# Why Investing in Mining is Always a Bet That Prices Will Drop

The one thing that really puzzles people when it comes to evaluating Bitcoin mining profitability is the fact that investing in mining equipment is always a bet that the prices of your chosen currency goes down.

I’ve tried numerous approaches to explaining why this is true, and I’m almost always met with either complete bewilderment (but, it’s free money, how can that not be profitable?) to rage (you simply don’t understanding mining, it’s all about difficulty/price/speed/etc) to weird math-related arguments (well, your calculations cannot be true because you didn’t prove it with my numbers).

As such, I’m going to explain this concept, hopefully in a way that makes it easy to understand.

However, to do so, I’m going to have to trick you.

I want to start with a completely unrelated topic, just to make sure we have something relatively easy to understand. The topic is going to be currency trading with three currencies.

These three currencies are not to be understood as the traditional currencies you usually handle, like US dollars, Euros, or Pounds. To accomplish this, I’m going to call them A, B, and C.

Because we’re going to do some trading with these currencies, we need to establish an initial exchange rate between the currencies. I’m going to start with the following exchange rates:

 Currency Pair Exchange Rate A:B 1:2 B:C 1:50 A:C 1:100

This table should be fairly easy to understand. If you have 1 A, you can trade that for either 2 B or 100 C. If you have one B, you can trade that for either 0.1 A or 50 C. If you have 100 C you can trade that for either 2 B or 1 A.

In fact, let’s start with 2 B and see what we can do. To make this simple, we trade only once per day, using the final exchange rates for that day.

Initial Status: Our holdings initially is 2 B, the equivalent of 1 A or 100 C

On the first day of trading, we decide to buy 1 A for our 2 B.

Day 1 Status: Our holding before day 1 is thus 1 A, the equivalent of 2 B or 100 C.

After the first day of trading, the exchange rates have shifted, making C 2.5 times more valuable. Our exchange rates now look like this:

 Currency Pair Exchange Rate A:B 1:2 B:C 1:20 A:C 1:40

Dang! Our value measured in C is now down to 40 C. Even if we still hold 1 A, the exact amount we started with, the increase in C value means our starting sum now translates to a much lower amount of C.

In other words, our value of 1 A means we can get 2.5 times less C today than initially.

Thinking that the C price surge on day one may be a flop, we decide to hold on to our A during day two.

Day 2 Status: Our holding before day 2 thus remains at 1 A, the equivalent of 2 B or 40 C.

After the second day of trading, it turns out we were right! The exchange rate of C drops down to only 10% to its original level, and our exchange rates thus look like this:

 Currency Pair Exchange Rate A:B 1:2 B:C 1:500 A:C 1:1000

Luckily, we didn’t buy into the C hype. If we did, we would still hold 40 C, but measured in A, we would suddenly hold only 0.04 A. Measured in B, we would have had only 0.08 B.

In other words, our value of 1 A means we can now get 25 times more C than yesterday.

Final Status: Our holdings after day 2 is thus 1 A, the equivalent of 2 B or 1000 C.

Do we understand each other so far? Everything looks swell? Happy with what’s going on? Good! Because it’s time for me to spring my trap.

# The Trick

I mentioned earlier that I needed to trick you to explain how this all relates to investing in mining and how investing in mining is always a bet that the prices of Bitcoin or your favorite cryptocurrency will drop.

The trick here is that in the scenario above, there aren’t really three currencies. There are just two. One of the currencies, A, is actually a piece of mining equipment, for example a graphics card (GPU).

Hold on!” you say “That’s not fair! Mining equipment isn’t currency and you can’t trade it like that!

You’re right! However, you may notice that we didn’t trade A at all, we just bought it at the beginning. In the two days of trading, we used it only to measure how much of the other currencies we held.

Let’s see if my trickery goes further. What if we replaced currency B with US dollars, and currency C with Bitcoin or some other cryptocurrency? Let’s review our positions initially, after day 1 and after day 2.

