Bitcoin Investment Strategy: HODL vs. Trading

Why a “mine and hold” strategy is an inefficient combination of crypto investing and crypto mining.

I want to start off with an analogy which shows how ridiculous the idea of “Mine and Hold” for cryptocurrencies is. Where you hold your rewards from crypto mining. Gold: I like gold, so I go in my backyard and mine for gold and hold all the gold I find for long term appreciation.

It’s not exactly the same but it applies to cryptocurrency or crypto mining. People mine and hold or hold rewards from crypto mining because they like cryptocurrencies and see mining as a way to accumulate cryptocurrencies as they think they will appreciate in value. However, if you apply this to gold mining, the idea of people that wanted gold going into their backyard and panning for gold seems ridiculous.

Since roughly 2013 crypto mining has become a highly specialized and competitive business. So while a person can mine cryptocurrencies on home machines, they still have to compete against professional miners with warehouses, employees, cheap electricity, cheap hardware, and financial resources.

So unless you have really cheap electricity, or a secondary use for crypto mining byproducts like heat, you are probably better off just investing in cloud crypto mining contracts.

 

Crypto Mining Overview

On established coins, predicting difficulty and calculating profitability is not that hard. Just calculate the costs: space/property, electricity, hardware, maintenance and depreciation. Compare your calculated costs against coins mined. One hard thing to take into account is the increasing difficulty on competition from other miners. There are many helpful mining profitability calculators online to help you determine profitability once you know your costs.

The costs of mining are the fixed costs (miners, setup, computers) and your variable costs (electricity). So your costs stay relatively consistent aside from the crypto mining difficulty changing, but, most of the time, difficulty can easily be predicted. The Big Risk is the changes on the price of the coin which is impossible to predict with certainty.

 The worst case in crypto mining, is if the price of the coin goes down, before you get to mine enough coins to pay for the principal costs. Gold mining companies have this methodology that locks in their profitability by entering a futures contract. This might be a smart decision in crypto mining.

However, entering a futures contract with Altcoins “Altcoin Futures” is LESS profitable than “Bitcoin Futures”. There are also not that many easily accessible markets to do this in. So the best choice for miners is always to sell cryptocurrency for their costs instantly. They can then hold or sell the remaining profit at their discretion.

 The crypto mining business is really about maximizing returns from leveraged hardware investments, and minimizing the cost of operations as much as possible. Therefore, regardless of the price of the coin, so long as the changes are moderate, it cannot break the business. Mining decisions, in some ways, are independent to coin price changes.

This is why it’s generally a better choice for an average Joe to just purchase coins instead of mining them. Mining is its own separate competitive business, and Joe’s capital is better off speculating than competing with professional miners who are obviously better than him.

 

Purchasing Coins

The best way to gain exposure to any given coin, if that is your goal financially, is to buy some. Most of the time, people invest in a coin or token that they believe would increase value. And since you think that the price will go up, you’re gonna wanna have as many of this coin as you can, to maximize profit. Buying mining equipment for the coin can produce a continuous stream of coins which means a continuous stream of PROFIT.

Operating a crypto mining facility is of course distracting. So, if you just want to invest in coins, purchasing the coin could already produce exposure, without you needing to go through the hassle of mining it. This could help both passive and active investors. If you’re a passive investor, you’d have more time doing whatever it is that you’re doing when you’re not investing. If you’re an active investor you can spend time in researching, trading and community engagement.

The best analogies to compare cryptocurrency mining to are..

(A) Investing in gold vs. operating a gold mine.

(B) Investing in oil vs. operating an oil refinery.

(C) Buying art vs. being an artist.

In all of these parallels, you might think and ask “Why not do both if you believe in the asset you’re investing to and it’s potential?”

Making an asset is different than buying an asset. Although, making an asset is way more profitable than simply buying one, the risks are higher as well and it's a completely different business.

Summary

We hope this article provided some clarity on cryptocurrency mining. If you are still interested in the cryptocurrency mining investment, check out are article on Crypto Cloud Mining Contracts which are the better choice for 95% of people reading this.