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During A Gold Rush, Sell Shovels. - Investment - Nairaland

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During A Gold Rush, Sell Shovels. by emma2002(m): 5:36pm On Dec 26, 2022
You might not understand the saying "during a gold rush, sell shovels".Early bitcoin mining would be (almost literally) the "gold rush" in this metaphor, so early mining would be just the first people to get to the valley. They got their gold while there was no competition for it and it was easy/plentiful.

So yes, they got rich, but it's hard to predict these events. Even though most bitcoin miners like to claim they knew that bitcoin would be worth $20K a piece, this is not true. Bitcoin was being traded and used back then for fractions of a penny. This was a hobby that unexpectedly turned into something profitable a decade later.
These gold rushes are once-in-a-lifetime opportunities that are hard to reproduce. By the time word gets out that these are great opportunities, bunches of people jump on it and the value is immediately diminished by over-competition.

So the saying "during a gold rush, sell shovels" is a metaphor that suggests that when you recognize a gold rush is happening, don't try to be the 1,000,001st person to mine for gold, because you will probably fail. Instead sell something that all the millions of gold miners need, like shovels and get rich from selling prospectors shovels.
You can strategize around this and plan for it, instead of testing your luck hoping to strike gold. Now you make money off all the other people that are jumping on the bandwagon for the gold rush, instead of competiting for limited resources for them.

Someone who sells shovels during a gold rush will make far more money than someone who goes out and mines for gold. There might be a few early people that got lucky by getting in early, but if you aren't getting in early, then selling shovels is a great way to take advantage of the excitement without the risk of mining for gold yourself.
So, in your example of bitcoin mining, the bitcoin miners themself were just like the miners in the gold rush. The people selling shovels were NVIDIA, AMD, and all the upstarts that sold bitcoin mining ASICs to mine with. These are literally the "shovels" of the bitcoin gold rush. These companies all got rich by selling everyone the equipment to go out and mine. Most of those people bought the cards and computers from these people and never made a return on their investment. So it is better to be selling shovels than mining for gold. Because everyone comes to you with the idea that they will get rich, you get your money early, and they might never even make that much money back in return.

This happened in the real life gold rush, and we saw it happen with bitcoin mining as well. Another example is the startup rush that has been happening, and companies like AWS and Microsoft Azure have profited by selling them compute resources to run their startup. 95% of those startups fail, but Amazon and Microsoft got their paycheck every month from these companies by selling them the resources needed to fulfill their failed dream.

Make of this story whatever you will...

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