With the price of litecoin and bitcoin on the rise, I’ve received a tremendous amount of email over the past couple weeks from people wanting to know whether or not it’s “too late” to get into mining. Or how soon one can expect to break even on a new mining rig purchase. Or what my predictions are for the future value of cryptocurrency in general. I’ve responded to many of you already, but it probably makes more sense to post something here publicly.

Full disclosure: I don’t have a crystal ball. I have no idea what the future holds with regard to bitcoin or litecoin valuation. There are far to many variables and unanswered questions—especially on the regulation front—to make predictions with a high degree of confidence. However, I’d be happy to share some observations that I’ve made over the past few years, and offer my 2 cents in a general sense. Read on if you’re interested.

The most common type of question that I see from people revolves around rough ROI (return-on-investment) calculations based on the current conditions: coin price, mining difficulty, and power usage/cost. These people generally want to know whether or not it makes sense to buy a ~$1300 mining rig when they expect it will take 6-8 months to break even on their investment. Now, given that the stock market returns about 8-10% a year on average, making your initial investment back in only 8 months actually sounds fantastic. However, when prices are as volatile as they currently are, there is a good chance that whatever ROI numbers you run today will look completely different in two weeks.

Which leads to the second kind of individual—one that is already mining and wants to know if the party is over because mining isn’t as profitable as it used to be. Or isn’t as profitable as the ROI estimates predicted. Or has actually become unprofitable due to electricity costs. I actually know one guy that decides whether or not to run his rigs every day based on the current litecoin price—he is right on the profitability threshold due to especially high power prices in his area. He isn’t even selling his coins as he mines them, he just doesn’t want to run his rigs when they cross over into “unprofitable” territory (where he is paying more for electricity than the current value of the coins he can mine), because he believes he is getting “a bad deal”—even if the next day he ends up powering on his miners because the price has gone back up.

This “current price” mentality seems to be pretty common, but I don’t believe that it’s the best way to decide whether or not it makes sense to be mining. I personally feel that using whatever you feel is a realistic future coin price is the proper way to think about your personal ROI situation.

For example, I believe that a couple years from now, litecoin will either be completely worthless, or it will be worth far more than it is today (for the record, I’m hoping for the latter scenario, but neither would shock me). The only scenario that seems absolutely unlikely to me is one where litecoin stays relatively flat in value, or only appreciates/depreciates a bit. Therefore, I don’t really think about the fact that mining a single coin at today’s current value of ~$4 cost me nearly half that much in electricity—or that if LTC value falls, I may not even be breaking even.

Instead, I’m just going to assume that my mining experiment is either going to cost me some money (the cost of the mining rigs plus the cost of the electricity to run them, potentially minus whatever I can sell the used parts for later), or it’s going to be tremendously profitable. There isn’t really anything between the two extremes for me, because I believe that a future LTC value of $50+ is easily attainable if there is room for more than one cryptocurrency. So I look at spending $2 in electricity to mine a single litecoin today as either $48+ in future profit, or $2 wasted on a highly-speculative investment that didn’t pan out.

Now, I’m not recommending that you use my numbers. I’m not even necessarily recommending that you get into mining. But I do think everyone should consider approaching mining ROI from a potential future value standpoint versus an absurdly volatile present day one, especially if you never intended to sell coins immediately as they were mined (it’s difficult to turn a profit that way unless you have access to free electricity, anyhow).

The minor mining craze we’re witnessing right now due to the upward price spike will likely unfold the same way that all of the previous ones have. Mining will look good on paper for a few weeks, so there will be a gold rush as people learn about it. This will continue until all of the new miners raise the mining difficulty enough to compensate for the price increase. As profitability goes down, miners will question what they’re doing as their ROI calculations from several weeks prior are no longer valid; many exit mining in the months to follow. Then the cycle will repeat whenever the next major price increase occurs. For a (now hilarious) example of this, take a look at this Fatwallet thread from 2011 on bitcoin mining. Many of the comments seem like they could be pulled straight from present-day mining threads, don’t they?

And my final piece of advice: mining (or investing directly in cryptocurrency) is speculative. There are no guarantees here, and any money that you put into crypto should be money that you can afford to lose. I consider my basement mining operation to be an expensive hobby. If it makes me some money at some point down the road, great. If not, at least it heats my house in the winter.