Note: Remember that during day 1, the price of C, or our cryptocurrency, increased drastically while on day 2, the price of our cryptocurrency dropped like a rock.

Let’s just exchange our statuses with A being GPU, B being USD, and C being Bitcoin.

Initial Status: Our holdings initially is 2 USD, the equivalent of 1 GPU or 100 Bitcoin

Day 1 Status: Our holding before day 1 is thus 1 GPU, the equivalent of 2 USD or 100 Bitcoin.

Day 2 Status: Our holding before day 2 thus remains at 1 GPU the equivalent of 2 USD or 40 Bitcoin.

Final Status: Our holdings after day 2 is thus 1 GPU, the equivalent of 2 USD or 1000 Bitcoin.

See what happens here?

When the price of Bitcoin rises, our value denominated in Bitcoin drops drastically. When the price of Bitcoin crashes, the amount of Bitcoin our holdings represent goes through the roof!

In short, buying mining equipment yields far more reward in Bitcoins when the value of Bitcoins drop than if Bitcoins rise in value.

As always, I’m anticipating, partially because I’ve been trying to explain this to people many times, that you have some questions. Let me get ahead of you and answer some of them right now. If you have other questions, feel free to leave them as comments below.

### Q: You Forgot Mining, You Idiot!

Nope, I didn’t forget, I left it out because it would only add to your nightmare.

Go ahead, add mining into the equation. Let’s pick any number, say 10 Bitcoin per day. After day 1, you would have had 50 Bitcoins instead, an increase in Bitcoins of 25%! Amazing, increase, so mining must be profitable, right?

Well, after day two, you’d have 1020 Bitcoins, which represents an increase of Bitcoins of 1020% (yes, that’s one thousand and twenty percent) from our initial value. In other words, a price drop means you get 995% more Bitcoins than if you mine while the price goes up and manage to sell at the top. Clearly, a decreasing price yields far more Bitcoins than mining because a drop in price would add 900 Bitcoins, whereas mining would add 20 Bitcoins.

### Q: It’s All About Mining Difficulty, You Idiot!

Not really. If the mining difficulty goes up, you get fewer coins, but even a doubling of the difficulty would only reduce your mining revenue by half. The theory seems to be that increased difficulty leads to a higher price because the cost of mining one coin goes up.

Note: This theory is far from certain, and looking at how major difficulty shifts in other cryptocurrencies have affected prices recently, there doesn’t even seem to be a correlation, much less a dependency between difficulty and price.

In any case, difficulty increase or decrease does not affect profitability anywhere near enough to compensate for the changes in price of a coin.

An increase in difficulty means you get fewer coins, which if the price/difficulty theory holds true means the price will rise. Of course, with fewer coins, that also means less effect of that price increase. Conversely, if the difficulty drops and the price goes down, you have more coins affected by the price decrease.

In the end, it does balance out, but if you think difficulty affects the profitability like that, just run the numbers yourself and see.

### Q: You Forgot Equipment Depreciation, You Idiot!

OK, enough with the insults already!

Depreciation means that something loses value over time. For a GPU, you may expect a lifetime of 12 months, so you can on average expect the value of your GPU to depreciate 1/12 per month. The number of months may be different, but the idea is the same.

Let’s go back a couple of steps and look at the investment before my little text replacement trick. In our first example, depreciation would mean that the exchange value of our A would drop by, for example, 1/12 every month.

However, we would still have one A. Our value denominated in other currencies would drop over time, but our ability to mine with our A does not go down.

Our production from having a GPU increases over time when compared to the value of our GPU. For example, after one month, our A or GPU would be worth only 11/12 of the B/USD and C/Bitcoin value, and would give 10 C/Bitcoins. After 11 months, our GPU would be worth only 1/12 of its original value, but would still produce 10 Bitcoins, or whatever value you choose to use.

### Q: You’re Using Made-Up Numbers! Use My Numbers, You Idiot!

This is the counter-argument that ultimately demonstrates whether you understand math or are just being argumentative.

