How Many Barrels Of Oil Are Needed To Mine One Bitcoin?

What would you guess? Five…twenty five…fifty?

James Stafford, editor of Oilprice.com not only does the math, but explains the energy-driven geographic arbitrage currently driving bitcoin mining. 

The bitcoin boom is well and truly underway, and investors are constantly looking for new ways to gain an advantage in this space The best way to do this, it seems, is by cutting the energy costs of mining this precious commodity. The bitcoin mining industry consumes 22.5 TWh of energy annually, which amounts to 13,239,916 barrels of oil equivalent.

With 12.5 bitcoins being mined every 10 minutes, that means the average energy cost of one bitcoin would equate to 20 barrels of oil equivalent.

While it’s all about where you sit on the cost curve, Stafford provides us with some context on gross energy consumption.

To put this in perspective, the total energy consumption of the world’s Bitcoin mining activities is more than 40 times greater than that required to power the entire Visa network.

And it’s very profitable...

Mining bitcoin has the potential to be a wildly lucrative business, with a single Bitcoin now valued at more than 100 barrels of oil.

 

That kind of price makes it one of the most valuable commodities on the planet and, just like oil, this commodity is increasingly valuable to mine if the energy costs can be kept down. Bitcoin transactions are secured by computer miners, who are competing for rewards in the form of coins from the network.

 

The more computation power they use, the better their chances. The drill rig is a computer, and hydraulic fracturing is done with the tip of your fingers.

...if you’ve got bucket loads of cheap electricity.

It’s a phenomenally energy-intensive process. Cheap electricity is exactly what made China the Bitcoin mining king. The yearly cost of the energy necessary to mine Bitcoin determines its economics. But to get in on that you risk reputation because you’re either siphoning off surplus energy from somewhere else, or you’re partnering with the government. No matter how you look at it, it’s a very gray area. No one wants dirty coal fueling such a sophisticated endeavor, for example.

As we discussed recently, subsidized electricity and hyperinflation has led to rapid growth in Bitcoin mining in Venezuela, albeit from a low base.

When it comes to scale, however, the new Bitcoin mining hub - with a different type of energy advantage - is Iceland. James Stafford calls it the “New Ground (Below) Zero”, he continues.

That’s why HIVE Blockchain Technologies Ltd. - a gold-miner-turned-bitcoin-miner - has set up in Iceland. As one of the first public companies that lets you participate in the build-up and infrastructure of crypto mining, HIVE is taking advantage of Bitcoin’s favorite element: Ice. It’s freezing in Iceland, so the relative energy cost of mining there is lower. Mining hardware requires enormous power and creates tons of heat, and natural temperature is key: Iceland saves on cooling costs, making it one of the most potentially profitable places to mine Bitcoin.

He cites other examples of crypto companies moving to Iceland.

Giant ether mining start-up, BitFury Group, is there. BitFury, out of the Netherlands, generated over $90 million in revenue this year, and predicts it will be generating $585 million in revenue by 2021. While its flagship data center is in the Republic of Georgia, it’s also now tapping into the cool temperatures of Iceland. Emmanuel Abiodun, founder of Cloud Hashing, a company which owns a computing facility in Iceland, chose Iceland because of its cheap and plentiful geothermal and hydroelectric energy, and the “free Arctic air” that is piped in to cool the machines. Iceland is also ground zero for Hong-Kong-based Genesis Mining Ltd, which is building the largest ether mining facility in the world in Iceland. And HIVE has recently acquired a new data center from Genesis for $9 million and a 30 percent equity stake in HIVE, according to Bloomberg, which says HIVE shares have “Bitcoin investors buzzing”. Right next door to this landmark bitcoin facility in Reykajanes, Iceland, HIVE has just acquired a second data center from Genesis.

Stafford states that “The cold countries are now the home of what is being dubbed ‘geothermal gold’.” Talking of which.

