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Bitcoin is the only coin the SEC Chair will call a commodity

Bitcoin is the only coin the SEC Chair will call a commodity

Monday morning, the chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, said on CNBC’s Squawk Box that the only token he would lump in with commodities was bitcoin. Why it matters: Gensler pointedly declined to name any cryptocurrency other than the original one, notable because the market has been operating under the…

Bitcoin drops below $20k, Ether cracks $1k – what this means

Bitcoin drops below $20k, Ether cracks $1k – what this means

I was woken at eight this morning (BST) by my Signal pinging repeatedly. Bitcoin had finally broken $20,000 — dropping $1,200 in five minutes. I declare this bubble conclusively popped. Crypto’s been running on fumes since about June 2021 — just after Elon Musk left Bitcoin, and the retail dollars followed him. The last remaining…

Show HN: The Bitcoin Note – Secure, Self-Custodial Bitcoin Wallets in Cash Form

Show HN: The Bitcoin Note – Secure, Self-Custodial Bitcoin Wallets in Cash Form

Secure PrintingThe Bitcoin Note includes printed features typically only reserved for fiat cash. This includes detailed microtext, gold foil and raised intaglio print that you can feel. MultisigGenerate your own key that’s combined with a local encrypted key. We release the decryption key when the note is cut. After expiration only the user key can…

$3B in Bitcoin was sold in a last-ditch attempt to save UST from collapse

$3B in Bitcoin was sold in a last-ditch attempt to save UST from collapse

Bitcoin fell below the $26,000 level since December 2020. (Photo credit should read CFOTO/Future Publishing via Getty Images) CFOTO | Future Publishing via Getty Images Investors have been eager to find out what happened to the $3 billion in bitcoin bought up by crypto firm Terra to back its failed stablecoin. Now, they’ve got their…

The problem with Bitcoin miners

The problem with Bitcoin miners

This is one nice extension!
Disclosure: I hold short positions in companies mentioned in this article. This is not financial advice.

Six months ago, I wrote:

[Bitcoin] miners burn an enormous amount of capital just to capture the same slice of a diminishing pie, but they take advantage of investor confusion over how mining works to frame it as investing in growth.

I want to go deeper on that idea. But first, some accounting.

Businesses have expenses, and generate revenue. One of the functions of accounting to allocate expenses to the same time period in which they generate revenue (the matching principle).

Let’s say I operate vending machines. Each machine costs $5,000 to buy and has a lifetime of five years. I buy new machines sporadically to grow the business. My cash flow might look like this:

Notice the big down-spikes on quarters when I purchased vending machines, which obfuscates the true health of the business.

To resolve this, accounting has a concept of depreciation. Instead of counting all $5,000 of the cost of a machine as expenses in the quarter I purchased it, I recognize $250 in depreciation expense for each quarter for the next five years (for simplicity, we’ll assume the machine’s scrap value is negligible). This has the effect of spreading the cost of the machine over its entire lifetime, creating quarterly numbers that better reflect the true profitability of my business.

The method used in this example is called straight-line depreciation, because if you graph the implied value of the asset over time you get a straight line.

Straight-line depreciation assumes that the productive output capacity of an asset is (on expectation) constant throughout its lifetime.

This isn’t always the case. Consider an oil well, which produces less as it ages. Straight-line depreciation would understate the rate of depreciation during an oil well’s lifetime.

If you made this accounting faux-pas with one asset, you’d have an asset that looked great on paper in the early years, only to underperform in its later years. But what if you could play on your “success” in the early years to buy additional, similar assets?

Here’s a hypothetical example where a business makes repeated purchases of an unprofitable asset, but masks the unprofitability through additional purchases of similar assets. Once the spigot of fresh capital is shut off (around quarter 15, in this case), the vicious reality sets in.

One clue that this is happening is that revenue grows slower than the book value of assets, so the ratio of the two declines over time.

Ok, so what does any of this have to do with bitcoin?

Bitcoin miners have a relatively simple businesses to model. They spend a bunch of money up front on mining equipment (dominated by the cost of the actual mining hardware), and then have recurring costs of operations (dominated by electricity costs).

Generally, miners use straight-line depreciation over five years to account for purchases of mining hardware. At face value, this is a defensible decision. Mining machines turn electricity into hash computations, and the rate at which miners turn electricity into hashes is mostly constant until the machine goes kaput. Five years straight-line depreciation for computer hardware under GAAP, the accounting standards that US-listed miners are bound to.

