Mining vs Buying Crypto

The Difference Between Hardware and Software Wallets

At Bitmart, we are in the business of empowering our customers to make decent profits from mining Bitcoin, Ethereum, and other prominent altcoins. We always endeavour to provide truthful information that will benefit you most on your journey. As such, we’d like to address a pressing subject that needs direct attention.

What is more profitable – buying a Crypto Mining rig and mining crypto with it, or simply spending the same amount of money on crypto at an exchange and waiting for the asset to appreciate? This is one of the most frequently asked questions in the crypto market right now. For us, the short answer is quite simple – Mining crypto is way more profitable!

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However, we do not expect you to take our opinion merely at face value. After all, we are in the business of mining Crypto ourselves and we sell mining hardware. Instead, we’d like to lead you through a practical, real-world example of how mining Ethereum over a period of 3 years and 9 months would have earned you at least 50% more than if you had bought it and sold it via an exchange.

The example itself will clearly vindicate us of any bias and only support the fact that the best way to make money online is to mine and hodl. And if you wondered why Bitmart sells Miners and not just keep it all to ourselves, the answer is simple, we sell miners to generate cashflow so we don’t need to sell our Crypto to pay for power, rent or salaries and we get maximum growth on our crypto by staking it.

The Experiment

As we stated earlier, the scope of our experiment spans just over 3 years and 9 months, from the 5th of March 2018 to the 9th of December 2021. This is a period of 1258 days. For the sake of the test, we will take an amount of R 504,000 ($32,026 at the time) as our starting capital investment. We will then determine how much money we could have made if we had invested this cash in Ethereum versus how much we could have made if we had bought R504,000 in GPU crypto miners and let them do the verification work called mining for us.

If we were to have purchased Ethereum on the 5th March 2018 for R504,000 ($32,026) we would have been able to buy 37.063 Ether for our money at $864.10 per coin. We could then have sold the coins via an exchange on the 9th of December 2021 for around $4,390.57 per coin. That would have given us a total of R2,560,869.44 ($162,727,86).

Once we subtract our initial outlay, we have made R2,056,869.44 ($130,701.86) in profit. This is an awesome result, giving us 4x return on our investment. However, this is not the net profit, as we would still have to pay capital gains tax on this amount.

When it comes to mining, we allocated 1029 days of mining time to Ethereum and 229 days to Ethereum Classic.

Should we have bought crypto miners for R504,000, we would have machines that could have churned 121.211 Ethereum in 1029 days and a further 208.093 of Ethereum Classic over the remaining 229 days.

Because it’s difficult to time the top of the market, we will conservatively pin the value of R41,976.04 per Ethereum and R1,042.63 per Ethereum Classic. We say conservatively because the actual live price on the 9th of December 2021 was just over R68,000 per ETH coin. However, even with our scaled-down prices, we would still have made a whopping R5,087,961,12 in Ether and a total of R216,964.36 in Ethereum Classic. That’s a combined return of R5,304,925,48.

Of course, running crypto mining rigs comes with expenses that will need to be recovered from our yield. But for the sake of the test, we introduced some real hardship to the mining market to exaggerate the costs.

Cost Calculation

Cost 1: Power Consumption

Mining rigs need constant electricity 24/7 – as such, we expect that the machine would have consumed power worth R482,192.48 while mining Ethereum and consumed power worth R108,106.99 while mining Ethereum Classic. That’s a combined electricity bill of R590,229.47 over 3 years and 9 months.

Cost 2: Hardware Failure

As a worst-case scenario, let’s say that we incurred severe losses on our mining rigs due to fire, theft, lightning or a power surge. If the machine was not insured and we did not use any surge protection, and as a worst-case, we would have had to replace the most expensive components which are our GPUs at a price of R464,714.04. The amount of downtime would have eaten into our profits as well. We estimate this at an 8.20% reduction in mining due to waiting for stock, which would have cost us around R435,003.89. That’s a total loss of R899,717.93. Those are massive numbers! However, remember that they are not guaranteed losses and could have been avoided if we had insured our rig, used surge protection plugs and prevented other obvious risks like fire or theft.

Cost 3: Load Shedding

Living in South Africa, load shedding is a real damper on mining and business, unless you invest in a generator or an inverter. Let’s say that load shedding presents another 15.08% reduction in mining. That would have taken a further R799,982.76 off our top end. Remember, though, that even this outlay would have been preventable and should actually have been further profit in our pockets.

These shedding statistics are not simple estimates on our part. They are based on the officially recorded downtimes over the period in question. Source – Moneyweb

Cost 4: Cost of the Machine

Many do not realise this, but the cost of the machine is 100% tax-deductible. You can offset its depreciation against any profits you make on the machine, thereby meaning SARS pays for it in the long run. In South Africa, computer electronics can be depreciated over a 3 year period at 33% per year of the initial purchase price.

Final Income for Mining

To complete the calculation, you will need to subtract costs 1, 2, 3, and 4 from the selling price of your coins. Even with exaggerated expenses and an under-market sale price, a miner would have made R3,014,995.32 in profit.
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The Experiment

As we stated earlier, the scope of our experiment spans just over 3 years and 9 months, from the 5th of March 2018 to the 9th of December 2021. This is a period of 1258 days. For the sake of the test, we will take an amount of R 504,000 ($32,026 at the time) as our starting capital investment. We will then determine how much money we could have made if we had invested this cash in Ethereum versus how much we could have made if we had bought R504,000 in GPU crypto miners and let them do the verification work called mining for us.

