Matthew Graham: Tales of Green Bitcoin Mining Sound Like Lobbying Propaganda
A Reddit regular, Мэттью Грэм learned about Bitcoin back in 2010, when programmer Laszlo Hanyecz paid 10,000 BTC for two Papa John’s pizzas. Since then he has followed the industry’s development, but fully immersed himself in it only three years later.
With solid management experience in finance, Graham runs the Beijing-based venture firm Sino Global Capital, which can boast investments in some of the most successful projects of recent years — FTX and Solana.
In an exclusive interview with ForkLog editor-in-chief Nikita Shteringard, the investor explained the Chinese authorities’ policy toward cryptocurrencies and named the motives behind the latest hard decisions. The interview also discussed green mining, the technological arms race between Washington and Beijing, and signs of a cult in the Bitcoin maximalists’ community.
ForkLog: Hello, Matt! Tell us when you first heard about Bitcoin and how you decided to go into business in our space?
Мэттью Грэм: I’m an avid Reddit user, so I read about Bitcoin back in the days of that very Bitcoin pizza [May 2010 — editor’s note]. However I started investing in the first cryptocurrency and other projects only in 2013.
At that time I was already working in China and doing investment banking. We helped international technology companies with strategic partnerships and investments in mainland China. That’s how we developed some blockchain competence. At the same time I had a number of angel investments in crypto, and it became clear almost immediately that I should switch from consulting to investing.
You could say that in 2013 I began professionally dealing with cryptocurrencies. In the same year we attempted to persuade a major Chinese electronics manufacturer, one of the world’s largest, to start producing devices for Bitcoin miners, but the idea didn’t take off [laughs]. It was still early for that.
If we put it in two words, 2013 was a key year in my crypto history. And after Ethereum’s launch we dove headlong into the industry.
ForkLog: Back then it was Bitcoin and Ethereum, and what is Sino Global Capital investing in now? It seems your focus is on protocols rather than mining, for example.
Мэттью Грэм: Yes, mining is not our story. It’s a very competitive, low-margin market. In many ways it’s already mature, established. Here you must have several strategic advantages — for example, access to cheap electricity.
We are not tied to any particular product type, but we choose quality projects and crypto-adjacent companies, such as market makers. Usually we look for the best teams and projects in bear markets, and in bull markets we are extremely cautious. One could say our investment approach runs counter to the cycle.
We are very positive about the DeFi sector, in particular — the Solana ecosystem. We have already funded several companies building products on Solana and will continue to monitor such players.
[9 June Solana Labs announced the raising of $314 million in a private token sale. Among the largest investors were Andreessen Horowitz, Polychain Capital, Alameda Research and Sino Global Capital].
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ForkLog: Do you support projects at the pre-seed stage?
Matthew Graham: Each case is unique, we have a very flexible approach, but pre-seed is still a bit early for us. Seed and Series A — that’s our focus.
ForkLog: Which projects in your portfolio are you most proud of?
Мэттью Грэм: When it comes to the primary market, where we go in long-term, that’s FTT [native token of the FTX exchange], Serum [the decentralised exchange from FTX on Solana] and Solana.
We have had several very successful secondary-market trades, but we usually don’t disclose them. It’s more about buy/sell. If we were to reveal every time what we buy, there is a risk people will follow us, and I don’t want to dump on retail investors.
ForkLog: Let’s unpack what’s really happening in China. There were bans in 2013 and 2017, and now again. Some provinces banned mining. How serious is this?
This conversation took place on June 8, 2021. Since then, at the government’s request, major miners stopped operating in Xinjiang, Qinghai, Yunnan, Inner Mongolia and Sichuan.
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Мэттью Грэм: It’s notable that on May 21 criticism was voiced at the level of Vice Premier Liu He, but you must understand that cryptocurrency was touched on only in two or three sentences at that committee meeting. The rest of the meeting was devoted to market speculation in the context of retail investors.
