Why mining Bitcoin if the holding is more profitable? — Experiences shared by BTC.TOP CEO
In terms of ROI in crypto sector, the holding is most profitable practice, it could allow you to earn 100 times return through onebullish and bearish market cycle. In contrast, even in a bull market, it takes about 200 days before your miners reached the break-even point, and the threshold for mining is relatively high, including miner purchasing, transportation, hosting, operation and maintenance, etc. It is much more complicated and troublesome than directly buying Bitcoin in the Exchange.
So why do many people choose to mine instead of buying Bitcoin directly?
The CEO of BTC.TOP, Jiang Zhuoer gave his answer in a speech at Huobi University in early 2019. The following is an excerpt from the speech:
Crypto mining is actually not that profitable. The following figure shows the return curve of S9. In fact, even in a bull market, the payback period of mining is about 200 days, which means that you can earn a maximum return of 300% ~ 500% in a two-year bull market.
If the Holding’s profit is much higher than mining, and I may have a chance to earn 100 times profit, why should I mine?
The following chart demonstrates the bear market scenario in 2011. The highest point in the chart is close to 32 US dollars, and then the BTC price sharply declined to 2 US dollars, nearly -95%, to the point that everyone started to wonder what life is about, afterwards the market experienced a sideway for more than half a year. Satoshi Nakamoto himself said that Bitcoin was an experiment. At that time, many people were worried whether the experiment would be a failure. On top of that bitcoin at the time did not have any practical use, the famous transaction at that time was a programmer who bought two pizzas in exchange of 10,000 bitcoins.
After this wave of bear markets, the BTC price slowly increased in 2013. This wave of bull markets was also known as the “get off bull market.” At this time, many people believed that I am familiar with this scenario, as was the death bear market in 2011. According to this judgment, many people thought that the history will repeat itself and there would be another 90% decline, so many people sold out their BTC at $ 200.
A typical example was Hongbin Duan, a financial blogger. I mentioned it in the popular science article “What is Bitcoin”. He bought a substantial amount of bitcoin in 2011 and wrote a lot of articles recommending bitcoin. One of them is “This thing will disrupt the world”, elevating Bitcoin to a very high level.
In 2013, it is precisely because he judged that Bitcoin would repeat the trend of 2011, therefore he sold all his Bitcoin on the wave of bear market in early 2013, but in fact there was only bout 75% decline this time. You can find the K-line in the above chart, there was a V-shaped inversion, many people got off the boat.
The bull market at the end of 2013 was directly promoted by QQ pop-up windows and CCTV news. The price went up very fast and didn’t follow the script which surprised many people. Most of the people who were too late to get on the train completely missed the golden opportunity.
After Duan Hongbin missed this opportunity, he turned from a BTC supporter to an opponent by writing the bubble theory of Bitcoin, and then he shifted his focus on Altcoins.
The The scariest thing in the blockchain industry is “miss the boat”. Once you missed the opportunity, it is basically impossible to get back in the game. How can I buy a Bitcoin at a price of $1000 when I used to buy it at $10 or $100?
Since July 8, 2013, the Bitcoin price showed a V-shaped inversion with a rapid increasing rate. Most people enter the game in the bull market, because sometimes the bull market attracts a lot of attention, and I joined this industry when the BTC price was about 800 dollars.
Financing is easier in the Mining business
At the end of 2013, I was working at the BigData department for Shanghai Mobile, and I led a team of a dozen people. The first time I heard of Bitcoin was in 2011 and I did not take it seriously, when the next time I heard about it, I found it had increased so much, so I decided to enter the game. I resigned at the end of 2013 and started mining and building mining pool. From the first two graphics card miners to the current 200,000 units, my miners have increased by 100,000 times.
What if I do not have the money to buy coins? Shall I use a leveraged finance ? This could be extremely dangerous!
After entering this business, I felt that the Bitcoin Bubble was about to burst, and then I started the holding and waited. The crypto price maintained at the bottom for more than a year. I was relatively free and wrote some popular science articles on Bitcoin.
