bitcoin home mining opportunity cost!

[sagars209]

Would be glad to be proved wrong but unless you can recover your investment in short span of time you may never earn back the amount of bitcoins you could have bought with the initial investment in the miner…

Eg S9 was available for usd 195 (0.058 btc) in December 2018… from that date to till date if you had mined bitcoin for everyday when it was profitable and shut it down when it wasn’t profitable to mine you would only have earned back 0.041 btc @ 7 cents kWh.

Btw in USD terms you would in profit of 600+

I used historical btc data from coin metrics.io and miner price from kaboomracks market place on telegram

[mocacinno]

I did not redo your calculations so i cannot comment to these exact numbers (you didn't post your exact calculations, so there's no way to verify), but the general idear behind your post might be more or less correct, eventough those 0.041 BTC sound very low to me. In 2018, was this ASIC the price/quality best asic around, or were you looking for the cheapest device? Cause, normally, @7 cents/Kwh, i always believed you should have recuperated your investment if you picked the right asic from the right vendor at the right time and you had an average amount of luck. But once again: it's not impossible that your numbers are correct... You just posted the end result of your calculation, but not the steps and reasoning in between.

I've read, and discussed with, several people claiming it's a good idea to keep mining at a loss because bitcoin's value generally rises over the years... My opinion is that you are correct: you should turn off your equipment if mining at a loss... There is no good reason behind mining at a loss to begin with... Just turn off your equipment and buy BTC from an exchange with the money you would have spent on electricity for as long as it takes untill mining becomes profitable again. You'll end up with more BTC in your wallet this way than if you'd had continued mining.

And that's exactly the answer to your last point: yup, you would be in the profit $600+, but if you'd invested the money for buying your ASIC and the money you'd invested into electricity into buying BTC directly, what would the end result have been?

[sagars209]

I did not redo your calculations so i cannot comment to these exact numbers (you didn't post your exact calculations, so there's no way to verify), but the general idear behind your post might be more or less correct, eventough those 0.041 BTC sound very low to me. In 2018, was this ASIC the price/quality best asic around, or were you looking for the cheapest device? Cause, normally, @7 cents/Kwh, i always believed you should have recuperated your investment if you picked the right asic from the right vendor at the right time and you had an average amount of luck. But once again: it's not impossible that your numbers are correct... You just posted the end result of your calculation, but not the steps and reasoning in between.

I've read, and discussed with, several people claiming it's a good idea to keep mining at a loss because bitcoin's value generally rises over the years... My opinion is that you are correct: you should turn off your equipment if mining at a loss... There is no good reason behind mining at a loss to begin with... Just turn off your equipment and buy BTC from an exchange with the money you would have spent on electricity for as long as it takes untill mining becomes profitable again. You'll end up with more BTC in your wallet this way than if you'd had continued mining.

And that's exactly the answer to your last point: yup, you would be in the profit $600+, but if you'd invested the money for buying your ASIC and the money you'd invested into electricity into buying BTC directly, what would the end result have been?

Here's the detailed calculation i've done for S9, S17 and S19 Pro 110

https://docs.google.com/spreadsheets/d/e/2PACX-1vRHvpRQHtRPXLy9jQcp4lQnIyknfbU4K0I5Tli8eLYzvscYkduXz_QlqepEEccK0pDX4lVtTRCOhbwO/pub?output=xlsx

For all miners I have taken the price from the first listing on the Telegram Hardware market place https://t.me/Hardwaremarketchannel

[stompix]

Eg S9 was available for usd 195 (0.058 btc) in December 2018… from that date to till date if you had mined bitcoin for everyday when it was profitable and shut it down when it wasn’t profitable to mine you would only have earned back 0.041 btc @ 7 cents kWh.

Let's pick a random date, a single miner, and a random electricity price and draw conclusions for everything

How about we start with the situation at the time you described, difficulty was 1/4 reward was double per block price was 1/15.
Revenue would have been around $2.80, electricity costs 2.30$ so net profit would have been 0.50 cents per day looking at a 400 day ROI, not even mentioning that just after the ROI period the halving would happen, and besides, the gear was already 2 years old.
So, three years later you've arrived at the conclusion anyone could tell you from the start if BTC skyrockets in price it would be better to buy coins that mine in these conditions.