Policy in China is not black and white. There are periods when they decide to tighten the pressure. This is what we’re seeing now. And the reason is obvious — the celebrations of the Communist Party’s 100th anniversary are approaching. For the authorities this is a very important event, and all directions are tightened to ensure everything goes smoothly. Cryptocurrencies are not an exception.
You should also understand how Chinese authorities regard cryptocurrencies. If we talk about blockchain, it is warmly welcomed, as are 5G technologies and artificial intelligence. But we’re talking about blockchains without tokens. Think of them as corporate blockchain systems.
In the context of cryptocurrencies, authorities are primarily concerned with fiat gateways, since the yuan is not a floating currency. There is the yuan, and there is offshore yuan. China has very strict capital controls, and they do not joke about this. They are interested in all directions of conversion into crypto and back. The questions of tax evasion and money laundering are very pressing.
ForkLog: Tell us about the fight against retail speculation. What exactly do you mean?
Matthew Graham: In China there have long been MLM investment schemes that attract thousands, and sometimes tens of thousands, of people in a few days. This tradition moved into crypto, along with the same players. And imagine — tens of thousands of people invest in some regional token, and it turns out to be a Ponzi scheme. When it all collapses, you get a huge number of furious people in one geographic locale.
Recently in China LoserCoin has gained popularity. I honestly don’t know the motives of the founders; I think they wanted to create a jokey token like Doge. In a few weeks the project attracted tens of thousands of people. If the coin collapses, this will be a serious source of public irritation. The government cannot tolerate that.
Policy in China should be regarded in terms of a probability range — some things are possible, some less so.
Institutional miners started migrating as early as March; they have resources and the necessary connections. Small and medium enterprises — after the Sichuan closure — are looking for ways to leave the country by pooling resources, or selling equipment on the secondary market.
ForkLog: I’ve read the anonymous expert opinion you published on May 25. He claims that the government has for decades micromanaged financial markets. Then reporter Colin Wu stated that crypto-related activities, including OTC trading and mining, will become illegal and will be prosecuted. How do you assess the likelihood of such development?
This conversation took place on June 8, 2021. Since then the People’s Bank of China (PBoC) has again prohibited banks and payment systems from participating in crypto-related transactions, and has demanded tougher action on OTC brokers.
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Мэттью Грэм: Most OTC activities are already illegal, so here, in my view, we’re talking about clarifying and expanding existing prohibitions. I don’t see anything radically new.
We should not venture forecasts about the Communist Party’s plans, but it’s clear the authorities want to maintain control of the financial system. The People’s Bank regards Bitcoin as a challenge because it complicates tracking capital.
ForkLog: You said MLM schemes thrive in China. Is there something unique in China’s investment culture that makes Chinese more risk-tolerant than Americans?
Мэттью Грэм: It’s a bit of a simplification. If you speak generally, Chinese people are probably willing to take more risks than Americans. But there are a few important caveats. For example, Chinese tend to defend initial capital more strongly. They are also more focused on short-term price movements.
But generalisations are coarse tools. China is very diverse; you can meet anyone with any investment style.
ForkLog: Research by Chainalysis and PeckShield suggests that Chinese use USDT to circumvent capital restrictions. Do you think such transactions constitute a meaningful share of Chinese volumes?
Мэттью Грэм: The fact that USDT is used to bypass these restrictions is undeniable. Estimating the share of total volume seems nearly impossible. Any estimate would carry a large error margin. But I would not be surprised if that share is significant.
Volumes of USDT attributed to Mainland China substantially exceed those of other countries.
ForkLog: How would you gauge the influence of Chinese traders on the market if crypto exchanges in China are banned? How exactly do Chinese traders trade?
Мэттью Грэм: Exchanges aren’t banned. You can trade on Binance, OKEx and Huobi. Sometimes you’ll need to use a VPN, but the Chinese trade large volumes on these platforms.
ForkLog: Can PRC residents trade freely on the same Binance?
