Two Of The World’s Largest Gold Proponents Now Compete Over Bitcoin Mining

In order to address some of the discussion surrounding bitcoin’s role in a modern portfolio, we wrote yesterday about the concept of viewing gold and Bitcoin as complimentary assets from a historical perspective. What evidence of this synergy can be observed in modern times however? To answer this, it may be useful to explore what some of the largest gold advocating nations are doing.

We often write about the pro-gold policies pursued by Russia and China. In fact to support this, it has been reported this week that China’s gold reserves have now surpassed 4000 tons as at June. 

Li Xuanmin of the The Global Times writes that although the PBOC “has not publically disclosed plans to increase gold reserves since October 2016, some market analysts, based on calculations on domestic gold output and imports in recent years, estimated that the country’s above-ground gold reserves totalled 20,193 tons as of June.”

Citing a report published over the weekend, Li notes that “while about 16,193 tons of gold are owned by Chinese citizens, the remaining 4,000 tons are held by the country’s central bank”. If these estimates are true then China may have displaced Germany in the ranking of central bank gold holdings. 

Having established China and Russia as gold supporting nations, we can look to them for insight into how they view the appearance of Bitcoin in the global space. It is timely then that overnight news broke explaining that Russia is trying to rival China in Bitcoin mining. This suggests that pro-gold nations are also pro-Bitcoin. 

Bloomberg is reporting that the equivalent of $100 million is set to be raised to facilitate Russian infrastructure capable of challenging the mining farms already established in China. The scheme is said to work through investments in RMC (Russian Miner Coin) which will allow for the rights to a share in the Bitcoin mined using the Russian company’s mining equipment.

China is already known to be a major player in the Bitcoin mining space. A significant number of their mines; simply structures containing specialised and dedicated computer equipment, are in the Sichuan province due to the cheap power provided by the hydroelectric dams there. Power consumption is one of the significant expenditures involved in Bitcoin mining and the China based Bitmain Technologies is a recognised leader in the production of specialised low power computing equipment for use in Bitcoin mining. 

Interestingly however, RMC intends to utilise their own Russian designed semiconductor technology originally developed for low power satellite use in order to reduce the cost of running cryptocurrency mining computers and hence compete with the existing Sichuan infrastructure.

Vladimir Putin’s internet ombudsman, Dmitry Marinichev was quoted at a Moscow news conference as saying “Russia has the potential to reach up to 30% share in global cryptocurrency mining in the future”.

While on the topic of mining, we’ve recently been discussing how the risks and difficulties inherent in the physical mining of commodities are partly what gives that which is mined its value. Other news overnight demonstrates that real world issues impact the mining of Bitcoin in a similar fashion to how they impact on the tangible equivalent. 

According to the South China morning Post, a destructive magnitude 7 earthquake has overnight struck the above mentioned Sichuan province. This is a place that is very involved in Bitcoin mining so this earthquake has been extremely devastating and possibly will impact the mining of Bitcoin. The issue was raised on Chinese forums but is difficult to quantify as the exact locations of the Chinese mining farms are apparently kept rather secret and for good reason.

The fact that Russia wants to rival China in this regard is quite interesting as it would mean an increase in mining decentralisation and an end to China’s monopoly on Bitcoin mining dominance. It is certainly interesting to observe two of the world’s most pro-gold nations pursue pro-bitcoin policies. Importantly, neither nation has abandoned or even curtailed their accumulation of gold; they appear to be simply augmenting it with smaller investments in the Bitcoin space. A salient observation for the personal investor’s consideration.