Many people panic sell, or avoid investing in cryptocurrencies when they see a strong bear market is present. However, there are other strategies on how to profit in markets that could really pay off later. The answer lies in mining cryptos.
But first, what is crypto mining?
A global network of computers running the code on cryptocurrencies collaborates in a process known as “mining” to ensure that transactions are accurate and added to the cryptocurrency’s blockchain in a timely manner. This is also how other cryptos enter circulation through mining. The mining process is essentially what keeps the cryptocurrency’s network secure.
Supercomputers compete to be the first to approve a block, which is a collection of transactions, and add it to the blockchain. For instance, at the moment, Bitcoin miners are being paid transaction fees and 6.25 BTC per block for all the “hard work.” The mining process was possible through a simple computer in the old days, but now it requires powerful hardware as the mathematical problems that need to be solved got more challenging.
The reward for mining the block decreases every four years as there is a pre-set event called “halving,” which happens every four years at Bitcoin or Litecoin. The halving of other altcoins differs by miners’ compensation and the time period. The first halving of Bitcoin occurred in 2012 when the reward fell from 50 BTC to 25 BTC per block. Then it decreased to 12.5 BTC, then 6.25 BTC, and will drop to 3.125 BTC in 2024. However, the price of Bitcoin increases over time, thus compensating miners for the smaller reward in the amount of BTC.
Solving complicated algorithms is required to verify cryptocurrency transactions and their recording on the blockchain. All of this is a function of the proof-of-work (PoW) consensus algorithm used by Bitcoin and some altcoins, which try to add a new block every few minutes. The more computational power the miner has, the higher the chance to win the blocks.
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In the old days, when crypto mining did not require such high computational power, computer processing units (CPUs) were used. The most recent mining devices handle all the needed computing power using application-specific integrated circuits (ASICs) that are specifically programmed for Bitcoin mining. However, graphics processing units (GPU) are also used for crypto mining.
Mining in a bull market
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The energy needed to create Bitcoin has increased rapidly since its launch in 2009 as the network has raised the mining difficulty to maintain a consistent supply of new blocks of transactions even as more miners join the party. This is a typical issue in bull markets when there are explosive price increases in all crypto assets and everyone wants to get involved.
When the crypto market is “on steroids” and prices of digital assets skyrocket, it is pretty easy to make a profit as miners can produce coins and sell them in a short time for solid gains. However, it does not stop there. Miners also profit from hardware as their price increases, especially when there is a shortage of computer chips. The limited quantity of GPUs or ASICs caused prices of this hardware to surge at the end of the bull run.
Nevertheless, bull markets get the most spotlight, making crypto mining harder as there is severe competition. Although miners may mine fewer coins during a rising market, they are compensated by getting higher value as the prices of cryptocurrencies grow. It is basically a win-win situation because it is the opposite in the bear market.
- the prices of cryptocurrencies rise while being mined
- hardware may rise in value
- high-profit margins
- higher competition of miners, which decreases the probability of mining blocks
Mining in a bear market
Many miners halt their operations due to lower profitability in a bear market. It is a challenging time where only the mine operators with the most funds and resources survive. Everything related to cryptocurrencies declines in value when Bitcoin falls, and several companies may also look for mergers or acquisitions (M&A) as they cannot meet their goals.
Some Bitcoin miners’ profit margins reached as high as 90% during the 2021 crypto bull run, which attracted many new competitors and miners wanting to expand quickly. To achieve this, businesses placed expensive orders for mining equipment and paid in advance for their purchases. However, as we entered 2022, Bitcoin fell sharply and margins shrunk as a result.
The operating costs to mine cryptocurrencies also increased due to the massive rise in energy prices, which left miners with serious headaches. As a result, many miners stopped until energy prices fall and create a more profitable environment. Although it is difficult to predict when the market will bottom out, market indicators suggest that this might be a good time to buy cryptocurrencies and mining gears (e.g. GPU).
The miners that have previously weathered bear markets will still be the ones to do so in the next cycles. The best way for miners to stand out from the crowd over the few years will be to be opportunistic with hardware as their prices fall and to have a good infrastructure growth strategy. Miners who are well-prepared and possess the most recent technology will be able to take advantage of the market’s situation and profit big time.
- smaller competition as miners panic sell cryptos and hardware
- long-term accumulation of cryptocurrencies at a ‘discount’
- creation of new opportunities
- cryptocurrency prices fall
- the value of hardware may decrease as well (possible opportunity to buy)
Mining with companies
Investing in companies focusing on crypto mining is also a way to be a part of the crypto mining world. Investors can save their time and avoid necessary risks simply by working with professional companies, such as Future Mining. In addition, investors can buy hardware from a verified mining company which will guide them through the selection of hardware and legal and technical matters.
People can either directly invest by buying hardware and start working. As the company possesses the necessary know-how, hardware and skills, you as an investor do not need to move a finger. It all starts here by filling out the form.
To conclude, looking at the miner’s return on investment (ROI) is essential. Many miners want to know whether buying Bitcoin directly or investing in mining equipment is the best use of their money. This subject is beyond the scope of this article because it involves many other factors. Still, new miners should be mainly aware of their investment’s potential ROI, risk and projected timeline.
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