How much does it cost to mine each bitcoin? The relationship between costs and prices

Although JPMorgan bank strategists recently announced that the price of Bitcoin is below its normal level, another group of analysts believe that prices are going to fall even more. In this report, while examining the costs of Bitcoin production, we will examine the current mining conditions of this digital currency.

To Report Decrypt, according to JPMorgan investment bank, the cost of producing each bitcoin, which was estimated at around $24,000 at the beginning of June, has now dropped to $13,000.

Bitcoin production cost is an estimate of the average cost of mining one Bitcoin in one day. This cost primarily depends on the electricity costs that miners incur to run their machines, but other variables are also involved in determining this cost.

As long as the price of Bitcoin remains above this cost, the mining operation will be profitable. According to many observers, in a bearish market, the production cost index can act as a price floor.

According to the estimate of this New York bank, according to the price of Bitcoin, the lowest price that this digital currency can reach is $13,000, which means that the price of Bitcoin will drop by 45% compared to the current price.

Nikolaos Panigirtzoglou, director of strategy at JPMorgan, writes in this context:

Reducing the cost of Bitcoin production, although it clearly increases the profitability of miners and prevents more pressure on them to sell their Bitcoins to increase liquidity or financial leverage, but the same reduction in production cost can be an incentive to further reduce the price of Bitcoin in the future. Be considered.

These estimates are often based on the assumption that as production declines, miners will benefit from more efficient and cheaper energy sources. However, other criteria are also involved in determining the cost of production, and different results are obtained from them.

For example, according to data from MacroMicro, the cost of producing each bitcoin is still just over $17,700. As long as the mining costs are lower than the price of Bitcoin in the market, more miners will enter this process, and vice versa, when the mining costs are higher than the miners’ income, their number will decrease.

Of course, in both JPMorgan Bank and Macromicro reports, the Cambridge Bitcoin Electricity Consumption Index (CBECI) was used to calculate the cost of Bitcoin production. However, it should be noted that the CBECI index actually considers average costs and this amount can have a large standard deviation, which we should also pay attention to in our calculations.

Other costs, including infrastructure, hardware and staffing costs for mining farms can also vary for each miner.

In this context, Zach Bradford, CEO of the Bitcoin mining company CleanSpark, adds:

The cost of Bitcoin production can vary greatly based on the type of mining rig, electricity cost, labor cost, and maintenance.

Analysis by the CleanSpark team suggests that the cost of producing Bitcoin is even lower than what JPMorgan had predicted.

Bradford says:

Considering the fact that most public miners have used the latest generations of mining rigs and considering the strategic energy contracts they have concluded, our organization’s research shows that the cost of producing each bitcoin is about $12,000. Of course, this cost will be different for each mining company, for example, CleanSpark has facilities that make the price of Bitcoin production even more economical for it.

Also read: Market Status: Maybe now is the best time to buy a bitcoin miner

If CleanSpark experts are right, public mining will still be profitable as long as Bitcoin stays above $12,000.

Desperate miners

Regardless of the differences in the calculation of production costs, almost all miners are under pressure after the catastrophic fall in the price of Bitcoin since November.

Glassnode has created a model called Puell Multiple to simulate this stress of miners.

This mathematical model measures the total income of Bitcoin miners. When this indicator shows a small value, miners are earning less on average and are more likely to sell their bitcoins or turn off some of their machines. According to this indicator, these days, miners are certainly earning much less than in the past.

In his recent report, Golsnod writes about this matter:

Bitcoin miners are currently earning only 49% of their last year’s average. This suggests that the increased stress of miners is a likely factor.

Events such as the easing of the covid pandemic, the banning of digital currencies in China and the recent price behavior are all related to the POEL multiple and the frustration of miners.

Last month, the publicly traded bitcoin mining company Core Scientific Inc. sold about 7,000 bitcoins at an average price of $23,000. Similarly, Algo Blockchain had to sell about $15.6 million worth of bitcoins to cover its costs.

Looking at the stock market, we also find that the stock prices of mining companies have been greatly affected by the bear market of digital currencies.

The prices of Marathon Digital Holdings and Riot Blockchain have decreased by 73% over the past year. Cor Scientific has also lost 81% of its value in the capital market. If the downward trend of the market continues, this price reduction may also increase.