Welcome to this week’s edition of the Myth of Money, a weekly newsletter on all things money, economics and technology read by 10,000+ investors, curated by Tatiana Koffman.
Disclaimer: The following is not intended as investment advice. Do your own research.
Greetings from sunny Dubai :)
Bitcoin investors continued to experience nausea this week, as the market sea-sawed its way from high $30,000’s down to $28,000 before make a modest recovery. Earlier this month, Bitcoin hit a record high of $42,000, rallying more than 900% since March.
As fear set in for many new investors, I wanted to take a moment and remind Bitcoin holders to zoom out.
Bitcoin now has a price floor, that is defined by mining.
What is Mining?
My mother called me this week (she bought her first Bitcoin in the Summer of 2020) and asked about mining, so I started digging for simple explanations.
By mining, you can earn cryptocurrency without having to put down money for it.
Bitcoin miners receive Bitcoin as a reward for completing "blocks" of verified transactions which are added to the blockchain.
Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle first, and the probability that a participant will be the one to discover the solution is related to the portion of the total mining power on the network.
You need either a GPU (graphics processing unit) or an application-specific integrated circuit (ASIC) in order to set up a mining rig.
Another simple way to describe mining is - think of it as a group of voters, reaching a consensus that a transaction occurred and that it is actually correct. These voters get a reward for their troubles.
To verify each transaction through mining and “earn” Bitcoin, one requires two things: (1) equipment and (2) energy, both of which are costly. Additionally, approximately every four years, the mining reward is halved. After the halving, miners receive half of the Bitcoin reward for the same amount of work and investment. The last halving occurred on May 12, 2020.
Today’s cost of mining 1 Bitcoin ranges in between $5,000 and $8,500.
If you compare Bitcoin mining to Gold mining, you will see some similarities. Both require equipment and energy expense, and both become harder to mine with time, as early reserves become depleted, creating natural scarcity of the asset.
Shortage of Mining Equipment
There is a severe shortage of Bitcoin mining equipment and investors are taking note.
Earlier this month, Coindesk reported:
Even though leading bitcoin mining manufacturer Bitmain doubled prices to capitalize on overwhelming demand resulting from the surge in the price of bitcoin, it still pre-sold three months of inventory in a few weeks.
In early December, Bitmain was pre-selling bitcoin ASIC miners with an expected shipping date of May 2021…Less than a month later, Bitmain has sold out through August 2021 and has raised its prices significantly.
In late November, Bitmain’s Antminer S19 was priced at $1,897. Now, the same machine sells for $3,769, a 98% markup.
With miners eager to buy any available machines, secondary mining markets continue to benefit from primary manufacturers’ low inventory, with activity surging to its highest levels since 2017. Prices for more efficient, second-hand models have climbed to 12-month highs.
Recent reports show that the waitlist for ASIC miners is up to one year long 🤯
Shortage of Microchips
The Economist published a great piece this week on the growing shortage of microchips. Chips are used in everything from computers, smartphones, cars, and are a key ingredient in Bitcoin mining equipment.
“The chipmaking industry is booming. The market capitalisation of the world’s listed semiconductor firms now exceeds $4trn, four times what they were worth five years ago.
On Corporate Budgets:
Capital spending, too, is rising. Samsung, a South Korean conglomerate, wants to invest more than $100bn over ten years in its chip business (although some of that will go to its memory chips used in things like flash drives rather than microprocessors). On January 14th Taiwan Semiconductor Manufacturing Company (TSMC)—which turns blueprints into silicon on behalf of firms like AMD and Nvidia—stunned markets when it increased its planned capital spending for 2021 from $17.2bn to as much as $28bn, in anticipation of strong demand. That is one of the largest budgets of any private firm in the world.”
“Clever startups in the field are securing billion-dollar valuations. Cerebras, an American firm which designs ai chips, has earned one of $1.2bn. A British rival called Graphcore, which has been working with Microsoft, was valued at $2.8bn in December. On January 13th Qualcomm, a firm best-known for its smartphone chips, paid $1.4bn for Nuvia, a startup staffed by veterans of Apple’s in-house chip-design team.”
