It’s been quite a week for Bitcoin, going from about $480 on Sept 10th when I ordered my mining contracts to a low of $386 yesterday (a drop of about 19% in value).

Alibaba IPO
The Alibaba IPO – did it cause Bitcoin’s plunge in value in Sept 2014?

No one knows the actual cause for the drop but a good candidate is the Alibaba IPO that happened on Sept 19th. Looks like a lot of investors were selling their Bitcoins, especially in China, so as they could buy into Alibaba. Now, a day after the dust has settled, Bitcoin has returned to between $410 and $420 (it’s fluctuating a bit).

What Does Bitcoin Value Mean For Mining Contracts?

As I mentioned in previous posts, my contracts are with GAW miners. Their Hashlets mine various pools but payouts are in Bitcoin (BTC). As the value of Bitcoin decreases, the relative cost of fees increases as these are charged in dollars rather than BTC.

In the first few days of the contracts, my miners were each paying out about 0.006 BTC (about $0.25) each day after fees. That’s about a 1.2% payout per day on the Hashlet purchase price ($20.95).

By yesterday, payouts had dropped to about 0.005 BTC. Since Bitcoin is very tied to it’s dollar value, you can see that payouts are dependent on the BTC/USD exchange rate. Payouts in BTC dropped by about 17%.

Now that Bitcoin is rising in value again, payouts should start increasing again.

In total, over the 10 days I’ve had my contracts, I’ve recouped 9% of my initial investment. This would put final Return On Investment (ROI) at about 100 days, though increasing network difficulty over that time will push that time out somewhat. On the other hand, if Bitcoin rises sharply in value, then ROI will be achieved sooner. After ROI is reached, it’s pure profit all the way, albeit with smaller and smaller payouts the further into the future you go.

GAW Miners do allow customers to sell their miners to other customers. However, it’s not a free market. GAW will buy miners back from customers at 80% of retail prices and sell to other customers. If a miner doesn’t sell, the original customer still owns it, so it’s not a case of being able to sell miners back to GAW themselves. They merely act as facilitators during a sale between customers. They went this route because the original free-market exchange they offered was abused.

So, assuming I wanted to sell my miners and could achieve successful sales (which would be very likely to happen), I could be said to have a theoretical 89% of ROI right now. Obviously, this is all on paper, so to speak and nothing is actualized until money sits in my account. But in another say 15 days, I could cash out, get my initial investment back and have a small profit. Of course, the longer I keep my miners and let them mine, the more money I’ll make. 🙂

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