Several major risks of lending mining in the bull market, how to choose

In the current digital currency circle, people have basically agreed that the bull market has arrived, and mining has become a topic of concern to many people recently. Compared with directly purchasing Bitcoin, ordinary people still recognize the value brought by mining, so mining has become popular, and mining hardware such as mining machines and graphics cards have begun to sell well. Some people are even prepared to borrow money to engage in mining.

So is the current digital currency mining suitable for lending?

The author believes that it depends on the individual. I believe that many people know the advantages of lending mining, which can increase leverage, quickly recover the cost, and even make a lot of money. However, more people who want to use lending and leverage to participate in mining also need to consider the risks involved, rather than blindly following others. For example, Jiang Zhuoer likes to use lending to mine, but for ordinary retail investors, is it really suitable? It may not be really suitable. Let's analyze the risks of lending mining.

1. Payback time and bull market duration

Mining has a payback period. Many people will calculate it before participating in mining. For example, the current Bitcoin mining basically has a static payback period of about ten months, and the static payback period of Ethereum is about six months. If you come to mine Bitcoin and start mining now, if you don’t add leverage, then after ten months there may be the following possibilities:

Bitcoin prices soared, mining paid back early

The difficulty of Bitcoin has increased, and the price of Bitcoin has skyrocketed, and the payback time is almost the same as before

The difficulty of Bitcoin has increased, the price of Bitcoin has skyrocketed and then plummeted, and the highest point of selling has been missed, and the time to pay back the mining cost has been extended.

If it is the first case, obviously everyone is happy, after all, the investment is recovered in advance. If the miners are not greedy, they can sell the coins to recover the investment, and then they can make a profit. If it is the second case, then it is also okay, just wait quietly for the investment to be recovered. If it is the third case, it is also okay. If the mining investment recovery time is delayed, it will not be extended too much, so just continue to wait.

It should be noted that the above is the case without leverage. If leverage is added, then the first one is undoubtedly profitable, the second one may require leveraged miners to pay more interest, and if it is the third one, then there will be certain risks for leveraged miners.

2. What kind of miner are you?

For large miners or even mine owners or partners, the risk of borrowing for mining is relatively low. This is why Jiang Zhuoer can boldly increase leverage in mining. This is mainly because he has very high-quality resources, such as the lowest electricity bills, the best prices for the latest mining machines, etc. These can reduce his payback period. Ordinary people basically do not have such resources, so they cannot blindly follow them to increase leverage in mining.

At the current price of computing power, it takes about 5-10 months to recover the investment statically

For example, our mining payback period may be 10 months, while other people’s payback period may become 7 months. Similarly, if we mine Ethereum, other people’s payback period may be only one or two months, which is incomparable to ordinary people. In this way, for those who have advantageous resources, it would be stupid not to add leverage. Therefore, they must add leverage to the best of their ability in the early stage of the bull market, get their investment back after two or three months, and then start the mode of making money without doing anything. Moreover, they also have a wealth of hedging tools to lock in profits in advance and prevent risks. They even have their own connections in the circle, and roughly know when the bull market will peak, and prepare in advance.

For small miners, because the payback period has increased, if they rashly increase leverage, the effect may not be as good as others.

3. Timing of entry

The most important thing about mining is the timing of entry. For example, those who bought Ethereum mining machines in mid-2020 are now making considerable profits. If you buy mining machines now to mine, the profits may be slightly less, but it is not too bad. As for if you enter the mining market in another six or seven months, then it is certain that the risk of mining will be relatively high at that time.

The main reason is the difficulty of mining. Generally, the flood season in the first half of the year will increase the difficulty of mining, and the income will generally be on a downward trend. Although the shortage of chips this year may make the difficulty of mining not increase so quickly, if the price of coins continues to rise, then the machines that were previously difficult to mine may be turned over and shine again. In addition, due to the shortage of graphics cards in recent days, some people have even started to buy a large number of high-end gaming laptops for mining, which shows how crazy mining is now.

4. Leverage ratio of loans

It is an obvious hooligan behavior to talk about risks without talking about the leverage ratio of loans. No matter what you do, whether the borrowed funds are within your ability to bear is the key. If you have 1 million assets that you can freely dispose of and your life is not affected, then it is acceptable to borrow 300,000 for mining now. If you have sufficient resources and can obtain low-cost electricity, high-quality mining machines, etc., then you can increase the leverage ratio appropriately. If your freely disposable funds that are not affected by your life are not high, but you end up borrowing a lot of high-interest loans, then there may be certain risks for you.

So is it the right time to enter the lending mining market?

In fact, the timing of entry is still good. The current payback time for Bitcoin mining is ten months. If you want to add leverage, then I think you should not add too much leverage. Small miners can add up to 30% leverage lending for mining according to their own needs. Miners with resource advantages can increase it a little, provided that it does not affect their lives and they can bear certain risk losses.

In addition, as time goes by, after every additional month, if you want to enter the mining market, the new leverage ratio must be reduced by about 10%. After two or three months, it is not recommended to increase the leverage ratio of borrowing for mining. The risks of ordinary mining that may be added after June 21 may continue to increase. The risk here is the risk of high prices of mining machines. If you can have low-priced mining machines, then the risk will naturally be reduced a lot. If the bull market is still there at the end of the year, then basically don’t add new funds to mining, but wait patiently until the bear market comes and mining accidents occur, and then stock up some mining machines at low prices. It’s not too late to mine when the market is good.