JPMorgan strategists might have called Bitcoin’s lowest price. Others believe there is still much more to come. A report by JPMorgan estimating that the cost of producing one Bitcoin is now $13,000, down from $24,000 at June’s start to just $13,000.
The average cost of mining 1 Bitcoin per day is Bitcoin’s production costs. The electricity costs that miners incur to run their machines are the main factor, but there are also other factors.
As long as Bitcoin’s price remains above this cost, mining operations can be profitable. Many market observers believe that production costs could also serve “as the lower bound for Bitcoin’s price range during a bear market.”
According to the New York-based bank Bitcoin’s bottom might be as low as $13,000. This would represent a drop of 45% from today’s prices.
“While clearly improving miners’ profitability, and possibly reducing pressures for miners to sell Bitcoin holdings for liquidity or deleveraging, the decrease in the production cost might have been perceived as negative for Bitcoin price outlook going forward,” JPMorgan strategists led by Nikolaos Panigirtzoglou wrote.
The main factor that influenced their calculations was the reduction in electricity consumption as miners use more efficient mining rigs.
Other metrics show a slightly different picture of the top cryptocurrency.
According to MacroMicro data, the production cost is still just over $17,700. More miners will join if mining costs are lower that Bitcoin’s market price. According to the site of data provider, if mining costs are greater than miner’s revenues, miners will be less.
Both entities use data from the Cambridge Bitcoin Electricity Consumption Indicator ( CBECI ) to calculate Bitcoin’s production costs. CBECI data is dependent on average electricity costs for each miner. This can cause deviations that could affect calculations.
Other costs such as infrastructure, hardware and the hiring of employees to manage mining farms can also be variable.
“The cost to produce Bitcoin depends on the type of rigs and the power cost, as well as labor costs and facility maintenance,” Zach Bradford (CEO of Bitcoin mining company CleanSpark), confirmed with Decrypt.
Bradford said that Bradford’s team’s analysis shows that the production cost is even lower than JPMorgan.
He said that the majority of public miners have the latest generation rigs and there are strategic power management contracts. This means that the figure for public miners is closer to $12,000. It will vary from one facility to the next, even within a company. CleanSpark has, for instance, facilities that are much lower than this.
Public miners will still make a profit as long as Bitcoin remains above $12,000
Despite the differences in production costs almost all miners are under pressure after Bitcoin’s devastating plunge in November.
Glassnode has described this stress using something called The Puell Multiple.
This mathematical model calculates the total income of Bitcoin miners. Miners who earn less than this metric are more likely either to sell their Bitcoin holdings or close down some machines. They are certainly making less these days than they were in the past.
“Bitcoin miners earn just 49% more than the 12-month average. “This suggests that miner income stress may be a factor,” Glassnode stated in a recently published report .
Events such as the COVID crash and China’s crypto ban all indicate a low Puell Multiple as well as wider miner capitulation.
Core Scientific Inc. a publicly traded Bitcoin miner, sold almost 7,000 Bitcoin last month at an average price $23,000. Algo Blockchain sold approximately $15.6 million in the top cryptocurrency to cover costs.
A quick look at the stock prices of public mining companies shows that they have been greatly affected by the cryptocurrency bear market.
Marathon Digital Holdings has fallen 73%, Riot Blockchain Inc. is down 73%, Core Scientific Inc. has lost 81% over the past year. These figures could also change if Bitcoin continues its slide.