There’s more than one way to trade Bitcoin. In fact there’s dozens and the vast majority involve no native BTC changing wallets. From futures markets to tokenized BTC and from prediction markets to volatility indexes, Bitcoin can be traded directly or indirectly across multiple chains and exchanges.
Bitcoin ETFs are the perfect case in point: while real Bitcoin is bought by the institutions overseeing each fund, the end user takes no custody of the coins. All they’re doing is gaining exposure to the price of BTC. Bitcoin hashrate is another derivative that’s begun to emerge as a serious alternative investment. When astutely traded, hashrate can capture the same upside to owning BTC but with less volatility. No wonder it’s becoming a firm favorite with shrewd investors who understand the market forces that dictate hashrate. Here’s how it works.
What Is Bitcoin Hashrate?
Hashrate refers to the computational power used by miners to secure the Bitcoin network and validate transactions. Essentially, it measures how many calculations miners can perform per second to solve the cryptographic puzzle at the heart of the Bitcoin mining process. The concept of treating Bitcoin hashrate as a commodity allows individuals and institutions to indirectly invest in Bitcoin by trading hashrate.
When regarded as a commodity, Bitcoin hashrate can be bought, sold, and traded similarly to other traditional commodities like oil, gold, or electricity. In this context, instead of purchasing Bitcoin itself, investors are purchasing the right to a certain amount of computational power (hashrate) that is directed toward mining Bitcoin. The hashrate essentially represents the work done by miners, which secures the Bitcoin network and earns them BTC as a reward.
This concept is grounded in the fact that Bitcoin’s production (or mining) is highly dependent on computational power, and this power can be commoditized. Through commoditizing Bitcoin’s hashrate, anyone can invest in the infrastructure behind the Bitcoin network without holding the actual digital asset. This is attractive because it allows investors to participate in the profitability of Bitcoin mining while managing risks associated with price volatility and mining operations.
There is no hashrate token that can be bought on Binance however: when you’re purchasing hashing power, you’re literally leasing the ability to connect someone else’s equipment to a mining pool and share in the rewards. How, then, do you profit from that and what’s in it for the miner who could just as easily mine themselves rather than reselling their hashpower?
Making Money From Buying Hashrate
On a hashrate marketplace such as NiceHash, buyers can purchase hashrate instantly and then begin using it to mine cryptocurrency. You simply select the crypto you wish to mine – BTC in this case – and specify the algorithm to be used and contract length. The acquired hashpower will then be directed at your mining pool of choice. It’s a way to mine crypto without requiring hardware or technical expertise.
That part’s easy to grasp. The question is, how do you profit from it? Well, hashrate is best purchased when there is a short-term opportunity to make greater profits than normal. For example, when new PoW blockchains launch that can be merge mined with Bitcoin, it’s common for hashrate prices to spike since mining rewards can be significantly boosted through earning this secondary asset as block rewards. In this scenario, you’re renting Bitcoin hashrate but the profits are coming from a second coin.
But it’s also possible to make money by mining BTC and BTC only. If you keep a close eye on Bitcoin network performance, you’ll notice periods when the hashrate has dropped but the difficulty hasn’t adjusted. If the difficulty hasn’t updated to reflect the lower hashrate, purchasing hashrate during this period provides an opportunity to earn greater block rewards. This is a strategy that rewards shrewd traders who move fast to capitalize on these discrepancies that routinely occur.
But you don’t need to be monitoring block times and network difficulty to profit from buying hashrate: you just need to have a handle on where Bitcoin is headed next. If you’re good at predicting BTC’s price, you can purchase hashpower and use it to earn coins that can then be sold shortly afterwards for more than their market value at the time of extraction.
When well executed, this strategy prevents the need to hodl for months or more until Bitcoin moves up. Time your entry right and you can maximize your earnings. While there’s never a bad time to mine Bitcoin, hashrate broadly mirrors price (or is it the other way around?) so you can expect to mine less BTC after a major price surge.
Making Money From Selling Hashrate
Every market requires a counterparty and for the miner on the other side of the trade, there are multiple reasons to sell hashrate rather than mining directly. For one, they can use hashrate marketplaces to hedge against hash price volatility. Selling directly ensures they receive revenue proportional to each completed share, providing a more predictable revenue stream.
It’s also worth remembering that hashrate isn’t the only commodity miners are mindful of: electricity prices also dictate their strategy, and when power costs are higher, selling hashrate can still be profitable. This is particularly true of miners who have contracted a minimum amount of power and are unable to shut down their rigs during times of peak demand. Selling hashrate also gives flexibility in terms of being able to profit from spikes in hashpower prices due to emerging tokens such as Fractal Bitcoin which caught serious attention in September.
Hashrate as Bitcoin Analog
Hashrate trading is a Bitcoin analog that rewards individuals who study the forces that dictate the mining industry and learn to identify the patterns that regularly repeat, from mining difficulty to energy costs. The ultimate attraction is that it’s a market whose fortunes are closely tied to Bitcoin’s, but instead of being exposed solely to price movements, investors can benefit from changes in mining difficulty and mining profitability. This makes it an attractive asset class for those looking to diversify within the crypto space.
Bitcoin hashrate marketplaces offer a unique way to invest in the Bitcoin ecosystem without directly holding BTC. By treating computational power as a tradable asset, it opens up new opportunities for diversification, risk management, and indirect exposure to the Bitcoin mining economy.
