Fundstrat: Bitcoin Miners Barely Breaking Even

Bad news for Bitcoin miners has come from Thomas Lee of Fundstrat. “Bitcoin currently trades essentially at the break-even cost of mining a Bitcoin,” he said on March 15, 2018.

Lee was seconded by the president and one of the original co-founders of Blockchain Intelligence Group, Shone Anstey. “In some cases, the miners may simply turn off the machines until the price comes back a bit,” he said. “It’s got to be getting to the point that some of them may be losing money.”

Bitcoin needs to rise for miners to profit

At the current price of Bitcoin, miners are earning half of what they were for the same amount of input in December 2018. When the hashrate is examined, it is apparent that there has been a surge of interest in mining Bitcoin, as was mentioned by the CEO of CryptoCompare, Charlie Hayter.

Tom Lee added, “Bitcoin currently trades essentially at the break-even cost of mining a Bitcoin, currently at $8,038 based on a mining model developed by our data science team.”

Fundstrat’s mining model factors in three considerations, namely the cost of the mining rig, electrical consumption cost and maintenance costs like cooling and overall system upkeep. Accordingly, it appears that Bitcoin’s current price means it’s not largely profitable if at all, to mine Bitcoin at the current value.

The cryptocurrency traded slightly lower on Thursday, March 15, 2018 at around $8,000, although it also hit a recent dip of $7,676.52, the lowest it has been since February 8, 2018.

The Bitcoin mining process

The digital currency is generated by a mining process that consumes noticeable amounts of energy in addressing the complex mathematical challenges involved. In solving the equation that proves that an anonymous miner employed the network process to place the transaction on the blockchain record, Bitcoin is generated.

Miners are rewarded with coins upon completing a successful verification process. If it’s unprofitable or, worse, costs miners to perpetuate the nature of the process, miners are unlikely to have an interest in it and Bitcoin stalls as a currency.

As a byproduct of the energy consumed, mining machines are also notorious for generating a large amount of heat. While inconvenient to most, many owners use it to their advantage, with some using it to heat their homes and others even growing crops with it.

The game of mining is evolving

Mining rigs today have become highly sophisticated and cost from several hundred dollars up to several thousand. There are also constant improvements in the technology that makes newer rigs more efficient.

Indeed, the cost of constant equipment replacement in order to remain efficient and profitable accounts for “more than half the cost of mining,” according to Sam Doctor, head of quantitative data science at Fundstrat.

Doctor was working on a cost of $0.6 per kilowatt hour in his calculations, but the true profit from Bitcoin might be more nuanced than that, as electricity costs vary widely across the globe.

In Bitcoin-enthusiastic China, miners enjoy cheap electricity. Anstey estimates that legitimate competition with the Chinese miners can only begin at a rate of around 4 cents or less per kilowatt hour, an uncommon pleasure in most countries. The Fundstrat model break-even point is determined by calculating at a rate of around 6 cents globally.

The shut-off point for Bitcoin miners is about $3,000 to $4,000 per Bitcoin according to Doctor. Based on the model, Bitcoin last traded at a break-even point for miners in January 2015, when the digital coin was trading near $200.

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2 Responses

  1. People that are mining Bitcoins shouldn’t think about its current price. They should consider it getting past $20.000 which it will and not have a short term mentality about mining.

    1. Agreed but most miners don’t have the funds to be able to wait until the price gets to that point. More and more will probably give up because of losing money. New ones will replace them and a small few will actually stay in it for the long run and make real money.

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