Making A Profit From HashRate Markets During Market Contractions

There are many ways to make money from crypto beyond buying and selling assets on spot markets. From futures to options and RWAs to DeFi yields, web3 provides ample opportunities to those willing to put in the time to learn the skills and perfect their craft.

It’s naturally easier to make money when the market is in full-blown bull mode and everything is going up. It becomes a lot harder to carve out a living during prolonged periods of sideways action or during market contractions. Short selling is one option, but it requires skill and only a fraction of all traders are successful with leveraged perps. But there is another alternative that is less reliant on market conditions and which carries no liquidation risk or margin requirements – trading hashpower.

Like all disciplines, trading the hashpower used to mine Proof of Work cryptocurrencies requires a degree of knowledge and study. But the rewards for those who learn the quirks of the mining economy can be substantial. Through bull markets and bear, PoW cryptos are mined around the clock and the hashrate supply and demand that regulates them creates opportunities for profit. Here’s how it works.

Placing a Value on Hashrate

Hashrate marketplaces operate as platforms where users can buy and sell the computational power used for cryptocurrency mining known as hashpower. These marketplaces allow mining hardware owners to rent out their computational power, while those who don’t own mining equipment can purchase this hashpower and use it to mine cryptocurrencies such as BTC.

At a high level, hashrate marketplaces are easy to grasp. The trick to profiting from them is to get a handle on the forces that drive network hashrate and how this correlates to the price of PoW assets such as BTC, XMR, and DOGE. Mining profitability calculators make it easy to gauge the value of mining particular coins with particular ASICs or GPUs at any given point in time.

What may be harder to grasp is why miners would sell their hashpower when they could simply direct it to a mining pool themselves and earn the rewards. There are a number of factors that can influence this decision, but it ultimately comes down to profits: miners have natural incentives to seek the best possible return on their hashpower – and often that can come from reselling through hashrate marketplaces rather than using it as part of a pool.

Recent figures shared by Marko Tarman, Lead Mining Manager at NiceHash, show that miners can almost double their daily earnings by selling their hashpower at present. While the return from selling hashrate won’t always be as generous, it demonstrates the appeal of hashrate marketplaces from the perspective of hardware operators. But what about hashrate buyers: what’s in it for them?

The Case for Buying Hashrate

Purchasing hashrate can be an effective strategy during periods when a particular PoW coin is undermined or overpriced. It allows for flexible and dynamic strategies based upon emerging mining opportunities. For example, after a difficulty adjustment, network hashrate can drop, providing an opportunity to direct hashpower at a pool and scoop up block rewards. Similarly, if there is a forthcoming catalyst likely to drive up the token price, it makes sense to try and mine “cheap coins” to resell them once they’ve spiked in value.

To pay off the costs of their equipment and electricity costs, miners are incentivized to run their machines 24/7. But typically they prefer to focus on one particular PoW cryptocurrency and pool. Buyers, on the other hand, have much greater latitude to seek out economic opportunities available across multiple pools and cryptos. As a result, they can move quickly to take advantage of inefficiencies in hashrate for dozens of PoW assets without needing to concern themselves with recalibrating hardware.

Broadly speaking, miners tend not to jump between pools and cryptocurrencies: it makes far more sense for them to pick one pool and divide their time between mining it and reselling their hashpower as prices dictate. Buyers, on the other hand, have greater freedom to seek out the most lucrative mining opportunities wherever they may lie.

Marketplaces such as NiceHash, MiningRigRentals, and Genesis Mining act as the middlemen, uniting miners and hashrate buyers. This supports the creation of a two-sided marketplace that benefits all participants while allowing shrewd traders to make money regardless of which way the market is moving.