Comparison of Bitcoin and Gold Mining: The Uniqueness of Digital Asset Mining

Gold and Bitcoin are often compared as non-sovereign scarce assets. Although there has been much discussion about them as stores of value, few have made comparisons from a production perspective. Both assets rely on mining to introduce new supply, one being physical and the other digital. Their industry characteristics are cyclical, capital-intensive, and closely related to the energy market.

However, the mechanism and incentive structure of Bitcoin mining have subtle differences from gold mining, and these differences ultimately have a significant impact on the economic structure and strategic layout of industry participants. This article will explore some of their similarities, and more importantly, the substantial differences between them.

The scarcity of assets comes from physical and computational mining

Gold mining is an ancient craft that involves extracting and refining metals from underground. This requires locating suitable ore deposits, obtaining permits and land use rights, and using heavy machinery to extract the ore from underground, followed by chemical processing to separate the metals for subsequent use.

In contrast, Bitcoin mining requires repeated calculations to solve batches of Bitcoin transactions in a competitive manner to earn newly issued Bitcoins and transaction fees. This process is known as proof of work, which requires procuring rack space, electricity, and specialized hardware to efficiently perform the calculations, and then broadcasting the results to the Bitcoin network via an internet connection.

In both of these systems, mining is an inevitably high-cost process that supports the scarcity of each asset: the scarcity of Bitcoin is maintained by code and competition; the scarcity of gold is determined by physical and geological location. However, the ways in which scarcity is extracted, the economic models of the producers, and their evolution over time have almost no similarities.

Bitcoin Mining Economic Model: Competition, Technological Advancement, and Diverse Sources of Income

The economic model of gold mining is relatively predictable. Companies are usually able to reasonably and accurately predict reserves, ore grades, and mining schedules, although initial predictions may have deviations: about one-fifth of gold mining projects can achieve profitability over their lifecycle. Major costs such as labor, energy, equipment, compliance, and remediation work can be predicted with reasonable accuracy in advance. Depreciation is mainly due to normal wear and tear of equipment or depletion of reserves. The main uncertainties in the short to medium term are usually the stability of gold market prices, which have relatively minor fluctuations. Furthermore, almost all of these input costs can be effectively hedged.

In contrast, Bitcoin mining is more dynamic and unpredictable. Company revenue depends not only on the relative fluctuations of the Bitcoin market price but also on its share of the global hash rate. If other miners expand their operations more aggressively, even if your mining operation remains unchanged, your relative output may decline. This is a variable that miners need to continuously consider during their operations.

Therefore, unlike the relatively stable production forecasts of gold mining, Bitcoin miners face the challenge of production uncertainty, which arises from the entry and exit of other industry participants and their strategic changes.

One of the most important costs for Bitcoin mining companies is depreciation, especially the depreciation of ASIC equipment. The chips in these Bitcoin mining machines are constantly improving in efficiency, forcing companies to upgrade their equipment before it naturally wears out to remain competitive. This means that depreciation occurs along the timeline of technological advancements, rather than the physical wear of the equipment. This is a major expense, although it is a non-cash expense, and stands in stark contrast to gold mining, where mining equipment has a longer lifespan because it has already undergone most efficiency improvements.

Bitcoin production is under constant pressure due to changes in industry competition and the impact of short-term depreciation cycles, requiring miners to reinvest in new hardware to maintain production levels, which is commonly referred to by professionals as the "ASIC hamster wheel."

However, there is also a favorable fundamental difference between Bitcoin and gold in terms of income structure. Gold miners profit solely by extracting and selling the unreleased supply in reserves. In contrast, Bitcoin miners profit both from extracting the unreleased supply and from transaction fees. Transaction fees provide miners with an income source from the released supply, and this income fluctuates based on the demand for Bitcoin transfers. As Bitcoin approaches its supply cap of 21 million, transaction fees will become an increasingly important source of income, which is a dynamic that gold miners do not have.

Finally, a major long-term advantage of Bitcoin mining is the ability to repurpose the byproduct of operation, heat energy. When electricity passes through mining machines, it generates a significant amount of heat energy, which can be captured and redirected for other uses, such as industrial processes, greenhouse agriculture, or residential and district heating. This opens up new revenue streams for miners. As mining machines become commoditized and the depreciation cycle extends, the impact of heat energy reuse may further increase. Similarly, gold miners can benefit by selling byproducts such as silver or zinc, which are typically identified during project planning and serve as elements to offset the cost of gold production.

Bitcoin mining has a brighter environmental future than gold mining

As we all know, gold mining is essentially resource extraction and leaves a lasting physical footprint: such as deforestation, water pollution, waste pools, and damage to ecosystems. In many areas, it has also raised concerns about land rights and worker safety.

