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Difference in Investing into Bitcoin or Bitcoin Mining


While many are interested in Bitcoin they are not properly educated on how to invest or how the investment works. Investing into securities such as stocks, commodities, or any other type of investment vehicles can be overwhelming. Bitcoin’s asset class is similar in comparison, although Bitcoin’s utility is revolutionary and completely different; it is a digital cash peer to peer payment system that anyone can use with a smart device and a connection to the internet.

Today’s society has grown more and more into the digital era with messaging systems, file sharing and even live video feeds from across the globe. The Internet connects the world together instantly. But how come we cannot send value or money over the internet just like how we send messages to one another? That is Bitcoin!

Bitcoin’s Asset Class

Bitcoin is an asset class of its own, although it does have similar characteristics of stocks; the utility of Bitcoin solves problems we face today in the financial sector. The United States Internal Revenue Systems (IRS) considers Bitcoin as a Commodity or property, while other countries claim it’s a currency.

Examples of commodities can be barrels of oil, grain, natural gas, gold and beef that are traded publicly through futures contracts on exchanges that standardize the quantity and quality. Bitcoin can also be publicly traded through exchanges that support crypto currencies or individuals that own it. Although Bitcoin isn’t a tangible asset, it is the world’s first digital asset class that’s publicly traded and available to everyone who has a smart device and internet.

Bitcoin being very volatile, it has one of the highest returns if performed well. Many crypto investors strategize their investments in growth in value of Bitcoin over time. Some may be long term; a few years and others short term. Bitcoin can be traded 24hours day 7 days week which gives it an advantage for traders around the globe in different time zones. Traders can trade Bitcoin with any national fiat currency.

While Bitcoin’s price fluctuates it is in best interest for investors to dollar cost average their investment. Investing into Bitcoin can be very risky depending on market price and market timing. Short term can be extremely risky, however long term can provide great benefit.

By purchasing 1 unit of Bitcoin, investors will only have 1 unit of Bitcoin unless they purchase more. However, there are a few ways to accumulate Bitcoin. This could be by purchasing more, accepting Bitcoin for goods or services and Bitcoin mining.

Where to Buy Bitcoin? See Related Article on my other page – Purchasing Bitcoin with Coinbase Tutorial

Where to Trade Bitcoin? See Related Articles – Trading on Bitfinex / Trading on BitMex

Bitcoin Mining Asset Class

Granted that Bitcoin is often compared to gold; Bitcoin Mining is in the same manner of Mining Gold. While Bitcoin Miners provide computer equipment for the network, they also confirm transactions and keep the network secure. In return for this work, they are rewarded newly discovered Bitcoins and distributed to the Bitcoin community and exchanges.

Bitcoin Mining as an asset can be compared to Real Estate. While real estate can generate rental income and profits through price appreciation, Bitcoin Mining is similar. In order to get into mining it would require a large investment to purchase dedicated mining equipment. However, determining the return on investment (ROI) would depend on the quantity and quality of the equipment, utilities and maintenance fees. Mining Bitcoin can be difficult and special programming skills are required. The cost of mining can also get quite expensive due to the power consumption and heat generated by the equipment.

Real estate investments on the other hand would require a large investment, but in return can bring rental income which is considered passive activities. Similarly Bitcoin mining can generate varying amounts in Bitcoin on a monthly basis.

Sometimes investing into real estate can be over whelming or too expensive. That is where Real Estate Investment Trusts (REITs) come in. REITs is an alternative investment that gives everyday investors direct access to professionally managed, diversified private market commercial real estate assets, such as homes, apartments, hotels, retail and office buildings. REITs can give opportunity to smaller investors who don’t have large capital to become shareholders of real estate.

Investors can pool their money together to purchase real estate with REITs, whether it may be large or small property. Similarly Bitcoin mining can be the same. Investors can pool their capital together through reputable mining pools to purchase large quantities of equipment to mine Bitcoin. Thus, each shareholder would receive profits from their portion of shares.

Where to Mine Bitcoin? – Mine Bitcoin with BitClubNetwork

Bitcoin vs Bitcoin mining;

Which is better? The question of whether Bitcoin or Bitcoin Mining investment is a better bet is a topic that’s widely discussed and debated in the investment circle. While both have its advantages and disadvantages, it may be safe to say that diversification is a key factor involved.

Diversification in finance is allocating capital in a variety of assets to reduce and control risk. This can be applied to Bitcoin and other crypto currencies. Investors can create a well diverse crypto currency portfolio by allocating a percentage into Bitcoin, Bitcoin Mining, Alt Coins and Trading.

Let’s break down an example;
An investor has $10,000 in capital to invest; he would allocate this fund into different assets in percentages. For example 40% would go into Bitcoin, 20% into Alternative coins both in which is considered active income depending if traded consistently and 40% into mining which is considered passive income.

The advantage of purchasing Bitcoin means that it would increase in price over time depending on the market. The disadvantage is that the investor would only hold those units purchased unless  more is purchased, so dollar cost averaging would play a vital role with purchasing bitcoin. On the contrary Bitcoin mining is a long term investment. Mining would generate small amounts in bitcoin over a period of time, thus increasing the amount in bitcoin by fractions at a time.

See Related Article; Crypto Currency Investment Strategy – Dollar Cost Averaging

In Conclusion

Many investors whether it may be seasonal, professional or small, would retain the conventional wisdom of diversification or having multiple sources of income. Real estate and Stocks are completely different asset classes, likewise with Bitcoin and Bitcoin mining. It is important to remember that these are two different asset classes, and ideally, they should not be directly similar. Depending on the investor’s goals, perhaps holding both is the correct approach.

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