The hidden cost of storing Bitcoin: 2.1% per year

In today's wave of digital currencies, Bitcoin, as the most representative cryptocurrency, has attracted the attention of countless investors. Many people believe that the value of Bitcoin lies in its future appreciation potential, however, the cost of storing Bitcoin is often overlooked. According to the latest analysis results, storing Bitcoin requires an annual fee of 2.1%, which has sparked widespread discussion. This article will delve into the source and impact of this hidden cost and how to effectively manage this cost to help investors better understand the true cost of Bitcoin storage.

First, we need to clarify the basic concepts involved in storing Bitcoin. There are two main ways to store Bitcoin: hot wallets and cold wallets. Hot wallets refer to the way to store Bitcoin online, which is usually used for daily transactions. It is convenient and fast, but less secure. Cold wallets are offline storage. Bitcoin is more secure, but relatively inconvenient to use. No matter which storage method is chosen, investors have to face certain costs.

For hot wallets, storage costs are mainly reflected in exchange fees and account maintenance fees. Many exchanges charge a certain percentage of fees, usually between 0.1% and 0.5%, or even higher. As trading volume increases, these fees will also rise. On the other hand, the security issues of hot wallets cannot be ignored. Due to their online nature, hot wallets are vulnerable to hacker attacks, resulting in Bitcoin theft. According to Chainalysis, the total amount of Bitcoin lost worldwide due to hacker attacks since 2011 has exceeded billions of dollars, and investors need to bear both psychological and financial costs for this.

The storage cost of cold wallets is mainly reflected in the purchase and maintenance of equipment. Cold wallets usually require the purchase of hardware devices, such as Ledger or Trezor, and the prices of these devices range from hundreds to thousands of yuan. In addition, the use of cold wallets requires certain technical knowledge, and investors need to spend time and energy to learn how to safely store and manage Bitcoin. Although cold wallets have obvious advantages in security, their high initial investment and maintenance costs also make many investors discouraged.

In addition to the direct costs mentioned above, the hidden costs of storing Bitcoin are also worth paying attention to. For example, when choosing a storage method, investors often need to weigh the relationship between security and convenience. For some investors who are in urgent need of funds, the process of withdrawing cold wallets may cause time loss, and this opportunity cost should not be underestimated in long-term investment. In addition, with the continuous development of the Bitcoin network, transaction confirmation time and network congestion will also affect investors' decisions. For example, during certain periods of time, network congestion will lead to longer transaction confirmation time, and investors may need to pay higher transaction fees to ensure timely transactions, which also invisibly increases storage costs.

More importantly, as the price of Bitcoin fluctuates, the relative value of storage costs is constantly changing. For example, during a period of sharp rise in Bitcoin prices, investors may choose to put more money into Bitcoin and ignore the impact of storage costs. According to CoinMarketCap, Bitcoin's price rose from $3,000 to $60,000 in 2020, attracting a large number of new investors in the process. However, when the market corrected, many investors found that the previously underestimated storage costs began to show their true impact. In this case, investors not only have to face the reality of shrinking assets, but also bear the additional losses caused by improper storage methods.

When analyzing the cost of storing Bitcoin, we also need to pay attention to changes in the market environment. As regulatory policies gradually improve, many countries have begun to regulate cryptocurrency transactions, which will undoubtedly affect the storage cost of Bitcoin. For example, some countries may require exchanges to provide higher security measures, resulting in exchanges raising storage fees. In addition, increased market competition may also make the fee differences between different exchanges more obvious. Investors need to make detailed comparisons when choosing an exchange to reduce storage costs.

In this context, how to effectively manage the storage cost of Bitcoin has become an urgent problem for investors. First, investors should choose the appropriate storage method based on their investment strategy and risk tolerance. If it is a short-term transaction, a hot wallet may be more suitable; if it is a long-term holding, a cold wallet is a safer choice. Secondly, investors can reduce risks by dispersing storage. For example, some Bitcoins can be stored in a hot wallet for easy trading, and others can be stored in a cold wallet for safety. This strategy can not only effectively reduce storage costs, but also enhance the security of the investment portfolio.

