- The bear market has caused the price of cryptocurrencies to plummet.
- Crypto-mining technology is losing value as retail miners are forced to reconsider their strategies.
- This article is part of “Master Your Crypto”, an Insider series helping investors improve their cryptocurrency skills and knowledge.
Mining cryptocurrencies like bitcoin from the comfort of your own home is a tempting proposition – just buy a mining rig, set up your crypto wallet and watch the money roll in.
Retail investors who have considered starting their bitcoin mining journey might worry that the recent crypto market crash has made mining less lucrative than it once was. As the price of bitcoin has fallen more than 65% from last year’s high, so have the prices of key mining rig parts like graphics processing units and graphics cards. , as well as ready-to-use bitcoin miners.
With lower entry costs and less competition in the industry, is now really the right time to start mining bitcoin?
Insider spoke to three experts from around the world to find out whether or not retail investors should consider bitcoin mining right now – and the verdict was to avoid viewing retail mining as an investment opportunity.
What should retail investors know about cryptocurrency mining?
One of the main concerns that retail investors need to consider before starting mining is the cost of energy.
Mining is a power-intensive process due to its use of proof-of-work algorithms. Many large-scale mining operations depend on commercial energy prices to reduce electricity costs, rent existing facilities or build them from scratch to use bulk energy. If you operate from your home, you will likely pay higher residential prices.
Mattia Pintus, CEO and founder of the London-based mining company NovaMining Labssaid that all interested miners should check out Cryptocompare to see how much profit they could theoretically make based on the cost of energy.
The other main cost to consider is the machines needed to mine bitcoins.
Rob Chang, CEO of Canadian bitcoin mining company Gryphon Digital, told Insider that the two most popular brands of bitcoin mining machines are Bitmain and Whatsminer. Both brands use a special type of microchip called application-specific integrated circuits (ASICs) that allow a computer to focus on a specific task – in this case, bitcoin mining.
ASIC bitcoin miner prices have fallen to their lowest point since January 2021 – but that doesn’t mean they’re cheap. Mining rigs will cost a retail investor hundreds or even thousands of dollars upfront, and the average price for a new bitcoin mining machine is still around $11,000.
According to Matthew Lohstroh, CEO of Texas-based Giga Energy, that means it will take the average retail miner about 18 months to break even.
Mining bitcoin is not the only option
If bitcoin mining costs are too high, an alternative is mining pools. In a mining pool, a group of investors share the computing power of their mining machines by buying a machine and physically sending it to a mining facility. There, it will be connected to a low-cost power source along with hundreds of other dedicated bitcoin mining machines, thus spreading both the costs and profits of mining.
But buying an expensive mining rig and shipping it somewhere is an exercise in trust that Lohstroh does not encourage.
“The part where retail mining gets really hairy is when you buy a $10,000 computer and send it to someone, often in a different country, to run it for you and that you trust him,” Lohstroh said. “For some reason in bitcoin it’s normal, but anywhere else it would be crazy to do.”
Another option is to invest in bitcoin mining companies like Riot Blockchain or Marathon Digital Holdings.
“In the right environments, buying miners makes a lot more sense because there’s a lot more leverage,” Chang said. “If you look at a chart of miners from 2018 to 2021 during the big run, miners are massively outperforming bitcoin. Massively. They also massively underperformed bitcoin when it fell.” There is more leverage with mining companies, he explained, because they can generate more bitcoin at a lower price than independent miners.
However, Chang notes that investors need to spend time and energy to find good investments. With a booming industry like bitcoin mining, Chang cautions that it’s natural for companies to dive in without a solid business plan and simply ramp up inventory in order to turn a profit as quickly as possible.
So is mining bitcoin really worth it right now?
Retail investors should probably view mining as a way to participate in the blockchain network on the simplest and most personal level, and less as an investment strategy.
“I think buying a machine is probably partly a hobby, and the other part is actually an investment,” Chang said.
“For those who are interested or want to contribute to network security, great, we need people like that,” Chang continued. “But from a pure investment perspective, I think it would make more sense from a leverage perspective to pick the right miner.”
Lohstroh agrees, encouraging smaller investors to operate from home rather than joining a hosted retail establishment. “If you take an ASIC and run home, I think that’s great,” Lohstroh said.
He added that mining bitcoins in your home supports the bitcoin network and creates non-KYC (know your customer) bitcoins, or truly anonymous bitcoins.
As for Pintus, he thinks the best way to get involved is to simply buy bitcoin himself.
“For an investor with a small budget, say $50,000 to $100,000, it’s definitely better to buy bitcoin directly and put it in your wallet,” Pintus said.
This article is intended to provide general information designed to educate a broad segment of the public; it does not provide personalized investment, legal or other business and professional advice. Before taking any action, you should always consult your own financial, legal, tax, investment or other professional for advice on matters affecting you and/or your business.