HIVE’s backers include mining mavericks Frank Giustra and Frank Holmes. Giustra built up Goldcorp (NYSE:GG) in 2000 and today it trades at a market cap of nearly $11 billion, and is one of the largest gold-mining companies in the world. He was also behind Silver Wheaton, which is now Wheaton Precious Metals Corp. (NYSE:WPM), the biggest silver and gold streaming company in the world. Giustra’s 20-oscar-winning entertainment behemoth, Lion’s Gate, also took in $2.4 billion in revenue in 2015. And these are just a few of his multi-billion-dollar hits. Holmes is the CEO of San Antonio-based US Global Investors, which has $2.6 billion in assets under management and is one of the definitive top precious metals funds. Both have backed HIVE, and Holmes is now its chairman. Both still love gold because gold will always be gold, but they’re not old-fashioned. Bitcoin is huge, and they won’t be left out of the wave.

A two-pronged strategy of gold and crypto, we’re not going to argue with that.

The 'Real' Peak Complacency

Authored by John Rubino via DollarCollapse.com,

Stocks are at record highs while volatility is at a record low. Which is another way of saying that investors aren’t as worried as they probably should be about the coming year.

That’s okay. Price corrections (with their attendant volatility spikes) are normal and natural ways for markets to teach overconfident investors a little humility. Think of them as the financial word’s forest fires, clearing out the underbrush of misconception, malinvestment, and hubris.

But there’s another area of Peak Complacency that is neither natural nor benign. And that’s cyberspace.

Americans – and Europeans and Japanese – have moved most of their financial lives online just as hackers and other cyber-enemies get the upper hand.

Recently:

• Credit rating agency Equifax – apparently through its own incompetence – allowed hackers to access and presumably copy and sell “sensitive personal information” of 146 million Americans.


• Online portal Yahoo upped the number of accounts that were hacked in 2013 to – get this — 3 billion.


• The National Security Agency admitted that its state-of-the-art hacking tools were stolen by hackers and are now available for sale on the dark web.


• The Federal Deposit Insurance Corporation (FDIC) suffered more than 50 data breaches between January 2015 and December 2016, exposing “personally identifiable information (PII) of U.S. citizens.”


• The U.S. Securities and Exchange Commission EDGAR database of corporate documents was hacked, leading to illegal insider trading that the SEC is still trying to unravel.

And then there’s bitcoin, where online exchanges are being hacked with apparent impunity and zero recourse for victims:

(Independent) – There have been at least three dozen heists of cryptocurrency exchanges since 2011 and more than 980,000 bitcoins stolen, worth about $4 billion.

Dan Wasyluk discovered the hard way that trading cryptocurrencies such as bitcoin happens in an online Wild West where sheriffs are largely absent.

Mr Wasyluk and his colleagues raised bitcoins for a new tech venture and lodged them in escrow at a company running a cryptocurrency exchange called Moolah. Just months later the exchange collapsed; the man behind it is now awaiting trial in Britain on fraud and money-laundering charges. He has pleaded not guilty.

Mr Wasyluk’s project lost 750 bitcoins, currently worth about $3m, and he believes he stands little chance of recovering any money.

“It really was kind of a kneecapping of the project,” said Mr Wasyluk of the collapse three years ago. “If you are starting an exchange and you lose clients’ money, you or your company should be 100 per cent accountable for that loss. And right now there is nothing like that in place.”

Cryptocurrencies were supposed to offer a secure, digital way to conduct financial transactions but they have been dogged by doubts. Concerns have largely focused on their astronomical gains in value and the likelihood of painful price crashes. Equally perilous, though, are the exchanges where virtual currencies are bought, sold and stored. These exchanges, which match buyers and sellers and sometimes hold traders’ funds, have become magnets for fraud and mires of technological dysfunction, posing an underappreciated risk to anyone who trades digital coins.

The obvious conclusion is that our bank, brokerage and bitcoin accounts aren’t safe from hackers and/or cyber-attacks that shut down settlement systems and power grids.

In the aftermath of Hurricane Maria, for example, much of Puerto Rico is still without power, which means ATM machines aren’t working. See Puerto Rico is now a cash-only economy.

