Analysis of Similarities and Differences between Gold and Bitcoin Mining

Gold and Bitcoin are often viewed as scarce non-sovereign assets. Although their investment case as value storage tools has been widely discussed, few have compared them 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 a deep connection to the energy market.

However, the mechanism and incentive structure of Bitcoin mining differ in details from that of gold mining, and these differences will ultimately have significant impacts on the economic structure and strategic layout of industry participants. This article will explore some of their similarities, but more importantly, analyze the substantive differences between them.

The Source of Asset Scarcity

Gold mining is an ancient craft that involves extracting and refining metal from the ground. It requires finding suitable deposits, obtaining permits and land use rights, using heavy machinery to extract ore from underground, and then separating the metal through chemical processes for subsequent use.

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

In both systems, mining is an inevitable 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 method 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 and accurately forecast 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—labor, energy, equipment, compliance, and remediation—can all be predicted with reasonable accuracy in advance. Depreciation mainly stems from normal wear and tear of equipment or depletion of reserves. The primary uncertainties in the short to medium term typically relate to the stability of gold market prices, which exhibit relatively low volatility. Moreover, almost all of these input costs can be effectively hedged.

In contrast, Bitcoin mining is more dynamic and unpredictable. Company revenues not only depend on the relative fluctuations in Bitcoin market prices but also on their share of the global hash rate. If other miners are more aggressive in expanding their operations, even if your mining operation remains unchanged, your relative output may decline. This is a variable that miners need to continuously consider in 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 constantly improving in efficiency, forcing companies to upgrade their equipment before it naturally wears out in order to stay competitive. This means that depreciation occurs on the timeline of technological advancements rather than the physical wear and tear 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 that equipment has already undergone most of the efficiency improvements.

Bitcoin production faces ongoing pressure on miners due to changes in industry competition and the combined effects of short-term depreciation cycles, requiring them to reinvest in new hardware to maintain production levels - this is what professionals often refer to as the "ASIC hamster wheel."

However, Bitcoin has a favorable fundamental difference from gold in terms of its income structure. Gold miners profit only by extracting and selling the unreleased supply from reserves. In contrast, 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.

Finally, 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, a significant amount of heat energy is produced, 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 depreciation cycles extend, the impact of heat energy reuse may further grow. Similarly, gold miners can also benefit by selling by-products such as silver or zinc, which are typically identified during project planning and serve as elements to offset gold production costs.

Environmental Impact Comparison

As is well known, gold mining is essentially resource extraction-based 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 and relies entirely on electricity. This provides an opportunity for integration with local infrastructure - rather than conflict. Since mining tools are liquid and interruptible, they can serve as grid stabilizers and monetize energy resources that would otherwise be wasted or isolated.

Many people are unaware that Bitcoin mining also shows potential as a clean energy subsidy and can serve as a means to prove grid connectivity. By co-locating with renewable energy or nuclear power generation facilities, miners can enhance 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 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 being only 20 watts per terahash, which is five times more efficient compared to 2018.

Investment Characteristics Comparison

Both 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 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 categorize publicly listed Bitcoin miners as part of the tech sector rather than the traditional energy or materials sectors.

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

The methods of capital formation 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 and have usually raised funds in recent years through direct or convertible equity offerings to support rapid hardware upgrades or data center expansions. As a result, Bitcoin miners are more dependent on market sentiment and cyclical timing, and 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 with high resource consumption. In contrast, Bitcoin mining is more rapid, 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 in 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 trading fees and evolving energy partnerships.

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 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 push the United States and its trading partners to increase inflation. While America's trading partners may face rising inflation, they will also need to deal with growth headwinds. This dynamic may force 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 more uncertain. Both Trump and Bassett have expressed a preference for lower long-term yields, particularly regarding the 10-year Treasury bonds. Although the motives 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 Treasury bond in the U.S. has dropped below 4% but then rebounded to 4.5%, now resting at around 4.3%. This is due to skepticism about the underlying trading positions, damage to the reputation of the U.S., and the increasingly precarious status of the dollar as the global reserve currency, while Trump's uncompromising tariff policies may further drive inflation up. 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 earnings expectations for the stock market, leading to concerns about the impending economic slowdown. This presents key risks to the broader market, namely Bitcoin. If investors continue to view Bitcoin as a high beta, risk-on asset, then during a global economic downturn, this sentiment may lead to Bitcoin trading in sync with the stock market, even though its narrative as a long-term store of value remains.

Nevertheless, Bitcoin has performed relatively better than the stock market since the "liberation day". This resilience highlights the unique characteristics of Bitcoin: it is a globally tradable, government-neutral asset with a fixed supply, and it operates around the clock.