In October 2009, the first Bitcoin (BTC) transaction on a cryptocurrency exchange took place. It involved 5000 tokens, which is equivalent to only $5. But since then, the public has started to take notice, allowing more cryptocurrencies to enter the market. Over the past decade, its value has skyrocketed as more traders and entrepreneurs became drawn to it. Despite the 2017-2018 boom and bubble burst, BTC and the whole market bounced back and kept rising.
In 2021, cryptocurrency prices peaked and set a new all-time high. Bitcoin, for instance, broke $60,000 and reached $68,789. Likewise, Ethereum (ETH) climbed to its highest value of $4,892, while Litecoin (LTC) amounted to $413. It is no surprise that the crypto market was able to create millionaires. Also, a lot of traders have been doing fine just by holding cryptocurrencies as they maintain their bullish view.
In 2022, crypto prices had a steep fall amid corrections and macroeconomic volatility. But more than a year later, they have started to rebound. After two years of cut loss in the bear market, crypto traders are taking profits again. Bitcoin made a bullish breakout after exceeding $40,000. This led to the inference that market sentiments drove cryptocurrency changes. As such, speculators are rushing into and leaving the market to take advantage of the potential price appreciation or depreciation.
Despite all these things, the market is still dogged by criticisms from many skeptics. Now, the crypto market has yet to fulfill its promise to make a decentralized and free financial system. However, questions about the sustainability of its value and volume continue to reverberate. Prices do not still seem to have solid traction as traders push prices upward or downward depending on the prevailing speculation. Meanwhile, fears of cryptocurrencies running out and losing their value in the future are resurfacing.
Given this, crypto traders and miners alike contemplate the feasibility of cryptocurrency mining and trading and see the relative stability and predictability of fiat currencies. Yet, many are holding on to the notion of value appreciation as the number of cryptocurrencies becomes limited. In this article, we will assess whether or not it is still worth it to mine cryptocurrencies. Also, we will go through the fiat money and discuss the top currencies offering high ROI to traders.
Crypto Mining Considerations
Cryptocurrency mining remains viable, especially if you join a mining pool, get a capable system, and pay your fixed expenses in a reasonable period. However, generating profits may not be as easy as it was in prior years. We must account for the fact that in the past year, crypto prices were at the bottom. Also, many wealthy organizations and individuals are engaged in crypto mining. This can make it difficult for many to reap the fruits of mining once-promising cryptocurrencies.
This does not mean miners can no longer make money. Mining may not be as lucrative as many expect, though. Estimating profitability can be trickier today since it may take more energy and computer capability to mine cryptocurrencies. It may be more expensive as electric bills and computer maintenance costs rise.
The good thing is that cryptocurrencies still have value. Also, as the number of cryptocurrencies for mining becomes limited, the value increases, which is a good thing for miners. As such, it is essential to know the primary sources of crypto mining. Miners must also know the pros and cons, components, and considerations before deciding whether crypto mining is still worth it.
Crypto Mining Difficulty Rate
To ensure cryptocurrency blocks like BTC blocks are mined every 10 minutes, an automatic system adjusts the difficulty based on the number of miners competing to find blocks at a given time. The difficulty rate measures the level of difficulty in mining a crypto block or finding a hash below a target. The higher the rate, the lower the probability a miner can solve the hash problem and generate cryptocurrencies.
In recent years, the difficulty rate has risen dramatically. For instance, the difficulty rate when BTC was first launched was only one hash. But last November, it had already reached 62.46 trillion hashes. This has shown the massive increase in the difficulty rate as the availability decreases amid the tighter competition.
At this point, you may have already realized how variable the difficulty rate is. It changes approximately every two weeks to ensure crypto block production stability, given its finite number. An example of this is the BTC network, since its total number will be capped at 21 million, which is a key stipulation since its foundation. This limit is placed to control the supply and prevent potential disruptions. Currently, nearly 20 million BTCs have already been mined. It is no wonder that the difficulty rate has skyrocketed and the number of BTCs awarded to miners has been halved.
In 2016, the number of BTC awarded was 12.5, but in 2020, it was halved to 6.25. Expectations of another reduction to 3.125 is evident today. Hence, miners must know that the reward size will decrease to manage supply and lengthen the duration before the BTC market reaches its cap. This will continue despite the increasing difficulty and level of competition.
Mining Pools
Many individual crypto miners opt to join mining pools or groups to work together and share rewards. This increases the probability of solving a hash problem and earning a cryptocurrency. Also, it helps them compete with mining mega centers while speeding up to ensure profitability is within reach. Another advantage of joining mining pools is that it allows them to cope with the rising costs and level of difficulty.
However, working together means dividing rewards into the number of members of a mining pool. It decreases the number of cryptocurrencies earned for solving a hash problem. The higher the number of members, the lower the amount of individual rewards. Hence, individual profitability decreases.
