07/31/2023 0 Comments

1. Bitcoin Mining Machines Moving to Russia Due to Saturation in US, Despite Sanctions

Russia’s Bitcoin Mining Market Is Rising

Russia’s Bitcoin mining market is booming, and hardware providers Bitmain and MicroBT are positioned to profit from the expansion.

Because of its access to inexpensive electricity and frigid temperature, Russia has long been a leader in terms of Bitcoin hash rate. Speaking at Consensus 2023, Ethan Vera, COO at mining services company Luxor Technologies, said that more equipment is entering Russia than any other country in the globe.

As China’s mining industry was outlawed in 2021, Russia’s mining market share increased, making it the second- or third-largest in the world.

There are no restrictions on Russia that entirely forbid participation in the mining industry, despite the fact that international sanctions were put in place as a result of Russia’s invasion of Ukraine in 2022 and ongoing attacks on the nation.

Russian miners have been encouraged to expand their operations by better mining economics, reduced regulatory oversight and taxes compared to the US and other countries, and low energy costs.

Due to these factors, it will be the only nation that can significantly speed up the rise of hashrate, according to a report by mining company Cryptocurrency Mining Group (CMG).

2. A BlackRock BTC ETF Wouldn’t Be Possible Without Bitcoin Miners

After last year’s carnage of FTX and other high-profile fallouts, the crypto industry is pinning its hopes on legacy finance muscling through the long-awaited Bitcoin spot ETF.

In addition to BlackRock, Fidelity and Ark Investments have filed for Bitcoin spot ETFs, paving the way for institutional capital to flood into the digital asset. Crypto exchanges like Coinbase (who will be BlackRock’s surveillance sharing partner for the ETF) may clash with the SEC, but Wall Street routinely works with the agency to push through these financial products.

While it isn’t a guarantee we will see a Bitcoin spot ETF soon – even BlackRock isn’t immune to the SEC’s stonewalling and its surveillance partner remains under investigation – it is looking increasingly likely, especially with the pressure of multiple firms coinciding with the momentum from Ripple Labs’ partially successful lawsuit.

The arrival of a spot ETF would be a milestone for crypto and is made possible by the miners who have ensured the integrity of the Bitcoin network. From early test validations following the publication of the Bitcoin white paper to the buildout of entire operations across the United States, Asia, and Europe, the past decade has been fascinating for mining, and miners again find themselves at a crucial inflection point to shape the industry as stakeholders.

Adoption is bittersweet

In the years leading up to the recent flurry of spot filings, publicly-traded mining companies were how institutional investors gained exposure to Bitcoin. Due to the lack of regulatory clarity for digital assets, investors opted for traditional financial vehicles with stock offerings and compliance requirements, which also alleviated the burden of self-custody. While several other low-maintenance options existed for exposure to Bitcoin, including purchasing Microstrategy stock or the Grayscale Futures ETF, miners were always closer to the core product.

The inevitable spot ETF backed by a major financial institution like BlackRock or Fidelity is bittersweet. Approval of any one of these ETFs by the SEC would signal a regulatory green light while providing investors with direct exposure to Bitcoin – there would likely be a price increase in the underlying asset which miners have spent this decade building substantial positions in (i.e. everyone involved makes money).

But a spot Bitcoin ETF also raises the uncomfortable prospect of outflows in capital from mining stocks to Wall Street financial products, wherein banks enter a more favorable regulatory climate and benefit enormously from operating expense ratio (OER) fees built into the ETFs. As I highlighted in a OpEd for CoinDesk this spring, miners will meanwhile face a lower-margin environment with the “halvening” event next year set to reduce the amount of mineable Bitcoin by 50%.

There is irony in miners building the world’s first decentralized monetary system — assuming all the risk for over a decade while dealing with hostile regulatory scrutiny and attacks from lawmakers — only to turn it over to Wall Street for a last-minute assist.

