How Profitable Cloud Mining Really Is?

Cloud mining is risky, but is so widely advertised by the crypto gurus that there is a general perception now that it’s a very good investment, in this article we will try to take a closer look at one factor that is often underestimated or miscalculated, so that you can make a better investment decision.

The Mining Difficulty Factor:

In May 2016, the bitcoin difficulty was: 199,312,067,531 which meant that with 5 TH/s you could mine 0.1892 BTC per month, and in May 2017 the bitcoin difficulty was: 595,921,917,085 and with the same 5 TH/s you could mine 0.06328 BTC per month. 

Between May 2016 and May 2017, the bitcoin mining difficulty went up 199% and the amount of bitcoin mined with the same amount of hashpower decreased 67%. 

Let’s take a look in more detail of what a popular contract with Genesis Mining is currently offering us: 

As June 2017, 5.00 TH/s cost for a “lifetime contract” 700.00 USD with a daily fee of 1.40 USD.

So, let’s try to see what amount of time “lifetime” really means… or which is the same… at what moment in time does the 5 TH/s would mine equal or less than 1.40 USD, taking into account the difficulty increase projection of the last year.

The difficulty projected for May 2018 would be: 1,185,821,334,397 which means that the 5 TH/s would mine 0.00106 BTC per day, at the current bitcoin price of 2550.00 USD, this would translate into: 2.70 USD per day, so the contract is still good, now let’s see 6 more months in the future. In Nov 2018, the projected mining difficulty would be: 1,772,802,894,923 and with the same 5 TH/s we would get 0.0007091 BTC per day or 1.80 USD. This is very close to the 1.40 daily fee stated in our contract, so we are getting very close to the date where the contract becomes unprofitable.

Of course, there is one more factor that determines if the contract will end more sooner or more later, and that is the future price of the Bitcoin in USD, but this factor is very volatile and hard to estimate, almost everyone will agree that BTC price will always go up, but it’s not as sure as the mining difficulty going up.

For purposes of this article we will assume the bitcoin price stays stable in the next year and a half, so the “lifetime” contract will last more or less between one and a half years and two years, giving each month less and less bitcoin until it becomes unprofitable.

Breakeven Point and ROI, estimated:

What would be your guess of the annual rate of return of your investment in cloud mining? ...maybe 150%? According to most videos of crypto gurus you would expect at least that, but let´s find out...

With the following expected cash flow we will estimate first the break even point, where your initial investment is returned, and secondly the annual rate of return of your initial investment:

Cashflow for a Genesis Mining 5 TH/s lifetime contract

Month 0 -$700.00
Month 1 $107.00
Month 2 $96.50
Month 3 $87.30
Month 4 $79.30
Month 5 $72.20
Month 6 $65.90
Month 7 $60.30
Month 8 $55.21
Month 9 $50.61
Month 10 $46.43
Month 11 $42.60
Month 12 $39.09
Month 13 $35.87
Month 14 $32.75
Month 15 $30.00
Month 16 $27.44
Month 17 $25.05
Month 18 $22.83

Your initial investment is returned in 10 months and your money is earning an annual rate of 60%, or in equivalent terms, more o less 5.1% monthly.

This rate of return takes into account the investment made in mining, it does not consider the possible variations of the Bitcoin price. If you just buy the Bitcoins with your initial 700.00 USD and hold them for 18 months you will still earn or loose money depending on the price variation across those months, so those earnings are not dependent on your mining contract.

Conclusions:

Mining contracts are a good tool for those who can´t mine themselves for various reasons, and you decide with the above numbers if it is a good investment for your particular case. Mining contracts will lock you money and offer you a somewhat steady crypto flow, just remember that if you don´t reinvest a significant amount of your received payments the cash flow will rapidly diminish with each passing month.

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