In brief
- Bitcoin crashed below $63,000 on Thursday, while estimated mining costs range from $60K-$80K.
- Public miners’ production costs range from $39K (Iris Energy) to $106K (NYDIG) per BTC.
- The crash has triggered over $2 billion in crypto liquidations over the past 24 hours.
The price of Bitcoin has plunged 50% from its October peak—and could soon sink below what it costs some miners to produce the asset, if it hasn’t already.
With Bitcoin down 14% over the last day to a recent price below $63,000, a chart from BTC analysis platform Checkonchain has been making the rounds on X. It illustrates the Bitcoin difficulty regression price, which was $86,000 at the time of writing—well above the current trading price.
But using that as a stand-in for the average cost to mine a Bitcoin is a bit misleading, according to Julio Moreno, CryptoQuant’s head of research.
“That chart is an indirect estimation of mining costs based on a regression of price and mining difficulty—not a direct estimate from actual electricity costs, hardware efficiency, labor cost, etc,” he said.
Moreno added that he’s seen estimates ranging between $70,000 to $80,000, so the chart slightly overestimates real costs for miners. Even so, that range is above the current trading price for Bitcoin.
Nishant Sharma, BlocksBridge Consulting founder and partner, told Decrypt that it’s pretty straightforward calculating the implied cost of Bitcoin production for publicly traded miners, who share their stats in quarterly earnings reports.
“In practice, there is no single cost of production because miners’ economics vary widely by power price, uptime, ASIC [mining hardware] mix, curtailment programs, and financing,” he said.
Because of their scale, publicly traded miners tend to have lower production costs. Right now, the BlocksBridge chart estimates a median cost of $60,000, which comes in below the current price.
NYDIG, which has been expanding its mining capabilities through several acquisitions, has the highest implied cost of more than $106,000 per BTC mined. And Iris Energy, which has been able to negotiate competitive energy deals and uses sites with access to hydropower and wind turbines, comes in with the lowest cost at $39,208 per BTC mined.
The chart currently uses data from Bitcoin miners’ Q3 earnings reports while investors wait on fresh metrics. Two of the industry’s largest public companies, Riot Platforms and MARA Holdings, are expected to report their Q4 earnings at the end of the month.
Although Both Sharma and Moreno estimate the real cost for Bitcoin miners to be lower than $86,000, BTC’s rapid descent suggests more miners could soon be facing a painful inflection point.
When prices do fall within range of the cost of production, investors can expect to see a few things, Sharma said.
“High-cost miners curtail or shut down, and hash rate growth slows,” he said. Lagging prices also leads to consolidation, with stronger operators picking up assets from distressed firms.
Miners are also heading into a Bitcoin mining difficulty adjustment, expected to take effect on Saturday, February 7. As of Thursday afternoon, Coinwarz is estimating that the difficulty will drop by 13%.
At the time of writing, Bitcoin was changing hands for $62,510 after having dropped 4% in the past hour. It’s now more than 25% lower than it was a week ago, according to crypto price aggregator CoinGecko. Bitcoin peaked at a price above $126,000 last October.
The sudden plunge has now forced the liquidation of more than $2 billion worth of crypto derivatives contracts, according to crypto analytics platform CoinGlass. Bitcoin derivatives alone have accounted for $1.11 billion worth of liquidated contracts. The single largest liquidation was a $12 million Bitcoin contract on crypto exchange Binance.
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Source: https://decrypt.co/357071/bitcoin-miners-face-crisis-btc-price-falls-50-percent