Мэттью Грэм: Yes, on the three exchanges mentioned above. The latest events concern fiat gateways for the yuan. If your OTC accounts in banks, Alipay and WeChat are tied to crypto trading, the probability of block is high.
Most exchanges rooted in China have also restricted margin trading for Chinese users or lowered leverage.
ForkLog: The author of ‘AI Superpowers’ Kai-Fu Lee believes China will beat the US in the AI arms race. That would give Beijing enormous influence over job markets and entire economies where many processes and professions will be replaced by intelligent algorithms. What do you think of the race in general, and will there be a single winner?
Мэттью Грэм: I have read that book, yes. The so-called AI race between the US and China exists, but I don’t see the point of speaking of a single winner.
Noting that I’m not an AI expert, but it seems to me that all conclusions in the book rest on the claim that data quantity determines everything. Kai-Fu Lee is confident that China has access to more data because there are more people in China and for several other reasons. He believes this advantage cannot be overcome. That conclusion is not obvious to me.
To form my view on any issue, I rely on the views of many industry experts, since one person can be biased or simply wrong.
ForkLog: The US government actively backs the tech sector, while innovations in the US largely take place in the private sector. Many crypto advocates argue government intervention in the economy is evil. Yet the tech race is very real, and the Chinese approach seems to work. What do you think about the advantages of these two approaches to innovation?
Мэттью Грэм: In America, research and development (R&D) was not always dominated by the private sector. It is only relatively recently that this has changed. A good example is the Internet, which effectively grew out of the DoD’s ARPANET. In the past the government spent colossal sums on things that did not yield immediate profit. The same goes for the Moon landing.
So the concentration of R&D in the private sector is a relatively new phenomenon. I wouldn’t be surprised if, in light of the perceived threat of Chinese dominance, the government ramps up investment in research and development. I personally regard the current approach as lacking and advocate full government support for research and development. The private sector has clear motives that do not cover all types of research and scenarios. I think it’s time for the government to increase its presence.
The Chinese approach has both advantages and drawbacks. One obvious drawback is the overzealous flooding of money into a sector. When the government says a sector should be lifted, money floods in. It works and yields good results, but many companies go bankrupt in the process and many people seek out ways to obtain subsidies.
I hope the US returns to the approach that prevailed in the 50s, 60s and 70s.
ForkLog: The main downside of the Chinese approach — burning through money?
Мэттью Грэм: Yes, this is clearly visible in electric vehicles.
ForkLog: Many industry figures are resentful of Elon Musk, especially after his statements about the non-ecological nature of mining. Although solar panels are produced in China in factories that use energy from coal-fired plants and cheap labor using energy from coal plants and cheap labour. Indeed, my question about Tesla. Electric cars — not a new idea, they were previously rejected by the market. Economist Saifedean Ammous (claims) that only government subsidies help Musk keep the business afloat. Do you think electric cars have a chance to establish themselves, or will the market reject them again?
Мэттью Грэм: I don’t think the market will reject this technology. To me it looks very promising, though I understand Tesla relies on the sale of carbon credits and subsidies. But I believe this is the proper use of resources because it incentivises an industry that could be ecologically sustainable.
ForkLog: What do you think about the environmental risks of Bitcoin mining? Aren’t they exaggerated?
Мэттью Грэм: I think the concerns are well founded. I am sceptical of the green mining rhetoric — when I read arguments that Bitcoin mining is already green, it seems more like corporate lobbying propaganda. I share concerns about environmental sustainability.
ForkLog: Do you think we could mine with solar energy?
Мэттью Грэм: Theoretically it’s possible. But it won’t necessarily render mining green or ecologically sustainable. The mere fact that Bitcoin can be mined with green energy does not make green Bitcoin true, at least not in the near term.
If green resources are directed toward mining, they could be diverted to other processes.
Green mining looks realistic only in the long term.
