Bitcoin Mining Difficulty Continues To Sink
New reports out today highlight that the difficulty of mining blocks on the Bitcoin network has sunk by more than 7% as a result of recent market movements. Overall, difficulty is still high in the grand scheme of things, but I guess this does suggest that one day, the profitability of mining on the Bitcoin blockchain might eventually improve.
The markets continue to move in a positive direction through the end of this week in what looks to be the first cryptocurrency market surge that we have seen for a number of months. At the time of writing, Bitcoin is valued at $4,091.66, up 3.68%, XRP is valued at $0.37, up 0.58% and Ethereum is valued at $116.41, up 9.03%.
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The big performer of the week however is Bitcoin Cash ABC, which at the time of writing is valued at $218.21, up 46.85% from yesterday, and up from a value of $87.83, as recorded earlier this week.
hrough 2018, the value of Bitcoin has sunk significantly and with this so has the profitability of mining Bitcoin. Tied in with the fact that the cost of Bitcoin mining equipment has shot up, along with the bills for the energy powered to mine Bitcoin and the general consensus is that one day, Bitcoin mining could become a pointless activity, since it will cost more to mine than the potential returns.
More than two years after Britain voted by a single-digit majority to leave the European Union, it remains unclear whether Brexit will prove a blessing or a curse for the economy. Either way, it could be good news for investors seeking bargains who are willing to accept some degree of risk in pursuit of substantial rewards.
Many stock market participants hate uncertainty but others love the opportunities it can create. This paradox may explain why, since June 23, 2016, the United Kingdom has been shunned by many international investors but others continue to find value in specific shares and investment trusts listed in London.
Put another way, what one person – perhaps a seller – perceives as bad news can mean much the same thing by the time it is reflected in the market price as what another person – perhaps a buyer – believes is a good bargain. Or as stockbrokers sometimes say, two views make a market.
Whatever Brexit may mean in future, it seems likely that uncertainty has depressed British share prices and stock market returns recently. For example, independent statisticians Morningstar calculate that the total return from the FTSE 100 index of Britain’s biggest shares has been 9% over the last year, compared to 16% from the Dow Jones index of American blue-chip stocks or 22% from the NASDAQ benchmark of technology shares in New York.
Another way of measuring how Britain has fallen from favour among many international investors is to express share prices as a multiple of corporate earnings. When this price/earnings ratio is tweaked to take account of the economic cycle, it is known as the cyclically adjusted P/E or CAPE.
CAPE can give an idea of whether shares are expensive or cheap, although there is no guarantee that this measure of value – or any other – will lead to profits or avoid losses. Even so, the international comparisons are eyestretching. American shares are currently trading on an average CAPE ratio of more than 30; Japan is on a CAPE of 27; Germany is on 20 and the UK is on 17, according to calculations by Star Capital.
To put British shares’ lowly rating in perspective, the same calculation gives emerging markets such as India a CAPE of 22 and China a CAPE of 19. While the latter is now reckoned to be the second-largest economy in the world, few stock market investors would argue that Shanghai or Shenzhen offer the same standards of corporate governance or regulations to protect investors that provide statutory safety nets in London.
Investment companies have been helping to diminish the dangers inherent in stock markets by diversification and other built-in risk reduction features for 150 years but they are not immune to the uncertainty surrounding Brexit. This may explain why the average conventional investment company, wherever it is invested around the globe, is currently trading at a discount to net asset value of -2.8% but the average investment company in the UK All Companies sector trades at a discount to NAV of -7.8%.
That pricing gap shows that ‘plain vanilla’ investment companies focussed on Brexit Britain are offering typically twice as big discounts to bargain-hunters as the global average. This discrepancy is all the more remarkable because, according to the London Stock Exchange, the companies that comprise the FTSE 100 generate 70% of their revenues overseas.
Whatever form Brexit eventually takes – whether it is ‘hard’, ‘soft’ or somewhere ‘in between’ – it is unlikely to affect British companies’ overseas earnings. Indeed, if sterling weakens – as it has done since the Brexit vote – then this will tend to increase the value in pounds of any earnings in dollars, euros and other foreign currencies.
Investment companies in the UK Smaller Companies sector are trading at an even bigger discount to NAV; an average of -9.1%. While it can be argued that the domestic focus of many smaller companies means they may be more vulnerable to the risk that Brexit might go badly, because many smaller companies rely on British consumers rather than revenue from exports, share price returns from this sector remain robust.
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