Cryptocurrency miners are a fickle group, flipping from one currency to the next depending on their ability to mine it cost effectively. Mining has been proving lucrative for them, but as a consequence prices of tools used in mining cryptocurrencies are soaring, similar to the gold rush seen in the 19th century. Cryptocurrencies are the new Gold rush.
During the California Gold Rush the tools used to mine rocketed in price. The gold pans needed typically cost US$0.20 prior to the rush in 1848 but then rose sharply within a few years to US$8.00. Given that an unskilled labourer’s salary was typically US$0.90 per day during that period this was a substantial investment.
News of the stratospheric rise in prices of popular cryptocurrencies such as Bitcoinand Ethereumhas prompted some large investors to develop mining server farms with significant processing power. It is a simple investment; once the mining infrastructure (a powerful processor to solve the algorithmic mining process) is setup and is autonomous, there is very little else to do other than worry about the fluctuating price and your breakeven point.
Cryptocurrency mining can be loosely divided into two main costs, the upfront costs of the hardware and the ongoing cost of power consumption. At current Ethereum prices, when taking into account volatility, it is possible for an investor to breakeven in less than 6 months depending on power costs. Consequently, these server farms are often in locations where power costs are low, improving the breakeven point.
The total mining infrstructure available for Ethereum is quantified by the hashrate (H/s) per second, defined as the speed at which a process is completed in the currencies’ code. In July 2015, this hashrate was 24GH/s, this July it has risen to an astonishing 65,577GH/s according to Etherscan.io. Clearly, there has been considerable growth in the Ethereum mining infrastructure.
Ethereum mining infrastructure capacity
This rise in popularity of Ethereum has also led to hobbyists building mining infrstructure using gaming graphics cards (GPUs). Hobbyist miners are building rigs often with up to 6 GPUs (much more than the single GPU needed for gaming) and consequently certain GPUs are rising rapidly in price and becoming scarce. The miners favour those graphic cards that have a high hashrate while being economic on electricity, this has led to a few very specific cards beings used.
It is normal for computer hardware prices to decline overtime as new models make them obsolete. This has not been the case for the Radeon RX480 GPU, which has risen 82% in recent months, and now superseded by the newer RX570 model, which has since risen 182% over the last month. In stark contrast to the GeForce GTX 1050 GPU prices, which is not popular amongst miners and subsequently barely risen over the same time period.
Prices for mining suitable & Non- suitable GPUs
Both these GPUs are extremely popular due to their high hashrate and power efficiency versus price and are currently very difficult to source on the open market.
It has become increasingly difficult to mine bitcoin due to the demanding processor power required, particularly for the hobbyist. This pushed many miners to switch to Ethereum creating significant volatility in both currencies, but it is now becoming increasingly difficult to mine Ethereum too.
We may find these hobbyists switching to a new cryptocurrency that requires less processor power to mine. This fickleness from miners is likely to exacerbate cryptocurrency volatility. Furthermore, it is becoming evident that GPUs are the gold pans of today, a boon for chipmakers.
James Butterfill, Head of Research & Investment Strategy at ETF Securities
James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.
James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.
Cryptocurrencies are very much an emerging asset class, and the technology underpinning it is steadily developing. However, we believe there are intensifying issues regarding regulatory scrutiny, liquidity, trade execution/confirmation time, scalability, trust in the money creation process and the fundamentals that drive the currencies. The problem with cryptocurrencies.
The SEC (Securities and Exchange Commission) made clear in its recent decisions in refusing approval of a US Bitcoin ETF that there is no appropriate regulatory supervision of Bitcoin trading markets that link to traditional regulated markets.
Liquidity of Bitcoinis increasing, but much of that is in unregulated and diverse exchanges located outside of Europe and the US, as mentioned by the SEC. Furthermore, it is not clear how much liquidity is available at any given time, which can have an impact on price and execution of pending transactions in the order book, crucial if it were to be traded as a scalable ETF on regular exchanges.