It was around October 23, 2015, I have seen a steady increase of Bitcoin active users, and there were only a few months left before the halving. I thought the BTC price will definitely surge. At this time, I did not have money to buy Bitcoin. Like many people, I can use the leverage financing, however this tool was actually terrible, and I almost got liquidated once.
I once used leverage on the futures, there was one time I was extremely close to the liquidation price. My liquidation price was at 2900 RMB. When the futures hit the lowest price around 3000 RMB, and I was lucky enough to escape. A friend of mine had set a liquidation price of 3100 RMB, he got liquidated and lost a lot of cryptos, and he never was able to recover after that setback. I would like to warn you that risk of using leverage in crypto speculation is extremely high.
I took another leverage approach: borrow money to mine.
If you are looking for someone to borrow money, it is unlikely you can get your goal; but if you borrow money to mine, especially if you put the mining machine in a creditor-controlled mining farm, the mining machines will be considered as collateral and this makes the financing easier .
In order to borrow money and get more bitcoin, this was the purpose of my leveraged mining in 2015.
Throughout the process, I also found that when traditional capitals entered the blockchain industry, they were afraid to buy cryptos, but they thought they understood the mining so many traditional capitals entered this sector by investing in mining.
The spectacular mining farms give people a sense that mining is a large-scale industrial production, it is easier to get financing via the mining, it is safer to add leverage.
Therefore, borrowing money to mine is a better solution when you don’t have money to buy crypto on the Exchange! Mining is essentially a financial practice.
Mining can reduce the loss caused by selling the cryptos too early
Mining is not only a safe way to increase leverage, but it can also reduce the economic loss caused by prematurely selling.
Regarding sell on the top, I am going to share my two experiences:
The first time was before the Chinese regulation on the 4th September in 2017. At that time, the K-line pattern showed an obvious peaking signal, so I sold some of my coins.
Another time was when the Bitcoin price reached 30,000 RMB, I also saw a sign that the bubble was about to burst. I was hesitant at that time because the atmosphere was very similar to the previous crash, so I sold all my Bitcoins when the Bitcoin valued at 30 000 RMB.
Everyone probably is aware of what happened afterwards, the 30 000 RMB was not the top of that bullish market, I sold out too early but fortunately, I used the money to buy miners at the bottom.
After the regulation policy on the 4th September, most of the exchanges in China have moved their business abroad. While I believed that the bull market may not be over, many people were underselling the machines.
From the bottom of 2015 to the 4th September in 2017, the price of Antminer S9 has remained at 9,000 ~ 10,000 yuan. When the regulation policy came out, it caused panic among Chinese miners. They began to undersell a large number of mining machines, which caused the price of mining machines fall to 6000 ~ 7000 RMB. At that time, I used all the money for selling cryptos to buy mining machine, and I basically wiped out all the mining machines on the market.
Looking at the past, it was precisely because I bought the miners at the bottom, so that I stayed in the game even I sold out my cryptos prematurely. It took about 3 months that the miner price increased from 6000 RMB to 30 000 RMB, almost the same growth rate as the BTC price, in addition, I was able to mine 100 Bitcoins per day during that period.
It is also because of that I built a business system based on the crypto, I have business in this sector which keeps me always in the game, instead of a fool believer. Indeed, building a crypto-related business system does not necessarily require the mining.
Another advantage of mining is that mining requires a bottom position to fend off risks brought by the Lucky value volatility. If the price of the crypto rises rapidly, the increase in this part of the bottom position can also bring an additional gain. The profit brought by this part will be dozens of times higher than the transaction fee.
Evolution tree of blockchain
I deeply believe the economic freedom brought by the blockchain, which is even greater than the separation of three powers and the Internet, the blockchain will create greater value.
The blockchain may grow into a tree of evolution in the future, which is one of the reasons why I do not want to be a believer. A certain branch of the tree may be extinct at some point, even the Bitcoin may not exist forever, but the blockchain will exist for a long time. Therefore, try not to be a believer, instead to understand the system and grow with the system. The system may evolve into a huge tree of evolution, and it is still at its early stage. You must find a way to keep yourself in the game.
In the end, I conclude this speech with a sentence I like: Bitcoin, one more choice, one more freedom.
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