"This Post is still Under Construction so feel free to point out any mistakes down in the comments."
So you mastered Mining Pool Allocation for your Hashflare account but 1% to 3% is not enough gains to satisfy you? Well look no further as we dive in to the biggest risk/reward strategy for Cloud Mining.
So you love danger and don't mind any extra risk as long as there is an equivalent reward? Well unlike in real life compound interest reinvesting can be a dangerous path in the world of cryptocurrency. If you aren't careful you could lose anywhere from 2% to 50% (if not more) with the wrong strategy.
So before we begin to explain if you should or not reinvest into Hashflare or any other platform for that matter we need to understand a few things first.
Compound Interest Reinvesting in real life:
Compound interest is the essentially a method in which you generate more earnings on an investment by reinvesting your profits. This allows you invested amount to grow steadily and gain interest on a bigger amount instead of a fixed amount.
For example lets say you invest $1,000.00 dollars into a stock that gives you 10% annual return. Your initial investment at the end of year would have grown to $1,100.00. Now you could take out the profits and keep the $1,000.00 in for another year essentially getting $100 dollars every year for free or you could leave it in with your initial investment so it can also generate some interest during year two. Doing this will allow your original investment to grow to $1,210.00 in two years giving you an extra $10 you would have missed if you had removed the profits. Sure these numbers don't look like much since we are keeping numbers low for simplicity but it's free money you are missing out on if don't reinvest.
Compound Interest Reinvesting in the cryptocurrency space:
While in theory compound interest works the same way as it does in real life, due to nature and volatility of the cryptocurrency space you will end up with different results.
For example you could invest the same $1,000.00 into Bitcoin (for simplicity lets say that you get 1 BTC with that amount) and invest it in a margin trading platform guaranteeing 10% annual returns. After a year this amount could have three routes it could have taken:
1. It stayed the same - so after a year you now have 1.1 BTC and since the value of Bitcoin didn't change you are left with $1,100.00 worth of Bitcoin for a 10% profit just like our real life counterpart.
2. It went up - after all the margin trading you ended up with 1.1 BTC, but the price of Bitcoin tripled during the year and now you have $3,300.00 worth of Bitcoin giving you a profit of 330% .
3. It went down - again as with the other two scenarios you end up with 1.1 BTC but the price of Bitcoin has halved during the year so you end up with $550.00 worth of Bitcoin, essentially giving you a loss of 45%
So as you can see while there is still chance for growth now you have a 1/3 chance to lose money. Do keep in mind that these are not the only scenarios that could come up, these are just the two extremes and the middle ground scenarios.
Reinvesting in Hashflare:
So now that we understand how it should work lets apply this to Hashflare. Essentially what Hashflare does is allow it's users to reinvest their daily profits to buy more Hashing power in small increments of 10 GH/s at $2.20. So if your current investment makes $5.00 worth of Bitcoin Hashflare will automatically take $4.40 and give you a 20 GH/s upgrade leaving $0.60 worth of Bitcoin in your account. This would be fine and good if cryptocurrencies weren't so volatile or if difficulty wasn't a factor to consider, but since they are this strategy could lead to some serious losses.
First off you are paying Hashflare whatever Bitcoin is worth today to essentially lock your Bitcoin and hopefully see some returns. Some people don't like this idea for many reasons, like for example you could pay 1 BTC today and tomorrow Bitcoin doubles in price and you essentially ended up overpaying and now your Bitcoin is stuck for a year. In this scenario if you had waited one more day you could've essentially bought twice the hashing power for the same price or in other words lost 50% right out of the gate. While I try not to think about it this way there are certainly some people that definitely do and there is some merit to this train of thought.
Second the difficulty of Bitcoin grows over time. So let's say we invested $1,000.00 and during your first payout you notice that the projected amount over the course of the year is $2,000.00. You need to understand that these values only account for the amount of Bitcoin you're getting payed per day and as difficulty grows your payout will go down, so in the end you could end up with something closer to $1,500.00 just to say a number.
Third and lastly you have to have paitence and wait this out for a year. Believe it or not one year is a lot in cryptocurrency time, if you don't have the paitence to wait this out you might end up bald. So many things could happen like:
1. Hashflare might go out of business.
2. Difficulty might go up so high you end up with the same amount in BTC as the one you started.
3. Depending on when you read this, we could have mined all the available Bitcoin and your contract gets canceled leaving you with a huge loss.
Take every worst case scenario into consideration and if this is too much for you don't even invest in the first place and save your self the heart attacks.
Having said all of this I honestly think that you should only reinvest if the current value of Bitcoin is equal or higher than it was during the time you made the initial investment. Why? you may ask. Simple if I invest $1,000.00 when Bitcoin is at $10,000 and get $2.20 worth of Bitcoin but the price of Bitcoins is now $9,000 if I reinvest right now I would be paying more for the upgrade than I should (about 10% more). In simple scenarios like this it doesn't matter but when you are talking about bigger amount in which you could get multiple upgrades it starts to scale up quickly. For example using the same values of Bitcoin lets say your investment gets a payout of $4.00 (@ $9,000.00 per BTC) if you reinvest you would only get one upgrade of 10 GH/s and have $1.80 left, but if the price of Bitcoin had stayed the same (@ $10,000.00 per BTC) you could have gotten two upgrades instead.
So to keep this short and simple write down the value of Bitcoin when you make your initial investment if the price has not fluctuated or has gone up feel free to reinvest as you will be getting more bang for your buck. If not the just HODL your profits and just get a bigger contract when your current one expires. Just keep in mind that eventually you need to get at least your initial investment back so don't go reinvesting to the point where you never cashed out.
Links:
Hashflare - https://hashflare.io/r/8D6AA18B
Donations:
BTC: 14YKqwXv4qEJUix9n23Lqnfncd7Vtc9g1Z
ETH: 0x481aca003F28f070df3b65f56139e918Ff207dAa
LTC: LPahh1Gt4rsVAM9r3QSnSMRfBk9tBfxMDy
BCH: 1EJXuZ5VKt2Fipeff1Qu9yWui1hhfrF8TT
DASH: XiN5TL8Rf94yQDx8Lz2MSWyQMaNKQLVpL4
OMG: 0x481aca003F28f070df3b65f56139e918Ff207dAa
GNT: 0x481aca003F28f070df3b65f56139e918Ff207dAa