Bitcoin outperformed other asset classes consistently over the last decade. It has become the gold standard of digital asset investing. Bitcoin supporters often have a long-term financial vision that involves more than just acquiring dollars. They also want to increase their Bitcoin investments.
Bitcoin as the hurdle rate
Bitcoin is to digital assets what treasury bonds are to the legacy financial system—a foundational benchmark. Bitcoin is not without risks. However, Bitcoin that’s held by the owner eliminates systemic risk and counterparty risk.
BTC is the only asset that has performed better than every other asset in nine of the last 12 years. Orders of magnitudeNo surprise, Treasury Bonds have now been eclipsed as the preferred investment. “risk free rate” in the minds of many investors – especially those knowledgeable about monetary history and thus the appeal of Bitcoin’s verifiable scarcity.
Investors in digital assets have a financial objective to buy. More BTC Rather than acquire additional dollars. BTC represents the opportunity cost for any investment or expenditure.
MicroStrategy demonstrated this in the business world by introducing their BTC Yield KPI. As quoted in their September 20th article, 8-K form: “The Company uses BTC Yield as a KPI to help assess the performance of its strategy of acquiring bitcoin in a manner the Company believes is accretive to shareholders.” MicroStrategy is able to take full advantage of their tools as a public multi-billion-dollar company. They have access to debt with low rates and can issue new shares. This KPI illustrates that MicroStrategy is acquiring BTC per outstanding shares despite engaging in new share issuance, which traditionally dilutes the value of the share.
They have achieved their goal: they now own more Bitcoin.
MicroStrategy does have an advantage over the average retail or fund manager: as a publicly-traded company, they can tap capital markets with little relative cost. To raise money and buy BTC, individual holders cannot issue shares on the market. We cannot borrow at near-zero percent interest or issue convertible bonds.
This begs the questions: How can we collect more bitcoin? How can we have a positive ‘BTC Yield’?
Bitcoin Mining
Bitcoin miners earn BTC through the contribution of computational power. They receive a larger amount than they would have to pay in electricity costs to run their machines. This is much easier to say than do. Bitcoin enforces predetermined supply using “difficulty adjustments” – meaning that more computational power dedicated towards Bitcoin mining results in the finite block rewards getting split up into smaller pieces.
Bitcoin miners who maximize computational power and minimize their operating costs are the most efficient. The best way to achieve this is by using the most efficient Bitcoin mining equipment and the lowest electricity rates.
Market conditions are currently favourable. The date of the 11/21/20241 Bitcoin is currently worth $98,000. With an Antminer S21 Pro and an electricity cost of $0.078/kWh, you can produce one BTC with only $40,000 worth of electricity. It is an operating profit margin of almost 145%. The average business has an operating margin of approximately 145%. “healthy profit margins” if they are in the 5-10% range – mining beats this easily. Yet, even though they will only earn 50% of what they did before the halving of Bitcoin in April 2024.
The Price Growth is Outpacing the Difficulty Increase
The price of a financial asset – specifically bitcoin – is set at the margin. The price of an asset is set by recent trades between buyers and vendors. The price is determined by the most recent transactions between buyers and sellers.
BTC has a notoriously volatile market, and this is in part what makes it so. In the absence of marginal sellers, buyers will bid higher to get the seller. Inversely, when there are no buyers for price X, the seller will have to reduce their asking price in order find a marginal buyer. BTC may quickly rise or fall based on a shortage of either buyers or sellers within a particular range.
The velocity of the Bitcoin price is therefore much greater than the network mining difficulty. Significant growth in the network mining difficulties is not reached by marginal bid/ask differences, but by the culmination ASIC manufacture, energy production and mining infrastructure. It is impossible to reduce the amount of time or human capital required to boost the computational power available on the Bitcoin Network.
Bitcoin miners can accumulate huge amounts of Bitcoin by using this dynamic.
Chart showing the explosion in Bitcoin mining profitability during bull markets. “Hashprice” Measures the daily amount that Bitcoin miner earn per compute unit. The hashprice increased more than 3000% on an annual basis at the peak of every bitcoin mining cycle. It means the profit margins for miners has more than tripled over a period of 12 months.
Over the long-run this metric trends down as more entities begin mining bitcoin, miners upgrade to more powerful & efficient machines, and the block subsidy is cut in half every four years. The combination of factors that is a catalyst for increasing mining difficulty, and therefore reducing mining profitability, pales in comparison with the explosive growth of bitcoin prices during bull markets.
Bitcoin mining hardware is subject to price volatility
Bitcoin miners also enjoy the benefit that ASICs tend to rise and fall in line with Bitcoin prices. In the 2020-2024 cycle, Antminer S19 is expected to be a very popular choice. It was the most effective ASIC available at that time. began trading at ~$24/T. By November 2021 – when the BTC price was peaking – they began trading for north of $120/T.
With each generation of Bitcoin mining hardware, the resale price is increasing. In the early days of Bitcoin mining, technological advancements were swift and forceful – to the point that new ASICs would make older models obsolete overnight. In recent years, however, marginal improvements in new ASICs has diminished. Older models have been able to compete for many years.
As the S19, which was released in 2020 has a market price that is not zero at present, we can expect the S21 to be even more valuable. The S21 line of machines will be able to retain value for even longer, since the initial cost is not as high. “sunk”. They have machines with a price that’s correlated to Bitcoin, as well as a source of liquidity.
Blockware Marketplace
Blockware developed this platform to enable any investor – institutional or retail – the opportunity to gain direct exposure to Bitcoin mining. The marketplace allows users to buy Bitcoin mining equipment that is hosted in one of Blockware’s Tier 1 data centres and has access to industrial electricity prices. The machines are already online, removing the need for long lead times which have caused miners in the past to miss those months when price outpaced network difficulty.
This platform was built by Bitcoiners for Bitcoiners. Which means that machines are purchased using Bitcoin as the medium of exchange, and mining rewards are never held by Blockware – they are sent directly to the users own wallet.
The miners can take advantage of the fluctuations in ASIC price, recover their costs and increase BTC quicker than with traditional methods. The miners can take advantage of the volatility in ASIC price fluctuations, recover their machine costs, and collect more BTC than with traditional mining methods. “pure play” approach.
The innovation allows miners to focus on their mission, which is to accumulate more Bitcoin.
Investors looking to purchase mining equipment at bulk prices can benefit from our institutional pricing. contact the Blockware team directly.
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Source: bitcoinmagazine.com