Look, replace the numbers with whatever makes you happy. It’s not about whether there is a 1:2 exchange rate or a 1:45, 2:31, or 86:15 exchange rate. It doesn’t matter whether a dollar currently is higher or lower than a Bitcoin.

Try it and see! It’s very easy. Just replace the A:B exchange rate with the price of your favorite mining equipment in USD (don’t forget to convert the value to USD, regardless of whether you buy it using USD or Bitcoins), the B:C ratio with the exchange rate of US dollars to Bitcoins, and A:C with the price of your favorite mining equipment in Bitcoins. Then, do the same experiment, using higher or lower decreases and increases if you like.

Don’t trust me, trust the math.

Oh, and if Bitcoins isn’t your chosen cryptocurrency, just swap Bitcoin in the previous paragraph with Whatevercoin.

### Q: Of Course I Want the Price of My Coins to be as High as Possible. Nobody Wants to Sell at a Low Price, You Idiot!

That is true, but tell me, would you rather have 1,000 coins or 100 coins to sell if the price was the same? You’re thinking right but ignore the acquisition of the coins completely.

Remember that when you sell your hardware, you are no longer a miner. You are a coin holder. The argument here is that a mining operation benefits from a falling price, but since your mining operation ceases the moment you sell your mining operation, the falling price no longer benefits you.

In fact, it’s the exact opposite when you just hold coins. You want the price to skyrocket! Until that happens, however, you want to gain as many coins as possible at the lowest price possible, and thus you gain more from a falling price than you do from a rising price.

In our simplified trading example, we stopped the analysis after the price dropped. Add one more day where you trade in your A for 1000 coins after day 2, and see what happens when the price of C or your chosen coin shoots up again on day 3 to the level it was after day 1:

Final Status: Our holdings after day 3 is thus 1020 Bitcoin, the equivalent of 25.5 GPUs or 510 US dollars.

If you were just mining at the rate of the 10 Bitcoins per day from the example in the first question, the results would be:

Final Status: Our holdings after day 3 is thus 1 GPU and 30 Bitcoin, the equivalent of 1.8 GPUs or 36 US dollars.

Mining yields a profit of 34 dollars while mining plus selling your hardware yields 508 dollars.

# The End?

I doubt it, because this is a topic that seems to bring rage to miners all over cryptocurrency land. However, the short version of this article is this:

Mining is always most profitable when the price of Bitcoin goes down. If you invest in mining equipment your highest profit comes when the price of Bitcoin crashes.

That doesn’t mean that mining isn’t profitable when the price rises, only that you’re missing out on a lot of coins when that happens.

Still disagree? Leave your comment below and I’ll try to answer any question you have. Perhaps you know better? Heck, I might even update this article to include your question, and you’ll be famous for setting me straight!

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.b

## 21 thoughts on “Why Investing in Mining is Always a Bet That Prices Will Drop”

1. Pingback: @furuknap
2. Christophe says:

I’m don’t think this is correct. I’ll try to poke holes in it, interested in your response.
You effectively have three options in this model:
1. Hold USD
2. Hold Bitcoins
3. Hold (and use) mining equipment.

The value of the mining equipment (especially GPUs) can be approximated to fall slowly against the USD, due to depreciation. In short timespans, it’s probably negligible, but let’s just assume we lose 0.01 USD’s worth per day.

Then, given your data, the most profitable course of action is to hold US dollars. If we hold the USD from start to finish, we maximise our return (regardless of which currency you measure it in). So why would anyone mine when the currency falls?

Instead of tracing out a half dozen possible price scenarios by hand let’s set up the exact model of mining/holding usd/holding btc.

I’m using a single time period for this, but the same reasoning can be extended to handle multiple periods. I’m also valuing everything against the USD, but it’s trivial to show that the logic remains the same regardless of which unit you use to measure.

