1 Bitcoin Today

Introduction

Bitcoin, due its immutable, absolute scarcity, is being widely adopted as a long-term store of value. Investors seeking to capitalize on this opportunity by accumulating their own Bitcoin position are presented with two options: 1) buying Bitcoin directly or 2) . This Blockware Intelligence research report provides a comprehensive analysis comparing the two strategies across various market conditions between now and the 2028 Bitcoin halving

Given the transparent and predictable nature of the Bitcoin supply distribution schedule, there are a plethora of objective data points we can use to quantify the expected economics of a Bitcoin mining operation into the future. This report will analyze these data points as well as explore the qualitative factors that should be considered when determining the optimal strategy.

This analysis is NOT INVESTMENT ADVICE. The purpose of this analysis is not to project future returns, but rather to identify the optimal strategy to maximize long-term Bitcoin accumulation.

Abstract

This Blockware Intelligence research report provides a comprehensive analysis comparing the 3 year expected return of 2 specific Bitcoin investment strategies across various market conditions:

1. Buy & Hold Strategy: a miner buys Bitcoin and holds for the long-term (1 Bitcoin today)
2. “Mine & Accumulate” to purchasing and operating Bitcoin mining hardware (2 Bitcoin tomorrow).

We examine the results across different Bitcoin Market Environments – illustrating the competitive advantages offered by Mining vs HODL’ing. What our analysis revealed is that a Mining strategy outperformed a ‘Buy & Hold’ Strategy in 75% of the market simulations. Only under extremely bearish conditions (low BTC price appreciation combined with perpetual growth in BTC mining difficulty) does a ‘Buy & Hold’ strategy outperform a Mining strategy over a multi-year period.

Furthermore, when accounting for the future salvage value of the mining hardware (ASICs), the return profile of a Bitcoin mining strategy becomes even more attractive compared to a ‘Buy & Hold’ strategy. Across the 8 different strategies analyzed, when factoring in the salvage value of the ASIC the total amount of BTC accumulated via Mining increased by 6% on the low end and 50% on the high end.

Bitcoin Mining

Bitcoin miners contribute computational power to the Bitcoin network to secure the ledger and verify transactions. In exchange, Bitcoin miners are paid a predetermined amount of BTC, the native currency of the Bitcoin network.

Bitcoin mining is similar to other commodity production businesses but with one significant distinction: Bitcoin has a mechanism known as the “difficulty adjustment.” The pre-determined amount of BTC awarded to miners does not change if/when there is an increase or decrease in the amount of computational resources (hashrate). If more miners are turned on, the “difficulty” of mining Bitcoin increases proportionally, unlike other commodities where an increase in production capacity results in more of the commodity being produced. This mechanism ensures that there will never be more than 21,000,000 Bitcoin in circulation, and also that the amount of time it takes for these coins to enter circulation cannot be sped up or slowed down. ‘Difficulty’ is one challenge that miners must contend with when it comes to their operations – an increase in difficulty means that each individual miner will earn less BTC per unit of computational power.

In order to produce as much computational power as possible, miners use specialized hardware known as “Application Specific Integrated Circuits” or ‘ASICs’ for short. ASICs consume high quantities of energy – for reference, the Antminer S21 XP, which is the most up-to-date in ASIC technology, consumes 3645 watts, this is comparable to a commercial grade freezer which consumes ~3,500 watts.

Due to the high energy consumption of ASICs, profitable Bitcoin mining necessitates low-cost electricity. As such, the industry has evolved beyond the elementary “garage miners” of the early 2010s. Mining has become largely commercialized, with miners developing specialized datacenters, often in rural locations, where demand for energy is low and production is high, in order to access the lowest power prices possible. Because the barrier to entry is high – capital requirements, land, infrastructure, access to reliable energy, time etc – miners often elect to use a “Mining-as-a-Service” (MaaS) provider – also known as a “host.” The host develops the datacenter and handles the day-to-day operations, operating the machines on behalf of the miners, in exchange for a fee.

