Advice on setting up a mining operation

[TSLexi]

Hi guys, I'd like some advice on my business idea on mining LTC.

I plan to buy 1,344 MH/s from Genesis Mining at a cost of $20,146.56. Based on the calculator at Coinwarz, I should be mining around LTC37/day. I also plan on reinvesting 80% of the LTC mined into buying more MH/s from Genesis, to increase revenue and reduce the effect that the difficulty increase will have on my profits.

I'm also looking at buying 12x ZeusMiner Volcano, which will net me 3600 MH/s, which will give me revenue of LTC99/day, but also cost me around $14,000/year in electricity. And of course reinvest the LTCs.

All in all, I think buying the ZeusMiner Volcanos would result in a far higher ROI, but I'm worried about the non-monetary costs of setup and maintenance.

Also, perhaps I could also sell a forward contract on the LTC/USD exchange rate so I can lock in the exchange rate so I don't get burned by market forces. Or find someone who's willing to lease me LTC7,943.93 at 5% (paid in species) so I can buy my equipment and pay for the electricity. So at the end of the year, I pay back LTC8,341.12 to the lender, and I keep LTC28,148.26 as profit. Gold mining companies operate like this, so why shouldn't cryptocurrency miners?

Any advice would be greatly appreciated.

Thanks! Happy mining!

TSLexi

[110110101]

That's a big investment. Have you looked into mining other scrypt based coins rather than just plain LTC?
Check http://poolpicker.eu/graph?algo=scrypt and you may see that mining on a scrypt multipool will probably be more profitable than just mining LTC directly.

Also, maybe you would like to reconsider your purchases regarding pre-orders. In general most miners are late on arrival and that can have a serious impact on your ROI. Just checking the difficulty for LTC shows around a 240% increase for the past 3 months.

[TSLexi]

Do you think my reinvestment strategy should help keep profitability up with the increase in difficulty?

Maybe I should make a market in LTC/USD exchange rate options, and make money from the bid-ask spread...or sell variance swaps, if I can find a finance expert to price them.

[110110101]

I have been reinvesting my payouts into more cloud based mining and have nearly doubled my mining payouts in 2 months. You will definitely help your investment by reinvesting to reduce the effects of a difficulty increase, but than again, who knows what the scrypt scene will look like in 3-6-12 months. More and more manufactures will be pumping out scrypt asics, so investments today might be harder to evaluate as the scrypt hashrate is rapidly growing.

My own general rule is that if I can't make a ROI in about 3 months time, then I will not make the investment. The reason is that the equipment that is released in a handful months time will really outperform whatever I purchase today. Often price/hash is much more competitive for newer equipment. I do not know if there are any good profitability calculators for scrypt hardware, but by laying down a lot of cash now, you are betting on that the hardware will have a higher payback now and that by reinvesting most of the payouts will keep you floating. I reckon that this assumption would be true, but the whole difficulty problem makes the equation uncertain.

I'm just a small time miner doing this for the fun and experience. I have not been too active on the exchanges so I couldn't give you any advice for more advances buying&selling.

[jawitech]

Have you looked into mining other scrypt based coins rather than just plain LTC?
Check http://poolpicker.eu/graph?algo=scrypt and you may see that mining on a scrypt multipool will probably be more profitable than just mining LTC directly.

You might want to consider a PPS pool or like he said, a multipool paying out in BTC, LTC or whatever. This way, your profit would increase vs. only LTC mining directly.

[majeis]

If you're planning on going that deep monetarily into cloud mining, consider multiple alternatives to spread out your investment risk. One failed company can mean your investment disappears without notice. Hardware physically under your control would be best, but obtaining that hardware these days has become a risk in itself.

My main advice to you is pretty general, but it would be to spreadsheet it all out, risk only what you're comfortable with, don't put all your eggs in one basket, always use a trusted escrow whenever possible, and remember not to be afraid to take profits in order to reach your ROI.