From this to generalize about everything it's a long way.

Would be glad to be proved wrong but unless you can recover your investment in short span of time you may never earn back the amount of bitcoins you could have bought with the initial investment in the miner…

And the water might be wet ....yet everyone still takes a bath (mines).
I applaud the effort for the calculations but that doesn't mean I agree with the conclusion.

[mocacinno]

--snip--

Here's the detailed calculation i've done for S9, S17 and S19 Pro 110

https://docs.google.com/spreadsheets/d/e/2PACX-1vRHvpRQHtRPXLy9jQcp4lQnIyknfbU4K0I5Tli8eLYzvscYkduXz_QlqepEEccK0pDX4lVtTRCOhbwO/pub?output=xlsx

For all miners I have taken the price from the first listing on the Telegram Hardware market place https://t.me/Hardwaremarketchannel

I'm looking at your excel, but what am i seeing here?
I don't see the difficulty being brought into your equation to begin with (and inserting this is a no-brainer....). I see a column "BTC / Mean Hash Rate" in your DailyBTCdataFrom09Jan2009 tab, and this column is appearing in your other tabs aswell... But the number fluctuates each and every day whilst the difficulty is adjusted every 14 days...

If you want the real number, what you should do is use the formula
BTC earned per day = Block Reward / (Difficulty * 2**32 / hash rate / seconds in a day) (source: https://bitcointalk.org/index.php?topic=726962.msg8233023#msg8233023)

So, you'll have to do this calculation for each and every day, then convert the BTC earned per day into USD (or EUR, or Yen, or ....) and substract the electricity price.
You'll have to repeat this for every single day:

• the block reward costsists of the coinbase reward plus the sum of the transaction fees of every transaction in this block... you can take the average per day
• the difficulty stays the same every 2016 blocks, but then it is readjusted
• your hashrate stays the same
• the number of seconds in a day stays the same
• the exchange rates changes constantly... you can take the average exchange rate for that day

Let's make an example entry for an S17 on the 1st of januari 2020:
BTC earned per day = Block Reward / (Difficulty * 2**32 / hash rate / seconds in a day)

• On this day, the coinbase reward was 12,5 BTC/block . When we look at blocks like https://www.blockchain.com/btc/block/610700 and look at some earyer and some later blocks, we see an average fee of ~0.2 BTC/block (guesstimation, not actually calculated). This brings the block reward to 12.7 BTC/block.
• On this day, the difficulty was 13,691,480,038,694 (https://btc.com/stats/diff)
• An S17 hash a hashrate of 56 Th/s while drawing 2200 Watts (that's 56.000.000.000.000 hashes/s)
• A day has 86400 seconds

BTC earned with a S17 on the 1st of januari 2020 (on average) = 12.7/(13,691,480,038,694 * 2^32 / 56.000.000.000.000 / 86400)
BTC earned with a S17 on the 1st of januari 2020 (on average) = 12.7/12153.7
BTC earned with a S17 on the 1st of januari 2020 (on average) = 0,00104495

https://coinmarketcap.com/historical/20200101/ says Bitcoin's price on the first of januari 2020 was $7200/BTC
This means your gross income was $7200*0,00104495 = $7.5

Your machine is drawing 2200 Watts 24 hours per day, that's 52.8 KWh (let's round it to 53).
You pay 7 cents/Kwh... 0.07 * 53 = $3.71.

Your net income for the 1st of januari 2020 would have been $7.5 - $3.71 = $3.79.
That's about 20 cents more than you calculated... Not much, but still significant, especially when you're doing this calculation for 818 days (818 * 0.2 = >$160).

What i also mis is the resell value of the hardware... I'd personally rather sell off my ASIC than turn it off for many months on end...

[sagars209]

Thanks I used simple formula to get the daily reward https://moneyqanda.com/bitcoin-mining-profitability/

All in all, what i feel is miners are very costly right now and it makes sense to buy BTC instead of investing a miner as in all likelihood you'll not be able to recover the ROI in BTC, you might very well recover you ROI in USD but if the risk associated is same in both options you could just buy bitcoins and sit back and relax 

[mikeywith]

Let's pick a random date, a single miner, and a random electricity price and draw conclusions for everything

While the sample size could be cherry-picked, if you were to compete with him on cherry-picking samples, you would run out of data long before he does.