ForkLog: Are there concerns that high technical requirements for nodes in popular POS blockchains will lead to similar outcomes — validators needing data centres, and decentralisation suffering? Share your thoughts on Chia and other so‑called eco-coins.
Мэттью Грэм: I know that Chia is very popular in China, especially its mining. I don’t follow the project; we did not invest, but I don’t see a lot of sense in spending such huge resources on Chia mining centres or the coin itself. It’s hard to view it as a green alternative to Bitcoin.
As to technical requirements, I think these concerns are exaggerated. Moore’s Law says computing power gets cheaper every year.
Many ask why the barrier to entry is so high, but it’s really the same requirements as for a high-end gaming PC. A fairly well-justified requirement for a node operator. It’s not something inaccessible to enthusiasts.
ForkLog: Nassim Taleb described Bitcoin maximalists as a religious cult. Do you agree with this analogy? If so, is it good or bad?
Мэттью Грэм: Taleb blocked me on Twitter when I asked how he ended up on a panel with Bitcoin SV representatives. He loves to argue, and I have some of that in me too. I think some of his comments about Bitcoin maximalists aren’t without sense. The question is whether that’s an advantage or a disadvantage. And at what point in history was it an advantage, and when a disadvantage?
I think, during Bitcoin’s early stages, it was an advantage. Bitcoin is a revolutionary technology that touches many fundamental things: our notion of money, the role of the state. For a technology like that to take off, it needs a principled minority. The early Bitcoin community had cult-like features, and that was a very important development phase; it was a plus.
Now such features exist too, albeit to a lesser extent. Maximalists in some ways resemble a cult. And that’s more of a disadvantage now. The power of a cult is needed at the beginning, when you go from zero to one; from one to infinity you need more balanced people, centrists, different energy.
Regarding Taleb, I think he is ideologically biased in his judgments about Bitcoin, and he has long since lost the thread in his critique. He is very self-assured, and that affects his objectivity.
ForkLog: I’d say he is guilty of arrogance.
Мэттью Грэм: Yes, indeed.
ForkLog: Have you managed to test the digital yuan? Is there any difference for users of WeChat?
Мэттью Грэм: I have not used the digital yuan; I’m not sure tests are accessible to foreigners. But I’ve seen videos of how the pilot works. The implementation is a matter of time.
From a consumer perspective there is no difference between the digital yuan and WeChat/Alipay. From the state’s perspective, it is enormous. The government now faces the challenge of encouraging people to use the digital yuan.
But the government’s creativity is not lacking. A good example is how authorities forced people to use fapiao receipts. China once had a huge tax-compliance problem; no one wanted to use official invoices. The government’s innovation was to place special scratch-off areas on such receipts, like lottery tickets. People could scratch to reveal coverage and obtain a code for a gift such as perfume or a vacuum cleaner. It worked. I think the digital yuan will be devised to popularise it.
ForkLog: Will it compete with the dollar on the international stage? If so, how?
Мэттью Грэм: We believe the government is genuinely aiming to challenge dollar hegemony. But the yuan is not a floating currency, so the task is rather difficult.
Although the current technology underpinning the dollar system has existed for decades, especially the T+1 settlement time, the hegemony remains durable and strong.
ForkLog: Time for book recommendations. Three spots: one fiction, one business, and one non-fiction.
Мэттью Грэм: I don’t read fiction much these days, basically just documentary writing. Recently I’ve been most struck by the autobiography of Stephen Schwarzman. A remarkably strong book.
Also I’ve always enjoyed picking up new skills, so I’d advise programmers to brush up on Rust or Python.
I’d also recommend The Age of Surveillance Capitalism — about how corporations like Facebook monetize user data and how that harms society.
And a few more good reads — The Master Switch: The Rise and Fall of Information Empires from Radio to the Internet by Tim Wu and Capital in the Twenty-First Century by Thomas Piketty. As you can see, turning me into a reader of fiction is challenging.
Interviewed by Никита Штерингард, 08.06.2021.
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