What's a better investment? Buying an ASIC-based mining rig, or buying bitcoin itself?

Question

Seems like some miners are saying they would have made more money by simply buying and holding Bitcoin, rather than mining it. Is that likely to be the case going forward? I know I'm asking for speculation -- but, if one is working under the bullish assumption that BTC will gain in popularity and more people will start using it, is it a better bet to buy and hold than to invest in mining equipment?

Answer 1

Investing in expensive mining equipment hedges a bet that the return on investment, in the form of Bitcoin, will eventually pay off the initial investment and continue paying a return for some time before becoming obsolete (like CPU mining has and GPU mining shortly will) or breaking down. It may be possible operate this as a business, writing off expenses while selling generated Bitcoin for a profit. This is all based on an assumption that this mining system may eventually be profitable. It's safe to assume that it will be once running, but, like any dividend play, it's a long term investment. Unlike dividend plays, the return will likely only decrease over time.

By buying Bitcoin itself, one participates in the economy. While Bitcoin supporters would hope that one would not hold on to Bitcoin as an investment, but rather spend it in order to further the economy, it is possible to still make a return on investment if one's goal is to earn a return in government issued currency.

Consider a $1,200 investment in a mining setup versus a $1,200 investment in Bitcoin itself.

The former is a long term play, slowing building up to profitability through the course of months or years. Something may happen that causes the system to fail and halt returns.

The latter is a more liquid play, where one can sell the Bitcoin at a profit (or loss) short-term or long-term, or exchange Bitcoin for goods and services, thereby furthering the economy.

It comes down to investment style. Does one fancy themselves a miner or a jeweler?

Answer 2

I think this is a subjective question.

Just because we are bullish and are expecting growth in users, does this mean we will see a rise in price?

Not necessarily from my view as I dont think price always indicates a rise in popularity and usage. Price indicates there are more users buying than selling, however a price decline indicates more users willing to sell at cheaper prices.

Now talking about hardware, you have to consider who is in the mining industry going forward. We are seeing a massive growth in factory mining facilities. Ones that are spending millions in purchasing hardware and outfitting warehouses to mine.

How long will a $1200 + cost of operating investment to turn a profit? 3, 6, 9 months? How do you calculate your ROI? Are you using a static price? Are you expecting a increase in price? Are you accounting for a potential decline?

Next question you need to ask is are you accounting for difficulty increase? Big warehouse miners that come online can cause massive spikes in difficulty and will extend your ROI.

I favor the latter specifically for all the unknown outcomes pointed out above. Big industrial miners have driven the small home miners out of the industry unless you can power it for cheap and expect to only really break even. I view it as gambling, you'll likely break even, but you are likely to not make a profit.

My view: BUY BITCOINS!

Purchasing $1200 worth of bitcoins(at todays price of $210) means you'll be able to purchase 5.68 BTC. On the flip side, you could say you'll purchase $20 of bitcoins everyday for the next 60 days regardless of price. This means if the price is lower in 10 days, your going to get more BTC, and if higher youll get less.

Purchasing in segments means your positioning yourself incase of a more downward price. We've been in a price decline for some time now, and theres no signs that we've hit bottom which means we can expect more lower prices(people want to cash out causing more supply of coins).