OilPrice.com News CommentaryLONDON, October 27, 2017 — (PRNewswire) —
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. Companies in focus today include: Pure Storage, Inc. (NYSE: PSTG), Advanced Micro Devices, Inc. (NASDAQ: AMD), Shopify Inc. (NYSE: SHOP), Celestica Inc. (NYSE: CLS), Goldcorp Inc. (NYSE: GG)
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. It's a phenomenally energy-intensive process
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.
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 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.
Iceland: New Ground (Below) Zero for Bitcoin?
Bitcoin is all about digital infrastructure. In this burgeoning industry that offers a chance at significant profits, just about any computer can be used, but companies dedicated to ether mining are the latest thing, and this is where things can really get lucrative.
This is industrial-scale bitcoin mining, and some of these companies are worth tens of millions of dollars, according to Bloomberg.
And for all of them, the Great Bitcoin Game is to keep energy costs down to make ether mining more cost-effective.
Right now, about 85 percent of the world's Bitcoin trading volume comes from China. Countries with heavily subsidized energy are obvious ether mining haunts, but now the colder countries have something to offer that has nothing to do with the government, and doesn't involve any legal gray areas that will come under scrutiny.
It's 100 percent Mother Nature, and as long as she keeps Icelandic temperatures … Icelandic, then natural cooling should be a boon for Bitcoin. The cold countries are now the home of what is being dubbed 'geothermal gold'.
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. Alphabet (NYSE: GOOG) and Facebook are there, too, taking advantage of the cold.
Right next door to this landmark Bitcoin facility in Reykajanes, Iceland, HIVE has just acquired a second data center from Genesis.
Billionaire Money Pouring into Big Bitcoin
An internet advisor for Russian President Vladimir Putin is eyeing entrance into this great game, planning to raise $100 million in cryptocurrency to help Russia challenge China's hegemony in Bitcoin mining.
"Russia has the potential to reach up to 30 percent share in global cryptocurrency mining in the future," Putin's internet ombudsman, Dmitry Marinichev, was quoted as saying, adding that $10 million from the proceeds of the Russian Miner Coin ICO may be spent developing processors.
Japanese billionaire Masatoshi Kumagai, co-founder of giant GMO Internet Inc., announced plans last month to invest over $90 million in a new Bitcoin mining business that will operate as a fund, partially, by soliciting capital from investors and repaying them in cryptocurrency.
In North America, all the buzz is about HIVE and Genesis, and two legendary billionaire backers known for their early-in investment intuition.
HIVE's backers include mining mavericks Frank Giustra and Frank Holmes. Giustra built up Goldcorp Inc. (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., 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 U.S. Global Investors, which has $2.6 billion in assets under management and is one of the definitive top precious metals funds in.
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.
Blockchain technology is like the Internet before everyone realized its explosive potential as a revolutionary information distribution channel. Email, like AOL, was that catalyst. Now, Bitcoin and Ethereum are doing for blockchain what email did for the Internet.
"There's a huge scramble to be able to apply this so that you'll be able to trade stocks 24/7" Holmes said in a recent interview.
But if you want to successfully mine cryptocurrency, you need cheap energy, ideally around 2 cents a kilowatt hour.
Mathematics Rules the Day
Speaking at the Money20/20 event in Las Vegas on 22 October, Apple Computers co-founder Steve Wozniak definitively sided with the Bitcoin camp, calling the U.S. dollar "phony" because more can always be printed. Bitcoin, he told CNBC, is "stable" because it can't be diluted, and its future supply is fixed at 21 million bitcoins. "Maybe there's a finite amount of gold in the world, but Bitcoin is even more mathematical and regulated and nobody can change mathematics," Wozniak said.
With Bitcoin hitting $6,000 per coin on 21 October, and breaking new records as its adoption surges, this is no longer just a game for individual miners with fast computers. It's now about industrial-scale mining and billionaire backing.
Even though cryptocurrency inhabits an unearthly geography in virtual time and space, where it is mined is just as important as it is for oil, gas, gold, or any other resource we mine.
