{"id":19055,"date":"2019-01-26T08:14:10","date_gmt":"2019-01-26T14:14:10","guid":{"rendered":"http:\/\/huewhite.com\/umb\/?p=19055"},"modified":"2019-01-26T08:14:10","modified_gmt":"2019-01-26T14:14:10","slug":"currency-always-has-costs-ctd-10","status":"publish","type":"post","link":"https:\/\/huewhite.com\/umb\/2019\/01\/26\/currency-always-has-costs-ctd-10\/","title":{"rendered":"Currency Always Has Costs, Ctd"},"content":{"rendered":"

The fall of Bitcoin<\/a> appears to be continuing. Bloomberg<\/strong><\/em> reports<\/a> on the latest sign of impending apocalypse for those who hold Bitcoins:<\/p>\n

The production-weighted cash cost to create one Bitcoin averaged around $4,060 globally in the fourth quarter, according to analysts with JPMorgan Chase & Co.<\/p>\n

With Bitcoin itself currently trading below $3,600, that doesn\u2019t look like such a good deal. However, there\u2019s a big spread around the average, meaning that there are clear winners and losers.<\/p>\n

Low-cost Chinese miners are able to pay much less — the estimate is around $2,400 per Bitcoin — by leveraging direct power purchasing agreements with electricity generators such as aluminum smelters looking to sell excess power generation, JPMorgan analysts led by Natasha Kaneva said in a wide-ranging Jan. 24 report about cryptocurrencies spearheaded by Joyce Chang. Electricity tends to be the biggest cost for miners, needed to run the high-powered computer rigs used to process data blocks to earn Bitcoin.<\/p><\/blockquote>\n

Of course, if Bitcoins surge in value relative to the dollar, then they become worth mining again, or if power becomes cheaper, yada yada yada.<\/p>\n

But I think it’s worth noting that we’re not seeing standard economics here. That is, it’s not competition<\/em> impacting the Bitcoin mining industry, but rather the external factor of the cost of electricity<\/em>. While the amount of energy in use to mine Bitcoins is nothing to sneeze at, it’s still not a large enough factor that a few miners dropping out will drop the price of electricity. BTW, here’s the latest chart of estimated\u00a0Bitcoin energy consumption<\/a>:<\/p>\n

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Too bad that chart doesn’t include estimated value of a Bitcoin in dollars vs the cost to mine a single Bitcoin. I would expect that the two would meet right at or before the 30% drop in energy consumption.<\/p>\n

So what does it all mean? Depends on what drives the value of a Bitcoin. It’s not an absolute value as recent years have demonstrated, between outright fraud and speculative investments. It doesn’t appear to truly serve any necessity. It’s power consumption is significant in a world which is damaged by each joule consumed.<\/p>\n

If I were significantly more risk-prone, I’d short Bitcoins with a big chunk of cash. But I think there are better investments out there, so why indulge in taking advantage of someone else’s failure?<\/p>\n

But I’m sure glad I never tried to invest in<\/del> buy Bitcoins, as I discussed earlier in this thread. I’d have lost most of what I ventured, I suspect.<\/p>\n