The Bitcoin Mining Sector
Emil Wolter seeks opportunities as a major structural shift changes this nascent industry
The most sadomasochistic business model in the world
In the physical world of commodities, mining is considered a tough business.
It requires:
good fortune (to discover a deposit)
deep pockets (to develop it as that can take 7-12 years easily)
resilience (to run it through a cycle where prices tend to fluctuate wildly and completely outside your control)
fortitude (to keep it, since when times are good governments and employees typically stake claims)
Except for “super-cycles” like 2000-2010, therefore, it is regarded as a dubious area to focus on for long-term investors.
If all that sounds rough, consider something arguably worse. A business with all the same hallmarks, but with two additional features:
The compensation you receive (equivalent to the commodity price) is guaranteed to fall by half every four years
The depreciation schedule of the crucial equipment needed to do your job is as short as 30 months (in physical mining the standard 20 years is a decent rule of thumb).
Welcome to the world of bitcoin miners, perhaps the most sadomasochistic business model in the world.
Or is it?