Let B0 be the value of 1 BTC in USD at the start of the investment period.
Let B1 be the value of 1 BTC in USD at the end of the investment period.
Let M0 be the purchase price of the mining rig (in USD).
Let M1 be the resale value of the mining rig at the end of the investment period (in USD).
Let E be the cost of running a mining rig (in USD)
Let R be the amount of bitcoins mined during the investment period.

Then the return of holding 1.00 USD is 1.00 USD, since we’re not doing anything.
The return on holding 1.00 USD’s worth of Bitcoins is (B1/B0) USD.
This is the trivial part: As long as Bitcoins appreciate against USD, they’re a better pick.

Now the return on 1.00 USD’s worth of mining rig is:
The return on the physical hardware: M1/M0
Plus the value of the generated bitcoins: B1*R
Minus the value of the electricity spent: E
Giving us: (M1/M0) + B1*R – E

Now it’s entirely reasonable to assume that (M1/M0) < 1 and E > 0, so the only source of profits against the USD comes from B1*R. So higher bitcoin prices, and more bitcoins generated are what leads to mining being profitable. In the extreme case of bitcoins going to zero, it’s obvious that all the mining did is waste electricity and depreciate a piece of equipment.

I’m sorry for digging all the way into the gory details, but this is the best way of taking all factors into account without fixating on what numbers are being used.

1. Thanks for your response, and what you’re saying is correct but doesn’t change the math. Your calculations, however, are exactly the same as mine with the exception that you introduce more complexity through depreciation and ming efficiency.

You further assume that the miner will keep all coins to the end of the period and sell for a given exchange rate at that time. This introduces currency price speculation, which again just complicates things. I could counter-argue that a massive profit can be made by selling the card for coins at the low price and selling the coins at the high price.

In the end, you’re just repeating the same argument, that total profit must the the result of mining revenue less depreciation and cost.

In my calculations, mining doesn’t come into play because it is a minute factor and would balance out by a lower price with more coins being the same as a higher price with fewer coins. If you introduce mining, like you say, you need to introduce cost of electricity, depreciation, cost of operation (and for a \$1000 rig, flipping burgers for minimum wage is far more profitable), and so on.

I also don’t assume the end result denominted in a certain currency, which is exactly why I ‘purchased’ one A at the beginning and held on to it. In the end, you hold exactly the same A as you had when you started. The point isn’t that one A is the best deal you could get, but to take trading and currency speculation out of the picture and show that when prices decline, you get far more coins than you do if you had held on to fiat or bought coins when the prices are higher.

I go into far more details about in the book I’m writing (http://coin.furuknap.net/bitcoin-and-litecoin-mining-book/). You can download the preview chapter for free and you’ll see 8 scenarios with various permutations of mining, depreciation, selling low/high, and so on, but I’m afraid the results remain the same.

Mining is most profitable when prices go down.

3. kyl says:

You left out one (albeit unlikely) possibility. What if Bitcoin exchange rates remain unchanged or become pegged to the USD? In that scenario, mining may be more profitable than just holding USD or Bitcoin.

1. You’re right, both in your analysis and that this won’t ever happen 🙂 For one, who would pick the fiat currency to which Bitcoin would be pegged? I’m fairly certain the US isn’t on the top of the list…

That’s another show, though.

Hi, I think this argument is incorrect for a different fundamental reason.

The numbers remain exactly the same if we had kept our \$2 as dollars throughout, instead of investing it in one GPU. Namely our \$2 would be worth first 100BTC, then 50BTC, and finally 1000BTC.

Thus we can say with equal validity, “investing in \$ is always a bet that the BTC price will drop”. But this is obvious. To sell a dollar gives more BTC if the BTC rate drops relative to dollar. Similarly to sell a gpu gives more BTC if the BTC rate drops relative to gpu.

This is enough to show that you are not actually analysing mining profitability – there is no difference between investing in mining and simply holding the money in \$. You have simply taken the value of the gpu (assumed constant in \$) in btc.

To analyse mining profitability it’s necessary to include depreciation, and also the coins mined which is the return or income from the mining investment.