“Those worries are sharpened by the industry’s growing political importance. As part of its economic war against China, America has sought to deny Chinese firms the ability to build leading-edge chip factories of their own. China has put semiconductors at the core of a multibillion-dollar plan to become self-sufficient in critical technologies by 2025—especially now that American sanctions have deprived it of some foreign imports.” Read Full Story.
These trends re-iterate that Bitcoin is simply past the point of failure. Too many people, companies and institutions are invested. And as mining becomes more expensive with time, so will the price floor for Bitcoin.
How Can You Invest In This Trend?
Aside from Bitcoin itself, you can invest in microchip companies. Here are a few of the most popular publicly traded companies:
NASDAQ: NVDIA - NVIDIA Corporation Nvidia Corporation is an American multinational technology company that designs graphics processing units for the gaming and professional markets, as well as system on a chip units for the mobile computing and automotive market.
NASDAQ: AMD - Advanced Micro Devices, Inc. is an American multinational semiconductor company based in Santa Clara, California, that develops computer processors and related technologies for business and consumer markets.
SWX: AMS - AMS AG, formerly known as AustriaMicrosystems AG and still known as AMS, is an Austrian electronics company that designs and manufactures sensors for small form factor, low power, highest sensitivity and multi-sensor applications
NYSE: TSM - Taiwan Semiconductor Manufacturing Company is the world's most valuable semiconductor company, and the world's largest dedicated independent semiconductor foundry, with its headquarters and main operations located in the Hsinchu Science Park in Hsinchu, Taiwan.
This Week By the Numbers
Markets waited with bated breath as Joe Biden was inaugurated as the 46th President of the United States of America. Some traders expected volatility and a potential second set of protests at the capitol, but the event went smoothly and traditional markets turned green across the board, with the NASDAQ and the S&P closing the week at record highs.
U.S. Treasury Secretary Janet Yellen reportedly considers taxing unrealized capital gains
Unrealized capital gains refer to the theoretical increase in value of assets that an investor holds onto. The gains are only realized when the investor sells the asset at a price higher than what was initially paid to buy it. “I think that would hit sentiment. It would obviously make it less attractive to be an investor, all things being equal,” said the widely followed investment guru, who is also co-chairman and co-founder of Oaktree Capital. The only way investors can avoid that taxation is by not making any profit from their assets, which is “not a great idea.” Read Full Story.
Sequoia Holdings says employees can draw part of salary in cryptocurrencies
Software development services provider Sequoia Holdings LLC said on Thursday its employees can now receive a part of their salary in cryptocurrencies, should they choose to. Under the new program, employees can elect to defer a portion of their salary into bitcoin, bitcoin cash, or the Ethereum platform’s ether, Sequoia Holdings said. Read Full Story.
Coinbase Joins $6M Funding Round for Licensed Middle-East Exchange Rain Financial
Bahrain-based cryptocurrency exchange Rain Financial has raised $6 million in Series A funding from Coinbase and other investors. Rain Financial, the first cryptocurrency exchange with a crypto-asset service provider license from the Central Bank of Bahrain. The $6 million funding round was led by Middle-Eastern VC firm MEVP Capital, with Coinbase, Vision Ventures, CMT Digital, Abdul Latif Jameel Fintech Ventures and DIFC also participating. In 2019, the exchange closed a $2.5 million funding round co-led by BitMEX Ventures and Kuwait-based cryptocurrency fund Blockwater. Read Full Story.
Elon Musk to offer $100 million prize for 'best' carbon capture tech
Tesla Inc chief and billionaire entrepreneur Elon Musk on Thursday took to Twitter to promise a $100 million prize for development of the “best” technology to capture carbon dioxide emissions. Capturing planet-warming emissions is becoming a critical part of many plans to keep climate change in check, but very little progress has been made on the technology to date, with efforts focused on cutting emissions rather than taking carbon out of the air. The International Energy Agency said late last year that a sharp rise in the deployment of carbon capture technology was needed if countries are to meet net-zero emissions targets. Read Full Story.
VIP Investor List
I will start sending out occasional investment opportunities to those on my VIP investor list. Some of these will be fund investments, start-up investments, pre-IPO deals, crypto and digital assets opportunities, exclusive allocations… you get it. If you are an accredited investor and want to be on this list, send me a note.
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Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital and Cryptocurrencies. I believe in empowerment through closing the financial education gap and creating equality of opportunity for the next generation. Check out my articles in Forbes here.
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