10/24/2023 0 Comments

1. Bitcoin Miners’ Digital Power Network Shows Off Industry Consolidation

The Chamber of Digital Commerce, a political advocacy group dedicated to Bitcoin and the crypto sphere, has turned heads with an announcement that the members of its new mining-specific group represent more than 50 percent of the entire US Bitcoin mining industry.

The Chamber of Digital Commerce has existed since 2014, with its own registered committee able to make contributions to political candidates. Although its existence represented a significant step for the growing relationship between a hostile political establishment and the new economic world of cryptocurrency, its footprint remained relatively small for most of its existence. Campaign disclosures have only recorded $2700 in donations for any Congressional races, in 2017, but in March 2023 they partnered with a Texas Representative to introduce a bill supporting proof-of-work mining.

The Chamber’s work in getting this bill off the ground has apparently been quite useful in building up industry connections, because it made a major splash in late September by announcing the formation of a new working group: the Digital Power Network. With a mission statement of promoting the interests of American miners, the Network plans to partner with legislators to support fair and straightforward regulation over many aspects of the crypto industry. This is all well and good, but this new group has some real heft to back up these goals: its various members collectively represent more than half of the nation’s entire Bitcoin hash rate.

It’s easy to see why a group like this is so necessary, according to Perianne Boring, founder and CEO of the Chamber for Digital Commerce. She said in interviews that “digital asset mining, at its heart, is both an energy and national security matter, and we firmly believe that Bitcoin will drive policies that unite all political stakeholders to advance this crucial industry in the United States.” The various representatives in the Digital Power Network seem to share her enthusiasm, with Riot Blockchain CEO Jason Les claiming that “at its core, Bitcoin mining converts stranded, low-cost energy into a valuable commodity, which is why our industry has tremendous potential” and Marathon CEO Fred Thiel declaring the group “important for ensuring that the perspectives of digital energy stakeholders are considered.” These two firms alone are some of the most productive Bitcoin miners in the United States.

A development like this in the crypto mining world is vitally important not only for the possibilities of the group, but also for the state of the industry that such a group can even exist. Among these companies, one topic has been growing and growing in everyone’s mind: the upcoming Bitcoin halving. A planned occurrence within the Bitcoin blockchain, halvings occur every few years to ensure a stable taper in the supply of available bitcoins, and the next one is coming soon. After some time around April 2024, the same exact amount of work from mining rigs will produce half as much Bitcoin, and it will be up to the miners to figure out how to keep their businesses profitable.

Several strategies are immediately apparent for these companies: for one, most obviously, efficient equipment is key. Especially with growing concerns of the environmental impact of Bitcoin mining, the halving will make it simply unviable to actually use outdated equipment at large scale. Similarly, firms have been encouraged to diversify investments, build up cash reserves and several other tactics that point to one overall strategy: consolidation of capital. Smaller firms that are unable to remain functional after the halving, to buy new equipment or stay in business without cash flow, will simply be pushed out, and the survivors will have a larger share of the new pie to split amongst themselves.

This consolidation is already evident from the emergence of the Digital Power Network. Their site lists 11 major players as members of this miner advocacy group, and their consortium represents most of the US Bitcoin mining industry. It is certain that every one of these firms has given a great deal of thought to the upcoming halving, and in all likelihood this group is part of their long-term plans. And even outside of these major players, signs of this increasing consolidation are ubiquitous. For example, Hut 8, a Canadian bitcoin mining company, has received approval from the Supreme Court of British Columbia on September 18th, authorizing them to carry out a merger with US Bitcoin Corp. This new company will be chartered within the United States, and upon incorporation the new “Hut 8 Corp” will immediately become one of the largest mining companies in the nation. Hut 8’s stock price went up by 6.5% after gaining this approval, showing off the market’s confidence.

Between these firms that represent such a large chunk of the Bitcoin mining industry, and new mining giants forming by merger outside of the Digital Power Network, it seems clear that the consolidation of industry is a serious tactic for these companies to survive in a wildly competitive mining ecosystem. With all these giants, after all, how many smaller companies exist to make up the remaining share of the pie? And more to the point, how many of those companies will continue to exist a year from now? The world of Bitcoin and cryptocurrency is wide in scale and chaotic in temperament; it requires a deft hand to stay afloat. Yet, with moves like these, it seems clear that the miners have full confidence in their abilities to thrive, and this attitude is representative of the whole crypto scene. With an innovative and industrious mindset, Bitcoin has fostered a community of movers and shakers that can propel decentralized currency into the future.

2. Bitcoin Mining Activity Surges as Difficulty Soars to New Peak

Bitcoin’s mining difficulty level has hit a new high after another surge on Monday, rising by 6.47% and making it even more challenging for Bitcoin miners to uncover blocks. According to data from CoinWarz, after the latest update, Bitcoin’s mining difficulty—the estimated number of hashes required to mine a block—is now at 61.03 trillion.