The problem is that mining companies aren’t in the business of generating hashes, they’re in the business of generating bitcoin. And the amount of bitcoin produced per hash has steadily dropped over time, both as a result of increased competition and of a diminishing subsidy for mining built in to the bitcoin protocol.

As a result, each miner will generate more bitcoin at the beginning of its life than towards the end. We can use real data from blockchain.com to generate “true” depreciation curves for mining equipment. The true value represents the remaining amount of bitcoin that would be mined by a miner with a five-year lifetime that went online at the beginning of 2017, assuming that it performed at a constant hash rate.

This pattern holds historically. Here’s a plot showing all 5-year depreciation curves for each quarter since Bitcoin’s inception (more blue=earlier, more magenta=later):

So if we look from the angle of “bitcoin produced” rather than “hash rate produced”, a bitcoin miner looks a lot more like an oil well than a vending machine.

If it’s true that miners are sitting on a bunch of overvalued assets, we should see a downward trajectory when we plot revenue over assets. Here’s the ratio for two big public miners, Riot Blockchain (RIOT) and Marathon Digital Assets (MARA). I’ve annualized the monthly amounts to account for differences in month length, and linearly interpolated PP&E between filing dates.

Monthly bitcoin mining data for both miners only goes back a year, so this is not a slam dunk, but the ratio for both miners has generally trended down.

But what if bitcoin goes up?

Investors in these miners tend to defend their decision by pointing out that the output denominated in bitcoin doesn’t tell the whole story, because the price of bitcoin has gone up over time (and, investors are betting, will continue to do so.) It’s true that bitcoin’s price increases have masked the declining bitcoin-denominated productivity of mining assets historically. It’s also true that the decline is partly driven by the price growth, which incentivizes investment by competitive miners (though I’d point out that the price is down over the 1-year period shown above, and the halving mechanism is unaffected by price.)

The trouble is that a bet on future price growth is almost certainly better-expressed by buying bitcoin outright than by investing in miners. Let’s do some back-of-the-envelope math.

In Q1 2022, miners collectively earned approximately 82,000 bitcoin, of which ~81,000 came from the block reward and the remaining ~1,000 (1.2%) came from mining fees. RIOT earned 1,405 of these, or 1.7%.

As of writing, there are 1,960,775 bitcoin remaining to be mined. If RIOT could sustain their 1.7% share of the mining market, they would earn 33,333 of those bitcoin. At today’s cost of $30,000 market price, all of those bitcoin would be worth just under $1B. RIOT’s market cap is currently just above $1B. Even in a fantasy world where RIOT could sustain its market share and never pay for electricity, hardware, staff, etc., it would still be a more expensive way to own a stake in the pool of unmined bitcoin than just spending the same money on bitcoin today. All that’s left for miners after the new bitcoin are all mined is that sliver of transaction costs that currently represents 1.2% of miners’ revenue.

MARA’s numbers look similar. They earned 1,258.5 bitcoin in Q1, or 1.5% of the market. 1.5% represents remaining 29,411 bitcoin, or $882mm worth at today’s cost. Their market cap is $1.2B.

Naturally, those things like electricity, hardware, and staff are not actually free. Based on the reported hash rate and operational costs in Q1, at a current global hash rate of 225 EH/s, I estimate that MARA has a cost per coin mined of $21,000 and RIOT has a cost per coin mined of $31,000. These numbers include cost of revenue and administrative costs, but not executive compensation.

How did we get here?

There’s one group of people for whom bitcoin mining is an extremely lucrative business: executives. Last year, one MARA executive earned over $220 million in cash and stock-based compensation, in a year when the company’s total revenue was $150 million. RIOT’s top five executives collectively took home a more modest $90 million in a year with a net loss.

This, I think, points to the crux of the problem. Investors have been happy to provide capital to these companies, looking for anything in the public markets that provides some exposure to bitcoin, without paying much attention to what the companies are doing.

I don’t think it ends well.

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Might perhaps well perhaps simply I Personal My Paycheck in Bitcoin?

Might perhaps well perhaps simply I Personal My Paycheck in Bitcoin?