On the other hand, Bitcoin mining does not involve physical extraction but relies entirely on electricity. This provides opportunities for integration with local infrastructure rather than conflict. Due to the liquidity and interruptibility of mining tools, they can act as grid stabilizers and monetize energy resources that would otherwise be wasted or isolated.

Many people are unaware that Bitcoin mining also demonstrates potential as a clean energy subsidy and can serve as a means of proving grid connection. By co-locating with renewable energy or nuclear power generation facilities, miners can improve the project's economics before grid connection without relying on public funding subsidies.

Finally, although this point has been well documented, it is worth noting that, compared to traditional industries, Bitcoin's carbon emissions are generally lower and more transparent. It can be said that Bitcoin is even necessary for a smooth transition to a grid primarily powered by renewable energy.

Since the peak of energy consumption in 2024, we have seen almost no increase in energy consumption, which can be attributed to the continuous improvement in the efficiency of new mining hardware. The current average power consumption is only 20 watts per terahash (W/Th), which is five times more efficient compared to 2018.

Investment Characteristics of Bitcoin Mining: Fast Cycles and Technology-Driven

Both industries are cyclical and sensitive to the prices of their production assets. However, unlike gold miners who typically operate on a multi-year timeline, Bitcoin miners can quickly scale their operations up or down based on market conditions. This makes Bitcoin mining more flexible, but also more volatile.

Publicly traded Bitcoin mining companies often trade like high beta technology stocks, reflecting their sensitivity to Bitcoin prices and broader risk sentiment. In fact, some market data providers classify publicly listed Bitcoin miners as part of the technology sector rather than traditional energy or materials sectors.

However, gold mining companies have a longer history and usually hedge against future production, which can reduce sensitivity to fluctuations in gold prices. They are typically classified in the materials sector and evaluated like traditional commodity producers.

The capital formation methods are also different. Gold miners typically raise capital based on reserve estimates and long-term mine plans. In contrast, Bitcoin miners tend to be more opportunistic, often raising funds in recent years through direct or convertible equity issuance to support rapid hardware upgrades or data center expansions. As a result, Bitcoin miners are more reliant on market sentiment and cyclical timing, and they usually operate within shorter reinvestment cycles.

Bitcoin Mining: Investment Opportunities in Energy, Computing, and the Future Financial Network

Gold and Bitcoin may tend to play similar macroeconomic roles in the long run, but their production ecosystems are structurally different. Gold mining develops slowly, belongs to physical extraction, and is harmful to the environment with high resource consumption. In contrast, Bitcoin mining is faster, more modular, and may increasingly integrate with modern energy systems.

For investors, this means that Bitcoin miners are an imperfect digital analogy to gold miners. Instead, they represent a new class of capital-intensive infrastructure that merges investment opportunities from commodity cycles, energy markets, and technological disruption. Investors with a long-term investment perspective should view it as a unique, brand-new asset class with distinct fundamentals, especially in the context of increasingly important transaction fees and the evolving landscape of energy partnerships.

In our view, understanding these nuances is essential for making informed investment decisions in an increasingly evolving environment towards distributed financial systems.

As an investment, Bitcoin miners not only provide investment opportunities for scarcity but also involve data center infrastructure, growth in the energy market, and monetization of computing power investment opportunities, which is a fusion that traditional mining cannot achieve.

Bitcoin Mining Development Prospects

Overall, we believe that most potential macroeconomic scenarios remain favorable for Bitcoin. The introduction of reciprocal tariffs may push the United States and its trading partners to increase inflation. America's trading partners may face rising inflation while also having to deal with headwinds to growth. This dynamic may force them to adopt more accommodative fiscal and monetary policies, which typically lead to currency depreciation, thereby enhancing Bitcoin's appeal as a non-sovereign, inflation-resistant asset.

In the United States, the outlook is becoming more uncertain. Both Trump and Bessent have expressed a preference for lower long-term yields, particularly in the case of 10-year Treasury bonds. Although the motivations behind this can be speculated, such as reducing the debt service burden or boosting asset markets, this position typically benefits interest rate-sensitive assets, such as Bitcoin. However, the current situation is the exact opposite. The yield on the US 10-year Treasury bond has fallen below 4% but then rose back to 4.5%, currently around 4.3%, due to skepticism about the underlying trade unwinding, damage to the US reputation, and the increasingly precarious status of the dollar as the global reserve currency, while Trump's uncompromising tariff policies may further drive up inflation. However, this crisis is man-made and can be quickly reversed through tariff concessions and agreements.

However, these signals may also reflect a decline in future profit expectations in the stock market, raising concerns about an impending economic slowdown. This poses a key risk for the broader market, namely Bitcoin. If investors continue to view Bitcoin as a high beta, risk-seeking asset, then during a global economic downturn, this sentiment...