This is the third consecutive increase in Bitcoin mining difficulty, which has almost doubled since October last year. Bitcoin’s mining difficulty is readjusted every 2,016 blocks, or approximately every two weeks, as the network determines whether the activities of miners for the period resulted in the reduced or increased time to find a new block.

This adjustment period allows the network to evaluate whether miners have been able to find new blocks faster or slower than the target time of 10 minutes per block. The mining difficulty is increased if blocks are being mined too fast and decreased if it takes longer than 10 minutes to mine a block.

An increase in mining difficulty means that miners need to allocate more computational power to successfully mine a block, and indicates a growing number of miners are joining the network, as mining becomes more computationally intensive.

Bitcoin halving and mining

Some experts believe the spike in activity can be attributed to the upcoming Bitcoin halving, which is now about 6.5 months away.

“This flurry of mining activity could be about maximizing returns before the Bitcoin halving next year,” Jeff Mei, COO of the crypto exchange BTSE, told Decrypt. “After that point, the rewards for mining Bitcoin will half, as the name suggests. So it’s possible we’re seeing miners squeeze all the value they can before that point.”

Mauricio Di Bartolomeo, co-founder and CSO at crypto lender Ledn, also believes that the next Bitcoin halving will be a “huge deal” for miners.

“There’s going to be a rush of miners coming online between now and May, every miner is going to try to squeeze every last drop of their equipment from the 6.25 per block payout rate, because from 6.25 BTC/block it’s going to drop to 3.125 BTC/block,” Di Bartolomeo told Decrypt. “So those that have machines pending to be connected, will be rushing to get them on the grid to collect to the higher payout rate while they still can.”

According to him, this will result in a run-up in difficulty up until the halving, however, once the halving occurs, “that huge rush to connect new miners will cease because those connecting from that point onwards will be making significantly less returns.”

Other reasons, according to Mei from BTSE, could also be a reflection of miners’ increased fears of an upcoming and dramatic rise in energy prices, which would have a major impact on their profitability.

“With regional tensions flaring up across multiple flashpoints, miners could be expecting oil prices and energy in general to become less affordable,” Mei told Decrypt.

3. Dollar edges lower ahead of key US data, bitcoin back in spotlight

The dollar softened against a basket of currencies on Tuesday, mirroring a dip in Treasuries yields as investors awaited key U.S. economic data before the Federal Reserve’s monetary policy meeting next week.

Bitcoin charged back into the market spotlight with the virtual currency soaring on speculation that the United States could soon approve a bitcoin exchange-traded fund. The dollar index last sat around 105.47, having lost over 0.5% in the previous session and slipped to its lowest in about a month as U.S. Treasury yields tumbled.

The greenback found support last week after Fed Chair Jerome Powell said U.S. economic strength might warrant tighter financial conditions, which pushed the benchmark 10-year yield above 5% to its highest since July 2007.

The large swing in yields comes as global uncertainty and growing geopolitical risks have markets on edge, with tensions high in the Middle East since Hamas’ Oct. 7 attack on southern Israel.

Market attention next turns to some of the last bits of U.S. economic data before the Fed’s meeting on Oct. 31 – Nov. 1, with the flash purchasing managers’ index (PMI) out on Tuesday, and gross domestic product as well as another inflation report due later in the week.

The PMI data could set the market expectations ahead of the GDP report, said Matt Simpson, senior market analyst at City Index.

“If the data leans far enough one way it could prompt a strong dollar rally or breakdown with the Fed in a blackout period,” he said, referring to the period before the policy meeting in which limits are placed on public communications from central bank officials.

The Fed is expected to hold rates at its meeting next week.

The European Central Bank is also set to leave interest rates untouched at its meeting on Thursday, after raising its key interest rates 25 basis points in September. The euro extended gains after hitting a one month- high versus the greenback on Monday, perched around $1.0682. Meanwhile, the dollar’s retreat gave the battered yen some slight relief, with the Japanese currency hovering near 149.65 after hitting the sensitive 150-level both on Friday and Monday.

Traders see the 150 threshold as a possible line-in-the-sand for Japanese authorities to intervene in the currency market. However, the data out of the United States this week could have the yen inching back into the danger zone if it comes in strong.

“The yen will be particularly sensitive to hot U.S. data, especially if it causes Treasuries to blow through what’s looking like a key resistance level of 5% or so,” said Kyle Rodda, senior financial market analyst at Capital.com.

Markets will also be watching out for the Bank of Japan’s policy decision on Oct. 31. The surge in global interest rates has generated discussion about a potential tweak to the bank’s bond yield control policy.

A survey on Tuesday showed Japan’s factory activity shrank for a fifth straight month in October while the service sector saw its weakest growth this year. In cryptocurrency markets, bitcoin continued to rise in Asian trading hours to touch $35,198, its highest since May 2022, on speculation that an exchange-traded bitcoin fund is imminent.

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