Buy and Hold vs Mining Bitcoin

We have seen and learned what bitcoin mining is and how bitcoins are mined in the last series of articles. Done correctly with the right group, getting involved in bitcoin mining and joining a mining pool can be an excellent way to build residual income over time.

On the other hand, Buy and Hold is an investment strategy where an investor buys a commodity and holds them for an extended duration. This is based on the notion that in the long run, financial markets give a good rate of return even with the commodity experiencing a degree of volatility. This is a common practice for stocks, bonds and certain commodities, and requires that the investor has strong holding power.

tim draper bitcoin 10000 dollars

Today we will look at some calculations to compare between these two methods of investing into bitcoin. In the calculations below, we will consider the following assumptions:

  • the value of 1 bitcoin (btc) = US$7,500
    as at November 2017; it could already be higher by the time you read this, resulting in less than 0.48 btc under the BUY-HOLD column below.
  • 0.48 btc would be bought and held
    which is also equivalent to the cost of securing a BitClub Network founder mining pool, so that apple-to-apple comparisons can be made. Note that the figures here apply only to mining with BitClub Network as not all mining operations around the world are profitable.
  • that mining will produce 0.8 btc after the first year by 2018, and diminish gradually through to 2020
    these are known values by record since the last halving in July 2016. Nevertheless, mining difficulties change with time, and some variations and range can be expected throughout its course. This already takes into account all overheads (electricity, cooling, rental space etc.) and maintenance fees deductions. From our own records, mining yields 1.0 btc from mid-2016 to mid-2017, and we will assume a linear fall of 0.2 btc per year until June 2020. These are conservative estimates, and you may use a linear fall of 0.3 btc per year if you wish.
  • that mining will produce approximately 0.3 to 0.05 btc per year from 2021 to 2024
    assuming that increase in mining difficulty causes a linear drop of 0.1 btc per year in mining after the next halving in 2020, but feel free to use a lower estimate if desired. Again, all overheads (electricity, cooling, rental space etc.) and maintenance fees (downtime, upgrades etc) have been deducted. Again, these are very conservative estimates, and mining may yield higher numbers than these, depending on the community’s collective hashrate size against other miners at that time.
  • that 1 bitcoin will be worth US$15,000 by the Year 2020 during the next halving
    but feel free to use your own projection in the calculation.
  • that 1 bitcoin will be worth US$50,000 by the year 2024 on the following halving
    Those who have been following the trends in bitcoin in the past few years would know that these are conservative estimates.

We will look at two scenarios – selling all bitcoin holdings in 2020, and in 2024, to illustrate how the buy and hold strategy differs from bitcoin mining in the medium- to long-term. Fiat currency shown below is in US Dollars.

SCENARIO 1

In the first scenario, we will consider selling all bitcoins in possession by the year 2020. The comparison between Buy-Hold vs Mining Bitcoin is given in Table 1 below.

BUY-HOLD BITCOIN MINING BITCOIN
A. Initial Investment
A1. Buy 0.48 btc OR Mining Pool
(Year 2017: 1 btc = $7,500)
$3,600
(0.48 btc in November 2017)
$3,600
(Price of 3 Mining Pools)
B. Bitcoin Holdings in 3 Years Until 2020
B1. No. of bitcoin at Start (2017) 0.48 0
B2. No. of bitcoin gained in Year 1 (2018) 0 0.8
B3. No. of bitcoin gained in Year 2 (2019) 0 0.6
B4. No. of bitcoin gained in Year 3 (2020) 0 0.4
B5. Total no. of bitcoin after 3 years 0.48 btc 1.8 btc
B6. Value of bitcoins in Year 3
(Year 2020: 1 btc = $15,000 est.)
$7,200 $27,000
C. Net Profit and Difference
C1. Net profit (B6 – A1) $3,600 $23,400
C2. Difference ($23,400 – $3,600) + $19,800
If all bitcoin in holdings are sold at this point in 2020, there will no longer be any bitcoin retained for future capital appreciation:

  • For BUY-HOLD, to acquire additional bitcoin at this stage, bitcoin would be purchased at the price of $10,000 each.
  • For MINING, new bitcoin will continuously be mined, and no further purchase or reinvestment is required.
TABLE 1 – SELL ALL BITCOIN HOLDINGS IN 2020

SCENARIO 2

In the second scenario, we will look at selling all bitcoins in possession by the year 2024 as given in Table 2 below.

BUY-HOLD BITCOIN MINING BITCOIN
A. Initial Investment
A1. Buy 0.48 btc OR Mining Pool
(Year 2017: 1 btc = $7,500)
$3,600
(0.48 btc in November 2017)
$3,600
(Price of 3 Mining Pools)
B. Bitcoin Holdings in First 3 Years until 2020
B1. No. of bitcoin at Start (2017) 0.48 0
B2. No. of bitcoin gained in Year 1 (2018) 0 0.8
B3. No. of bitcoin gained in Year 2 (2019) 0 0.6
B4. No. of bitcoin gained in Year 3 (2020) 0 0.4
B5. Total no. of bitcoin after 3 years 0.48 btc 1.8 btc
B. Bitcoin Holdings in Next 4 Years until 2024
B6. No. of bitcoin gained in Year 4 (2021) 0 0.3
B7. No. of bitcoin gained in Year 5 (2022) 0 0.2
B8. No. of bitcoin gained in Year 6 (2023) 0 0.1
B9. No. of bitcoin gained in Year 7 (2024) 0 0.05
B10. Total no. of bitcoin after 7 years 0.48 btc 2.45 btc
B11. Value of bitcoins in Year 7
(Year 2024: 1 btc = $50,000 est.)
$24,000 $122,500
C. Net Profit and Difference
C1. Net profit (B11 – A1) $20,400 $118,900
C2. Difference ($118,900 – $20,400) + $98,500
If all bitcoin in holdings are sold at this point in 2024, there will no longer be any bitcoin retained for future capital appreciation:

  • For BUY-HOLD, to acquire additional bitcoin at this stage, bitcoin would be purchased at the price of $50,000 each.
  • For MINING, new bitcoin will continuously be mined, and no further purchase or reinvestment is required. However, mining difficulties may have also increased at this point, and miners would require a collective high hashrate to mine profitably.
TABLE 2 – SELL ALL BITCOIN HOLDINGS IN 2024

paypal director bitcoin 1 million

And it doesn’t stop there…

“In the long run, buying into a bitcoin mining pool has its advantages…”

One of the benefits of mining is that you can choose to sell some of your bitcoins along the way, without the fear of depleting your entire reserve. Taking Scenario 2 above as an example, if you had only bought 0.72 btc but sold them off in 2020, you would have sold all your holdings. If you were mining and had done the same of selling 0.72 btc in 2020, you would still have 1.68 btc in your holdings, which will continue to increase in the following years, and the accumulated bitcoins could be sold off at a much higher price at a later time without any additional reinvestment.

“BitClub Network has a well thought-out plan to stay relevant and to keep mining for many years to come.”

In the long run, buying into a bitcoin mining pool has its advantages. With an ever expanding membership base from around the globe, BitClub Network strives to continually increase its collective hashrate to be one of the Top 5 miners by 2018. At present, they are already one of the largest bitcoin mining pools in the world.

Visit this page to find out how you can join BitClub Network and be part of one of the largest bitcoin mining pools in the world today.

Ledger Nano S - The secure hardware wallet
Do NOT follow this link or you will be banned from the site!