Original title: Sponsored Maximizing Bitcoin Accumulation – Beyond the Benchmark
Original author: Blockware
Original source: https://bitcoinmagazine.com/
Translation by: Daisy, Mars Finance
Bitcoin is reshaping the landscape of digital assets, consistently outperforming traditional markets year after year. However, how can investors and institutions maximize their Bitcoin holdings beyond simply 'buying and holding' strategies?
Bitcoin has consistently outperformed all major asset classes over the past decade, solidifying its position as a benchmark for digital asset investors. For those investors who firmly support Bitcoin's long-term vision, the ultimate financial goal often shifts from accumulating more dollars to maximizing their Bitcoin holdings.
Bitcoin is the hurdle rate.
Bitcoin is to digital assets what government bonds are to the traditional financial system - it is a foundational benchmark.
Although any investment carries risks, holding Bitcoin in a self-custodial manner eliminates common counterparty risks, dilution risks, and other systemic risks found in traditional finance.
Over the past 12 years, Bitcoin has outperformed all other asset classes for 9 years (often by orders of magnitude). Therefore, for many investors, especially those familiar with the history of currency, Bitcoin has replaced government bonds as their 'risk-free rate of return.' This perspective primarily stems from the unique appeal of Bitcoin's verifiable scarcity.
In other words, the financial goal of digital asset investors is no longer to earn more dollars but to acquire more BTC. In their eyes, all investment or consumption actions need to be measured against the opportunity cost of Bitcoin.
MicroStrategy has demonstrated the practical application of the 'BTC yield' metric in the business world.
According to its 8-K filing on September 20, MicroStrategy stated: 'The company uses BTC yield as a key performance indicator (KPI) to evaluate its strategic performance in acquiring Bitcoin in ways deemed beneficial to shareholders.'
MicroStrategy fully leverages the tool advantages of being a publicly traded company with a market capitalization of billions of dollars: they can obtain low-interest debt financing and issue new shares. Through this KPI, the company demonstrates that even when engaging in traditional dilutive activities like issuing new shares, the amount of Bitcoin they acquire per share is still increasing.
Goal achieved: They indeed are acquiring more Bitcoin.
However, MicroStrategy's advantages are beyond the reach of ordinary fund managers or retail investors:
As a publicly traded company, they can raise funds from the capital markets at very low or even zero costs.
Ordinary investors, on the other hand, cannot raise funds through issuing stocks, nor can they issue convertible notes to borrow dollars at near-zero interest rates to purchase BTC.
So the question arises: how can ordinary investors accumulate more Bitcoin? How to achieve a 'positive BTC yield'?
Bitcoin mining
Bitcoin miners earn BTC by contributing computing power to the Bitcoin network, with their earnings being the total value of BTC mined exceeding the electricity costs required for their operational equipment. Of course, this is far more complex than it sounds.
The Bitcoin protocol maintains its established supply schedule through a 'difficulty adjustment' mechanism, which means that when more computing power is dedicated to Bitcoin mining, the limited block rewards are divided into smaller shares.
The most effective Bitcoin miners are those who can maximize computing power and minimize operating costs. This requires: acquiring the latest, most advanced Bitcoin mining equipment; operating at the lowest possible electricity costs.
Current market conditions (as of November 21, 2024):
The price of Bitcoin is approximately $98,000 per coin;
Using Antminer S21 Pro for mining, with an electricity cost of $0.078 per kWh, the electricity cost to mine 1 BTC is approximately $40,000.
This means the operating profit margin is close to 145%.
In comparison, corporate profit margins are typically considered 'healthy margins' when they are in the range of 5-10%, while Bitcoin mining clearly surpasses this standard with ease. Even after the Bitcoin halving in April 2024, the amount of BTC earned per unit of computing power will be halved, yet mining can still maintain high profitability.
Price growth outpaces difficulty growth
The price of financial assets (especially Bitcoin) is determined in marginal trades. This means that prices are established by the most recent transactions between buyers and sellers, reflecting the price the last buyer is willing to pay and the price the last seller is willing to accept.
This mechanism is part of the reason for Bitcoin's highly volatile price. When there are no sellers at price X, buyers must bid higher than X to find the next seller willing to sell; conversely, when there are no buyers at price X, sellers must lower their bids to find buyers willing to purchase. Therefore, Bitcoin's price can rapidly rise or fall within a specific range due to insufficient numbers of buyers and sellers.
In contrast, the speed of Bitcoin price fluctuations far exceeds the growth rate of network mining difficulty. Significant increases in mining difficulty are not driven by marginal buy-sell spreads but rely on the cumulative results of ASIC miner manufacturing, energy production, and mining infrastructure development. To increase the total computing power of the Bitcoin network, these time and labor investments cannot be bypassed.
This dynamic creates numerous opportunities for Bitcoin miners to accumulate Bitcoin.
This chart shows the explosive growth of mining profits during the Bitcoin bull market. 'Hash price' measures the income Bitcoin miners earn per unit of computing power each day. During the peak of each Bitcoin mining cycle, the hash price increased by more than 300% year-on-year, indicating that miners' profit margins tripled within 12 months.
In the long term, as more institutions join Bitcoin mining, miners upgrade to more powerful and efficient machines, and block rewards are halved every four years, this metric shows a downward trend. However, during bull markets, the forces driving increased mining difficulty (thus negatively impacting mining profit margins) seem trivial compared to the rapid growth of Bitcoin prices.
Price fluctuations of Bitcoin mining hardware
In addition to significantly increased profit margins during bull markets, Bitcoin miners also benefit from the characteristic that ASIC miner prices typically fluctuate in sync with Bitcoin prices. During the 2020-2024 Bitcoin cycle, the price of the most advanced miner, Antminer S19, initially was about $24/T. By November 2021 (when Bitcoin prices peaked), this price had exceeded $120/T.
With each new generation of mining machines released, the ability of Bitcoin miners to retain resale value is gradually increasing. In the early stages of Bitcoin mining, technological advancements were rapid and robust - new generations of ASIC miners could instantly obsolete older models. However, nowadays, the performance gains of new ASIC miners have gradually diminished, allowing older models to remain competitive for years after their release.
Take the S19 miner launched in 2020 as an example; it still retains certain market value to this day. Based on this, it can be reasonably inferred that the S21 series miners will have even better value retention. This characteristic provides significant advantages for miners accumulating Bitcoin, as the initial costs of purchasing miners are no longer 'sunk costs.' The miners themselves have market prices that are linked to Bitcoin, and miners can achieve liquidity through related resources.
Blockware Marketplace platform
Blockware developed this platform to enable both institutional and individual investors to directly participate in Bitcoin mining. Through this platform, users can purchase Bitcoin mining machines that have been deployed in Blockware's tier-one data centers and enjoy industrial electricity rates. These miners are already online, avoiding the lengthy delivery times that previously caused miners to miss critical market cycles.
Additionally, the platform is designed specifically for Bitcoin enthusiasts by Bitcoin enthusiasts. Miners purchase their machines using Bitcoin as the medium of exchange, and mining rewards are never hosted by Blockware, but are sent directly to the users' own wallets.
More importantly, this platform provides miners with the option (rather than obligation) to sell their miners at any price at any time. This allows miners to profit from the price fluctuations of ASIC miners, recoup the costs of the miners, and accumulate Bitcoin more quickly than traditional 'single mining' models.
This innovation eliminates the barriers previously present in hosted mining, allowing miners to focus on their core goal: accumulating more Bitcoin.
