Bitcoin Mining and Gold Mining: Similarities and Differences

Gold and Bitcoin are often compared as scarce, non-sovereign assets. Although their investment value as stores of value has been widely discussed, comparisons at the production level are relatively sparse. Both assets rely on mining to introduce new supply, one being physical and the other digital. The industrial characteristics of both exhibit cyclical, capital-intensive traits and are closely linked 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, analyze the substantial differences between them.

The Source of Asset Scarcity

Gold mining is an ancient craft that involves extracting and refining metals from underground. This requires finding 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 metal for subsequent use.

In contrast, Bitcoin mining requires repeated calculations to competitively solve batches of Bitcoin transactions and earn newly issued Bitcoins and transaction fees. This process is known as Proof of Work, which requires procuring rack space, electricity, and specialized hardware (ASIC) to run computations efficiently, 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 locations. However, the ways of extracting scarcity, the economic models of producers, and their evolution over time have almost no similarities.

Bitcoin Mining Economic Model

The economic model of gold mining is relatively predictable. Companies are usually able to reasonably accurately forecast reserves, ore grades, and mining schedules, although initial forecasts 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 reclamation can be predicted with reasonable accuracy in advance. Depreciation mainly comes from 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. Additionally, 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 Bitcoin market prices but also on its share of the global hash rate (i.e., global competition). If other miners expand their operations more aggressively, 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.

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 continuously and 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 advancements rather than on the physical wear of the equipment. This is a major expense, although it is a non-cash expense, and it stands in stark contrast to gold mining, where mining equipment has a longer lifespan because these devices have already undergone most of the efficiency improvements.

The production of Bitcoin is under constant pressure due to the changing competition in the industry and the short depreciation cycles, which require miners to reinvest in new hardware to maintain production levels. This is what professionals often refer to as the "ASIC hamster wheel."

However, there is a favorable fundamental difference between Bitcoin and gold regarding the income structure. Gold miners profit only by extracting and selling the unreleased supply from reserves. Bitcoin miners profit both by extracting the unreleased supply and through transaction fees. Transaction fees provide miners with a source of income 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 reutilize byproducts from operations, namely 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 potential impact of heat energy reutilization may grow further. Similarly, gold miners can benefit by selling byproducts such as silver or zinc, which are often identified during project planning and serve as elements to offset gold production costs.

Environmental Impact Comparison

Gold mining is essentially resource extraction and leaves a lasting physical footprint: such as deforestation, water pollution, waste piles, 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 relies entirely on electricity. This presents an opportunity for integration with local infrastructure rather than conflict. Due to the liquidity and interruptibility of mining tools, they can act as stabilizers for the power grid and monetize energy resources that would otherwise be wasted or isolated (such as flared gas, excess hydropower, or constrained wind and solar energy).

Many people are not aware 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 facilities, miners can improve the project's economics before grid connection without relying on public funding subsidies.

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 essential in the 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, attributed to the continuous improvement in the efficiency of new mining hardware, with the current average power consumption at only 20 watts per terahash (W/Th), which is five times more efficient compared to 2018.

Investment Characteristics Comparison

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

Publicly listed 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 typically hedge their future production, which can reduce sensitivity to fluctuations in gold prices. They are usually classified as part of the materials sector and are assessed like traditional commodity producers.

The methods of capital formation also differ. 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 typically operate within shorter reinvestment cycles.

Conclusion

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, consuming large resources. 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 integrates investment opportunities from commodity cycles, energy markets, and technological disruption. Investors with a long-term investment perspective should view this 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.

Understanding these nuances is essential for making informed investment decisions in an environment increasingly moving towards a distributed financial system.

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

Bitcoin Mining Development Prospects

Overall, we believe that most potential macroeconomic scenarios after "Liberation Day" remain favorable for Bitcoin. The introduction of reciprocal tariffs may drive the United States and its trading partners to raise inflation. America's trading partners may face rising inflation while also dealing with growth headwinds. This dynamic could 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 even more uncertain. Both Trump and Bassett have indicated a preference for lower long-term yields, particularly in the 10-year Treasury market. While the motivations behind this can be speculated, such as reducing the debt service burden or boosting asset markets, this stance is typically favorable for interest-rate-sensitive assets like Bitcoin. However, the current situation is quite the opposite. The yield on the US 10-year Treasury has dropped below 4% but then rebounded to 4.5%, currently around 4.3%, due to doubts about the underlying trades being closed, 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 inflation upwards. However, this crisis is man-made and could be quickly reversed through tariff concessions and agreements.

However, these signals may also reflect a decline in future profit expectations for the stock market, thereby raising concerns about the impending economic slowdown. This poses a key risk to the broader market, namely Bitcoin. If investors continue to view Bitcoin as a high beta, risk-on asset, this sentiment may lead Bitcoin to trade in sync with the stock market during a global economic downturn, even though its narrative as a long-term store of value still exists.

Despite this, Bitcoin has performed relatively better than the stock market since its "liberation day". This resilience highlights the unique characteristics of Bitcoin: it is a globally tradable, government-neutral asset with a fixed supply, accessible 24/7 throughout the year. Therefore