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Intel Could Make Bitcoin Mining Profitable Again

One of the biggest barriers to entry for small-time bitcoin miners is cost. Intel Corp. (NASDAQ:INTC), the largest U.S. semiconductor maker by market value, is looking to change that.

In a recent United States Patent Application, California-based Intel revealed plans for a unique hardware application dedicated to bitcoin mining. Intel originally filed a patent application for what is being deemed a Bitcoin mining hardware accelerator in September 2016.

Intel’s bitcoin accelerator hardware would aim to make mining of the digital currency less energy intensive, potentially increasing profitability along the way.

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“As opposed to physical currency systems backed on natural resources (e.g., gold), Bitcoins may be created by using software and hardware systems to solve a series of mathematical algorithms (e.g., Secure Hash Algorithm 256 (SHA-256)),” according to Intel’s patent application.

Bitcoin algorithms require massive processing capabilities, resulting in higher energy costs to miners.

“When the Bitcoin mining algorithms are solved in a way that satisfies certain predefined conditions, a new block is added to the blockchain and a certain number of Bitcoins are awarded to the miner; thereby introducing new Bitcoins into the eco-system,” according to the patent application. “Bitcoin mining algorithms are inherently difficult to solve, and thus require large amounts of processing power. Because of the large amount of power utilized, and the relatively high cost of that power, mining Bitcoins can be a very costly endeavor. In some embodiments, the cost to mine a single Bitcoin may exceed the value of the mined Bitcoin.”

Other Costs

Cryptocurrency miners face other costs, including graphics cards. The graphics cards, usually made by Intel rivals AMD Inc. (NASDAQ:AMD) and NVIDIA Corp. (NASDAQ:NVDA) were initially made for gamers, but demand for those cards surged as the digital currency universe grew. Demand for those cards has soared so much that they are becoming scarce, leading to skyrocketing costs for gamers and digital currency miners.

While cryptocurrencies are not traditional commodities, such as gold or oil, there are break-even prices associated with mining cryptos. When the price of those commodities fall, producers can opt to scale back production and wait for higher prices. For example, an oil company that breaks even at $40 per barrel, could consider reducing output when prices linger around $45 per barrel.

Today, some bitcoin miners may be facing a similar scenario. At this writing late Sunday night, bitcoin traded just over $6,900, well below its December highs around $20,000. Some market observers believer the break-even price for many bitcoin miners is $8,000, a price the largest digital currency has not touched since late March.

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Bitcoin

Not Many Good Grades For Cryptos

One ratings agency is applying grades to some cryptocurrencies and, for the most part, this is not a report card to be posted on your parents’ refrigerator.

Weiss Ratings, an independent ratings agency that assigns letter grades to about 55,000 institutions and investments, including nearly all of the nation’s insurance companies, banks, credit unions, stocks, ETFs and mutual funds, recently published grades on 93 digital currencies. That is a small slice of the overall alt-coin universe, which is home to more than 1,500 coins.

In its most recent report, a follow up to its initial grades released in January, Weiss Ratings upgraded bitcoin to a grade of B- from C+.

“Cryptocurrencies do not have to achieve an A grade to merit interest by investors. A ‘B’ or even ‘B-‘ also qualify as the investment rating equivalent to ‘buy.’ At the same time, investors should not be overly alarmed by a ‘C’ rating. It is a passing grade; and for investors, implies the equivalent of ‘hold,’” according to Weiss.

Inside The Grades

Just 14 of the cryptos graded by Weiss landed grades of B or B- while 54 received C ratings. Among those in the B category are EOS, ADA and DCR. Those with B- ratings include bitcoin, ethereum, IOTA, Ripple and STEEM, among others.

Among the well-known cryptos in the Weiss C category are bitcoin cash, dogecoin, litecoin and siacoin, among others.

“The new world of cryptocurrencies has delivered astonishing profits to investors and holds great promise for the future,” according to Weiss. “Millions of new investors have rushed in. Hundreds of self-declared experts have appeared to advise them. But the market suffers from lax standards, murky operators, marketing hype, and periodic market crashes. It desperately needs the clarity that only robust, impartial ratings can provide.”

