2018 October 08 - Volume.2 Issue.40

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2018 October 08 - Volume.2 Issue.40

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Bitcoin Miner Revenues Near $5 Billion, But Profitability Dwindles

Bitcoin miner revenues in the first 6-months of this year surpassed all earnings of 2017. To date, revenues have exceeded last year by a whopping $1.4Bn. But the record hash rate hit at the end of August saw miners paying retail electricity prices move to unprofitability for the first time in September, Diar estimates show.


Bear market aside, Bitcoin's price remains over 40% higher than a year ago. And the coinbase reward of 54,000 Bitcoins per month remain up for grabs by Bitcoin miners. The reward and fees for the first three quarters of this year represented $4.7Bn in revenues for miners who are keeping the network secure.

The investment proposition for smaller miners held true throughout most of this year, but has since become questionable on the back of an increase of computing power competing for the coinbase reward (see chart).

|| MINING FOR BIG GUNS ONLY

China, who has an average cost of $0.08 kw/h at retail, and estimated to be half that at wholesale, is currently one of the handful of countries that would make economic sense to mine for Bitcoins with retail prices. Even then, however, equipment, salaries, rents, overheads could push inexperienced mining operations into the red.

Bitmain, who released new information about their operations to support their upcoming Hong Kong listing revealed a business model that could bring new economic realities – and powers - to the fore.

The company, who runs two of the largest mining pools, as well as a key investor in ViaBTC, is actually banking on the sale of mining equipment – and has been for several years. In the first half of this year, 95% of revenues came from the sale of its miners.

Business then, for Bitmain is good when miners are earning. And according to it’s IPO disclosures, the mining equipment mammoth sells just over half (51.8%) of their miners to international clients. And Bitmain estimates that it has cornered 75% of global market for miners.

|| SWING PRODUCER?

While Bitmain has spread its tentacles across the world with operations and warehouses, it also runs 11 mining facilities in China - home to 200k mining units. Should those units represent S9 miners, and be fully deployed to mining Bitcoin alone, this could represent a near 6% of the networks current hash power, that sits just below its all-time high.

With three more mining farms planned to go online in 1Q19 in the United States (Washington State, Texas, and Tennessee) could see Bitmain acting as a swing producer in an effort to keep the network profitable for all miners – including their own operations in the west where operating expenses are likely to run much higher than in their home base.

|| WHOLESALE SQUEEZE TIME?

It’s unlikely then that the recent tapering out of the Hash power to last. With big mining operations on low electricity costs running at anywhere between 50-60% gross profit from Bitcoin revenues, the market has a lot of room left to grow and, profits to squeeze. But Bitcoin mining has, at least for now, and most likely in the future, moved into the court of bigger players with deep pockets.

2018: Miners Paying Retail Electricity Prices Now Unprofitable...


Notes: Profit Estimates Using S9 Miners & $0.1/kWh, No Pool Fees or Hardware Costs. The chart is illustrates profits if all miners paid retail electricity prices.


...Hash Rate Swings Increase as Miner Returns Go In The Red...


Notes:  Daily Electricity Cost on S9 Miners & $0.1/kWh, No Pool Fees or Hardware Costs calculated.  USD Average Monthly revenues only Coinbase reward. 


...Despite Record Revenues Already Surpassing 2017 Total


Source: Diar Calc., BTC.com, Blockchair, Blockchain


Cryptocurrency Exchanges Gear Towards Tokenized Securities

Having made bank on the trading bonanza in the past year, Cryptocurrency exchanges are also acutely aware that, for the most part, the tokens they list don't currently satisfy a utility purpose. Diving into deep pockets, exchanges are diversifying their portfolio by investing in various parts of the ecosystem to support the long-term growth of an industry stuck in development. But most notably, exchanges have amped up their investment interest for the possible issuing and trading of tokenized securities.


While Initial Coin Offerings (ICO) offer no equity, legal sanctuary, and for the overwhelming majority of tokens, the promised utility, ICOs have highlighted the willingness of retail investors to take punts in the tune of billions of dollars on the back of idealized riches (Diar, 24 September).

Last week, Circle continued its expansion drive with the purchase of broker-dealer SeedInvest, an equity crowdsourcing platform. SeedInvest, like all other US based crowd funding platforms, have been able to secure funding for companies from non-accredited investors utilizing securities laws passed after the last financial crisis. Circle has stated that it hopes to incorporate "securities regulation as it applies to crypto…paving the way for security tokens.”

|| BINANCE OPENS ALL FRONTS

Circle is playing catch-up to its competitors on the tokenized securities prospect, however. In July, Binance led a fund round for crowd funding platform Republic, who have proposed an entirely different model to the Simple Agreement for Future Tokens (SAFT) with their Token Debt Payable by Assets (DPA) that attempts to put safeguards to minimize lender loses should a project fail.

