Over the last ten years, Bitcoin has established itself as the leading digital asset, outperforming all major financial investment categories. Investors who view Bitcoin as a long-term asset often focus less on accumulating dollars and more on increasing their Bitcoin reserves.
Bitcoin as a Standard
In the realm of digital currencies, Bitcoin functions similarly to government bonds in traditional finance: it serves as a principal benchmark. While no investment is completely free of risk, holding Bitcoin in a self-custodial manner minimizes counterparty, dilution, and systemic risks typically associated with conventional finance.
Over 9 out of the last 12 years, Bitcoin has bested all other investment classes, leading many in the financial community to consider it a “risk-free rate.” This perception is nuanced by the stark reality of national debt and Bitcoin’s well-defined scarcity, making it a compelling option for investors.
This viewpoint underscores the idea that a digital asset investor’s primary goal is not merely to acquire more fiat currency but to enhance their Bitcoin holdings. Every financial decision is weighed against the opportunity cost of holding Bitcoin.
MicroStrategy exemplifies this approach at the corporate level with its new Key Performance Indicator (KPI): BTC Yield. In its September 20th 8-K Form, the company stated, “We use BTC yield as a KPI to assess how effectively we can acquire Bitcoin to benefit our shareholders.” MicroStrategy leverages its position as a multi-billion dollar publicly traded entity, utilizing low-interest debt and new stock offerings to acquire additional Bitcoin, ensuring a net increase in BTC per share even while issuing new shares.
The company’s mission is clear: they are successfully increasing their Bitcoin reserves.
However, MicroStrategy’s abilities set it apart from individual retail investors or fund managers. Unlike these private investors, MicroStrategy can access public capital markets with limited costs, while the average individual cannot raise funds through stock issuance or convertible bonds to invest in Bitcoin at near-zero interest rates.
This leads to a critical question: How can investors effectively accumulate more Bitcoin? How can they achieve a positive “BTC yield”?
Mining for Bitcoin
Bitcoin miners generate BTC by dedicating computational power to the Bitcoin network, earning more Bitcoin than the power it requires to run their operations. However, due to the Bitcoin protocol’s “difficulty adjustment,” increasing computational power can lead to diminishing returns on block rewards.
The most successful miners optimize their computational efficiency while keeping operational expenses low. This is achieved by investing in the latest Bitcoin mining equipment and securing the cheapest possible electricity rates.
As of November 21, 2024, Bitcoin trades at around ~$98,000. With an electricity cost of $0.078 per kWh, using an Antminer S21 Pro for mining results in about $40,000 in electricity costs for 1 BTC. This equates to an impressive operating margin of approximately 145%. Typically, a healthy profit margin for a company ranges from 5% to 10%, meaning that Bitcoin mining significantly surpasses conventional standards.
Price Growth vs. Difficulty Growth
The pricing of financial assets, particularly Bitcoin, is influenced by market margins, meaning that an asset’s value reflects the latest buyer-seller transactions. This inherent quality is part of why Bitcoin exhibits such volatile price movements. The absence of a seller at a given price point can force buyers to bid higher, while a lack of buyers can push sellers to lower their asking prices, causing rapid fluctuations.
This mechanism results in fast price alterations for Bitcoin, often outpacing the adjustments in mining difficulty. Increases in network mining difficulty arise not from the simple play of supply and demand but rather from the cumulative efforts involved in ASIC production, energy production, and the development of mining infrastructures.
This situation creates favorable conditions for Bitcoin miners to stockpile substantial amounts of Bitcoin.
The graph illustrates the remarkable surge in Bitcoin mining profitability during bullish market trends. The “Hash Price” signifies the daily revenue earned by miners per computational unit. Historically, Hash Prices have soared over 300% year-over-year at the peak of each Bitcoin cycle, indicating that miners’ profit margins can triple within just one year.
While it’s likely this metric will decline as more entities participate in mining, as equipment is upgraded, and block rewards are halved every four years, the short-term trends during a bull market often render the effects of increased mining difficulty negligible when compared to soaring Bitcoin prices.
Fluctuations in Bitcoin Mining Hardware Prices
Aside from higher profit margins in bullish markets, Bitcoin miners enjoy the benefit of ASIC prices generally moving in correlation with Bitcoin values. During the market cycle from 2020 to 2024, Antminer S19 (the most efficient ASIC available at that time) started selling for approximately $24 per terahash. By November 2021, as Bitcoin reached its peak, prices exceeded $120 per terahash.
The resale value of Bitcoin mining hardware is showing a promising trend with each new generation. In the past, the rapid pace of technological advancements in Bitcoin mining meant that new ASIC miners would quickly make earlier versions outdated. However, as new ASICs have emerged, the performance differences have narrowed, allowing older models to remain viable for several years post-launch.
For instance, the Antminer S19, introduced in 2020, has maintained a market price that is still above zero. This leads to the expectation that the upcoming S21 series will also hold its value over a longer period. This aspect is crucial for miners, as it allows them to acquire Bitcoin without the concern of the initial machine cost becoming obsolete too quickly. The value of these machines often mirrors that of Bitcoin, contributing to enhanced liquidity options.
Introducing the Blockware Marketplace
Blockware has launched a marketplace designed to provide both individual and institutional investors easy access to Bitcoin mining. Users on this platform can buy Bitcoin mining rigs hosted within Blockware’s top-tier data centers and benefit from industrial-scale power rates. These mining machines are already operational, alleviating the previous lengthy wait times that sometimes caused miners to miss crucial cycles in the market when prices surged ahead of network difficulty adjustments.
Importantly, this platform is crafted by Bitcoin enthusiasts specifically for Bitcoin enthusiasts. This means that purchases are made using Bitcoin, and the mining rewards go directly to the user’s wallet without being managed by Blockware.
Additionally, miners have the flexibility to sell their equipment at any price they choose, without being bound by obligations. This enables them to capitalize on fluctuations in ASIC prices, recover their initial investments more effectively, and build their Bitcoin holdings faster than through conventional methods.
This innovation significantly reduces the challenges associated with hosted mining, allowing miners to concentrate on their goal of acquiring more Bitcoin.
If you are an institutional investor interested in bulk purchasing options for mining hardware, please reach out to the Blockware team directly.
