A Common Dilemma

A few weeks ago, we published an article exploring all the different tailwinds propelling the current Bitcoin bull run. In it, we argued that given the changing regulatory landscape and investment trends, this cycle could be particularly good for Bitcoin. However, investors might still wonder how best to profit from this opportunity. Is it better to invest in Bitcoin mining, or just buy Bitcoin directly? Certainly, both are viable ways to obtain a profit, and they are highly correlated. However, there are aspects of these two investments that differ considerably.

A Bitcoin mining investment will provide a steady income stream, whereas a direct Bitcoin investment does not generate cash flow of any kind. This makes it so that the only possible profit from investing in Bitcoin comes from asset appreciation. Because of this difference, certain conditions may make one option more profitable than the other. In this article, we’ll explore why investing in Bitcoin mining, especially under current market conditions, can provide greater profits than a direct Bitcoin investment.


When is Mining Better than Buying Bitcoin?

The profitability of Bitcoin mining compared to buying it outright depends on the current market trends, as well as other network variables such as hash rate. During bullish markets, Bitcoin’s price can rise much faster than the network’s hash rate. This happens because Bitcoin’s price is driven by market traders, while increasing hash rate depends on the deployment of new hardware and infrastructure. With Bitcoin price outpacing mining difficulty, miners profit greatly. As price increases, revenue grows faster than costs, increasing their profit margins. In fact, during bull runs, these margins usually grow even faster than Bitcoin price.

During this bull run, Bitcoin price has greatly outpaced hash rate

Because of this, investing in Bitcoin mining makes special sense when anticipating that the price is going to start moving up fast at some point in the near future. This could be during the last stages of the bear market, or when the market is consolidating. These are periods when markets are cold, lowering demand for mining machines. This allows miners to acquire equipment at reasonable prices, which will then provide large profits once markets get moving again.


Other Advantages of Investing in Bitcoin Mining

However, timing aside, there are other advantages to investing in mining rather than directly in Bitcoin. Miners accumulate Bitcoin over time, at a slowly changing cost determined by their electricity costs and mining difficulty. If the miner has access to cheap electricity, the cost of mining each Bitcoin could be significantly lower than the market price. Once equipment and infrastructure costs have been covered, these miners are able to obtain Bitcoin cheaper than anyone else. This is true regardless of market conditions, for as long as their cost to mine Bitcoin remains below the current Bitcoin price.

Moreover, a direct Bitcoin investment can be riskier, as depending on market conditions at the time of the purchase, they risk overpaying. In order to avoid this, a sensible investor could decide to DCA their purchases over a long period of time. In doing this, they are emulating the way in which miners acquire Bitcoin.


The Current Market Conditions

Bitcoin’s price has remained stable between $90,000 and $110,000 for the past two months, marking a consolidation phase following the bull run triggered by the U.S. election period. This is a natural market reaction to the excessive leverage that was accumulated, as Bitcoin rose from $65,000 to almost $100,000 in a bit over two weeks. Past bull runs had similar consolidation patterns, and they were often followed by a major price movement once the price resumed its bullish trend. This correction has created a good opportunity for miners to position themselves.

Bitcoin is ranging between $90,000 and $100,000 in a clear consolidation pattern

Many analysts agree that this consolidation phase could lead to another bull run later this year. Moreover, as we mentioned in last month’s article, this cycle could be special. The imminent regulatory changes in the United States, and the build up of reserves by companies and nation states could sustain this bull run for longer than expected. By participating in mining now, investors can enjoy the lower entry price, and potentially profit greatly from future price increases.


Conclusion: Why Mining is Probably the Smarter Choice Now

Today’s market conditions create an ideal environment for Bitcoin mining. The current price correction is allowing miners to acquire equipment and mine Bitcoin at a steady, predictable cost while avoiding the risks of timing the market. For investors, this period of consolidation provides a good opportunity. With the potential for another bull run on the horizon, mining investments could greatly outperform Bitcoin in the coming months.

Moreover, with the capacity to obtain Bitcoin at a lower price than the market, miners are able to obtain a profit even during market corrections and bear markets. Mining allows for the steady accumulation of Bitcoin, which can be especially valuable during periods of price stagnation or downturns. Additionally, mining fosters long-term value creation, as the infrastructure investments made today can continue to generate returns for years to come, even as market conditions evolve.