While I don't maintain a similar excel sheet as OP does, I follow the mining gear prices every day, I did many "backtests" and I did run the numbers a dozen times before and it was almost ALWAYS a failure for miners as long as your base unit of profit/loss is BTC NOT fiat.

If it's just pure fiat calculation then for the most part mining is more profitable because in general betting on BTC against fiat has always been profitable given that the duration of the sample is long enough.

So really, it's rather personal to some degree, but what most people fail to understand when investing in mining is that they have the wrong mindset about what mining actually is, on paper, it does seem like a great way to extract BTC forever, so instead of buying x amount of BTC, why not buy a miner that keeps "printing" BTC forever, people view mining as a less risky or even risk-free investment, they also think of it as a passive income.

If you ask any random person if they wanted passive income + low/risk or risk-free business, most of them will sign up, the majority of people "mistakenly" view mining as low risk and passive income whereby in reality it really isn't, I think if 50% of miners were rational about their investments - total hashrate as of today would have been cut by half, but most people just invest in things they don't understand, or as you once said, "they gamble with investors money".

[stompix]

If you ask any random person if they wanted passive income + low/risk or risk-free business, most of them will sign up, the majority of people "mistakenly" view mining as low risk and passive income whereby in reality it really isn't, I think if 50% of miners were rational about their investments - total hashrate as of today would have been cut by half, but most people just invest in things they don't understand, or as you once said, "they gamble with investors money".

I would go on both numbers in different directions, since I'm spending quite a lot of time reading topics outside the mining area that still bring the mining into the discussion when it comes to ways of acquiring bitcoins I've seen an overwhelming majority being against mining as a source of income and labeling it more like a high cost high risky business. But at the same time, I would think that the number of "rational" miners would be far lower, especially if we cut the part of mining that relies on investor money and big guys who have a totally different cost structure than the average Joe. And I highly doubt too many of them would still fit the description of "home miners".

While the sample size could be cherry-picked, if you were to compete with him on cherry-picking samples, you would run out of data long before he does.

Probably, I'm completely biased sometimes, I put my personal experience upfront and then start from there, I'm way less connected to the mining gear market and prices so again, I might get fewer balls in the net than him but that doesn't make it a rule for every gear and every period and every electricity costs. If you have a parabolic price that goes x5 in a year it's pretty hard to compete with but those times won't repeat themselves over and over while mining will still be profitable, for some.

[philipma1957]

Thanks I used simple formula to get the daily reward https://moneyqanda.com/bitcoin-mining-profitability/

All in all, what i feel is miners are very costly right now and it makes sense to buy BTC instead of investing a miner as in all likelihood you'll not be able to recover the ROI in BTC, you might very well recover you ROI in USD but if the risk associated is same in both options you could just buy bitcoins and sit back and relax 

Should I eat my girlfriends pussy or pay a whore to get my cock sucked?

WTF am I talking about?

Simple you can't really compare the two actions in my statement.

And you can't really compare the two actions in your statement.

"Nuff said". 


btw op tell me the source of that quote "nuff said" if you can please.

[Heathen23]

Nothing in this post is a financial / tax advice and I am not a financial / tax adviser. That being said,

I agree with phillipma here that we are trying to compare 2 activities that are not comparable to begin with.

Bitcoin mining and buying and holding bitcoin are not the same thing. One is a business the other is just investment.

Just like

1. Gold mining and investing in holding gold are 2 different activities.
2. Being an apartment owner yourself/ through your company and buying stock in REIT and holding real estate expecting it to increase in value are 3 different things. Although REIT passes on nearly all of its cash flow it is still not same as actively being involved in apartment business.

Bitcoin mining is a business. The business is to mine and sell bitcoin, pay for the expenses and earn profit if possible. If bitcoin is retained after mining then that is an investment decision made by the business. Why are you expecting accounting profit from this business every day? Did gold miners make accounting profit everyday in their existence? How about iron ore miners? Do all companies generating income produce accounting profit? Do you have any small business? Do your other businesses always make profit every month and year? Why are you stopping mining the moment the mining is not profitable? If your rental property is vacant or earning lower rent than expenses or in repair for few months do you sell it? If prices go down after you bought bitcoin from exchange will you immediately sell it? This whole comparison makes no sense to me.

