According to JPMorgan Chase & Co., the cost of producing Bitcoin has dropped from around $24,000 at the beginning of June to around $13,000 now, which may be viewed as a negative for pricing.
According to strategists led by Nikolaos Panigirtzoglou, the drop in the production cost estimate is almost entirely due to a decline in electricity use as proxied by the Cambridge Bitcoin Electricity Consumption Index, which wrote in a note Wednesday. In addition, they argue that the shift is consistent with miners’ efforts to protect profitability by deploying more efficient mining rigs rather than a mass exodus of less efficient miners. They also believe it could be viewed as a barrier to price increases.
“While clearly helping miners’ profitability and potentially reducing pressures on miners to sell Bitcoin holdings to raise liquidity or for deleveraging, the decline in the production cost might be perceived as negative for the Bitcoin price outlook going forward,” the strategists wrote. “The production cost is perceived by some market participants as the lower bound of the Bitcoin’s price range in a bear market.”
Bitcoin Struggles Since Last Ath
Since reaching a high near $69,000 in November, Bitcoin has struggled. It’s down roughly 60% as the Federal Reserve raises interest rates to combat inflation and risk assets. In addition, the crypto industry continues to suffer high-profile blowups like Terra/Luna and Three Arrows Capital. The largest token has been around $20,000.
JPMorgan strategists led by Panigirtzoglou said last month that sales of Bitcoin by miners could put pressure on the price into the third quarter as the operations boost liquidity, meet costs, and potentially deleverage.
Last week’s monthly update from miner Core Scientific Inc. revealed that it sold off most of its Bitcoin holdings in June. Along with digital assets, publicly traded miners have struggled. Marathon Digital Holdings Inc. has fallen 76% year to date, Riot Blockchain Inc. has fallen 78%, and Core Scientific has fallen 86%.