The ratings agency offered a fair view of bitcoin.

“Bitcoin (rated C+) gets excellent scores for security and widespread adoption,” said Weiss. “But it is encountering major network bottlenecks, causing delays and high transactions costs. Despite intense ongoing efforts that are achieving some initial success, Bitcoin has no immediate mechanism for promptly upgrading its software code.”

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Bitcoin

Bitcoin Bull Stands by His Call

It takes some temerity to stand by a bullish call when a security is looking increasingly bearish. Give Fundstrat’s Tom Lee some credit for sticking by his recently bullish view on bitcoin.

At this writing Wednesday, bitcoin was down more than 8% and barely clinging to the $7,550 level, giving the largest digital currency a market capitalization of $128.83 billion. After surging 35% in April, prompting some traders to opine that $10,000 was coming, bitcoin prices have been slammed this month, stoking speculation of a new bear market.

“I think the chart is pretty scary for folks because bitcoin was $20,000 in December and it’s less than half that now,” said Lee in an interview with CNBC. “But the reason is investors should care about this is, number one, the notion of blockchain as a way to solve trust in the digital world has gained a lot of traction. What investors aren’t connecting is that we can’t necessarily say ‘I believe in the blockchain.’ Bitcoin and cryptocurrencies are essential to how blockchains operate.”

Lee recently said bitcoin could rise to $25,000 as soon as later this year.

Lots Of Challenges

To be fair, Lee is not the only bitcoin bull. In fact, some recent forecasts from other market observers call for the digital currency to rise well into the six figures.

Regardless of the upside call, bullish views on digital currencies currently face myriad challenges. On Wednesday, each of the 30 largest alt-coins by market value finished lower during the U.S. trading session and of those 30, 24 finished with double-digit losses.

“The case I’d make for bitcoin is, number one, the cost of producing and replicating bitcoin today as a store of value is around $8,000 fully loaded so bitcoin is trading around cost,” said Lee. “Gold as another store of value is trading more than twice its extraction cost.”

Lee also highlights the potential for institutional investors to play a significant role in the digital currency market. The strategist said institutional investors are increasingly interested in cryptocurrency as an asset class, but they have not moved into crypto in a big way due to regulatory uncertainty.

“That sort of ultimate allocation into crypto as an asset class is going to be a powerful reason why bitcoin rallies,” said Lee.

Lee stands by the $25,000 forecast for bitcoin.

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A Bullish Call on Bitcoin Cash

Bitcoin cash often goes overlooked relative to bitcoin, but at least one cryptocurrency market expert believes the former is the place to be among digital currencies.

Brian Kelly, who is founder and CEO of BKCM, an investment firm focused on digital currencies, “said Monday bitcoin cash is the must-own digital currency of the moment,” reports CNBC. “On Saturday, bitcoin cash miners met to discuss funding for a bitcoin cash development fund, he told CNBC.”

As of this writing Tuesday, Bitcoin cash has a market capitalization of $19.86 billion, making it the fourth-largest digital currency behind bitcoin, ethereum and ripple.

“Bitcoin Cash brings sound money to the world, fulfilling the original promise of Bitcoin as ‘Peer-to-Peer Electronic Cash.’ Merchants and users are empowered with low fees and reliable confirmations. The future shines brightly with unrestricted growth, global adoption, permissionless innovation, and decentralized development,” according to BitcoinCash.org.

More About The Trade

“In the fund, miners are “going to take some of the rewards they get from mining and put it in a fund to build stuff on top of bitcoin cash,” Kelly said in an interview with CNBC.

Kelly is a note cryptocurrency market expert and he recently introduced an actively managed exchange traded fund (ETF) dedicated to companies with exposure to blockchain technologies. The REX BKCM ETF (NYSEArca: BKC), which is a partnership between Rex Shares and BKCM Funds, debuted last week.

“Bitcoin probably won’t be the only winner. There could be plenty of winners as this new world unfolds—among cryptocurrencies, hardware makers, and businesses that learn to capitalize on the blockchain,” said Kelly in a recent blog post.

Kelly manages a long/short hedge fund focusing on Bitcoin, Ethereum, Stellar, Monero, Litecoin, and other digital currencies.

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