“Bitcoin today trades effectively at the break-even cost of mining a bitcoin,” Fundstrat’s Thomas Lee stated in a note published on Thursday, according to CNBC. (See also: John Oliver Thinks Bitcoin Is a $15,000 Beanie Baby.)
According to the research, miners’ revenues have practically halved this month compared to December owing to an increase in interest in bitcoin mining. Mining bitcoin costs about $8,038 when factoring in equipment, power, and other overhead expenditures like as maintaining cooling facilities, according to Lee.
Bitcoin, the world’s biggest cryptocurrency by market value, struck a low at $7,700 earlier this week, its lowest level since February 8, before recovering to about $8,500 as of Friday morning.
Bitcoin mining is an energy-intensive process that relies on powerful computers to solve complicated mathematical calculations. When other miners are beaten in a race to package up the current block of bitcoin transactions and upload it to the bitcoin’s blockchain, or shared ledger, a miner is rewarded with a newly-minted bitcoin.
Falling Prices, Surge InCompetition and Lower Transaction Fees
Miners were unconcerned about profitability in mid-December, when the price of the popular digital currency was rapidly approaching $20,000 per coin. Dropping bitcoin prices and more competition in the market have recently corresponded with falling transaction fees, reducing miners’ revenue. While bitcoin supporters often tout cheaper transaction costs as a benefit of digital currency over conventional financial networks, the median charge for a transaction has plummeted from $34 in late December to less than $0.50 now, according to BitInfoCharts.
“In certain circumstances, miners may just switch off the equipment until the price recovers a little,” Shone Anstey, co-founder and president of Blockchain Intelligence Group, said. “It’s reached to the point where some of them are probably losing money.”
However, unlike conventional commodities such as gold, where speculators often take a breakeven cost of production and predict an approaching bottom as supply eases, the implications for bitcoin mining are more complicated. This is due in part to the disparities in costs that miners confront across the globe.
For example, in China, miners pay around $0.04 or less per kilowatt hour, compared to Fundstrat’s break-even model, which assumes a worldwide average of $0.06. Miners all over the globe may disregard charges in order to avoid their government’s capital regulations while exporting money overseas. Fundstrat predicts that miners will begin to shut down at a bitcoin price of $3,000 to $4,00 per coin due to a variety of causes. (See also: South Korea Allows Crypto Trading and ICOs.)
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author owns cryptocurrencies as of the day this post was published.
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