Holding Bitcoin vs. Mining Bitcoin

Introduction: What's the difference between holding and mining Bitcoin?

Is it better to simply "hold" (HODL) Bitcoin after buying it, or to "mine" it to increase your holdings? Since we believe mining Bitcoin is ultimately more profitable than just holding it, we've been involved in mining since 2019. To be precise, over the long term, we see mining as a way to accumulate more Bitcoin for the same level of investment.

However, the comparison between holding and mining Bitcoin often ends up as a straightforward look at "profitability." The reasons why we take on the risks of mining in places like Siberia, as well as the philosophies and perspectives behind these choices, are rarely explored.

What is the difference in the future that Bitcoin holders and miners envision? In this article, we’ll dive into both the profitability and the mindset behind each choice to help you decide which future to pursue.

Assumptions and Scenarios

This time, we will compare the following two scenarios:

(A) "Hodl" Scenario : Purchase 1 BTC for $60,000 and hold it

(B) Mining Scenario : Purchase 10 of the latest Antminer S21 Pro and start mining Bitcoin.

Charting the Differences Between "Hodling" and Mining

Here, we will explain the trends in revenue and costs of "hodling" and mining using a chart. This chart is created based on the actual performance of the Antminer S21 Pro in early November 2024, with certain assumptions (such as a certain increase in mining difficulty).

(A) "Hodling" Bitcoin (buying and holding)

Blue line : This represents the "value" of Bitcoin when held. The value rises and falls with fluctuations in the Bitcoin price, but since the amount held remains the same, this line shifts up or down in parallel with price changes. (See the figure below: for example, if the Bitcoin price reaches $300,000.)
Orange line : This represents the "cost" of buying Bitcoin. In the hold scenario, this line remains horizontal since it remains the same as the initial purchase price of $60,000.
Profit from holding : The area between the blue and orange lines represents the profit from holding Bitcoin. If the price of Bitcoin rises, the blue line shifts upward, and profits increase. However, this profit is essentially "riding" the movements of the Bitcoin market, meaning that the key to generating profit lies in a price increase.

(B) Mining Bitcoin

Green line : This represents the "value" of the Bitcoin you mine and accumulate. This value grows as you continue mining and as the Bitcoin price increases. Although the amount you mine decreases over time as mining difficulty rises, by steadily stacking Bitcoin, you will gradually build up a reserve that forms the foundation for future profits.
Red line : This shows the mining cost. This is the sum of the initial machine cost and daily electricity costs. As long as you continue to operate, the cost will continue to rise.
Mining profit : The area between the green and red lines represents the profit from mining. When the green line is above the red line, mining is profitable; when it falls below, it operates at a loss. For miners, this is an active income from "producing Bitcoin directly," which can also be seen as a form of "investment" in the Bitcoin ecosystem.

"Hodling" Bitcoin vs. Mining

If you simply “hodl” Bitcoin, any price increase becomes your profit. For example, if you buy 1 BTC for $60,000 and hold it until the price reaches $300,000, your profit would be $240,000. Plus, you have the reassurance that, as long as the price doesn’t drop to zero, some value remains in your hands.

Mining Bitcoin, however, follows a different revenue pattern. First, you have the upfront cost of purchasing the mining machine, and then there are ongoing electricity costs. This means your initial revenue is negative, but over time, the mined Bitcoin accumulates, and revenue gradually turns positive.

If you hold onto the Bitcoin you mine rather than selling it, you could see significant profits when the price rises. However, if the price of Bitcoin remains flat while the hash rate and mining difficulty continue to increase, your apparent profit will decrease.

To illustrate this difference, we compare the revenues from hodling and mining on a single chart.

By overlaying holding and mining on the same chart and comparing their profits as prices fluctuate in the video, we can see that mining tends to be more profitable when prices rise. This chart assumes a potential Bitcoin price increase to $300,000. However, if the price doesn’t rise—even as mining difficulty increases, such as staying around $60,000—the mined Bitcoin value may fall below your electricity costs. In this case, it might be better to buy Bitcoin directly instead of mining.

In recent days, the price of Bitcoin has surged, but until last month (October 2024), Bitcoin mining required patience. Over the past year, the hash rate and the mining difficulty have steadily risen, and the halving reduced mining rewards by having, yet the price had not increased proportionally. With ongoing monthly electricity costs, miners face a tough situation without a corresponding rise in Bitcoin’s price.

Essentially, Bitcoin miners often have a strong belief that Bitcoin’s price will rise significantly in the future. This belief allows them to benefit from higher profits when prices increase, often more than those who only hold Bitcoin. For the same investment, mining can potentially earn you more Bitcoin and greater long-term profits.

Bitcoin Miner Philosophy: Long-Term Vision and Beliefs

People who hold Bitcoin hope that the price will rise in the future, but miners' belief is even stronger. Bitcoin mining requires an initial investment, and once you start it is difficult to stop, so it can be said that miners are not just "believing" that the price will rise, but are "investing in the future of Bitcoin." This is not just about pursuing profits, but by continuing mining, they are contributing to the Bitcoin ecosystem itself and supporting its growth.

Also, if miners immediately sell the bitcoins they have mined and use them to pay for electricity, they will miss out on future profits. For example, if the price of bitcoin rises, the green line will far exceed the red line, and profits will also increase. Therefore, "selling to cover current costs" is the same as throwing away future fruits in front of your eyes. In this respect, it makes the most sense for miners to believe in future possibilities and continue to hold the bitcoins they have mined.

Bitcoin Mining: Active Participation in the Bitcoin Ecosystem

At first glance, the difference between holding and mining may appear to be just a matter of returns. However, the underlying mindset is very different. Holding is a passive investment that relies on the growth of the Bitcoin market, whereas mining is an active engagement that contributes to the ecosystem and is built on a belief in Bitcoin’s increasing value. Mining is a more proactive way of participating in the market than holding, which is merely subject to market fluctuations. It also embraces a sense of responsibility for Bitcoin’s future trajectory.

Mining Requires "Strong Conviction" and a "Future-Oriented Mindset" – Is Now the Time to Get Started?

Strong conviction and a future-focused mindset are essential for Bitcoin mining. The current environment of high hash rates, rising mining difficulty, and seemingly low profitability creates an ideal time to buy affordable machines and start mining. For miners who believe in Bitcoin’s potential, these conditions can be seen as a “preparation period for the future,” maximizing profits when prices eventually rise.

Conclusion: Which Future Will You Choose?

Whether you choose to "hodl" or "mine" Bitcoin, each path embodies a distinct philosophy and way of viewing the future. If you prefer a more passive approach, "hodling" Bitcoin and anticipating price increases might be the best choice. But if you want to invest in Bitcoin’s future and actively support its ecosystem, mining offers a way to participate directly in its growth. At 來來 Rai Lai, we take pride in "actively supporting the Bitcoin ecosystem" through our commitment to Bitcoin mining.