Mining Bitcoin vs Buying Bitcoin Directly

The primary reasons an investor may choose one method of Bitcoin accumulation over the other are:

• Market Outlook
• Time Preferance
• Risk Tolerance

Market Outlook

The returns of mining Bitcoin vs buying Bitcoin depend primarily on two outside, market forces:

• The Bitcoin Price
• The Bitcoin Hashrate (difficulty)

The relationship between these two metrics is complicated, being correlated at times and disconnected at others. Ultimately, if an investor believes that the Bitcoin price will increase at a faster than hashrate in the next 12 to 36 months, they should mine Bitcoin. If they believe that hashrate will increase at a faster rate than price in the next 12 to 24 months, they should buy Bitcoin. For an in-depth analysis on the relationship between price and hashrate, check out our report on the topic, published in Q3 2024.

Time Preferance

By nature of the pre-determined supply distribution schedule, mining is a longer-term play relative to directly buying Bitcoin. Investors who analyze the market on a multi-year basis (which is the optimal approach to take with an asset like Bitcoin, whose CAGR is high but also its volatility) are more likely to consider mining than those who analyze the market in terms of days, weeks, or months. Purchasing Bitcoin directly gives an investor immediate access to the asset. But mining allows an investor the opportunity to acquire more Bitcoin over a longer period of time.

Risk Tolerance

Despite the framing from traditional economists and legacy financial advisors, Bitcoin, specifically Bitcoin kept in self-custody, is the least risky asset one can hold. Volatility is not to be confused with risk. Bitcoin’s exchange rate is volatile, but Bitcoin, as bearer asset, does not possess key risk factors:

• Counterparty Risk
• Dilution Risk
• Execution Risk

Risk is a factor that must be taken into consideration when an investor decides between Bitcoin mining and direct Bitcoin buying. Due to the scale of energy production, infrastructure, and manpower needed to operate a mining data center, most Bitcoin miners opt to partner with a Mining-as-a-Service provider, also known as a ‘host.’ The host builds and operates the mining facility, while the miner pays for the ASICs and their electricity consumption. With this approach, the miner does incur counterparty party and execution risk. Which is why it is important to always partner with trusted, reputable hosts, who operate facilities in politically stable jurisdictions.

Return Analysis – Setting the Parameters

For this analysis, we will observe 4 different Bitcoin accumulation strategies over 4 different market outcomes, measuring a 38 month period from March 1, 2025 through April , 2028 (projected month of the next Bitcoin halving).

Of the 4 strategies, 2 are ‘mining strategies’ and 2 are ‘buy and hold’ strategies. The strategies are subdivided based on the amount of capital deployed and the timing of the capital deployment. Furthermore, both mining strategies contain an additional option in which the mining hardware is sold at the end of the period for a non-zero salvage value. Given the diminishing marginal improvements in mining technology (as discussed in our previous research) it is reasonable to assume that present-day mining hardware will retain re-sale value better than previous generations of mining technology.

For simplicity sake, we will refer to each of the strategies by the name given below through the remainder of the report.

Strategies:

• Spot 1 (Upfront Capital Deployment): Purchase BTC at the start of the period and hold for the duration of the period
• Mining 1a (Upfront Capital Deployment): Purchase miners at the start of the period, each month sell enough BTC to cover the electricity cost of the miners while holding the rest.
  • Mining 1b: Same as Mining 1a, but sell the miners at the end of the period.
• Spot 2 (Ongoing Capital Deployment): Initial purchase of BTC at the start of the period plus continuous purchases once per month through the duration of the period.
• Mining 2a (Ongoing Capital Deployment): Purchase miners at the start of the period, each month pay the electricity bill out of pocket and hold all BTC mined.
  • Mining 2b: Same as Mining 2a, but sell the miners at the end of the period.

Spot 1 and Mining 1 will be compared as they both involve an initial deployment of capital at the beginning of the period, with no additional capital deployment. With Mining 1, no additional capital is technically deployed beyond the upfront cost of the machines because the funds used to cover the electricity bill of the miner are taken from the revenue earned by the miner.

Spot 2 and Mining 2 will be compared as they both involve an initial deployment of capital, plus continuous deployments of smaller size each month. The spot version is a lump sum purchase of Bitcoin followed by a monthly “Dollar Cost Average.” The mining version is a lump sum purchase of miners followed by monthly electricity payments to run the miners, which is effectively the same as a “Dollar Cost Average” when measuring the amount and timing of capital deployment.

