Anyone can juice your upside, few can truly hedge the risk of your downside.
In the world of investment and cryptocurrency many actors promise previously unfathomable returns, yet so few acknowledge the risk to achieve those returns. At Abundant Mines we ensure our clients understand the upside, and the downside, of their investment. From the investment world, to personal relationships, to buying a home or car there is inherent risk with every choice we make. Understanding that risk, and mitigating it, allows our clients to move forward confidently no matter their risk tolerance level.
Risk is risk, what could there possibly be to manage?
Risk rarely comes from the place you’re anticipating it to come from. Many risks are hidden (sometimes intentionally).
Although our clients are seasoned investors with multimillion dollar portfolios, and decades of experience in their respective industries, the fact remains that BTC mining is a new, complex, and highly unregulated industry.
It’s not a stretch to compare the current crypto space with “The Old West”. A lack of legislation, regulation, and rampant bad actors means that you are left exposed to risk. We’re seasoned operators with established relationships and trusted resources built through years of experience in this industry. You don’t know what you don’t know, and that’s where the real danger lies.
Let’s take a look at some ways that your initial concepts and calculations could turn into a real-life nightmare:
1
With power being the largest cost in mining, power contracts are crucial for miners.
Do you have a long term contract in place? Is it at a fixed rate? Is your energy source stable? Do you buy from a regulated utility tariff or trade power on the open market?
Mining isn’t profitable with overpriced electricity, and it is a total bummer if your energy source is disconnected.
2
Miners:
Miners can have a short or long life span depending on how you use them.
Are you choosing the best miner for your site/ situation? Can they handle the environment? Do you know how to optimize for efficiency and profitability? Do you know how to care for them or have someone who does? Same for repairs. Do you know how to hedge against the depreciation of the assets themselves?
We certainly do. It requires planning and strategic energy resources, but could be the difference between selling an old machine at a loss, or earning income with it for several more years.
3
Income Risk/Using Derivatives:
Utilizing derivatives markets can help miners hedge against the volatility of bitcoin prices.
Do you know your future price of production? And do you know how to hedge against periods of unprofitability?
We do! Mining goes through volatile periods of exuberance and destruction, washing out inefficient capital allocators. Hedging the value of your bitcoin production with derivatives can give you certainty when other market participants are being liquidated.
4
Insurance contracts:
We have all seen the AllState commercials, but really, are you covered in every scenario? Are the machines in your hosts facility covered under their policy? Under your policy? Are you working with a reliable insurance counter-party that will actually pay out your claims? Or will they find a way to deny your claim due to the nature of this niche business?
We work with the companies who specialize in insuring for our industry, and include coverage for our clients in any of our facilities.
5
Logistics Providers:
Engaging with vendors, clients, and partners introduces counterparty risk, where the other party may fail to meet their contractual obligations.
The last thing you want is for a shipper to damage your equipment because they couldn’t drive a forklift, delivered to the wrong address, or your host did not properly receive your miners.
Losing miners in transit is one of the most expensive and frustrating experiences when uptime truly is money.
6
Facility Infrastructure:
Poor construction can lead to increased maintenance costs and potential operational hazards. Is your facility built to last? Is it designed properly for the operating environment to mitigate heat, dust, snow or otherwise?
Unfortunately, the quality of miner hosting facilities varies widely, and some “professional” hosting facilities are essentially safety hazards.
Although many bitcoin mining computers are quite hardy, it is important that they exist in an environment designed for them to provide the longest profitable life.
7
Jurisdictional and Geopolitical Risk:
Changes in regulations or political instability in the jurisdiction where mining operations are located can pose significant risks. Want to mine in a foreign country because their power rates are irresistibly low?
It may be the best fit for some miners at certain times in their life cycle, and Abundant Mines has taken the time to form lasting partnerships with global partners for this purpose.
However, for miners operating in once profitable jurisdictions, the “ban hammer” has come down several times over the years and wiped out the industry overnight. China, Kazakhstan, Russia, are some examples of jurisdictions that took a strong stance against mining, or quickly left investors with stranded assets because of other geopolitical risks (war & sanctions, in Russia’s case)
8
Pool Risk:
When you mine bitcoin, the only thing standing between your miner and getting fresh bitcoin mined from the network is the mining pool you choose. We trust our mining pool partner Lincoin for their fair payout structure and frequency.
Historically, however, there have been other pools that have missed their obligations, not paying miners for the work they performed. Whether due to financial hardship or fraud, the pool is the only custodian of your mined bitcoin before it hits your wallet, so picking that custodian and partner carefully is paramount, as your income truly depends on them.
Why Choose Abundant Mines?
No savvy investor will put their livelihood into something unless they know and understand the risks involved. Interested in learning more about how we can help maximize your profits and protect your downside?