Distributed ledger systems are slow and as the blockchain matures they are getting slower. The median blockchain confirmation time over the last year is 30 minutes and has been up to 2500 minutes at times this June. Commercial payment card network systems can handle around 2000 transactions per second, versus the Bitcoin network being restricted to a sustained rate of 7 transactions per second due to its inherent protocol. There will be more efficient distributed ledger currencies in the future, but the appropriate solution is not available yet.
Another crypto currency, Ethereum
Another crypto currency, Ethereum has had some coding issues leaving it vulnerable to hacking, which prompted the developers to reset the currency with different rules than the original. This has led to a “hard fork” leading many not to trust the currency. It highlighted that the Ethereum Foundation and its coders had total control of the currency, and exposed potential conflicts of interest. The recent flash crash where the price fell from $320 to $0.10, has also damaged confidence despite its rapid recovery back to $317. Ethereum and Bitcoinraise important questions for distributed ledger currencies, should the developers and coders of the currency algorithms have control of money creation or central banks?
Both the Mt Gox (A Tokyo-based bitcoin exchange) Bitcoin related collapse and the Ethereum “hard fork” are examples of technical problems that pose real risks to emergent digital currencies at the moment.
An investor in digital currencies must also ask themselves what are the fundamentals that drive these currencies? We believe there aren’t many established fundamentals yet, trading more on technicals/momentum for now.
James Butterfill, Head of Research & Investment Strategy at ETF Securities
James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.
James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.
Trump fade represents a commodities buying opportunity
The political worries in the US, with President Trump looking increasingly isolated, and broad tightening of monetary conditions in China has been detrimental to commodity prices, leading to a significant unwinding of exceptionally high speculative positioning. Trump fade represents a commodities buying opportunity
CFTC(Commodity Futures Trading Commission) positioning data had highlighted commodities reaching a peak bullishness sentiment end-February 2017, as expressed in our February blog. Since then, due to the aforementioned issues, this bullish sentiment has unwound considerably, remaining just above it’s long-term average balance between bull and bears.
Commodity speculators became very bullish after the Republican win in November with the promise of a US$1tr spend in infrastructure over the next 10 years. Recent press reports highlight that this spend is likely to include US$200bn from Federal Funds with the remaining being investment incentives for US$800bn from the private sector and local governments. It is becoming evident from press reports that the US$200bn will likely begin to be delivered in late 2018, whilst the additional US$800bn is very much uncertain due to it being at the discretion of the private sector and local governments. As investors have begun to realise that much of this spending will be delayed and potentially at much lower levels, it has contributed to this speculative unwind.
Another contributor to the deteriorating sentiment has been tightening policy and weakening economic growth in China. Although we see evidence of stabilising growth in China, in recent years official growth data appears smoothed to some extent, our growth proxy, using freight volumes, electricity output, traffic volumes and retail sales suggest that growth in recent years has probably been overstated, although it looks to be improving despite the recent tightening of policy. The “Belt and Road” strategy recently announced by President Xi Jinping suggests a continued commitment to its US$150bn spend on infrastructure.
More broadly in Emerging Markets (EM), in contrast to China, we are seeing Libor rates gradually decline as inflation eases, helping boost economic growth. The Emerging Market LEI (Leading Economic Indicator) leads commodity prices by 6 months with a high historic correlation, rises in the LEI imply that the recent commodity price weakness is temporary.
We continue to believe that the fundamentals of increasing supply-side destruction, attractive valuations and buoyant demand for commodities remain intact. The Trump debacles have prompted a much needed speculative unwind, and in our view, recent price weakness represent a buying opportunity. We continue to see industrial metals as offering the best upside in the coming 12 months.
James Butterfill, Head of Research & Investment Strategy at ETF Securities
James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.
James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.
