Is the energy released by gravitional waves kinetic energy or converted rest mass? It is said that at the binary black hole collision LIGO detected recently, the energy equivalent of 3 solar masses has been released. 
Since no matter can escape a black hole, the only source I can imagine is kinetic energy, so the rest mass of the new formed black hole should then be at least the combined rest mass of the two former black holes plus maybe some extra relativistic mass from the motion they had before they merged, which might not be completely converted to gravitational waves.
If the velocity of the former black holes was like suspected c/2, their relativistic masses would be 15% higher then their rest masses. The rest mass of the black holes are assumed to be 30 solar masses each. That would rawly fit the numbers. 
Also the earth and the moon do not seem to lose any mass, but they also produce tiny gravitational waves.
Is my assumption that no rest mass, only relativistic mass, so velocity is converted to gravitational waves correct, or am I overlooking something? If so, what is the mechanism to convert material from inside the former event horizons to energy radiating away as waves?
 A: I will copy from Motl's blog entry on this:

But don't overlook some numerological properties of the numbers:

36+29≠62,
36+29=62+3

What does it mean? It means that the mass of the final black hole is smaller than the sum of the initial masses by approximately 3 solar masses. What has happened with this mass? It was converted to energy, via the E=mc2 T-shirt conversion formula. And into what form of energy were the three solar masses converted? They were emitted in those gravitational waves. There's simply nothing else around the final black hole! And it took place in a few minutes – the last moments of the separate life of the two black holes. (I mention a few minutes to cover 99.99... percent of the gravitational wave energy but most of the energy is emitted within the last second or so.)

Bold mine.
So the gravitational waves were ultimately powered by a mass to energy conversion. 
A: First let us note that GW are ripples in space, and are created due to motion of black holes. 
Therefore it should be easy to see that the waves come only from kinetic energy, which in turns comes from converting potential energy of the system into motion of the system.
Change in mass may be taking place due to other reasons/mechanisms that are not relevant to this question. Because, for "change in mass" to contribute to GW, it first have to convert to kinetic energy (of the two BH), and it is difficult to explain, how that would happen. And even if it does by some magic, would it have any noticeable contribution towards GW.
GW are ripples in space and they can only be created by kinetic energy - i.e. by movements or probably by explosions too.
If conversion of mass into energy was creating GW, then all the stars would generate GW (however weak) all the time.
A: Energy is conserved. Just need to account for all forms. And in fact the 3 solar masses lost is how they figure the luminosity, and by observing the grav wave amplitude the luminosity distance. 
Grav waves came from quadruple and higher moment changes, i.e., kinetic energy of the binary. Part of it was radiated. The energy of the grav wave was roughly the 3 solar masses lost. 
Energy was extracted from the binary system. Still, no particles left the black holes, before or after the merger, from inside the horizons. I do not know the mechanism. 
A: A good chunk is rest mass. The recently observed LIGO merger resulted in a hole with two less solar masses than the sum of the masses of its predecessors. The remainder got emitted as gravitational waves.
Orbital energy, however, is the most important contributer. The kinetic energy of the binary actually increases over the in spiral; the holes go faster as they fall.
Note, however, that energy is not strictly conserved in this process, since the binary spacetime has an explicit time dependence. The above discussion is thus only heuristic.