So physical cash – always a good thing to have on hand – is a crucial part of disaster planning. And precious metals in the form of small denomination gold and silver coins are if anything even more important, since who knows what a large-scale cyber event and the subsequent central bank money printing will do to fiat currency values.

South Korea Overtakes China As Bitcoin's Third-Largest Market

China-based digital currency exchanges have until the end of September to cease operations after Chinese authorities, spooked by the ICO craze, decided earlier this month to crack down on all exchange-based digital currency trading.

Trading volume in China has fallen dramatically since the country’s exchanges briefly halted withdrawals earlier this year as they implemented new AML controls. Now, it appears that at least some of those displaced by China’s crackdown have migrated to South Korea, which today overtook China as the third-largest market for bitcoin trading by volume.

Today, South Korea surpassed China in #bitcoin trading volume. South Korea"s Bithumb processes more volume than Bitfinex + Bittrex. pic.twitter.com/10fiT4YzJg

— Joseph Young (@iamjosephyoung) September 21, 2017

Japan remains the largest market, followed by the US.

According to CoinTelegraph, the shift suggests that traders have moved to South Korea in response to the Chinese government’s decision to kill the exchanges. The largest exchange in South Korea is processing more transactions than Hong Kong-based Bitfinex and US-based Bittrex combined.

“The change in the processing of transactions indicates that traders have moved to South Korea. The largest exchange in South Korea has processed more transactions than Bitfinex and Bittrex.

The shift represents a substantial movement of the Bitcoin community away from China, where regulators have confirmed that all Chinese exchanges will be closed shortly.

The shift toward South Korea indicates a response to the legalization of Bitcoin in the country in recent months.  A general move away from China has generally occurred, even as the country has begun to tighten its grip on the cryptocurrency market.”

While China’s crackdown triggered the largest selloff in months as investors worried that it could inspire other governments to try and suppress digital currency trading, the shift to South Korea demonstrates bitcoin’s durability. Instead of destroying a portion of the market, shuttering local exchanges simply forced traders to move elsewhere.
 

Mt. Gox Chief Denies Stealing $500 Million In Bitcoin As Trial Starts

Two-and-a-half years after the collapse of Mt. Gox ushered in a multi-year bear market in the world of digital currencies, the trial of former Gox chief executive officer Mark Karpeles began Tuesday in Tokyo.  Karpeles pleaded “not guilty” to charges of embezzlement and fraud stemming from the collapse of what was once the world’s most-active platform for buying and selling digital currencies. Some 850,000 bitcoins - then worth around half a billion U.S. dollars - were stolen in the hack, which was disclosed in February 2014, along with $28 million in cash from the exchange"s bank accounts, according to Reuters.

“The 32-year-old chief executive of defunct Mt. Gox pleaded not guilty on Tuesday to charges relating to the loss of hundreds of millions of dollars’ worth of bitcoins and cash from what was once the world"s biggest bitcoin exchange.

French national Mark Karpeles filed the plea in response to charges of embezzlement and data manipulation at the Tokyo District Court, according to a pool report for foreign journalists.”

Karpeles was indicted for transferring 341 million yen ($3 million) from a Mt. Gox account holding customer funds to an account in his name during September to December 2013. The prosecution also alleged Karpeles boosted the balance of an account in his name in Mt. Gox"s trading system.

In its opening statement to the court, Karpeles" defense team did not dispute that the transfers took place, but denied they amounted to embezzlement. Karpeles told the court he was an information technology engineer.

While the Gox bankruptcy badly damaged the public’s perception of digital currencies – particularly among risk-averse Japanese investors – it did spur Japanese lawmakers to develop a legal framework that officially recognizes digital currencies as legal, regulated assets. It also created a system for grating licenses to digital currency exchanges. Japan this year became the first country to regulate exchanges at the national level, part of a government effort to reestablish its lost influence over the crypto market.

That framework, passed into law earlier this year, officially took effect in April and presaged the entrance of Japanese banks into the digital currencies marketplace.