Investment gains / loss / financing/ taxes and business gains / loss / financing/ taxes are 2 completely different things and are treated differently by the regulatory authorities as well.

[philipma1957]

of course if the op had asked can I mine well enough to use the profits to hodl coins he wold have shown full understanding to the following statement:

If I dedicate myself into spectacular world class pussy eating of my girlfriend will she in turn become a great
cock-sucker.

Honestly the answer is if you pick the right pussy to eat you will get great paybacks from the owner of that pussy.

Much like if you properly understand mining for the tool that it is to gain great profits for your self.. In coin and in fiat

But I digress and obviously I am in a holiday mood with very good results in mining for all of 2021 and being married happily for over 30 years.

I can say 2021 has been the best of both worlds.

but if you pick some other years not so good.

[mikeywith]

Why are you stopping mining the moment the mining is not profitable? If your rental property is vacant or earning lower rent than expenses or in repair for few months do you sell it?

I merited your post because it does contain some very valid points of which I disagree with some, you turn your miners off once your power bill is higher than your profit in fiat, or else, if you pay 100$ to mine 50$ worth of bitcoin it really makes no sense.

While I do agree that mining IS indeed a form of business, it isn't exactly similar to running a shop or anything like that, mining depends entirely on the price of bitcoin in respect to the mining difficulty, there is exactly nothing you can do about it when it isn't profitable, you can market your goods, you can't spend money on ads in hope to generate more profit, you can't hire a better employee to increase your sales or anything you can potentially do with any traditional business.

The other point missing here is that running a business has a long term potential, even while operating at a loss you are building yourself a name/brand, experience, securing good employees, making loyal clients, it's okay to operate at a loss for as long as you can afford it because it could very well pay off in the long run, mining is more like a hit-and-run if you may, you are limited by the short lifespan of your mining gears and how long they can remain profitable, once you have to run them at a loss it's simply a game over.

I don't entirely disagree with you and phill here, but the idea is that investing in mining and investing in bitcoin can't be separated. so if you invest in BTC mining then you are betting on its value to increase, anyone who is certain that the value of bitcoin is going down will not touch mining with a wooden pile, and since both buying BTC and mining BTC depend on the evaluation of BTC the two things are closely related and IF the money you spend on mining gears doesn't give you back more BTC than you could buy, it's certainly a losing business.

[philipma1957]

Why are you stopping mining the moment the mining is not profitable? If your rental property is vacant or earning lower rent than expenses or in repair for few months do you sell it?

I merited your post because it does contain some very valid points of which I disagree with some, you turn your miners off once your power bill is higher than your profit in fiat, or else, if you pay 100$ to mine 50$ worth of bitcoin it really makes no sense.

While I do agree that mining IS indeed a form of business, it isn't exactly similar to running a shop or anything like that, mining depends entirely on the price of bitcoin in respect to the mining difficulty, there is exactly nothing you can do about it when it isn't profitable, you can market your goods, you can't spend money on ads in hope to generate more profit, you can't hire a better employee to increase your sales or anything you can potentially do with any traditional business.

The other point missing here is that running a business has a long term potential, even while operating at a loss you are building yourself a name/brand, experience, securing good employees, making loyal clients, it's okay to operate at a loss for as long as you can afford it because it could very well pay off in the long run, mining is more like a hit-and-run if you may, you are limited by the short lifespan of your mining gears and how long they can remain profitable, once you have to run them at a loss it's simply a game over.

I don't entirely disagree with you and phill here, but the idea is that investing in mining and investing in bitcoin can't be separated. so if you invest in BTC mining then you are betting on its value to increase, anyone who is certain that the value of bitcoin is going down will not touch mining with a wooden pile, and since both buying BTC and mining BTC depend on the evaluation of BTC the two things are closely related and IF the money you spend on mining gears doesn't give you back more BTC than you could buy, it's certainly a losing business.

But remember as we have talked before your country has a completely different set of tax rules regarding bitcoin than the USA.

Okay Lets pretend the warehouse guy could do 2 megawatts for us.

Lets say the five year contract was paid for the  power and the customer as lost so he would get zero $$ vs ½ the coins he gets from us.

Lets say all we did from 2018 dec was plow our ½  coins back into more gear.

