If there ever was an example of stupid money, the money that has moved into POW mining equipment this last year would be perhaps one of the best. On the other hand, if we ever wanted confirmation of the extremely unexpected price rise in Bitcoin and other POW Altcoins in 2017, that same equally unexpected rise in mining activity might just as well be one of the best of confirmations for that too.
Let’s look at the figures.
And the list goes on and on.
People have thrown money at mining equipment with the same exuberance that they have thrown money at cryptocurrencies themselves!
Some might see this as confirmation of current prices. After all, if people are willing to pay the equivalent of 1 year’s mining proceeds (the average expected ROI time for most) in order to mine, then we certainly would have a very important demand source that corroborates price action, wouldn’t we?
Or would we?
Would it be the kind of quality confirmation we’d be looking for? Is it based on sound economics, or emotional irrationality? The P&L numbers suggest the latter, which, if the case, would actually confirm the opposite, which is to say, the worst of our fears that the POW sector of the crypto bull market is really based on lots of hopium.
Is mining POW crypto really a good business to get involved in?
Guess what?
On average, in 2017 you would have made more than 10 times as much money by directly investing than trying to mine.
That’s right, 10 times more!
Yes it would still have been a stellar mining year though. You not only got to ROI in just a couple of months thanks to the spectacular price rises, but you also made a nice chunk of money during the rest of the year – something never seen before, and likely never to be seen again.
BUT YOU WOULD HAVE MADE 10 TIMES AS MUCH BY SIMPLY BUYING AND DOING NOTHING ELSE!
Who in their right mind is going to invest in something that makes 90% less than what simply buying the raw material itself would make you?
Only stupid money would do that.
And I’m no exception. I bought state-of-the-art mining equipment in early January of 2017 thinking it would be a good long term investment.
I never dreamed that mining activity would rise just as fast and in equal proportion to prices.
Yes, I’m guilty of being stupid too.
Yes, I’m drawing from personal experience as well as from the widely available data whose numbers can be crunched by anyone willing to take the time.
At the beginning of 2017, I was fairly confident that crypto was a good long term investment, but I had no idea we were about to see one of the biggest bull markets in the history of mankind. No idea! I sold eventual big winners thinking I was making unbelievable profits only to shake my head in disbelief as I watched them climb even higher. I made lots of mistakes, but mega-bulls are thankfully very forgiving.
Everything was paying off big, but, as mining activity rose in direct relationship to price, I began to regret not having just bought outright instead of having dedicated an equal portion to mining.
Don’t get me wrong, I’m not complaining, even after having left huge sums on the table by taking profits too early or by buying miners that made only 1/10 of what my direct buys made me. Complaining about that would make me the biggest ingrate the world has ever seen. Nonetheless, I can and should learn from my mistakes, and just like I learned to HODL a little longer, I also learned that buying any more mining equipment was absolute insanity.
I don’t see the 2017 POW markets repeating, and, unless prices continue higher at similarly accelerated rates, there are going to be a lot of very disappointed miners in the future.
And God forbid that POW prices stagnate or fall.
Yet people continue to invest in mining equipment instead of simply buying direct, locking in a guaranteed 10 times better return on their money (regardless of how much things go up, it’s a fairly constant ratio).
I didn’t expect mining activity to increase at the same rate as prices. I was wrong. It has, and the lesson learned is that this will likely continue, leaving miners looking like idiots, at least until POW prices turn south, when they'll simply become losers hoping other losers will quit before they do.
And all this brings me to the even greater opportunity cost in the form of missing the boat with the likes of STEEM, BTS, EOS and ADA, all of which have nothing to do with POW and are the best examples we have today for the leaders of tomorrow.
Why mine a POW when buying it will outperform by a factor of 10?
Why, for that matter, even buy a POW when a STEEM, or a BTS, or an EOS, or an ADA will outperform POW by at least another factor of 10?
Imagine just how happy the smart money will be after having decided to reallocate all that money intended for POW mining into direct buys of crypto like STEEM, BTS, EOS and ADA with at least 100 times better returns. At very least!
And those poor schmucks who stick with POW mining?
Knowing what I know now, I would have to be stark raving mad to buy more mining equipment!
If it's not clear by now, I think the sustainability of POW crypto is in serious doubt. I wouldn’t even be directly buying POW crypto anymore, much less even thinking about purchasing mining equipment. It’s enough to try and eek out gains from current levels if your cost basis is simply the price of your favorite POW, but adding the extra costs of mining equipment and electricity would be just nuts in my opinion. Check out my previous post for more P&L analysis on that, and then, after reading that, and in combination with this, ask yourself if this might not be a good time to get out of mining while you can, and maybe even out of POW altogether.
And don't forget to let me know what your answer is!
Data Sources:
http://blockchain.info/
http://coinmarketcap.com/
http://chainz.cryptoid.info/
http://whattomine.com/
https://www.coinwarz.com/cryptocurrency
Please leave your comments, input, questions, etc., below!
@cryptographic