Dollar for Dollar: Mining Bitcoin vs Holding Bitcoin in 2021
Mining Bitcoin outperformed holding Bitcoin through 2021
When most people think about mining Bitcoin, they forget that Bitcoin mining is not only about generating operating income, but it also involves purchasing a valuable asset - Bitcoin ASICs.
There are two major trends that have fundamentally altered the market dynamics of the Bitcoin mining industry. First, Bitcoin ASIC efficiency improvements for new generation machines are slowing drastically. This means the next-gen hardware does not immediately make the previous-gen hardware obsolete, allowing old hardware to retain its value for a longer period of time. Second, Bitcoin’s network hash rate and the number of rigs hashing continue to grow over time which has forced a large secondary rig trading market to emerge. This means there is now more liquidity for used mining rigs, enabling mining rigs to be purchased and sold at a later date.
The following case study, based on real historical prices for both BTC and rigs, demonstrates how purchasing Bitcoin mining hardware with Blockware Solutions was a potential way to accelerate the returns of Bitcoin in 2021.
Mining Case Study: December 31st, 2020 - December 31st, 2021
On December 31st, 2020, the price of an S19 was $7,296. Assuming a conservative 90% uptime, a $25 setup fee per rig, and a 2% mining pool fee, the S19 was able to produce mining rewards of $9,706 by December 31st, 2021. On top of all the mining rewards, the rig was now trading at $9,165, a 26% price increase.
At an all-in hosting rate of $0.08 per kWh, your operating expenses were $2,055. Assuming you used the mining rewards to pay your electricity expenses, but held the remaining coins, you ended with a 124% return in one year.
Scaling this up by purchasing 100 S19s, you can see the results below.
During that same time period, Bitcoin increased from $28,990 to $46,211, resulting in an ROI of only 59%. So not only did you have exceptional dollar-denominated returns, you successfully increased your Bitcoin-denominated portfolio as well.
All data in this case study was sourced publicly from The Hash Rate Index (historical rig prices) and Glassnode (Bitcoin price and network difficulty).
The time to mine Bitcoin is now
In Bitcoin mining, the name of the game is mining Bitcoin faster than your hardware depreciates. Up until recently, this was a difficult proposition for those without vast mining experience. Now that machines retain their value over longer periods of time, and in many cases even increase in value with the price of Bitcoin, both retail and institutional investors should consider getting serious exposure to this asset class.
As the Bitcoin industry continues to recover after the crash from $69,000 to $17,600, Blockware Intelligence forecasts a complementary increase in the demand for new hardware. Mining rig prices have decreased considerably since their 2021 peak, and purchasing new generation hardware now at a discount enables investors to capitalize on the next Bitcoin bull run by watching both their rig cash flows increase and the value of their rig increase over the coming years.
All content is for informational purposes only. This Blockware Intelligence Report is of general nature and does consider or address any individual circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal, business, financial or regulatory advice. You should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.