Mine or Buy Your Bitcoin?
Should you buy or should you mine?
The following chart by Blockware solutions shows which ASIC miners will remain profitable post April 2024 halving, making assumptions on hashrate and hashprice.
It is predicted that 20% of the hashrate will go offline after the halving.
The hashrate dropped nearly 40% within 2 weeks following the last halving in May of 2020.
Why does this matter? This shows how older, less efficient machines can no longer remain competitive, and are forced to unplug.
This is good for top of the line machines already hashing away going into the halving.
Although the hashrate does recover relatively quickly, and as more miners join the network to provide computing power, individual hashrate is gradually less impactful.
It is commonly said that it is cheaper to mine a bitcoin than it is to buy one (this is not always true, as the price has crashed historically).
A Bitcoin can cost nearly $40,000 to mine at a $0.10/kWh rate. Most competitive miners pay closer to half that at $0.05/kWh.
These are all important factors to consider when you are on a mission to increase your BTC stack.
You have 2 options going forward from here:
- Purchase Spot BTC and accumulate via Dollar Cost Averaging
- Purchase a Bitcoin miner and accumulate via miner rewards
Let’s run through both scenarios and evaluate profitability:
Scenario 1: Spot buy DCA
For simplicity in this hypothetical scenario, we will use last years price action as a benchmark.
You buy 0.1 BTC on March 8th, 2023 which cost $2100 USD(1 BTC was $21k).
You then decide to DCA $200 USD per month for the next 12 months.
This would have got you 0.077 BTC for $2400.
So in Scenario 1, you have 0.177 BTC at the end of the year (we won’t include USD appreciation, the main focus is a bigger stack).
Scenario 2: Purchase Miner
I will use a high performance miner for this example, something top tier like the S21.
You buy a miner on March 8th, 2023 for 0.1 BTC.
The daily revenue of the miner is 0.00032 BTC at current difficulty adjustment and block subsidy.
The monthly electricity and hosting cost is $200 USD per month or 0.006417 BTC.
The miner will generate revenue of 0.009733 BTC per month and 0.1168 BTC per year.
Profit will be 0.1168-0.077(electricity/hosting) = 0.0398 BTC in Scenario 2.
This looks like a no brainer initially because in 0.177 > 0.0398.
But things get interesting when you factor in price action and time.
If the Price of Bitcoin Goes Up:
Spot Buy: The value of your accumulated BTC increases, but the amount of BTC you can purchase monthly decreases as the market requires more USD per BTC.
Bitcoin Mining: The revenue in BTC terms stays constant, but the USD cost remains fixed, potentially making this option more favorable as the increase in BTC value offsets the fixed USD costs.
If the Price of Bitcoin Goes Down:
Spot Buy: You can accumulate more BTC for the same monthly USD investment, but it looks less valuable in terms of USD.
Bitcoin Mining: The fixed USD cost could become a larger portion of the BTC mined value, making it less profitable unless the mining yield can cover the costs.
Time Period Analysis:
Year 1:
Spot Buy yields 0.177 BTC
Bitcoin miner yields 0.0398 BTC
Year 3:
Spot Buy yield will depend on BTC price, the higher the price the smaller the BTC stack.
The average entry for $200 monthly DCA in the last year is around $35k USD per BTC.
Let’s assume the average entry for year 2025 is 3 times that at $105k.
This means we will get 1/3 the BTC we got in 2023.
This also means $200 per month miner expense will be 1/3 the BTC.
Spot Buy yields 0.02567 BTC from $2400
Bitcoin Miner yields 0.1168-(0.077/3) = 0.09113, assuming margins remain the same.
As you can see, a trend begins to develop.
If the price of Bitcoin significantly increases in the future, mining may offer better returns due to the fixed USD costs and constant BTC earnings.
This advantage could diminish if the increase in BTC value doesn’t offset the operational costs in the long run.
Mining’s profitability is highly sensitive to operational costs and the efficiency of mining equipment, which can change over time.
Spot Buy might be more straightforward and less sensitive to operational costs, but it’s more affected by the price of BTC at the time of purchase.
Spot Buy also does not have a consistent BTC inflow after break even.
For longer periods, mining seems to have the potential to accumulate more BTC, especially if operational costs remain stable and the equipment remains efficient.
This analysis assumes constant conditions and does not account for potential increases in mining difficulty or changes in electricity costs, both of which could significantly impact profitability.
It comes down to this:
Mining your way to 1 BTC is hyper low-time preference.
And buying your way to 1 BTC is the consistent easy button.
A combination is ideal, and your positioning should be based upon how expensive you think future BTC will be in terms of USD, and how quickly it will get there.
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