During the past few years, there has been a significant amount of attention paid to the world of Bitcoin. At the same time, many people are wondering how they can maximize the value of the capital they put into Bitcoin. In general, there are four possible strategies when it comes to investing in Bitcoin. These include:
- Buy and Hodl Strategy: With this strategy, the individual buys Bitcoin and then holds it, seeking to make long-term gains.
- Dollar-Cost Averaging: With this strategy, the individual periodically purchases small amounts of Bitcoin every two weeks regardless of the price of Bitcoin
- Mine and Sell Strategy: In this strategy, the individual buys a Bitcoin mining rig and then sells all of the rewards, exchanging them for cash at the end of each difficulty cycle.
- Mine and Hodl Strategy: This last strategy means that the individual buys a mining rig and then sells the required operating expenses as cash; however, the remainder of the rewards are held as Bitcoin
It can be challenging for someone to decide how they can maximize their gains in the world of Bitcoin; however, mining Bitcoin does provide numerous opportunities. It can outperform the regular buy and hold strategies that people bring with them from the stock market.
Sure, the idea of buying low and selling high is excellent in theory; however, this is very similar to winning the lottery. It is nearly impossible to figure out where the lowest point of the market is going to be, including Bitcoin. It is just as tricky to time a sale perfectly for when the demand is high. Therefore, it is helpful to conduct a case study to compare the various strategies and see which one works the best over a given period.
Comparing Four Bitcoin Strategies: A Case Study
This case study took place between the dates of April 21, 2019, and April 21, 2020. In all cases, the initial investment was 2153$ Canadian Dollars (CAD).
During this time, Bitcoin fluctuated wildly. It is challenging for investors to keep their emotions in check and not sell when there is an initial big jump to realize their gains. It is just as challenging not to sell if there is a big drop to cut the losses. Removing emotion and following set strategies was the main focus of this case study. The results of the study were as follows:
- Buy and Hold Strategy: 2153$ Canadian Dollars were invested in Bitcoin on April 21, 2019. The investment was held for the entire duration of the study. Then, the entire 2153$ investment was sold on April 21, 2020. It had appreciated by 171% at 3687$.
- Dollar-Cost Averaging: 2153$ Canadian dollars were invested in Bitcoin between April 21, 2019, and April 21, 2020, in equal parts of 77.15$ every two weeks. The investment was held for the duration of the study, almost even at 2441$.
- Mine and Sell Strategy: 2153$ Canadian Dollars were invested on April 21, 2019. The investment was used to acquire an Antminer S17. Every two weeks, the entirety of the mined Bitcoins are sold. By following the rate of the market, by April 21, 2020, the total appreciation was 173% at 3734$.
- Mine and Hold Strategy: 2153$ Canadian Dollars were invested on April 21, 2019. This investment was used to acquire an Antminer S17. Only the number of bitcoins required to cover the operating expenses at D-Central were put up for sale at the end of every two week period. The pace of selling was maintained throughout the duration of the study. In the end, the total appreciation was 185% at 3992$.
Of note, for the bitcoins that were sold at the end of every two week period, the closing price used was the weekly close of the week the difficulty periods ended. In addition, the hosting prices used in this case study are D-Central’s managed hosting prices, ranging between 65$C/KW and 75$C/KW. This equates to a rate of between 0.0632$US and 0.0729$US per kilowatt-hour, all-inclusive. This price includes rent, energy, air conditioning, insurance, ventilation, and wages.
The results of the study above demonstrate the effectiveness of the Mine and Hold strategy when compared to the alternative options. Obviously, it is to know that the Antminer S17 is still very recent. This case study was based on only one year of data since that is all that is available at this time. We still expect a large useful life of the Antminer S17 in the future.
Mining Produces an Excellent Yield
Mining Bitcoin is still overlooked by numerous investors who are looking to take advantage of the opportunities that Bitcoin provides. One of the significant benefits of mining Bitcoin is that it effectively generates a strong cash flow even if the value of Bitcoin starts to decline. In a sideways market, Bitcoin might be yielding 0$ in capital appreciation; however, those who mine Bitcoin can still yield daily rewards. In essence, this is similar to holding rental property. The property might appreciate; however, if someone is renting the property, there is also a steady flow of income. Bitcoin mining generates both income and capital gains, particularly with the Mine and Hold strategy.
The Benefits and Pitfalls of Dollar-Cost Averaging
Furthermore, the Mine and Hold Strategy also follows closely a strategy called dollar-cost averaging. This strategy requires putting in a fixed dollar amount into the Bitcoin market at consistent time intervals (such as biweekly). There are several benefits by spreading out investments in Bitcoin. Some of these include:
- The investment will capitalize on the rare opportunities provided by a steep Bear Market and its low prices
- It removes the risk of mistiming the market wildly
- Investors are less likely to act on emotions
- It helps investors focus on long-term results
The dollar-cost averaging strategy helps to manage wild Bitcoin fluctuations. This strategy is ideal for investors who wish to participate in a market with extreme volatility and who wish to capitalize on the long term. This strategy allows people to take advantage of bear markets by maintaining a steady investment there. This makes the losses less painful, but note that the gains are also less attractive. This is a great way to invest when people are afraid to invest on their own. The Mine and Hold strategy closely follows the many benefits of the dollar-cost averaging, providing a much higher profit opportunity. It becomes, even more, a no-brainer to follow this strategy, knowing that this case study is based on recent figures, at an all-inclusive hosting rate. With Bitcoin mining, people receive bitcoins daily, which equates to the dollar-cost averaging but only with more coins.
The opinions expressed here are only world views from D-Central administration and do not express financial advice. Please do your own research.