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A Bitcoin ATM in Toronto, On.

Chris Helgren

If you’re ever searching for a sign that a market has peaked, look no further than the Real Estate Wealth Expo, an annual bacchanal of get-rich-quick gimmicks and money lust. In 2017, the expo stormed a convention centre in Toronto, where presenters hyped the city’s unstoppable housing market. The average home price in the Greater Toronto Area tumbled more than 14 per cent over the next year.

This past April, the expo promoted a new opportunity: bitcoin. At one seminar, Brock Pierce, a former child actor turned cryptocurrency guru, took the stage in a poncho and a feathered hat, and spoke of the world-changing potential of cryptocurrency. Bitcoin prices were already falling hard at that point − and haven’t stopped.

Last December marked a high for bitcoin, the original and most popular cryptocurrency. The price of a single coin quadrupled in price in just a few weeks to hit US$18,674, as retail investors piled in for fear of missing out on massive gains. They fled just as quickly when prices started softening, and the bubble burst. Bitcoin trades for about US$4,000 today. For true believers in a decentralized currency, the boom and bust over the past year has not shaken their faith in that promise. If anything, their conviction has been renewed as they find reasons for a rebound.

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Still, the prolonged price slump has caused some businesses in the crypto world to slow expansion plans, scale back or tap out. “We didn’t roll out as many products as we would have if prices would have gone up, simply to preserve cash,” said Marc van der Chijs, the co-founder of Vancouver-based First Block Capital Inc.

Last year, the company launched the First Block Bitcoin Trust, a fund that provides investors with exposure to the cryptocurrency without having to purchase or store bitcoins themselves. “We’d have people calling, saying, ‘I want to get in today, what do I need to do?’ ” Mr. van der Chijs said of the fund’s debut. “But now it’s a very different dynamic.” Interest has waned. The fund has roughly $15-million in assets under management compared with $40-million at the peak.

In September, the company launched an exchange-traded fund focused on companies that will benefit from blockchain, the distributed ledger concept underlying bitcoin. “Blockchain, not bitcoin” became a mantra for those in the industry who wanted to separate the speculative mania around cryptocurrency from the technology powering it, which could have wide applications, from smart contracts to tracking lettuce.

But the hype around blockchain is drying up, too. Forrester Research Inc. estimated in July that 90 per cent of U.S. corporate blockchain projects will never become part of the company’s primary operations. More recently, the firm wrote “the continued absence of miracles and revolutionary developments” in the blockchain space could lead companies to stop investing in such projects entirely.

Mr. van der Chijs contends that the future is still bright for bitcoin, pointing to two developments next year. Fidelity Investments plans to offer custody services for cryptocurrencies, and execute trades for hedge funds and family offices, the first Wall Street incumbent to do so. Intercontinental Exchange Inc., which owns the New York Stock Exchange, formed a new company called Bakkt that will facilitate bitcoin futures trading starting in January. Supporters say that such mainstream backing is a vote of confidence, and will bring in institutional investors and potentially lead to less volatility in prices.

The wild price fluctuations this year have also been tough on some bitcoin miners, who, in simple terms, use specialized computer hardware to validate transactions and are rewarded with new bitcoin. Speculators bought mining equipment at inflated prices as bitcoin took off, but it’s an energy-intensive process with large upfront costs, and is only economical if cheap electricity rates can be obtained. When bitcoin collapsed, profit margins were squeezed and some operators found themselves mining at a loss. Lex Sokolin a partner at Autonomous Research LLP, recently calculated at least 100,000 individual miners have gone offline, which he believes is a conservative estimate.

The fundraising environment is indeed tough, according to Andrew Kiguel, chief executive of Hut 8 Mining Corp. in Toronto. The company’s share price is down 77 per cent this year. Mr. Kiguel still fields multiple calls each week about potential new mining sites, but the company is not in a position to expand. “If the ability for us to raise capital arises, we’ll look to grow,” he said. Still, Hut 8 has fared better than other firms, Mr. Kiguel contends, partly owing to favourable power rates where the company operates facilities in Alberta cities Drumheller and Medicine Hat. “There’s a lot of guys out there who are hurting,” Mr. Kiguel said.

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In the past quarter, the price for Hut 8 to mine was US$3,394 a coin, while industry sources say the break-even point for miners can be as high US$6,500. When bitcoin was surging, profit margins were no obstacle. That’s partly why miners deluged Hydro-Québec with business proposals, hoping to take advantage of the province’s cheap electricity rates. The utility welcomed the interest, as it was seeking to sell surplus power. Hydro-Québec received more than 300 applications from miners amounting to roughly 18,000 megawatts of power, nearly half the utility’s current generating capacity. (For context, the largest miner in the province today consumes just 26 megawatts.)

Demand was so great that new projects were halted so that Quebec’s energy regulator could develop a framework to manage the burgeoning sector. As the price of bitcoin plummeted, Hydro-Québec conducted a survey of the “serious players” in the industry to gauge whether they were still interested, according to a spokesperson. Many respondents still want to set up in Quebec, enough for 4,500 megawatts of potential demand.

Even that greatly reduced figure is absurdly large. Hydro-Québec originally had a 500-megawatt block to allot for miners, but the province’s energy regulator later set aside a portion of that amount for other projects. The utility has 300 megawatts up for grabs now.

“A lot of the noise with the applicants in Quebec was unfounded,” said Wes Fulford, CEO of Bitfarms Ltd., which operates facilities in four Quebec municipalities and employs 80 full-time workers. The company believes many of the applications are from speculators. At least two applicants are proposing to build massive facilities totalling 1,000 megawatts.

Bitfarms, however, has been undaunted in its own expansion plans. The company purchased two industrial buildings in Sherbrooke and plans to add another 98 megawatts in mining capacity next year, and also filed for a listing on the TSX Venture Exchange. “I do believe there’s a market for a story like Bitfarms,” Mr. Fulford said. “It’s just a matter of time.”

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