In the USA every profit we made would be non taxable and growing from 4 s9's to

1.9ph  in btc gear and 40gh in ltc/doge gear and 8gh in eth gear  would be 100% non taxable business expansion.

So sitting here that gear is worth 386k

and we do not owe any tax. that is how proper handling of expansion with usa tax laws works.

now that 386k in gear cost us ½ the coins it mines the other ½ comes to me and my 1 partners

so I get the coins earned by 95000 in gear at zero cost for the gear and power but this e coins will be taxable.

Next year maybe 125K for me alone.

Your business model is different as tax laws are different in your country.

I mine I buy gear I sell gear I repair gear = a business and active business but that is usa law.

now pretend I purchased 900 usd in coin in dec 2018 what coin grew to 95000 value  and earns more every day

hmm maybe doge.

900 in doge at 0.002 usd is 450,000 doge  and if it was all held perfectly until  it hit 50 cents you would have 225,000 but owe tax on it.

So yeah I guess if I have invested in 900 usd worth of doge in dec 2018 and sold it when it hit 50 cents it would  be better.

I know damn full well I would not have held it that long.

[mikeywith]

Phill I do understand the tax plays a factor in all this, but then your business model isn't standard, it's very special, if anyone asks me whether they should run a mining business like you do I would probably say yes, but again your case is very special and here is why.

You don't have a power bill to pay, you buy the gear, get half the profit and the host guy gets the other half, so your only challenge is time, it's either you hit ROI in 1 year or 2 years, it's most often a matter of when for you and me as well, but to someone who has to pay x amount of money for every KhW, it's a lot more complicated, they are in a race against difficulty and price, there could come a period whereby they have to shut down their mining gears for months if the price falls, you don't have to undergo that.

To someone who has a way below average power cost or someone like you that has a good deal with the solar guy, the math is simple, if your gear doesn't die on you half you, you will eventually hit ROI in both fiat and BTC and thus mining vs holding is an easy to guess winner, but if you were paying 10 cents per KhW would you expand as much as you did in the past 2 years or so? probably not!

I get this question very often "Do you think I should mine bitcoin?", it's hard to say "no" when I myself keep buying mining gear almost every week lol, but I know everybody's case is different, and so the simplest answer I usually give them is that if they can afford an 80% price drop or a 100% difficulty increase without going into negative numbers, go for it, but if all that has to happen is a 50% drop in profitability and your miners become unprofitable -- you are likely better off just holding bitcoin or invest in something else.

To me, risk assessment is everything, simply because I don't have so much money I can gamble with, and I probably don't have much time left to make up for any potential loss, if BTC drops to 20k next week, I will still be mining at a profit regardless of how the difficulty looks like, so is mining good for me? of course it is.

However, if I had to watch the chart every single hour and be worried that if BTC price drops to 30k and stay under it for 6 months then my whole mining business is going to collapse, I won't be touching the mining business with a barge-pole.

[Coinfarm ventures]

While I don't maintain a similar excel sheet as OP does, I follow the mining gear prices every day, I did many "backtests" and I did run the numbers a dozen times before and it was almost ALWAYS a failure for miners as long as your base unit of profit/loss is BTC NOT fiat.

Here's why I disagree. Tax laws in some countries give miners an advantage over buying the coin.

Here in the U.S., a farm owner can deduct 100% of the equipment cost in the first year. This is a huge tax advantage worth up to 37%. The owner can keep re-investing all profit back into more miners, then deduct those. At the end of the day, the effective tax rate can be zero. Also if the electric rate is 6¢ while the owner's income tax rate is 24%, the real cost of power is 4.5¢.

In the U.S., there is no upfront deduction for buying a coin. The best case scenario is a capital gain later on, which will be taxed at either 15% or 20%. You may think this isn't so bad, because no tax is owed upfront. But with mining, tax can be deducted upfront, which is much better.

My own spreadsheets say that mining returns are equal to HODLing returns if coin price goes down by 50% or doubles. But when BTC price goes sideways, that's when mining has a big advantage over HODLing. HODLing returns are zero while mining return is 50%+.

[mikeywith]

Here in the U.S., a farm owner can deduct 100% of the equipment cost in the first year. This is a huge tax advantage worth up to 37%. The owner can keep re-investing all profit back into more miners.

