Month: July 2024

BlackRock’s spot Bitcoin exchange-traded fund (ETF), the iShares Bitcoin Trust (IBIT), saw a massive inflow of $526 million on Monday. This marked the largest single day of inflows for the ETF since March.

JUST IN: BlackRock spot #Bitcoin ETF had $523 million inflows today.

— Bitcoin Magazine (@BitcoinMagazine) July 22, 2024

On July 22nd, IBIT attracted nearly $527 million in net inflows, bringing BlackRock’s Bitcoin fund’s total assets under management to over $22 billion.

Monday’s gain was the seventh-largest daily inflow on record for IBIT in dollar terms. Its previous record was set on March 18th, when the fund saw $849 million worth of Bitcoin inflows.

Across all spot Bitcoin ETFs in the U.S., total net inflows reached $530 million on Monday – the highest weekly total in over seven weeks. The surge signals renewed institutional appetite for Bitcoin investment products.

Other spot Bitcoin ETFs, such as the Fidelity Wise Origin Bitcoin Trust and the Invesco Galaxy Bitcoin ETF, also saw solid inflows. However, BlackRock’s IBIT dominated, accounting for over 98% of total inflows.

Analysts cite improving sentiment around Bitcoin as a tailwind for ETF demand. The recent exit of President Biden from the 2024 race and rising odds of a Trump victory are seen as potential catalysts.

BlackRock’s spot Bitcoin ETF is going strong, cementing its position as the largest Bitcoin fund in the world. The huge inflows reflect persistent and growing institutional demand for regulated Bitcoin investment vehicles.

With Bitcoin 2024 fast approaching – July 25-27 in Nashville, TN – three enterprising fund managers are competing to win $1 million in seed capital in the Bitcoin Alpha Competition powered by Samara Alpha Management in partnership with Bitcoin Magazine Pro.

In a recent podcast, Bitcoin Magazine sat down with the Bitcoin Alpha Competition judges to discuss the state of the Bitcoin market and how individual investors are leveraging their agility to front-run larger capital allocators as Bitcoin moves into the age of institutional adoption.

Patrick Lowry, judge of the Bitcoin Alpha Competition and CEO of Samara Asset Group, believes that while Spot ETFs have been a resounding success, trillions of dollars of institutional capital have yet to seize the opportunity in “the best form of money humanity has ever conceived” largely due to both regulatory and organizational burden. This has left smaller organizations – family offices and individual investors – to seize the opportunity.

Remarking upon his experience at Deutsche Digital, one of Europe’s first Bitcoin ETP issuers, Lowry noted, “I can attest how difficult it is to become an asset manager. It is unbelievably difficult to start and found your own asset management firm. I can’t even tell you how many times I’ve had my nose bloodied by an ungodly amount of regulators and compliance officers”.

“So, one of the things I’ve always wanted to do is empower new-age managers, emerging asset managers, in this asset class that I have strong belief in. [Helping] them in a way that they’re not going to have to go through the same hurdles that I went through six, seven years ago.”

Joining Lowry as judges on the judges panel are Adil Abdulali, CIO of Samara Alpha Management, and Jack Elliot, CTO of Animus Technologies and winner of the inaugural Bitcoin Alpha Competition.

Lowry, Abdulali and Elliot will serve as the judges for the second-annual Bitcoin Alpha Competition, July 25 at Bitcoin 2024, Nashville.

Abdulali, bringing his decades of experience in the hedge fund space, noted that Bitcoin – in comparison to traditional assets – offers a unique risk profile with its heightened volatility. This volatility, especially to the upside, reduces the need for leverage to generate returns. Abdulali believes obviating the need for leverage gives capital allocators a unique option in comparison to fixed-income arbitrage, saying:

“Any time you have an unleveraged strategy that also generates high returns, and there is a drawdown… you don’t have to liquidate. You can stay in the trade for as long as it takes… any kind of leverage strategy, no matter how safe you think it is, eventually will be susceptible to [margin being called].” This ostensibly offers a new way of managing investment risk and another tool in the toolkit when searching for a return.

While Bitcoin has certainly benefited from improved sentiment around Donald Trump’s positive comments on the asset of late, even these types of moves can present risks for fund managers. Jack Elliot, a CTO focused on optimizing his firm Animus’ artificial intelligence-based strategies, noted the importance of being flexible and resilient to tail risks when it comes to modeling and trading the Bitcoin market.