More and more often, employers are fielding a question that would have been unheard of even five years ago: “Can you pay me in Bitcoin?” Attorneys say client requests for how to respond are only getting more prevalent, especially from employers in the tech space and those trying to acquiesce to worker requests in the…

50% of Steam Bitcoin transactions were fraudulent when Steam accepted Bitcoin

50% of Steam Bitcoin transactions were fraudulent when Steam accepted Bitcoin

Home News (Image credit: 1 News) Steam wasn’t on the Bitcoin train for long. Bitcoin was introduced as a payment method on Steam in April 2016 and removed in December 2017 due to the volatility of Bitcoin’s price and “a significant increase in the fees to process transactions on the Bitcoin network,” Valve wrote at…

Bitcoin miners revived a dying fossil fuel plant – then CO2 emissions soared

Bitcoin miners revived a dying fossil fuel plant – then CO2 emissions soared

Environmentalists in Montana called it the “death watch”. Following years of financial losses one of the handful of remaining coal-fired power plants in the state appeared doomed, its likely fate offering a small but noteworthy victory in the effort to avoid disastrous climate change. But then a bitcoin mining company stepped in to resurrect it.The…

Confessions of a Bitcoin Widow: How a Dream Life Turned into a Nightmare

Confessions of a Bitcoin Widow: How a Dream Life Turned into a Nightmare

It was the fall of 2014. Jennifer Robertson was struggling with the fallout from a messy divorce and juggling weekend waitressing gigs to make ends meet. One night, at the urging of friends, she swiped right on Tinder—and met the love of her life. Gerald Cotten was a Bitcoin entrepreneur. Robertson didn’t know exactly what…

KPMG in Canada adds Bitcoin and Ethereum to its corporate treasury

KPMG in Canada adds Bitcoin and Ethereum to its corporate treasury

Cryptoasset allocation is a first-of-its-kind investment for KPMG in Canada, and reflects the firm’s commitment to emerging technologies and asset classes , /CNW/ – KPMG in Canada has completed an allocation of cryptoassets to its corporate treasury, the firm’s first direct investment in cryptoassets. The allocation includes Bitcoin (BTC) and Ethereum (ETH), as well as carbon…

Bitcoin to $1M, Ethereum to $180k by 2030: ARK Report

Bitcoin to $1M, Ethereum to $180k by 2030: ARK Report

Key Takeaways

  • In a new research report, ARK Invest has predicted that Bitcoin could hit $1 million by the end of 2030.
  • ARK argued that Bitcoin represents only a fraction of the value of global assets.
  • The report also forecasted Ethereum’s market capitalization to exceed $20 trillion in the same timeframe.

In a new research report, American investment firm ARK Invest has shared bold price predictions for Bitcoin and Ethereum for the end of this decade.

ARK Makes Bull Case for Leading Crypto Assets 

ARK Invest is still bullish on crypto, and specifically the two leading assets in the space.

Cathie Wood’s U.S.-based investment firm has published a new report titled “Big Ideas 2022,” painting a rosy picture for both Bitcoin and Ethereum. The report gives a price target of $1 million per Bitcoin by the end of 2030 and also says that Ethereum’s market cap could exceed $20 trillion. Ethereum has a supply of about 120 million and is estimated to burn roughly 1 million coins annually once it merges to Proof-of-Stake, which would put the supply closer to 110 million by the end of the decade. That would mean the price of ETH would be about $180,000 if ARK’s prediction came true. 

Discussing Bitcoin’s growth potential, ARK analyst Yassine Elmandjra wrote:

“Bitcoin’s market capitalization still represents a fraction of global assets and is likely to scale as nation-states adopt it as legal tender. According to our estimates, the price of one Bitcoin could exceed $1 million by 2030.”

At $1 million per Bitcoin, anyone buying into the asset today would make a return of about 26 times the current price of $37,800. The firm based its long-term call on the argument that the top crypto asset represents only a fraction of the value of global assets amid increasing adoption each year. 

ARK Invest offers several actively managed exchange-traded funds and holds $23.9 billion in assets under management. It’s hoping to launch a Bitcoin ETF product in the near future.

Wood has made no secret of her bullish stance on crypto: in 2021, she predicted that Bitcoin could hit $500,000 by 2026. She made the comments in a year that saw increased institutional demand in crypto pave the way for the first Bitcoin futures ETF to hit the U.S. market in October 2021.

While ARK and Wood may have shown confidence in Bitcoin, the market has shown less enthusiasm toward the asset in recent weeks. In the last 30 days, Bitcoin has plummeted from $51,000 to six-month lows below $34,000. Though it’s posted a slight recovery over the last few days, it’s still 44% down from its all-time high of $69,000 recorded in November 2021.