The crypto sphere is everywhere, but mining its bounty means tapping into the cheapest sources of energy to keep costs down. The race now is to find the best venue with cheap energy and few reputational risks. Right now, that's Iceland, the Genesis of the new wave of Bitcoin.
Other companies to watch in the space:
Celestica Inc. (NYSE: CLS) is a manufacturer of electrical devices used in IT, telecommunications, healthcare, defense and aerospace industries. The company has seen strong growth YoY which we expect to continue as the sales expectations are almost 3% better than last year's.
While many investors thought the stock was overvalued after a stellar run in 2016, the recent correction and volatility in the stock has attracted new buyers and the stock has recovered since.
While telecommunications stocks have been volatile recently, defense, IT and aerospace industries have outperformed and while many see limited upside, these industries continue to surprise both investors and analysts.
Shopify Inc (NYSE: SHOP) is a Canadian e-commerce company with more than 500,000 companies rely on Shopify's real-time e-commerce, including Tesla, Budweiser and Red Bull, among many others. Shopify manages their e-commerce machines, and its stock is now up to over $106 right now, with a market cap of over $10 billion. CNET called the application "clean, simple, and easy-to-use" in a review of the Shopify platform.
The company's online presence and sheer reach make it an ideal buy for investors. Shopify makes purchasing goods and services easy for anyone - and in a time where convenience is king, Shopify surely has staying power.
Pure Storage Inc (NYSE: PSTG) knows that data platforms are also a key asset in protecting companies against cyber-attacks. Pure Storage, Inc is a data platform focused on delivering fast, optimized and cloud-capable solutions for its customers while keeping data security as a top priority.
As the cybersecurity world becomes increasingly competitive, Pure Storage stands out because of its innovative and forward thinking business model.
Advanced Micro Devices Inc (NASDAQ: AMD) is Nvidia's biggest competitor. The company has developed a cult following among gamers, leading to many a Reddit debate. AMD's groundbreaking technology not only rivals that of Nvidia, some even argue that it outperforms it. As the two square off, one of the key areas to keep an eye on is in the GPU race. Widely purchased across the world as Bitcoin frenzy heats up, AMD is making a particularly hard push toward conquering that emerging demand.
While Nvidia has a significantly higher market cap (and stock price), AMD provides investors a much cheaper entrance into the gaming market. Those looking to get into tech industry stocks, mine Bitcoin, or play their favorite game on the highest quality are definitely not ignoring AMD.
By James Stafford of Oilprice.com
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
This news release contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this release include that HIVE Blockchain Technologies Inc. ("HIVE") will be able to take advantage of lower natural temperatures in Iceland in its Bitcoin mining operations, that natural cooling in Iceland will be a boon for Bitcoin, that other players in the cryptocurrency mining space, including Bitfury, Cloud Hashing, Russia and the Russian Miner Coin and Masatoshi Kumagai, will continue to invest in such space and derive positive returns from their investments in such space, that HIVE is planning on acquiring a second data center from Genesis in Iceland and that HIVE and certain of its large investors will not be left out of the Bitcoin wave. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Risks that could change or prevent these statements from coming to fruition include that HIVE will not be able to take advantage of lower natural temperatures in Iceland in its Bitcoin mining operations, that natural cooling in Iceland will not be a boon for Bitcoin, that other players in the cryptocurrency mining space may not continue to invest in such space or derive positive returns from their investments in such space, that HIVE will not be able to complete the acquisition of a second data center from Genesis in Iceland and that HIVE, Frank Giustra and Frank Holmes and certain of its large investors will be left out of the Bitcoin wave. The forward-looking statements contained in this news release reflect the current expectations, assumptions and/or beliefs of the writer based on information currently available to the writer. In connection with the forward-looking statements contained in this news release, the writer has made assumptions about HIVE's ability to take advantage of lower natural temperatures in Iceland in its Bitcoin mining operations and the expected success of HIVE's acquisition of a second data center from Genesis in Iceland. The writer has also assumed that no significant events will occur outside of the HIVE's normal course of business. Although the writer believes that the assumptions inherent in the forward-looking statements are reasonable, the forward-looking statements are not a guarantee of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein. The forward-looking information contained herein is given as of the date hereof and the writer assumes no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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