Ethereum Mining: Is it Better than Buying to Hold?

Ethereum

I didn’t know much about Ethereum back in April 2016 when I started mining. I bought more in March 2017 and, since then, the price has taken off! I have already cashed out a fantastic profit, but I am still holding a significant number (and mining more).

I have received tons of emails asking whether it’s better to buy or mine Ethereum. In this post I will explain how I got involved in Ethereum, how I have been mining and I’ll investigate whether mining is still worth looking at… or if it’s better just to buy and hold.



What is Ethereum?

Ethereum is a platform for creation of decentralized applications running on blockchain, through the use of smart contracts. Clear as mud?! Don’t worry, that’s a bit too techy for me too.

This video does a much better job of explaining exactly what Ethereum is.





How much does Ethereum cost?

When I first started mining, Ethereum cost $10-11. It started 2017 at the same sort of price, but by the beginning of March it was up to $17. I bought more at $40-45 using Bitcoin profits and by 1st April the price hit $50. On 1st May it was £78, 1st June was $220 and 1st July was $260.

The highest price reached was $388 during June and I was fortunate to sell around $100,000 worth at $370-380. It’s very tough to time the top of the market, but I wasn’t far off with that one! It wasn’t that I wanted out, far from it. I still hold the majority of my ETH and I plan to for quite some time. However, I did want to ensure a return on my investment and remove all risk going forward. My remaining Ethereum has cost me nothing.

Click here for the current Ethereum (ETH) price.



Ethereum Mining

As with my Bitcoin, I started mining Ethereum through Bitclub Network. I bought four GPU miners at $1,000 each and they started mining on 1st April 2016 at the Data Centre in Iceland (cheap cooling!).



Bitclub Network's Data Centre in Iceland
Bitclub Network’s Data Centre in Iceland


To date, I have withdrawn 33.56 ETH from each GPU Miner and, at today’s valuation of $250 per ETH, that’s $29,560 clear profit.

At the high of $388, my mined Ethereum was worth $52,085.

If it should challenge Bitcoin – as many are predicting – then a $2,500 valuation (assuming Bitcoin is still that cheap) would make my mined Ethereum worth $335,600… but let’s not speculate about that sort of return.



Is it worth mining Ethereum?

This is a tricky one. There’s a good argument to be made that I could have simply held Bitcoin rather than got involved with mining, but then no-one saw such a rise in price (otherwise everyone would have re-mortgaged their house and piled in). Had the Bitcoin price remained low, mining would have probably been easier these days and the return higher in Bitcoin terms.

The same could have happened with Ethereum too. When I first bought my GPU miners, they were each mining 0.25 Ethereum every day. At the $10 or so valuation at the time, that was $2.50 per day per miner but at the current $250 it would have been $62.50 per day.

At the moment, my GPU miners are bringing in around 0.008 Ethereum per day which works out at $2.00 per day… lower than where they started. At the high of $388 though it was around $3.10 per day and the return accelerates from there.

So let’s look at payback times at various prices…

At the current price of $250 per Ethereum and a mining rate of 0.008 Ethereum per day, it will take 500 days to make the $1,000 cost of the GPU miner back and then everything on top will be profit. The total life of the GPU miner is 2,000 days.

If Ethereum were to go back to $388 then the payback is complete after 322 days (around 11 months).

If Ethereum were to challenge the Bitcoin price of $2,500, then it’s just 50 days payback. In that instance, of course, more miners would jump in and compete so the return would almost certainly drop. However, all of the Ethereum already mined would also be worth $2,500 and I’ll put my neck on the line to predict that doesn’t happen in 50 days from now!

Personally, I think that $500 is very achievable for Ethereum in the medium term and that puts the payback time at 250 days (around 8 months). From that point, everything extra is profit. If you mine 0.008 ETH for the full 2,000 days then you will end up with 16 Ethereum, worth $8,000 at $500 each.

Of course, there are a lot of “ifs” because no-one knows what the future holds. Mining could get tougher, the price could rocket, all sorts of possibilities. 2,000 days is a lifetime in cryptocurrency terms and there will be lots of ups and downs in that time. It makes the decision between mining or buying tricky, though I would suggest that simply buying and holding is the safer route.



What about just buying Ethereum to hold?

That’s certainly an option. You could buy 4 Ethereum for $1,000 right now and if the price gets to $500 each you’ll double your money. If you were to mine at 0.008 ETH per day, it will take 500 days (16 1/2 months) to get 4 ETH but then you’ll be adding to it for 1,500 more days after that.

If the Ethereum price were to rise significantly higher than $500 though, I think you would almost certainly be better off buying rather than mining. If only we could see the future!

The other huge benefit of buying Ethereum is that you can sell some (or all) of it whenever you like, whereas with mining you are locked in to some extent… though you will be receiving regular payouts.



How to buy Ethereum

You can deposit money into Coinbase to buy Ethereum. If you have Bitcoin already, you can use Bittrex to convert it into Ethereum (make sure to select ETH rather than ETC).

Coinbase claim to be safe for storage, though I’m not sure how robustly that has been tested. I keep mine on a Ledger Nano S so that it’s completely offline and can’t be hacked.



Ledger Nano S hardware wallet
I use a Ledger Nano S hardware wallet to keep my BTC, ETH and XRP safe.



How to start mining Ethereum

You could buy your own GPU miners, plug them in at home and start mining. I don’t know exactly how to do it, how much the power costs would be and how much you could mine, so I can’t help there.

My only experience of mining Ethereum has come through Bitclub Network. They have recently opened up a “GPU Founder Pack” which includes 5 shares of the GPU mining pool for $5,000 (plus the $99 membership). With this option you have 5 shares which you have full control over. You can decide to mine Ethereum, Zcash or Monero over the 2,000 days (and switch between them as often as you like). If you decide to mine yourself after all, they’ll even mail the rig to you!

Click here for more information



Conclusion: Buy or mine?

Heads or tails? I mean really… what’s going to happen in a year or two from now? If I could tell that, I’d be sat on my own desert island by now!

I have done very well from mining and buying both Bitcoin and Ethereum. I’m still mining both through Bitclub Network and adding to my cryptocurrency portfolio (currently worth around $270,000). I’m not planning on buying more GPU miners as I already have four of them, but then I’m not planning on buying more Bitcoin or Ethereum either as I have plenty of both.

My strategy at the moment is to hold my Bitcoin, Ethereum and Ripple while I trade smaller coins on Bittrex.

If you don’t hold Ethereum yet, then buying or mining could be right for you. Do your own research and get cracking!

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Steve

Steve

Steve has been investing ever since his first share purchase (in Dunlop) way back in the 1980s. Since then, he has built a diversified portfolio of mainly low-to-medium risk investments but bucked that trend by investing in Bitcoin during 2015 at a price of just $230. This has gone on to become Steve's best investment by far, though his main focus remains on steady compounding.

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