Bitcoin Letter Archives

The Art of Bitcoin Mining

What Is Bitcoin Mining?

Bitcoin mining is the way in which new coins are added to the existing supply of the cryptocurrency known as Bitcoin (BTC).

These transactions are confirmed by the network and represent a critical component of the maintenance and development of the blockchain ledger.

Cryptocurrency mining is attractive to many investors interested in cryptocurrency and the most profitable are able to do it on a large scale incorporating an industrial mindset.

How Do I Mine Bitcoin?

Mining Bitcoin is not for the faint of heart.

Your computer must solve complicated math problems that verify transactions in the currency.

When a bitcoin is successfully mined — the miner receives a bitcoin.

One can use a normal computer that has a CPU, motherboard, RAM, and storage to mine bitcoin.

The only difference and the most important requirement here is the graphics processing unit (GPU) or the video card.

A high-performance GPU is a must if a person wants to mine Bitcoin.

Bitcoin mining is done using hardware called ASICs that is short for Application-Specific Integrated Circuits.

Another obligatory requirement is electricity for mining machines.

The largest bitcoin miners are usually found in countries with low-cost electricity.

Miners need robust infrastructure to mine mainly energy and equipment.

How do I do it at home?

A company called Compass Mining is betting that individuals will want to partake in bitcoin mining.

There’s a lucrative payout — if you’re lucky enough to mine a coin.

But the hassle of operating a mining rig can certainly cut into profits.

Compass’ new retail program will allow the purchase of a single application-specific integrated circuit (ASIC) mining rig that they can set up at home.

Mining corporations usually buy in bulk — this finally gives the little guy a chance.

Brands include top-of-the-line ASICs WhatsMiner series from MicroBT and the Antminer series from Bitmain, offering 78 to 95 Tera hashes per second and ranging in price from $8,100 to $10,400.

Profitability calculators can help you estimate your potential ROI.

Rigs are noisy and hot so it’s not for everyone.

Potential miners really need to do their due diligence if they want that sort of environment in their house.

About the size of a desktop computer tower, they can emit between 50 and 75 decibels of noise, which is roughly the same level as a vacuum cleaner or a hairdryer.

Just like the work-from-home paradigm was borne out of the pandemic, many who want to mine bitcoin, wish to do it from the confines of their couch and man cave.

The demand for mining hosting sites in North America has been outstripping supply. Encouraging bitcoin enthusiasts to set up their own operations at home is one way to relieve the pressure on existing hosting infrastructures.

China has now initiated a blanket ban on cryptocurrencies opening up opportunities for alternative miners before these Chinese mining operations relocate abroad.

The crackdown nearly halved the mining difficulty for the entire Bitcoin network. Miners outside China have been able to mine more bitcoin given the record low mining difficulty, raking in high revenue.

Corporate self-mining companies, such as Marathon and Riot, as well as third-party hosting sites, are facing a shortage in infrastructure to support more mining operations.

Higher bitcoin prices also mean more incentives for potential miners to flood this industry.

If Compass doesn’t seem right for you, then buying mining machines either from Chinese miners or from mining machine manufacturers through e-commerce platforms such as Alibaba and eBay could be a great option.

Individual mining rigs from Compass are expected to deliver within two to three weeks.

December 23, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
December 23, 2021
Fiat Lux

Featured Trade:

(HOW TO SET UP A CRYPTO TRADING ACCOUNT)
(BTC), (COIN)

December 21, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
December 21, 2021
Fiat Lux

Featured Trade:

(THE BEST CRYPTO ETF RIGHT NOW)

The Best ETF Right Now

Bitcoin Letter

It’s my responsibility to new readers of the Mad Hedge Bitcoin Letter to offer an imminent snapshot of where we are in the crypto universe at this point in time.

It would be negligent if I didn’t.

To say that Bitcoin is the only investment in the crypto sphere is also not true — sure, Bitcoin is the biggest, most trusted crypto network, and many have become grotesquely wealthy because of it — yet there are other altcoins out there.

