JPMorgan: Bitcoin production cost could drop to $13,000 per unit
The cost of producing Bitcoin has fallen from about $24,000 at the beginning of June to about $13,000 today, which may be considered negative in its impact on the currency's pricing, according to JPMorgan Chase Bank.
The drop in the production cost estimate is almost entirely due to declining electricity use, according to the Cambridge Bitcoin Electricity Consumption Index, according to a note written by analysts led by Nikolaos Panigertzoglu released on Wednesday.
Analysts pointed out that this change is consistent with the efforts of “Bitcoin” miners to protect their profits by using more efficient mining rigs, in the face of a mass exit of less efficient miners from activity, stressing also that this decrease in the cost of production may be an obstacle in the face of increasing prices. .
The bank’s strategists wrote in their note: “While the fall in the cost of production helps to increase the profitability of miners clearly, and has the potential to relieve pressure on them to sell their (Bitcoin) in order to increase liquidity or pay off debt, it may be seen as a negative factor in front of opportunities The price of (Bitcoin) will rise in the future. The cost of production is considered by some market participants as the bottom line in the price movement of the cryptocurrency in a bear market.”
Suffering series
Bitcoin's struggle has begun since it hit a record high of $69,000 last November. It has fallen by nearly 60% since the beginning of this year as the Federal Reserve raises interest rates to combat inflation, as risky assets suffer, and famous crises in the crypto sector such as Terra-Luna and the Three Arrows Capital Fund. The prices of the largest cryptocurrencies have been moving in the range of close to $20,000 per unit for about a month.
Last month, JPMorgan strategists led by Panigirtuoglu said miners' selling of bitcoin could pressure its prices lower during the third quarter of the year, as miners seek to raise cash, cover costs and possibly pay off their debt. A monthly update from miner Core Scientific last week revealed that it dumped most of its bitcoin holdings in June.
Cryptocurrency miners in circulation have been hit by the crisis in parallel with the suffering of the digital assets themselves. Shares of Marathon Digital Holdings are down 76% since the beginning of the year, shares of Riot Blockchain are down 78%, and Core Scientific has collapsed 86% since the beginning of the year.
JPMorgan: Sales of Bitcoin Miners May Continue to Put Pressure on Prices
Global investment bank JP Morgan said that bitcoin mining companies that need to sell could affect the price of the cryptocurrency for some time.
JPMorgan strategists led by Nikolaos Panigirzoglu wrote in a research note Friday that publicly listed miners - which represent about 20% of the total - already reported executing bitcoin sales during May and June to increase liquidity, meet costs and possibly reduce debt.
Strategists said that privately owned mining companies may have sold a larger share of their profits from mining activity to meet running costs and could be less effective given their limited access to capital markets.
“The selling of bitcoins by miners, in order to cover ongoing costs or deleverage, could continue through the third quarter if their profitability fails to improve,” the strategists wrote.
This sale "likely did affect prices in May and June, although there is a risk that this pressure will persist".
The largest cryptocurrency is down more than 50% since the beginning of the year so far as the Federal Reserve starts raising interest rates while inflation remains high.
Asset class problems deepened with the collapse of the Terra/Luna system as well as concerns about hedge fund Three Arrows Capital.
The problem is spreading at a time when decentralized finance projects are admitting losses, and billions of dollars, the value of loans for Bitcoin mining, are under pressure.
mining cost
One factor that could ease price pressures, according to JPMorgan, is a drop in production costs from a range of $18,000 to $20,000 earlier in the year, to settle at around $15,000 this month.
The investment bank said this appears to be related to improving the implied energy efficiency of mining hardware, and could dampen profitability.
The collapse of the fortunes of crypto-billionaires
Bitcoin mining cost estimates can vary, with a large mining company costing around $8,000 per token to produce, assuming average prices for electricity and new miners, according to Arcane Crypto.
However, Securitize Capital says that accounting for infrastructure overhead costs and interest rates, the total costs of some mining companies may already be more than $20,000.
Bitcoin was trading for about $21,500 as of 8:30 am in London.