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In 2018-2019, the bitcoin price has returned to around US$10,000. As this transaction volume continues to increase, the bear market cycle of bitcoin has been completely reversed. At the same time, with the impacts of bitcoin halving, access to mainstream institutions, and the application of blockchain development, the entire cryptocurrency market tends to be optimistic, and more industry-related benefits are being brewed.
Although it’s hard to predict when the super bull market will come in which the price will increase several times within a year, the reversal of the trend has provided a very positive signal for our long-term investors: it’s time to get rid of the bear market thinking and be bolder to purchase and store coins.
In the face of volatile markets, any judgment on the timing of a short-term purchase of bitcoin will be essentially a high-risk gamble. To avoid the risks of short-term investment, the veterans in the cryptocurrency circle tend to invest in bitcoin in two forms: “regular fixed investment ” and “mining”. That’s because the risk is spread over a longer period, and the investors can earn a long-term investment income from bitcoin in a more stable way.
Regular Fixed Investment: Get rich with time goes by
For most people, the common investment approach is the show hand at a high position. However, such a kind of strategy often results in the trap at a high position and praying for a return every day. Therefore, show-hand is not suitable for ordinary non-professional investors absolutely.
For the type of high-growth asset like bitcoin, the “regular fixed investment” is recognized as a robust approach. With this investment strategy, the holding cost will not be affected by short-term price fluctuations, and the final holding cost is the average price of bitcoin during the regular fixed investment.
Suppose an investor decides on a regular fixed investment in bitcoin in US dollars on the 1st and 15th of each month after 2019. Then, by July 15th, a total of 14 investments have been completed and the average holding cost is about US$5,900. According to the bitcoin price of US$11,000 on July 1st, the profit will reach 86%. If bitcoin ushers in a larger bull market in the coming one or two years, the profits will become several times. Despite the decline in coin price, the investors can further reduce the holding cost by means of the price fall.
However, although the theory of regular fixed investment seems to be very simple, it is difficult to find a person who can continue to execute it. The reasons are probably as follows:
Ⅰ. The mindset of hating losing and reluctant to buy in a downturn.
Those who choose regular fixed investments need to tolerate the short-term downturn and insist on investment even if the price declines. However, most people tend to chase the rise and abandon the fall. They are reluctant to buy in when the price falls while very enthusiastic when the price rises.
Ⅱ. Short-sighted, change long-term into short-term. Sell once the price rises to miss the good market
Regular fixed investment is a periodic investment plan for long-term high returns, but some retail investors always make the mistake of changing long-term into short-term investments. Once they find the price is rising, they are eager to sell since they have earned some money, or intend to sell first and buy back at a lower price. Most of them are just penny-wise and miss the better market in the long term.
Ⅲ. Need long-term persistence and perseverance
After starting a regular fixed investment, the market may not have an obvious increase in a long time, and even there may be a certain loss. In the face of such a short-term situation in which the profits cannot be predicted, it is easy to fall into self-doubt without persistence.
Mining: Coin storage machine
The bitcoin mining mechanism is the basis for the survival of the entire bitcoin system. For the safe operation of the bitcoin network, the bitcoin network generates an average of 12.5 BTCs per 10 minutes as a reward for the mining workers. For the mining workers, so long as the mined bitcoin can cover their mining costs with enough profits, they have reasons to continue the mining activity.
Under such an incentive mechanism, the average cost of mining a bitcoin is lower than the market price. As a result, many “coin holders” have come into being and mining is also considered as the better alternative to direct coin purchase. In addition to the cost advantage, there are also several advantages of investing in mining:
Ⅰ. In terms of the logic of coin storage, mining is essentially another form of regular fixed investment with long-term and mandatory features.
Once mining starts, it means that the miner depreciation and power costs are used as regular fixed investments to store coins. The lump-sum investment will usually support mining for two or three years, which is in line with the logic of long-term investment in bitcoin. At the same time, since it’s very cumbersome to withdraw, the mining approach has the mandatory feature to overcome human nature. Compared with the direct purchase of coins, mining workers are much less sensitive to mining costs and less susceptible to short-term currency fluctuations.
Ⅱ. There’s a return model regardless of bear or bull market
Even in the situation of long-term stable or sluggish prices, mining can still have a relatively stable return model. Once the cost is recovered, the mining will enter the coin storage phase with zero cost, which is more profitable than the regular fixed investment since the profits can only be earned in the bull period.
Ⅲ. Mining has its own regular periodicity
In the case of skyrocketing currency price, due to the lag of mining hash (it takes time for new miners to start mining after being produced), the mining and coin storage can still be maintained at a lower cost level to enter the big profits period.
However, whether it’s regular fixed investment or mining, investment time is still the most important factor. In the period when the currency price is skyrocketing or the market is changing from bull to bear, it is difficult to have a good return for both approaches. In the period when the market changes from bear to bull, an active investment layout can often yield a lot of profits.
In the early stage of the last bull market (first half of 2017), the price of Antminer S9 was about 1,500 USD. By the end of the year when the market was crazy, it only took three months to recover the miner cost. By buying miners at the beginning of 2017, second-hand miners could be sold at twice the price within one year, including several times of profits from the mining.
At present, the bitcoin market is still in the adjustment period from bear to bull. The enthusiastic level of market participation is normal, the price of miners is reasonable and the cost of mining electricity is relatively low. Meanwhile, the mining difficulty in this period is rising relatively slowly and the income from mining coins is also higher. Therefore, it’s precisely the golden period of participation in mining investment now.
The bull market is always born in despair and grows in suspicion. In the process of transition, different asset allocation management with less overall risk should be referred by the investors of both regular fixed investment and mining. Of course, as mining is getting more and more popular, the miner costs and electricity bills are controllable, the mining is still a good choice for most investors.