Ok that makes sense, but you can't have an infinite loop, you will have to stop at one point, or else, everyone in the U.S would be mining bitcoin and you all would have been rich.

Also, a few key points are missing here, the most important being the lifespan of the miners you invest in, and that could be the physical status of the miner (dead before ROI) or it gets to the point where the power bill is a lot greater than it's projected income.

Also if I understand correctly, selling your mining gears later on for whatever reason is a taxable event, no? as well as selling your bitcoin to pay the power bill or to buy a new transformer or anything like that, even your received reward from the pool are taxable as income.

Phill's example above is a good one but there are a few things I don't get

1.9ph  in btc gear and 40gh in ltc/doge gear and 8gh in eth gear  would be 100% non taxable business expansion.

So sitting here that gear is worth 386k

So just to be clear here, and let's assume your business model isn't 50/50, and that you had to pay $$ every month for the power bills, that means, you would have to sell some coins (a taxable event) no?

The second question, your example also assumes that for all these years you did not spend a single dime and re-invested all of it in buying more miners, true?

furthermore, you now (according to the example) own 386k worth of mining gears, what happens when you sell them? you will pay a lump sum of tax?

and lastly, if you decided to stop expanding (which you will get to at one point), all the profit you make will be taxable even if you don't sell your bitcoin, and then if you sell it later on for higher a price that will be a capital gains tax, true?

Not that I could use any of these U.S tax tips, but it's an interesting topic, I would love for someone to give me a perfectly detailed example of all the tax involved with numbers.


Let's say today, You buy S19 for $10,000, for the next 12 months, it makes you $500 worth of coins monthly, every month you sell 100$ to pay the power bill, and use $100 to improve your mining farm to be able to add more capacity and $300 reinvested in mining gears, how much tax do you pay in total for the total mining profit you made per month?

[philipma1957]

Here in the U.S., a farm owner can deduct 100% of the equipment cost in the first year. This is a huge tax advantage worth up to 37%. The owner can keep re-investing all profit back into more miners.

Ok that makes sense, but you can't have an infinite loop, you will have to stop at one point, or else, everyone in the U.S would be mining bitcoin and you all would have been rich.

Also, a few key points are missing here, the most important being the lifespan of the miners you invest in, and that could be the physical status of the miner (dead before ROI) or it gets to the point where the power bill is a lot greater than it's projected income.

Also if I understand correctly, selling your mining gears later on for whatever reason is a taxable event, no? as well as selling your bitcoin to pay the power bill or to buy a new transformer or anything like that, even your received reward from the pool are taxable as income.

Phill's example above is a good one but there are a few things I don't get

1.9ph  in btc gear and 40gh in ltc/doge gear and 8gh in eth gear  would be 100% non taxable business expansion.

So sitting here that gear is worth 386k

So just to be clear here, and let's assume your business model isn't 50/50, and that you had to pay $$ every month for the power bills, that means, you would have to sell some coins (a taxable event) no?

The second question, your example also assumes that for all these years you did not spend a single dime and re-invested all of it in buying more miners, true?

furthermore, you now (according to the example) own 386k worth of mining gears, what happens when you sell them? you will pay a lump sum of tax?

and lastly, if you decided to stop expanding (which you will get to at one point), all the profit you make will be taxable even if you don't sell your bitcoin, and then if you sell it later on for higher a price that will be a capital gains tax, true?

Not that I could use any of these U.S tax tips, but it's an interesting topic, I would love for someone to give me a perfectly detailed example of all the tax involved with numbers.


Let's say today, You buy S19 for $10,000, for the next 12 months, it makes you $500 worth of coins monthly, every month you sell 100$ to pay the power bill, and use $100 to improve your mining farm to be able to add more capacity and $300 reinvested in mining gears, how much tax do you pay in total for the total mining profit you made per month?

late and very tired I will attempt to answer in the morning.

[Coinfarm ventures]

Ok that makes sense, but you can't have an infinite loop, you will have to stop at one point, or else, everyone in the U.S would be mining bitcoin and you all would have been rich.

Also if I understand correctly, selling your mining gears later on for whatever reason is a taxable event, no? as well as selling your bitcoin to pay the power bill or to buy a new transformer or anything like that, even your received reward from the pool are taxable as income.

