Analysis of the Differences Between Bitcoin Mining and Gold Mining

Gold and Bitcoin are often compared as scarce non-sovereign assets. While their investment cases as stores of value have been widely discussed, few have made comparisons from a production perspective. Both assets rely on mining to introduce new supply - one is physical, the other is digital. The industry characteristics of both are defined by cyclical economies, capital intensity, and close ties to the energy market.

However, the mechanisms and incentive structures of Bitcoin mining differ from those of gold mining in details, and these differences ultimately have a significant impact on the economic structures and strategic layouts of industry participants. This article will explore some of their similarities, but more importantly, the substantive differences between them.

The scarcity of assets comes from physical and computational mining

Gold mining is a craft with a long history, involving the extraction and refining of metals from underground. It requires finding suitable deposits, obtaining permits and land use rights, and using heavy machinery to extract ore from underground, which is then separated from the metal through chemical processing for subsequent distribution.

In contrast, Bitcoin mining requires repeatedly performing the calculation process to compete in solving batches of Bitcoin transactions and earn newly issued Bitcoins and transaction fees. This process is called proof of work and requires the procurement of rack space, electricity, and specialized hardware to run calculations efficiently, 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 methods of extracting scarcity, the economic models of 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 forecast reserves, ore grades, and mining schedules, although initial forecasts may vary significantly: about one-fifth of gold mining projects are able to achieve profitability during their lifecycle. Major costs - labor, energy, equipment, compliance, and remediation - can all be predicted fairly accurately in advance. Depreciation mainly relates to normal wear and tear of equipment or depletion of reserves. The main uncertainty in the short to medium term is usually the stability of gold market prices, which tend to have minor fluctuations. In addition, nearly all of these input costs can be effectively hedged.

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

Therefore, our first distinction is that, 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 rapidly improving in efficiency, forcing companies to upgrade their equipment before it naturally wears out in order to remain competitive. This means that depreciation occurs on the timeline of technological advancement, rather than on the physical wear and tear of the equipment. This is a major expense - although 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 of the efficiency improvements.

The production of Bitcoin is under constant pressure for miners due to the changes in industry competition and the impact of short-term depreciation cycles, necessitating reinvestment in new hardware to maintain production levels - this is what professionals commonly refer to as the "ASIC hamster wheel."

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

Ultimately, a major long-term advantage of Bitcoin mining is the ability to repurpose by-products generated during operations - heat energy. When electricity passes through mining machines, it produces 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 a new revenue stream for miners. As mining machines become commoditized and the depreciation cycle extends, the impact of heat energy reuse may grow further. Similarly, gold miners can benefit from selling by-products like silver or zinc, which are often identified during project planning and serve as elements to offset the costs 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 ponds, and ecosystem destruction. 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 rather relies entirely on electricity. This provides an opportunity for integration with local infrastructure – rather than conflict. Because mining tools have liquidity and interruptibility, they can act as grid stabilizers and monetize energy resources that would otherwise be wasted or isolated, such as flared gas, surplus hydroelectric power, or constrained wind and solar energy.

Many people are unaware that Bitcoin mining also shows potential as a clean energy subsidy and can serve as a way to prove 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 on average lower and more transparent. It can be said that Bitcoin is even necessary in the smooth transition to a grid primarily powered by renewable energy.

Since the peak of energy consumption in 2024, we have seen little increase in energy consumption, attributed to the continuous improvement in the efficiency of new mining hardware, with the current average power consumption being only 20 watts per terahash, which is five times more efficient than in 2018.

Investment Characteristics of Bitcoin Mining: Rapid 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 schedule, Bitcoin miners can expand or contract their operations more quickly based on market conditions. This makes Bitcoin mining more flexible, but also more volatile.

Publicly traded Bitcoin mining companies often trade like high beta tech 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 the traditional energy or materials sectors.

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

The ways of capital formation also differ. Gold miners typically raise capital based on reserve estimates and long-term mining plans. In contrast, Bitcoin miners tend to be more opportunistic, often raising funds in recent years through direct or convertible equity offerings to support rapid hardware upgrades or data center expansions. Therefore, Bitcoin miners rely more on market sentiment and cyclical timing, and typically 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, 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 blends commodity cycles, energy markets, and investment opportunities from technological disruption. Investors with a long-term investment perspective should view this as a unique and novel asset class, with distinct fundamentals, especially in the context of increasingly important trading fees and evolving 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 related to scarcity, but also involve the growth of data center infrastructure, energy markets, and investment opportunities for the monetization of computing power - 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 drive the United States and its trading partners to increase inflation. America's trading partners may face rising inflation while also contending with growth headwinds. This dynamic could compel them to adopt more accommodative fiscal and monetary policies - measures that 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 unclear. Both Trump and Bensent have expressed a preference for lower long-term yields, particularly in the 10-year Treasury bond market. While the motivations behind this can be speculated - such as reducing the debt service burden or boosting asset markets - this stance typically favors interest rate-sensitive assets like Bitcoin. However, the current situation is quite the opposite. The yield on the 10-year U.S. Treasury bond has fallen below 4% but then rose back to 4.5%, now at around 4.3%, due to skepticism about closing out foundational trades, damage to the U.S. reputation, and the increasingly precarious position of the dollar as the global reserve currency, while Trump's uncompromising tariff policies could further drive inflation upward. However, this crisis is man-made and could be quickly reversed through tariff concessions and agreements.

However, these signals may also be reversed.