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USING MINING AS A HEDGE FOR CRYPTOCURRENCY INVESTMENTS

in cryptocurrency •  8 months ago

Cryptocurrency mining can be used (and is almost natively) as a hedge for your cryptocurrency investments. I have crypto investments, mostly in the top 10 by market cap but some others as well. I also have a mining rig (see picture at bottom of post). This rig does about 6500 sol/s on Equihash but of course can mine anything.

So how does a mining rig work as a hedge for your investments? Well, I plan to do a more detailed post with a lot of numbers later. But for now, here is how it works:

DURING A BULL MARKET
During a bull market, especially in Crypto, prices can increase fairly quickly. The problem is, so does the interest in mining. This means that the difficulty level for mining in the most profitable coins increases quickly. As a miner, you will notice that you hit a ceiling for per hash earnings much faster than you hit a floor.

In other words, going long on a crypto investment in a bull market will more than likely make you a lot more money than your mining investment. If you have a $5000 mining rig in a bull market, you would be better off (well you would make more money), by simply investing that $5000 in a market that is moving 2x, 3x even 10x, than in a mining rig. This is the basic performance of a hedge in a bull market if you are holding long positions. The hedge does not make you any money.

DURING A BEAR MARKET
This is where your mining hedge will shine. You see a lot of miners (especially those who just use there GPU from their gaming machine) leave the mining space during a bear market. Yes, the amount of money you make per day will go down when the value of the crypto market is down. But the amount of money you make does not go down in proportion to the market fall. There are many factors that keep the mining reward prices up, including miners leaving the space and your ability to adapt and switch coins quickly (enter pools like miningpoolhub).

Here is my basic floor and ceiling based on the market since late October 2017. I am going back to October, because the market was actually similar in size to the very depressed market of early February 2018.

My mining rig:

If you want to see how I built my mining rig for extremely cheap I posted about it a while back here:

https://steemit.com/cryptocurrency/@ljv/mining-rig-you-can-still-build-one-cheap-yes-you-can

Thanks for reading. Let me know what you think in the comments!

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