The second question, your example also assumes that for all these years you did not spend a single dime and re-invested all of it in buying more miners, true?

furthermore, you now (according to the example) own 386k worth of mining gears, what happens when you sell them? you will pay a lump sum of tax?

You are right. Selling equipment that you deducted = considered income, so taxable. Receiving coins without spending them on equipment/power/rent = considered income, so taxable. Selling coins for a price > than the production cost = taxable income.

Yes, the tax does need to be paid at some point in the future. But the point is to delay it for 2-3 years in order to reap the advantages of scaling up. If you can postpone income + sales tax, that means you can buy 30-45% more equipment.

For example, in Texas, the more transformers I buy and the more kW I cram into the warehouse, the cheaper the operating cost is. Let's say rent is $2500/month. At 100 kW, power costs 7¢ and rent is 3.5¢ ($2500/72000 kWh). But at 1MW, power will cost just 5.2¢ and rent is just 0.34¢. By scaling from 100 kW --> 1MW, the total operating cost goes from 10.5¢ to 5.54¢. It's probably 4.5-5¢ at 10MW+ (diminishing returns).

Thus it absolutely makes sense to build up as many miners as possible (preferably during a downturn) in order to get to the megawatt scale. It even could make sense to buy cheaper, older, inefficient ones at first in order to reach that load. After that, one can take profit out of the business (especially during a bull run) and start paying the income tax. That is the best time to break out of the 'infinite loop'.



P.S.: For various reasons, it makes no sense to hide from the U.S. tax authorities and not report the income. Then I can't get all these sweet tax breaks in the first 1-2 years.

and lastly, if you decided to stop expanding (which you will get to at one point), all the profit you make will be taxable even if you don't sell your bitcoin, and then if you sell it later on for higher a price that will be a capital gains tax, true?

Unfortunately in the U.S., HODLing mined coins then selling them later for the 15-20% capital gain tax is not possible. They're considered regular income immediately after they arrive in the wallet.

The only way to take advantage of capital gain tax is if you bought a S19 miner for $10000, deducted the full cost, then sold it for $15000 12 months+. The $10000 is ordinary income while the $5000 is a capital gain. This might make it wise to sell some equipment during a gold rush to not only reduce risk, but cash in on that lower tax rate before BTC price can fall.

Also, a few key points are missing here, the most important being the lifespan of the miners you invest in, and that could be the physical status of the miner (dead before ROI) or it gets to the point where the power bill is a lot greater than it's projected income.

I did take a failure rate of 8%/year into account in the spreadsheets. I assumed 8% is the total loss after repairing the miners that can be economically fixed.

Likewise, the HODL scenario accounts for a 1% chance of lost wallet keys or hacks.

Let's say today, You buy S19 for $10,000, for the next 12 months, it makes you $500 worth of coins monthly, every month you sell 100$ to pay the power bill, and use $100 to improve your mining farm to be able to add more capacity and $300 reinvested in mining gears, how much tax do you pay in total for the total mining profit you made per month?

I created a new spreadsheet. I changed some of your numbers in order to be more realistic:

1: Reinvesting profit for 12mo, then withdrawing profit for 12mo



2: Withdrawing profit from the beginning



With this simple spreadsheet, reinvesting is a little better than always withdrawing profit.

Of course, it's better to take profit during a gold rush and reinvest during a recession instead of sticking to a single strategy all the time. The depreciation rate, failure rate, S19 price, and revenue will constantly change.

Here's an interesting resource. They've gone 10x deeper than I have, with a complete Monte Carlo analysis:
https://www.aniccaresearch.tech/blog/the-intelligent-bitcoin-miner-part-i

The only shortcoming of their models is U.S. taxes aren't included.

[mikeywith]

I did take a failure rate of 8%/year into account in the spreadsheets. I assumed 8% is the total loss after repairing the miners that can be economically fixed.

Likewise, the HODL scenario accounts for a 1% chance of lost wallet keys or hacks.

8% is being over-optimistic IMO, it would be more realistic to run the number with 20% with the assumption that you won't pay for fixing using cash but rather in hashrate, so no extra cost added for repair, also to take into account that downtime and whatnot.