Knowing what to digest and what to avoid like the plague is where I come in.

Don’t get me wrong — I am still highly bullish on Bitcoin as an asset, but we do not operate in a vacuum.

As one might have assumed, lesser coins with cheaper pricing benefit/suffer from the law of small numbers with wider gaps in percentage change on up and down days.

It’s just the nature of the beast.

Overall, the second-largest cryptocurrency by valuation performing well is a highly bullish signal for Bitcoin itself.

It’s a victory in itself that it finds itself near all-time highs of around $4,000.

It also signals increasing adoption which is positive for the security and regulation of the broader asset class.

I subscribe to the “rising tide lifts all boats” theory in cryptocurrencies as it does more to legitimize the top asset than pull capital away from it.

The most poignant takeaway is that readers cannot just overlook other cryptocurrencies just because Bitcoin is the apex warrior.

Returning to the foundations, cryptocurrencies have a reputation for being difficult to understand, so don’t be embarrassed if you’re befuddled — I felt the same way the first day I tried to understand this stuff.

The Harris Poll earlier this year found that 61% of people who had heard of cryptocurrencies still had little or no understanding of how they work.

How Do I Buy Bitcoin?

Conventional wisdom has it that the most likely route is a Bitcoin online exchange.

Create an account — enter a payment method.

Reputable exchanges will require information such as bank account details or a debit or credit card.

Then the proof of identity is required such as a driver’s license, ID, or passport.

After verification, purchase Bitcoin by transferring it to a personal hot wallet and buy and sell the asset!

Remember that these accounts coming directly from bitcoin brokers aren’t insured and aren’t secure.

Therefore, a better way to mitigate risk is by going through a Bitcoin ETF on the U.S. public markets with an official broker registered with the Security and Exchange Commission (SEC).

Not only do public stocks provide additional security as a bitcoin trading vehicle, but ETFs are an aggregation of crypto-asset tracking data points reducing the volatility even more.

Unregulated crypto exchanges come with a higher understanding of operational and systemic risk and not everyone wants to venture into the arid Wild West without a horse or water.

If you trade with an official brokerage registered with the SEC, you are covered by Federal Deposit and Insurance Corporation (FDIC) insurance up to $250,000 per account holder in a financial institution.

If there are joint owners, then the account is insured up to $500,000 ($250,000 for each owner).

The FDIC is a U.S. government agency so, in effect, these accounts are federally insured.

There is also another layer to this — you are covered by Securities Investor Protection Corporation (SIPC).

SIPC is a U.S. government creation but not an agency of the U.S. and insures all brokerage accounts up to $500,000, but only up to $250,000 for cash in such accounts that are intended to be used for securities transactions.

Cash in brokerage accounts only for the purpose of earning interest is not protected. While SIPC has been established by Congress, it is funded by all of its member broker/dealers.

In many cases, SIPC protects against unauthorized trading or theft in the account.

My favorite crypto ETF is Amplify Transformational Data Sharing ETF (BLOK) which has morphed into one of the best crypto ETFs on the market since its inception.

BLOK is an actively managed ETF that seeks to provide total return by investing at least 80% of its net assets in equity securities of companies actively involved in the development and utilization of blockchain technologies.

BLOK’s biggest two positions are Bitcoin proxy MicroStrategy (MSTR) and a Canadian crypto mining company called Hut 8 Mining Corp (HUT).

I have already shot out a MicroStrategy trade alert to new readers and am incredibly bullish on the company.

However, this ETF encompasses more than MSTR offering broader exposure to firms related to Bitcoin, crypto miners, and software companies that are heavily into crypto.

Hut 8 engages in industrial-scale bitcoin mining operations. It also owns and operates 38 BlockBoxes in Drumheller, Alberta, and 56 BlockBoxes in Medicine Hat, Alberta.

BlockBoxes are one of the most powerful and cost-effective bitcoin mining units available on the market.