Despite the poor market conditions, ARK Invest’s research points to how Bitcoin adoption could grow on a long-term time horizon. The report used Bitcoin’s on-chain metrics to show that its largest holders have focused on the long-term. ARK stated that the number of long-term investors rose sharply in 2021, with addresses showing long-term behavior collectively holding 13.5 million Bitcoin that has not moved in 155 days.  

Justifying its $20 trillion market capitalization target for Ethereum, ARK said that ETH has value as the default currency in DeFi, NFTs, and other Ethereum-native applications. It added that ETH could take a substantial chunk of the global financial services market, which is expected to hit a valuation of $123 trillion by 2030. ETH currently trades at $2,630, putting Ethereum’s market cap just over $312 billion. It’s down 47% since November.

“According to our research, Ethereum could displace many traditional financial services, and its native token, Ether, could compete as global money,” the report read.

Disclosure: At the time of writing, the author of this piece owned ETH and other cryptocurrencies.

The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.

You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.

See full terms and conditions.

Lightning Network’s Bitcoin Capacity Tripled in 2021

The Lightning Network registered explosive growth in 2021, as its capacity nearly tripled over the course of this year. Lightning Explodes in Bitcoin Capacity The Lightning Network has experienced dramatic…

Audience Survey: Win A $360 Subscription To Pro BTC Trader

We’re doing this because we want to be better at picking advertisers for Cryptobriefing.com and explaining to them, “Who are our visitors? What do they care about?” Answer our questions…

ARK Aims for Bitcoin Futures ETF With 21Shares

ARK Investment Management has joined forces with 21Shares in hopes of receiving approval for a Bitcoin exchange-traded fund (ETF) from the SEC. New Application Filed For BTC Futures ETF ARK…

Ark Investment Makes Its Case for a Greener Bitcoin

ARK Investment Management published a report rejecting the well-known narrative of Bitcoin’s heavy environmental impact. Bitcoin: A Battery for Renewable Energies? One of the primary criticisms against Bitcoin is its…

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Surprises in the Bitcoin blockchain and how they are stored (2014)

Surprises in the Bitcoin blockchain and how they are stored (2014)

January 26, 2022 (updated June 9, 2022) Published by

Every Bitcoin transaction is stored in the distributed database known as the Bitcoin blockchain. However, people have found ways to hack the Bitcoin protocol to store more than just transactions. I’ve searched through the blockchain and found many strange and interesting things – from images to source code in JavaScript, Python, and Basic. If you’re…

Bitcoin pyramid schemes wreak havoc on Brazil’s ‘New Egypt’

Bitcoin pyramid schemes wreak havoc on Brazil’s ‘New Egypt’

January 25, 2022 Published by

CABO FRIO, Brazil (AP) — In April, Brazil’s federal police stormed the helipad of a boutique seaside hotel in Rio de Janeiro state, where they busted two men and a woman loading a chopper with 7 million reais ($1.3 million) in neatly packed bills.The detainees told police they worked for G.A.S. Consulting & Technology, a…

El Salvador Is Now over 31% Down on Its Bitcoin Bet

El Salvador Is Now over 31% Down on Its Bitcoin Bet

January 25, 2022 Published by

Key Takeaways

  • El Salvador’s Bitcoin investment has been hit hard due to the recent market crash.
  • The country’s Bitcoin reserves have suffered a 31% paper loss.
  • El Salvador has spent $88.4 million on assets that are currently worth $60.3 million.

Bitcoin’s recent price crash has led to a 31.8% unrealized loss for El Salvador after it poured $88.4 million into the asset.

El Salvador’s Bitcoin Holdings Plummet 

El Salvador’s controversial Bitcoin strategy is being put to the test play after the asset’s rocky price performance over the last few weeks. The Central American country is now down over 31% on its investment in the asset.

In the last 30 days, Bitcoin has plummeted in value, tumbling from around $51,000 to $33,500 at press time. It’s struggled to find momentum since hitting an all-time high above $69,000 in November. While crypto investors have been lamenting the downfall, El Salvador has also been hit hard.

El Salvador memorably became the first country in the world to make Bitcoin legal tender back in September. Since then, President Nayib Bukele has led the country’s efforts to acquire Bitcoin, proudly announcing that it had “bought the dip” during various market retraces. To date, the country has spent about $88.4 million on 1,801 Bitcoin at an average price of $49,100 per unit. The recent downturn means that the country’s holdings are worth closer to $60.3 million today, giving an unrealized loss of roughly 31.8%.