“It’s just acknowledging reality… this is a space that is extremely young and is developing extremely quickly and there are going to be a number of different factors that change the way the market behaves. And some of those are going to be step-function changes… and I think there are going to be a number of those in the future… For us, it’s about staying on the horse… it’s a fun problem because [modeling the market] is intractable.”

On July 25th, Lowry, Abdulali and Elliot will select the winner of $1 million in seed capital to enable an enterprising fund manager to scale their fund strategy, selecting from the following three finalists:

Boreal.xyzL1 YieldHill Valley Capital
The finalists for the 2024 Bitcoin Alpha Competition powered by Samara Alpha Management

The Bitcoin Alpha Competition is one of four total tracks in the larger Pitch Day at Bitcoin 2024, where top founders and projects across Open Source, Mining + Energy and Layer 2 + Scaling will present their vision to leading venture capitalists and audience members.

Bitcoin Magazine is owned by BTC Inc, which also owns and operates the world’s largest Bitcoin conference, The Bitcoin Conference.

The story of human progress can be simplified into the story of increasing energy utilization. We harness energy to create order, both in terms of biology and society. Energy surpluses allow for every form of wealth creation, which in turn produce new technologies to effectively harness yet more energy. This truth has inspired famous concepts such as the Kardashev scale, which measures civilizations by their ability to harness energy resources towards useful ends.

Compute is a natural continuation of this endeavor. Modern digital technology transforms ever greater quantities of electricity into advanced value-creating processes. The most recent surge in demand for compute has come from two technologies in particular: bitcoin mining and, more recently, high performance compute (“HPC,”) in particular the use of Graphics Processing Units (“GPUs”) for artificial intelligence. The meteoric rise in energy consumption by these technologies have raised many questions: What impact will these power-hungry technologies have on our energy systems? Given their mutually voracious use of energy, what interplay will they have with each other? What do these developments mean for humanity?

We explore the essential characteristics of these respective technologies, and how they offer alternative markets for excess power that can in fact improve the efficiency of energy systems. Based on this exploration, we also argue that bitcoin mining and HPC are complementary rather than competitive. As we’ll see, their respective trade offs offer a symbiotic ability to maximize the value created from energy resources, which in turn benefits society as a whole.

In short, we argue for compute maximalism.

Energy

Modern technology depends on energy converted from a wide array of sources into electricity, and this comes with certain challenges and tradeoffs. The primary of which is limited portability.

This is due to several simple realities. Electricity requires a grid, essentially a massive series of circuits which transports energy in real time. The grid must remain in balance, meaning the generation must roughly equal demand at any point in time.

This is difficult for two reasons:

First, energy resources are not always conveniently distributed, have long lead times to develop, and have varying degrees of dispatchability.

Second, transmission as well as storage are both expensive, have similarly long lead times, and experience inherent inefficiencies. An estimated 8-15% of electricity is lost to transmission and distribution losses by the time it reaches local consumers, and this figure is even higher for long term battery storage.

The result is that it will always be cheaper and more efficient to consume generated electricity immediately at the source, than to transport it over time or space. As such, the most efficient solution isn’t to more widely and inefficiently transport electricity to where it can be used, but to move use cases to the electricity. Compute is an ideal use case for such excess electricity because it is power dense, largely portable, and scalable; we are yet to find a limit on our demand for compute. Meanwhile “meatspace” constraints are strong limiting factors for legacy forms of energy sinks like aluminum smelting and manufacturing.

Bitcoin mining in particular has emerged as such an ideal use case for local surplus power, providing a dispatchable and revenue-generating load to balance the grid. More recently the demand for High Performance Compute, in particular GPUs, is also having unignorable impacts on the utilization of energy as well. Many are expecting these two technologies to compete over the same energy resources, but as we explore the characteristics of each, the potential symbiosis will become self-evident.

Bitcoin Mining

Bitcoin mining can be thought of as a permissionless energy sink. Bitcoin’s proof-of-work consensus mechanism amounts to proof of energy-intensive computation. Miners must perform this energy-intensive computation to create new blocks of transactions, thereby earning bitcoin as a reward. It is this proof-of-work that provides global settlement assurances in a decentralized and permissionless way.

In practice, this looks like millions of computers (these days, application specific integrated circuits or “ASICs”) running in bare bones data centers around the world. One of the beautiful things about bitcoin mining is its permissionless nature; anyone anywhere in the world can plug in an ASIC. In effect, Bitcoin allows miners around the world to participate in a global energy market; whoever has the lowest cost of power has the highest margin.

This global decentralized network is part of the reason why Bitcoin’s adoption has steadily continued, as people seek a new monetary and financial system that is active 24/7, lacks a single point of failure, and sidesteps the perverse incentives of politically captured central bank monopolies.