Cheers
(I’m only commenting because I’ve learnt quite a lot from your other posts – thanks.)

You’re right, except…

The reason for simplifying the exchange rate between A and B is to account for the fact that a GPU is relatively stable in USD price but fluctuates wildly in BTC.

If you want to go down that path, however, the equation becomes a bit different, but not much more complex, because the mining operation output in BTC needs to counter the deprecation of the GPU in USD plus electricity and other operational expenses. This is a fairly simple proposition which may or may not yield a profit, but in the end, a falling BTC price will blow this profit or loss completely out of the water.

Remember, and I’ll actually add this as a question at the end, that the moment you sell your GPU for tons of Bitcoin, you are no longer a miner, you are a coin holder. The argument that investing in mining is a bet that the price goes down no longer applies to your profitability; now you are a coin holder and you want the price to go up.

.b

“…GPU is relatively stable in USD price but fluctuates wildly in BTC”

-> Agreed, this is a reasonable assumption.

On including btc income, & expenses: “… but in the end, a falling BTC price will blow this profit or loss completely out of the water”.

-> Actually it won’t necessarily. This applies only when residual gpu value is large compared to possible net income. To see this take the (reasonable?) case where the gpu value depreciates right down to zero at the end of its useful lifetime. Now this net income you acquired over the period is all you are left with, and can’t be swamped by the residual gpu value.

And the claim “Investing in Mining is Always a Bet That [btc to \$] Prices Will Drop” is not true. Indeed the opposite is the case now: a strong btc increases profitability.

“…you are a coin holder…” etc

-> Agreed, but the decision whether to hold cash as btc or \$ is a seperate decision from whether to invest cash in mining.
This is not to say mining profitability is unaffected by btc/\$ rate, as you need the btc mined income to exceed the \$ expenses, as you say.

Interestingly in mining you have the valuable option to switch off your gpu while the btc/\$ rate is too unfavouable and btc income doesn’t cover \$ expenses.

Cheers A

You assumption on the full depreciation of value is true only in ASIC investing where the reuse value is zero. For calculating profitability then, one must time the end of the operation at a point where the decline in resale value of the card is optimal.

However, during any time of your mining operation where the price of BTC drops, you will get more coins (and become a coin holder) if you sell your hardware for BTC (even via USD) than you will by mining.

The only reason why mining can be more profitable than holding USD is if the earned BTC exceeds the depreciation value. Because depreciation is much higher in the beginning and trending towards zero over time (a card wil never have zero value) in the long run, mining versus depreciation favors mining.

However, in the long run, and this would be at least a couple of years, the chances that the BTC value drops increases, thus favoring selling the card and become a coin holder, in which case you’d better hope the price goes through the roof.

I’ve actually made a far more elaborate scenario setup in my upcoming book, and the free preview chapter available in the top menu details the various permutations of selling, holding cuirrencies, mining, and so on.

.b

5. fluttershy77x says:

Sorry, I feel confussed right now and I’m not sure, if I understood correctly.

1. Lets begin: we can choose between A: Hardware, B: USD, C: BTC

2. Without depreciation and mining profitability and for the sake of simplicity, we can say A (Hardware) has always the same exchange value as B (USD), thus A = B.

3. My choice now is a) A = B, b) B = A, c) BTC – because (2).

4. Because B (USD) = A (Hardware) and vice versa, we can reduce the choice to A: Hardware, B: BTC or A: USD, B: BTC. Doesn’t matter at this point. To give it a name, I’ll call it A: HardwareDollar and B: BTC now.

1 HardwareDollar = 0.01 BTC
or 1 BTC = 100 HardwareDollar

7. We have two possible outcomes (three tbh, but unrelevant):

– BTC rises:
1 HardwareDollar = 0.005 BTC
or 1 BTC = 200 HardwareDollar

– BTC falls:
1 HardwareDollar = 0.02 BTC
or 1 BTC = 50 HardwareDollar

8. Conclusion: if you expect the BTC price to rise, you want to invest in BTC, if you expect the BTC price to fall, you want to invest in USD.

