Disclaimer: The BFMines asset is my own asset, so assume I’m trying to influence your decision into buying. Always do your own research, verify claims, run your own numbers, and so on. This should not be seen as financial advice.
Earlier this week, in preparation for the IPO of BFMines, I published an article outlining the risks I saw as most relevant to my BFMines mining contracts. That article sparked some comments in various forums, including one comment from Bitcoin investment luminary Deprived where he requested that I posted a comparison between BFMines and other mining investment opportunities.
Note: Deprived also requested that I added a risk factor regarding the BTC/USD exchange rate. However, that risk is not specific to BFMines but applies to any cryptocurrency investments, so I’m not going to address that specifically.
I’ve been hesitant to post specific numbers on both comparisons to other investment opportunities as well as difficulty speculations. The reason is that both of these numbers will be relevant only at the very minute the article is written, and changes almost on a daily basis. This is why it is very important that you run your own numbers.
However, as more and more people are requesting this, I’m going to comply with the following disclaimer: The numbers presented in this article are current as of this moment and change on a daily basis.
Make sure you review the numbers when you plan your investment.
Assumptions and Method Used
In this comparison article, I’m comparing numbers only. I’ll write a brief statement about each asset compared, but those statements have not been taken into account beyond what is explicitly stated.
For example, I may say that “Asset A has a risk of default” or “Asset B has a larger than normal volatility”. These statements focus on opinions only, and you should review them as part of your investment decisions. However, they may or may not make a favorable impact on the asset or on BFMines, depending on how you evaluate the statements.
For east asset, I’m focused on one number only; the price per mhs. BFMines is effectively denominated in mhs, so to have a reasonable comparison, this should be your main focus.
I’m providing some additional figures as well to give you some indication of the profitability potential. I am also using the highest sale price over the previous 24 hours as reported by BTCT.
Finally, I’m basing the price of BFMines on that everything goes according to schedule and that there is an average difficulty increase of 15% per month from now and until mining begins. After that, every asset denominated in hash power will have the same profitability evolution, so difficulty speculation beyond that should not affect which asset in which you invest (only whether you invest in mining at all).
Note on Bonus: BFMines has a bonus dividend which will be at a minimum 15% and likely more for the first six months. However, difficulty is expected to increase, so the ‘likely more’ is removed and I’m using 16.6% for six months to make it easier to calculate.
I am accounting for this by subtracting 1 month of September dividends from the price, and do the same for other mining contracts for the expected dividends paid until September 1.
Mining companies are assumed to keep their current percentage so dividend calculations are based on today’s dividends from mining. This means that although ASICMiner and Cognitive will increase their hash rate, I’m using the decline in profitability due to difficulty increase to counter this. As such, I have not included price adjustments for the mining companies.
I’ll compare BFMines to two classes of assets; mining contracts and mining companies. The difference may seem subtle, but mining companies may have better protection against difficulty increases as they may increase the hash rate to stay at the same relative rate, whereas mining contracts in general will not.
I have chosen two mining companies and two mining contracts from BTCT. The mining companies are ASICMiner and Cognitive and the mining contracts are TAT.VirtualMine (TAT.VM) and PAJKA. For Cognitive and PAJKA I have included their projected upgrades as well, as these may affect your calculations.
Note: One asset, called DMS.Mining is currently cheaper than all mining assets. However, this is a somewhat different asset that carries additional price volatility risk to holders, so I’m not including it here. Read more about the DMS assets in this article.
The conclusion, if you’re impatient, is that BFMines is right now the second cheapest mining asset when comparing yield from mining alone. TAT.VM is slightly cheaper at the moment, and the break-even point today (and this goes down every day) is 0.00483BTC for TAT.VM. If TAT.VM goes up to 0.00483, BFMines is again the cheapest mining you can buy.
Update, July 8, 2013: Due to a miscalculation in my initial model, I’ve updated the chart below and included updated numbers based on the situation as of July 8, 2013 at 7:43 PM CST. I have also included DMS.Mining in the comparison, but please not that this is neither a mining contract or a mining bond, so the price paid behaves differently.
The full overview is here, and note that in the final column, a lower value is better:
|Contract||0,004000||0,000479||0,003521||1,00||0,0035209||0,000016||165,54 %||100 %|
Statement: This is the baseline to which I compare other assets. Note that the adjustment is based on one month of dividends in September as explained in the note.
|Company||5,170000||0,000000||5,170000||155,00||0,0333548||0,002475||17,47 %||947 %|
Statement: The engine of Bitcoin stock markets is ASICMiner. ASICMiner has plans to keep their current percentage of overall mining, but will likely not exceed 35% of the total network. Note that dividend estimates are based on mining alone, not hardware sales. I have based returns on their purchased 62THs, not today’s rate (which is just 30THs)
|Company||0,400000||0,000000||0,400000||10,50||0,0380952||0,000168||15,30 %||1082 %|
Statement: Cognitive is a mining company with more incoming hash power, but also with some issues related to the trust in the issuer. Will likely increase hash power further and has a dedicated fund to support such increases.
|Company||0,400000||0,000000||0,400000||58,00||0,0068966||0,000926||84,51 %||196 %|
Statement: See also Cognitive above. This calculation is based on the ordered hardware (7xBFL 60GHs miners) which should arrive in two weeks (and that’s a joke playing on BFLs continual promise to deliver in two weeks; I have no idea when it will arrive).
|Contract||0,004680||0,001308||0,003372||1,00||0,0033719||0,000016||172,86 %||96 %|
Statement: TAT.VM is slightly cheaper than BFMines at present. The price adjustment is to account for the expected dividends paid from today and until September 1. Note that this adjustment goes down every day, so the difference goes down each day.
Update July 4: A forum user commented that mining contracts do not pay transaction fees. This is not true for BFMines as this is a real mining operation, not a virtual one, so all income, both block rewards and transaction fees, are paid out. I asked TAT about his asset, and he confirmed that TAT.VM pays only block reward. This gives BFMines a slight advantage equivalent to the transaction fee, which right now is somewhere between 0-2%.
|Contract||0,062000||0,003924||0,058076||3,00||0,0193585||0,000048||30,11 %||550 %|
Statement: PAJKA has been a long-running mining contract that got a recent price adjustment due to a certain investor getting panic an selling a large portion of the shares. Note that PAJKA also is scheduled for an upgrade so check below.
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|Contract||0,062000||0,019622||0,042378||15,00||0,0028252||0,000240||206,31 %||80 %|
Statement: When PAJKA gets its new hardware in two weeks (that’s still a joke), the issuer will upgrade the contract to 15mhs. At that point, the current price will compete with both BFMines and TAT.VM. Note that the adjustment is based on receiving the hardware today (which isn’t likely) and thus that the final adjustment will likely be lower and thus less competitive.