Bitcoin mining vs. Gold mining – profits and sustainability compared

Key Takeaways:

  • Gold mining surged in 2020 due to the pandemic, but took a back seat after Fed's hawkish interest rate hikes.
  • The recent bear market dampened the Bitcoin mining industry, but experts see gains ahead.
  • Sustainability of both leaves much to be desired, but revenues differ dramatically.
bitcoin mining, Bitcoin mining vs. Gold mining – profits and sustainability compared

YEREVAN (CoinChapter.com) – Gold mining has been a part of human history for thousands of years. However, in the 21st century, mining digital assets like Bitcoin has redefined the meaning of the term. Thus, a comparison of revenues and sustainability of the two industries is warranted.

Gold and silver mining – not an end of an era

Precious metals have long established a role as a hedge against economic instability. The latest confirmation arrived in 2020, during the Covid-19 pandemic. According to U.S. Global Investors, gold miners had their “best year,” based on the average all-in sustaining cost (AISC) margin.

The AISC is calculated by subtracting production costs from the price per ounce, which stood at a record $828 per ounce in 2020.

Gold miners profited big in 2020. Source: U.S. Global Investors.
Gold miners profited big in 2020. Source: U.S. Global Investors.

Precious metal royalty and streaming companies also had a strong 2020. The world’s largest by market cap, Franco-Nevada, reported record revenue of $1 billion, record net income of $326 million, and record cash flow of $840 million.

commented the research.

How gold mining faired after the triumph

Meanwhile, gold was left near a bearish extreme with Bitcoin entering the scene with a bang in 2021 and skyrocketing mining costs due to inflation.

VanEck Gold Miners ETF (GDX) had surged 27.6% between January and mid-April. After that, however, the Fed’s interest rate hikes in attempts to take the raging inflation resulted in a parabolic broad dollar surge, slamming the yellow metal sharply lower.

The world’s bigger gold miners have long struggled with production growth. They operate at such huge scales that it’s almost impossible to replenish their gold mined. They simply can’t discover or buy enough gold deposits at necessary sizes to overcome relentless depletion.

concluded the report.

As business cycle analyst Raoul Pal tweeted, the precious metal market “has not created real value in the past 40 years.”

Gold index. Source: Bloomberg
Gold index. Source: Bloomberg

Bitcoin mining taking off?

In contrast to gold mining, cryptocurrency mining companies use computers to solve complex computational problems to validate transactions on a blockchain and generate new cryptocurrency coins.

In the case of Bitcoin, the company holds the produced BTC coins until selling is profitable. Some big names in the crypto mining industry include Riot Blockchain Inc., Hut 8, and Marathon Digital Holdings Inc.

Admittedly, Bitcoin mining companies took a hit in the previous two quarters, as their revenue fully depends on the BTC spot price. However, experts believe the current bear market could be the “perfect” opportunity to double down on mining stocks.

For example, the global investment community InvestmentTrip had a positive outlook. “Marathon Digital became the first North American Bitcoin miner to hold over 10,000 BTC on its balance sheet,” stated the community, hinting at hefty yields once the BTC price picks up.

Marathon’s 10,127 BTC holdings have a current market value of ~$212 million and could be handy if the company wants to sell some to scale its operations. The company used several different methods to raise cash during Q2, including a $161 million sale of common stock and new $100 million loan.

read the report.

Bitcoin mining vs. gold — sustainability comparison

Unfortunately, Gold mining and Bitcoin mining both have a massive carbon footprint.

However, experts argue which is worse for the environment, as comparative research poses many problems. For example, measuring the exact percentage of renewable energy in Bitcoin mining is challenging, and the same goes for precious metals.

According to Bitcoin Energy Consumption Index, the two are quite close. In detail, Bitcoin mining drains over 139 terawatts-hours yearly, while gold mining takes up 132 TWh.

bitcoin mining gold mining BTC

While mining in all its forms seems to be harmful to the environment, the revenues from gold mining stand at a considerable $203 billion. Conversely, annual returns from Bitcoin mining amass a modest $6.9 billion.

However, a direct comparison of revenue might not be appropriate. For example, the total value of all the gold mined stands over $100 billion and significantly exceeds the total value of all the Bitcoin being mined.

Thus, the research suggested it’s better to consider the energy requirement per equal amount of value produced.

bitcoin mining vs gold mining BTC

Conclusion

Gold mining data and its profitability have been documented for centuries.

However, digital assets like Bitcoin are new to the finance world. As of 2022, Bitcoin mining requires more energy than gold mining, making it less environmentally friendly. However, many mining companies strive to achieve zero-emission in the coming years.

The profitability of mining Bitcoin has faired well in the previous years. Unfortunately, the recent bear market damaged the progress, but experts believe now is the right time to “dig into” BTC mining stocks.

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bitcoin mining, Bitcoin mining vs. Gold mining – profits and sustainability compared

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