The performance of each strategy will be measured by “total Bitcoin accumulated.” The strategy with the most Bitcoin accumulated through the duration of the period should be considered by investors as the most optimal method of Bitcoin accumulation. For the mining strategies, the salvage value of the machines (denominated in BTC) should be taken into consideration as this is not a ‘sunk cost’, rather, it is an income producing asset on the investors balance sheet.

However, we will provide a view both inclusive of and exclusive of machine salvage value. Each strategy will begin with a deployment of “1 Bitcoin.”

Mining Operation:

• Antminer S21 (200T, 17.5 W/T)
• $4,800 per Machine ($24/T)
• $0.072/kWH
• “Turnkey”, Mining as a Service

Purchasing $90,000 (1 BTC) worth of Antminer S21’s at $4,800 per machine results in approximately 18.75 machines; an aggregated hashrate of 3,750 TH/s consuming ~65,625 watts. At $0.072/kWh, this hypothetical mining fleet would consume ~$113 worth of electricity per day, or ~$3,400 to $3,500 per month (variance based on the amount of days in each month).

Market Conditions:

We will compare the returns of the various strategies across the four different market conditions, starting with the present day (March 2025) market conditions.

• $90,000 BTC Starting Price
• 790 EH/s Starting Hashrate / Difficulty
• $0.051/Th/Day Starting Hashprice
• Returns Measured from March 2025 to April 2028 (estimated month of next Bitcoin halving)

• Static (returns should current market conditions hold steady)
• Bear (moderate difficulty growth, low price growth)
• Base (moderate price growth, moderate difficulty growth)
• Bull (high price growth, moderate difficulty growth)

We will compare the returns of the various strategies across the four different market conditions, starting with the present day (March 2025) market conditions.

• $90,000 BTC Starting Price
• 790 EH/s Starting Hashrate / Difficulty
• $0.051/Th/Day Starting Hashprice
• Returns Measured from March 2025 to April 2028 (estimated month of next Bitcoin halving)

Performance Considerations:

• Spot: Total BTC Accumulated via Purchases
• Mining (a): Total BTC Accumulated via Mining
• Mining (b): Total BTC Accumulated via Mining plus the BTC-Denominated Salvage Value of the Miners

The BTC accumulated from each strategy is measured according to the following method(s):

• Spot 1: 1 BTC Accumulated at the Start of the Period for $90,000
• Spot 2: 1 BTC accumulated at the Start of the Period for $90,000, plus monthly ‘DCA’ purchases in an amount equivalent to the monthly electricity spend for the mining strategies (~$3,400 to $3,500 per month).

• Mining 1a: Monthly BTC Mining Rewards less the cost of electricity for operating the machine.
• Mining 2a: Monthly BTC Mining Rewards

• Mining 1b: Monthly BTC Mining Rewards less the cost of electricity for operating the machine, plus the BTC-denominated salvage value of 18.75 Antminer S21s.
• Mining 2b: Monthly BTC Mining Rewards plus the BTC-denominated salvage value of 18.75 Antminer S21s.

Mining 1b and Mining 2b assume a monthly linear decay in the dollar value of the mining hardware, starting at $90,000 and decaying to the end salvage value outlined in each market scenario.

Return Analysis 1: Static Market Conditions, Upfront Capital Deployment

• 0% Monthly Price Growth
• 0% Monthly Hashrate Growth
• 50% Machine Salvage Value

Spot: 1.00 BTC

Mining: 1.01 BTC (1% Gain over Spot)

Mining (including machine salvage value): 1.51 BTC (51% Gain over Spot)

Return Analysis 2: Static Market Conditions, Ongoing Capital Deployment

• 0% Monthly Price Growth
• 0% Monthly Hashrate Growth
• 50% Machine Salvage Value

Spot: 1.84 BTC

Mining: 1.85 BTC (1% Gain over Spot)

Mining (including machine salvage value): 2.35 BTC (28% Gain over Spot)

Return Analysis 3: Bear Case, Upfront Capital Deployment

• 3% Monthly Price Growth ($270k by 2028)
• 2% Monthly Hashrate Growth (1,640 EH/s by 2028)
• 25% Machine Salvage Value

