Buying Bitcoin is preferable to BTC mining in most circumstances — Analysis

While intuitively, mining Bitcoin may appear like a highly profitable endeavor, research suggests otherwise. 

After discovering Bitcoin, most users go down the rabbit hole and consider whether it is better to mine or buy Bitcoin directly. They usually give up due to the cost and rigor of running ASIC miners, regulatory uncertainty, and the lack of technical expertise.

Hypothetically, if one overcomes the above challenges, they could enjoy advantages such as full autonomy over their operations and diversification of their crypto investment via physical hardware instead of directly purchasing Bitcoin, but the entire venture can be risky and labor intensive.

To mine, or not to mine BTC?

Analysis by Bitcoin (BTC) mining data firm, Hashrate Index, suggested that “buying bitcoin is preferable to mining it in most circumstances.”

Jaran Mellurad, a Bitcoin mining analyst at Hashrate Index, calculated the projected earnings of miners in the next five years under various bullish and bearish scenarios. Mellurad found that miners will likely incur a loss even in optimistic Bitcoin price projections.

Mining is a dynamic business where miners usually get outdated within five years due to the introduction of more efficient machines in the market.

For instance, in the 2016-2017 bull market, the Bitmain S9 model’s were the most efficient miners. However, as more models entered the market, the S9s phased out completely by 2022 end, according to a recent finding by Coin Metrics analyst Karim Helmy.

Two Bitmain models in the S19j Pro and S19 XP class dominate the mining sector in 2023. Mellurad calculated the returns assuming that the current batch of miners will be scrapped five years from now around the 2028 Bitcoin halving.

By using a constant cost of electricity at $0.07 per KWh and varying the price of Bitcoin and the network’s hashrate to estimate the profit margins of the machines.

In his report, Mellurad wrote, “Hashrate tends to follow the hashprice, albeit with a lag during rapid bitcoin price increases.”

Notably, the electricity cost varies worldwide and miners can also establish exclusive deals with energy generation companies locking their costs for months, which may also entail a discount. Figures from a New York Time’s investigation revealed that Riot Platforms, a public Bitcoin miner, paid around $0.03 per kWh in Texas while other industries paid around $0.07.

Mellurad also said that, “mining is a no-brainer if you have access to electricity…