If you’ve been following my recent newsletters, you’d know that I’ve been particularly interested in Bitcoin. Investing in cryptocurrency has definitely become more popular in recent years, but I’d like to give the disclaimer that I’m not in it for the “hype.”
I’m simply sharing my interest and knowledge with you… and the rest of my audience of busy professionals who are looking for investment solutions that make sense to them.
Admittedly, it can be quite intimidating (and risky) to get into cryptocurrency. The media is not short of headlines that can scare away even the most savvy of investors. At the core of this aversion is a lack of understanding.
That’s why, like with any investment, deep research is the key: Do your due diligence!
Let’s tackle a “scary” headline that you might have seen on your business channel of choice.
What’s that, you ask? The phrase itself “crypto winter” likely came from the hit HBO series, “Game of Thrones.”
A cryptocurrency winter is an industry term for a long downturn in cryptocurrency prices. Crypto winters typically extend from well-known currencies like Bitcoin and Ethereum to non-fungible tokens (NFTs) and lesser-known crypto coins and tokens.
In the first half of 2022, the price of every major cryptocurrency dropped. Now, a handful of crypto-related companies are facing serious financial difficulties, including bankruptcy. This period of market cooling has become known as “crypto winter.”
The last crypto winter occurred in 2018, when the price of Bitcoin dropped by more than 50% from its all-time high in the middle of a bull market in traditional finance.
Analysts say that crypto winters usually begin when there is a steep sell-off from an all-time high in the price of Bitcoin. BTC hit a 52-week high of $68,990 in November 2021 before starting an extended downwards plunge.
Over the last ten months, Bitcoin has experienced heavy losses, dipping nearly 65% from November 2021 to early September. BTC has been hovering around $20,000, slightly higher than its 52-week low of $17,708 on June 18. As of Noveber 3, BTC is at $20,302.20.
Crypto winters may coincide with other economic declines — like a bear market in the stock market — but that’s not always the case. Although many experts point to ongoing macroeconomic factors like inflation and interest rate hikes as the cause of the current downturn.
As a newer asset, crypto winter isn’t as clearly defined as say, a stock market’s bear market. There are no widely accepted, specific guidelines for how far cryptocurrency prices must fall to be considered a crypto winter.
Much like with stocks, bear markets are where the money is made. If you have the disposable income (and steady nerves) then buying in at these “discounted” prices and waiting for the next bull run is a great option for you.
For those of you who already own crypto assets, your choices are to hope that your crypto can rally again — once inflation and the global economy turn for the better — or sell.
There is a third option, one that fully utilizes the “sale,” that I am taking advantage of…
That would be Bitcoin mining.
Edith Yeung of Race Capital says that cryptocurrency is a “long-term play” and the “warm winter” will push out all those who were in it for short-term gains.
When we only engage in trading, we risk losing our edge to the unpredictable volatility that’s inherent to cryptocurrency. This is all the more likely to happen during this downturn.
Bitcoin Mining gives us the chance to be an active, long-term participant in the market instead of a mere bystander affected by its fluctuations.
As I’ve explained in previous newsletters, I propose that we approach this emerging opportunity with the same tried-and-true framework that we’ve found success with: A syndicated investment fund.
There is a growing trend of larger companies that are increasing their positions, at a time when a lot of at-home miners and smaller mining companies are selling their equipment or filing for bankruptcy.
CleanSpark Inc. (Nasdaq: CLSK) announced it acquired 3,843 units of the Antminer S19J Pro bitcoin mining machines for $5.9 million, or approximately $15.50 per terahash.
The company revealed that the total number of machines bought since the beginning of the bear market is more than 26,500. This deal is crucial as it takes place at a time when a lot of mining companies are selling their equipment or filing for bankruptcy.
The relationship between mining and Bitcoin’s price is simple enough. Miners are motivated to mine coins more extensively when cryptocurrency prices rise. As more people join the mining community, the price of mining hardware rises.
This crypto winter, or a sustained market downturn, forces miners to abandon the process and close their doors. This sudden exit has also made the cost of the mining equipment decrease.
Another way to look at this opportunity is by viewing the miners as assets themselves. The assets (the miners) are priced based on the amount of cash flow they can generate, just like in real estate. So as the price of BTC is lower, the value of the miners is lower.
Now is the time to buy the miners.
Currently, I am working with two operators on two respective funds, Stellar Forge Capital and 10NetZero.
The first fund with Stellar Forge Capital is seeking $1 Million to purchase crypto mining equipment capable of mining Bitcoin. These coins will be immediately sold to US Dollars and US Dollars will be distributed to investors on a monthly or quarterly basis.
The term of this fund will be an initial 3-year period with two 1-year options to extend. At completion of the period, the equipment will be sold and all remaining dollars will be distributed to investors.
The second fund with 10NetZero involves the unique component of crypto mining powered by flared gas.
How does this work? When drilling for petroleum resources, natural gas is often discovered but due to a lack of resources or pipeline availability, a massive amount of natural gas is vented into the atmosphere or burned (called flaring).
We will buy the gas from the oil producer at his wellsite, convert the gas to electricity with a generator at the site, and house the miners in a portable data center and power them with the electricity from the generator.
As the saying goes, recessions are where the most millionaires are made. Bear markets could last years, and crypto asset prices could go lower than everyone’s expectations, so staying patient is essential for surviving the crypto winter.
At the same time, being smart and buying up assets during times of recession is a tried-and-true investment strategy that can apply even to cryptocurrency.
It’s crucial that we take advantage of the opportunity to invest in mining — now that the barrier to entry has been lowered. We will be getting the miners at a price and the electricity at a low enough price that we will be able to mine bitcoin at cost less than $10,000/BTC.
There’s potential to mine as low as $5,000/BTC.
This ensures that we have a great chance of not only surviving the crypto winter, but profiting during the crypto winter, and reducing our volatility by getting bitcoin at a consistently low price.
As I often say, I am not a financial advisor. I urge those who read my newsletters to take what you’ll learn here and consult with your own advisor to determine if any of the topics discussed can fit your personal financial situation.
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