BLOK doesn’t track bitcoin 1:1, but it does mimic the price action relatively closely albeit with less extreme swings.

Controlling excess volatility is something you should be happy about.

BLOK also has an expense ratio of 0.71% which isn’t too expensive for those who want to buy and hold the ETF and not trade the derivative.

Buying BLOK is most likely the best way to ensure safe trading under the framework of the SEC, but I understand others have a higher risk profile which is also welcome.

To understand more about the ETF BLOK, click here.

(https://amplifyetfs.com/blok.html)

The crypto revolution is in its early stages and the possibilities are endless considering the adoption is just beginning.

However, we cannot just assume bitcoin will always lead the charge, and taking note of what is happening in the rest of the industry offers us even deeper insight into how the bellwether (bitcoin) is performing and reacting to the future challenges as top dog.

The truth is that there will be several winners from higher crypto prices and not just bitcoin. As a technology, blockchain will also be a massive winner from higher crypto prices.

Even if one does not want to profit from crypto, this will be the intellectual challenge of a lifetime.

BLOK ETF INDUSTRY ALLOCATION

Quote of the Day - December 21, 2021

Bitcoin Letter

“Bitcoin will do to banks what email did to the postal industry.” - Said Swedish information technology entrepreneur and founder of the Swedish Pirate Party Rick Falkvinge

December 16, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
December 16, 2021
Fiat Lux

Featured Trade:

(ANOTHER WAVE OF CRYPTO ADOPTION IS COMING)
(BTC)

Another of Crypto Adoption is Coming

Bitcoin Letter

Wall Street is finally getting the message.

On the horizon is crypto becoming an investment-grade quality asset and many hedge funds and private equity funds aren’t risking missing the boat.

This translates into more attention given to digital assets from institutional managers than ever before.

Around 35% of hedge fund managers believe that crypto in one form or another is the “can’t miss” asset of the next 10 years.

This is a seismic shift in the attitude of privately managed funds, and it was only last year that crypto was deemed an “asset of interest.”

But with many things in life, people become conditioned and 2021 will prove to the mainstream that this asset is not going anywhere.

What can you expect from now on?

The unadulterated “professionalization” of crypto through and through.

The expertization of the cryptocurrency ecosystem will translate into a more robust infrastructure that will offer many types of new exchanges and DeFi technologies that will segue us into the internet 3.0 or better known as the metaverse.

We are still quite far from being a “traditional” asset, but every little bit helps.

There will also be widespread encouragement at the Federal and State level for a clearer understanding of how crypto will be regulated.

There is still a great deal of confusion, and I am not only talking about Congress whose members hardly understand what the digital gold is about.

But I can say with conviction that we are resolving bottlenecks and it’s true we won’t get fully scaled mainstream adoption next year, but at the conversational level, many are looking out for the next opportunity.

Whether they will jump into it guns blazing is the next issue we will need to consider.

This all stems from investors hoping to participate in the “first mover” effect which is often the path from rags to riches.

Many institutions are now forming new crypto divisions inside the money funds they manage.

Last year, Tudor Investment Corp. founder and Chief Investment Officer Paul Tudor Jones gained the attention of crypto enthusiasts after arguing in an investor memo that bitcoin can serve as an inflation hedge.

Access to digital custody solutions has been a catalyst to manager interest in crypto.

Internal control reports from these custodians, assessments that have been evaluated by independent parties, have helped firms better weigh regulatory, business, and other risks associated with crypto assets.

New regulations will create another wave of institutional money into crypto as a group of managers are on the fence and waiting for the next level of clarity.

The right regulatory framework would allow for even more investment opportunities.

In general, large institutional managers are the most geared towards crypto investments which I would classify as funds with over $10 billion.

There still is much headway to make as around 15% of hedge fund managers have allocated towards crypto and about 10% of private equity funds.

Of these funds that have participated in crypto, it’s highly common to see only 1-5% of their capital invested in the crypto space.

Naturally, this will grow as crypto starts to pose a more attractive financial profile than stocks or fixed income.