Spot: 1.00 BTC

Mining: 0.87 BTC (13% Loss to Spot)

Mining (including machine salvage value): 0.95 BTC (5% Loss to Spot)

Return Analysis 4: Bear Case, Ongoing Capital Deployment

• 3% Monthly Price Growth ($270k by 2028)
• 2% Monthly Hashrate Growth (1,640 EH/s by 2028)
• 25% Machine Salvage Value

Spot: 1.89 BTC

Mining: 1.75 BTC (7% Loss to Spot)

Mining (including machine salvage value): 1.83 BTC (3% Loss to Spot)

Return Analysis 5: Base Case, Upfront Capital Deployment

• 4.5% Monthly Price Growth ($450k by 2028)
• 2% Monthly Hashrate Growth (1,640 EH/s by 2028)
• 50% Machine Salvage Value

Spot: 1.00 BTC

Mining: 1.03 BTC (3% Gain over Spot)

Mining (including machine salvage value): 1.13 BTC (13% Gain over Spot)

Return Analysis 6: Base Case, Upfront Capital Deployment

• 4.5% Monthly Price Growth ($450k by 2028)
• 2% Monthly Hashrate Growth (1,640 EH/s by 2028)
• 50% Machine Salvage Value

Spot: 1.72 BTC

Mining: 1.75 BTC (2% Gain over Spot)

Mining (including machine salvage value): 1.85 BTC (7% Gain over Spot)

Return Analysis 7: Base Case, Upfront Capital Deployment

• 6% Monthly Price Growth ($775k by 2028)
• 2% Monthly Hashrate Growth (1,640 EH/s by 2028)
• 75% Machine Salvage Value

Spot: 1.00 BTC

Mining: 1.15 BTC (1% Gain over Spot)

Mining (including machine salvage value): 1.23 BTC (23% Gain over Spot)

Return Analysis 8: Base Case, Upfront Capital Deployment

• 6% Monthly Price Growth ($775k by 2028)
• 2% Monthly Hashrate Growth (1,640 EH/s by 2028)
• 75% Machine Salvage Value

Spot: 1.60 BTC

Mining: 1.75 BTC (9% Gain over Spot)

Mining (including machine salvage value): 1.84 BTC (15% Gain over Spot)

Summarizing The Results

In 6 out of 8 of the scenarios mining Bitcoin outperformed direct Bitcoin buying. Only in the most bearish market conditions – historically low Bitcoin price growth coupled with steady growth in mining difficulty – does a mining strategy underperform a strategy of buying bitcoin directly. Furthermore, when factoring in the potential salvage value of the miners (denominated in BTC), the outperformance of mining ranges from 7 to 51%.

Ultimately, if an investor is bullish on Bitcoin price action over a 2 to 4 year period, then they should consider Bitcoin mining as the optimal position to express that bullishness. Despite the block rewards diminishing over time due to BTC halvings and increasing mining difficulty, miners 18 operating with efficient hardware and low-cost power are able to produce BTC at a discount to the market price over extended periods of time. Moreover, when factoring in the non-zero salvage value of mining hardware, the scales begin to tilt more heavily in favor of mining vs direct Bitcoin accumulation.

Additional Factors to Consider

• Lagging Difficulty Growth
• Supplemental Revenue from Transaction Fees
• Appreciation of ASIC Prices

Lagging Difficulty Growth:

In this analysis, for purposes of simplicity, we assume a steady growth rate in both BTC price and mining difficulty. However, as discussed in our aforementioned report on the relationship between Bitcoin price and hashrate, oftentimes growth in the Bitcoin price precedes growth in hashrate. Due to the physical infrastructure, hardware, and energy production needed to scale a mining operation, it takes many months for miners responding to an increase in the Bitcoin price to fully deploy new machines. This results in specific windows within Bitcoin bull markets in which mining profitability grows exponentially due to a lagged time between an increase in the Bitcoin price and equivalent increase in hashrate.

The chart below shows the ‘mining profitability spread’, the rolling 3-month % change in Bitcoin miner revenue (USD Denominated). At the height of bull markets Bitcoin miner revenue increases by 2 to 5x on a quarter-over-quarter basis – mining during these windows of time is crucial for long-term performance.

