The Wattum Bitcoin Mining Advisory program informs investors and tycoons from all industries of new opportunities for managing their assets in light of the Biden administration’s proposed increase of the Capital Gains Tax and the new infrastructure bill that aims to treat Bitcoin miners as money brokers. The proposed increase will be targeting Americans who hold an annual income of $1 million or more. The proposal outlines an increase in the tax rate on long-term capital gains from 20% to 39.6%, which is further elevated to 43.4% with the inclusion of the already applied 3.8% net investment income tax.
The registration of Bitcoin miners as brokers, as per the proposed Infrastructure Bill by the U.S. government, which further defines a broker as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person,” carries the potential to target all participants in Bitcoin mining. From miners themselves to developers, stakers, and others who do not have customers, the broad definition would therefore cause these participants to not have access to the information needed to comply. If passed, this bill would require all crypto “brokers” to report their transactions to the IRS, likely putting a plug in further investments in the U.S. crypto mining market.
The Wattum Bitcoin Mining Advisory is well-versed in the different ways that you can optimize your Bitcoin mining activity. Our Advisors are adept in a variety of practices for depreciating a full investment in year one for your Bitcoin mining equipment while earning up to 8% in compound interest on the profits generated.
How well does Bitcoin mining equipment hold its value?
The Bitmain S9 miner sold for $700 in 2017. In 2021, it was sold for between $500 and $1000, illustrating its own profitability as a single factor in this multilayer investment.
Buying equipment and mining Bitcoin is the equivalent to purchasing Bitcoin in small increments at the price of the Bitcoin miner, which will mine between 50 and 70% below the market price for the next few years, as opposed to buying Bitcoin directly on the market for its present value. Currently, a Bitcoin miner will produce Bitcoin at a rate of $5,500 per coin. The return on investment (ROI) over 3 years for this Bitcoin equipment would be demonstrated as making nearly $40,000 from mining a single Bitcoin over 3 years, and then restoring the initial amount paid for the Bitcoin equipment by selling the Bitcoin miner for the same price it was purchased for. As a result, you can get your Bitcoin at a 50-70% discount from today’s price and get your money back for the equipment by reselling it at a later date. You may also depreciate the equipment the same year you purchased it, saving money on your tax return.
Purchasing bitcoin mining equipment is a lucrative investment option that not only saves you money, but makes it for you as well. As Bitcoin equipment servers produce Bitcoin, their use value is maintained in a market that continues to thrive; purchasing a mining rig provides you with the option to either sell it and profit from its resale value, or continue mining Bitcoin in order to make back your investment in that way.
The production of Bitcoin can be expensed for other payments as well, such as colocation, hosting or management services at a reputable Bitcoin mining farm that will allow you to maximize the lifetime and quality of your equipment.
Further, it is 100% depreciable in the current year, which is supported by a 100%, first year “bonus” depreciation deduction according to the IRS. This deduction applies to depreciable business assets that have a recovery period under 20 years. Machinery, equipment, and computers qualify; Bitcoin server equipment is made out of CPUs that are developed by manufactures such as Samsung, functioning as computer technology and are no different from standard computer servers found across data centers. As an added convenience, the deduction applies to equipment put to use between September 27, 2017 and January 1, 2023, ideally overlapping the current boom in the crypto industry.
How does Bitcoin get declared on your income tax return?
Bitcoins are produced by a mining pool, which is a registered legal entity. A mining pool, such as the one hosted by Wattum in collaboration with ViaBTC, is the pooling of resources by multiple miners who share the same network and its processing power in order to maximize the probability of finding a block, or “unearthing” a Bitcoin. Such pools have been profitable as they are designed for rewards to be split equally amongst miners, depending on the level of effort contributed by each.
It is helpful to note that when Bitcoin is produced, the first block in the blockchain is called a genesis block. As it does not reference a previous block, a genesis is considered unspendable.
Mining pools are legally registered entities that are located outside of the United States. A mining pool typically allows for daily withdrawals to be placed in your selected digital wallet, or Bitcoin wallet (such as an Exodus or Coinbase wallet), which has to be declared as income. Wattum offers a loan opportunity program where miners can opt to loan a portion of their mining profits to Wattum, with an 8% minimum APR, which are then used to purchase mining equipment. As one of the top equipment resellers in the United States, Wattum will resell this equipment at a wholesale price, the profits of which will be split to provide miners who participated in the program with 30% of the net profits. Further, acquiring equipment for the purpose of reselling produces 10-20% higher returns compared to self-mining, offering participants the opportunity to increase their overall returns, both through their program participation and through their continuation of self-mining. This process is repeated, and the Wattum trade agreement outlines that miners have the option to opt-out of the program with a 90-day notice.
