A recent analysis by the Bitcoin mining analytic firm Hashrate Index indicates that buying Bitcoin (BTC) is, in some cases, preferable to mining the asset. The research comes after discovering that most BTC holders need clarification about whether mining or buying Bitcoin is more worthwhile.
Mine Or Buy?
According to market observers, most users are at a crossroads after discovering BTC and remain stuck on whether to mine or buy the asset. Usually, these users give up on mining due to the costs involved, lack of expertise, regulatory concerns, and difficulties operating ASIC miners.
However, the researchers argued that if people could overcome the above concerns, they would enjoy complete control of their activities since they use hardware to mine this digital asset instead of purchasing it. Still, the entire operation can be risky and always capital-intensive.
According to the analysis by the Hashrate Index, buying Bitcoin is a simpler process than mining it in some situations. Hashrate Index analyst Jaran Mellerud, who extensively researched Bitcoin mining, did some calculations to predict how much money miners could make in the next five years.
He analyzed different situations where the price of Bitcoin could go up or down. Mellerud discovered that even if the price of Bitcoin goes up a lot, miners may still lose money in some cases. According to him, the crypto-mining industry changes constantly.
Hardware used for mining becomes outdated in about five years because better machines have been introduced to the market to enhance efficiency. For example, during the bullish market run of 2016-2017, the Bitmain S9 models were considered the most efficient miners.
Nevertheless, as time passed and new models emerged, the S9s became obsolete and were eventually discontinued by the end of 2022, as Coin Metrics analyst Karim Helmy revealed. In addition, the mining industry of 2023 has been primarily influenced by two prominent Bitmain models, namely the S19j Pro and S19 XP.
Mellerud’s calculation assumed that the current batch of miners will be rendered redundant in approximately five years, aligning with the Bitcoin halving event expected to occur around 2028. It’s worth noting that the market assessment utilized a fixed electricity cost of $0.07 per kWh, while the Bitcoin price and network’s hash rate were adjusted to determine the profit margins of the machines used.
A Five-Year Wait Period For BTC Mining Gains
Nevertheless, Bitcoin miners must be able to recoup the entire capital they invested in purchasing the mining hardware without considering operational expenses. That’s what will guarantee them total profitability.
Any extra Bitcoin tokens the hardware generates are deemed an additional profit. For example, suppose an investment of 1 BTC in mining rigs yields a return of 0.9 BTC over five years.
In that case, it is considered profitable to purchase BTC directly instead of engaging in mining activities. However, the analyst’s findings indicate that miners would achieve returns exceeding 1 BTC under favorable circumstances.
These scenarios involve a Bitcoin price reaching $500,000 per token by 2028, coupled with a slower 10% growth rate in the network’s hash rate compared to its value. Even in more conservative scenarios where Bitcoin reaches $250,000 by 2028 and experiences a modest hash rate spike, miners would only manage to recoup a maximum of 83% of their initial investment capital.
In contrast to the Hashrate Index’s approach of using future projections, River Financial, a specialized financial services firm, used historical data for its Bitcoin mining research. Their analysis also aimed to determine whether mining or purchasing BTC was the more favorable.
After studying data over the past five years, River Financial’s analysts discovered that owning Bitcoin miners was better than mining it. Hence, their conclusion aligns with that of the Hashrate Index.
Ultimately, both reports agreed that mining BTC only makes sense before a bullish trend, while directly buying Bitcoin is profitable in most conditions.
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