Also, the lost wallet or hacks isn't something to take into consideration here, unless you apply that to mining as well, bad security practices will cost you a lot whether you mine or hodl, someone got a virus in their farms that disabled the bootloader and had to replace over 600 control boards, with the downtime and labor that was a deadly cost, besides, taking care of one hardware wallet is a lot easier than safely maintaining a larger mining farm, a thousand MORE things can go wrong while mining as opposed to silently holding bitcoin, so really, it makes more sense to use this argument against mining.

I created a new spreadsheet. I changed some of your numbers in order to be more realistic:

So it's 661k + extra 92 miners vs 646 + no extra miners?


Now, let's compare these two against buying bitcoin instead, bitcoin has an average of 275% gain every year, and if we want to ignore anything before 2018 the mean annual gain is 93.8%.

There is also something I don't understand here, why do you use $723,520 instead of $1,064,000, why do you deduct the 32% tax upfront, I am confused here, who will give you the 32%, how and when?

Your initial investment should be $1,064,000 and the tax you pay on income later will be reduced, isn't that how it works? please elaborate.


Great post by the way, gave you some merit for the detailed info.

[Coinfarm ventures]

8% is being over-optimistic IMO

I disagree because it looks like manufacturers these days want to make their equipment more reliable, because they know that the die shrink to 3/4nm will take a long time and customers will want the miners to last longer.

Also, the lost wallet or hacks isn't something to take into consideration here, unless you apply that to mining as well, bad security practices will cost you a lot

In this spreadsheet, the coins are always sold instantly in order to get cash. The risk of losing coins from a hack is practically zero; you can only lose a day of profit. As for the network, the firewall/switch should be configured so none of the machines can talk to each other. Only a few outbound IP addresses, such as the pools, should be whitelisted. This isn't hard to set up.

On the other hand, hacking might not be the biggest problem HODLing coins. What if you lose the HW wallet?

Now, let's compare these two against buying bitcoin instead, bitcoin has an average of 275% gain every year, and if we want to ignore anything before 2018 the mean annual gain is 93.8%.

Assuming no loss in value for the equipment, these are the final positions:

Reinvesting for 12mo: $1.39m + $662k = $2.052m

Always withdrawing: $723k + $646k = $1.369m

Buying BTC: $723k * (1.938 ^ 2) - 20% tax rate = $2.314m

I think the spreadsheet lines up perfectly with your price growth figure. If BTC went up by 93% in a year, the equipment would likely be worth the same price and the revenue would still be $500/day per miner.

So yes, HODLing wins by about 13% in the end in the average year after these U.S. tax considerations.

However, if you expected BTC price growth to be flat or only increase to $50-60k in 12 months, mining would be the way to go. HODLing profit would be near zero.

There is also something I don't understand here, why do you use $723,520 instead of $1,064,000, why do you deduct the 32% tax upfront, I am confused here, who will give you the 32%, how and when?

Your initial investment should be $1,064,000 and the tax you pay on income later will be reduced, isn't that how it works? please elaborate.

Most people who have enough money to start a mining farm at this scale are people who earn $250k+/year (engineers, doctors, lawyers, executives) and have saved up that 1 million over the past 10-20 years or so. Their marginal tax rate is about 32%. They typically have other investments with unrealized tax gains like stock shares or real estate. Why not take this opportunity to sell those assets and deduct the $1m in miners against that profit? $250k of gains from their regular job, $350k from their vacation house, then $400k from Tesla stock they bought long ago.

The reason I deducted the 32% upfront is as long as they start the farm before December, they can get their tax refund by February, so it's practically instant. I can edit the spreadsheet, but the difference will be tiny.

If the farm is owned by a public company (ex. Riot Blockchain), they already face hefty tax rates of 21% + 20%, and there are plenty of other crypto companies that can benefit from buying the mining company and deducting the initial losses against their insane profit.

U.S tax law gets much more complicated than this, but rest assured I have spent hours talking to my accountant to understand these numbers.

Great post by the way, gave you some merit for the detailed info.

I appreciate it. I have been digging through old posts/threads in order to understand ASIC mining during different market conditions. So far, it seems like a bad idea, unless I can start with GPUs while I wait 5 months for the electric company to install a 400 kW or 600 kW transformer. There are other business ideas I can spend my time on that cost nothing and are more scalable. IMO, the worst part is I only have enough $$ to pay for buildout, but not to fill the place with equipment.  That means I will have to waste time chasing investors and customers and doing what they want, instead of planning for the future.