About: Investoom Weekly is the newsletter by the market intelligence company Investoom that provides AI-powered investment insights through social sentiment data, onchain data and financial data. Investoom democratizes the access to hedge fund insights.

Overview of the topics

• Crypto Highlights: The hash rate share of the top mining companies has increased from 23.93 to 56.98 exahashes per second.
• Onchain Data: If a miner successfully adds a block to the blockchain, he receives a reward of 6.25 BTC.
• Social Data: Next year, the number of BTC that can be mined per block will decrease from 6.25 to 3.125.
• Financial Data: Miners are taking steps to expand their business operations in various ways to beat the crypto winter.
• Deep Dive: The environmental impact of cryptocurrency mining is becoming a growing concern.

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Crypto Highlights

The hash rate has risen by 82% in a year

Bitcoin mining by publicly traded companies has experienced significant growth in recent years. The hash rate share of the top mining companies has increased from 23.93 exahashes per second (EH/s) in January 2022 to 56.98 EH/s in January 2023. This growth stands for an 82% yearly increase.

The American company Core Scientific currently leads the pack with a hash rate share of 30%, followed by Riot and Marathon in second and third place. Combined, the three companies account for nearly 60% of the total hash rate share among public companies. The majority of the ten public miners have either maintained or increased their hash rate share year-over-year.

The significant rise in hash rate has directly impacted mining difficulty, which is set to adjust by more than 10% on Friday, February 24th. This adjustment will mark the most significant positive changes since October 2022.

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Onchain Data

Bitcoin mining: beyond the legend.

Bitcoin mining is the process of creating new Bitcoin by solving complex mathematical problems that verify transactions on the network. Miners are rewarded with a predetermined amount of BTC for their efforts.

Since its creation in 2009, BTC has become one of the most popular cryptos, due to its volatile price swings and exponential growth in value. As the value of Bitcoin and other cryptocurrencies has soared in recent years, interest in mining has also increased. However, mining BTC is a complex process that is not accessible to most people.

To mine Bitcoin, miners use specialized computers that perform complex calculations to validate transactions. However, these calculations require a significant amount of energy and high computing power, which is extremely costly. Moreover, the difficulty of solving these calculations increases over time, making it even more challenging to earn a profit from mining.

Despite the potential rewards of mining Bitcoin, there are significant risks to be aware of, including the cost of equipment and electricity, the volatility of Bitcoin prices, and regulatory uncertainty. As such, BTC mining is generally not recommended for the average person and it is mostly undertaken by large mining operations with significant resources.

With this respect, if a miner successfully adds a block to the blockchain, he receives a reward of 6.25 BTC, which is cut in half roughly every four years. As of September 2022, when Bitcoin was traded at around $20,000, the value of 6.25 BTC was approximately $125,000.

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Social Data

Bitcoin miners might move to Ethereum

Adhering strictly to the maximalist dogma of Bitcoin doesn’t benefit anyone. While Bitcoin maximalism has been widely discussed, there has been little discussion of its impact on markets, including its role in institutional capital deployment. However, it’s relevant to examine this influence as digital asset allocations may experience a significant shift towards the ETH blockchain.

As the potential value of Ethereum is unlocked, Bitcoin miners may have a new opportunity. This could help alleviate the margin pressures that have affected the sector since 2022 and could continue in the future. Next year, the number of Bitcoin that can be mined per block will decrease from 6.25 Bitcoin to 3.125, which will make it more difficult for miners to make a profit. However, this can be compensated if the price of BTC increases or network competition declines.

From a simplistic perspective, at the moment of halving, miner revenue will be instantly reduced by 50%, assuming that everything else stays constant. However, this assumption may not hold, as the price of BTC and the level of competition on the network may fluctuate significantly, making it complex to predict the exact outcome of halving.

At first glance, Ethereum may not seem like a platform that can add value to Bitcoin miners. This is because it has recently transitioned from a proof-of-work (PoW) to a proof-of-stake (PoS) model, which basically eliminates the role of mining. However, such a model allows Ethereum validators to earn passive ETH rewards, which is currently not possible with Bitcoin.

Furthermore, the mining sector holds a significant amount of BTC reserves, which have limited use outside of converting them to cash or holding them for the long term as Bitcoin's value increases. In contrast, the ETH network is constantly evolving, and the platform offers numerous possibilities. ETH developers have introduced various use cases, such as DEX (Decentralized Exchanges), stablecoins, and NFT (Non-Fungible Tokens).

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Financial Data

Bitcoin miners are diversifying to survive

Bitcoin miners are facing a challenging period in the cryptocurrency market, commonly referred to as the crypto winter. In response, these miners are taking steps to expand their business operations in various ways.

One example of this is a major publicly traded Bitcoin mining company that recently announced a rebranding effort. The company decided to remove the word Blockchain from its name, replacing it with Platforms. Hence, the company is now known as Riot Platforms (RIOT). This rebranding reflects the company's strategy of diversifying its business operations to better position itself for the future.

By broadening the scope of the business, Bitcoin miners hope to overcome the challenges presented by the current state of the cryptocurrency market. These efforts may include expanding into related fields such as blockchain technology, or pursuing new revenue streams that complement the current mining operations. The goal is to create a robust and sustainable business model that can weather the ups and downs of the crypto market.

Hence, companies are distancing themselves from the crypto bubble of the past few years and are seeking to establish themselves as “more traditional” businesses that can be appealing to financial institutions. Although the wave of corporate rebranding and promises of new business lines may help boost stock valuations in a depressed market, it remains to be seen how much of it is just talking. Furthermore, the profitability of diversifying will determine if the changes will last.

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Community

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Deep Dive

What about the environmental effects?

The environmental impact of cryptocurrency mining, which consumes a significant amount of energy, has become a growing concern. This has led to a search for alternative mining methods that are less energy-intensive, such as proof-of-stake (PoS) algorithms.

The interest in alternative mining approaches like PoS algorithms reflects a growing awareness of the environmental impact of cryptocurrency mining. As the industry continues to evolve, it will be interesting to see how these new mining methods are adopted and whether they can help address the sustainability challenges facing the cryptocurrency industry. Invite 3 friends to read the full article.

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News of the week

• Banks: U.S. regulators warn banks to be on alert for crypto-related liquidity risks. [Read more].
• Technology: Artificial intelligence companies you may want to invest in now. [Read more]
• Markets: Stocks close lower Friday after a hot inflation report. [Read more]
• Investments: UK was told to raise the game on green finance or risk falling behind the EU and US. [Read more]

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About

Investoom is a Munich-based Fintech Startup democratizing the access to quantitative investment insights that are used by big hedge funds, but are inaccessible to retail investors. We are a market intelligence company that provides AI-powered investment insights through social sentiment data, onchain data and financial data.

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