Although bitcoin mining has a great return on investment (ROI) with an average break even point of 9-12 months, the upfront hardware and setup costs can discourage would-be miners from making this investment.
Not only do these machines pay for themselves, according to a recent report by Jefferies, mining bitcoin has resulted in up to 5-6x higher returns vs simply buying and holding bitcoin over multi-year periods. This article discusses ways miners can finance their operations and start hashing.
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Nothing in this article is intended to be relied upon as research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any investment or to adopt any investment strategy. This information is for educational purposes only. Individuals are responsible for their own decisions regarding cryptocurrency mining, including all financial and operational risks.
Bitcoin-backed lending services
Bitcoin investors can use their BTC as collateral for fiat loans, which they can use to buy ASICs or other mining hardware, pay for electricity costs, or finance other operational costs.
Instead of traditional loans, bitcoin-backed borrowing allows miners to keep their bitcoin while sourcing additional funds to expand their operations with fiat currency. Bitcoin-backed loans can be a particularly popular product during bullish market cycles as the collateral appreciates while the borrower deploys the borrowed capital (fiat currency). Here are some examples of interest rates for bitcoin-backed loans.
With this type of loan, a miner could secure financing to purchase and deploy additional ASICs. To service the loan, the miner could liquidate a portion of their newly mined BTC while the BTC that secured the loan continues to appreciate and the machines the loan financed continue hashing.
Interest-free credit cards
Miners who don’t want to use their bitcoin as collateral can take advantage of the current low interest rate credit environment. For example, many credit card providers and banks are offering card cards with zero interest promotional periods typically ranging from 6 to 12 months.
For some miners, this period of time is nearly the amount spent mining to return their original investment, although this ROI period can vary significantly between miners based on electricity costs, ASIC models, machine uptime, and other factors. Under ideal market conditions, some miners might earn enough bitcoin during the promotional period to pay off their initial loan while paying no interest.
This method of financing may be advantageous for miners with strong credit scores who wish to purchase one to two ASICs. Credit limits are typically not higher than $10,000.
Business loans – for mining LLCs
If a miner is classified as a trade or business and they are structured as an LLC, they may qualify for business loans. Business loans typically carry lower interest rates and higher credit limits than personal loans. The rates on these loans will depend on loan type, type of lender, loan term length, and personal qualifications of the borrower. Traditional bank loans and lines of credit typically carry rates between 3-7%. Another option, SBA 7(a) small business loans, carry interest rates between 5.5-11.25%.
Compass Mining payment plans
Launched in October 2021, Compass Mining offers payment plans for mining hardware. With Compass payment plans, miners can avoid paying full price upfront for their ASICs. Instead, they lock in the price of their hardware and pay for the ASICs in monthly installments. Unlike the previously mentioned financing options, however, these payment plans are only available to Compass customers.
Prices for bitcoin mining ASICs are rising, but a variety of financing products and services are available to help would-be miners jump into mining. Miners can use these financial products to cover the costs of launching a new mining operation or expanding their existing setups to increase their bitcoin income from mining rewards while, in some cases, avoiding the need to sell any of their current bitcoin holdings.
Miners should carefully consider the above options in the context of their individual financial situations. This article is for informational purposes only and should not be considered financial advice.