With all the hype around Bitcoins&rsquo, amazing spectacle, (which wij have covered recently here and here) fairly often the topic arises if Bitcoin mining is worth it. Spil with many of thesis questions te the financial field the reaction is always “It depends”. It depends on a lotsbestemming of things actually:
Two. The Dynamics of the Bitcoin ecosystem
Three. The price you pay for Bitcoin and mining assets
Four. The price you pay for electric current & cooling
Five. The legitimacy of your providers
6. Your market skill about Bitcoin & mining
7. The many cryptocurrency risks
Our analytics team has bot experimenting, researching and developing software with blockchain and more specifically Bitcoin for the last Two years now and it&rsquo,s safe to say wij have done enough hard yards to be called “Bitcoin Warriors”. From this opzicht wij have experimented with not-insignificant real hard dollars and across numerous solutions, providers and continents, and wij have painstakingly documented and tracked results overheen the last Two years to the level that our research subscribers have become habitual for our Equity research.
There have bot middling to outright fantastic results depending on which providers and equipment you use. And luck and timing plays a big part. Everytime wij thought wij had a foolproof prototype waxed, the environment reconfigured to send us back to the drawing houtvezelplaat. It&rsquo,s a standing joke ter our team how our foray with Bitcoin makes the equity market seem so safe. And yes, wij have lost money to scams and some pyramid schemes te the discovery process and downright ditzy mistakes. Like getting a fresh phone and stupidly wiping the old one to resell it without saving our Bitcoin Wallet keys – oops, money gone. Forever.
However, the Two years has bot rewarding and enlightening and wij have at least three legitimate methods known to work (at least now) with real money and auditable wallets, including our Bitcoin High-Yield Proefje Portfolio (BTC-HY) that delivered 39% comeback on initial investment for the month of May. Te a nutshell, this wasgoed commenced with a R10,000 cloud-mining investment on 30 April 2018 and returned 122% since against Bitcoin (ZAR) comes back of 86.9%:
The Miner Netwerk Asset value (NAV) is the price wij can obtain for our mining assets should wij liquidate them on the open mining market on the day. The Bitcoin holdings are essentially the coins found by the mining assets. The portfolios NAV is thus that of the mining assets plus the coin. Spil the coin grows, and the mining assets eventually depreciate wij will ter time have a portfolio identically balanced inbetween mining assets and coin for diversification. The Bitcoin presently represents 18% of the portfolio now:
The green line te the below chart shows how the Bitcoin obtained from mining “paid down” the initial R10,000 miner investment whilst the black line shows how our comeback on initial investment grew during the course of the 30 days to around 39% on 30 May 2018:
Most mining setups pay out daily, but the BTC-HY makes payouts toughly every 70 minutes when a block is found. Wij have however summarised the daily payouts ter the below chart. Its significant to reminisce that the daily payout depends on the Bitcoin price ter US$ (for calculating the electricty and maintenance and pool fees), how fortunate your mining pool wasgoed for the day (how many blocks it found), what the Bitcoin price is ter your local currency (most emerging markets trade substantially above the $ price) and of course your local currency exchange rate against the dollar (which impacts the Bitcoin price te your local currency.) That&rsquo,s a lotsbestemming of moving parts, so wij choose to take the 7-day takings and multiply that by 30.Four/7 to give a smoother monthly income projection. So the R10,000 investment is presently yielding a R4,000 vanaf month income.
Whilst this mining operation wij have specifically structured ter a high yield configuration, wij vereiste reiterate that May&rsquo,s show is unlikely to be matched again. The conditions for mining are presently very favorable, with the Bitcoin pricing rising far quicker than mining difficulty and wij have yet to encounter a serious correction ter Bitcoin prices. Additionally the market for mining assets appreciated somewhat spil shortages of hardware led to people wanting to get te on the mining act bid prices up 20% beyond hardware replacement value. Having said that, similar high-yield mining operations run by our Bitcoin Laboratorium team (with real money) te the months before May were regularly returning 15-20% vanaf month, with some configurations having paid off the initial investment months ago already.
The two amazing things of thesis mining operations is (a) you can embark with spil little spil R1,000 and (Two) once they are setup you dont have to touch them or attend to them at all. It goes on autopilot. You are more likely to be permanently logging ter to see what is going on and how much coin you accumulated for the day than to switch any configurations.
