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Buy Bitcoin or start mining? HashWorks CEO points to ‘attractive investment yield’ in BTC mining

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Recently, bad news has abounded, and the resulting fear is real. DeFi is looking dead, altcoins completed their lifecycle by returning back to $0 (I guess that’s a joke), and Bitcoin’s (BTC) price fell lower than even the smartest brains in the room expected. 

A unifying theme of the most recent bull market appears to have been greed. Everyone got too confident and too greedy, and it shows by the amount of debt and leverage that is being unwound as 3AC, Celsius, BlockFi and Voyager contend with the real threat of going belly up.

It seems Bitcoin miners and BTC mining companies also were not immune to the sentiment of over-exuberance and the belief that “up only” was a fact until Bitcoin’s price hit the long-awaited $100,000 target most analysts stuck to.

Historically, Bitcoin miners are an elusive species that are quiet and unwilling to spill the sauce to the public, but Cointelegraph had some success in securing a moment with HashWorks CEO and founder Todd Esse to discuss the current state of the mining industry and his predictions on where the market might head over the next year.

Cointelegraph: Bitcoin is trading below the realized price, and it is also below the miners’ cost of production. The price is also below the previous all-time high and the hash rate is dropping. Typically on-chain analysts pinpoint these metrics hitting extreme lows as a generational purchasing opportunity, thoughts?

Todd Esse: I do believe that current prices represent an investment opportunity as current prices likely don’t reflect profitable mining margins as the industry is currently structured. In our opinion though, prices may continue to remain under pressure as the mining industry and associated leverage around it is reset or re-configured.

CT: What is the state of the BTC mining industry right now? We’ve heard that leveraged miners are going bust, sub-optimal, inefficient miners are turning off, gear could be in the process of being seized or liquidated at firesale. Listed miners’ stock price and cash flow is also looking pretty bad right now. What’s happening behind the scenes and how do you see this impacting the industry of the next six months to a year?

TE: In our opinion, mining still offers an attractive investment yield for those who are selective about approach and have long term goals. Much of the mining capacity currently installed is with ASICs in the sub 85 TH/s range and with energy contracts that haven’t been managed as a traditional large scale energy consumer would.

We’ve seen this movie before, right? Easy money + poor discipline = unbalanced risks. We could easily see a protracted period here where the mining industry consolidates and allows different investment capital to enter into the market.

Related: Friday’s $2.25B Bitcoin options expiry might prove that $17.6K wasn’t BTC’s bottom

CT: Exactly why is now a good or bad time to start mining? Are there particular on-chain metrics or profitability metrics that you’re looking at or is it just your gut feeling?

TE: Typically periods of distress and shifts in the accepted paradigm will offer advantages to new entrants. Our sole focus is to take advantage of these emerging opportunities.

CT: If I have $1 million in cash, is it a good time to set up an operation and start mining? What about $300,000, $100,000, $10,000? At the $40,000 to $10,000 seed fund range, why might it not be a good time to set up an at home or industrial-sized mining farm?

TE: If you had $1 million cash, it might be a good time to opportunistically pick up some BTC. Fully loaded production prices for the major miners aren’t far from these levels. I see it as difficult to maintain these levels until ASICs drop further in value. I think the time for home mining has largely passed as a result of new dynamics in the energy industry.

I would encourage those looking for yield to seek mining opportunities with companies like Compass Mining or other “cloud” miners whose equipment and energy contracts may yield an attractive investment as these dynamics change.

We believe as a result of current and expected disruptions in the market as well as greater acceptance of immersion solutions, there will continue to be attractive opportunities to build mining operations at scale.

CT: Does Bitcoin price dropping below its previous all-time high for the first time ever have any significant future ramification on the fundamentals of the asset and industry?

TE: In our opinion, no. Historical comparisons are difficult to rely on when dealing with an emerging commodity, and transformative technical asset such as BTC. Miners are producing BTC, given a set of inputs (computing power, access to capital, and energy) and the output price doesn’t always reflect the cost of production at all.

Mining BTC at scale, fundamentally, isn’t very different from producing oil and gas or other commodities. Improvements in drilling technology transformed North America’s position in global energy markets.

When oil and gas prices crashed during the early stages of the pandemic, no one questioned whether or not we needed to drive cars or heat our homes anymore. Mining supports the blockchain, and proof-of-work computing will prove to offer our grid the ability to transition to a renewable energy future.

We are committed to being an innovative and constructive participant in this industry as it continues to mature.

Disclaimer. Cointelegraph does not endorse any content of product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.



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What are Bitcoin covenants, and how do they work?

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Various prominent Bitcoin experts, including Adam Back, Jimmy Song and Andreas Antonopoulos, have raised some concerns over the implementation of restrictive covenants, in particular with the BIP119.

In particular, Antonopoulos has voiced concerns over “recursive covenants” that the new update could convey, thereby deteriorating the network. A recursive covenant occurs when a programmer restricts a transaction, but he does it in a way that restricts another transaction after that, starting a domino effect resulting in future limitless recursive covenants.

Blacklisting and risks of censorship and confiscation

While locking up where a Bitcoin can be spent is advantageous to ensure more security, it also provides grounds for censorship, and control by governments, which would hinder the very existence of Bitcoin. Authorities could potentially force exchanges to withdraw only to covenants with some control over the coin.