Pool Payout Schemes
Payout methods in cryptocurrency mining pools should be considered as well. As an example, BTC mining has two common payout schemes: proportional mining and pay-per-share. In proportional mining, rewards are proportionate to the amount of effort exerted in discovering a block. The amount also varies whether the pool mines a block. This method is advantageous to pool miners when crypto prices are surging.
Meanwhile, pay-per-share is a method wherein payouts are based on the mining power of the pool. In other words, the total rewards are divided by the number of miners in the pool. The miner receives their rewards even if their effort is less than the other miner. Also, this flat-fee payment model is best when crypto prices decrease.
Individual Profitability
Cryptocurrency mining is still profitable for some individuals. Competitive mining equipment costs may vary depending on their capabilities, but these are easier to obtain today. Also, some machines have already been adopted by miners to increase their competitiveness. For instance, some hardware may enable users to change settings to lower energy requirements, which reduces electricity costs.
To that end, miners must do a cost-benefit analysis to determine their breakeven price before purchasing equipment as their fixed costs. Variable costs include power and the time spent. Income comes in the form of efficiency and the market value of the cryptocurrency. A cost-benefit analysis is especially helpful if miners plan to devote their time or spend years to mine crypto. Thankfully, many apps and websites have a profitability calculator to assess the cost-benefit equation of crypto mining.
Profitability and Probability
This has the same concept as the preceding factor. Miners must identify their willingness to produce the necessary capital for the equipment and estimate the future price of cryptocurrencies. The risk is higher for high-capital cryptocurrencies, especially BTC. BTC mining involves 10 percent of miners who control 90 percent of mining capacity in its entire network. More specifically, only 0.1 percent already own 50 percent of the total network capacity, so 9.9 percent own 40 percent. The remaining 10 percent of the total network capacity is dividend among 90 percent of the total miners. So, if you wish to mine independently, know you are competing with established miners and pools with massive capacity.
Excellent Currencies With High Profitability
As crypto investors, miners, and investors remain wary of value sustainability, many are looking into fiat currencies. This is unsurprising, since cryptocurrencies can be exchanged with fiat money. Also, Forex is volatile, but more predictable than cryptocurrencies. In addition, the former is more tied to macroeconomic indicators, including inflation and interest rates, than the latter. But unlike the stock market, Forex traders do not generate earnings on price changes or dividends. They earn through the changes in the relative strength of one currency against another. Forex trading can be more volatile, so it requires more risk tolerance.
Right now, the dollar is still the primary currency commodity in the market. It has regained its exchange rate uptrend as inflation decelerated amid a series of policy rate hikes. Also, treasury yields in 3Q23 remained stable, driving the USD’s relative strength. Right now, the Fed still holds its hawkish stance despite the inflation decrease last month. It watches out for a potential inflation uptick, which may be driven by spending splurges during the holiday season. It seeks to maintain current rates to ensure stability. Yet it expects not to make another increment. It may even cut rates in 2H24, leading to the relative weakening of USD against other currencies.
This does not mean, though, that the value of the USD is about to crash. It may be far from that as macroeconomic fluctuations become manageable. Another factor driving the uptrend in other currencies is their respective economic situation. Hence, these are the currencies that offer good ROI to Forex traders.
US Dollar (USD)
As far as macroeconomic and market conditions are concerned, the US Dollar (USD) remains an excellent bet at the moment. Although its relative strength has decreased recently, its bullish trend remains evident, and is likely to continue for a considerable amount of time. This is driven by the stable treasury yields amid the elevated interest rates.
Meanwhile, the Fed rate hike pause and speculations of a rate cut in 2H24 affected the USD performance in the Foreign exchange market. It is logical since lowering interest rates will also lower bond yields. Even so, inflation is another primary indicator of the exchange rate. The US inflation rate is now three percent after the uptick from July to September. If the inflation downtrend continues, the US economy may become more manageable. This allows the Fed to easily manipulate policy rates in favor of both the US economy and the USD. It may also be favorable to borrowers, especially those with personal loans and mortgage loans.
Most importantly, the US Federal Reserve holds $240 billion in reserve assets. Maintaining adequate asset reserves helps it maintain USD exchange rate stability by releasing foreign currency reserves. It plays a crucial role in the trade balance, so the US can import goods at a stable price. So regardless of the domestic and international price and demand of goods and services, the US can maintain a balance of payment.
Norwegian Krone (NKR)
The Norwegian Krone (NKR) is often referred to as the safe currency. This is mainly due to the fact that Norway has no net debt. Also, NKR is a standalone currency, so it’s not deeply tied to another country’s macroeconomic volatility, making it relatively stronger than most currency pairs.
It has not been performing very well recently as the actual macroeconomic data do not meet expectations. Also, falling home prices convey low demand and performance in the real estate market. It means lower private spending or consumption, also lowering its GDP.
Nonetheless, its responsible and disciplined approach to economic policies makes NKR a stable currency.
Singaporean Dollar (SGD)
The Singaporean Dollar (SGD) has always been attractive to investors all over the world. This Asian tiger economy is no longer a stranger to macroeconomic crises. It has been through the Asian Financial Crisis and experienced the negative spillovers of the Global Financial Crisis. But what sets it apart from many other Asian countries is its solid economic resilience. Its economic recovery roadmap has always been impressive.