Bitcoin mining is distinguished by the following characteristics relative to GPU/HPC infrastructure:

No customersNo customer acquisitionNo supportHigh interruptibilityLow operational complexity Low connectivity requirements (Less than 100MB/s)Low margin (generally)

HPC

data center GPUs are the latest form of HPC, the demand for which has exploded in the previous 2 years due to quickly escalating interest in AI/ML breakthroughs which rely on it. These technologies have unlocked whole new categories of digital operations and functions which were not previously possible, with the resulting use cases only just beginning to be explored. The sudden explosion in interest in these technologies has quickly made NVIDIA, the leading manufacturer of the underlying GPUs, the most valuable company in the world.

Initially this sudden spike in demand created an intense bottleneck in the production of sufficient units of GPU itself. This however was temporary and over time continues to be alleviated by increased production, with focus quickly switching to a new bottleneck: Data center rack space with cheap power. The result has been an explosion in new data center build outs, wherever a large amount of steady power can be sourced. This has brought GPU infrastructure into competition with Bitcoin mining in many areas with excess local power.

Relative to Bitcoin mining, GPU/HPC has these is distinguished by these characteristics:

CustomersCustomer acquisitionCustomer supportLow interruptibilityHigh operational complexityHigh connectivity requirements (10 – 100GBs) High margin (generally)

Complimentary Competition

The demand for both Bitcoin and AI/ML technologies has taken off in the last decade, a testament to their utility to society. This demand has led to the proliferation of their respective compute resources.

To reduce operating costs, both markets seek excess power to utilize as it tends to be cheaper. This naturally resolves some of the grid inefficiencies discussed above, but it does mean that data center builders and operators will find themselves asking which form of compute to support and invest in for the same amount of available power.

Both forms of compute are energy intensive and relatively location-agnostic (barring legal or jurisdictional considerations beyond the scope of this paper) bringing them into seeming competition, but they can in fact be highly complementary tools for maximizing utilization and profit from such excess or stranded electricity.

GPU workloads have higher operational complexity, and low interruptibility, as well as higher upfront capital investment. That makes it a poor choice for taking advantage of transient surpluses of power, such as the peak window of energy production by solar panels for instance. Unlike bitcoin mining, GPUs have customers, who are typically sensitive to issues such as uptime and availability. There are exceptions, such as spot instances and frameworks which can failover from such instances, but generally speaking due to the existence of a customer the interruptibility tolerance of GPU infrastructure will never match that of bitcoin mining. Coupled with the higher capital costs and complexity, in these situations we can expect bitcoin mining to continue to grow and dominate as a highly flexible, dispatchable load to the grid.

Consistent excesses in power on the other hand, such as a largely fixed delta between the base generation capacity of hydropower or nuclear sites and their surrounding consumption, are ideal opportunities for GPU infrastructure to close the gap and establish new baseline consumption and equilibrium. These situations favor the low interruptibility of GPU infrastructure, and justify the added expenditure and operational complexity in order to secure substantially higher revenues. So long as the supporting bandwidth is available to facilitate GPU workloads (at least 10GB/s, ideally 100GB/s), these sites will always provide more profit opportunity than if allocated exclusively for bitcoin mining.

Hybrid data center Strategies

There are also strategies which can utilize both technologies in tandem to maximize revenue and return on investment.

First, bitcoin mining could be used as an initial load for energy resources before the site is suitable for high performance compute. Examples include: (1) using semi-portable modular bitcoin mining data centers to monetize power while the remaining infrastructure for an HPC data center (redundant power/internet lines, buildings, backup energy systems, etc.) is built; or (2) pioneering stranded energy resources with bitcoin mining, some of which may eventually be used for HPC. In fact, Core Scientific’s recently announced deal with CoreWeave could be viewed as an example of this occurring in the wild, as bitcoin mining led to the development of a large substation and data center shell that would eventually be used for HPC.

A second, more advanced strategy is to co-mingle HPC and Bitcoin mining workloads in tandem, using Bitcoin mining as a counter weight to balance fluctuations in HPC workload power draws. While HPC loads require reliable power, “inferencing workloads” which host production AI/ML models can fluctuate based on levels of real time use by users, leading to typical cycles of high activity and power consumption and low activity and lower power consumption. To date, the value for such HPC has substantially outweighed any inefficiencies from fluctuating power use, but the highly flexible and interruptible nature of Bitcoin mining can be used to provide stable power draw and in turn lower effective power rates, in addition to providing additional revenue for the data center overall. Some are describing this strategy as a “mullet data center,” with AI in the front and bitcoin in the back. While it is still early, this approach promises to utilize the best of both HPC and bitcoin mining to offer the most value maximized data center deployments possible with current technology.

