U.S. firms moving to Venezuela to use the country's vast crude oil reserves could lower electricity prices for Bitcoin miners and improve their profitability margins, analysts at crypto exchange Bitfinex said.
“Cheaper and more abundant energy would improve miners’ margins worldwide and will usher in a brand new phase of mining expansion, particularly in regions capable of secure long-term power contracts,” Bitfinex analysts said in a note on Monday.
The U.S. began seizing Venezuelan oil tankers in December and is predicted to start extracting Venezuela's 303 billion barrels of crude oil reserves following the capture of Venezuelan President Nicolás Maduro on Saturday.
Chevron is the one major U.S. oil company currently operating in Venezuela, but U.S. President Donald Trump is pushing for other major firms to maneuver to the country to start production.
The intervention could have “immediate spillover effects” in energy markets and secondary impacts on Bitcoin (BTC) and the broader cryptocurrency market, Bitfinex analysts said, adding that only a fraction of Venezuela’s oil reserves would should be developed to meaningfully impact energy prices.
Source: The Kobeissi Letter
It could provide much-needed relief to Bitcoin miners, whose profitability has been hit by a 25 percent drop in Bitcoin from its all-time high, rising mining difficulties and rising electricity costs.
The US may have a decade to show Venezuela right into a “manufacturing powerhouse.”
However, “any significant increase in Venezuelan production would take years, not months,” Bitfinex analysts said, adding that the pace will depend upon how the US handles Venezuela's political transition and sanctions imposed on the South American country.
It could even take a decade for the US to profit from Venezuela's oil reserves, said Matt Mena, crypto research strategist at crypto asset manager 21Shares, in a note:
“While the long-term potential is gigantic, analysts estimate it might require a decade and over $100 billion in infrastructure investment to return the country to its former status as a producing power.”
Venezuelan oil production has declined over the a long time
In the Nineteen Seventies, Venezuela produced about 3.5 million barrels per day – about 7% of world crude oil production – but that number has since fallen to about 1 million barrels per day and now accounts for less than about 1% of world production.
The economic collapse has largely taken place under the country's socialist regime, with the Venezuelan Bolívar losing 99.99% of its purchasing power since Maduro got here to power in 2013, while human rights and political freedoms have been severely suppressed.
Crude oil prices fell after the U.S. intervention, with the U.S. benchmark falling to about $58 a barrel, down 3% from the December peak of about $60 – a minor relief for Bitcoin miners whose electricity costs depend upon crude oil.
As for the broader crypto market, Bitfinex analysts said prices are “more likely to be driven less by energy fundamentals and more by changes in macroeconomic risk appetite, volatility and cross-asset positioning.”
