It’s a tough time to be a Bitcoin miner. The competition within mining is higher than ever before due to the difficulty adjustment, which is a mechanism that ensures the new supply of Bitcoin released via mining remains consistent. The more miners, the more secure the network, but that also means greater energy amounts are needed to complete the task of validating transactions.
Unfortunately, the cost of electricity has skyrocketed around the world, so the cost of energy for miners is also increasing. On top of that, volumes have collapsed in the bear market, with trading volumes on centralised exchanges down 46% compared to the previous year. Additionally, Bitcoin fees have been falling for 5 consecutive weeks, giving up most of the gains from earlier in the year.
The revenue miners receive (fees and the block subsidy award) is also lower, as it is received in Bitcoin, which has fallen in value. This means that after earning Bitcoin, the value of that Bitcoin is much less than before.
These four variables (the amount of energy needed, the cost of that energy, the fees and block rewards, and the value of those fees and rewards) mean that mining stocks are more volatile than a direct investment in Bitcoin. Over the last year, mining investors have been in an even worse state than Bitcoin investors, with mining ETFs illustrating this.
The added risk of mining stocks compared to Bitcoin also means greater potential reward, but the overall risk is much higher. The regulatory crackdown in the US has only made this worse for miners, especially those that are publicly listed in North America.
This article has compared the two investments of Bitcoin and mining stocks, showing why mining stocks tend to be more volatile and why the risk is greater than investing in Bitcoin directly.