El Salvador initially spent around $35 million on 700 Bitcoin shortly after accepting the asset as a currency. In October, Bukele announced that the country had acquired another 420 Bitcoin at a market price around $59,000. In late November, shortly after Bitcoin soared to its all-time high, it bought another 100 coins for around $54,000 each.

El Salvador’s monthly allocation continued in December as it added another 171 coins, ending 2021 with 1,391 BTC in its reserves. Bitcoin’s January 2022 dip made it cheaper for the Bukele-led government to add on its previous holdings. Last Saturday, the government bought more Bitcoin at its lowest price to date, adding 410 Bitcoin for $15 million. The country is now known to have 1,801 Bitcoin in its reserves.

The Future Outlook

While El Salvador’s Bitcoin adoption was a watershed moment for crypto, large international monetary institutions like International Monetary Fund and World Bank have repeatedly criticized the move. Salvadoran citizens also took to the streets to protest against the adoption policy.

The rollout has faced other technical problems, too. Citizens have faced inconveniences with making payments due to reported issues in the country’s official Bitcoin wallet, Chivo, and the Bitcoin ATMs it installed to allow crypto-to-cash withdrawals.

Despite the above, it is unlikely that Bukele’s government is looking to sell anytime soon. Bukele recently predicted that Bitcoin would hit six figures in 2022 and is currently working to launch the world’s first “Bitcoin City” in El Salvador.

While the crypto market suffered its most brutal dip in weeks Thursday through Saturday, Bukele appeared to see the funny side. On Twitter, he shared a photo of himself that had been edited to make it look like he was wearing a McDonald’s uniform, referencing a popular crypto meme that implies someone has to find a job at the fast food chain because they lost all of their money in a crypto downturn.

Disclosure: At the time of writing, the author of this piece owned ETH and other cryptocurrencies.

The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.

You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.

See full terms and conditions.

Bitcoin “Should Not Be Used” as El Salvador Currency: IMF


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Is Time on our Side? The Case for Bitcoin’s Lengthening Cycles

One of the many unique features of BTC is its halving process, which is often accompanied by a bullish movement and preceded by bearish consolidation. Bitcoin’s halving events have been…

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Bitcoin mining is being banned in countries across the globe

Bitcoin mining is being banned in countries across the globe

January 12, 2022 Published by

A vastly improved search engine helps you find the latest on companies, business leaders, and news more easily.

Bitcoin network power slumps as Kazakhstan crackdown hits crypto miners

Bitcoin network power slumps as Kazakhstan crackdown hits crypto miners

January 8, 2022 Published by

Register now for FREE unlimited access to Knowasiak.comBitcoin “hashrate” drops after Kazakhstan internet shutdownCountry accounted in Aug. for 18% of global bitcoin output powerShare has grown sharply following China crackdownKazakhstan cut internet after deadly protestsLONDON, Jan 6 (Knowasiak) – The global computing power of the bitcoin network has dropped sharply as the shutdown this week…

Bitcoin consumed 134 TWh in total at some level of 2021

Bitcoin consumed 134 TWh in total at some level of 2021

January 3, 2022 Published by

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Why Bitcoin is worse than a Madoff-style Ponzi scheme

Why Bitcoin is worse than a Madoff-style Ponzi scheme

December 22, 2021 Published by

Choose your subscription Digital Be informed with the essentialnews and opinion MyFT – track the topics most important to you FT Weekend – full access to the weekend content Mobile & Tablet Apps – download to read on the go Gift Article – share up to 10 articles a month with family, friends and colleagues…

What Is a Bitcoin Value?

What Is a Bitcoin Value?

December 17, 2021 Published by

Thomas Belsham The price of Bitcoin is currently around $57,000 (see Chart 1). But what is the price of Bitcoin based on? It’s just a bunch of code that exists only in cyberspace. It’s not backed by the state. There’s no recourse to a central authority. There’s no underlying asset, no stream of income. There’s…

Bitcoin might perhaps change into ‘nugatory’, Monetary institution of England warns

Bitcoin might perhaps change into ‘nugatory’, Monetary institution of England warns

December 15, 2021 Published by

The Bank of England has said that bitcoin could be “worthless” and people investing in the digital currency should be prepared to lose everything.In a warning over the potential risks for investors, the central bank questioned whether there was any inherent worth in the most prominent digital currency, which has soared in value this year…