Oil field flares eyed as source of bitcoin riches
See, you use the energy to mine cryptocurrency ...
Could turning flared gas in Texas’ Permian Basin into electricity to power bitcoin mining be a solution for shale producers?
One analyst raised the idea as the oil-rich Permian has become one of the worst natural gas markets in the country, given a pipeline shortage that’s leaving gas trapped in the region. The basin could produce an “astounding 25 (billion cubic feet per day) of wet gas to 2025, which will mostly be treated as a byproduct based on oil price and possibly even flared! What could producers do instead with this free gas?” Bernstein analysts led by Jean Ann Salisbury ponder in a note to clients.
They’re not the first to look to bitcoin, either. Western Canada’s Iron Bridge Resources started a wholly owned cryptocurrency mining and hosting operation in January called Iron Chain Technology. It was created to combat a weak Canadian natural gas market, though analysts feel it is too early to speculate on the profitability of this new venture. AltaCorp Capital even dropped coverage of Iron Bridge, citing unfamiliarity with the subject of cryptocurrency mining.
But after Bernstein ran its back-
of-the-envelope math on Permian producers potentially turning to bitcoin mining, the firm concluded that the “fleeting thought of becoming a Permian-bitcoin billionaire will remain, for now, a dream.”
The analysts found that because the total number of bitcoin is capped at 21 million, with 17 million already in circulation, the difficulty to mine is expected to increase exponentially, along with the power required. “If we account for this increasing difficulty, we make money only if the average price over 15 years is $18,788,” the analysts said.
Bitcoin was hovering around $8,100 Friday, having posted gains for the past five days.
While it remains to be seen whether it’s the end of this year’s slump for the cryptocurrency, the 23 percent gain over the last week has them cheering. The largest cryptocurrency is heading for its biggest weekly advance since just before it peaked at almost $20,000 in December. Other large cryptocurrencies including ether, ripple, bitcoin cash, and litecoin were up at least 6 percent Friday.
Bitcoin is inching back up after it slumped 52 percent in the first quarter, its worst start of a year ever. The approaching IRS tax deadline has helped spur the rally, because investors are done selling cryptocurrency to pay off outstanding balances. That, and a squeeze against a record short position on bitcoin, are pushing the price back up, said John Spallanzani, a portfolio manager at Miller Value Partners.
Regulatory concerns, as authorities from China to the United States tightened their grasp in the industry, have weighed on prices, as have the decisions by Facebook and Twitter to ban advertisements on digital coin sales. There was also speculation that the trustee of failed exchange Mt. Gox was selling its bitcoin to pay back creditors.
Cryptocurrencies may also be gaining as larger investors enter the market, hedge fund Pantera Capital Management said in a note to investors, where it also declared that the bear market was over. Pantera recommended that investors buy bitcoin. George Soros, the billionaire investor who called cryptocurrencies a bubble in January, reportedly authorized his $26 billion family office to trade digital assets last week.
Fundstrat Global Advisors’ Tom Lee says the recent lows mirror the 2013 to 2015 trough.
“The risk/reward for BTC is still asymmetrically positive,” Lee said in a note Friday. “We think capital gains related tax selling played a factor in the recent weakness,” along with the Mt. Gox report, “and these pressures should be alleviating soon.”
Bitcoin is heading for its biggest weekly advance since just before it peaked in December.