* * *

However, institutional investors in Japan remain wary, say those running virtual currency exchanges in Tokyo. Only 4 percent of large and mid-sized Japanese firms plan to use bitcoin in the near to medium term, showed a Reuters poll last month.

Karpeles, who disappeared from public view shortly after Gox’s collapse, was rumored to have been the target of a super subpoena, preventing him from discussing Gox or the pending case against him.
But now that the trial is underway, the public may soon receive some long-awaited answers about the hack. Namely: How did hackers infiltrate Mt. Gox? Exactly how long did Karpeles wait to disclose the theft to the public. Mt. Gox subsequently said it had found 200,000 of the missing bitcoins – where were they, who found them, and how?

And, most importantly: Were any Mt. Gox employees complicit in the theft?
 

Goldman Sees Bitcoin Soaring As High As $3,915 During Next Breakout

Last week former Fortress principal Michael Novogratz made headlines in the cryptocurrency world when he told attendees at the CB Insights Future of Fintech conference that he has cut holdings (in Bitcoin and Ethereum) after the cryptocurrencies" latest "spectacular run," warning that "Euthereum had likely hit its highs for the year," and "cryptocurrencies were likely the biggest bubble of his lifetime."

His caution was understandable: after all during a 2013 UBS conference, Novogratz said "put a little money in Bitcoin...Come back in a few years and it’s going to be worth a lot." We doubt even he knew how right he would end up being.

However, while his latest sentiment appears rather downbeat, Novogratz said he remained very "positively constructive" on the space overall, as he should: he still has 10% of his net worth invested in the sector. And, as Bloomberg reported, Novogratz says cryptocurrencies "could be worth north of $5 trillion in five years - if the industry can come out of the shadows."

So fast forward to Sunday evening Goldman"s chief technician, Sheba Jafari, issued only his second forecast of where bitcoin is headed next which may accelerate Novogratz" crypto price target.

Recall, that as we first reported three weeks ago, Jafari said that "due to popular demand, it’s worth taking a quick look at Bitcoin here" and warned that "the market has come close (enough?) to reaching its extended (2.618) target for a 3rd of V-waves from the inception low at 3,134." She concluded that she was "wary of a near-term top ahead of 3,134" and urged clients to "consider re-establishing bullish exposure between 2,330 and no lower than 1,915."

She was right: on the very day his note came out, both bitcoin and ethereum hit their all time highs and shortly after suffered their biggest drop in over two years.

So what does Jafari thinks will happen next? According to the Goldman technician, Bitcoin is now "in wave IV of a sequence that started at the late-’10/early-’11 lows. Wave III came close enough to reaching its 2.618 extended target at 3,135. Wave IV has already retraced between 23.6% and 38.2% of the move since Jan. ‘15 to 2,330/ 1,915."

What does this mean for the uninitiated? In short, while bitcoin remains in Wave IV, it could go up... or down. She explains:

It’s worth keeping in mind that fourth waves tend to be messy/complex. This means that it could remain sideways/overlapping for a little while longer. At this point, it’s important to look for either an ABC pattern or a more triangular ABCDE. The former would target somewhere close to 1,856; providing a much cleaner setup from which to consider getting back into the uptrend. The latter would hold within a 2,076/3,000 range for an extended period of time.

However, at that point the next major breakout higher would take place, one which would take bitcoin as high as $3,915.

Either way, eventually expecting one more leg higher; a 5th wave. From current levels, [Bitcoin] has a minimum target that goes out to 3,212 (if equal to the length of wave I). There’s potential to extend as far as 3,915 (if 1.618 times the length of wave I). It just might take time to get there.

Goldman"s analyst concludes with the following summary: "[Bitcoin] could consolidate sideways for a while longer. Shouldn’t go much further than 1,857. Eventually targeting at least 3,212."

Here we can only adds that fans of bitcoin should probably hope that his is not one of those Goldman trade recos where the firm"s prop trading desk is on the other side of the clients" trade...