Centralbankernas åtgärder signalerar tydlig vändpunkt för globala räntor
Pundet kommer stärkas när korta positioner stängs
Avtagande stimulans boostar euron mot 1,10
FTSE100 och amerikanska småbolag känsliga för stigande räntor
Obligationer kopplade till inflation kommer att gå starkt
Enligt ETF Securities, en av världens ledande oberoende leverantörer av börshandlade produkter (ETP), kommer en viktig vändpunkt för globala räntor att nås under 2017. Centralbankernas åtgärder signalerar tydlig vändpunkt för globala räntor.
Efter nästan ett decennium av artificiellt låga räntor kommer centralbanker äntligen kunna förhålla sig mer balanserat till räntesättning, utan att behöva oroa sig över en politisk och ekonomisk instabilitet.
James Butterfill, Analyschef på ETF Securities, säger: “Efter en period av frikostig penningpolitik som vi inte har skådat tidigare, är tiden fram tills vi når vändpunkten för när centralbankerna kan normalisera räntorna beroende av ett antal förestående risker.
En våg av populism och ett potentiellt avtagande av globaliseringen kan öka på inflationstrycket ytterligare, vilket kan hämma centralbankernas återgång till ’det normala’. Dessutom har Federal Reserve varit för långsamma med åtstramningar och med så mycket statsskuld kommer centralbankernas återgång till ’det normala’ vara en utmaning.
Vi tror att det mest sannolika scenariot kommer att bli en fortsatt försiktig och återhållsam penningpolitik från centralbankerna under 2017 och 2018. Annars riskerar de att hamna efter i kurvan och kommer då att behöva dra åt svångremmen mer aggressivt senare i cykeln.”
Valutapåverkan
ETF Securities förväntar sig att Bank of England höjer räntan 2017, men att de inte tar bort sin balansräkningsstimulans från ekonomin, vilket kan innebära potential för pundet som för närvarande är den mest undervärderade valutan i G10-sfären, då investerare stänger sina korta positioner.
”På grund av dramatiska ekonomiska förbättringar och en ökning av inflationsförväntningarna, tror vi att den Europeiska Centralbanken (ECB) skulle kunna avsluta sitt QE-program i slutet av året och att den avtagande stimulansen bör driva euron tillbaka mot 1,10 under de kommande månaderna”, tillägger James.
ETF Securities förväntar sig inte ett ’taper tantrum’*, och i motsats till marknadens reaktion i USA under 2013 tror de att de europeiska aktiemarknaderna kommer att gynnas av återhämtningen i ekonomin.
”Centralbankerna kommer att behöva hitta en fin balansgång mellan farorna för inflation och lågkonjunktur. I USA tror vi att Fed kommer behöva bli mer hökaktig både i sin retorik och sina åtgärder senare under året. En stramare penningpolitik än vad marknaden förväntar sig kan leda till att den amerikanska dollarn återtar mark den har förlorat under det första halvåret vid årets slut”, säger James.
Svaghet
ETF Securities har isolerat de företag som är mest utsatta för räntehöjningar genom att titta på de med den största skuldbördan. Resultatet av detta är en mer försiktig inställning mot brittiska large cap-aktier och amerikanska småbolag.
Storbritannien har sett en betydande försämring i sin räntetäckningsgrad, vilket är ett mått på företags kapacitet att hantera sina utestående skulder, efter att ha fallit från 9x under 2012 till 3,4x idag. Allt under 1.5x indikerar ett ohälsosamt företag som kämpar för att hantera skulden. FTSE 100 har en lägre kvot än FTSE 250 och inom den ser fastighets- och resurssektorn särskilt utsatta ut.
”I USA har de mindre företagens ränteteckning skiljt sig från storföretagens. Real Estate Investment Trusts (REITs) är den uppenbara gruppen av företag i S & P 500 som är känsliga för räntehöjningar, men olje- och gassektorn ser också svag ut, särskilt efter ett år av mycket låga oljepriser”, säger han.