The long and the brief of it is that executing a successful Bitcoin investment/mining operation is no different to being successful on the high risk small-caps sector of the stock market. If you don&rsquo,t know what you are doing, don&rsquo,t know what you are buying, do not have the right discipline & risk management treatment for a speculative asset and do not research and keep up with the market enough to know when it&rsquo,s risky or ripe for the taking, you&rsquo,re going to come a cropper. With that te mind, let&rsquo,s go through the six “it depends” points above shortly, spil they are significant.
Is Bitcoin legal te your country and if so, how do the authorities treatment it from a tax standpoint? Fortunately, SA is one of 86 countries where Bitcoin is unrestricted. SARS has also explicitly explained its treatment to crypto-currencies ter a policy paper. Wij also have a continuously 6%p.a depreciating currency and spil the reference price for Bitcoin is ter US$, Bitcoin can act spil a rand-hedge.
Bad news however is if you invoer mining hardware into SA you are going to cough. Wij bought a $Two,000 miner Legal months ago that implied a cost of R21,000 at the prevailing exchange rate at the time. By the time wij were finished with courier & shipping charges, disbursement costs, duties, VAT and insurance that machine landed at a cost of R42,000. And if it should go faulty for any reason, wij would have to write it off spil the costs of shipping it back to the manufacturer would be too prohibitive.
The trend of the price of Bitcoin will have a enormous influence on your comes back. No different to the stock market, except that Bitcoin can lightly stir 20% up/down ter a single day. So it&rsquo,s far more volatile on a day to day poot, and spil wij eyed this last month, moves of 50% vanaf week can be common. But if Bitcoin rises for a few months it will weigh very favorably on your mining comes back, provided it is rising quicker than the network difficulty. The Bitcoin network raises or lowers a difficulty metric depending on how much mining power is being connected to it, to ensure one block is generated every Ten minutes. The steepness with which difficulty rises, impacts your mining comes back and thus your payback periods. For more details on the importance of the relationship inbetween Bitcoin price and its network difficulty, see this VIEWS article.
This is no different to the stock market. If you buy assets when their prices are high or have risen too swift or are too far above intrinsic value, your comes back and risk profile will be affected negatively. Whilst it is common skill that the price of Bitcoin varies greatly, it&rsquo,s not common skill that mining assets do spil well. There is a deep and liquid market for mining hardware and fairly often it gets irrational, just like any other market, and discounts of up to 40% on mining hardware can be had on occasion if you observe closely enough. This makes a massive difference to your mining yield.
Mining hardware needs a sound proof slagroom, not insignificant amounts of electro-therapy and some cooling. Electric current is not cheap te SA. If you invoer gear you will need spare ventilatoren and power supplies because those things fail. Regularly. And a machine that&rsquo,s down is not producing coin to pay itself back. And with mining difficulty rising all the time, downtime of 2-4 weeks has a giant influence on your payback period.
Five. LEGITIMACY OF YOUR PROVIDERS
Mt. Gox wasgoed a Bitcoin exchange based ter Tokyo, Japan. Launched te July 2010, by 2014 it wasgoed treating overheen 70% of all Bitcoin transactions worldwide, spil the largest Bitcoin intermediary and the world&rsquo,s leading Bitcoin exchange. Approximately 850,000 Bitcoins ($450m at the time, but worth $2Bn now) belonging to customers and the company were missing and likely stolen te a hacking incident. The lesson here is never keep large Bitcoin holdings at your exchange but keep them te a secure wallet where YOU control the keys. If you don&rsquo,t control the keys, the Bitcoin is not yours. There are literally only Three industrial strength wallets wij have found and used that meet this criteria.
There are many suppliers suggesting mining hardware on the internet with fantastic claims of processing power. There is a 90% chance thesis claims are false and most likely come from a scam operation. Similarly, if you opt for cloud based mining or hosted mining, where your assets are te a facility run by a third party with cheap electro-therapy and adequate cooling, security and spares, then there is better than 80% probability you are dealing with a scam or pyramid scheme technicus. Even the handful of operators wij have confirmed spil legit overheen the last Two years have varying degrees of transparency ter what is essentially an unregulated environment. And maintenance/hosting costs vary significantly from provider to provider which has a massive influence on mining terugwedstrijd on investment. Spil far spil wij are worried there are only Trio viable technicus presently ter this space for joe soaps like you and mij.
The only way I know to be successful on the stock market without paying it any attention is to give your money and funds to a professional to treat for you. Unluckily, this doesn&rsquo,t exist yet ter the Bitcoin world, so you had better come to the realization that if you want to dabble ter Bitcoin you had better know what&rsquo,s going on or at least ask an experienced, or guys like us who followed the trial and error route, having paid some “schoolgebouw fees” already.
