Discussion on Crypto Mining Strategy and Timeliness

Recently, we received quite a few feedback after the last ERGO mining article was posted. Thank you for all the reader's attention and feedback. Among them, Minernav received the most questions about why not just buy the coins that you think have potential under the current bear market situation. Instead, choose to pay the electricity bill every day to mine? In this post, we will discuss the crypto mining strategy and its timeliness in detail.

First, Minernav believes that it is not necessary to insist on mining in all situations since the stages alternate in a cycle, after all, the electricity expenditure that accompanies mining activities is inevitable. Therefore, under the premise of maximizing the profit of crypto mining activities, we still need to reduce the risk it may bring to us as much as possible, which involves how we measure the timeliness of crypto mining. Before analyzing, what we need to understand is what is driving the price rise and fall of these crypto mining equipment.

Maybe the first reaction of most people is supply and demand. It is true that the pricing of any commodity is actually closely related to supply and demand. But specifically, how it affects crypto miners and what are the main reasons for supply and demand? Obviously, it is mainly equipment production capacity or equipment market circulation for a particular miner and the unit computing/hash power profit under the current market.

Bitcoin's halving strategy largely affects the cyclical changes in the overall market value of cryptocurrencies, which in turn affects the cyclical changes in mining revenue and mining equipment. Although the price seems to be unpredictable in a certain time interval, if the time interval is enlarged, its changes are regular to follow. This is also a potential reason why bull and bear markets keep alternating.

Crypto Market Price Cycle and Hashing Power Cycle

The market price and hashing power affect each other. Before a bear market cycle starts, the price will drop first. The initial miners with cash flow support can continue to start for a period of time, but when the price drops to a certain extent or the duration is too long which exceeds the whole cycle that the cash flow can support. It will definitely cause a large number of selling of mining equipments in the market. When the selling is carried out and reaches a certain amount, the computing power of the whole network will reach an equilibrium point, and those miners that keep running in the market will start to make a small profit and the person who sold the equipment before has no miners to enter the mining market anymore, and they need to buy the machine again, which in turn drives the price of the mining equipment up until the next bull market. For details, please refer to the simple cycle diagram made by Minernav below.

One thing to note is that generally speaking, it is not a good decision to purchase a large number of crypto miners after a bull market trend is established. The duration of each bull market is highly uncertain and unpredictable, and the purchase of mining equipment after the bull market is confirmed may get in a relatively high miner entry price which brings huge risk. So this needs to be carefully considered.

The following figure is a trend model of the price of mining equipment compared to the daily income. As can be seen from the figure, although we cannot fully predict the price that a certain cryptocurrency can fall below in a bear market, we know that once mining does not yield profit for a long time, miners will start to shut down their machine for general operation, and the hashing power will slowly decline after a period of time too. Therefore, even if the price of the coin continues to drop in the market, the price of the specific miner will have a minimum depreciation cost after a period of continuous equipment value drop due to its physical characteristics, so it will remain at a relatively low certain price after that and maybe maintain for a long time. The crypto miner market will finally be priced rationally, and then gradually waits for the arrival of the next bull market.

Meanwhile, from the above figure, as miners, we should be most concerned about reducing the payback period as much as possible, but taking the current market as an example Under the premise that all currency returns are almost negative, the theoretical payback period for a newly purchased graphics card value is infinitely long (the orange box arrow pointed area). Under the premise of any equipment that has been paid back or partially paid back, as long as a certain coin is profitable after removing the electricity bill, that coin's miner can still be turned on. However, it should be shut down when negative returns are generated every day in succession. However, if the equipment has been paid back, and due to the special timeliness period of mining, if you consider maximizing equipment income, it is recommended to wait until the next bull market cycle before selling.

Physical Sample Miner Machine Test

In order to show it more intuitively, we chose a fixed mining machine S19 Pro 110T, and mainstream BTC as a reference and compared it with the output data from Poolin. Minernav has verified the following results in the past month, and the error is basically within the acceptable 3%. When the profit ratio is already less than 2%, most miners may won't choose to sell the coins they mine every day for a few cents of profit.

Therefore, it can be seen from the above table that when there is a continuous loss in a period of time, the idea of ​​using the coin based stragy to settle the crypto miner should be turned off and buying directly.

More Doubts on Why Should Spend Electricity to Mine Rather than Buying Directly

1. For maintaining the network hash rate

The essence of mining is a conversion process from electrical energy to digital assets. While maintaining the complete network hash rate, you also participate in minting activities. More people participate in ensuring the aggregation of its asset distribution, that is, all believers' idea of ​​decentralization that miners follow.

2. For protecting the graphics card from damage

Most mining machines or GPU mining equipment are used to working at high temperatures for a long time. Within the normal temperature control range, the continuous operation of the mining machine will generally cause no damage. However, when the device is turned off, in some special areas, the long-term placement of the device will be affected by the surrounding air environment, which will accelerate the adhesion of dust on the surface of electronic components. At the same time, combined with the influence of air humidity, it will accelerate the corrosion or aging of electronic components, thereby causing potential damage to the device.

3. For that you can hold on to the sudden surge

Of course, under the current situation, the mining industry is not very optimistic, but given the special cyclicality of the mining industry, the special benefit of continuing to hold mining equipment is that when a certain currency suddenly skyrockets one day, you can still be ready and switch immediately, and you don’t need to worry about the possibility of buying the wrong Altcoin in the past (it’s not this coin that skyrocketed). At the same time, the skyrocketing of a certain currency is often not one or two days. Generally speaking, there will be a continuing trend, at this stage, if you are holding the current currency, you may not sell at a suitable high to a large extent, but if you still hold the equipment, because this is a continuous output this process can largely protect your linear continuous production of high returns, which means that you have taken the coin and sold it at a relatively high level.

When Should the Miner be Shut Down Immediately?

1. Lose confidence in the project, turn off no doubt.
2. The daily loss is greater than 20%-30%, and the working capital is unbearable. This situation is generally related to the problems of the project itself. Careful investigation is required. If any problems are found, the shutdown will be decisive.
3. Thinking crypto mining is troublesome, and don't want to pay attention every day.

In the above cases, you can choose to shut down decisively without thinking too much about strategy adjustment.

The above are some views of mining strategies and market cycle timeliness organized by Minernav, hoping to help miners in this bear market. Indeed, miners in bear markets are quite tough and difficult to survive, but don't be too pessimistic, be more patient, adjust the crypto mining strategy reasonably, give yourself a vacation, and believe in the power of cyclicality. All current difficulties are temporary and will definitely pass. If you have different ideas or thoughts, you are very welcome to follow Minernav's Twitter to share and discuss.

(Note: This article only represents Minernav's own remarks and opinions, for reference only, and does not constitute any investment advice.)