And in terms of reach, Binance is the only major exchange to creep into Europe pairing up with Berlin-based Neufund that has been working with regulators structuring what they have dubbed as Equity Token Offerings (Diar, 14 May). Both outfits are also rubbing shoulders with the Malta Stock Exchange (MSX), but how this partnership will eventually play out is yet to be established.

|| DIFFERENT STROKES?

On the surface, seemingly, cryptocurrency exchanges are now shadowing one another (Diar, 18 June). But Coinbase might be veering towards institutional investors instead.

Earlier this year Coinbase purchased Keystone Capital (Coinbase Capital Markets) in their effort to offer security tokens, as well as Venovate Marketplace (Coinbase Securities), a platform f0r issuers raising capital for alternative assets.

Venovate is primarily an accredited investor platform for private placements (Reg D), as opposed to SeedInvest and Republic that are geared towards the retail investor (Reg A+). Of course, that does not exclude the possibility of opening up to retail investors either.

What does remain undetermined is how decentralized equity tokens can and will really be considering compliance, regulation and consumer protection laws.

Companies Seeking to Raise Capital Through Reg D, Reg A

wdt_ID Company Description Type of funding
1 tZero Security Token Trading Platform Reg D 506(c), Reg S
2 KODAKCoin Payment Ecosystem For Licensing Photographs Reg D 506(c)
3 The Abyss ‏ Crypto-Reward System Reg D 506(c)
4 Telegram Messaging Platform Reg D 506(c)
5 Filecoin Global Filesystem Reg D 506(c)
6 FCFL Decentralized Sports League Reg D 506(c), Reg CF
7 Gab Social Media Protocol Reg A+
8 RideCoin Ride-Sharing Service Reg A+
9 WeDemand Platform That Powers Fan Driven Live Events Reg A+
10 Prometheum Blockchain Ecosystem For Compliant Tokenized Securities Reg A+

Coinbase Ventures Investments

wdt_ID Company Description
1 OpenSea Crypto collectibles marketplace
2 Celo Mobilephone Money
3 Compound Money Markets Protocol
4 TruStory Content Fact Verification
5 Elph Desktop Ethereum Web Browser
6 Reserve Stablecoin
7 Rarebits Cryptoassets
8 Relevant Information Economy
9 Spacemesh Blockchain
10 Etherscan Ethereum Block Explorer

Binance Labs Investments

wdt_ID Company Description
1 Trust Wallet Ethereum Wallet (Acquired)
2 Republic Investment Platform
3 Contentos Digital Content Distribution
4 Travelbybit Travel
5 Cocos-BCX Games
6 CertiK Smart Contract Security Verification
7 MobileCoin Cryptocurrency
8 Oasis Labs Private Smart Contract Platform
9 Pivot Crypto News/Community
10 Cred Credit Backed by Crypto Holdings


3Q18: Coinbase Volumes Hit 1-Year Low, Ether Plummets on Binance

3Q18 Coinbase USD Volumes hit 1-Year Low


3Q18 Bitstamp USD Volumes Fairing Only Slight Better


ZCash Finds Little Traction on Gemini

Total Binance USDT Trading Volumes Half from 1Q18 Peak...


...Most Notably, Ethereum Pair Volumes Plummet 3Q18 vs 1Q18


...And USD Tether Pair Volumes Now 57% of Total Trading


Underlying data has been provided by our partner CoinApi

Aon Follows Llyods in Crypto Insurance Cover
US cryptocurrency exchange Gemini has secured insurance coverage for its storage of digital assets by a consortium of insurers led by Aon. Last month, Kingdom Trust who purportedly holds over $12Bn in digital assets also secured cover of their risk by  Llyods. The entrance of these major insurers and reinsurers highlights the growth in the financial infrastructure high street, as well as regulators, have become accustomed to.
ErisX Slated for 2H19 Launch of Cryptocurrency Futures
ErisX has secured funding by retail brokerage TD Ameritrade, as well as CBOE, Digital Currency Group and Pantera Capital to launch a physically settled futures exchange listing the majors, Bitcoin, Bitcoin Cash, Ethereum and Litecoin. The exchange which hopes to launch its spot trading in 2Q19 is awaiting regulator approvals from all US States. The outfit is set to rival Intercontinental Exchange's own Bakkt (Diar, 6 August).
Binance to Donate Listing Fee Revenues to Charity
Binance, the largest cryptocurrency exchange by traded volume announced that it will now donate all listing fees back to charity. The fee is not based on a schedule, but is, and apparently, has always been proposed by the project team itself. The move brings more light to the Binance's Blockchain Charity Foundation that was announced earlier this summer, and now joins the ranks of other crypto-charities (Diar, 2 July).
Lightning Development Team Acinq Raises $1.7Mn
Paris-based Acinq, one of the three teams working on the Lightning Network (LN), Bitcoin's second layer scaling solution has secured $1.7Mn in funding. Currently the company has deployed its Eclair wallet, as well as launched Strike, a LN payment processor (Diar, 11 June). Acinq currently has the third largest node by Bitcoin capacity on the LN and the outfit aims to use the funding to focus on UX and make the LN easy to use.

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