Operating costs are high, but bitcoin miners make a lot of money. Here’s how you can join them and benefit without having an expensive mining setup.
Bitcoin’s (BTC) rapid recovery above $46,000 at the start of the year has led to renewed orders for a $100,000 BTC price by the end of 2022, while the impact of China’s crackdown on the mining industry is slowly fading as the Bitcoin network’s hash rate shows signs of a recovery shows.
One of the side benefits of China’s crackdown is that it has lowered the barriers to entry into the bitcoin mining space, which has been proven to yield profits in both bull and bear markets.
Bitcoin mining is one of the few ways investors can acquire BTC without buying it directly on the market, and it’s fast becoming an industry dominated by large financial interests that can afford the electricity and maintenance costs that are required to run a bitcoin mining industry.
Here are some options available to the average cryptocurrency stacker to acquire more BTC through cloud mining contracts, cryptocurrency lending platforms, and centralized exchanges (CEX).
1. Cloud Mining Contracts
The cloud mining industry has been around since the early days of bitcoin, offering the opportunity for those interested in bitcoin mining who lack space, equipment, and electricity to outsource their production.
Some of the more well-known companies that have offered cloud mining services are Genesis Mining and HashNest, but demand for their services has exceeded their capabilities, resulting in the sale of all of their bitcoin mining contracts.
A currently available option that allows users more flexibility in terms of the parameters of their mining contract is ECOS, a company that emerged from the Free Trade Zone in Hrazdan, Armenia and has been in operation since 2017.
As seen in the chart above, a 50-month contract for 9 terahashes per second is currently priced at $1,668 and should result in a 272.82% gain with BTC priced at $70,000.
It should be noted that all cloud mining services warn of the high risks involved and no amount of profit can be guaranteed. This could be due to a variety of circumstances, including fluctuating electricity prices, bitcoin price volatility, and advances in mining technology leading to a significant increase in mining difficulty, making older equipment obsolete.
2. Cryptocurrency lending services
A more traditional option available to hodlers to acquire more bitcoin with their current stack that doesn’t require additional investments like mining is lending, which offers income from deposits.
Nexo and Celsius are two of the most popular lending platforms that allow cryptocurrency users to borrow money against their cryptocurrency holdings or earn deposit rewards.
At the time of writing, Celsius offers users an annual percentage return (APY) of 6.2% on bitcoin deposits, and Nexo offers a standard yield of 5% on flexible term deposits, while term deposits lasting a month or more offer 6% can earn.
A third option that offers users a 4% return on BTC deposits is BlockFi, a cryptocurrency service provider that offers cryptocurrency-backed interest and loan accounts and also recently launched a Bitcoin rewards credit card.
Related: Which Bear Market? Investors are throwing record money at blockchain companies in 2021
3. Earn BTC on centralized exchanges
Several centralized exchanges also offer Bitcoin holders a return on their BTC deposits, albeit at lower rates than those above.
Binance, the largest CEX in the cryptocurrency ecosystem, offers users an estimated 0.5% APY, while third-ranked Huobi exchange offers 1.32%.
The best yield offered on a US-based CEX can be found on Gemini, where users can earn 1.65% on their deposits.
KuCoin offers a freer market approach to BTC lending, where lenders can set the parameters of the loan terms and choose between 7-day, 14-day and 28-day contract terms while setting their own daily interest rates to compete with other lenders on the market.
The lowest rate currently offered on KuCoin is a 1.82% annual fee on a seven-day contract.
As can be seen from the data provided, there are several ways to grow a bitcoin stack rather than simply buying it on the open market, but they are becoming increasingly scarce over time.
As large institutions, energy companies, and governments begin developing bitcoin mining infrastructure, smaller market players are coming under increasing pressure as cloud mining facilities cannot keep up with demand.
Bitcoin lending is increasingly looking like the primary way BTC holders can earn income paid in BTC in the future, while Bitcoin-backed lending offers a way for hodlers to access the value of their tokens without selling and creating them to have taxable event.