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Briefing highlights

  • Canada could become bitcoin haven
  • Blockchain players eye Hydro Québec
  • Markets at a glance
  • Sun Life to take U.S. tax hit
  • JPMorgan takes tax charge
  • Wells Fargo adds to legal bill
  • Rents boost U.S. core inflation

Mining and 'mining'

Lower energy costs could make Canada a bitcoin haven, with a Chinese firm already considering setting up a mining shop in Quebec.

As a new study suggests, if you're going to take a chance on bitcoin, you might as well do it in Canada. The gamble's the same, but the cost of mining is lower than in most other countries, Morgan Stanley says.

Indeed, Bitmain Technologies told Reuters today it's looking at Quebec, and Hydro Québec says it has been flooded with calls.

This comes as Morgan Stanley, the big U.S. bank, projects even more players could eye Canada given lower energy costs compared to other countries.

"Our model suggests the electricity and machine cost of mining a bitcoin at $3,000 to $7,000," Morgan Stanley analysts said, referring to the cost in U.S. currency.

"Given the importance of low electricity costs, we see the most attractive regions for mining globally as Mexico, Norway, China, Canada and the United States."

They noted two factors that will play into it all, though: "Whilst we see downward pressure on electricity prices, given falling renewable and storage costs, assuming a stable bitcoin price, we would assume higher electricity consumption near term, and (2), the higher the bitcoin price, most likely the higher the electricity consumption as larger profit margins get competed down (and vice versa).

The Morgan Stanley analysts took a "deep dive" into the expense of creating a bitcoin, and came up with $3,000 to $7,000 range by studying potential costs around the world.

"We use the U.S. and China for this sensitivity, given the majority of mining is currently taking place in China, and some in the U.S., but some mining could move if prices become more favourable in other regions, and/or regulatory intervention in China curtails mining to some degree."

And what they found is that Canada and the other four countries cited are "likely potential locations for mining rigs."

Hydro Québec, for one, is drawing scores of requests for information, some of them from serious "big pocket" players, said the utility's David Vincent.

So much so that it's fielding at least a request a day, Mr. Vincent, director of business development at Hydro Québec Distribution, said in an interview.

The blockchain industry is chasing the utility, rather than Hydro Quebec actively trying to lure it. But Hydro Québec is happy to oblige, and already has attracted some smaller players, with hopes for bigger customers.

Blockchain players are most interested in the price, though there's also the attraction of green energy and so-called plug-and-play setups, part of Hydro Québec's integrated services for customers who don't know the region and need to navigate the waters.

And it's already talking to a big Chinese player.

Nishant Sharma, a spokesman for Bitmain, told Reuters the major Chinese firm is studying areas of Quebec. It runs several mining operations in China, which is already making noise about such operations.

"We, and from what I understand many of our ppers, are already making plans to go overseas, Lu Wei, the head of Wuhan-based ZQMiner, also told Reuters.

And in an interesting twist, Alain Bourdages, an executive at Montreal's Resolute Forest Products Inc. told the news agency it has been approaching by crypto miners about sharing some of its locations.

Manitoba Hydro has also been contacted.

The Morgan Stanley analysts estimated that bitcoin-related power demand will equal 0.6 per cent of global consumption this year, but that's "still small on an absolute basis" and, thus, shouldn't affect utility stocks in the near future.

"That said, mining is very profitable at today's bitcoin price, and if cryptocurrencies continue to appreciate we expect global mining power consumption to increase for miner returns to ultimately get competed down."

But electricity costs could ease because of potential for a marked drop in costs from renewable forms of energy.

"For example, if firm renewable energy could be generated at an all-in cost of 6 cents per kWh, the cost of generating one bitcoin would fall by $600 relative to a power cost of 8 cents per kWh," the Morgan Stanley analysts said.

"This would likely stimulate more mining, and consequently more electricity consumption."

Bitcoin miners, in turn, will "hunt out the lowest-cost regions."

(Just think, given our resource economy, we could soon have mining and mining. And if it comes down to Canada, the U.S. and Mexico, we could have a bitter fight over that, too.)

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Markets at a glance

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Sun Life to take U.S. tax hit

Sun Life Financial Inc. is the latest Canadian financial institution to take an immediate hit from the U.S. tax overhaul.

"As a result of this legislation, the Company expects the tax expense included in its 2018 underlying net income to decrease by approximately $130-million," the insurer said today.

It also projects a profit hit of about $200-million when it posts its fourth-quarter results on Feb. 14.

"The expected charge reflects the net impact of U.S. corporate tax reform on actuarial liabilities, deferred tax assets and deferred tax liabilities and a one-time tax charge on deemed repatriation of foreign earnings."

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