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Cryptocurrency investors find reasons for a rebound despite the prolonged price collapse

A Bitcoin ATM in Toronto, via.

Chris Helgren

If you are looking for a sign that a market has peaked, look no further than the Real Estate Wealth Expo, an annual bacchanal of tricks rich with wealth and lust. In 2017, the event stormed a convention center in Toronto, where presenters surveyed the city's unstoppable real estate market. The average price of housing in the Greater Toronto Area has plunged by over 14% over the next year.

Last April, the event promoted a new opportunity: bitcoin. In a seminar, Brock Pierce, a former child actor who became a cryptocurrency guru, took to the stage with a poncho and a feathered hat, and talked about the ever-changing potential of cryptocurrency. Bitcoin prices were already falling dramatically and they did not stop.

Last December marked a peak for bitcoin, the original and most popular cryptocurrency. The price of a single currency quadrupled the price in a few weeks to reach 18,674 US dollars, as retail investors piled up for fear of losing huge gains. They fled as quickly as prices began to soften and the bubble burst. Today Bitcoin trades for about $ 4,000. For true believers in a decentralized currency, last year's boom and failure did not shake their faith in that promise. If anything, their belief has been renewed when they find the reasons for a rebound.

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However, the prolonged price crisis has led some companies in the cryptic world to slow down expansion plans, downsize or extrapolate. "We have not launched as many products as we would have if prices rose, simply to preserve cash," said Marc van der Chijs, co-founder of First Block Capital Inc., based in Vancouver.

Last year, the company launched First Block Bitcoin Trust, a fund that offers investors exposure to cryptocurrency without having to buy or store bitcoins. "We would have asked people, saying," I want to go in today, what should I do? & # 39; " He said van der Chijs of the fund's debut. "But now it's a very different dynamic." The interest has dropped. The fund has about $ 15 million in assets under management compared to $ 40 million at the peak.

In September, the company launched an exchange-traded fund focused on companies that will benefit from the blockchain, the concept of distributed ledger underlying bitcoin. "Blockchain, not bitcoin" became a mantra for those in the industry who wanted to separate speculative craze on cryptocurrency from the technology that fed it, which could have broad applications, from smart contracts to lettuce tracking.

But even the clamor around the blockchain is drying up. Forrester Research Inc. estimated in July that 90% of corporate blockchain projects in the United States will never become part of the company's primary operations. More recently, the company wrote "the continued absence of miracles and revolutionary developments" in the blockchain space could lead companies to stop investing entirely in such projects.

Mr. van der Chijs claims that the future is still bright for bitcoin, pointing to two developments next year. Fidelity Investments plans to offer custody services for cryptocurrencies and execute operations for hedge funds and family offices, the first to collect it. Intercontinental Exchange Inc., which owns the New York Stock Exchange, has set up a new company called Bakkt that will facilitate bitcoin futures trading starting in January. Proponents claim that this traditional support is a vote of confidence and will bring institutional investors and potentially lead to lower price volatility.

The wild price fluctuations of this year have also been difficult for some bitcoin miners, who, in simple terms, use specialized hardware to validate transactions and are rewarded with new bitcoins. Speculators have bought mining equipment at inflated prices while bitcoin has taken off, but it is an energy-intensive process with substantial upfront costs and is cheap only if low-cost electricity rates can be obtained. When the bitcoin collapsed, profit margins were squeezed and some operators found themselves at a loss. Lex Sokolin, partner of the Autonomous Research LLP, has recently calculated that at least 100,000 individual miners have gone offline, which he believes is a conservative estimate.

The fundraising environment is really difficult, according to Andrew Kiguel, CEO of Hut 8 Mining Corp. in Toronto. The share price of the company has decreased by 77% this year. Mr. Kiguel makes even more weekly calls on potential new mining sites, but the company is unable to expand. "If we can raise capital, we will try to grow," he said. However, the Hut 8 went better than other companies, Kiguel says, partly due to favorable energy rates in which the company operates in the plants of the cities of Alberta, Drumheller and Medicine Hat. "C & # 39; a lot of guys out there who are hurting, "Mr. Kiguel said.

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In the previous quarter, the price for hut 8 was US $ 3,394 per coin, while industry sources say the miners break-even point can be 6,500 USD. When bitcoins increased, profit margins were not an obstacle. This is partly why miners flooded Hydro-Québec with commercial proposals, hoping to take advantage of the province's economic tariffs. The utility welcomed the interest, as it was trying to sell a surplus of energy. Hydro-Québec has received over 300 miners' applications for around 18,000 megawatts of power, almost half of the current generation utility capacity. (For the context, the largest miner in the province today consumes only 26 megawatts.)

The demand was so great that the new projects were interrupted so that the Quebec energy regulator could develop a framework to manage the growing sector. While the price of bitcoins has plummeted, Hydro-Québec has conducted an investigation into the "serious players" in the industry to assess whether they are still interested, according to a spokesperson. Many respondents still want to settle in Quebec, enough for 4,500 megawatts of potential demand.

Even that very small figure is absurdly large. Hydro-Québec originally had a block of 500 megawatts to be allocated to miners, but the province's energy regulator later shelved part of that sum for other projects. The utility now has 300 megawatts up for grabs.

"A lot of noise with the candidates in Quebec was unfounded," said Wes Fulford, CEO of Bitfarms Ltd., which operates facilities in four Quebec municipalities and employs 80 full-time employees. The company believes that many of the applications come from speculators. At least two candidates are proposing to build huge structures for a total of 1,000 megawatts.

Bitfarm, however, has been undaunted in his plans for expansion. The company has purchased two industrial buildings in Sherbrooke and plans to add another 98 megawatts in mining capacity next year and has also submitted a listing on the TSX Venture Exchange. "I believe there is a market for a story like Bitfarm," said Fulford. "It is only a matter of time."

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