Industry Implications

Until recently, the data center industry has been dominated by colocation providers. These providers build the facilities used to host industrial servers, and lease out space, power, connectivity, and sometimes the servers themselves to tenants. Traditionally, the majority of these tenants have been large enterprise and hyperscale cloud providers. In many cases these hyperscale and enterprise tenants have also built their own data centers to support their own growth.

Since roughly 2017 bitcoin mining has truly entered the picture at an industrial level, with entire data center complexes being built solely to support Bitcoin mining in areas with extreme deltas in produced and consumed electricity. Now in 2023 and 2024 we’ve seen shifts in the market even more notable and disruptive. With the explosion in demand for GPU infrastructure, many former colocation focused data centers have ventured into buying and hosting this GPU infrastructure themselves. Meanwhile hyperscalers are moving behind-the-meter to co-locate with large baseload power plants, seeking cheap reliable power for the new surge in HPC demand. This is particularly notable as intermittent renewables have been the most popular form of generation in recent years, primarily due to government subsidies.

We anticipate the following:

1. Continued increase in energy demand for both forms of compute.

2. New data center construction as the next bottleneck of expanding HPC footprints, with large swaths of bitcoin mining facilities being repurposed for higher margin use cases.

3. Mining hardware will relocate to the fringes, seeking remote locations and variable inefficiencies that HPC workloads are ill-suited to monetize.

4. Co-mingling of both bitcoin mining and HPC in “mullet data centers” will leverage the high revenue potential of HPC and the flexible nature of bitcoin mining to effectively balance power draw and local grids, while outcompeting traditional data center strategies.

Conclusion

When new power-hungry technologies emerge, there is often concern about their energy utilization and its externalities. Bitcoin mining and HPC are no exceptions with politicians and arm-chair technologists alike crying for their mitigation or control. But such voracious technologies represent the natural trend of human progress. In addition to the self-evident utility provided by the Bitcoin settlement network and AI/ML workloads, we can demonstrate that they can be deployed in ways that efficiently maximize new and existing energy resources to useful economic ends. 

This is a guest post by Drew Armstrong and Ariel Deschapell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The Breez SDK is launching integration of the Liquid Network in addition to their support for the Lightning Network. Breez SDK has been a great success in making integration of Lightning support easier for developers. Used by Relai, Cake Wallet, CrowdHealth, and numerous other companies who have built out support for the Lightning Network.

Liquid support represents the next phase of significant expansion of the Breez SDK. Liquid is a federated sidechain network utilizing L-BTC, a bitcoin backed token custodied by the members of the federation operating the Liquid Network.

It is important to note that while people using the Liquid Network do self custody their L-BTC, having control to freely move it on Liquid how they want, the actual BTC backing it is custodied by members of the federation on the mainchain. This means that strictly speaking, while internal use of the network itself is self-custodial, entry and exit to and from the network is somewhat permissioned.

Why Liquid?

Breez SDK is integrating Liquid support to offer developers and users more optionality. Every different way of using Bitcoin comes with different trade-offs, both positive and negative.

Liquid does not require the use of payment channels, meaning that users do not have to deal with set up fees or liquidity management, or require an LSP to manage the frictions and complexities of making use of their bitcoin. This also removes the possibility of surprise channel closures and the fees this winds up creating for the end user.

This also removes a lot of complexity on the developer side, leaving less moving parts for them to manage when integrating Liquid support into a product or wallet. No channel management, no routing management, just basic on-chain fund management with basic send and receive support. Given that the SDK is tailored for developers, this is a new option for SDK users with minimal implementation complexity.

Interaction With Lightning

Any wallet integrating Liquid through the Breez SDK can also still seamlessly interact with the Lightning Network to maintain a streamlined and interoperable user experience. Powered by Boltz, the SDK supports submarine swaps. This allows any users custodying their funds on the Liquid Network to seamlessly send and receive Lightning payments by making use of an atomic swap between the Liquid Network and the Lightning network.

The Lightning swap functionality supports LNURL-Pay, LNURL-Withdraw, LNURL-auth, and is planning to soon integrate support for fiat on and off-ramps. As well, in the future support will be added for multi-device and multi-app support, allowing users to integrate with a single wallet balance across different devices and applications.

Where to find

To find out more, the technical documentation for the Breez SDK Liquid support can be found here.