators, directly or indirectly, to take this excess power.
This unique situation highlights the challenges faced by power companies. Unlike Apple, which would never pay users to take iPhones, power generation companies are actively exploring innovative solutions. Bitcoin mining has emerged as a viable option for them.
By embracing bitcoin mining, these companies, for the first time, can optimize every megawatt they generate. It's not just a trend; it's a strategic move to enhance operational efficiency and improve the economic aspects of their business. Their fiscal responsibility to stakeholders drives them to explore every available economic tool, making Bitcoin mining a promising avenue for their sustainability and growth.”
What challenges have you encountered in promoting Bitcoin and what barriers do you foresee in the future?
Lisa: "There are two key challenges in the world of Bitcoin right now.
First, there's the need to combat negative narratives spread by virtue signaling organizations and mainstream media companies who fail to do provide information that is true and focus instead on “clicks.”
Second, there's a distinction between mining and simply holding it on a company's balance sheet. The Financial Accounting Standards Board (FASB) in the U.S. has recently been working on a new accounting standard specifically for cryptocurrencies. This standard will enable companies to use 'fair-value' accounting, meaning they must assess digital assets based on their market trading value.
In the past, Bitcoin was considered an intangible asset, similar to real estate. For instance, if a company recorded Bitcoin at US$26,000 on their balance sheet and its price dropped to US$10,000, they would have to adjust it down to reflect the current market price. However, if the price increased to US$30,000, they couldn't mark it up.
The new standard changes this. It allows companies to adjust the value according to market prices, which is a significant shift from the previous 'marking-to-market' approach. This change is expected to be effective for fiscal years starting after December 15, 2024, once it gets final approval later this year. This change in accounting methods has the potential to revolutionize how corporations approach treasury management strategies.”
Besides the energy industries, what other industries do you see that can use Bitcoin for some real world use cases?
Lisa: "I believe Bitcoin will have a profound impact across various industries. One clear application is its ability to harness wasted energy, such as mitigating methane emissions in landfills. This presents a productive way to utilize energy that would otherwise go to waste.”
How soon do you think it will be for Bitcoin to be widely accepted in society?
Lisa: “The recognition of the challenges stemming from currency debasement and the devaluation of traditional money has sparked a critical reevaluation of our economic foundations. As societies grapple with the erosion of our currency's value, innovative solutions are being sought to restore financial stability and rebuild trust in the monetary system. For some, Bitcoin adoption represents a compelling alternative.”
Do you have any advice or recommendations for the young generation?
Lisa: "I am optimistic about the future due to the initiatives of younger generations. Organizations like Generation Bitcoin are empowering teens to learn about Bitcoin, symbolizing a positive trend.
Bitcoin represents a revolutionary leap in innovation. Bitcoin is the only form of property than can be held by every human on earth, regardless of property rights. Unlike any previous asset in the history of money, Bitcoin's pristine nature is immune to corruption by humans or external factors. This technology marks a point of no return; we are moving forward, not backward.
In the United States, the approval of the ETF (Exchange-Traded Fund) opens up avenues for capital to flow into Bitcoin. Within large public companies, specific rules govern the custody of assets. There are complexities regarding what qualifies as a custodian, licensing requirements, and structural considerations. States like Wyoming have innovative statutes that prioritize asset owners' protection when custoding Bitcoin for clients.
If physically backed ETFs are approved in the US, they will pave the way for endowments, pensions, and public companies to invest in Bitcoin without the need for extensive charters or special board approvals. This development will likely create significant opportunities for broader participation in the Bitcoin market."
Lisa Hough is the Vice President of Strategic Relationships at Custodia Bank, an institution operating under the first legal framework for special purpose depository institutions in the United States. Custodia Bank benefits from Wyoming's technology-friendly environment, making it an ideal hub for digital assets companies. For over ten years, Lisa dedicated her career to risk management and energy trading, refining her skills in asset optimization within respected entities within the energy trading industry. Lisa is a respected bitcoin expert and a sought-after speaker at major conferences worldwide.
May Pang is the Head of Legal at Oort, an experienced legal, risk and compliance expert with extensive cross-culture global experience at top financial institutions like S&P and Bank of America as well as at startups in Fintech and Web3 industries.