Among management firms detailing plans to participate in crypto, nearly half said they would invest directly into cryptocurrencies, and half expect to allocate to crypto derivatives.

Ultimately, the potential return on capital is the driving force behind the desire for institutional money diving into this newly established asset.

The maturation phase will continue into 2022 and missing out on this industry is a suicide mission for private money and these managers know that.

Quote of the Day - December 16, 2021

Bitcoin Letter

“I trust bitcoin more than I trust my bank.” — Said Founder and Managing Director of the Boost VC Accelerator Adam Draper

December 14, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
December 14, 2021
Fiat Lux

Featured Trade:

(CRYPTO IS RESTING)
(BTC)

Crypto is Resting

Bitcoin Letter

The more speculative assets won’t be able to reverse themselves in the short-term as the Fed has singlehandedly crashed the Santa Claus rally that was on the verge of breaking out at the beginning of the month.

Meme stocks, technology growth stocks, and yes, Bitcoin (BTC) have been main participants of the repricing occurring in the risk markets as we condition ourselves to a new narrative of rising rates.

Moving up the timeline of rate rises has in effect, crushed the performance of cryptocurrencies and the inflationary headlines have become worse in the past week.

This time is important because we will be able to understand how cryptocurrency behaves during a tightening cycle, and there isn’t much recent historical data to compare.

The last time the Federal Reserve initiated a path of tightening monetary policy, following a period of easing, in 2015, the price of Bitcoin was $465, or about a hundredth of its current price.

Disappointingly, Bitcoin hasn’t been the haven for investors in times of risk-off trading, boding ill for the short-term projection of higher Bitcoin prices.

It looks that we will need more time to drag out these hawkish headlines that will suppress the price of crypto before we go higher again.

Today did nothing to help Bitcoin with wholesale prices spiking 9.6% from a year ago, the highest level going back to November 2010.

Bitcoin’s place within financial markets has still not been fully decoded, but how it reacts in the coming days is likely to tell us much more.

As a reminder, the Fed Funds Rate is the rate that banks charge each other to borrow “reserves” overnight, and it is currently 0% – 0.25%.

In the 1970s, it took bold political maneuvering to endure that much economic damage when the Federal Reserve attempted to choke off inflation by repeatedly raising the Fed funds rate until it hit 21%.

It won’t be possible for the Fed to raise rates that fast or that much without triggering an economic recession.

In mid-June, the Fed talked about the possibility of raising rates almost 2 years from now, and stocks corrected.

The truth is that our debt servicing responsibilities are so onerous that the Fed is trapped in a corner.

Total Federal Debt is about $28 trillion and growing, while State and Municipal debt is approaching $4 trillion.

The interest paid by the Fed for its debt this year will be just under $400 billion.

If rates returned to levels not seen in the 1990s, the Federal government will not be able to service the debt and will need to claim bankruptcy which would be the event of a lifetime forcing an avalanche of capital into Bitcoin.

There is about $11 trillion of corporate debt in the U.S., and this may be the biggest headache of all.

The heavy reliance on cheap capital and government help means that over 600 zombie firms aren’t growing but exist to payout employees and shareholders.

Investors know this too and that is why stocks drop every time the mere mention of higher rates surfaces in the press.

The Fed is most likely to find excuses as to why 2022 is not actually the ideal time for rapid interest rate rises but we will get the minimal rises required for the Fed to save face.

My overarching point is that Bitcoin will need to go through a sideways correction for speculative assets to absorb these 180-degree pivots in monetary policy.

The hawkish pivot is still playing itself out and we have had to minimize our trading portfolio with December looking like a washout.

I believe we must continue down the path of a Japanization to protect the health of the US economy. This will almost certainly contain bedrock policies as continued low rates, anemic growth, and massive government intervention.

These trends will underpin the rising price of crypto.

Hyperinflation is great for the price of Bitcoin, but when the Fed looks seriously about killing it, the crypto market gets spooked.

This will pass through.