Venture Capital Fuels Stupidity In Bitcoin Not Innovation

Venture Capitalists have been flocking to Bitcoin recently in what seems to be a poorly orchestrated fiat invasion. They intend to bring the problems of too much money to Bitcoin and its related "businesses". A very small fraction of the VC capital is hitting the market for Bitcoin, which may be an attempt to assert some sort of fiat control over Bitcoin through price suppression.

The Bitcoin mining network currently consumes between 250MW and 500MW of electricity. The cost of electricity worldwide ranges from 8 cents per kWh in China up to 41 cents in Denmark. Using a conservative calculation from the average of US and Chinese rates for electricity of about 9 cents per kWh, the total cost of mining today is somewhere in the ballpark of $462,240 per day. Given 6 blocks per hour and a miner subsidy of 25BTC per block, 3600 Bitcoin currently valued at $828,0001 are produced every day.

Bitfinex was used in the following calculations due to their self reported order book depth:

14:51 ;;market sell –fiat 464000
14:52 Bitfinex | A market order to sell 464000.0000 USD worth of bitcoins right now would sell 1462.5564 bitcoins and would take the last price down to 313.0000 USD, resulting in an average price of 317.2527 USD/BTC. | Data vintage: 0.0643 seconds

The Bitcoin supply sold on the market to pay base miner expenses wouldn't drop the average price significantly, no surprises here. This would mean that about enough dollars are demanding Bitcoin to pay for network security. A very rough extrapolation shows that around 16,936,000 dollars must hit the market annually to pay for Bitcoin's energy consumption alone.

Bitpay claims to handle $1 million in transactions a day, which at current rates would yield about 4300 coins being sold for fiat, if every merchant converts their Bitcoin payments into fiat upon payment and that number reflects reality. This would mean a maximum of around 6000 Bitcoin hits the market daily to cover Bitpay fiat conversations and miner power consumption.

16:12 ;;market sell –market btcn 6000
16:12 Bitfinex | A market order to sell 6000 bitcoins right now would net 1853761.7759 USD and would take the last price down to 302.0400 USD, resulting in an average price of 308.9603 USD/BTC. | Data vintage: 152.8743 seconds

These numbers seem odd when you look at the total number of USD dollars that have entered companies claiming to be involved in Bitcoin. These companies have raised a total of $843mn dollars from venture capitalists which is practically a quarter of Bitcoin's current market cap. Approximately $843.08mn of that capital was distributed in the last two years which can be seen here.

15:39 ;;calc 843000000 / (365 * 2)
15:39 1154794.52055

This means about 1.04mn dollars have been invested per day in these Bitcoin startups since the beginning of 2014.2 This is double the cost of network security via power consumption alone. At the very most half of the fiat capital entering Bitcoin via venture capital is meeting the market, and that would be the very high end of what is possible. Although Bitpay processes $1mn in transactions everyday, their burn rate alone has prevented them from seeing a profit, and thus any Bitcoin they lose, buy, or distribute (including employee payroll), are technically expenses. The same can be said for other startups struggling to become profitable, making it extremely likely a portion of the fiat paying for miner expenses is met by consumer money entering and exiting the waterfall.

Meanwhile the rest of the buying pressure seems to come from anyone but the fiat backed VCs. Most likely care less about Bitcoin than netting a profit in fiat. This has not worked for Bitpay, and due to an extremely high burn rate during its lifetime, their push for BIP-101 seems to be a last ditch effort to draw suckers for another round of funding to stay afloat.

  1. Using rates from fiat/Bitcoin interfaces purporting to be exchanges  

  2. even more given the 2015 numbers are ytd 

2 thoughts on “Venture Capital Fuels Stupidity In Bitcoin Not Innovation

  1. > A very rough extrapolation shows that around 16,936,000 dollars must hit the market annually

    Off by a factor of 10 I think. 464k per day is $170M per annum.

  2. I missed a zero since gribble has no commas, thanks for pointing this out.

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