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Wednesday, December 28, 2016

Bitcoin's Late 2016 Surge

Bitcoin is a strange beast, fluctuating at times wildly between highs and lows. It's like the stock market, only with fewer regulations. Is that a good thing? I'm not entirely convinced. What I do know is that here at the end of 2016, Bitcoin prices are climbing rapidly yet again.

In the last week, BTC prices have shot up about 15 percent, which is impressive--and a nice end-of-year bonus for anyone holding BTC right now (assuming you sell at a profit, of course). But that's a really narrow view. In the last month, the cryptocurrency is up more than 30 percent, and over the last year it's a 125 percent gain. So everyone should go all-in on BTC yet again, right?

Not so fast. BTC is nothing if not volatile, and while we're now at a 3-year high (the last time BTC was in the $900+ range was in January 2014), the all-time high was in November 2013, of around $1100. If you bought into BTC on that last massive wave (attributed to China hysteria over BTC by many), up until the last month or so you were likely sitting on a loss of 50 percent or more.

What's behind the new interest in BTC? Could it be that it's finally gaining mainstream acceptance? I seriously doubt that -- in fact, I offered a friend a $50 gift of BTC recently, and he turned it down flat. "I don't believe in that stuff and don't want to deal with the hassle" was his reply in a nutshell. Talk about looking a gift horse in the mouth, but that attitude is far more widespread than proponents would like to admit. News of the IRS going after Coinbase records doesn't help, though at least that would offer some clarity on the tax situation. We're all supposed to pay taxes on our BTC gains, right -- but if you're mining, calculating 'gains' is a rather complex proposition.

But there's good news as well, like the India and Venezuela monetary policies potentially pushing people into BTC (and gold and other commodities). And I love the "I told you so" posts by people who predicted BTC hitting $1000 earlier this year -- it's happening, so of course they're pointing at their old posts and tweets and showing us all how prescient they were. Never mind the fact that most of these pundits have predicted BTC surges into the $1000+ range every year going back to 2013.

What's funny about all of this to me is that everywhere people are making the same mistake. Correlation does not equal causation. India and Venezuela make some policy changes and BTC started to go up in price. Did the policy changes cause the BTC price increase, or did they merely happen at the same time? Or maybe Trump winning the US election caused the increase! This is extremely difficult to prove.

The good news is that the lack of regulations on Bitcoin -- and the Internet echo chamber -- means that people can spout hype till they're blue in the face, and if enough people start to believe the hype, it becomes a self-fulfilling prophecy.

I got into Bitcoin/cryptocurrency back mid-2011, at the first surge to $31. I watched BTC tumble to less than $2, and it took nearly two years (19-20 months) before it surpassed the previous high. But when it did, it shot up to $200+, which seemed incredible at the time, only to be eclipsed by the record-setting explosion six months later. In other words, I've seen this all before ... and I still can't say I have any real knowledge of what will happen next.

2017 could be the year BTC breaks the $2000 mark. Or it could be the year where BTC briefly breaks $1000 again only to fall back to $500. And that's why, rather than trying to guess at the investment game of Bitcoin, I stick with mining when it's profitable. And lately, BTC (cryptocurrency mining) has been doing quite well.

The current king for cryptocurrency mining profitability: GTX 1060.
What's the best bet for a new mining system? You might be surprised to know that it's NOT going to be something built on AMD GPUs -- not even the Radeon RX 470 4GB or Radeon RX 480 4GB. Best case right now, you're looking at breaking even in around 195 days for the RX 480 and 219 days for the RX 470. Which isn't terrible, but you can do better. Enter the GeForce GTX 1060 6GB, which at current rates will hit ROI in about 167 days. If you have an existing system, that works out to around $1.50 per day, give or take.

Here's the thing: if you don't have a system ready for the GPU, the cost of building such a system totally changes the equation. Put three of these into a modest build and you're looking at $1,100 minimum, and possibly $1,350 or more. With three GPUs earning $1.50 each, you're looking at $4.50 per day, which means it's now going to require the better part of a year to break even -- assuming prices stay relatively consistent.

And there's the rub. Prices are never consistent in the cryptocurrency world. New coins launch to much hype, and if you're just mining via Nicehash (which is what I've been doing), you can avoid all the pump and dump nonsense and often make a healthy profit. I've got about eight systems doing mining, and typically they earn a combined $30-$40 on most days. That rate has been pretty steady for at least six months, except for things like early November where it shot up to $100-$200 per day for a week.

My advice is that if you're interested in Bitcoin / mining, take a very long-term approach. Don't hope to pay off a computer mining rig in three months or even nine months, but if you keep it humming along for more than a year, you'll almost certainly hit ROI, and everything after that is profit. It may not be a lot of profit (though sometimes it is), but this is how I've managed to keep at it. Happy New Year, and happy mining!

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