Möjligheter
ETF Securities framhåller att obligationer kopplade till inflation är attraktiva i återhämtnings- och inflationsdrivande ekonomiska faser och har överträffat alla andra tillgångsslag under de senaste tio åren, vilket förväntas öka investerarnas aptit.
”Vi tror att den strukturella motvinden kommer fortsätta leda till nedåttryck på tillväxt och inflation under det kommande årtiondet och kommer således att ha en preferens för tillväxtmarknads-obligationer och high yield obligationer”, avslutar James.
ETF Securities andra Triannual Outlook för 2017 innehåller också:
Utsikter för platina: guld och ZAR förblir viktiga faktorer som påverkar priset
Metallutbudet kommer stramas åt: Flera utvecklingsländer tycks vara beredda att avstå från ekonomisk tillväxt från resursutvinning till förmån för miljön, vilket kan påverka 6% av det globala aluminiumutbudet och 8% av det globala nickelutbudet.
Begränsad respekt för överenskommelse bland OPEC-medlemmar: kartellen har endast kommit 83% på vägen mot överenskommelsen att skära ned till 1,2 miljoner fat, medan USA:s produktion håller nere priserna
Litium och energimetaller: hur efterfrågan på batterier till elbilar kommer att förändra aptiten för litium, kobolt, mangan och nickel
* ”Taper tantrum” är den term som används för att hänvisa till 2013 års uppsving i amerikanska statsobligationsräntor, vilket resulterade i Federal Reserves användning av åtstramning för att gradvis minska mängden pengar som då matades in i ekonomin
ETF Securities – Det intelligenta alternativet
ETF Securities Group är en av världens ledande innovatörer inom börshandlade produkter (ETPer) och erbjuder specialistinvesteringslösningar för investerare runt om i världen, vilket gör det möjligt för dem att på ett intelligent sätt bygga upp och diversifiera sina portföljer.
Vi är pionjärer och utvecklade exempelvis världens första börshandlade guldprodukt. Idag erbjuder vi ett av det mest innovativa sortimenten inom specialist-ETPer, vilket omfattar råvaror, valutor, aktier och räntor. Med denna pionjäranda, vår oöverträffade expertis och genom att arbeta med ledande partners, tar vi fram de mest intressanta investeringsmöjligheterna och gör dem tillgängliga för investerare som det intelligenta alternativet.
Om ETF Securities Tri-Annual Outlook
Vår tertiala analys Tri-Annual Outlook är en samling av korta artiklar som fokuserar på ämnen som vi tror står högt upp på agendan för investerare. Vi erbjuder vår expertis och insikt i valutor, aktier, råvaror och räntor som knyts ihop under vår globala makroekonomiska analys.
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Will certainty and stability be established through this snap election? Prime minister Theresa May’s hope is to build a popular mandate for better bargaining with Europe in the Brexit negotiations. UK elections will be a proxy vote on Europe
Despite recent Yougov polling suggesting that now only 18% of the population oppose Brexit, will this change now the public have been given another potential option to remain in Europe?
It is likely this election will be seen as a proxy vote on Europe, consequently we could see a group form from within the political parties whose key agenda is to revoke article 50 and remain in Europe. The greater clarity that the public now has regarding how poor a deal with Europe is likely may well sway voters to side with remain, alongside further resistant rhetoric from Europe in the run up to the elections. Voting was very tight in the referendum, and recent polling highlights a change of tune from many who voted to leave. A resurgence in the Liberal Democrats and the possibilities of a coalition government are possible.
In the coming months we will see how established political loyalties are, and in the short-term political maneuvering will exacerbate market volatility, and currencies will be where this will be played out. Trading in GBP/EUR has been volatile but the overall reaction has been positive so far, but its difficult to say at this point if its because of a potential stronger Tory mandate or that the probability of the UK remaining within the EU have just risen.
James Butterfill, Head of Research & Investment Strategy at ETF Securities
James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.
James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.