The next era of mining

Miners, however, have always been aware of the timeline surrounding mineable Bitcoin as first outlined in Satoshi Nakomoto’s white paper. The beauty is that we have created a playbook for bridging emerging technology, institutional investment, and alternative sources of energy, while providing economic opportunities to the communities who welcome it. While Bitcoin’s “proof of work” system may seem limiting on first glance, miners have used it as the basis for our own decentralized network with footprints across multiple jurisdictions, instantly adaptable to regulatory tailwinds and technological advancements.

A Bitcoin spot ETF validates the validators. Its arrival would be a sign that securing the network always had global significance, and that there is even more of a role to play as promising new technology finds its place in the global economy. As Wall Street and regulators debate the specifics of a spot Bitcoin ETF, miners are developing profitable business models with Ethereum and Artificial Intelligence, making the ETF debate already seem dated. I noted in another CoinDesk piece from earlier this year how our company, Bit Digital, had developed an Ethereum “Flywheel Model” wherein mined Bitcoin can be converted into Ethereum and then staked for rewards.

Mining infrastructure such as alternative energy sources, cooling systems, and computing systems likewise are being used to process machine learning workloads. Those who would call this a “pivot” misunderstand the fluidity of mining, and how the sector has grown beyond Bitcoin to offer investors exposure to Ethereum and AI, while incorporating emerging technologies requiring energy output into a sustainable model. Again, miners are innovating and tapping into the promise of new markets and technologies, as Wall Street plays catch-up years after the fact.

A spot Bitcoin ETF heralds a triumph for the guardians of the network. Our full power is only just being realized.

3. Bitcoin Miner Reserve Rising: Good News For BTC Bulls?

Bitcoin prices have been stagnant, trading below the psychological $30,000 level. The coin is technically under pressure, declining from its peaks of around $31,800 recorded in early July 2023. Amid this development, on-chain data reveals that the Bitcoin miner reserve has been increasing, notwithstanding prevailing market conditions, bouncing back from May 2023 lows. According to data from CryptoQuant, the BTC miner reserve stands at 1.841 million as of July 30, up from 1.826 million on May 27.

Bitcoin Miner Reserve Rising

The increasing BTC miner reserve and relatively stable and steady coin prices suggest a sense of optimism among miners. This could improve sentiment and confidence among miners, possibly boosting prices and preventing sellers from pressing the coin even lower. Presently, as mentioned earlier, BTC is trending below $30,000.

In crypto, the Bitcoin miner reserve measures all BTC in the hands of all miners and mining pools. It shows the total number of BTC that is yet to be liquidated. Price-wise, this is important. Miners frequently sell their coins to cover operational costs and realize profits. Therefore, trackers often monitor their trading patterns for valuable insights into market sentiment.

Bitcoin miner reserve trends are important for traders. However, other critical factors could influence prices in future sessions, some of which might have adverse effects. One key consideration is how different countries decide to regulate cryptocurrencies, including Bitcoin, as their move can impact liquidity and investor perception.

Regulation, Energy Consumption Criticism Negative For Prices

In the United States, for instance, the approval or rejection of a Bitcoin Spot ETF by the Securities and Exchange Commission (SEC) could significantly affect Bitcoin’s price in the months ahead. The approval of a Bitcoin ETF would enable institutional players to include Bitcoin in their portfolios, injecting capital into the crypto markets and potentially increasing liquidity. Currently, Grayscale’s GBTC, a close-ended trust, allows institutions to get exposure to Bitcoin without directly buying BTC.

Beyond price-related factors, Bitcoin’s proof-of-work network has faced criticism for its substantial energy consumption to power its operations. In response to environmental concerns, China banned Bitcoin and crypto mining activities, resulting in a drop in the network’s hash rate and negatively impacting BTC prices. Whether the US and Europe will follow a similar path in the future could also have implications for Bitcoin’s price trajectory.

author avatar
Harvey CHEN

Leave a Comment