Regulatory

Regulators Increasingly Focused on Nascent Market for Compute Power

BitOoda Regulatory Analysis, 3/21/23

Key Takeaway #1

Regulators already are focused on the control of “Big Tech” incumbents over online data, and are increasingly becoming aware of these firms’ anti-competitive behavior of the nascent compute power market.

Key Takeaway #2

Compute power is at the core of today’s global digital economy, but the compute market is dislocated and inefficient.

Key Takeaway #3

Regulators will need to grapple with the formation of a fair and orderly market for compute power.

Key Takeaway #4

Data center operators will form one of the most critical participants as this market evolves.

Over the last few years, lawmakers and regulators in both the U.S. and European Union (EU) have been debating and drafting legislation and rules meant to curtail the largest technology companies' control over the internet through search engines, marketplaces, and data-enabled services. While the EU has subjected some of these companies to substantial monetary penalties related to monopolistic behavior through anti-trust actions, the U.S. has only recently stepped up its enforcement activities in this area. U.S. lawmakers have introduced several bills that would prohibit systemically-pervasive technology companies from blocking competition through preferential service offerings, biased search engine results, and perhaps most importantly: undermining interoperability amongst platforms. However, none of these bills have advanced through the full legislative process to become codified in law.

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Over the last few years, lawmakers and regulators in both the U.S. and European Union (EU) have been debating and drafting legislation and rules meant to curtail the largest technology companies' control over the internet through search engines, marketplaces, and data-enabled services. While the EU has subjected some of these companies to substantial monetary penalties related to monopolistic behavior through anti-trust actions, the U.S. has only recently stepped up its enforcement activities in this area. U.S. lawmakers have introduced several bills that would prohibit systemically-pervasive technology companies from blocking competition through preferential service offerings, biased search engine results, and perhaps most importantly: undermining interoperability amongst platforms. However, none of these bills have advanced through the full legislative process to become codified in law.

While much of the focus of regulators has been on the control ”Big Tech” firms exert over online commerce and data-driven activity, there has been much less attention given to these companies' capacity to produce significant amounts of compute power, and to sell their supplies of compute power to customers as a cloud-based service. Currently, they are able to do this without any form of price discovery in place to ensure an efficient market with fair prices.

Compute power is at the core of today’s global digital economy, as one the most fundamental inputs to the ability of both companies and governments to manage data, perform technology-based services such graphic design, generate tech-based products, and develop groundbreaking innovations such as artificial intelligence. However, the market for compute power is unformed and unstructured, creating a significant inequity in supply and demand of a commodity that is growing in importance at an astronomical rate. As lawmakers and regulators continue to address the competitive landscape with respect to online marketplaces and services, we expect there to be a growing focus on the dislocated and inefficient nature of compute power markets.

In our view, as it becomes clearer to mainstream observers that compute power is as fundamental to everyday life as a traditional power and energy commodity, both U.S. and international governing bodies will need to grapple with questions around the development of a physical market structure and appropriate regulatory guardrails for compute, in addition to how best to utilize existing anti-competition enforcement tools. In the U.S., the policy analysis should also consider if any regulatory body may have existing jurisdiction over this nascent market.

One set of market participants that could provide healthy and environmentally-conscious competition (which would in turn bring down prices) are independently-owned, climate-aligned data center operators, who are determined to offer more interoperability among data sets while also stabilizing the power grid.

Ultimately, it would be prudent for both lawmakers and regulators to consider traditional commodity market principles as they continue to address the anti-competitive behavior of the incumbent technology companies, particularly those few entities that currently dominate the compute space.

‍

Disclosures

Purpose

This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.

Analyst Certification

Tom Nath, the author of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.

Conflicts of Interest

This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.

General Disclosures

Any information (“Information”) provided by BitOoda Holdings, LLC, BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.

The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, strategies, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. Commodity trading involves substantial risk of loss.

Ooda Commodities, LLC is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.

BitOoda Technologies, LLC is a member of FINRA.

“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.

‍

Over the last few years, lawmakers and regulators in both the U.S. and European Union (EU) have been debating and drafting legislation and rules meant to curtail the largest technology companies' control over the internet through search engines, marketplaces, and data-enabled services. While the EU has subjected some of these companies to substantial monetary penalties related to monopolistic behavior through anti-trust actions, the U.S. has only recently stepped up its enforcement activities in this area. U.S. lawmakers have introduced several bills that would prohibit systemically-pervasive technology companies from blocking competition through preferential service offerings, biased search engine results, and perhaps most importantly: undermining interoperability amongst platforms. However, none of these bills have advanced through the full legislative process to become codified in law.

While much of the focus of regulators has been on the control ”Big Tech” firms exert over online commerce and data-driven activity, there has been much less attention given to these companies' capacity to produce significant amounts of compute power, and to sell their supplies of compute power to customers as a cloud-based service. Currently, they are able to do this without any form of price discovery in place to ensure an efficient market with fair prices.

Compute power is at the core of today’s global digital economy, as one the most fundamental inputs to the ability of both companies and governments to manage data, perform technology-based services such graphic design, generate tech-based products, and develop groundbreaking innovations such as artificial intelligence. However, the market for compute power is unformed and unstructured, creating a significant inequity in supply and demand of a commodity that is growing in importance at an astronomical rate. As lawmakers and regulators continue to address the competitive landscape with respect to online marketplaces and services, we expect there to be a growing focus on the dislocated and inefficient nature of compute power markets.

In our view, as it becomes clearer to mainstream observers that compute power is as fundamental to everyday life as a traditional power and energy commodity, both U.S. and international governing bodies will need to grapple with questions around the development of a physical market structure and appropriate regulatory guardrails for compute, in addition to how best to utilize existing anti-competition enforcement tools. In the U.S., the policy analysis should also consider if any regulatory body may have existing jurisdiction over this nascent market.

One set of market participants that could provide healthy and environmentally-conscious competition (which would in turn bring down prices) are independently-owned, climate-aligned data center operators, who are determined to offer more interoperability among data sets while also stabilizing the power grid.

Ultimately, it would be prudent for both lawmakers and regulators to consider traditional commodity market principles as they continue to address the anti-competitive behavior of the incumbent technology companies, particularly those few entities that currently dominate the compute space.

‍

Disclosures

Purpose

This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.

Analyst Certification

Tom Nath, the author of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.

Conflicts of Interest

This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.

General Disclosures

Any information (“Information”) provided by BitOoda Holdings, LLC, BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.

The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, strategies, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. Commodity trading involves substantial risk of loss.

Ooda Commodities, LLC is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.

BitOoda Technologies, LLC is a member of FINRA.

“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.

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Regulators Increasingly Focused on Nascent Market for Compute Power

BitOoda Regulatory Analysis, 3/21/23

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

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