Investing in Bitcoin Mining Operations & Other Digital Assets

Since cryptocurrency mining is an essential piece of the crypto puzzle (it allows for blockchain technology to operate), direct investment in crypto mining operations have begun to gain a lot of attention. Rather than buying cryptocurrencies directly from exchanges, many investors are now looking to Bitcoin mining operations as an alternative investment in the space, one that could be highly rewarding.

Why Invest in Crypto Mining and Mine Hosting Farms?

Gone are the days when an interested party could simply set up a mining rig at home and get rewarded with crypto. Today, you could spend tens to hundreds of thousands of dollars on machines and labor, only to lose money because of rising electricity costs.

With individual crypto mining now mostly out the window, mining farms and mine hosting companies have become an enticing area of investor interest.

For one, you no longer have to invest in expensive equipment and maintenance, and you can ignore the daily volatility of many currencies…

And let the farm handle all the work for you.

When you invest in a mining farm or Bitcoin mine hosting company, your capital helps run their operations. By owning shares of farms or hosting companies (many are publicly traded), you could receive a return on your investment if the farm or hosting company increases in value, or mines cryptocurrencies efficiently.

Here’s a step-by-step guide on what to look for.

Step 1: Finding the Right Crypto

In cryptocurrency mining, Bitcoin is often the central digital currency of the conversation. However, BTC is not the only cryptocurrency being mined.  Depending on your risk tolerance (Bitcoin has the longest crypto track record, mind you) you may want to explore other cryptocurrency options as well.

A few examples of popular crypto include Ethereum and Cardano.

When looking at an investment, you’d want to know the following information:

  • The value of the coin and its past history
  • The long-term growth potential of the particular blockchain
  • Miners’ rewards (how many coins they get for the effort put in)
  • Fundamentals and tokenomics
  • Application

Fundamentals and tokenomics are essential to the economy of a cryptocurrency. It assures investors that the distribution of the coin is fair and that there’s a way for its value to increase over time. Some blockchain technologies undergo what’s called burning to create scarcity in the market. Others will lessen rewards over time (halving) to bring in the same effect, as seen in Bitcoin.

It doesn’t matter if the crypto’s value is significantly lower than Bitcoin. What matters is that the potential rewards justify the investment… and if a particular blockchain will be heavily utilized in the future.

The application and long term-potential points are more for seeing whether the coin will stand the test of time. Do people believe it has long-term use? Are the developers working on applications that could benefit us in the future, using its blockchain?

Having big potential means there could be a lower risk for the crypto to lose all its value but may also mean the price of the cryptocurrency is already high.

Step 2: Learn How Mining Works

Entering blind will only lead you to miss opportunities and poorly informed decisions. You have to learn how mining operates, as it will lead you to ask the right questions.

For example, the proof-of-work system of Bitcoin rewards miners who have more computational power. It’s a very competitive environment, meaning that the farms with more units operating get more rewards. The Ethereum blockchain, on the other hand, operates much differently, and miners have much different roles in its ecosystem.

If you are looking to invest in the longest track record crypto, you can narrow down your options to mining farms and mine hosting companies that operate on/with/for Bitcoin.

Step 3: Finding the Right Mining Farm or Mine Hosting Company

Cryptocurrency mining farms marketing their profits and promoting their ability to provide you returns is nothing new. There are just more of them today, a lot more of them. Because of this, due diligence is required to ensure you avoid scams, or woefully underfunded operations. To sort out the good from the bad, you’ll need to examine if they display these qualities:

  • Transparency: Transparency is vital when you’re investing in a company. They must be open about how your capital is being used, what profits they generate, and how much goes to you. Without making any of these statements, they can alter returns.
  • Reputability: Few mining farms have stood the test of time with the increasing costs, infrastructure and management needed to run an operation. Successful operations have a reputation to back them up. Check the reviews of these companies, and don’t be afraid to ask questions. After all, it’s your money.
  • Versatility: Bitcoin mining is one thing, but although BTC is the #1 cryptocurrency, you may not want to put all your eggs in one basket. Check if the company is also offering investments in other top digital currencies or is making money in ways other than its self-mining operation. Mine hosting companies may actually make the bulk of their revenue not from the Bitcoin price, but from all the infrastructure, electricity and tech support they offer to their hosting clients. These operations may make money on both the Bitcoin price (with their own self-mining) and on hosting operations for other players.
  • Willingness to Educate: Good crypto mining operations aren’t just about cryptocurrency. Many are invested in the local community and educate the population on the benefits of crypto, blockchain technology and how it can positively affect the local area. Many of the good companies will also help you learn and understand your investment. Be wary of organizations who hide how they operate and consider embracing those who love to educate.
  • Responsiveness: Crypto mining farms have many investors looking to them for returns. When you need support or have questions, be sure you’re dealing with a company that will answer to you. An operation that has poor communications with investors may leave you with a lack of confidence in what they’re doing.
  • Environmentally friendly: One of the biggest concerns with crypto mining is electrical usage. Bitcoin’s proof of work system is one of the reasons why miners are taking up electricity equivalent to a major country. The mining farm or mine hosting company you invest in should also be aware of this and take steps to help contribute to a much better future for crypto. You should consider looking into operations that are, at the very least, carbon neutral. However, carbon zero and carbon negative mine hosting companies do exist and may be among the most eco-friendly investments you could make.

Step 4: Entering A Contract

When you invest in a mining farm, you are buying computational power. Bigger investments mean more space and more computing for you and the company handling operations. By providing more capital, you give the operation a better chance at success. For example, a company may give you 10% of all their Bitcoin mining (minus fees) if you are a large contributor to their operations.

But with this type of investment, you’ll need a contract.

Entering into a contract happens in two ways. You either speak to a specialist or staff member within the farm who can set up your account, or use a swifter process, where you can quickly buy a pre-existing contract. After you invest, you should receive information on your investment in an accessible dashboard.

The contract will detail how much crypto you can potentially receive, based on your investment. Some mining farms may even have tracking, allowing you to see your gains over time. Some farms will allow you to set up multiple contracts or increase the investment to potentially increase your overall returns.

After signing and funding your contract, it’s set-it-and-forget-it. A successful mining farm’s operations will run continuously. Of course, exiting these contracts, should you need to, could be quite the headache.

It’s why directly investing in publicly traded Bitcoin mine and mine hosting companies may be a better choice for you. The stock market allows investors to get in and out of an investment rather quickly as compared to farming contracts. By investing in stocks, you have more control over your own money, can review SEC filings, and can pull or increase your investment at any time you feel necessary…

Without contract exit penalties.

Step 5: Getting Returns

For contract farms, you’ll get your rewards in the form of the crypto you invested in, either at the end of your contract period or whenever your contract stipulates. You’ll likely also need to have a wallet set up with the mining farm to store your crypto. You’ll see how much Bitcoin or any alt coins you have stored right there in your wallet.

From here, you have two options. You can sell the crypto right away into the market and cash in, or you can wait to convert it later, hoping its value will increase as you hold.

Final Thoughts

Crypto mining is here to stay, and control over the blockchain will go to those with the most resources. Investing in a mining company could be a way for you to get into the industry without a full commitment. While mining farms may have some difficult to navigate contracts, publicly traded crypto stocks could be among the best investment vehicles in the space…

Just consider track record, transparency and carbon footprint before making a choice.