Are Bitcoin Mining Machines Good Investments?

An article in Bloomberg Crypto caught our eye. A Bitcoin developer is buying and savingBitcoin mining rigs. They are expecting to sell them for a profit at the next Bitcoin halving when they expect the price of Bitcoin to soar. This got us to thinking, are Bitcoin mining machines good investments? Using one of these specialized computing rigs a person can make money. However, the pay for this kind of work depends on the dollar value of Bitcoin and the rate of pay for miners. On top of that, they keep making newer, faster, and more efficient computers for this job so an older machine can be expected to depreciate in value over time.

How Much Money Does a Bitcoin Mining Machine Make?

According to Bitkan, a machine like an Antminer S19 Pro makes a profit of $12 per day when electricity costs $0.1/kW. This gives an annual rate of return of 195% and a payback period for the rig of 186 days. To make the best money the miner needs to be connected to a mining pool and needs to have a low electric rate. The average electric rate in the US is 23 cents per kilowatt-hour (kWh). Bitcoin mining has more profit potential where electric rates are a lot lower.

What Is Your Bitcoin Mining Electric Rate?

As of February 2023, the average residential electricity rate in the U.S. was about 23 cents per kilowatt-hour (kWh). Importantly, electricity rates can vary widely based on where you live. Rates vary from a low of 10.35 ¢ / kWh in Idaho to a high of 28.38 cents per kWh in California. The countries with kWh rates of one cent of less are these listed in decreasing order of price:

South Korea

Mexico

Turkey

China

UAE

India

Russia

Venezuela

Nigeria

Saudi Arabia

Qatar

Iran

This helps a lot to explain why so much Bitcoin mining happens in places like these rather than in the USA.

Bitcoin Halving and Bitcoin Price

After Bitcoin halving in 2012, 2016, and 2020 Bitcoin prices soared. All of this was before crypto winter and widespread disillusion with Bitcoin and the rest of the crypto world. Nevertheless, the next halving in 2024 when miners are paid half as much as before to mine Bitcoin could well drive prices up again. That is what Bitcoin developer Blockchain Inc. is betting on as they buy and store Bitcoin mining machines which they expect to be high demand in 2024.

Investing in Bitcoin Mining Machines

The CEO of Blockchain Inc. notes that the application specific integrated circuits that run Bitcoin mining machines tend to shoot up in price as Bitcoin rises and fall when Bitcoin falls. In each case they tend to overshoot. This, by the way, is a bit like gold mining stock and the price of gold. Thus mining stocks are briefly better gold investments than bullion as the market goes up. They are also worse investments when the gold price crashes.

Will There Be a Bitcoin Mining Machine Market Collapse?

Thus, the Blockchain Inc. folks are speculating on a temporary price swing in Bitcoin causing a greater price swing in Bitcoin mining machines. So they are trying to corner the market on these machines. Someone needs to remind them of the Hunt brothers when they tried to corner the market on silver bullion in 1979. The result was Silver Tuesday when the silver market collapsed and sent the millionaire Hunt brothers into bankruptcy.

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