Supplemental Revenue from Transaction Fees:

In addition to the block subsidy (3.125 BTC presently), miners also earn revenue from fees associated with the on-chain transactions that they process. The market rate for transaction fees is highly volatile. Due to each Bitcoin block being limited at ~4mb worth of data, those wishing to send Bitcoin on-chain must outbid each other (pay a higher fee) in order to incentivize miners to include their transactions in blocks. When there’s a high number of people trying to send Bitcoin at once, like during bull markets, the revenue miners earn from transaction fees can increase substantially.

In order to remain conservative in our analysis, we forecasted miners earning merely 1% in additional revenue from transaction fees. However, over the course of the 3-year period, it’s likely that the additional revenue from fees will average out to be higher than 1%. Over the past four years, miners have consistently earned an additional 4 to 5% in transaction fee revenue.

Appreciation of ASIC Prices

In an effort to remain as conservative as possible with our analysis, the forecast assumes a fiat-denominated depreciation in the price of mining hardware. However, the possibility of ASIC prices rising, over a short-to-medium period of time, especially during bull markets, must be considered. ASIC prices are relatively correlated with BTC, when mining revenue and profitability increases, demand for Bitcoin mining (ASICs) increases. But there are other factors at play, namely in regards to supply.

Over the past year, while the Bitcoin price has risen, ASIC prices have marginally declined. This is in large part due to the influx of new supply. In 2024, Bitmain, the largest ASIC manufacturer in the world, launched three new models, the S21, S21 Pro, and S21 XP. This broke their historic pattern in which they launched a new-generation machine during the year of a halving, followed by marginal upgrades during non-halving years. In the case of the 2020-2024 cycle, it was the S19, S19j Pro, S19 XP, and S19j XP. The launch of three new machines in a single calendar year flooded the market with supply, which has pushed prices lower. This is a double-edged sword because it allows miners to scale their operations for a lower cost, but it also diminishes the value of their existing hardware.

In 2021, ASIC prices surged alongside BTC as an increase in demand was met with a decrease in available supply. At this time, global supply chains were in disarray as the world attempted to rebound from lockdowns. With the majority of ASICs manufactured in China, it took a long time for these machines to reach miners in the United States. This combination of factors resulted in machine prices increasing by more than 500% from Spring 2020 to Spring 2021.

A similar environment could unfold in 2025 if US President Donald Trump follows through with Tariffs. These would result in higher prices from Chinese manufacturers, ultimately leading to higher prices on machines marketwide. If this happens at the same time as the Bitcoin price begins to rally, it could create the perfect storm for a bull market in hardware prices.

Bitcoin Mining with Blockware

Profitable Bitcoin mining necessitates purpose built hardware and low-cost power. Moreover, building infrastructure necessary to support a scalable mining operation is capital intensive and requires expertise across a variety of domains — power production, thermodynamics, networking, etc. These barriers to entry often deter would-be investors from a Bitcoin mining strategy. Blockware’s ‘Mining as a Service’ solves these challenges by handling all of the setup and on-going operations, enabling investors to mine Bitcoin without lifting a finger.

The Blockware Marketplace is a built-on-Bitcoin platform that enables users to buy and sell live Bitcoin miners. Investors can easily exchange BTC or USD for Bitcoin miners that are plugged in right now at one of Blockware’s top-tier data centers. Here are some benefits of The Blockware Marketplace:

• Zero Lead Time: The miners are already plugged in and earning Bitcoin. As soon as your transaction is confirmed, the machine belongs to you, and the BTC rewards will begin stacking in your wallet.
• Transparency: The Marketplace provides all the data you need to make an informed decision. Historical hashrate, the miner serial number (so you can check warranty), machine location, projected profits, etc.
• Liquidity: You have the option to sell your miner on the Marketplace at any time. This means you don’t have to commit to mining long-term, and you have the opportunity to capitalize on volatility in the price of machines.

Blockware has a dedicated team of professionals ready to help you deploy capital into mining. Our team will create a personalized strategy to help you achieve all of your Bitcoin goals. Fill out the form on our website to learn more: https://www.blockwaresolutions.com/contact. Or, contact us directly by emailing [email protected]