In summary, the hidden cost of storing Bitcoin is not just the 2.1% in numbers. This involves factors at multiple levels, such as exchange fees, equipment purchases, maintenance costs, opportunity costs, and changes in the market environment. For every Bitcoin investor, a deep understanding of the sources and impacts of these costs is an important prerequisite for maintaining and increasing the value of assets. In this ever-changing market, only with keen insight and flexible adaptability can you be at ease in the Bitcoin investment journey. Future investors may wish to find an investment path that suits them through rational analysis and flexible response.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

The analysis results show that storing Bitcoin also has costs? Currently, it is 2.1% per year. Using Bitcoin to store wealth is not free. The quantified results show that the current cost of storing Bitcoin is about 2.1% per year. Let me tell you why.
cost
The most obvious cost of using Bitcoin to store wealth is that you need to pay a certain fee when you deposit Bitcoin into your wallet or transfer it out of your wallet. You can see the total transfer fee on the Bitcoin blockchain in the figure below, which is the additional profit for miners to mine new blocks.
Fees paid
The above fees are paid by the person transferring the bitcoins, and the amount of the fee paid is proportional to the size of the block space (bytes) occupied by the transaction, not the number of bitcoins transferred. This is the explicit fee (cost) of storing bitcoins.
dilution
As Bitcoin generates a new block every ten minutes, miners will mine new Bitcoins.
Total number of newly generated bitcoins (in millions of bitcoins)
Newly mined coins increase the supply of Bitcoin on the market, and if there are no other factors that drive price changes, the value of Bitcoin will decrease. The price of Bitcoin involves several factors:
Capital Flow
Buying Bitcoin with other currencies causes a large amount of capital to flow into the Bitcoin market, while selling Bitcoin reduces the capital stock of Bitcoin. These inflows and outflows of capital dominate the price trend of Bitcoin and mask the decline in the price caused by dilution (more and more Bitcoin).
Mining costs
Bitcoin mining requires huge costs. Miners make up for their production costs by selling a portion of the mined Bitcoins. Assuming the price of Bitcoin remains unchanged, the contribution of miners to the capital inflow of the Bitcoin market depends only on the cost they pay when they sell Bitcoin.
Therefore, miners make a profit from mining and sell the mined bitcoins, which increases the number of bitcoins on the market and dilutes the wealth of the holders. This is because if there is no new capital inflow, the price of the currency cannot be maintained at the same price.
It is worth noting that if competition causes miners’ profit margins to drop to zero, in order to cover the cost of mining, they will use all newly mined Bitcoin to pay for the cost, then their activities will no longer dilute the wealth of Bitcoin holders. This situation has only occurred briefly in Bitcoin’s history and will not last forever.
We can also observe changes in miners' profit margins through changes in mining difficulty. If the current market price of Bitcoin is not enough to maintain production, miners will shut down some equipment to save electricity expenses, causing a decrease in mining difficulty. Miners who have outdated mining equipment and are unable to obtain cheap energy will give up mining. Industry leaders may still be profitable. As prices recover, the elimination of other competitors will allow them to gain a higher market share.
Mining cost estimation
The most recent mining recovery started in January 2019 when the price of Bitcoin was $3,400. I am assuming this is the mining cost required to mine one Bitcoin.
Storage cost estimation
Using this mining cost estimate, the current price of Bitcoin is $8,400, so we can assume that miners can currently make at least $5,000 in profit for each Bitcoin they mine.
This means that according to the current situation of mining a block to get 12.5 bitcoins, the miner's profit is about 9 million US dollars per day.
The rate of $150.3 billion (total market value of Bitcoin) diluting the wealth of holders is about 2.1% per year.
Therefore, the cost of storing wealth in Bitcoin is currently 2.1% per year, plus the currently negligible transaction costs. When the Bitcoin block reward is halved next year, the decline in miners' profitability will significantly reduce the storage costs of coin holders.
This cost of holding money will be masked by larger price fluctuations caused by the inflow and outflow of short-term capital (speculative behavior), and investors should be aware of this.

In addition, investors should also regularly evaluate their storage strategies and make timely adjustments to adapt to market changes. For example, when the market is volatile, investors may consider reducing the amount of bitcoin in their hot wallets to reduce the risk of theft; when the market is relatively stable, they may appropriately increase the storage capacity of their hot wallets to increase trading flexibility. By continuously optimizing storage strategies, investors can minimize storage costs and achieve effective asset appreciation.