Outsider Q&A 6.13.19

Outsider Club’s Weekly Reader Question 

“Bitcoin and the other ones are making a big comeback and I keep reading about a mining break-even point? What are they talking about? Am I missing something here?”

— Dan C.

ADAM ENGLISH | Editor

Oh Lordy, this is complicated in practice but not so much in theory.

The simple answer is that the break-even point is an average price in dollars — or any other currency — once you factor in everything you have to buy and pay for over time to “mine” a cryptocurrency.

It costs X and it is worth Y. If Y is greater than X, it’s a no-brainer. You’re printing money.

The real answer is that you need to juggle a lot of variables to get to an accurate number and it takes a room full of postgrads to figure it out.

The mathematics involved are insanely complex. I topped out at Calculus II/III in my prime and that isn’t nearly enough.

The fundamentals of this concept don’t require a lot, though — The less you pay for more, the more you will get for less.

You and I have no real break-even point. We can fry our home computers trying to mine cryptocurrencies but the odds of earning any are about the same as playing a lottery.

This is overly simplistic, but think of it as [initial investment] x [amortization] x [computational efficiency] x [power efficiency] to start. That’s four variables already and I’m sure people who know far more than me are cringing at the idea that these four do a halfway decent job of describing what a break-even point involves.

And you’re competing with other people. They aren’t going to compare notes.

You and I really can’t determine a break-even point or consistently get ahead by mining cryptocurrencies on our own.

However, with the right connections and knowledge to drive down hardware costs, optimize equipment, build to scale, and drive down power costs, some people — basically just teams of them in companies these days — can create low “break-even costs” and comfortably and consistently stay above the inflection point where they either mint money or lose it.

Long story short, driving down overall costs creates incredible investment opportunities. The lower the break-even point, the better. Just understand that it isn’t realistic to go it alone anymore.

NICK HODGE | Founder

Just like mining any metal has an all-in sustaining cost, so does mining cryptocurrencies like Bitcoin. You make money if your cost is below what the market is paying for the commodity. 

Instead of dump trucks and diesel, the inputs for crypto mining are computing equipment and electricity. 

When you are running large operations like entire data centers dedicated to mining, and you have long-term fixed-price power contracts in place… you can use that information combined with the current algorithm difficulty for the coin in question to determine your costs. 

There are only a few such outfits in the world. Even fewer that are publicly traded. 

The one I went to visit recently in Sweden, called Crypto66, is one of the largest in the world. And has laid plans to become the largest, with among the lowest costs. 

It can currently produce a bitcoin for well under $4,000. So at today’s Bitcoin price over $8,000, it is a literal money-printing machine that allows you to get exposure to cryptocurrencies at the steepest discount possible.

I went to see it and brought a camera so you could see it too. Click here to follow along my trip. 

Over the next few days, I’ll be updating you on my Crypto66 findings, including more on its costs and why an investment today could potentially be so lucrative. 

Again, click here to get my updates. 

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