This is quite obvious, so let’s include mining profitability now:

Mining becomes profitable if you can generate at least as much BTC as if you could have brought _at the time of hardware purchase. If this is true, it doesn’t matter, if BTC price falls or rises.

You excluded the part of mining profit completely, even though it is the only relevant variable we have to consider in the first place.

Are you out of your mind, good sir, or is it me? 🙂

Have a nice day.

1. This is quite obvious, so let’s include mining profitability now:

Mining becomes profitable if you can generate at least as much BTC as if you could have brought _at the time of hardware purchase. If this is true, it doesn’t matter, if BTC price falls or rises.

You excluded the part of mining profit completely, even though it is the only relevant variable we have to consider in the first place.

Are you out of your mind, good sir, or is it me?

Your simplification isn’t very simple when you ignore the most profitable aspect of the operation, namely a falling coin price.

I skipped the mining operation because it makes matters worse for profitability. The mining operation itself must compete with the depreciation of the hardware, which is large in the beginning and slows down. Mining cannot usually keep up with this so any mining is usually at a loss in the beginning. In a longer term, the chance of volatility cancelling out any mining revenue increases.

For BTC and particularly ASIC mining, this effect is permanent because the hardware depreciation is permanent and tends towards zero or even negative profitability.

Remember that when you sit on coins as opposed to mining, you want the price to increase, but not until then. If the price increases while you are mining, you lose out on a large portion of your profit potential.

A more detailed analysis of these scenarios are available in the free chapter of Bitcoin and Litecoin Mining.

.b

6. Most people today would not consider buying cryptocurrency mining equipment in the hope that they can exchange it for ANYTHING in the future. They just want to use it to mine coins right now. Consider it a way to get into the market. People who started mining when it started could NOT have just “bought” coins and hung on to them instead of mining, because the coins did not EXIST yet!! My argument is that the exchange rate to fiat currencies will one day become irrelevant because everyone will be using a cryptocurrency as trade, thus mining the coins AND holding coins is the thing to do since ANY mining of cryptocurrency is new money. The whole point of a cryptocurrency is to have a currency that is non-corruptable and have people using it, not trading it for something like USD. People who are willing to trade cryptocurrencies for fiat currency are desperate, they have invested all this fiat money in their mining equipment and they need a way to pay the rent and bills. They would much rather have a way to pay the bills in cryptocurrency. Don’t forget, the only way to GENERATE cryptocurrency is to mine it. One day either the cryptocurrency exchanges will be “illegal” in every country, or everyone will just be using cryptocurrency, or both.

1. 1. What people consider as their motivation is really irrelevant to whether it makes financial sense. Whether someone considers 2+2 to be 4 or something else is just as irrelevant.

2. For most coins, they exist the moment they are announced becuase the genesis block will already have been mined. That, however, is vastly more irrelevant because people don’t buy mining equipment in the hopes that somewhere in the future there will come a coin that will be valuable. They buy mining equipment to mine established coins, thus your argument is also irrelevant.

3. The only way to generate fiat money is to be a central bank. That does not mean the only way to get fiat money is to be a central bank. Your argument, I’m afraid, is again false or irrelevant.

People’s feelings and opinions are irrelevant to math and the math in this article shows that investing in mining equipment yields far more profit if prices go down.

.b

7. tom says:

Actually you can reach this conclusion with a simpler analysis, but you should state your assumptions:

1) you are investing bitcoins
2) the mining equipment’s value at the end of the investment will vastly outweigh accumulated net mining income.

If those are true, your investment is a sale of bitcoins and a purchase of dollar denominated assets (mining equipment), therefore you are short bitcoins and long the dollar.

If you replace the second assumption, your investment is:

– Short bitcoins in the amount of your investment
– Long whatever official currency your mining equipment is priced in, in the amount of your investment less depreciation
– Short electric power, more or less predictably priced in said currency
– Long bitcoins in the amount of mining output

That doesn’t look to me like it always must add up to a short bitcoin long some official currency investment. Usually but not absolutely always.

