Thank you to everyone who attended our bitcoin mining panel last week. We had a fantastic audience with many questions for our panel of bitcoin mining experts – Mathew D’Souza of Blockware Solutions, Thomas Ao of MCredit and Yida Gao of Struck Capital. The panel lasted just over one hour and was ably moderated by Michael Fitzsimmons of Williams Trading and was sponsored by Cole-Frieman & Mallon LLP and Aspect Advisors LLC.
Here is the presentation with slides referenced below:
Here are the take-aways:
- Many opportunities for BTC mining – there are many different businesses in the mining space including: direct mining, buying/selling mining rigs, making loans backed by mining rigs, developing a mining farm, and cloud mining, among others.
- Potential for high returns – successful mining enterprises can make 8-12% ROI per month when BTC is priced around $10,000. (The panel focused mainly on the economics of BTC mining and did not touch on the mining of other crypto assets.)
- Large secondary market for mining rigs – because it is relatively difficult to import mining rigs to the US (time and cost/tariffs), some groups buy and sell rigs on the secondary market in the US in addition to directly mining BTC and this can be a profitable strategy in its own right. Bitmain is the main supplier of new rigs and the prices from both Bitmain and the secondary market can be as volatile as the BTC market.
- Cost of producing BTC – the cost to produce one BTC can vary widely depending on cost of electricity and the type of rig used, as the proprietary research from Blockware Solutions demonstrates (see attached presentation). Blockware’s research also shows that most rigs coming online are the more efficient next generation machines.
- The Halvening – in May the halvening is expected to bolster the generally bullish BTC trend we’ve seen in 2020. This will undoubtedly impact the economics of mining and the secondary market for rigs.
- China and mining – a favorable tax regime and lower electricity costs made China a popular location for mining, despite risks associated with the government’s stated aim to eliminate virtual currency mining as an industry. These risks have significantly abated after the recent announcement by the National Development and Reform Commission of China (NDRC) that mining has been removed from the elimination list.
- Environmental impact – innovation in rig/chip designs are making mining more environmentally friendly as less watts are required per terahash. The panel generally believes that after the halvening less efficient miners will go offline.
- Issues – there has been many scams with respect to mining, especially mining farms and cloud mining. Also, there is high general investment risk in mining operations because many operators just don’t know what they are doing.
- Other BTC financial products – miners may decide to hedge their BTC exposure through OTC products, but in general miners are not concerned with BTC financial products unless they affect the demand/price of BTC.
We hope you enjoyed this event and if you have any feedback, we would love to hear it in our quick survey. Please feel free to forward this email along to anyone you think might be interested. We look forward to seeing you at our next event.
Bart Mallon & Michael Fitzsimmons
Aspect Advisors LLC
Aspect Advisors LLC is a modern regulatory consultant providing customized compliance solutions to entrepreneurs. The firm has a focus on fintech companies, broker-dealers, and investment managers (hedge fund, VC, PE, RIA, etc). We provide compliance and back-office solutions engineered to decrease worry and save time and resources. Among other items, the firm helps clients with regulatory registration, drafting compliance policies and procedures, conducting annual reviews, and other bespoke items.
Cole-Frieman & Mallon LLP
Cole-Frieman & Mallon LLP is a premier boutique investment management law firm, providing top-tier, responsive, and cost-effective legal solutions for financial services matters. Headquartered in San Francisco, Cole-Frieman & Mallon LLP services both start-up investment managers, as well as multi-billion-dollar firms. The firm provides a full suite of legal services to the investment management community, including hedge fund, private equity fund, venture capital fund, mutual fund formation, adviser registration, counterparty documentation, SEC, CFTC, NFA and FINRA matters, seed deals, hedge fund due diligence, employment and compensation matters, and routine business matters. The firm also publishes the prominent Hedge Fund Law Blog, which focuses on legal issues that impact the hedge fund community. For more information, please visit us at colefrieman.com.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Cole-Frieman & Mallon has been instrumental in structuring the launches of some of the first digital currency-focused hedge funds. For more information on this topic, please contact us or you can call Mr. Mallon directly at 415-868-5345.