How large of a commitment can this structure sustain?
A more advanced structure can be explored for those looking to make a larger commitment. If you are looking to invest a few million dollars, doors open for the construction of a colocation facility that can power thousands of mining rigs, a service that is available through Wattum’s Buildout Division.
Five thousand S19 mining rigs typically produce 64 bitcoins per month, or 2,304 within 3 years. At a Bitcoin market price of nearly $40,000, at the time of writing, you could quadruple your money in 3 years. Possessing such significant Bitcoin production can create an opportunity to start your own Bitcoin mining pool, which can act as a legal entity that can be registered anywhere in the world.
The possibilities are plentiful with genesis Bitcoin production. More importantly, regulations today legally allow for such structures to be formed, and such innovative and lucrative opportunities to be explored, opening doors for new ways of investing - doors which few will have the sense to consider opening in order to reap the potential that lies beyond.
Included in this potential multilayer consultation is the ability to buy equipment, depreciate it, mine Bitcoin, and defer your payout. In addition, the entity that eventually receives your Bitcoin can take your deferred payout and place it in a compound interest account that could earn between 3-8% on the Bitcoin you have mined. Companies such as Circle, BlockFi and Gemini offer this service for Bitcoin and stablecoins; by placing your assets under the FDIC accounts of such companies, you would be covered by FDIC policies without direct access to their standard deposit insurance coverage limit of $250,000.
In March 2021, BlockFi raised $350 million in the Series D Funding Round, the fourth stage in the Seed Stage Financing cycle of new business growth, and has since amped that number up to more than $450 million in venture capital. Gemini is regulated with a Money Service Business (MSB) licence, and Circle, after raising $440 million, is reportedly making their own move to become publicly traded by the end of the year via a special purpose acquisition vehicle (SPAC) deal with Concord Acquisition Corp., which would make it the second cryptocurrency company to go public after CoinBase.
Those that invest $100 million or more are qualified to go public, as seen with companies such as Riot Blockchain (RIOT), Marathon Digital Holdings (MARA) and HIVE Blockchain Technologies (HIVE.V). HIVE, a Canada-based company focused on the mining and sale of Bitcoin and Ethereum, was known as Leeta Gold Corp. until going public in September 2017. The company has expanded its scope with recent announcements of their approval to list common shares on NASDAQ, demonstrating the growth potential of such commitments.
Wattum’s Bitcoin Mining Advisors can offer assistance in the process of going public, with resources such as bookkeeping as well as CPA services for the preparation of GAAP financials that can subsequently be audited in order to go public. Our Advisors can also connect you with lawyers, agents and other external resources in order to help raise money by preparing professional pitch decks for investors, walking through the accounting process for auditing financials, outlining the legal processes necessary for filing with Wattum, as well as preparing comprehensive subscription agreements. Our Advisors can further assist in connecting you with reputable investment brokers who are capable of sourcing active investors, as well as consultants who have experience with going public on NASDAQ or OTCBB.
Building Colocation Facilities in Opportunity Zones
For investors looking to commit to real estate for the purpose of building out a colocation facility, Opportunity Zones offer great additional tax savings. An economic development tool that allows individuals to invest in disadvantaged areas of the United States, the purpose of Opportunity Zones is to drive economic growth in low-income communities while simultaneously providing investors with significant tax benefits. Wattum Consultants can help you locate these Opportunity Zones based on your specific needs.
Created under the Tax Cuts and Jobs Act of 2017, these opportunities reach farther than just the 50 states to include the District of Columbia and five territories, including Guam and the U.S. Virgin Islands, that are categorized as Qualified Opportunity Zones. Investing in these zones is made possible by investing in Qualified Opportunity Funds, which allow you to support economic growth and independence in American communities while temporarily deferring tax on eligible gains.
Eligible gains include capital gains, as well as qualified 1231 property gains that can be recognized for federal income tax purposes before January 1, 2027. Capital gains from the sale of Opportunity Zone real estate are tax-free, as Opportunity Zone property itself is tax-free and there is therefore no need nor ability for tax deferral. However, should you sell a well-priced residential property and invest those gains into an industrial co-location property for Bitcoin mining, then a tax deferral could be executed. New real estate could further be purchased in an Opportunity Zone which, once retrofitted to be suitable for mining equipment, will see an appreciation of value, further ensuring a positive ROI whilst maintaining no-tax status of the original capital gains.