1. Tom, thanks for your comment,

I had intended to include a second component of the scenario, that while trading, as a holder of A you get a job that pays a fixed amount of C per day, based on a world-wide total of C available each day. Because the output of C would be fixed (regardless of whether you say that it is really C+(Electricity-Electricity)) it would correlate to the mining income.

The fact remains that in order to counter the C-denominated value increase, you would have to have a massive salary. A theoretical situation can exist where that is true, but of course, if all A stock holders got a job that paid in C, then what each A holder could get would diminish.

This is a very nice balance in the Bitcoin system; the more profitable mining becomes, the more people will invest, and the less profitable mining becomes, and fewer people will invest, making mining more profitable again. Over a sufficiently long time, this will reach a balance, so the trick is to invest in the periods where profitability declines (to have the investments when profitability rises) and sell during rises (to have money for when profitability declines again).

.b

8. Hector Sanchez says:

Hi B,

Thanks a lot for this very well explained exercise. I’m starting with Bitcoin/LiteCoin and your analysis helped me to better understand the economics of exchanging cryptocurrencies.

I run your numbers into my calculation and I agree to your conclusions. Here is my spreadsheet in case you want to take a look. I think it helps to illustrate your point.

http://www.hectorsanchez.net/BitCoin_Calculator.xlsx

Regards
Hector

9. First, it’s crude and abrasive to use the word “idiot” dozens of times in your article. You will convince people more easily by omitting this, in my opinion.

Second, it is easy to construct a counterexample to the statement “investing in mining is always a bet that prices will drop”.

Counterexample 1:

You have \$100.

Assume BTC price is fixed at \$100.

Spend \$100 on a mining machine.

Mine on said machine that produces 1 BTC per day for 10 days.

You now have 10 BTC, worth \$1000.

Holding BTC would be less profitable (you would only have 1 BTC now). Holding dollars would be less profitable (you would only have \$100 now).

QED.

Counterexample 2:

Make all the assumptions of counterexample 1, except that the value of a BTC increases by \$10 per day.

At the end of 10 days of mining, you have 10 BTC, worth \$2000.

Holding BTC would be less profitable (you would have 1 BTC now). Holding dollars would be less profitable (you would have \$100 now).

QED.

Many other counterexamples are possible, so your thesis is shown to be false.

1. How many BTC would you have if you held on to your USD and the price dropped to \$1 per BTC then? You would have 100BTC. What something is worth in USD is somewhat irrelevant because as an earner, you want the price to drop so you get more of whatever you earn. As an investor, you want the price to rise when you hold them and drop when you don’t.

I see you don’t understand this, which would make you… Which term would you prefer instead of an idiot? Logically challenged?

Which term would you prefer instead of an idiot? Logically challenged?

If you continue to feel the need to resort to insult in place of civil argument, then you need more practice arguing logic. After all, I am not the one who seems to fail to understand the concept of a counterexample to a universal.

If we can show that sometimes holding mining equipment is optimal when the price is not falling, then we have shown that your statement that “holding mining equipment is only optimal when the price drops” (reworded, but logically equivalent) is false.

10. Yes, but your statement was “investing in mining is always a bet that prices will drop”.

As an investor in mining equipment, you benefit from the rise in the price of a bitcoin. As shown in my counterexample #2, it is possible for the price to rise while holding mining equipment, so that holding mining equipment was the optimal strategy (vs. holding USD or BTC). This is the case as long as the price didn’t rise too quickly.

In counterexample #1, we saw that holding mining equipment was optimal when the price did not fall (nor did it rise).

If we can construct a case where the price doesn’t fall, and holding mining equipment instead of USD or BTC gives the optimum returns, then we know that investing in mining is not always a bet that the price will fall. How could it be, when it gave the best possible return without a fall in BTC price?