Bitcoin has consistently outperformed all major asset classes over the past decade, solidifying its role as a benchmark for digital asset investors. For those committed to the long-term vision of Bitcoin, the ultimate financial goal often shifts from acquiring more dollars to maximizing their Bitcoin holdings.
bitcoin hurdle rate is
Bitcoin is to digital assets what treasury bonds are to the traditional financial system – a fundamental benchmark. While no investment is without risk, Bitcoin held in self-custody eliminates counterparty risk, dilution risk and other systemic risks common in traditional finance.
BTC has outperformed all other asset classes in 9 of the last 12 years (by order of magnitude)It’s no surprise that it has usurped Treasury bonds as the “risk-free rate” in the minds of many investors – especially those who are aware of the monetary history and thus the validation of Bitcoin. Qualified reduction appeals.
Another way to express this would be that the financial objective of digital asset investors is to acquire more btc Instead of getting more dollars. All investments or expenses are viewed through the lens of the opportunity cost of BTC.
MicroStrategy has demonstrated what this looks like in the corporate world with its new KPI: BTC Yield. To quote from his September 20th, 8-K form, “The Company uses BTC Yield as a KPI to help assess the performance of its strategy to acquire Bitcoin, as the Company believes is favorable to shareholders.” MicroStrategy has taken full advantage of the tools available to it as a billion-dollar public company: access to low-interest-rate debt and the ability to issue new shares. This KPI shows that they are receiving more BTC per outstanding share, despite the fact that they engage in the traditionally weak activity of issuing new shares.
Mission accomplished: They’re getting more Bitcoins.
But MicroStrategy has one advantage that the average fund manager or retail investor does not have: They are a publicly traded company with the ability to access the capital markets at low or no relative cost. Individual holders are unable to raise capital and acquire BTC by issuing shares in the public market. Nor can we issue convertible notes and borrow dollars at near zero% interest rates.
So the question arises: how can we accumulate more Bitcoins? How can we achieve positive ‘BTC Yield’?
bitcoin mining
Bitcoin miners obtain BTC by contributing computational power to the Bitcoin network, and receive BTC in amounts that exceed the cost of electricity to operate their machine. Now this is easy to say but not easy to do. The Bitcoin protocol implements a predetermined supply schedule using “difficulty adjustment” – meaning that limited block rewards are split into smaller pieces as a result of more computational power being dedicated to mining Bitcoin.
The most effective Bitcoin miners are those that maximize their computational power while minimizing their operating costs. This is accomplished by obtaining the latest, most efficient Bitcoin mining hardware and operating with the lowest possible power rate.
under current market conditions (by 11/21/2024), the price of 1 Bitcoin is ~$98,000. However, an Antminer S21 Pro with an electricity rate of $0.078/kWh is capable of mining 1 BTC for ~$40,000 of electricity. This is an operating margin of approximately 145%. A business is generally considered to have “healthy profit margins” if they are in the 5-10% range – mining beats this easily. This is despite the fact that after the Bitcoin halving in April 2024, they earn half the BTC per unit calculated.
Price rise outweighs growth difficulty
The price of a financial asset – specifically Bitcoin – is determined on margin. This means that the price of the asset is determined by the most recent transactions between buyers and sellers. In other words, the price reflects what the ultimate buyer is willing to pay and what the ultimate seller is willing to accept.
This, to some extent, enables BTC’s notoriously volatile price action. A shortage of sellers at price Conversely, a lack of buyers at price BTC can move up or down rapidly depending on the lack of sellers or buyers in a specific range.
As a result, the speed at which the price of Bitcoin can increase is much greater than the network mining difficulty. The substantial increase in network mining difficulty is not achieved by marginal bid/ask spreads, it is achieved by the culmination of developments in ASIC manufacturing, energy production, and mining infrastructure. There is no cutting back on the time and human capital required to increase the total computational power on the Bitcoin network.
This dynamic creates opportunities for Bitcoin miners to accumulate large amounts of Bitcoin.
The chart here shows the explosive growth of Bitcoin mining profitability that occurs during bull markets. “Hashprice” measures the amount of revenue that Bitcoin miners earn per unit of computation on a daily basis. On a year-to-date basis, the hashprice has increased by more than 300% at the height of each Bitcoin mining cycle. This means that miners’ profit margins have more than tripled over a 12-month period.
This metric is going to go down in the long run as more entities start mining Bitcoin, miners upgrade to more powerful and efficient machines, and the block subsidy is halved every four years. However, during a bull market, the combination of forces that are positive catalysts for mining difficulty (and thus net-negative for mining profitability) pale in comparison to the rapid rise in Bitcoin’s price.
Price Volatility in Bitcoin Mining Hardware
In addition to wide profit margins during bull markets, Bitcoin miners simultaneously benefit from the fact that ASIC prices move with the price of Bitcoin. During the 2020 – 2024 cycle, Antminer S19 (the most efficient ASIC at the time) Trading started at ~$24/t. By November 2021 – when BTC’s price peaked – they began trading north of $120/t.
Retaining the resale value of Bitcoin mining hardware continues to increase rapidly with each new generation of hardware. In the early days of Bitcoin mining, technological progress was rapid and powerful – to the extent that new ASICs would render older models obsolete overnight. However, the marginal advantage of new ASICs has declined to such an extent that older models are able to remain competitive for several years after release.
Since the S19 was launched in 2020 and retains a non-zero market value today, it’s reasonable to expect that the S21 line of machines will be able to retain value for even longer. This gives miners a significant advantage when it comes to accumulating Bitcoin, as the upfront cost of purchasing machines is no longer “sunk”. Their machines have a price, which is related to Bitcoin, and a resource available to obtain. liquidity
blockware market
blockware developed this platform To enable any investor – institutional or retail – the opportunity to gain direct investment in Bitcoin mining. Marketplace users are able to purchase Bitcoin mining rigs that are hosted on one of Blockware’s Tier 1 data centers and have access to industrial electricity prices. These machines are already online, eliminating the long downtime that has historically caused some miners to miss key months of the cycle in which price exceeds network difficulty.
Furthermore, this platform is built by Bitcoiners, for Bitcoiners. Which means that bitcoins are purchased using machines as a medium of exchange, and mining rewards are never held by the blockware – they are sent directly to the user’s wallet.
Finally, it provides miners with the above opportunity, but not the obligation, to sell their machines at any time and price. This enables miners to take advantage of volatility in ASIC prices, recoup the costs of their machines, and accumulate more BTC faster than the traditional “pure play” approach.
This innovation removes the barriers that have historically made hosted mining difficult, enabling miners to focus on the mission at hand: accumulating more Bitcoins.
For institutional investors looking for wholesale pricing on mining hardware, Contact the Blockware team directly.
