This morning opens with yet more Bitcoin headlines and news. I guess it is in keeping with the times that what was so recently a raging bull market should apparently so quickly become a bear one. From Reuters.
Bitcoin traded at $10,968, down 3.7 percent in Asia, after a fall of 16.3 percent on Tuesday, its biggest daily decline in four months.
Just over 24 hours ago it was above US $13,000 and of course in mid-December we saw a peak of over US $19,000. It is also important to provide some perspective as if we look back a year we see that it was below US $900. Or to put it another way over a year we have quite a bull market and over a month a bear one.
Another way of putting it is shown below.
I think the mean needs to be higher but otherwise we get an attempt to explain human investing psychology with both its flaws and glory. One facet of this which I found particularly troubling came from CNBC just over a month ago.
Bitcoin is in the “mania” phase, with some people even borrowing money to get in on the action, securities regulator Joseph Borg told CNBC on Monday.
“We’ve seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines,” said Borg, president of the North American Securities Administrators Association, a voluntary organization devoted to investor protection. Borg is also director of the Alabama Securities Commission.
If only Borg had said “resistance is futile”! But he was on the ball in two big respects in that he was warning of a problem should people borrow into a surge and also later he pointed out that “innovation always out runs regulation”. It is hard not to note that the peak we have seen so far came quite quickly.
The banks and Bitcoin
However the apparently Bitcoin friendly behaviour of the banks did not last. From the Financial Times on Saturday.
Bitcoin investors trying to channel their new fortunes into UK property are being turned away by mortgage lenders and brokers who fear breaching anti money-laundering regulations.
There was a more specific example.
One public sector worker built up a deposit of £40,000 after investing in bitcoin, said Mark Stallard, a broker and principal at House and Holiday Home Mortgages. But he said he had been unable to arrange a loan because it was hard to prove where the funds had arrived from and to link them to his client.
“The first mortgage lender I rang asked me what a cryptocurrency was,” Mr Stallard said.
“I rang two other lenders and they said they would not touch it. “When I mentioned where the money had come from there was massive reluctance to help or understand the problem. I do not believe the mortgage providers in general are ready for this issue and research tells me that a lot more people will be knocking on our doors with funds made or raised in this fashion.”
There are various issues here as for example the client could say he has made the money by gambling/investing. Of course the latter issue of investing raises the issue of whether capital gains tax is due? So perhaps that is why there is a claimed issue with where the funds arrived from. Mind you the Building Societies Association have a cheek to say the least to say this.
“There is currently no regulation of these electronic currencies, which puts them into the highest risk category in relation to money laundering. In addition, it is well known that such currencies are popular with criminals, who use them to launder the proceeds of crime.”
Apparently you can however pay off your mortgage with Bitcoin profits.
Existing borrowers who want to use their bitcoin profits to pay down mortgage debts are free to do so. Daniel Hegarty, founder of online mortgage broker Habito, said a customer recently cancelled his remortgage application before it was completed, deciding instead to pay off his whole mortgage with his money from bitcoin investments.
So there is quite an inconsistency there as I again have a wry smile at the banking sector accusing others of facilitating money laundering and being popular with criminals!
This is an odd one with the cryptocurrencies.I am sure many of you know more about this than me but there is a clear contradiction in what we are told. Firstly we are regularly told that the trading is anonymous and that is one of the points of the system. Fair enough. But we are also beginning to be told that financial crimes can be spotted so we simultaneously do not know what is happening but we also do?!
Electricity and power
We are getting ever more stories about the energy consumption of Bitcoin as this tweet from John Quiggin suggests.
#Bitcoin mining ended tomorrow, China could reduce its coal consumption by an amount comparable to its entire import of Australian thermal coal (supporting calcs to follow)
Sadly he has not yet provided the mathematics behind this but there have been plenty of other suggestions in the same vein. For example from Bloomberg last week.
Miners of bitcoin and other cryptocurrencies could require up to 140 terawatt-hours of electricity in 2018, about 0.6 percent of the global total, Morgan Stanley analysts led by Nicholas Ashworth wrote in a note Wednesday. That’s more than expected power demand from electric vehicles in 2025.
There are plenty of arguments about the numbers but suddenly hydro-electric power seems to be en vogue as this from Bloomberg yesterday suggests.
A Canadian utility has already voiced enthusiasm. Hydro-Quebec has said it’s in “very advanced” talks with miners about relocating to the province and that it envisions the miners soaking up about five terawatt-hours of power annually — equivalent to about 300,000 Quebec homes — from the surplus created by the region’s hydroelectric dams.
If we move onto future power demands of which Bitcoin and the other cryptocurrencies may turn out to be significant I have a question. Are we not going to run out of electricity? My own country has been something of a shambles in providing new power generation as the ultra expensive plans for a new nuclear point at Hinkley Point demonstrate and yet we are told this. From the BBC today.
Three-fifths of new cars must be electric by 2030 to meet greenhouse gas targets, ministers have been warned.
There have been some movements on infrastructure as for example there are now nine charging points around Battersea Power albeit they seem to be rarely actually used. But in a future where they are used a lot and that is not so inconceivable where is the electricity going to come from? It is not that there has been complete failure as for example I have just checked and wind power is currently providing over 10 GW but of course it relies on the wind blowing. It is helping in this cold snap but what if people wanted to charge their vehicles on a cold windless night? Perhaps that is when Smart Meters will really come into their own and not in a good way.
There is a lot to consider here as we mull two concepts that would have been regarded as separate only a short time ago which are Bitcoin and electricity. Here is another way of looking at it from Chris Skinner.
Part of the problem is, that all those Bitcoin miners are racing to solve the same problem, but only the miner who solves the problem first gets to actually claim the block. All the other miners lose out, and their energy goes to waste. Even with that probability, with 1 Bitcoin at roughly US$20,000, there’s plenty of incentive to try.
There is still a fair bit at US $11000. But unfortunately trying it at home will not work.
Even so, a fairly typical computer with an average type of SHA isn’t going to cut it — a recent estimate was that to mine a single Bitcoin using an average computer would take you around 1,367 years
So you would need something like Carl Sagan’s SETI project. However one way of looking at the message from Alex Hern below would be to think is Hinkley Point a way of nobbling Bitcoin?
The power consumption of bitcoin mining is purely artificial, and its equilibrium is essentially at the level where the cost of all the electricity used is equal in the long run to the value of the bitcoin granted in mining rewards.
The energy problem is simply that renewable sources of electricity are sometimes outside our control whereas things we are shutting down such as coal generation we can control. Yet the potential demands for electricity are rising with no clear plan to provide for them unless of course cold fusion finally works or we find a way of being able to store power efficiently.