Mining Bitcoin vs Buy & Hold Bitcoin – Which is the Optimal Strategy to Capture the Long-Term Opportunity?
On Paper vs Real Results differ radically. We analyze 2 Mining Strategies vs Holding Bitcoin:
Buy and Hold Strategy: a miner buys Bitcoin and holds for the long-term
Mine and Sell to Cash: a miner buys a mining rig and sells all rewards daily to cash for the life cycle of the machine
Mine and Play with House Money: a miner buys a mining rig and sells their operating expense to cash but holds the remainder in Bitcoin
With the proper strategy and time horizon, Bitcoin Mining offers opportunities to outperform simple buy and hold investment strategies. Many market participants get distracted by the illusion of being able to buy Bitcoin at the low and sell at the top. This is an improbable, lottery ticket strategy.
During Bitcoin’s existence, lets analyze the opportunities to exit:
Bitcoin was at $20,000 for only a few minutes
Bitcoin closed above $17,000 only 7 days
Bitcoin closed above $12,000 a total of 43 days over the past 10 years
Bitcoin may hit high prices, but it does not stay up there for long. To overcome the emotion and real time excitement to sell near the highs is difficult and low probability – not even the greatest traditional money managers in history achieve this. This is why On Paper Results significantly underperform Real Results.
The Bitcoin Mining Industry is in the early innings of a new Hardware Upgrade Cycle that is running into Halving just as we witnessed in 2016. It is a luxury to be deploying at the start of another Hardware Upgrade Cycle. Miners have the ability to deploy capital to Next Generation Equipment, which we believe will be the most realistic strategy to outperform over the long-term (2-4 years).
In Sideways & Down Markets – Mining still produces excellent yield
Mining Bitcoin still generates cash flow/Bitcoin even if Bitcoin declines in price. Mining is actually the most advantageous strategy in a sideways market as holding Bitcoin yields $0 but with mining, you still earn daily rewards.
Evaluating the Professional Money Managers
From 2017 to 2019, over 390 Crypto Hedge Funds were launched, but PWC estimates that there are only 150 Active Crypto Hedge Funds remaining. Not only were Fund Managers unable to outperform Bitcoin, but a majority blew out - losing their initial principal with an asset that returned many multiples.
Dollar Cost Averaging and its Benefits
Dollar Cost Averaging entails deploying a fixed dollar amount into an asset in consistent time intervals. The capital injections continue regardless of market conditions, which allows the following advantages:
Allows for the rare capitalization of Bear Market low prices
Avoid mistiming the market
Removes the emotion from capital deployment
Helps you focus long term
Bitcoin’s extreme volatility is best managed with a Dollar Cost Average Strategy, which mining achieves. Dollar Cost Averaging is an excellent strategy applied to markets with extreme volatility and an asset that one wants to accumulate a large position in over a longer time horizon. Investors take advantage of Bear Markets because they are purchasing the lows while most are too afraid to deploy capital. Bitcoin is a best fit for such a strategy as it is still a technology and commodity in its infancy that is in price discovery mode. It will have several more boom and bust cycles as it matures into Digital Gold so investors should expect continued volatility and have long time horizons. With Bitcoin Mining you are receiving Bitcoin everyday and therefore, Dollar Cost Averaging into a long-term position.