While this same risk already exists, since governments can ask exchanges to send only to addresses with a taproot spend path or multi-sig controlled by them, could the implementation of covenants facilitate malicious purposes where it would make it easier for governments to enforce a sort of on-chain KYC? 

Fungibility threats

Covenants might interfere with Bitcoin’s fungibility — the ability of each Bitcoin to be identical in function and quality.

While useful for security and scalability, covenants would change the properties of specific Bitcoin units, essentially creating different types of digital currency, distinct according to what could be spent or where it could be sent. 

As a result, those who oppose the change argued that limiting how you can spend your Bitcoin would ultimately limit Bitcoin’s use as a digital currency, with inevitable consequences in its value.

There are strong opinions on covenants’ pros and cons; however, debates are healthy and necessary to improve a decentralized and leaderless network. Ultimately, the final decision will be down to the users and node operators who will download the software that better reflects their viewpoint.

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BTC price tops 10-day highs as Bitcoin whale demand sees ‘huge spike’

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Bitcoin (BTC) made the most of weekend volatility on June 26 as a squeeze saw BTC/USD reach its highest in over a week.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

“Unusual whale activity” flagged

Data from Cointelegraph Markets Pro and TradingView followed the largest cryptocurrency as it hit $21,868 on Bitstamp.

Just hours from the weekly close, a reversal then set in under $21,500, Bitcoin still in line to seal its first “green” weekly candle since May.

The event followed warnings that volatile conditions both up and down could return during low-liquidity weekend trading. On-chain data nonetheless fixed what appeared to be buying by Bitcoin’s largest-volume investor cohort prior to the uptick.

“Unusual whale activity detected in Bitcoin,” popular analytics resource Game of Trades observed.

“The supply held by entities with balance 1k-10k BTC just saw a huge spike in demand. Let’s watch if the trend confirms.”

An accompanying chart from on-chain analytics firm Glassnode showed shifting up markedly from around the time BTC/USD hit lows of $17,600 this month.

BTC supply held by entities with 1,000-10,000 BTC annotated chart. Source: Games of Trades/ Twitter

As Cointelegraph reported, whales had eagerly purchased BTC below $20,000, forming new support clusters in the process.

CME futures gap looms large

For others, however, conservative views on price action remained the norm.

Related: Bitcoin gives ‘encouraging signs’ — Watch these BTC price levels next

Cointelegraph contributor Michaël van de Poppe eyed the need to crack $21,600 definitively in order to secure the chances of further upside. Additionally, last week’s closing price of $21,100 on CME Group’s Bitcoin futures could provide a short-term target.

“Standard weekend fake-outs happening and probably ending at CME close at $21.1K for Bitcoin,” he forecast on the day.

“No clear breakout above $21.6K at this point, yet.”

CME Bitcoin futures 1-hour candle chart. Source: TradingView

The monthly close was still on course to cement Bitcoin’s worst June on record with monthly losses of almost 33%.

Along with May 2021, this would also be the worst-performing month since before the 2018 bear market bottom, data from on-chain monitoring resource Coinglass confirms.

Bitcoin monthly returns chart (screenshot). Source: Coinglass

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.



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Small-time investors achieve the 1 BTC dream as Bitcoin holds $20k range

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Ever since early Bitcoin (BTC) investors woke up millionaires as the ecosystem gained tremendous popularity alongside the mainstreaming of the internet, investors across the globe have been in the rush to accumulate as many of the 21 million BTC — one Satoshi at a time.

With BTC recently trading at the $20,000 range for the first time since 2020, small-time investors found a small window of opportunity to achieve their dream of owning at least 1 BTC. On June 20, Cointelegraph reported that the number of Bitcoin wallet addresses containing one BTC or more increased by 13,091 in just 7 days.

While the total number of addresses holding 1 BTC saw an immediate reduction in days to come, the crypto community on Reddit continues to welcome new crypto investors that hodled their way into becoming a wholecoiner.

A Reddit post announcing the procurement of 1 Bitcoin. Source: Reddit

Redditor arbalest_22, who shared the above screenshot, revealed that it took him around $35k in total to accumulate 1 BTC over several months since February 14, 2021. Showing further support for the Bitcoin ecosystem, the Redditor aims to continue procuring Satoshis or sats until he accumulates over 2 BTC. 

Arbalest_22 started purchasing BTC from crypto exchange Coinbase but later started using Strike owing to lower fees. Sharing a peek into his future plans, they stated:

“I’m hoping in the future I can treat it more like rich people treat real estate and take loans out against it. Then as it appreciates just pay off the old loan with a new one. Boom, tax-free income.”

Following suit, another Reddit user Evening-Main-5860, too, posted about being able to 1 BTC after largely following a dollar-cost averaging (DCA) strategy, wherein they regularly bought smaller amounts of BTC over a long period of time, stating:

“I was able to catch the falling knife and buy enough to get me over the finish line. This was no easy feat. I’m just an ordinary guy with an ordinary life.”

Data on number of wallet addresses with at least 1 BTC. Source: Glassnode

Between June 15 to June 25, the total number of Bitcoin wallet addresses holding more than 1 BTC grew by 873, according to Glassnode data.

Related: ‘Bitcoin dead’ Google searches hit new all-time high

While falling BTC prices are seen by many as an investment opportunity, Google search trends highlight the tendency of other investors to speculate about its demise.

The Google search results reflect peak anxiety for the cryptocurrency markets following weeks of relentless selloffs in asset prices.



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