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Gaurav Budhrani and Alan Konevsky are two former Goldman Sachs employees who moved into the crypto space a couple of years ago. They told Insider the exodus from traditional finance has continued in 2021 as institutional investment in crypto has surged.
“2021 is the first time that I’m starting to see institutional investors participate across the capital structure for bitcoin mining companies,” Budhrani, who is PrimeBlock’s chief executive, said. “You initially had a handful of names like Marathon, or Riot. But that’s definitely changed a lot over the last year or so – you’re starting to see institutional investors come in and provide capital.”
Crypto miners run computers that aim to solve complex mathematical problems. The first computer to reach a solution is awarded a block of cryptocurrencies.
PrimeBlock’s mining set-up focuses on the two largest cryptocurrencies by market capitalization: bitcoin and ethereum. They have deployed 12,000 crypto mining machines across facilities in Alabama, Georgia, Kentucky, and Tennessee. Konevsky, who is PrimeBlock’s chief legal officer, told Insider the firm currently mines five bitcoins each day – equating to nearly $290,000 at bitcoin’s current price of just over $57,500.
“There are three critical inputs in a crypto mining operation – capital, equipment, and energy,” Budhrani said. “Mining has become an industrial-scale operation.”
The two executives explained why there are more opportunities than ever in the North American crypto mining space, and listed four proof-of-stake protocols that retail investors are using to generate yields.
In 2021, the US surpassed China in crypto mining market share for the first time, after Beijing moved to ban digital currencies. US mining firms’ market share surged from 17% to 35% over the last quarter, according to data from The Block.
“The China decision was principally driven by domestic political considerations,” Konevsky told Insider. “China is complicated, you can never predict it perfectly, but while the ruling system remains the same, you’ll see the ban continue into 2022.”
Budhrani added that, as well as political stability, the US’s significant energy infrastructure advantage has made it an appealing region for crypto miners.
“The US has the world’s largest energy grid,” he told Insider. “A year ago, Kazakhstan was the second biggest market after China when it came to bitcoin mining, but now we’re starting to see cracks in that market because they don’t have the same energy infrastructure.”
But the PrimeBlock executives said they believe bitcoin mining is now out of reach for smaller players like retail investors and hobbyists.
“I think we are beyond the point where hobbyists could participate directly in bitcoin mining,” Budhrani said. “It’s extremely difficult for them to get their own mining rigs.”
“But there are definitely a lot of other protocols in crypto, where as a hobbyist you could participate in those protocols and generate rewards for that participation,” he added.
Budhrani listed four proof-of-stake protocols – including bitcoin competitor ethereum – that crypto investors are turning to to boost their returns.
Staking is a way for crypto investors to earn rewards without having to invest directly in mining equipment. Certain cryptocurrencies allow owners to “stake” their holdings, earning a percentage-rate reward over time.
“Investors don’t need machines – they just need capital to deploy on the network,” Budhrani said. “Retail investors are trying to generate significantly higher yields than they would if they invested in a regular savings account.”
The ethereum 2.0 upgrades recently made staking possible for holders of the ether token – and Budhrani highlighted it as one of four protocols retail investors are using right now to earn extra returns.
“Hobbyists can still get involved in ethereum mining right now, but it’ll move to a proof of stake algorithm in six to eight months,” he told Insider. “The rewards incentivize participation as the network grows and as the community of developers continues to grow on top of these networks.”
We list the four protocols PrimeBlock said retail investors are using for staking right now, together with their native token’s price and market capitalization.
Token: ETH
Price: $4,182.25
Market cap: $496 billion
Description: Ether is the second-largest cryptocurrency by market capitalization. Developers can use the blockchain to build decentralized finance (DeFi) applications, and ether is the most commonly used currency for NFT transactions.
Token: XTZ
Price: $5.09
Market cap: $4.4 billion
Description: Tezos blockchain is designed for peer-to-peer transactions and smart contracts. It usually offers an annual yield of around 6%, and was recently listed by Bank of America as the small-cap altcoin that is generating the most developer interest.
Token: DOT
Price: $39.79
Market cap: $39.3 billion
Description: Polkadot is a Web3-oriented blockchain that targets interoperability with ethereum and other networks. Its dot native token has doubled in price this year.
Token: FTM
Price: $1.96
Market cap: $5 billion
Description: Like Tezos, Fantom is a blockchain platform with smart contract capabilities. According to the Fantom Foundation’s website, investors who stake the token for a year earn 13.41% returns.
Check out: Personal Finance Insider’s picks for best cryptocurrency exchanges
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