Mining may be more profitable than buying

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For years, institutional investors have watched bitcoin from a distance, with amazement and amusement, but with little or no engagement. While they were attracted by the high returns, they were put off by bitcoin’s newness, lack of rules, and the numerous headlines that warned of hacks, bankruptcies, and scams. In its early years, bitcoin (BTC) lacked the active and inactive mechanisms required by most institutional investors, making it nearly impossible to approve an investment vehicle.

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Bitcoin investments until 2017

But a strange thing happened during the 2017 rally. When institutions said it was too much of a risk at the corporate level, many insiders personally bought bitcoins to the extent they could.

They acquired bitcoins through exchanges, bitcoin ATMs and by participating in IPOs. Many of these people are passionate, even obsessed with bitcoin, and with them bitcoin is beginning to take root in the financial world.

After the down market of 2017

During the bear market that followed the 2017 rally, a huge number of Bitcoin products were created and launched specifically for institutional investors. Listed bitcoin mining companies are starting to give investors an inside look at the most fundamental part of the industry.

Bitcoin holdings are securitized, allowing investors to speculate on the price of bitcoin on major exchanges without having to create or use bitcoin portfolios. Companies have started buying and holding bitcoin because speculation on bitcoin’s long-term appreciation is worth more than the interest on the debt.

Bitcoin response to COVID-19

When in March 2020. Bitcoin declined, reaching its lowest level around $4,000. In the United States, the global COPID-19 pandemic had just begun. Governments around the world have essentially followed the same strategy: blockade people and print more money. Blockages, quantitative easing and fiscal stimulus normalized before markets could fully process what was happening.

Markets have become inefficient price formation mechanisms, not because participants acted in bad faith, but because they only acted in good faith – in the belief that it would not last.

As money flowed in daily, the market responded almost daily, without looking for costly parking spots for its capital. The market is competing over how much capital can be invested and how quickly. What is a logical person to invest in when almost every economy and industry in the world is shrinking and stock prices are skyrocketing worldwide?

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Buying and owning bitcoins in 2020

This time everything was already in place when investors raised their eyebrows again. There were securitized products, on and off ramps, primacy, expertise, and many passionate supporters within traditional institutions. The most important of these were the slip roads. For the first time in the history of cryptocurrencies, investors could use their usual instruments and exchanges to invest in bitcoin safely, easily and without special authorization. With the right mechanisms in place, companies and investors did what most investors should have done: bought and held.

In the real world, the simplest solutions are usually the best. This principle is intuitive because it includes other seemingly natural laws of life, such as the 80/20 rule or the inevitability of death and taxes.

This is also the case with bitcoin. While there are many ways to make big money with bitcoins, mining, day trading, speculation, etc., for most people in the world, no matter who or where they are, the best investment strategy has been to simply buy and hold bitcoins.

The reason is obvious: Anyone can buy and own bitcoins, but almost no one can beat the market forever. The industry is simply evolving at such a rapid pace that no one can keep up with everything that is happening now, let alone make predictions for the future. You have to live and breathe in secret to have a chance of beating the market. However, we have seen true legends in this field completely wiped out because they thought they could do better than sticking with their bitcoin.

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Why is mining BTC more profitable than just holding it?

In the history of bitcoin, mining has been the main exception to the buy and hold rule. If you can create a scenario with an optimal combination of cheap energy and efficient mining equipment, bitcoin mining will be a profitable venture in almost any economic scenario and at any bitcoin price.

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To prove this, we compared the opportunity cost by buying bitcoins or buying a bitcoin miner on the day Bitmain was announced, mining it for $0.06, and selling enough bitcoins to pay your electric bill.

In any scenario, you get more bitcoins by mining them than by holding them.

Mining may be more profitable than buying

This simple economic incentive has turned bitcoin mining into a $5 billion industry in just seven years. Done correctly, mining is one of the most predictable and secure ways to convert your bitcoins into more bitcoins.

This of course presupposes one very important thing: that you use this device reliably and consistently. This is often easier said than done. Bitcoin mining can be very technical: Equipment is scarce and varies widely in quality, equipment and condition. Moreover, as with any other installation, efficient and cost-effective operation requires appropriate operating conditions and qualified operators and systems.

From a network perspective, Bitcoin does not care about mining quality and profitability. A desert terahash is equally valuable and no different from a terahash from snowy Quebec. But you, as a homeowner, will definitely notice the difference in cost in your wallet: Nobody is in mining because they want less bitcoin.

You don’t have to be a genius to make money mining in a booming market, but you do have to be a genius to plan and survive in a booming market. When we went public with Bitfarms in Toronto in 2018, we were surrounded by amazing peers, most of whom had not experienced this. Those of us who survived the bear market came out of it stronger, more experienced and better on business and equipment, ready to take advantage of the bitcoin rally of 2021 and survive whatever the next market is.

This article does not contain investment advice. There are risks associated with all investments and business transactions, and readers should do their own research before making a decision.

The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent those of Cointelegraph.

Emiliano Grodzki is the co-founder and CEO of Bitfarms, as well as an entrepreneur and innovator. With over 20 years of experience in building multi-million dollar private companies, Emiliano is responsible for defining the overall vision and strategy of the company.

frequently asked questions

Will mining still be profitable in 2020?

Profits from bitcoin mining reached their low point in 2020. Cryptocurrencies have been less profitable for miners for most of the year than ever before. The collective hashrate of bitcoins, or the amount of computing power flowing through the network, has indeed reached record levels this year.

Is mining profitable in 2019?

The recent bitcoin rally has benefited from bitcoin mining. Profits from Bitcoin mining have risen significantly since early April 2019, reaching a record high on the 15th. April 2019: a peak of almost six months.

Which coin is the most profitable to mine?

Monero (XMR) The coin has a market capitalization of nearly $3 billion, making it one of the most profitable crypto-currencies in the world.

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Emilia James
By Emilia James

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