It stimulates the economy with subsidies, especially the SME sector, which is the primary growth driver in its economy. It also prioritizes wages and gives importance to migrant workers as it remains a labor-intensive country. Given this, its aggregate output has increased over the years. It is also a highly adaptable country, given its high adoption rate of cryptocurrencies. In fact, its government agencies are accepting Ethereum contracts as payments for services. Another factor is its low tax rates, attracting more investors.
Given all these, Singapore sees high capital inflows, which also increases the relative strength of the SGD.
British Pound Sterling (GBP)
In 2016, Brexit undermined international confidence in the UK economy. Unsurprisingly, the exchange rate of the British Pound Sterling (GBP) against other leading currencies has dropped. But since 2022, the GBP has regained its strength despite pandemic-related uncertainties. Not long after, the UK proved its resilience, with GDP rebounding and growing, even exceeding pre-pandemic levels.
The Bank of England in London has become wiser ever since the Global Financial Crisis. Its quantitative easing as part of its monetary policy raised liquidity levels in the British economy. This move also helped it cope with the pandemic recession. Now, it is doing the opposite as it has reduced the size of its purchases of various asset classes. The value went down from its 2021 peak of £895bn to £751bn on October 25, 2022. It has let its government bonds mature and sold some to the market.
With its more stable macroeconomic indicators today, the GBP maintains its relative strength. For instance, 1 GBP was equivalent to 1.24 USD in November. But today, 1 GBP is equal to 1.26 USD. Also, 1 GBP can be traded with Euro for 1.17 today compared to 1.15 in the previous month. This should not be surprising since the UK has the sixth-largest GDP worldwide.
Canadian Dollars (CAD)
Canada is one of the few countries with the most successful pandemic response. It was also one of the first countries to ease domestic restrictions and experience economic recovery and rebound. It is no surprise that the Canadian Dollar (CAD) is one of the strongest currencies in the foreign exchange market.
Even better, Canada’s macroeconomic management is on par with or even better than the US. Its highest inflation in 2022 was only 8.1 percent versus the latter’s 9.1 percent. Currently, it’s only 3.1 percent, but the central bank maintains a hawkish view of potential interest rate hikes in the next meeting. With that, its bond yields may rise some more, pushing the value of its currency in the Forex market upward. This may generate higher returns to CAD traders.
Euro (EUR)
The European Union is one of the most influential regions worldwide. It is composed of 27 countries, the majority of which are highly developed economies. It is no wonder that the Euro (EUR) is one of the ten strongest currencies in the foreign exchange market.
Aside from its macroeconomic stability, the currency is free-floating. This means it has greater flexibility to adjust to forex market forces. It can be a double-edged sword, but the strong economies within the region remain its primary driving force. Other factors to include are imports and exports. Trading is cheaper or even zero among member states. They can easily cover shortages in one another. Given the cheaper import costs, countries enjoy a solid trade balance and GDP.
Even better, some countries have maintained stability over the years. Germany, for example, earned an excellent reputation for its previous currency, thanks to the prudence of the Bundesbank and the political interference with the economy.
Japanese Yen (JPY)
Japan has the third-largest economy in terms of GDP worldwide. Its economic expansion has been massive over the past decade led by its former Prime Minister Shinzo Abe. With that, the Japanese Yen (JPY) remains a reliable currency. Its macroeconomic success is highly attributed to the solid cooperation between the government and the business sector and the utilization of advanced technologies. These fortified its manufacturing sector, making Japan an export-oriented economy. Its prudent monetary policy also contributes to its stability despite the high Debt/GDP ratio.
In addition, Japan maintains prudent management of financial markets. For example, it has established associations for issuers and exchanges in the crypto market to encourage self-regulation. This minimizes the risk of fraudulent transactions, hacking, and even terrorism funding.
Even so, Japan should not be too complacent. It should move fast and take precautionary measures to strengthen its labor market as it struggles with its aging population. Also, Japan lacks natural resources, making it dependent on energy imports, especially after the Fukushima disaster in 2011.
Swiss Franc (CHF)
Switzerland has always been commended for its political stability. Over the past century, the country has remained at peace amid a series of wars in Europe. This makes it attractive to investors, leading to high capital inflows and a stronger Swiss Franc (CHF).
But what makes its economy solid is its large service sector, particularly financial services and high-tech manufacturing. Its highly skilled labor force makes up for its strong production capacity. As such, its aggregate output and GDP remain one of the largest globally. Its spending on infrastructure also leads to a productive economy.
Key Takeaways
Cryptocurrencies and fiat currencies are two markets with varying risks and rewards. But their strong correlation and high contribution to financial market growth make them tied to one another. They are also two of the most volatile in the financial market, but returns are very promising. This makes them attractive even for beginners. So while crypto mining becomes more challenging, many traders find themselves drawn to fiat money.
