Institutional Investors Betting Big On Bitcoin Mining: Cause and Effect
March 9, 2021 - Expert Commentary
Put your money where your mouth is.
This common statement usually challenges the viability of any venture. Bitcoin and blockchain technology have always earned the praise of leading tech minds. Sure, there is a fair share of famous people who have expressed skepticism over the years.
The point is, institutions have historically talked positively of cryptocurrencies but have mostly shied away from crypto investments.
Now, they can’t seem to get enough of it.
MicroStrategy and Tesla are two corporations with Bitcoin investments exceeding $1 Billion. These figures are staggering for a “fringe asset.” Bitcoin has arrived big-time and is no longer contested as a major financial asset.
There are several ways to bet on Bitcoin. Most people purchase the asset outright. That is what Tesla is doing.
Others opt for trading derivatives.
Bitcoin mining is an age-old channel to get acquainted with the industry. Institutions are now taking Bitcoin mining to a new level. Their entry is definitely a game-changer.
Institutions invest $500 million in Bitcoin mining
In the past six months, institutional investors have poured over $500 million into Bitcoin mining.
This staggering amount shows the level of interest in mining Bitcoin. With the asset itself appreciating 300 percent in the same period, miners see a real opportunity.
As good an opportunity as Bitcoin is, mining seems to be drawing tremendous interest. The most prominent Bitcoin mining stock, Riot Blockchain, has risen, in percentage terms, more than Bitcoin in recent months.
It seems that even institutions are keen to get to the power source. Purchasing and betting on the asset exclusively is not enough. These institutions are clamoring for elite mining equipment. The higher demand resulted in prices for new equipment like the Antminer S19 hiking. It is a natural rule of business that supply shortage has a direct effect on prices. A similar phenomenon took place in 2017 during the previous bull market.
The construction of Bitcoin mining farms in North America has been the difference. Most of these farms rely on reliable Bitcoin mining Chipset manufacturers from China. Some of these mining companies order equipment to the tune of tens of millions of dollars at a go. COVID-19 also caused some supply chain shocks that have made the demand appear greater.
This level of demand shows an industry on the up. Institutions like Tesla, MicroStrategy, and Riot Blockchain have some of the best strategic minds in tech.
Their splurge into Bitcoin and mining is no accident. They have seen in Bitcoin what VBit saw from the beginning; an asset with tremendous upside.
Shortage of Quality Bitcoin Mining Equipment
The interest is so high that there is an actual shortage of mining equipment in the market.
Bulk orders from institutional buyers shot up in the latter months of 2020. Most major mining manufacturers have their production line for most of 2021 sold out.
This rate of uptake is a reflection of the competitiveness in this industry. Institutional players are not here to play. Significant miners can order thousands of ASIC mining rigs within a year. The stakes are high because each miner is jostling for quality mining equipment.
Besides the bull market, a shortage in semiconductor chip supply also caused problems for mining equipment manufacturers.
The shortage disrupted production in several industries including automobiles, consumer electronics, and, yes, even Bitcoin mining. Semiconductors are a fundamental aspect of electronics and computer systems.
Accordingly, leading chip makers like Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics favored traditional industries.
Similarly, Bitcoin mining manufacturers had to prioritize existing orders. Companies with bulk orders came first in line. Individual miners trying to source small quantities of equipment are in for a tough ride.
Getting Bitmain’s flagship AntMiner S19 Pro, S19, and T19 equipment is difficult because institutional buyers have scooped up equipment for the foreseeable future.
VBit Mining has a direct line to Bitmain.
Accordingly, they received orders for the latest mining equipment last year. This direct line is vital to their operations. Bitmain definitely has its hands full and deals with such reliable orders. Any company would want to sell its products at scale.
Don’t Go For Shortcuts: Efficiency Is the Priority in Mining
Feeling like you are missing out on an opportunity is bad enough. It is even worse to make bad decisions trying to make up for it.
Institutions have scooped up much of the latest mining equipment for the coming months. This can lead to a prospective miner taking out older equipment as the second-best thing. It works for most other sectors but old equipment doesn’t quite cut it in mining.
Due to the shortage, some miners are turning to the secondary market. Secondary equipment on sites like eBay is mostly old and of lower quality. It is difficult to get new, quality equipment on these platforms.
Unfortunately, with the supply shortfall, some are resorting to older equipment. Sourcing new equipment is difficult and relatively expensive. Older equipment looks like a cheaper option. As the saying goes, cheap can be expensive.
Older equipment may have regained some profitability after the sudden market rally. However, this viability will not last for long. The manufacture of more mining equipment only serves to increase Bitcoin mining difficulty. Companies like Bitmain are on overdrive to cope with the shortfall.
The halving event in 2020 should have been warning enough for miners. Older equipment miners are the first casualties of an increase in mining difficulty or tightening of rewards. The older equipment will be out of business soon. As more S19s get into the market, older rigs go out of business.
Therefore, it is important to retain perspective even with the lucrative market. It is only sensible to look for avenues to purchase quality equipment rather than making a temporary compromise.
Prioritize Quality in Mining: VBit Mining Does
Difficult as it is now, sourcing quality equipment is the only choice. The nature of Bitcoin mining indicates that more efficient equipment always carries the day. The narrow window of viability that old equipment has is exactly that.
VBit is a professional Bitcoin mining equipment reseller with experience in this field. Our insight to order equipment last year puts us in a relatively secure position when the market is tight. Prospective miners can purchase equipment from us and start mining.
This activity is incredibly competitive. Even Bitcoin miners with elite equipment have to get conditions right. The equipment consumes power at a ridiculous clip.
Miners need to have cheap power sourcing to remain viable. This consumption is what makes mining at home pretty much untenable. No one wants to get a bill worth thousands of dollars each month.
VBit recognizes this problem and has data centers in North America where they provide hosting services on behalf of clients. For the record, they are not a cloud mining service.
Miners own their equipment and can get it shipped at will.
The data centers exist to make use of cheap renewable power and natural cooling at those locations. Any Bitcoin mining venture needs these variables. VBit fills the gap.
Before purchasing the equipment, users should learn as much as possible about mining. The VBit Mining Blog contains extensive resources that educate about the dynamics of mining.
Sign up on the VBit Website to learn more about Bitcoin mining!