"Bitcoin vs. Miners: Halving's Impact on Returns and Risk"

Investing in Bitcoin or Bitcoin Miners: A Comparative Analysis

When considering investments in the cryptocurrency realm, two primary options present themselves: investing directly in Bitcoin or investing in Bitcoin miners. Both options have their unique advantages and risks, and understanding the differences can help investors make informed decisions. This analysis will compare the returns and volatility of Bitcoin with those of Bitcoin miners, providing insights into the potential benefits and drawbacks of each investment option.

Bitcoin, as the purest exposure to the Bitcoin network, offers investors direct access to the cryptocurrency's price movements. On the other hand, Bitcoin miners are publicly traded corporations that raise capital, purchase mining equipment, and hire employees to convert fiat currency into Bitcoin. The success of these miners depends on their ability to efficiently convert fiat currency into Bitcoin, potentially earning abnormal returns compared to the cryptocurrency itself.

To examine the risk and return of investing in Bitcoin versus Bitcoin miners, we will consider a 2024 investment scenario. The annual return will be calculated based on a purchase on January 1, 2024, and a sale on December 31, 2024, with no trading in between. Risk will be measured using annual volatility, defined as the standard deviation of log daily returns over a rolling one-year window.

In 2024, Bitcoin experienced a halving event, which reduced the block subsidy from 6.25 Bitcoin per block to 3.125 Bitcoin per block. This automated, scheduled reduction in Bitcoin issuance every four years is a crucial feature of Bitcoin that guarantees its scarcity and predictability. The halving event had two primary effects on Bitcoin and Bitcoin miners:

• For Bitcoin itself, the halving led to increased demand, resulting in a higher price and greater annual returns. This core feature has been consistent for Bitcoin following each of its halving events.
• For Bitcoin miners, the halving event cut the revenue of each miner in half per unit of hash power expended. This significant reduction in revenue, combined with the increased competition in the mining industry, eroded the returns from corporate equities relative to the underlying commodity.

When comparing the returns and volatility of Bitcoin with those of Bitcoin miners, it becomes apparent that no miner offers a higher return with less risk than Bitcoin. A few miners may offer