Hashflare Math: Should you Reinvest?

Note: At the time of writing this article, Hashflare rates were 1.50$ for 10 GH/s

I recently came across Hashflare, a platform for mining cryptocurrency and found that it was a great platform to invest in cloud mining. The returns look promising and when I worked out the math, I found that reinvesting can increase your returns multi-fold. In this article, I will be comparing ‘no reinvestment’ option with the ‘reinvestment’ option. I will also be doing some math to figure out some magic numbers that maximize your gains. In this article, I will only be talking about Bitcoin mining using SHA-256. However, Hashflare also lets you mine other cryptocurrencies.

Let’s get started. Below is a screenshot of the Hashflare dashboard.

Hashflare Dashboard

As you can see, 10 Gigahash/second for one year costs you 1.50$. The revenue forecast that you see on Hashflare is calculated on your current investment. Each contract that you purchase is valid for one year. There are couple of assumptions made in the forecast which I will be addressing soon. At first, the returns looked great. Irrespective of the size of your investment, you are looking at about 1.4% returns every day (maintenance fee included). What’s the catch?

1. You pay upfront and unlike an investment in stocks or in cryptocurrencies where you get back your initial investment upon selling, here you are losing the full initial investment X and the only returns are the accumulated gains from mining each day.
2. If the price of Bitcoin goes down, your earnings (in fiat) goes down
3. If the difficulty of mining increases, your hashrate has lesser value

Hence, the 1.4% assumption might not hold forever. However, if the price of bitcoin goes up steadily, then you should be good. Remember that by investing in crypto mining, you are essentially investing in the cryptocurrency you are mining.

Hash rate vs Difficulty over last 9 months (Source: bitcoinwisdom.com)

One great potential in this investment is the magic of compounding interest. By that, I mean re-investing your gains, thereby increasing your overall investment. With this in mind, I was curious to know the maximum gain you could get by compounding your capital. Let us first look at what the returns are without any reinvestment. To clarify on ‘reinvestment’, HashFlare provides you an option to reinvest your gains from mining each day and buy more hashing power.

1. Investing without reinvesting gains

Let ‘P’ be the initial investment.

Let ‘R’ be the return every day. (It’s roughly 1.4% but let’s make it generic)

For our calculations, we are going to consider a one year time frame (365 days).

Hence, with a gain rate of ‘R’ per day on the investment ‘P’, you will roughly be making a 365 x R return.

Hence, Total Gain without reinvestment: 365RP – P

With R ~1.4% in HashFlare, Gain = 5.11P – P = 4.11P

i.e, you are quadrupling your initial investment.

(Note: You don’t get back your initial investment, hence we deduct ‘P’)

2. Investing with reinvesting gains

Here is where things get interesting and you will see how compounding doing it’s magic.

Our goal was to maximize the gains in a one year time frame. Hence, we should clearly not be reinvesting throughout the year. This would only lead you to a net gain of 0 at the end of 365 days. (With probably a lot of hashing power). To get the most out of this, you reinvest up to a certain period and then stop the reinvestment so that you start cashing in your ~1.4% gains everyday from then. But how long do you reinvest?

Let ‘K’ be the number of days we reinvest our gains. Hence, we reinvest our gains for ‘K’ days and go back to earning 1.4% and cashing out our gains for (365 – K) days.

Initial investment = P

Investment after K days of reinvestment = P (1+R)^K

Hence, it is as though you started with an investment of P(1+R)^K for a duration of (365 – K) days.

As we saw before, you earn ‘R’ (1.4% in our case) every day.

Hence, Total Gain =(365 – K)R* [P(1+R)^K ] – P

Upon plotting the equation, we notice that this graph attains it’s maximum at K= 293.

Plotting the Gain from reinvesting your gains upto k days

That’s right: to get the maximum gain by the end of one year, you need to reinvest all your gains until day 293 after which you stop reinvesting, sit back and watch your gains grow. However, we still haven’t found out how much bigger the gains are going to be, compared to the ‘no reinvestment’ option. To get the exact number, we plug 293 back into gain equation and using R = 0.014 (1.4%), we get

Gain = (365 – K)R* [P(1+R)^K ] – P = 72 * 0.014 * P * 1.014²⁹³ – P

Hence, Gain = 59.23P – P = 58.23P

That’s roughly 60x returns :)

The nice thing about having the equation with us is that now we can explore other time durations too. For example, if you feel 1 year is too long a term, you can just adjust the 365. I plotted the graphs for period duration of 300, 200 and 100 days as well.

Graphs for 365 days, 300 days, 200 days and 100 days

For a 300 day period, you reinvest until the 228th day.

For a 200 day period, you reinvest until the 128th day.

However, smaller the period, smaller the impact of compounding on your gains as well.

Conclusion

While the math does show that you can potentially get a 60x return, do remember that there are always assumptions that lead to this number. It is true that you do get 60x returns if you consistently get a 1.4% return every day, however, it is totally possible that this rate varies based on the price of bitcoin and mining difficulty. Remember that cryptocurrencies are volatile and things can go either way. So invest only that amount you are willing to lose completely in the worst case.

Hashflare let’s you purchase hashing power through credit card as well which is great. The setup process is very quick and within no time, you are mining cryptocurrency. Plus, the minimum investment is 1.5$ for 10 GH/s. Hashflare also has the reinvest option that automatically reinvests your gains into buying more hashing power. Even a 10$ investment has the potential to become 500$ by the end of a year. So definitely seems like it’s worth a shot!

In case you liked the article and are convinced to invest in Hashflare to mine crypto, please use my referral link: https://hashflare.io/r/29AA1058

Hope you enjoyed the article. Please do share your thoughts and comments below :)