This is the reason why bitcoin miners should not hold BTC.
Miners most mined btc and held so they can borrow more to expand. Now btc at lows, yet hash rate super hi due to over capex. ==> squeezed margins
Pretty bad business model imo.
2/n this reminds me of in the older days on shale oil boom. Everybody went on drilling with mega capex. Then we had 14-16 oil glut.
I actually thought of starting a mining business back in 2017...
Crypto mining operation has a few simple key things.
1. The mining Equipment 2. The land to house them 3. The energy to run them 4. The general maintenance
2,3,4 can be optimized by the miners.
However, the 1 is out of their control....
Mining equipment is determined by technology and equipment manufacturer. This means when new tech comes online, every miner who want an edge will buy, at premium.
If one makes good money, everyone will leverage up and buy more. This is exactly what happened.
I realized this will eventually turn into a perfect competition business with super narrow margin. I'm out of the idea. This doesn't mean I can't trade mining companies =)
Therefore, selling pickaxes is a way better business due to the eco system demand.
6/n it was a very simple thought experiment that turned me away from mining.
Transaction fees aside, the amount of BTC mined per batch is fixed.
If 1 miner plan capex for 50% increase capacity, they wish to make 50% more . If every miner does the same thing, your capex is simply used to maintain current harvest. Nothing more. No advantage.
If any competitor does capex, your mining income will be less, so in order to protect your income, you have to be forced to do capex at premium equipment in order to mine the same amount of bitcoin.
again, terrible terrible business model
9/9 You can dominate if you are the monopoly, the majority miner, but that goes against the decentralized doctrine of the cryto.
Ultimately, we need the miners but miners aren't great businesses, or at least I do not want to be in as a for profit org. BTCUSDT cryptoThis post is based on this twitter thread.