Purchasing a Wattum Mobile Mining Container
Wattum now offers Crypto Mining Containers that provide the capabilities of a full-sized Bitcoin mining farm. As a standard 40-foot marine container, these mobile mining farms can host up to 360 devices (a total 1.3 MW) and can be purchased as a business asset. Further, self mining can be expensed in order to purchase these containers.
In addition to being a cost-effective solution with low operating costs, Wattum Mining Containers are fully autonomous, fast to deploy, and can be efficiently moved to the location of any cheap energy source. Wattum’s containers provide you with an alternative way of purchasing property and installing a Bitcoin mining farm.
How does Bitcoin Mining Colocation compare to Real Estate investments?
Wattum’s Buildout Division applies over 30 years of building, design and operational experience and is an available partner for the construction of colocation facilities. Our team can assist in locating real estate for the purpose of colocation in an Opportunity Zone, can construct this facility, and provide expert management personnel both on-site and remotely.
Traditional practices such as investing in real estate can create additional responsibilities and complications that often result in more expenses, including expensive property taxes, HOA fees, cleaning fees, and costs associated with renovations from tenants and rentals. Having Bitcoin mining hardware as your tenant is like having a robot for a tenant; they don’t need anything special, are always happy, and will always pay their bill on time. Bitcoin miners are not concerned with broken sinks or faulty air conditioners, and are guaranteed to pay the rent for colocation. You can bill the entity that owns the Bitcoin equipment for the rental of the space, and mark-up this value for the power usage that would typically net you 15-50% of net income for such a rental.
While traditional real estate investments have leaned on the potential for rental income, rentals typically net up to only 6% at the end of the year, while mined cryptocurrency can earn compound interest as high as 8.4%, demonstrating added benefits of the commitment of building out a colocation facility and hosting miners.
Blending your commitment to include colocation and crypto mining equipment can offer a new and safe investment, as the equipment can work for nearly a decade while securing a profitable resale value and paying the rent for a facility that will also appreciate in value as it becomes its own independent entity.
Building out a colocation facility is one way to recognize this opportunity, and it includes the potential to produce even higher returns that can see an ROI of 100% to 300% over a 3-year period should Bitcoin continue at its steady rate, trading even higher than when you originally purchased your rigs.
Bitcoin, like real estate, is an asset that can appreciate as its respective market grows hot.
Wattum Bitcoin Mining Advisory
The Wattum Bitcoin Mining Advisory consists of industry experts, our valued Bitcoin Mining Advisors, who are dedicated to helping you understand your options and will answer your questions in relation to Bitcoin production, Bitcoin colocation and facilities, and can help you curate a design and actionable structure around these options.
Wattum Bitcoin Mining Advisors will help you:
- Prepare a Return on Investment (ROI) document for your equipment purchase
- Register legal entities in the United States and/or in another Bitcoin-friendly country
- Purchase mining equipment alongside hosting and management services that work best for you
- Connect you with a CPA Certified Public Accountant to guide you through options for depreciating your full purchase
- Begin mining Bitcoin and schedule it for release according to your preferred timeline through registered mining pools
- Schedule the resale of your mining equipment to acquire new equipment while generating additional profits for you
- Sign up for a compound interest account with companies that offer such a service
Should you choose to make a larger investment, our Advisors will help you:
- Acquire real estate in order to construct and design your own Bitcoin colocation center
- Colocation centers are a real estate asset that may be used for either your own equipment, or for generating additional profits by hosting external miners who wish to host their equipment at your facility; owning such assets gives you the option to sell at any time
- Wattum will provide you with management services at this facility to ensure maximum efficiency
- Our management team will cover both your equipment as well as additional customer equipment from external parties that use your colocation center, creating a profitable and self-sufficient investment for all vendors involved
A Trusted Partner for your Next Steps
Wattum is looking forward to the implementation of the Wattum Bitcoin Mining Advisory to help you navigate these options and more.
In a time of innovation and development, opportunities for informing and adjusting investment practices are invaluable. With the guidance and support of a trusted team of advisors, crypto enthusiasts from all over the world will be able to advance their current financial processes and be given the chance to play an active role in the continued growth of the crypto mining industry.
With national institutions such as the Federal Reserve recognizing Bitcoin on their balance sheets, the next steps in the future of crypto are looking bright.
Contact us today and talk to a senior relationship manager to get started on your first step to financial empowerment.