If we were to have purchased Ethereum on the 5th March 2018 for R504,000 ($32,026) we would have been able to buy 37.063 Ether for our money at $864.10 per coin. We could then have sold the coins via an exchange on the 9th of December 2021 for around $4,390.57 per coin. That would have given us a total of R2,560,869.44 ($162,727,86).

Once we subtract our initial outlay, we have made R2,056,869.44 ($130,701.86) in profit. This is an awesome result, giving us 4x return on our investment. However, this is not the net profit, as we would still have to pay capital gains tax on this amount.

When it comes to mining, we allocated 1029 days of mining time to Ethereum and 229 days to Ethereum Classic.

Should we have bought crypto miners for R504,000, we would have machines that could have churned 121.211 Ethereum in 1029 days and a further 208.093 of Ethereum Classic over the remaining 229 days.

Because it’s difficult to time the top of the market, we will conservatively pin the value of R41,976.04 per Ethereum and R1,042.63 per Ethereum Classic. We say conservatively because the actual live price on the 9th of December 2021 was just over R68,000 per ETH coin. However, even with our scaled-down prices, we would still have made a whopping R5,087,961,12 in Ether and a total of R216,964.36 in Ethereum Classic. That’s a combined return of R5,304,925,48.

Of course, running crypto mining rigs comes with expenses that will need to be recovered from our yield. But for the sake of the test, we introduced some real hardship to the mining market to exaggerate the costs.

Cost 1: Power Consumption

Mining rigs need constant electricity 24/7 – as such, we expect that the machine would have consumed power worth R482,192.48 while mining Ethereum and consumed power worth R108,106.99 while mining Ethereum Classic. That’s a combined electricity bill of R590,229.47 over 3 years and 9 months.
 

Cost 2: Hardware Failure

As a worst-case scenario, let’s say that we incurred severe losses on our mining rigs due to fire, theft, lightning or a power surge. If the machine was not insured and we did not use any surge protection, and as a worst-case, we would have had to replace the most expensive components which are our GPUs at a price of R464,714.04. The amount of downtime would have eaten into our profits as well. We estimate this at an 8.20% reduction in mining due to waiting for stock, which would have cost us around R435,003.89. That’s a total loss of R899,717.93. Those are massive numbers! However, remember that they are not guaranteed losses and could have been avoided if we had insured our rig, used surge protection plugs and prevented other obvious risks like fire or theft.
 

Cost 3: Load Shedding

Living in South Africa, load shedding is a real damper on mining and business, unless you invest in a generator or an inverter. Let’s say that load shedding presents another 15.08% reduction in mining. That would have taken a further R799,982.76 off our top end. Remember, though, that even this outlay would have been preventable and should actually have been further profit in our pockets. 

These shedding statistics are not simple estimates on our part. They are based on the officially recorded downtimes over the period in question. Source – Moneyweb

Cost 4: Cost of the Machine

Many do not realise this, but the cost of the machine is 100% tax-deductible. You can offset its depreciation against any profits you make on the machine, thereby meaning SARS pays for it in the long run. In South Africa, computer electronics can be depreciated over a 3 year period at 33% per year of the initial purchase price.

Final Income for Mining

To complete the calculation, you will need to subtract costs 1, 2, 3, and 4 from the selling price of your coins. Even with exaggerated expenses and an under-market sale price, a miner would have made R3,014,995.32 in profit.

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The Outcome

One can clearly see that mining makes you more money than buying and holding does. Our experiment reveals that mining would have earned us around R1 million more than buying and selling would have generated over the same time period without the Tax event of Capital Gains on the initial purchase but rather a deduction on the taxable amount of buying the Crypto Miners depreciated over 3 years.

But remember, we used tough and often exaggerated expenses in our experiment. We could have saved the load shedding costs by installing a generator or inverter. That would have secured us a further R799,982.76 in profits. We could have saved on the replacement costs of GPUS had we insured our machine, dumping R464,714.04 back into the profits. That would give us a more realistic profit margin of around R4,279,692,12. That is more than R2.2million more than a normal buy and sell trade would have given us.

This is hard evidence that mining and hodling will always beat buying and hodling. Of course, the outlay is quite a bit more when you purchase a rig, but what business does not incur setup costs? It’s remarkable income for a job that requires very little effort from your side.

Check out our Mining ROI Calculator

BUYING & HOLDING
OUTCOME

BUY 370.63ETH for R504 000
HOLD & SELL at R70 000 per ETH

PROFIT R2,056,869.44

VS

VS

MINING & HOLDING
OUTCOME

BUY MINERS for R504 000
HOLD & SELL at R41976.04 per ETH

PROFIT R5,304,925.48

Get Mining

So, what are you waiting for? You can head to our state-of-the-art ROI calculator to help you choose a mining rig that will perform to your expectations. Select the number of rigs you want, and it will automatically work out how much profit you stand to make each month.

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