Saylor woes – disaster or buying opportunity?

GB Market Commentary 01/09/2022

by Marcus Sotiriou

Bitcoin fights with the $20k level as new fear sets in around Michael Saylor, and his company MicroStrategy, being sued for tax fraud by the District of Columbia. He is being accused of evading $25 million in taxes, for living in the region for over 10 years and not paying income tax.

As MicroStrategy is one of the biggest Bitcoin holders, crypto investors began to panic about whether Michael Saylor would have to liquidate some Bitcoin to pay for the consequential fines.

Whatever the outcome, I think investors are likely overreacting to this story and MicroStrategy will not end up having to trim their Bitcoin position, but if they do this will lead to an appealing buying opportunity in my opinion.

Bitcoin miners remain extremely determined, as Bitcoin’s mining difficulty jumped 9.26% higher, recording the second highest difficulty rise in 2022.

The mining difficulty of a cryptocurrency such as Bitcoin indicates how difficult and time-consuming it is to find the right hash for each block. The difficulty of mining new blocks increases or decreases over time, depending on the number of miners in the network.

If the difficulty increases, this means there is more miners competing to mine a block, like we are seeing currently. This is bad news for Bitcoin miners – it is becoming more competitive to mine Bitcoin at a time when energy costs are at all-time-highs!

However, the fact that the mining difficulty is rising suggests an increase in conviction among miners about the long term profitability of Bitcoin’s network, as they are willing to absorb painful costs and lower profits in the short term.

Although, with energy costs getting out of control in Europe, this could spell trouble for Bitcoin mining regulation particularly in the EU. It was reported recently that the German benchmark electricity price passed €700 per megawatt-hour for the first time, which is about 14 times the seasonal average over the past five years.

Despite the concern that the EU may fight against Bitcoin mining in an effort to reduce energy consumption, today EU lawmakers shot down a Green Party proposal to research alternatives to the proof-of-work (PoW) mining that underpins Bitcoin, suggesting that the EU may be warming to the idea that POW could actually be accepted in the EU’s regulation framework.