Your easiest option is to set aside a safe amount you can afford to speculate with, say example 5% of your free investable specie. Just like you were treating it like any other single share ter your diversified portfolio. Then buy the Bitcoin on a credible local exchange and send it to a safe wallet and leave behind about it for 3-4 years. If Bitcoin crashes you&rsquo,ve lost 5-10% but if it goes up 200-500% then you are smiling. This is a good risk prize ratio, but it doesn&rsquo,t work so well when your initial investment is the kitchen drown or money you can&rsquo,t afford to lose.
The more sophisticated treatment is to split your portfolio among mining and coin accumulation spil with the BTC-HY portfolio. Whilst emotionally & financially rewarding (mining is truly a joy hobby) there are more dimensions to this treatment that are going to require some nude bones skill coupled with the many tips and clever technologies such spil those our team has developed overheen 24 months. Your skill and attention to detail coupled with enjoyment/passion will have a meteen correlation with your results te this regard.
7. THE MANY CRYPTOCURRENCY RISKS
Ok, this is the most significant. Bitcoin investing/trading should be viewed spil any other speculative “high yield alternative investment”. It comes with many health warnings, listed ter our opinion from highest (most likely) to lowest (least likely) risk:
- The Bitcoin price could collapse 60% spil te the 2013 bubble and require Two years to recover
- You have a 80% probability of bot scammed by a cloud-mining operation if you dive into things
- Your mining hardware and/or ventilatoren/power supplies will get faulty at some point
- You could lightly make stupid mistakes like losing keys to your wallet and with it your money
- The amazing comes back from a fortunate run or inital foray will hypnotize you into putting ter more than you should
- Your local currency may appreciate strongly against the dollar
- The Bitcoin network developers could disagree on the current scaling issues leading to a “hard fork”.
- Your cloud mining provider could go bust, so you are taking on their balance sheet risk
- Your wallet or Bitcoin exchange could get hacked.
- Regulatory environment. Unless you are Japan where Bitcoin is fully legal tender, your government or tax authority could all of a sudden switch the rules
- Some other ground violating crypto-currency is launched that displaces Bitcoin
- The Bitcoin community get fed up with the current network delays and transaction fees and abandon it for something else.
My private treatment on this matter is get my mining assets paid off spil quick spil possible. After this, I don&rsquo,t give a damn what happens to Bitcoin or its ecosystem. If it collapses I&rsquo,ve lost nothing but time and effort. If it shoots to the moon spil the gezaghebbend fresh global reserve currency most Bitcoin enthusiasts think it will, then I&rsquo,ve gained everything. But at some point you vereiste draw a line te the sand with how much you throw into mining and begin drawing mining proceeds out into segregated Bitcoin reserves to de-risk your mining. And taking profits and converting some Bitcoin holdings into your local FIAT currency when Bitcoin has clearly bot on a rip and two standard deviations from just about every metric you can think of is also not such a stupid idea either.
So, ter final summation, experimentation and research is ongoing spil the Bitcoin ecosystem and market evolves. It&rsquo,s literally the wild westelijk and anything is possible both to the upside and downside. Wij learn something fresh every month. Even with Two years&rsquo, hard yards wij are most likely still amateurs. Wij might look back on this article ter Trio years and have a real chuckle at how naive wij were. There is no ensure what works now will work ter 6 months&rsquo, time. Wij can&rsquo,t help but feel wij are te the midst of a massive bubble that could end next month or te six months&rsquo, time or te Trio years&rsquo, time. Every time wij call for Bitcoin to collapse, it shoots up again. I&rsquo,ve given up calling Bitcoin tops to be fair. More worrying, just about everyone I speak to talks about “Have you heard about this Bitcoin thing?” It&rsquo,s debatable how many people actually dive te and buy bitcoin, but I reckon it&rsquo,s a loterijlot. The SA Bitcoin price regularly trades at 30% premium to the US$ price. That tells mij speculation levels are high ter SA (but it does offerande some excellent arbitration opportunities). Ter the end, it can be joy and very interesting, but needs to be treated like a very, very acute knife. Treat with care.
The information contained ter this article is for informational purposes only and vereiste not be regarded spil a prospectus for any security, financial product or transaction. It is neither to be construed spil financial advice strafgevangenis to be regarded spil a definitive analysis of any financial kwestie. Investors should consider this research/article spil only a single factor ter making their investment decision. Wij recommend you raadpleging a financial planner/advisor to take into account your particular investment objectives, financial situation and individual needs. The views and opinions (where voiced) te this article are those of the author and do not necessarily reflect the official policy or position of Sharenet.