US companies setting up shop in Venezuela to extract the country’s huge 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 miner margins globally and could usher in a new phase of mining expansion, particularly in regions able to secure long-term power contracts,” Bitfinex analysts said in a note on Monday.
The United States began seizing Venezuelan oil tankers in December and is expected to begin extracting Venezuela’s 303 billion barrels of crude oil reserves after capturing Venezuelan President Nicolás Maduro on Saturday.
Chevron is the only major U.S. oil company currently operating in Venezuela, but U.S. President Donald Trump is pushing for other big players to move into the country to start producing.
The intervention will have “immediate ripple effects” on energy markets and second-order implications for Bitcoin (BTC) and the broader cryptocurrency market, Bitfinex analysts said, while adding that only a fraction of Venezuela’s oil reserves would need to be exploited to have a significant impact on energy prices.
Source: Kobeissi’s letter
This could provide much-needed relief to Bitcoin miners, whose profitability has been reduced by a 25% drop in Bitcoin from its all-time high, increasing mining difficulties and rising electricity costs.
US may need a decade to turn Venezuela into a ‘producing power’
However, “any significant increase in Venezuelan production would take years, not months,” Bitfinex analysts said, adding that the pace would depend on how the United States handles Venezuela’s political transition and sanctions on the South American country.
It may even take a decade for the United States to make the most of Venezuela’s oil reserves, Matt Mena, crypto research strategist at crypto asset manager 21Shares, said in a note:
“While the long-term potential is vast, analysts estimate it would take a decade and more than $100 billion in infrastructure investment to return the country to its former status as a manufacturing powerhouse. »
Venezuelan oil production has fallen over the decades
In the 1970s, Venezuela produced about 3.5 million barrels per day, or about 7% of global crude production, but that figure has since fallen to about 1 million barrels per day and now represents only about 1% of global production.
The collapse in economic output has largely occurred under the country’s socialist regime, with the Venezuelan bolivar having lost 99.99% of its purchasing power since Maduro came to power in 2013, while human rights and political freedoms have been severely repressed.
Crude oil prices fell following the U.S. intervention, with the U.S. benchmark falling to around $58 a barrel, down 3% from a peak of around $60 reached in December – marginal relief for Bitcoin miners whose electricity costs depend on crude oil.
Looking at the broader crypto market, Bitfinex analysts said prices “are likely to be driven less by energy fundamentals than by changes in macro risk appetite, volatility and multi-asset positioning.”
